e10vq
Table of Contents

 
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 June 30, 2007
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 registration 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, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.
Large accelerated filer þ     Accelerated filer o     Non-accelerated filer o
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes o     No þ
 
Indicate the number of shares outstanding of each of the Registrant’s classes of common stock, as of July 31, 2007.
 
LAS VEGAS SANDS CORP.
 
     
Class
 
Outstanding at July 31, 2007
 
Common Stock ($0.001 par value)   354,867,345 shares
 


 

 
LAS VEGAS SANDS CORP.
 
Table of Contents
 
         
Part I

FINANCIAL INFORMATION
   
  2
  3
  4
  5
  25
  43
  45
 
  45
  45
  46
  47
  48
 EXHIBIT 4.1
 FORM 10.1
 EXHIBIT 10.2
 EXHIBIT 10.3
 EXHIBIT 10.4
 EXHIBIT 10.5
 EXHIBIT 10.6
 EXHIBIT 10.7
 EXHIBIT 10.8
 EXHIBIT 10.9
 EXHIBIT 10.10
 EXHIBIT 31.1
 EXHIBIT 31.2
 EXHIBIT 32.1
 EXHIBIT 32.2


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Table of Contents

 
ITEM 1 — FINANCIAL STATEMENTS
 
LAS VEGAS SANDS CORP. AND SUBSIDIARIES
 
Condensed Consolidated Balance Sheets
(Unaudited)
 
                 
    June 30,
    December 31,
 
    2007     2006  
    (In thousands,
 
    except share data)  
 
ASSETS
Current assets:
               
Cash and cash equivalents
  $ 1,785,103     $ 468,066  
Restricted cash
    374,294       398,762  
Accounts receivable, net
    119,070       173,683  
Inventories
    13,077       12,291  
Deferred income taxes
    25,229       15,688  
Prepaid expenses and other
    31,725       25,067  
                 
Total current assets
    2,348,498       1,093,557  
Property and equipment, net
    6,359,988       4,582,325  
Deferred financing costs, net
    112,975       70,381  
Restricted cash
    670,122       555,132  
Deferred income taxes
    5,458        
Leasehold interest in land, net
    900,680       801,195  
Other assets, net
    50,123       23,868  
                 
Total assets
  $ 10,447,844     $ 7,126,458  
                 
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
               
Accounts payable
  $ 52,034     $ 51,038  
Construction payables
    440,503       329,375  
Accrued interest payable
    18,982       8,496  
Other accrued liabilities
    419,377       318,901  
Income taxes payable
          20,352  
Current maturities of long-term debt
    43,592       6,486  
                 
Total current liabilities
    974,488       734,648  
Other long-term liabilities
    19,510       10,742  
Deferred income taxes
          324  
Deferred gain on sale of The Grand Canal Shops
    62,932       64,665  
Deferred rent from The Grand Canal Shops transaction
    104,159       104,773  
Long-term debt
    7,066,273       4,136,152  
                 
Total liabilities
    8,227,362       5,051,304  
                 
Commitments and contingencies (Note 7)
               
Stockholders’ equity:
               
Common stock, $0.001 par value, 1,000,000,000 shares authorized, 354,851,895 and 354,492,452 shares issued and outstanding
    355       354  
Capital in excess of par value
    1,019,238       990,429  
Accumulated other comprehensive loss
    (5,269 )     (580 )
Retained earnings
    1,206,158       1,084,951  
                 
Total stockholders’ equity
    2,220,482       2,075,154  
                 
Total liabilities and stockholders’ equity
  $ 10,447,844     $ 7,126,458  
                 
 
The accompanying notes are an integral part of these condensed consolidated financial statements.


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LAS VEGAS SANDS CORP. AND SUBSIDIARIES
 
Condensed Consolidated Statements of Operations
(Unaudited)
 
                                 
    Three Months Ended June 30,     Six Months Ended June 30,  
    2007     2006     2007     2006  
    (In thousands, except share and per share data)  
 
Revenues:
                               
Casino
  $ 458,879     $ 378,462     $ 924,613     $ 753,844  
Rooms
    95,002       89,654       192,870       180,792  
Food and beverage
    57,738       44,023       112,097       95,839  
Convention, retail and other
    31,293       29,276       74,339       64,281  
                                 
      642,912       541,415       1,303,919       1,094,756  
Less-promotional allowances
    (29,986 )     (24,408 )     (62,775 )     (47,385 )
                                 
Net revenues
    612,926       517,007       1,241,144       1,047,371  
                                 
Operating expenses:
                               
Casino
    283,768       217,244       562,465       422,586  
Rooms
    21,121       21,996       43,645       43,748  
Food and beverage
    26,893       22,813       50,526       46,871  
Convention, retail and other
    19,141       15,728       36,572       32,122  
Provision for doubtful accounts
    4,717       3,321       20,233       8,310  
General and administrative
    60,700       57,337       118,671       112,152  
Corporate expense
    24,694       12,251       43,213       25,205  
Rental expense
    8,297       3,803       15,005       7,510  
Pre-opening expense
    40,320       4,354       62,777       6,573  
Development expense
    1,260       7,861       3,606       17,029  
Depreciation and amortization
    35,721       24,428       66,953       49,433  
Loss on disposal of assets
    61       456       239       1,537  
                                 
      526,693       391,592       1,023,905       773,076  
                                 
Operating income
    86,233       125,415       217,239       274,295  
Other income (expense):
                               
Interest income
    21,352       15,018       34,016       25,232  
Interest expense, net of amounts capitalized
    (54,409 )     (23,685 )     (89,021 )     (45,100 )
Other income (expense)
    (2,304 )     (14 )     (9,337 )     150  
Loss on early retirement of debt
    (10,705 )           (10,705 )      
                                 
Income before income taxes
    40,167       116,734       142,192       254,577  
Provision for income taxes
    (5,769 )     (7,405 )     (16,880 )     (23,465 )
                                 
Net income
  $ 34,398     $ 109,329     $ 125,312     $ 231,112  
                                 
Basic earnings per share
  $ 0.10     $ 0.31     $ 0.35     $ 0.65  
                                 
Diluted earnings per share
  $ 0.10     $ 0.31     $ 0.35     $ 0.65  
                                 
Weighted average shares outstanding:
                               
Basic
    354,726,843       354,255,635       354,645,879       354,227,600  
                                 
Diluted
    355,896,858       355,259,487       356,013,961       354,803,220  
                                 
 
The accompanying notes are an integral part of these condensed consolidated financial statements.


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LAS VEGAS SANDS CORP. AND SUBSIDIARIES
 
Condensed Consolidated Statements of Cash Flows
(Unaudited)
 
                 
    Six Months Ended June 30,  
    2007     2006  
    (In thousands)  
 
Cash flows from operating activities:
               
Net income
  $ 125,312     $ 231,112  
Adjustments to reconcile net income to net cash provided by operating activities:
               
Depreciation and amortization
    66,953       49,433  
Amortization of leasehold interest in land included in rental expense
    10,117        
Amortization of deferred financing costs and original issue discount
    11,112       4,634  
Amortization of deferred gain and rent
    (2,347 )     (2,345 )
Loss on early retirement of debt
    10,705        
Loss on disposal of assets
    239       1,537  
Stock-based compensation expense
    12,992       5,724  
Provision for doubtful accounts
    20,233       8,310  
Excess tax benefits from stock-based compensation
    (2,812 )     (632 )
Deferred income taxes
    (15,323 )     10,932  
Changes in operating assets and liabilities:
               
Accounts receivable
    34,380       (10,471 )
Inventories
    (786 )     (853 )
Prepaid expenses and other
    (27,509 )     (221,780 )
Leasehold interest in land
    (108,868 )      
Accounts payable
    996       10,880  
Accrued interest payable
    10,486       (601 )
Other accrued liabilities
    54,069       11,301  
Income taxes payable
    (22,632 )      
                 
Net cash provided by operating activities
    177,317       97,181  
                 
Cash flows from investing activities:
               
Change in restricted cash
    (90,469 )     (1,034,881 )
Capital expenditures
    (1,692,049 )     (730,475 )
                 
Net cash used in investing activities
    (1,782,518 )     (1,765,356 )
                 
Cash flows from financing activities:
               
Proceeds from exercise of stock options
    11,481       3,180  
Excess tax benefits from stock-based compensation
    2,812       632  
Proceeds from Macao credit facility
    1,300,000       1,325,000  
Proceeds from Singapore credit facility
    205,381        
Proceeds from new senior secured credit facility-term B
    3,000,000        
Proceeds from senior secured credit facility-revolver
    62,000       254,129  
Proceeds from airplane financings
    92,250        
Proceeds from Phase II mall construction loan
    52,000       30,000  
Proceeds from FF&E credit facility and other long-term debt
    6,173       75  
Repayments on senior secured credit facility-term B and term B delayed
    (1,170,000 )      
Repayments on senior secured credit facility-revolver
    (322,128 )     (25,000 )
Repayments on airplane financings
    (922 )      
Repayments on Phase II mall construction loan
    (166,500 )      
Repayments on The Sands Expo Center mortgage loan
    (90,868 )     (2,807 )
Repayments on FF&E credit facility and other long-term debt
    (1,209 )     (1,800 )
Repayments on Venetian Intermediate credit facility
          (50,000 )
Payments of deferred financing costs
    (64,291 )     (41,056 )
                 
Net cash provided by financing activities
    2,916,179       1,492,353  
                 
Effect of exchange rate on cash
    6,059       975  
                 
Increase (decrease) in cash and cash equivalents
    1,317,037       (174,847 )
Cash and cash equivalents at beginning of period
    468,066       456,846  
                 
Cash and cash equivalents at end of period
  $ 1,785,103     $ 281,999  
                 
Supplemental disclosure of cash flow information:
               
Cash payments for interest
  $ 172,210     $ 69,725  
                 
Cash payments for taxes
  $ 50,000     $ 28,000  
                 
Non-cash investing and financing activities:
               
Property and equipment asset acquisitions included in construction payables
  $ 440,503     $ 231,702  
                 
Property and equipment asset acquisitions included in other accrued liabilities
  $ 51,826     $  
                 
 
The accompanying notes are an integral part of these condensed consolidated financial statements.


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LAS VEGAS SANDS CORP. AND SUBSIDIARIES
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(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 Annual Report on Form 10-K of Las Vegas Sands Corp. (a Nevada corporation) and its subsidiaries (collectively the “Company”) for the year ended December 31, 2006. The year-end balance sheet data was derived from audited financial statements, but does not include all disclosures required by generally accepted accounting principles in the United States of America. In the opinion of management, all adjustments and normal recurring accruals considered necessary for a fair statement of the results for the interim period have been included. The interim results reflected in the unaudited condensed consolidated financial statements are not necessarily indicative of expected results for the full year. The Company’s common stock is traded on the New York Stock Exchange under the symbol “LVS.”
 
Operations
 
The Company owns and operates The Venetian Resort Hotel Casino (“The Venetian”), a Renaissance Venice-themed resort situated on the Las Vegas Strip (the “Strip”). The Venetian includes the first all-suites hotel on the Strip with 4,027 suites; a gaming facility of approximately 120,000 gross square feet; an enclosed retail, dining and entertainment complex of approximately 440,000 net leasable square feet (“The Grand Canal Shops”), which was sold to a third party in 2004; and a meeting and conference facility of approximately 1.1 million square feet (the “Congress Center”). A subsidiary of Las Vegas Sands Corp. owns and operates an expo and convention center with approximately 1.2 million square feet (“The Sands Expo Center”), which is connected to The Venetian and the Congress Center.
 
The Company also owns and operates the Sands Macao, the first Las Vegas-style casino in Macao, China, which opened in May 2004. The Sands Macao now offers over 229,000 square feet of gaming facilities after its expansion, which was completed in August 2006, as well as several restaurants, VIP facilities, a theater and other high-end amenities. In addition, the Company continues to progress according to plan on the expansion of the hotel tower, which is expected to be completed in September 2007.
 
United States Development Projects
 
The Company is currently constructing The Palazzo Resort Hotel Casino (“The Palazzo”), a second resort similar in size to The Venetian, which is situated on a 14-acre site next to The Venetian and The Sands Expo Center. The Palazzo will consist of an all-suites, 50-floor luxury hotel tower with approximately 3,068 suites, a gaming facility of approximately 105,000 square feet and an enclosed shopping, dining and entertainment complex of approximately 400,000 net leasable square feet (the “Phase II mall”), which the Company has contracted to sell to a third party. The Palazzo is expected to open in December 2007. The Company is also constructing a high-rise residential condominium tower, which will consist of approximately 300 luxury condominiums and will be situated between The Palazzo and The Venetian. The condominium tower is currently expected to open in late fall 2008. In addition, the Company is in the process of developing a gaming, hotel, shopping and dining complex (the “Sands Bethworks”) located on the site of the Historic Bethlehem Steel Works in Bethlehem, Pennsylvania. The 126-acre development is expected to feature a 300-room hotel, 200,000 square feet of retail space, 5,000 slot machines, a 50,000 square foot multipurpose event center and a variety of dining options. Subsequent to June 30, 2007, the Company paid the $50.0 million licensing fee to the Commonwealth of Pennsylvania and was issued its Pennsylvania gaming license by the Pennsylvania Gaming Control Board.
 
Macao Development Projects
 
The Company is building The Venetian Macao Resort Hotel (“The Venetian Macao”) on the Cotai Striptm in Macao, China. The Venetian Macao will be an approximately 3,000 all-suites hotel, casino, retail and convention


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LAS VEGAS SANDS CORP. AND SUBSIDIARIES
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

center complex with a Venetian-style theme similar to that of The Venetian in Las Vegas and is expected to open in late August 2007. In addition, the Company is developing multiple other properties on the Cotai Strip.
 
The Company has submitted development plans to the Macao government for six casino-resort developments in addition to The Venetian Macao on an area of approximately 200 acres located on the Cotai Strip. The developments are expected to include hotels, exhibition and conference facilities, casinos, showrooms, shopping malls, spas, world-class restaurants, entertainment facilities and other attractions and amenities, as well as public common areas.
 
In February 2007, the Company entered into a land concession agreement with the Macao government pursuant to which the Company was awarded a concession by lease for parcels referred to as 1, 2 and 3 on the Cotai Strip, including the sites on which it is building The Venetian Macao (parcel 1) and a Four Seasons hotel (parcel 2). The Company made an initial premium payment of 853.0 million patacas (approximately $105.9 million at exchange rates in effect on June 30, 2007) towards the aggregate land premium of 2.59 billion patacas (approximately $321.6 million at exchange rates in effect on June 30, 2007). Additionally, the Company received a credit in the amount of 193.4 million patacas (approximately $24.0 million at exchange rates in effect on June 30, 2007) towards the aggregate land premium related to reclamation work and other works done on the land and the installation costs of an electrical substation. On April 18, 2007, the land concession became effective when it was published in Macao’s Official Gazette. Now that the land concession is effective, the Company is required to make land premium and annual rent payments relating to parcels 1, 2 and 3 in the amounts and at the times specified in the land concession. Each parcel’s share of the remaining balance will either be due upon the completion of the corresponding resort or be payable through seven equal semi-annual payments, bearing interest at 5% per annum, to be made over a four year period, whichever comes first. Subsequent to June 30, 2007, the Company paid 816.9 million patacas (approximately $101.4 million at exchange rates in effect on June 30, 2007) for the balance of the land premium payment due on parcel 1. The Company has also commenced construction on its other Cotai Strip properties on land for which it has not yet been granted land concessions. If the Company does not obtain land concessions, it could lose all or a substantial part of its $309.7 million in capitalized construction costs as of June 30, 2007, related to these other Cotai Strip properties.
 
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 with it to create a master plan for, and develop, a leisure and convention destination resort on Hengqin Island, which is located within mainland China and approximately one mile from the Cotai Strip. In January 2007, the Company was informed that the Zhuhai Government established a Project Coordination Committee to act as a government liaison empowered to work directly with the Company to advance the development of the project. The Company has interfaced with this committee and is actively working with the committee as it continues to advance its plans. The project remains subject to a number of conditions, including further governmental approvals.
 
Singapore Development Project
 
In August 2006, the Company’s wholly-owned subsidiary, Marina Bay Sands Pte. Ltd., entered into a development agreement (the “Development Agreement”) with the Singapore Tourism Board to build and operate an integrated resort called the Marina Bay Sands in Singapore, which is expected to open in late 2009. The Marina Bay Sands will be a large integrated resort that includes three 50+ story hotel towers (totaling approximately 2,500 suites), a casino, an enclosed retail, dining and entertainment complex of more than 750,000 net leasable square feet, a convention center and meeting room complex of approximately 1.2 million square feet, theaters, and a landmark iconic structure at the bay-front promenade that contains an art/science museum.


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LAS VEGAS SANDS CORP. AND SUBSIDIARIES
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Other Development Projects
 
The Company is currently exploring the possibility of operating integrated resorts in additional Asian, U.S. and European jurisdictions.
 
Recent Accounting Pronouncements
 
In July 2006, the Financial Accounting Standards Board (“FASB”) issued Interpretation (“FIN”) No. 48, “Accounting for Uncertainty in Income Taxes,” which provides guidance for the accounting for uncertainty in income taxes recognized in the financial statements in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 109, “Accounting for Income Taxes.” FIN No. 48 provides guidance on the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. FIN No. 48 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosures and transition. FIN No. 48 requires entities to assess the likelihood that uncertain tax positions will be accepted by the applicable taxing authority and then measure the amount of benefit to be recognized for these purposes which are considered greater than 50% likely to be sustained. The Company adopted FIN No. 48 as of January 1, 2007 and recorded a reduction to opening retained earnings of $4.1 million.
 
In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements,” which defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. SFAS No. 157 applies under other accounting pronouncements that require or permit fair value measurement. SFAS No. 157 does not require any new fair value measurements. The provisions of SFAS No. 157 are effective for financial statements issued for fiscal years beginning after November 15, 2007 and interim periods within those fiscal years. The Company is still evaluating the impact of this standard; however, it does not expect the adoption of SFAS No. 157 to have a material effect on its financial condition, results of operations or cash flows.
 
In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Liabilities Including an Amendment of FASB Statement No. 115.” Under SFAS No. 159, the Company may elect to measure many financial instruments and certain other items at fair value, which are not otherwise currently required to be measured at fair value. The decision to measure items at fair value is made at specific election dates on an irrevocable instrument-by-instrument basis and requires recognition of the changes in fair value in earnings and expensing upfront costs and fees associated with the item for which the fair value option is elected. Fair value instruments for which the fair value option has been elected and similar instruments measured using another measurement attribute are to be distinguished on the face of the statement of financial position. SFAS No. 159 is effective for financial statements beginning after November 15, 2007. The Company is still evaluating the impact of this standard; however, it does not expect the adoption of SFAS No. 159 to have a material effect on its financial condition, results of operations or cash flows.
 
In May 2007, the FASB issued FASB Staff Position (“FSP”) No. FIN 48-1, “Definition of Settlement in FASB Interpretation No. 48.” FSP No. FIN 48-1 provides guidance about how a company should determine whether a tax position is effectively settled for the purpose of recognizing previously unrecognized tax benefits. Under FSP No. FIN 48-1, a tax position could be effectively settled on completion of examination by a taxing authority if the entity does not intend to appeal or litigate the result and it is remote that the taxing authority would examine or re-examine the tax position. FSP No. FIN 48-1 shall be applied upon the initial adoption date of FIN No. 48. The FSP No. FIN 48-1 did not have a material impact on the Company’s condensed consolidated financial statements.


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LAS VEGAS SANDS CORP. AND SUBSIDIARIES
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

NOTE 2 — STOCKHOLDERS’ EQUITY AND EARNINGS PER SHARE
 
Changes in stockholders’ equity for the six months ended June 30, 2007, were as follows (in thousands):
 
         
Balance at December 31, 2006
  $ 2,075,154  
Net income
    125,312  
Stock-based compensation
    14,273  
Proceeds from exercise of stock options
    11,481  
Tax benefit from exercise of stock options
    3,056  
Change in accumulated other comprehensive loss
    (4,689 )
Cumulative effect from adoption of FIN No. 48
    (4,105 )
         
Balance at June 30, 2007
  $ 2,220,482  
         
 
At June 30, 2007, and December 31, 2006, the accumulated other comprehensive loss balance consisted solely of foreign currency translation adjustments. For the three and six months ended June 30, 2007, comprehensive income amounted to $34.6 million and $120.6 million, respectively. For the three and six months ended June 30, 2006, comprehensive income amounted to $108.7 million and $230.2 million, respectively.
 
The weighted average number of common and common equivalent shares used in the calculation of basic and diluted earnings per share consisted of the following:
 
                                 
    Three Months Ended June 30,     Six Months Ended June 30,  
    2007     2006     2007     2006  
 
Weighted-average common shares outstanding (used in the calculation of basic earnings per share)
    354,726,843       354,255,635       354,645,879       354,227,600  
Potential dilution from stock options and restricted stock
    1,170,015       1,003,852       1,368,082       575,620  
                                 
Weighted-average common and common equivalent shares (used in the calculations of diluted earnings per share)
    355,896,858       355,259,487       356,013,961       354,803,220  
                                 
Antidilutive stock options excluded from calculation of diluted earnings per share
    1,203,922       432,500       1,099,973       2,057,894  
                                 
 
NOTE 3 — PROPERTY AND EQUIPMENT
 
Property and equipment consists of the following (in thousands):
 
                 
    June 30,
    December 31,
 
    2007     2006  
 
Land and land improvements
  $ 212,604     $ 207,144  
Building and improvements
    1,657,981       1,622,783  
Equipment, furniture, fixtures and leasehold improvements
    655,951       528,882  
Construction in progress
    4,369,992       2,694,180  
                 
      6,896,528       5,052,989  
Less: accumulated depreciation and amortization
    (536,540 )     (470,664 )
                 
    $ 6,359,988     $ 4,582,325  
                 


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LAS VEGAS SANDS CORP. AND SUBSIDIARIES
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Construction in progress consists of the following (in thousands):
 
                 
    June 30,
    December 31,
 
    2007     2006  
 
Sands Macao
  $ 52,368     $ 17,443  
The Venetian Macao and Four Seasons
    2,247,381       1,544,622  
Other Macao Development Projects
    357,147       130,355  
Marina Bay Sands
    221,539       30,511  
The Palazzo and Phase II Mall
    1,418,418       916,302  
Other
    73,139       54,947  
                 
    $ 4,369,992     $ 2,694,180  
                 
 
During the three and six months ended June 30, 2007, and the three and six months ended June 30, 2006, the Company capitalized interest expense of $58.0 million, $104.8 million, $20.9 million and $29.2 million, respectively.
 
During the three months ended June 30, 2007, the Company recorded a charge of $4.8 million to properly account for pre-opening expenses that had been previously capitalized on the balance sheet during the years ended December 31, 2005 and 2006 and the three months ended March 31, 2007. Because the amounts involved were not material to the Company’s financial statements in any individual prior period, and the cumulative amount is not material to the estimated results of operations for the year ended December 31, 2007, the Company recorded the cumulative effect of correcting this item, which increased “Pre-opening expense” and reduced “Property and equipment” by $4.8 million, during the three months ended June 30, 2007.


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LAS VEGAS SANDS CORP. AND SUBSIDIARIES
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

NOTE 4 — LONG-TERM DEBT
 
Long-term debt consists of the following (in thousands):
 
                 
    June 30,
    December 31,
 
    2007     2006  
 
Corporate and U.S. Related:
               
New Senior Secured Credit Facility — Term B
  $ 3,000,000     $  
Senior Secured Credit Facility — Term B and Term B Delayed Draw
          1,170,000  
Senior Secured Credit Facility — Revolving Facility
          260,128  
6.375% Senior Notes
    248,267       248,153  
The Sands Expo Center Mortgage Loan
          90,868  
Phase II Mall Construction Loan
          114,500  
Airplane Financings
    91,328        
FF&E Credit Facility — Term Funded
    6,186       7,395  
FF&E Credit Facility — Term Delayed Draw
    37,582       37,582  
Macao Related:
               
Macao Credit Facility — Term B and Local Term
    1,900,000       1,300,000  
Macao Credit Facility — Term B Delayed
    700,000        
Other Debt
    6,173        
Singapore Related:
               
Singapore Credit Facility — Term Loan
    495,164       393,510  
Singapore Credit Facility — Floating Rate Notes
    625,165       520,502  
                 
      7,109,865       4,142,638  
Less: current maturities
    (43,592 )     (6,486 )
                 
Total long-term debt
  $ 7,066,273     $ 4,136,152  
                 
 
In February 2007, the Company entered into promissory notes totaling $72.0 million to finance the purchase of one airplane and to finance two others that were already owned. The notes consist of balloon payment promissory notes and amortizing promissory notes, all of which have ten year maturities and are collateralized by the related aircraft. The notes bear interest at three-month LIBOR plus 1.5% per annum (6.88% as of June 30, 2007). The amortizing notes, totaling $28.8 million, are subject to quarterly principal and interest payments which began June 1, 2007. The balloon notes, totaling $43.2 million, are subject to quarterly interest payments which began June 1, 2007, with the principal payments due in full on March 1, 2017. At June 30, 2007, the book value of the aircraft collateralizing the notes was $66.9 million.
 
In April 2007, the Company entered into promissory notes totaling $20.3 million to finance the purchase of an additional airplane. The notes have ten year maturities and consist of a balloon payment promissory note and an amortizing promissory note. The notes bear interest at three-month LIBOR plus 1.25% per annum (6.61% at June 30, 2007). The $8.1 million amortizing note is subject to quarterly principal and interest payments which began June 30, 2007. The $12.2 million balloon note is subject to quarterly interest payments which began June 30, 2007, with the principal payment due in full on March 31, 2017. At June 30, 2007, the book value of the aircraft collateralizing the notes was $21.6 million.
 
In March 2007, the Company entered into a promissory note (the “Other Debt”) totaling $6.2 million bearing interest at 5.75% per annum with the principal payment due in full on March 28, 2008.
 
In March 2007, the $2.5 billion Macao credit facility was amended to expand the use of proceeds and remove certain restrictive conditions. In April 2007, the lenders of the Macao credit facility approved a reduction of the


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LAS VEGAS SANDS CORP. AND SUBSIDIARIES
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

interest rate margin for all classes of loans by 50 basis points and the Company exercised its rights under the Macao credit facility to access the $800.0 million of incremental facilities under the accordion feature set forth therein, which increased the funded term loan portion by $600.0 million, the revolving credit facility by $200.0 million (from $500.0 million to $700.0 million), and the total credit facility to $3.3 billion. As of June 30, 2007, the Company had fully drawn $700.0 million under the delayed draw facility, with no amounts outstanding under the revolving credit facility.
 
In May 2007, the Company entered into a $5.0 billion senior secured credit facility (the “New Senior Secured Credit Facility”), which consists of a $3.0 billion funded term B loan (the “Term B Facility”), a $600.0 million delayed draw term loan available for 12 months after closing (the “Delayed Draw I Facility”), a $400.0 million delayed draw term loan available for 18 months after closing (the “Delayed Draw II Facility”) and a $1.0 billion revolving credit facility (the “Revolving Facility”). A portion of the proceeds of the Term B Facility was used to refinance the existing U.S. credit facility, repay the Phase II mall construction loan and The Sands Expo Center mortgage loan, pay for certain construction and development related expenses incurred in connection with The Palazzo, and for fees and expenses related to the New Senior Secured Credit Facility.
 
The Term B Facility and the Delayed Draw I Facility mature on May 23, 2014. The Term B Facility is subject to quarterly amortization payments of $7.5 million, which begin in September 2007, followed by a balloon payment of $2.80 billion due on May 23, 2014. The Delayed Draw I Facility is subject to quarterly amortization payments of $1.5 million, which begin on September 30, 2008, followed by a balloon payment of $565.5 million due on May 23, 2014. The Delayed Draw II Facility matures on May 23, 2013, and is subject to quarterly amortization payments of $1.0 million, which begin on March 31, 2009, followed by a balloon payment of $383.0 million due on May 23, 2013. The Revolving Facility matures on May 23, 2012, and has no interim amortization. As of June 30, 2007, no amounts are outstanding under the Revolving Facility and no amounts have been drawn under the delayed draw facilities.
 
The New Senior Secured Credit Facility is guaranteed by certain of the Company’s domestic subsidiaries (the “Guarantors”). The obligations under the New Senior Secured Credit Facility and the guarantees of the Guarantors are secured by a first-priority security interest in substantially all of Las Vegas Sands, LLC (“LVSLLC”), and the Guarantors’ assets, other than capital stock and similar ownership interests, certain furniture, fixtures and equipment, and certain other excluded assets.
 
Borrowings under the New Senior Secured Credit Facility bear interest, at the Company’s option, at either an adjusted Eurodollar rate or at an alternative base rate plus a credit spread. The initial credit spread is 0.5% per annum for the Revolving Facility accruing interest at a base rate, 0.75% per annum for term loans accruing interest at a base rate, 1.5% per annum for the Revolving Facility accruing interest at an adjusted Eurodollar rate, and 1.75% per annum for term loans accruing interest at an adjusted Eurodollar rate. These spreads will be reduced by 0.25% if the Company’s “corporate rating” (as defined in the New Senior Secured Credit Facility) is increased to at least Ba2 by Moody’s and at least BB by Standard & Poor’s Ratings Group, subject to certain additional conditions. The spread for the Revolving Facility will be further reduced by 0.25% if the Company’s “corporate rating” is increased to at least Ba1 or higher by Moody’s and at least BB+ or higher by S&P, subject to certain additional conditions.
 
The Company will pay a commitment fee of 0.375% per annum on the undrawn amounts under the Revolving Facility, which will be reduced by 0.125% if certain ratings are met, subject to certain additional conditions. The Company will also pay a commitment fee equal to 0.75% per annum on the undrawn amounts under the Delayed Draw I Facility and a commitment fee equal to 0.5% per annum on the undrawn amounts under the Delayed Draw II Facility. The New Senior Secured Credit Facility contains affirmative and negative covenants customary for such financings, including, but not limited to, minimum ratios of adjusted EBITDA to interest expense and maximum ratios of total debt outstanding to adjusted EBITDA. The New Senior Secured Credit Facility also contains conditions and events of default customary for such financings.


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LAS VEGAS SANDS CORP. AND SUBSIDIARIES
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

NOTE 5 — INCOME TAXES
 
The Company adopted the provisions of FIN No. 48 on January 1, 2007. As a result of the implementation of FIN No. 48, the Company recognized a $4.1 million increase in the liability for unrecognized tax benefits, which was accounted for as a reduction to opening retained earnings. At the adoption date of January 1, 2007, the Company had $8.5 million of unrecognized tax benefits, of which $6.1 million would affect the effective income tax rate if recognized.
 
The Company files income tax returns in the U.S., various states and foreign jurisdictions. The Company is subject to federal, state and local, or foreign income tax examinations by tax authorities for years after 2002. The Company is not presently under examination by any major tax jurisdiction.
 
The Company recognizes interest and penalties, if any, related to unrecognized tax benefits in the provision for income taxes on the statement of operations. At January 1, 2007, the date of adoption, and at June 30, 2007, the Company did not accrue any significant interest or penalties. The Company does not expect a significant increase or decrease in unrecognized tax benefits over the next twelve months.
 
NOTE 6 — STOCK-BASED EMPLOYEE COMPENSATION
 
Stock-based compensation activity is as follows for the three and six months ended June 30, 2007 and 2006 (in thousands, except weighted average grant date fair values):
 
                                 
    Three Months Ended
    Six Months Ended
 
    June 30,     June 30,  
    2007     2006     2007     2006  
 
Compensation expense:
                               
Stock options
  $ 7,875     $ 2,527     $ 11,978     $ 5,053  
Restricted shares
    670       335       1,014       671  
                                 
    $ 8,545     $ 2,862     $ 12,992     $ 5,724  
                                 
Compensation cost capitalized as part of property and equipment
  $ 843     $ 437     $ 1,281     $ 875  
                                 
Stock options granted
    2,500       432       2,909       2,617  
                                 
Weighted average grant date fair value
  $ 30.15     $ 26.90     $ 31.20     $ 18.93  
                                 
Restricted shares granted
    4       4       51       78  
                                 
Weighted average grant date fair value
  $ 78.62     $ 67.28     $ 86.56     $ 44.00  
                                 
 
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 June 30,     Six Months Ended June 30,  
    2007     2006     2007     2006  
 
Weighted average volatility
    30.59 %     30.44 %     30.71 %     31.42 %
Expected term (in years)
    6.0       6.0       6.0       6.0  
Risk-free rate
    4.50 %     5.16 %     4.52 %     4.53 %
Expected dividends
                       


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LAS VEGAS SANDS CORP. AND SUBSIDIARIES
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

NOTE 7 — 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 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”), another wholly-owned subsidiary of the Company, and its construction manager, Taylor International Corp. (“Taylor”), filed suit in March 2006 in the United States District Court for the District of Nevada (the “District Court”) against Malcolm Drilling Company, Inc. (“Malcolm”), the contractor on The Palazzo project responsible for completing certain foundation work (the “District Court Case”). Lido and Taylor claimed in the District Court Case that Malcolm was in default of its contract for performing defective work, failing to correct defective work, failing to complete its work and causing delay to the project. Malcolm responded by filing a Notice of a Lien with the Clerk of Clark County, Nevada in March 2006 in the amount of approximately $19.0 million plus interest, costs and attorney’s fees (the “Lien”). In April 2006, Lido and Taylor moved in the District Court Case to strike or, in the alternative, to reduce the amount of, the Lien, claiming, among other things, that the Lien was excessive for including claims for disruption and delay, which Lido and Taylor claim are not lienable under Nevada law (the “Lien Motion”). Malcolm responded in April 2006 by filing a complaint against Lido and Taylor in District Court of Clark County, Nevada seeking to foreclose on the Lien against Taylor, claiming breach of contract, a cardinal change in the underlying contract, unjust enrichment against Lido and Taylor and bad faith and fraud against Taylor (the “State Court Case”), and simultaneously filed a motion in the District Court Case, seeking to dismiss the District Court Case on abstention grounds (the “Abstention Motion”). In response, in June 2006, Lido filed a motion to dismiss the State Court Case based on the principle of the “prior pending” District Court Case (the “Motion to Dismiss”). In June 2006, the Abstention Motion was granted in part by the United States District Court, the District Court Case was stayed pending the outcome of the Motion to Dismiss in the State Court Case and the Lien Motion was denied without prejudice. Lido and Malcolm then entered into a stipulation under which Lido withdrew the Motion to Dismiss, and in July 2006 filed a replacement lien motion in the State Court Case. The lien motion in the State Court Case was denied in August 2006 and Lido and Taylor filed a permitted interlocutory notice of appeal to the Supreme Court of Nevada in September 2006. On April 11, 2007, Malcolm filed an Amended Notice of Lien with the Clerk of Clark County, Nevada in the amount of approximately $16.7 million plus interest, costs and attorney’s fees. This matter remains in discovery and based upon the advice of legal counsel, management has determined that based on proceedings to date, it is currently unable to determine the probability of the outcome of this matter. Lido intends to defend itself against the claims pending in the State Court Case.
 
Litigation Relating to Macao Casino
 
On October 15, 2004, Richard Suen and Round Square Company Limited filed an action against Las Vegas Sands Corp. (“LVSC”), Las Vegas Sands, Inc., Sheldon G. Adelson and William P. Weidner in the District Court of Clark County, Nevada, asserting a breach of an alleged agreement to pay a success fee of $5.0 million and 2.0% of the net profit from the Company’s Macao resort operations to the plaintiffs as well as other related claims. In March 2005, LVSC was dismissed as a party without prejudice based on a stipulation to do so between the parties. On May 17, 2005, the plaintiffs filed their first amended complaint. On February 2, 2006, defendants filed a motion for partial summary judgment with respect to plaintiffs’ fraud claims against all the defendants. On March 16, 2006, an order was filed by the court granting defendants’ motion for partial summary judgment. Pursuant to the order filed March 16, 2006, plaintiffs’ fraud claims set forth in the first amended complaint were dismissed with prejudice as against all defendants. The order also dismissed with prejudice the first amended complaint against defendants Sheldon G. Adelson and William P. Weidner. This action is in a preliminary stage, discovery has begun and the Company has filed a motion for partial summary judgment. Based upon the advice of legal counsel, management


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LAS VEGAS SANDS CORP. AND SUBSIDIARIES
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

has determined that based on proceedings to date, the probability of an unfavorable outcome in this matter is remote. The Company intends to defend this matter vigorously.
 
On January 26, 2006, Clive Basset Jones, Darryl Steven Turok (a/k/a Dax Turok) and Cheong Jose Vai Chi (a/k/a Cliff Cheong), filed an action against LVSC, LVSLLC, Venetian Venture Development, LLC and various unspecified individuals and companies in the District Court of Clark County, Nevada. The plaintiffs assert breach of an agreement to pay a success fee in an amount equal to 5% of the ownership interest in the entity that owns and operates the Macau SAR gaming subconcession as well as other related claims. In April 2006, LVSC was dismissed as a party without prejudice based on a stipulation to do so between the parties. Other than the complaint which has been filed, and the Company’s answer, there is currently no pending activity in the matter. This action is in a preliminary stage and discovery has begun. Based upon the advice of legal counsel, management has determined that based on proceedings to date, it is currently unable to determine the probability of the outcome of this matter. The Company intends to defend this matter vigorously.
 
On February 5, 2007, Asian American Entertainment Corporation, Limited (“AAEC”) filed an action against Las Vegas Sands, Inc. (“LVSI”), VCR, Venetian Venture Development, LLC (“Venetian Venture Development”), William P. Weidner and David Friedman in the United States District Court for the District of Nevada. The plaintiffs assert breach of contract by LVSI, VCR and Venetian Venture Development of an agreement under which AAEC would work to obtain a gaming license in Macao and, if successful, AAEC would jointly operate a casino, hotel and related facilities in Macao with Venetian Venture Development and Venetian Venture Development would receive fees and a minority equity interest in the venture, and breach of fiduciary duties by all of the defendants. The plaintiffs have requested an unspecified amount of actual, compensatory and punitive damages, and disgorgement of profits related to the Company’s Macao gaming license. The Company filed a motion to dismiss which was heard by the Court on July 11, 2007. On August 1, 2007 the Court granted defendants’ motion to dismiss without prejudice. The Court’s Order dismissed without prejudice the Complaint against all defendants. Based upon the advice of legal counsel, management has determined that based on proceedings to date, the probability of an unfavorable outcome in this matter is remote. The Company intends to defend this matter vigorously.
 
Singapore Development Project
 
On August 23, 2006, the Company entered into the Development Agreement, which requires it to construct and operate the Marina Bay Sands in accordance with the Company’s proposal for this integrated resort and in accordance with that agreement. Based on the proposal the Company submitted to the Singapore government, it will cost approximately $3.6 billion, inclusive of $811.7 million paid in 2006 for the land premium, taxes and other fees, to develop and construct the Marina Bay Sands. The Company entered into the Singapore credit facility to satisfy near-term development costs and to satisfy some of its obligations under the Development Agreement. The Company intends to obtain long-term financing in an amount necessary to fund the construction of the Marina Bay Sands.


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LAS VEGAS SANDS CORP. AND SUBSIDIARIES
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

NOTE 8 — SEGMENT INFORMATION
 
The Company reviews the results of operations based on the following geographic segments: (1) Las Vegas, which includes The Venetian, The Sands Expo Center and The Palazzo (currently under construction), (2) Macao, which includes the Sands Macao, The Venetian Macao (currently under construction) and other development projects and (3) Singapore, which includes the Marina Bay Sands (currently under construction). The Company’s segment information is as follows for the three and six months ended June 30, 2007 and 2006 (in thousands):
 
                                 
    Three Months Ended
    Six Months Ended
 
    June 30,     June 30,  
    2007     2006     2007     2006  
 
Net Revenues
                               
Las Vegas
  $ 235,512     $ 206,575     $ 513,356     $ 455,302  
Macao
    377,414       310,432       727,788       592,069  
                                 
Total net revenues
  $ 612,926     $ 517,007     $ 1,241,144     $ 1,047,371  
                                 
Adjusted EBITDAR(1)
                               
Las Vegas
  $ 83,221     $ 63,176     $ 195,323     $ 164,258  
Macao
    116,593       116,907       218,889       220,354  
                                 
Total adjusted EBITDAR
    199,814       180,083       414,212       384,612  
                                 
Other Operating Costs and Expenses
                               
Corporate expense
    (24,694 )     (12,251 )     (43,213 )     (25,205 )
Rental expense
    (8,297 )     (3,803 )     (15,005 )     (7,510 )
Stock-based compensation expense
    (3,228 )     (1,515 )     (5,180 )     (3,030 )
Depreciation and amortization
    (35,721 )     (24,428 )     (66,953 )     (49,433 )
Loss on disposal of assets
    (61 )     (456 )     (239 )     (1,537 )
Pre-opening expense
    (40,320 )     (4,354 )     (62,777 )     (6,573 )
Development expense
    (1,260 )     (7,861 )     (3,606 )     (17,029 )
                                 
Operating income
    86,233       125,415       217,239       274,295  
Other Non-Operating Costs and Expenses
                               
Interest income
    21,352       15,018       34,016       25,232  
Interest expense, net of amounts capitalized
    (54,409 )     (23,685 )     (89,021 )     (45,100 )
Other income (expense)
    (2,304 )     (14 )     (9,337 )     150  
Loss on early retirement of debt
    (10,705 )           (10,705 )      
Provision for income taxes
    (5,769 )     (7,405 )     (16,880 )     (23,465 )
                                 
Net income
  $ 34,398     $ 109,329     $ 125,312     $ 231,112  
                                 
 
 
(1) Adjusted EBITDAR is earnings before interest, income taxes, depreciation and amortization, pre-opening expense, development expense, other income (expense), loss on disposal of assets, rental expense, corporate expense and stock-based compensation expense included in general and administrative expense. 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)

                 
    Six Months Ended
 
    June 30,  
    2007     2006  
 
Capital Expenditures
               
Las Vegas Sands Corp. and Other
  $ 74,388     $ 6,614  
Las Vegas:
               
The Venetian
    78,665       52,106  
The Palazzo
    467,706       203,703  
Macao:
               
Sands Macao
    43,855       41,192  
The Venetian Macao and Four Seasons
    691,700       406,839  
Other Development Projects (Principally Cotai Strip Parcels 5 and 6)
    207,052       20,014  
Singapore
    128,683       7  
                 
Total capital expenditures
  $ 1,692,049     $ 730,475  
                 
 
                 
    June 30,
    December 31,
 
    2007     2006  
 
Total Assets
               
Las Vegas Sands Corp. and Other
  $ 305,802     $ 209,701  
Las Vegas:
               
The Venetian
    2,866,018       1,991,566  
The Palazzo
    1,767,348       1,179,157  
Macao:
               
Sands Macao
    617,772       537,990  
The Venetian Macao and Four Seasons
    3,337,375       2,138,535  
Other Development Projects (Principally Cotai Strip Parcels 5 and 6)
    429,285       170,441  
Singapore
    1,124,244       899,068  
                 
Total consolidated assets
  $ 10,447,844     $ 7,126,458  
                 
 
NOTE 9 — CONDENSED CONSOLIDATING FINANCIAL INFORMATION
 
LVSC is the obligor of the 6.375% Senior Notes due 2015 issued by LVSC on February 10, 2005. LVSLLC, VCR, Mall Intermediate Holding Company, LLC, Venetian Venture Development, LLC, Venetian Transport, LLC, Venetian Marketing, Inc., Interface Group-Nevada, Inc., Palazzo Condo Tower, LLC, Sands Pennsylvania, Inc., Lido Intermediate Holding Company, LLC, Lido Casino Resort Holding Company, LLC, Phase II Mall Holding, LLC, Phase II Mall Subsidiary, LLC and Lido Casino Resort, LLC, which was merged into VCR in March 2007 (collectively, the “Guarantor Subsidiaries”), have jointly and severally guaranteed the 6.375% Senior Notes on a full and unconditional basis. In conjunction with entering into the New Senior Secured Credit Facility, LVSC, the Guarantor Subsidiaries and the trustee entered into a supplemental indenture related to the Senior Notes, which amended the subsidiaries guaranteeing the Senior Notes to include Interface Group-Nevada, Inc., Palazzo Condo Tower, LLC, Sands Pennsylvania, Inc., Phase II Mall Holding, LLC, and Phase II Mall Subsidiary, LLC. As a result of the change in Guarantor Subsidiaries and non-guarantor subsidiaries, the Company has reclassified prior periods to conform to the current presentation as these are all entities under common control.
 
The condensed consolidating financial information of LVSC, the Guarantor Subsidiaries and the non-guarantor subsidiaries on a combined basis as of June 30, 2007, and December 31, 2006, and for the three and six months ended June 30, 2007 and 2006, is as follows (in thousands).

16


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LAS VEGAS SANDS CORP. AND SUBSIDIARIES
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Condensed Consolidating Balance Sheets
June 30, 2007
 
                                         
                Non-
    Consolidating/
       
    Las Vegas
    Guarantor
    Guarantor
    Eliminating
       
    Sands Corp.     Subsidiaries     Subsidiaries     Entries     Total  
 
Cash and cash equivalents
  $ 76,154     $ 1,413,636     $ 295,313     $     $ 1,785,103  
Restricted cash
    51,125       1,191       321,978             374,294  
Intercompany receivable
    170,784       65,436             (236,220 )      
Accounts receivable, net
    446       103,688       14,936             119,070  
Inventories
          10,747       2,330             13,077  
Deferred income taxes
    1,745       23,488             (4 )     25,229  
Prepaid expenses and other
    7,200       8,770       15,755             31,725  
                                         
Total current assets
    307,454       1,626,956       650,312       (236,224 )     2,348,498  
Property and equipment, net
    153,153       2,991,450       3,215,385             6,359,988  
Investment in subsidiaries
    2,053,451       913,352             (2,966,803 )      
Intercompany notes receivable
    73,196       53,671             (126,867 )      
Deferred financing costs, net
    1,777       63,253       47,945             112,975  
Restricted cash
                670,122             670,122  
Deferred income taxes
          6,754       9       (1,305 )     5,458  
Leasehold interest in land, net
                900,680             900,680  
Other assets, net
    1,253       14,399       34,471             50,123  
                                         
Total assets
  $ 2,590,284     $ 5,669,835     $ 5,518,924     $ (3,331,199 )   $ 10,447,844  
                                         
Accounts payable
  $ 1,802     $ 29,705     $ 20,527     $     $ 52,034  
Construction payables
    1,962       117,155       321,386             440,503  
Intercompany payables
          106,939       129,281       (236,220 )      
Accrued interest payable
    6,392       4,705       7,885             18,982  
Other accrued liabilities
    6,784       139,594       272,999             419,377  
Deferred income taxes
                4       (4 )      
Current maturities of long-term debt
    3,688       33,679       6,225             43,592  
                                         
Total current liabilities
    20,628       431,777       758,307       (236,224 )     974,488  
Other long-term liabilities
    11,962       174,570       69             186,601  
Deferred income taxes
    1,305                   (1,305 )      
Intercompany notes payable
                126,867       (126,867 )      
Long-term debt
    335,907       3,010,037       3,720,329             7,066,273  
                                         
Total liabilities
    369,802       3,616,384       4,605,572       (364,396 )     8,227,362  
                                         
Stockholders’ equity
    2,220,482       2,053,451       913,352       (2,966,803 )     2,220,482  
                                         
Total liabilities and stockholders’ equity
  $ 2,590,284     $ 5,669,835     $ 5,518,924     $ (3,331,199 )   $ 10,447,844  
                                         


17


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LAS VEGAS SANDS CORP. AND SUBSIDIARIES
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Condensed Consolidating Balance Sheets
December 31, 2006
 
                                         
                      Consolidating/
       
    Las Vegas
    Guarantor
    Non-Guarantor
    Eliminating
       
    Sands Corp.     Subsidiaries     Subsidiaries     Entries     Total  
 
Cash and cash equivalents
  $ 69,100     $ 96,315     $ 302,651     $     $ 468,066  
Restricted cash
    50,076       95,139       253,547             398,762  
Intercompany receivables
    170,844       49,510             (220,354 )      
Accounts receivable, net
    137       121,375       52,171             173,683  
Inventories
          10,273       2,018             12,291  
Deferred income taxes
    1,583       14,064       41             15,688  
Prepaid expenses and other
    1,793       10,287       12,987             25,067  
                                         
Total current assets
    293,533       396,963       623,415       (220,354 )     1,093,557  
Property and equipment, net
    85,758       2,437,222       2,059,345             4,582,325  
Investment in subsidiaries
    1,919,079       825,736             (2,744,815 )      
Intercompany notes receivable
    73,154       52,736             (125,890 )      
Deferred financing costs, net
    1,176       24,124       45,081             70,381  
Restricted cash
          323,668       231,464             555,132  
Deferred income taxes
          5,048             (5,048 )      
Leasehold interest in land, net
                801,195             801,195  
Other assets, net
    78       12,538       11,252             23,868  
                                         
Total assets
  $ 2,372,778     $ 4,078,035     $ 3,771,752     $ (3,096,107 )   $ 7,126,458  
                                         
Accounts payable
  $ 884     $ 29,039     $ 21,115     $     $ 51,038  
Construction payables
    674       75,155       253,546             329,375  
Intercompany payables
          46,318       174,036       (220,354 )      
Accrued interest payable
    5,977       1,443       1,076             8,496  
Other accrued liabilities
    13,231       149,390       156,280             318,901  
Income taxes payable
    20,352                         20,352  
Current maturities of long-term debt
          6,486                   6,486  
                                         
Total current liabilities
    41,118       307,831       606,053       (220,354 )     734,648  
Other long-term liabilities
    2,981       177,199                   180,180  
Intercompany notes payable
                125,890       (125,890 )      
Deferred income taxes
    5,372                   (5,048 )     324  
Long-term debt
    248,153       1,673,926       2,214,073             4,136,152  
                                         
Total liabilities
    297,624       2,158,956       2,946,016       (351,292 )     5,051,304  
                                         
Stockholders’ equity
    2,075,154       1,919,079       825,736       (2,744,815 )     2,075,154  
                                         
Total liabilities and stockholders’ equity
  $ 2,372,778     $ 4,078,035     $ 3,771,752     $ (3,096,107 )   $ 7,126,458  
                                         


18


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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 June 30, 2007
 
                                         
                Non-
    Consolidating/
       
    Las Vegas
    Guarantor
    Guarantor
    Eliminating
       
    Sands Corp.     Subsidiaries     Subsidiaries     Entries     Total  
 
Revenues:
                                       
Casino
  $     $ 85,392     $ 373,487     $     $ 458,879  
Rooms
          93,268       1,734             95,002  
Food and beverage
          41,306       16,512       (80 )     57,738  
Convention, retail and other
    14,810       30,142       1,512       (15,171 )     31,293  
                                         
      14,810       250,108       393,245       (15,251 )     642,912  
Less — promotional allowances
    (235 )     (17,818 )     (11,933 )           (29,986 )
                                         
Net revenues
    14,575       232,290       381,312       (15,251 )     612,926  
                                         
Operating expenses:
                                       
Casino
          44,052       239,776       (60 )     283,768  
Rooms
          21,033       88             21,121  
Food and beverage
          20,597       6,657       (361 )     26,893  
Convention, retail and other
          18,186       955             19,141  
Provision for doubtful accounts
          4,734       (17 )           4,717  
General and administrative
          57,904       17,626       (14,830 )     60,700  
Corporate expense
    24,529       79       86             24,694  
Rental expense
          2,137       6,160             8,297  
Pre-opening expense
          2,460       37,860             40,320  
Development expense
    678             582             1,260  
Depreciation and amortization
    1,873       22,480       11,368             35,721  
Loss on disposal of assets
          22       39             61  
                                         
      27,080       193,684       321,180       (15,251 )     526,693  
                                         
Operating income (loss)
    (12,505 )     38,606       60,132             86,233  
Other income (expense):
                                       
Interest income
    2,312       11,606       9,206       (1,772 )     21,352  
Interest expense, net of amounts capitalized
    (4,306 )     (28,202 )     (23,673 )     1,772       (54,409 )
Other expense
          (100 )     (2,204 )           (2,304 )
Loss on early retirement of debt
          (10,705 )                   (10,705 )
Income from equity investment in subsidiaries
    50,681       43,455             (94,136 )      
                                         
Income before income taxes
    36,182       54,660       43,461       (94,136 )     40,167  
Provision for income taxes
    (1,784 )     (3,979 )     (6 )           (5,769 )
                                         
Net income
  $ 34,398     $ 50,681     $ 43,455     $ (94,136 )   $ 34,398  
                                         


19


Table of Contents

 
LAS VEGAS SANDS CORP. AND SUBSIDIARIES
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Condensed Consolidating Statements of Operations
For the Three Months Ended June 30, 2006
 
                                         
                Non-
    Consolidating/
       
    Las Vegas
    Guarantor
    Guarantor
    Eliminating
       
    Sands Corp.     Subsidiaries     Subsidiaries     Entries     Total  
 
Revenues:
                                       
Casino
  $     $ 71,322     $ 307,140     $     $ 378,462  
Rooms
          88,014       1,640             89,654  
Food and beverage
          32,318       11,863       (158 )     44,023  
Convention, retail and other
    7,489       28,605       1,215       (8,033 )     29,276  
                                         
      7,489       220,259       321,858       (8,191 )     541,415  
Less — promotional allowances
    (166 )     (16,152 )     (8,090 )           (24,408 )
                                         
Net revenues
    7,323       204,107       313,768       (8,191 )     517,007  
                                         
Operating expenses:
                                       
Casino
          43,485       173,877       (118 )     217,244  
Rooms
          21,939       57             21,996  
Food and beverage
          17,093       6,264       (544 )     22,813  
Convention, retail and other
          15,629       99             15,728  
Provision for doubtful accounts
          3,542       (221 )           3,321  
General and administrative
          47,641       17,225       (7,529 )     57,337  
Corporate expense
    12,215       15       21             12,251  
Rental expense
          3,751       52             3,803  
Pre-opening expense
          171       4,183             4,354  
Development expense
    777       1,133       5,951             7,861  
Depreciation and amortization
    531       15,712       8,185             24,428  
Loss on disposal of assets
                456             456  
                                         
      13,523       170,111       216,149       (8,191 )     391,592  
                                         
Operating income (loss)
    (6,200 )     33,996       97,619             125,415  
Other income (expense):
                                       
Interest income
    2,978       9,063       5,709       (2,732 )     15,018  
Interest expense, net of amounts capitalized
    (8,031 )     (20,384 )     1,998       2,732       (23,685 )
Other expense
    (7 )     (7 )                 (14 )
Income from equity investment in subsidiaries
    119,725       105,167             (224,892 )      
                                         
Income before income taxes
    108,465       127,835       105,326       (224,892 )     116,734  
Benefit (provision) for income taxes
    864       (8,110 )     (159 )           (7,405 )
                                         
Net income
  $ 109,329     $ 119,725     $ 105,167     $ (224,892 )   $ 109,329  
                                         


20


Table of Contents

 
LAS VEGAS SANDS CORP. AND SUBSIDIARIES
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Condensed Consolidating Statements of Operations
For the Six Months Ended June 30, 2007
 
                                         
                Non-
    Consolidating/
       
    Las Vegas
    Guarantor
    Guarantor
    Eliminating
       
    Sands Corp.     Subsidiaries     Subsidiaries     Entries     Total  
 
Revenues:
                                       
Casino
  $     $ 205,031     $ 719,582     $     $ 924,613  
Rooms
          189,354       3,516             192,870  
Food and beverage
          77,757       34,536       (196 )     112,097  
Convention, retail and other
    25,985       71,709       3,266       (26,621 )     74,339  
                                         
      25,985       543,851       760,900       (26,817 )     1,303,919  
Less-promotional allowances
    (447 )     (36,567 )     (25,761 )           (62,775 )
                                         
Net revenues
    25,538       507,284       735,139       (26,817 )     1,241,144  
                                         
Operating expenses:
                                       
Casino
          96,132       466,480       (147 )     562,465  
Rooms
          43,461       184             43,645  
Food and beverage
          37,854       13,308       (636 )     50,526  
Convention, retail and other
          34,888       1,684             36,572  
Provision for doubtful accounts
          20,345       (112 )           20,233  
General and administrative
          109,338       35,367       (26,034 )     118,671  
Corporate expense
    42,894       147       172             43,213  
Rental expense
          4,277       10,728             15,005  
Pre-opening expense
          5,174       57,603             62,777  
Development expense
    1,506             2,100             3,606  
Depreciation and amortization
    2,600       41,688       22,665             66,953  
Loss on disposal of assets
          190       49             239  
                                         
      47,000       393,494       610,228       (26,817 )     1,023,905  
                                         
Operating income (loss)
    (21,462 )     113,790       124,911             217,239  
Other income (expense):
                                       
Interest income
    4,525       18,452       14,519       (3,480 )     34,016  
Interest expense, net of amounts capitalized
    (7,528 )     (46,869 )     (38,104 )     3,480       (89,021 )
Other expense
    (6 )     (380 )     (8,951 )           (9,337 )
Loss on early retirement of debt
          (10,705 )                 (10,705 )
Income from equity investment in subsidiaries
    140,517       92,369             (232,886 )      
                                         
Income before income taxes
    116,046       166,657       92,375       (232,886 )     142,192  
Benefit (provision) for income taxes
    9,266       (26,140 )     (6 )           (16,880 )
                                         
Net income
  $ 125,312     $ 140,517     $ 92,369     $ (232,886 )   $ 125,312  
                                         


21


Table of Contents

 
LAS VEGAS SANDS CORP. AND SUBSIDIARIES
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Condensed Consolidating Statements of Operations
For the Six Months Ended June 30, 2006
 
                                         
                Non-
    Consolidating/
       
    Las Vegas
    Guarantor
    Guarantor
    Eliminating
       
    Sands Corp.     Subsidiaries     Subsidiaries     Entries     Total  
 
Revenues:
                                       
Casino
  $     $ 168,458     $ 585,386     $     $ 753,844  
Rooms
          177,583       3,209             180,792  
Food and beverage
          73,045       22,952       (158 )     95,839  
Convention, retail and other
    14,086       63,039       1,786       (14,630 )     64,281  
                                         
      14,086       482,125       613,333       (14,788 )     1,094,756  
Less-promotional allowances
    (356 )     (31,430 )     (15,599 )           (47,385 )
                                         
Net revenues
    13,730       450,695       597,734       (14,788 )     1,047,371  
                                         
Operating expenses:
                                       
Casino
          89,538       333,166       (118 )     422,586  
Rooms
          43,654       94             43,748  
Food and beverage
          35,204       12,211       (544 )     46,871  
Convention, retail and other
          31,851       271             32,122  
Provision for doubtful accounts
          8,281       29             8,310  
General and administrative
          93,784       32,494       (14,126 )     112,152  
Corporate expense
    25,040       15       150             25,205  
Rental expense
          7,270       240             7,510  
Pre-opening expense
          427       6,146             6,573  
Development expense
    1,117       2,277       13,635             17,029  
Depreciation and amortization
    1,047       32,342       16,044             49,433  
Loss on disposal of assets
          12       1,525             1,537  
                                         
      27,204       344,655       416,005       (14,788 )     773,076  
                                         
Operating income (loss)
    (13,474 )     106,040       181,729             274,295  
Other income (expense):
                                       
Interest income
    6,674       16,447       6,394       (4,283 )     25,232  
Interest expense, net of amounts capitalized
    (8,476 )     (40,455 )     (452 )     4,283       (45,100 )
Other income (expense)
    (7 )     157                   150  
Income from equity investment in subsidiaries
    240,577       187,663             (428,240 )      
                                         
Income before income taxes
    225,294       269,852       187,671       (428,240 )     254,577  
Benefit (provision) for income taxes
    5,818       (29,275 )     (8 )           (23,465 )
                                         
Net income
  $ 231,112     $ 240,577     $ 187,663     $ (428,240 )   $ 231,112  
                                         


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LAS VEGAS SANDS CORP. AND SUBSIDIARIES
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Condensed Consolidating Cash Flow Statements
For the Six Months Ended June 30, 2007
 
                                         
                Non-
    Consolidating/
       
    Las Vegas
    Guarantor
    Guarantor
    Eliminating
       
    Sands Corp.     Subsidiaries     Subsidiaries     Entries     Total  
 
Net cash provided by (used in) operating activities
  $ (89,042 )   $ 142,827     $ 123,532     $     $ 177,317  
                                         
Cash flows from investing activities:
                                       
Change in restricted cash
    (1,049 )     417,616       (507,036 )           (90,469 )
Capital expenditures
    (66,251 )     (553,718 )     (1,072,080 )           (1,692,049 )
Intercompany receivable from Guarantor Subsidiaries
    (79,902 )                 79,902        
Intercompany receivable from non-guarantor subsidiaries
    (32,068 )     (25,963 )           58,031        
Repayment of receivable from Guarantor Subsidiaries
    65,974                   (65,974 )      
Repayment of receivable from non-guarantor subsidiaries
    104,464       14,000             (118,464 )      
Capital contributions to subsidiaries
          (704 )           704        
                                         
Net cash used in investing activities
    (8,832 )     (148,769 )     (1,579,116 )     (45,801 )     (1,782,518 )
                                         
Cash flows from financing activities:
                                       
Proceeds from exercise of stock options
    11,481                         11,481  
Excess tax benefits from stock-based compensation
    2,812                         2,812  
Capital contributions received
                704       (704 )      
Borrowings from Las Vegas Sands Corp. 
          79,902       32,068       (111,970 )      
Borrowings from Guarantor Subsidiaries
                25,963       (25,963 )      
Repayment on borrowings from Las Vegas Sands Corp. 
          (65,974 )     (104,464 )     170,438        
Repayment on borrowings from Guarantor Subsidiaries
                (14,000 )     14,000        
Proceeds from Macao credit facility
                1,300,000             1,300,000  
Proceeds from Singapore credit facility
                205,381             205,381  
Proceeds from New Senior Secured Credit Facility — Term B
          3,000,000                   3,000,000  
Proceeds from senior secured credit facility — revolver
          62,000                   62,000  
Proceeds from airplane financings
    92,250                         92,250  
Proceeds from Phase II mall construction loan
          52,000                   52,000  
Proceeds from other long-term debt
                6,173             6,173  
Repayments on senior secured credit facility — term B and term B delayed
          (1,170,000 )                 (1,170,000 )
Repayment on senior secured credit facility — revolver
          (322,128 )                 (322,128 )
Repayments on airplane financings
    (922 )                       (922 )
Repayments on Phase II mall construction loan
          (166,500 )                 (166,500 )
Repayments on The Sands Expo Center mortgage loan
          (90,868 )                 (90,868 )
Repayments on FF&E credit facility and other long-term debt
          (1,200 )     (9 )           (1,209 )
Payments of deferred financing costs
    (693 )     (53,969 )     (9,629 )           (64,291 )
                                         
Net cash provided by financing activities
    104,928       1,323,263       1,442,187       45,801       2,916,179  
                                         
Effect of foreign exchange rate on cash
                6,059             6,059  
                                         
Increase (decrease) in cash and cash equivalents
    7,054       1,317,321       (7,338 )           1,317,037  
Cash and cash equivalents at beginning of period
    69,100       96,315       302,651             468,066  
                                         
Cash and cash equivalents at end of period
  $ 76,154     $ 1,413,636     $ 295,313     $     $ 1,785,103  
                                         


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LAS VEGAS SANDS CORP. AND SUBSIDIARIES
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Condensed Consolidating Cash Flow Statements
For the Six Months Ended June 30, 2006
 
                                         
                Non-
    Consolidating/
       
    Las Vegas
    Guarantor
    Guarantor
    Eliminating
       
    Sands Corp.     Subsidiaries     Subsidiaries     Entries     Total  
 
Net cash provided by (used in) operating activities
  $ (36,402 )   $ 85,493     $ 48,090     $     $ 97,181  
                                         
Cash flows from investing activities:
                                       
Change in restricted cash
    (790 )     (11,462 )     (1,022,629 )           (1,034,881 )
Capital expenditures
    (6,663 )     (259,040 )     (464,772 )           (730,475 )
Notes receivable from non-guarantor subsidiaries
    (115,000 )     (75,000 )           190,000        
Repayment of notes receivable from non- guarantor subsidiaries
    165,000       25,000             (190,000 )      
Intercompany receivable from Las Vegas Sands Corp. 
          (20,000 )           20,000        
Intercompany receivable from non-guarantor subsidiaries
    (200,930 )                 200,930        
Capital contributions to subsidiaries
    (11,987 )     (10,857 )           22,844        
                                         
Net cash used in investing activities
    (170,370 )     (351,359 )     (1,487,401 )     243,774       (1,765,356 )
                                         
Cash flows from financing activities:
                                       
Proceeds from exercise of stock options
    3,180                         3,180  
Excess tax benefits from stock-based compensation
    632                         632  
Capital contributions received
          11,987       10,857       (22,844 )      
Borrowings from Las Vegas Sands Corp. 
                115,000       (115,000 )      
Borrowings from Guarantor Subsidiaries
    20,000             75,000       (95,000 )      
Repayment on borrowings from Las Vegas Sands Corp. 
                (165,000 )     165,000        
Repayment on borrowings from Guarantor Subsidiaries
                (25,000 )     25,000        
Proceeds from Macao credit facility
                1,325,000             1,325,000  
Proceeds from senior secured credit facility-revolver
          254,129                   254,129  
Proceeds from Phase II mall construction loan
          30,000                   30,000  
Proceeds from other long-term debt
                75             75  
Repayments on Venetian Intermediate credit facility
                (50,000 )           (50,000 )
Repayment on senior secured credit facility-revolver
          (25,000 )                 (25,000 )
Repayments on FF&E credit facility
          (1,800 )                 (1,800 )
Repayments on The Sands Expo Center mortgage loan
          (2,807 )                 (2,807 )
Payments of deferred financing costs
                (41,056 )           (41,056 )
Increase in intercompany payable
                200,930       (200,930 )      
                                         
Net cash provided by financing activities
    23,812       266,509       1,445,806       (243,774 )     1,492,353  
                                         
Effect of foreign exchange rate on cash
                975             975  
                                         
Increase (decrease) in cash and cash equivalents
    (182,960 )     643       7,470             (174,847 )
Cash and cash equivalents at beginning of period
    202,196       89,621       165,029             456,846  
                                         
Cash and cash equivalents at end of period
  $ 19,236     $ 90,264     $ 172,499     $     $ 281,999  
                                         


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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 own and operate The Venetian Resort Hotel Casino (“The Venetian”), a Renaissance Venice-themed resort situated on the Las Vegas Strip (the “Strip”). The Venetian includes the first all-suites hotel on the Strip with 4,027 suites; a gaming facility of approximately 120,000 gross square feet; an enclosed retail, dining and entertainment complex of approximately 440,000 net leasable square feet (“The Grand Canal Shops”), which was sold to a third party in 2004; and a meeting and conference facility of approximately 1.1 million square feet (the “Congress Center”). A subsidiary of Las Vegas Sands Corp. owns and operates an expo and convention center with approximately 1.2 million square feet (“The Sands Expo Center”), which is connected to The Venetian and the Congress Center. Approximately 37.3% of our gross revenue at The Venetian, including The Sands Expo Center, for the six months ended June 30, 2007, was derived from gaming and 62.7% was derived from hotel rooms, food and beverage, and other sources. The percentage of non-gaming revenue for The Venetian reflects the resort’s emphasis on the group convention and trade show business and the resulting higher occupancy and room rates during mid-week periods.
 
We also own and operate the Sands Macao, a Las Vegas-style casino in Macao, China, which opened in May 2004. The Sands Macao now offers over 229,000 square feet of gaming facilities after its expansion, which was completed in August 2006, as well as several restaurants, VIP facilities, a theater and other high-end amenities. In addition, we continue to progress according to plan on our expansion of the hotel tower, which we expect to be completed in September 2007 and to cost approximately $100.0 million. Approximately 95.5% of the Sands Macao’s gross revenue for the six months ended June 30, 2007, was derived from gaming activities, with the remainder primarily derived from food and beverage services.
 
United States Development Projects
 
The Palazzo
 
We are currently constructing The Palazzo Resort Hotel Casino (“The Palazzo”), a second resort similar in size to The Venetian, which is situated on a 14-acre site next to The Venetian and The Sands Expo Center. The Palazzo will consist of an all-suites, 50-floor luxury hotel tower with approximately 3,068 suites, a gaming facility of approximately 105,000 square feet and an enclosed shopping, dining and entertainment complex of approximately 400,000 net leasable square feet (the “Phase II mall”), which we have contracted to sell to a third party. The Palazzo is expected to open in December 2007 at a cost estimated of approximately $2.1 billion, of which the Phase II mall is expected to cost approximately $508.0 million (exclusive of certain incentive payments to executives made in July 2004 and inclusive of $140.0 million of additional costs for structural enhancements of the Phase II mall relating to the development of the high-rise condominium tower). In addition, we expect that additional capital expenditures will be required to build out stores and restaurants to be located in the Phase II mall. In connection with the sale of The Grand Canal Shops, we entered into an agreement with General Growth Partners (“GGP”), the purchaser of The Grand Canal Shops, to sell the Phase II mall upon completion of construction. The ultimate purchase price that GGP has agreed to pay for the Phase II mall is the greater of (i) $250.0 million and (ii) the Phase II mall’s net operating income for months 19 through 30 of its operations divided by a capitalization rate. The capitalization rate is 6.0% on the first $38.0 million of net operating income and 8.0% on the net operating income above $38.0 million.
 
We are in the early stages of constructing a high-rise residential condominium tower which will consist of approximately 300 luxury condominiums and will be situated between The Palazzo and The Venetian. The


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condominium tower is currently expected to open in late fall 2008 at an estimated cost of approximately $465.0 million.
 
Sands Bethworks
 
On December 20, 2006, the Pennsylvania Gaming Control Board announced that our indirect majority-owned subsidiary, Sands Bethworks Gaming, LLC (“Sands Bethworks Gaming”), had been awarded a Pennsylvania gaming license. Sands Bethworks Gaming is a project venture in which we effectively own 86% of the economic interest. Subsequent to June 30, 2007, we paid the $50.0 million licensing fee to the Commonwealth of Pennsylvania and were issued our Pennsylvania gaming license by the Pennsylvania Gaming Control Board. We are in the process of developing a gaming, hotel, shopping and dining complex (the “Sands Bethworks”) located on the site of the Historic Bethlehem Steel Works in Bethlehem, Pennsylvania, which is about 70 miles from midtown Manhattan, New York. The 126-acre development is expected to feature a 300-room hotel, 200,000 square feet of retail space, 5,000 slot machines, a 50,000 square foot multipurpose event center and a variety of dining options. We currently expect the cost to develop and construct the Sands Bethworks will be approximately $635.0 million.
 
Macao Development Projects
 
We are building The Venetian Macao Resort Hotel (“The Venetian Macao”) on the Cotai Striptm in Macao, China. The Venetian Macao will be an approximately 3,000 all-suites hotel, casino, retail and convention center complex with a Venetian-style theme similar to that of The Venetian in Las Vegas. Under our gaming subconcession in Macao, we are obligated to develop and open The Venetian Macao and a convention center by December 2007. We currently expect to open The Venetian Macao in late August 2007.
 
In addition to the development of The Venetian Macao, we are developing multiple other properties on the Cotai Strip. We have submitted development plans to the Macao government for six casino-resort developments in addition to The Venetian Macao on an area of approximately 200 acres located on the Cotai Strip (which we refer to as parcels 2, 3, 5, 6, 7 and 8). The developments are expected to include hotels, exhibition and conference facilities, casinos, showrooms, shopping malls, spas, world-class restaurants, entertainment facilities and other attractions and amenities, as well as public common areas. We have commenced construction or pre-construction on these six parcels of the Cotai Strip. We plan to own and operate all of the casinos in these developments under our Macao gaming subconcession. More specifically, the Company intends to develop its other Cotai Strip properties as follows:
 
  •  Parcel 2 is intended to be a Four Seasons hotel and casino, which will be adjacent to The Venetian Macao and is expected to be a boutique hotel with approximately 400 luxury hotel rooms, approximately 800,000 square feet of Four Seasons-serviced luxury apartments, distinctive dining experiences, a full service spa and other amenities, an approximately 45,000 square foot casino and approximately 210,000 square feet of upscale retail offerings. The Company will own the entire development. The Company has entered into an exclusive non-binding letter of intent and is currently negotiating definitive agreements under which Four Seasons Hotels Inc. will manage the hotel and serviced luxury apartments under its Four Seasons brand.
 
  •  Parcel 5 is intended to include a three-hotel complex with approximately 2,150 luxury and mid-scale hotel rooms, serviced luxury apartments, a casino and a retail shopping mall. The Company will own the entire development and has entered into a management agreement with Shangri-La Hotels and Resorts to manage two hotels under its Shangri-La and Traders brands. In addition, the Company has entered into a management agreement with Starwood Hotels & Resorts Worldwide to manage a hotel and serviced luxury apartments under its St. Regis brand.
 
  •  Parcel 6 is intended to include a two-hotel complex with approximately 4,000 luxury and mid-scale hotel rooms, a casino and a retail shopping mall physically connected to the mall in the Shangri-La/Traders hotel podium. The Company will own the entire development and has entered into a management agreement with Starwood Hotels & Resorts Worldwide to manage the hotels under its Sheraton brand.


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  •  Parcels 7 and 8 are intended to each include a two-hotel complex with approximately 3,000 luxury and mid-scale hotel rooms on each parcel, serviced luxury vacation suites, a casino and retail shopping malls that are physically connected. The Company will own the entire development and has entered into non-binding agreements with Hilton Hotels to manage Hilton and Conrad brand hotels and serviced luxury vacation suites on parcel 7 and Fairmont Raffles Holdings to manage Fairmont and Raffles brand hotel complexes and serviced luxury vacation suites on parcel 8. The Company is currently negotiating definitive agreements with Hilton Hotels and Fairmont Raffles Holdings.
 
  •  For parcel 3, the Company has signed a non-binding memorandum of agreement with an independent developer. The Company is currently negotiating the definitive agreement pursuant to which it will partner with the developer to build a multi-hotel complex, which may include a Cosmopolitan hotel. In addition, the Company has signed a non-binding letter of intent with Intercontinental Hotels Group to manage hotels under the Intercontinental and Holiday Inn International brands, and serviced luxury vacation suites under the Intercontinental brand, on the site. The Company is currently negotiating definitive agreements with Intercontinental Hotels Group. In total, the multi-hotel complex is intended to include approximately 3,900 hotel rooms, serviced luxury vacation suites, a casino and a retail shopping mall.
 
The casino at The Venetian Macao is currently planned to have approximately 850 table games and 4,100 slot machines when it opens in late August 2007, and is designed to have a final capacity of approximately 1,150 table games and 7,000 slot machines. The Four Seasons resort is currently planned to feature approximately 130 table games and 400 slot machines. The casinos on parcels 3, 5, 6, 7 and 8 are each currently planned to include approximately 325 table games and 1,750 slot machines. Upon completion, our developments on the Cotai Strip are currently planned to feature total gaming capacity of approximately 2,900 table games and 16,000 slot machines.
 
In February 2007, we entered into a land concession agreement with the Macao government pursuant to which we were awarded a concession by lease for parcels 1, 2 and 3 on the Cotai Strip, including the sites on which we are building The Venetian Macao (parcel 1) and the Four Seasons hotel (parcel 2). We made an initial premium payment of 853.0 million patacas (approximately $105.9 million at exchange rates in effect on June 30, 2007) towards the aggregate land premium of 2.59 billion patacas (approximately $321.6 million at exchange rates in effect on June 30, 2007). Additionally, we received a credit in the amount of 193.4 million patacas (approximately $24.0 million at exchange rates in effect on June 30, 2007) towards the aggregate land premium related to reclamation work and other works done on the land and the installation costs of an electrical substation. On April 18, 2007, the land concession became effective when it was published in Macao’s Official Gazette. Now that the land concession is effective, we are required to make land premium and annual rent payments relating to parcels 1, 2 and 3 in the amounts and at the times specified in the land concession. Each parcel’s share of the remaining balance will either be due upon the completion of the corresponding resort or be payable through seven equal semi-annual payments, bearing interest at 5% per annum, to be made over a four year period, whichever comes first. Subsequent to June 30, 2007, we paid 816.9 million patacas (approximately $101.4 million at exchange rates in effect on June 30, 2007) for the balance of the land premium payment due on parcel 1.
 
We currently estimate that the cost of developing and building The Venetian Macao will be approximately $2.4 billion (exclusive of the aggregate land concession payment of $321.6 million for parcels 1, 2 and 3). Our subsidiary, Venetian Macau Limited and its subsidiaries (collectively “VML”), obtained a $2.5 billion credit facility to fund the Sands Macao expansion and to partially fund the design, development, construction and pre-opening costs for The Venetian Macao, the Four Seasons hotel and some of our other development projects on the Cotai Strip, and to pay related fees and expenses. In March 2007, this credit facility was amended to expand the use of proceeds and remove certain restrictive conditions. In April 2007, we exercised our rights under this facility to access the $800.0 million of incremental facilities under the accordion feature set forth therein, which increased the total credit facility to $3.3 billion. Currently, we expect the total cost of development on the Cotai Strip to be in the range of $9.0 billion to $11.0 billion. We will need to arrange additional debt financing to finance those costs as well and there is no assurance that we will be able to obtain this additional debt financing.
 
We do not yet have all the necessary Macao government approvals that we will need in order to develop the Cotai Strip developments. We have commenced construction on our other Cotai Strip properties on land for which we have not yet been granted land concessions. If we do not obtain land concessions, we could lose all or a


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substantial part of our investment in these other Cotai Strip properties. As of June 30, 2007, we have capitalized approximately $309.7 million of construction costs related to our other Cotai Strip properties.
 
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 with it to create a master plan for, and develop, a leisure and convention destination resort on Hengqin Island, which is located within mainland China and approximately one mile from the Cotai Strip. We are actively preparing preliminary design concepts for presentation to the government. In January 2007, we were informed that the Zhuhai Government established a Project Coordination Committee to act as a government liaison empowered to work directly with us to advance the development of the project. We have interfaced with this committee and are actively working with the committee as we continue to advance our plans. The project remains subject to a number of conditions, including further governmental approvals.
 
Singapore Development Project
 
In August 2006, our wholly-owned subsidiary, Marina Bay Sands Pte. Ltd., entered into a development agreement with the Singapore Tourism Board to build and operate an integrated resort called the Marina Bay Sands in Singapore. The Marina Bay Sands will be a large integrated resort that includes three 50+ story hotel towers (totaling approximately 2,500 suites), a casino, an enclosed retail, dining and entertainment complex of more than 750,000 net leasable square feet, a convention center and meeting room complex of approximately 1.2 million square feet, theaters, and a landmark iconic structure at the bay-front promenade that contains an art/science museum. We expect the cost to develop and construct the Marina Bay Sands integrated resort will be approximately $3.6 billion, inclusive of $811.7 million paid in 2006 for the land premium, taxes and other fees. The Marina Bay Sands is expected to open in late 2009. We will need to arrange additional debt financing to finance those costs and there is no assurance that we will be able to obtain this additional financing.
 
United Kingdom Development Projects
 
In December 2006, we announced that one of our affiliates and Cantor Gaming, an affiliate of the global financial services company Cantor Fitzgerald, had agreed to launch an online casino and poker site initially aimed at serving the United Kingdom market. Cantor Gaming will provide an online casino and poker destination featuring the Company’s brands. The site will offer casino games, including blackjack, roulette, baccarat, video poker, slots and online poker. The offering will be part of a full end-to-end gaming service, including customer age and location verification, online payment processing and customer services. The site is expected to be launched during the second half of 2007. The site will be hosted, and the operator will be licensed, in compliance with the laws of Alderney, British Channel Islands. It will not accept U.S. customers.
 
The United Kingdom government recently announced that the approval for the country’s first regional super casino had been rescinded. Should the government approve an alternative super casino site, we intend to evaluate the efficacy of participating in the tender process for that site. In addition, we have existing agreements to develop and lease gaming and entertainment facilities with Sheffield United and Glasgow Rangers football clubs in the United Kingdom. Our ability to eventually develop and lease gaming and entertainment facilities under these agreements is subject to a number of conditions, including the passage of appropriate legislation and our ability to obtain a gaming license.
 
Other Development Projects
 
We are currently exploring the possibility of operating integrated resorts in additional Asian, U.S. and European jurisdictions.
 
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


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assets and liabilities. These estimates are based on historical information, information that is currently available to us and on various other assumptions that management believes to be reasonable under the circumstances. Actual results could vary from those estimates and we may change our estimates and assumptions in future evaluations. Changes in these estimates and assumptions may have a material effect on our results of operations and financial condition. We believe that the critical accounting policies discussed below affect our more significant judgments and estimates used in the preparation of our condensed consolidated financial statements. For a discussion of our significant accounting policies and estimates, please refer to Management’s Discussion and Analysis of Financial Condition and Results of Operations and Notes to Consolidated Financial Statements presented in our 2006 Annual Report on Form 10-K filed on February 28, 2007.
 
There were no newly identified significant accounting estimates in the six months ended June 30, 2007, nor were there any material changes to the critical accounting policies and estimates discussed in our 2006 Annual Report, with the exception of the adoption of Financial Accounting Standard Board issued Interpretation (“FIN”) No. 48, “Accounting for Uncertainty in Income Taxes,” which is described below.
 
Income Taxes
 
We are subject to income taxes in the United States and in several states and foreign jurisdictions in which we operate. We account for income taxes in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 109, “Accounting for Income Taxes.” Under SFAS No. 109, deferred tax assets and liabilities are recognized based on differences between financial statement and tax basis of assets and liabilities using enacted tax rates. SFAS No. 109 requires the recognition of deferred tax assets, net of any applicable valuation allowances, related to net operating loss carryforwards, tax credits and other temporary differences. The standard requires recognition of a future tax benefit to the extent that realization of such benefit is more likely than not; otherwise, a valuation allowance is applied.
 
Our income tax returns are subject to examination by the Internal Revenue Service (“IRS”) and other tax authorities. While positions taken in tax returns are sometimes subject to uncertainty in the tax laws, we do not take such positions unless we have “substantial authority” to do so under the Internal Revenue Code and applicable regulations. We may take positions on our tax returns based on substantial authority that are not ultimately accepted by the IRS. We are subject to income tax examination by tax authorities for years after 2002. There are currently no income tax returns being examined by the IRS or other major tax authorities.
 
We adopted the provisions of FIN No. 48 on January 1, 2007. As a result of the implementation of FIN No. 48, we recognized a $4.1 million increase in the liability for unrecognized tax benefits, which was accounted for as a reduction to opening retained earnings. At the adoption date of January 1, 2007, we had $8.5 million of unrecognized tax benefits, of which $6.1 million would affect our effective income tax rate if recognized. We do not expect a significant increase or decrease in unrecognized tax benefits over the next twelve months.
 
Recent Accounting Pronouncements
 
See related disclosure at “Item 1 — Financial Statements — Notes to Condensed Consolidated Financial Statements — Note 1 — Organization and Business of Company.”


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Summary Financial Results
 
The following table summarizes our results of operations:
 
                                                 
    Three Months Ended June 30,     Six Months Ended June 30,  
                Percent
                Percent
 
    2007     2006     Change     2007     2006     Change  
    (In thousands, except for percentages)  
 
Net revenues
  $ 612,926     $ 517,007       18.6 %   $ 1,241,144     $ 1,047,371       18.5 %
Operating expenses
    526,693       391,592       34.5 %     1,023,905       773,076       32.4 %
Operating income
    86,233       125,415       (31.2 )%     217,239       274,295       (20.8 )%
Income before income taxes
    40,167       116,734       (65.6 )%     142,192       254,577       (44.1 )%
Net income
    34,398       109,329       (68.5 )%     125,312       231,112       (45.8 )%
 
                                 
    Percent of Net Revenues  
    Three Months Ended
    Six Months Ended
 
    June 30,     June 30,  
    2007     2006     2007     2006  
 
Operating expenses
    85.9 %     75.7 %     82.5 %     73.8 %
Operating income
    14.1 %     24.3 %     17.5 %     26.2 %
Income before income taxes
    6.6 %     22.6 %     11.5 %     24.3 %
Net income
    5.6 %     21.1 %     10.1 %     22.1 %
 
Operating Results
 
Key operating revenue measurements
 
The Venetian’s operating revenue is dependent upon the volume of customers who stay at the hotel, which affects the price that can be charged for hotel rooms and the volume of table games and slot machine play. The Sands Macao is almost wholly dependent on casino customers that visit the casino on a daily basis. Hotel revenues are not material for the Sands Macao. Visitors to the Sands Macao arrive by ferry, automobile, bus, airplane or helicopter from Hong Kong, cities in China, and other Southeast Asian cities in close proximity to Macao and elsewhere.
 
The following are the key measurements we use to evaluate operating revenue:
 
Casino revenue measurements for Las Vegas:  Table games drop and slot handle are volume measurements. Win or hold percentage represents the percentage of drop or handle that is won by the casino and recorded as casino revenue. Table games drop represents the sum of markers issued (credit instruments) less markers paid at the table, plus cash deposited in the table drop box. Slot handle is the gross amount wagered or coin placed into slot machines in aggregate for the period cited. Drop and handle are abbreviations for table games drop and slot handle. Based upon our mix of table games, our table games produce a statistical average table win percentage (calculated before discounts), as measured as a percentage of table game drop, of generally between 20.0% to 22.0% and slot machines produce a statistical average slot machine win percentage (calculated before slot club cash incentives), as measured as a percentage of slot machine handle, of generally between 6.0% and 7.0%.
 
Casino revenue measurements for Macao:  We view Macao table games as being segregated into two groups, consistent with the Macao market’s convention: Rolling Chip play (all VIP play) and Non-Rolling Chip play (mostly non-VIP players). The volume measurement for Rolling Chip play is non-negotiable gaming chips wagered. The volume measurement for Non-Rolling Chip play is table games drop as described above. Rolling Chip volume and Non-Rolling Chip volume are not equivalent because Rolling Chip volume is a measure of amounts wagered versus dropped and therefore Rolling Chip volume is substantially higher than drop. Slot handle at the Sands Macao is the gross amount wagered or coins placed into slot machines in aggregate for the period cited.
 
We view Rolling Chip table games win as a percentage of Rolling Chip volume and we view Non-Rolling Chip table games win as a percentage of drop. Win or hold percentage represents the percentage of Rolling Chip volume, Non-Rolling Chip drop or slot handle that is won by the casino and recorded as casino revenue. Based upon our mix of table games in Macao, our Rolling Chip table games win percentage (calculated before discounts and


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commissions), as measured as a percentage of Rolling Chip volume, is expected to be approximately 3.0% and our Non-Rolling Chip table games are expected to produce a statistical average table win percentage (calculated before discounts and commissions), as measured as a percentage of table game drop, of generally between 18.0% to 20.0%. Similar to Las Vegas, our Macao slot machines produce a statistical average slot machine win percentage, as measured as a percentage of slot machine handle, of generally between 6.0% and 7.0%.
 
Actual win may vary from the statistical average. Generally, slot machine play at The Venetian and Sands Macao is conducted on a cash basis, The Venetian’s table games revenue is approximately 60.5% from credit based guests wagering for the six months ended June 30, 2007 and the Sands Macao’s table game play is conducted primarily on a cash basis.
 
Hotel revenue measurements:  Hotel occupancy rate, which is the average percentage of available hotel rooms occupied during a period, and average daily room rate, which is the average price of occupied rooms per day, are used as performance indicators. Revenue per available room represents a summary of hotel average daily room rates and occupancy. Because not all available rooms are occupied, average daily room rates are normally higher than revenue per available room. Reserved rooms where the guests do not show up for their stay and lose their deposit may be re-sold to walk-in guests. These rooms are considered to be occupied twice for statistical purposes due to obtaining the original deposit and the walk-in guest revenue. In cases where a significant number of rooms are resold, occupancy rates may be in excess of 100% and revenue per available room may be higher than the average daily room rate.
 
Three Months Ended June 30, 2007 Compared to the Three Months Ended June 30, 2006
 
Operating Revenues
 
Our net revenues consisted of the following:
 
                         
    Three Months Ended June 30,  
                Percent
 
    2007     2006     Change  
    (In thousands, except for percentages)  
 
Net Revenues
                       
Casino
  $ 458,879     $ 378,462       21.2 %
Rooms
    95,002       89,654       6.0 %
Food and beverage
    57,738       44,023       31.2 %
Convention, retail and other
    31,293       29,276       6.9 %
                         
      642,912       541,415       18.7 %
Less — promotional allowances
    (29,986 )     (24,408 )     (22.9 )%
                         
Total net revenues
  $ 612,926     $ 517,007       18.6 %
                         
 
Consolidated net revenues were $612.9 million for the three months ended June 30, 2007, an increase of $95.9 million compared to $517.0 million for the three months ended June 30, 2006. The increase in net revenues was due primarily to an increase in casino revenue.
 
Casino revenues for the three months ended June 30, 2007, increased $80.4 million as compared to the three months ended June 30, 2006. Of the increase, $66.3 million was attributable to the growth of our casino operations at the Sands Macao due primarily to the Rolling Chip program which generated an increase in Rolling Chip volume of $3.0 billion and an increase in Rolling Chip win percentage of 0.48 percentage points as compared to the three months ended June 30, 2006, and a $14.1 million increase primarily attributable to an increased drop of


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$26.8 million and an increased win percentage of 2.5 percentage points at The Venetian as compared to the three months ended June 30, 2006. The following table summarizes the results of our casino activity:
 
                         
    Three Months Ended June 30,  
    2007     2006     Change  
    (In thousands, except for percentages)  
 
Sands Macao
                       
Total casino revenues
  $ 373,486     $ 307,140       21.6 %
Non-Rolling Chip table games drop
  $ 900,724     $ 1,043,959       (13.7 )%
Non-Rolling Chip table games win percentage
    18.4 %     18.6 %     (0.2 )pts
Rolling Chip volume
  $ 7,262,501     $ 4,258,936       70.5 %
Rolling Chip win percentage
    3.44 %     2.96 %     0.48 pts
Slot handle
  $ 317,360     $ 263,183       20.6 %
Slot hold percentage
    6.9 %     7.7 %     (0.8 )pts
The Venetian
                       
Total casino revenues
  $ 85,393     $ 71,322       19.7 %
Table games drop
  $ 280,979     $ 254,206       10.5 %
Table games win percentage
    20.1 %     17.6 %     2.5 pts
Slot handle
  $ 562,796     $ 522,693       7.7 %
Slot hold percentage
    6.1 %     6.2 %     (0.1 )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 June 30, 2007, increased $5.3 million as compared to the three months ended June 30, 2006. The increase was primarily attributable to the increase in average daily room rate and an increase in the occupancy rate, offset by fewer room nights available due to our room renovation project. During the three months ended June 30, 2007, we achieved an occupancy rate in excess of 100% due to a significant number of guests not showing up for their reserved rooms that we were able to resell to walk-in guests. The following table summarizes the results of our room revenue activity:
 
                         
    Three Months Ended June 30,  
    2007     2006     Change  
 
The Venetian
                       
Average daily room rate
  $ 266     $ 242       9.9 %
Occupancy rate
    100.9 %     99.5 %     1.4 pts
Revenue per available room
  $ 268     $ 241       11.2 %
 
Food and beverage revenues for the three months ended June 30, 2007, increased $13.7 million as compared to the three months ended June 30, 2006. The increase was primarily attributable to food and beverage revenues at The Venetian, which increased $6.0 million due primarily to more groups in house, which generated higher food and beverage revenues, and a new restaurant that opened in April 2007, and at the Sands Macao, which increased $3.8 million due to increased number of visitors.
 
Convention, retail and other revenues for the three months ended June 30, 2007, increased $2.0 million as compared to the three months ended June 30, 2006. The increase is primarily attributable to $2.3 million of additional revenues associated with the “Phantom-The Las Vegas Spectacular” and “Gordie Brown at The Venetian” performances, which began in June 2006 and October 2006, respectively.


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Operating Expenses
 
The breakdown of operating expenses is as follows:
 
                         
    Three Months Ended June 30,  
                Percent
 
    2007     2006     Change  
    (In thousands, except for percentages)  
 
Operating Expenses
                       
Casino
  $ 283,768     $ 217,244       30.6 %
Rooms
    21,121       21,996       (4.0 )%
Food and beverage
    26,893       22,813       17.9 %
Convention, retail and other
    19,141       15,728       21.7 %
Provision for doubtful accounts
    4,717       3,321       42.0 %
General and administrative
    60,700       57,337       5.9 %
Corporate expense
    24,694       12,251       101.6 %
Rental expense
    8,297       3,803       118.2 %
Pre-opening expense
    40,320       4,354       826.0 %
Development expense
    1,260       7,861       (84.0 )%
Depreciation and amortization
    35,721       24,428       46.2 %
Loss on disposal of assets
    61       456       (86.6 )%
                         
Total operating expenses
  $ 526,693     $ 391,592       34.5 %
                         
 
Operating expenses were $526.7 million for the three months ended June 30, 2007, an increase of $135.1 million as compared to $391.6 million for the three months ended June 30, 2006. The increase in operating expenses was primarily attributable to higher operating revenues, growth of our operating business in Macao and to a lesser extent in Las Vegas, and pre-opening activities as more fully described below.
 
Casino department expenses for the three months ended June 30, 2007, increased $66.5 million as compared to the three months ended June 30, 2006. Of the $66.5 million increase, $39.4 million was due to the 39.0% gross win tax on casino revenues in Macao. Despite the higher gross win tax, casino operating margins at the Sands Macao are similar to those at The Venetian primarily because of lower labor, marketing and sales expenses in Macao. As the Rolling Chip volume increases as a percentage of our total gaming operations, casino margins will decrease due to the commissions paid under the Rolling Chip program. The increase in casino expenses reflects an elevated level of expenses of approximately $11.0 million at the Sands Macao associated with investments in our human resources and our Rolling Chip program. These elevated expenses are driven principally by our preparations for the opening of The Venetian Macao and we expect them to be eliminated from the Sands Macao upon the opening of The Venetian Macao. The remaining increase was primarily attributable to the additional payroll related expenses related to the continued growth of our operations at the Sands Macao.
 
Food and beverage department expenses for the three months ended June 30, 2007, increased $4.1 million as compared to the three months ended June 30, 2006, due primarily to the increase in food and beverage revenues as noted above.
 
Convention, retail and other expenses for the three months ended June 30, 2007, increased $3.4 million as compared to the three months ended June 30, 2006. This increase is primarily attributable to the increase convention, retail and other revenues noted above as well as increased payroll related expenses related to the continued growth of our operations at the Sands Macao.
 
The provision for doubtful accounts was $4.7 million for the three months ended June 30, 2007, compared to $3.3 million for the three months ended June 30, 2006. The amount of this provision can vary over short periods of time because of factors specific to the customers who owe us money from gaming activities at any given time. We believe that the amount of our provision for doubtful accounts in the future will depend upon the state of the


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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 June 30, 2007, increased $3.4 million as compared to the three months ended June 30, 2006. The increase was attributable to the growth of our businesses in Las Vegas and Macao.
 
Corporate expense for the three months ended June 30, 2007, increased $12.4 million as compared to the three months ended June 30, 2006. The increase was primarily attributable to a $4.2 million increase in legal fees as well as increases of $5.1 million in payroll related expenses and $2.1 million in other corporate general and administrative costs as we continue to build our corporate infrastructure to support our current and planned growth.
 
Rental expense for the three months ended June 30, 2007, increased $4.5 million as compared to the three months ended June 30, 2006. The increase is primarily attributable to the amortization of Singapore’s leasehold interest in land entered into in August 2006 and Macao’s leasehold interest in land entered into in February 2007.
 
Pre-opening and development expenses were $40.3 million and $1.3 million, respectively, for the three months ended June 30, 2007, compared to $4.4 million and $7.9 million, respectively, for the three months ended June 30, 2006. Pre-opening expense represents personnel and other costs incurred prior to the opening of new ventures that are expensed as incurred. Pre-opening expenses for the three months ended June 30, 2007 were primarily related to The Venetian Macao and other Cotai Strip projects and to the Marina Bay Sands project in Singapore. Also included in pre-opening expenses was a $4.8 million charge recorded during the three months ended June 30, 2007 to account for pre-opening expenses that were previously capitalized on the balance sheet during the years ended December 31, 2005 and 2006, and the three months ended March 31, 2007. See “Item 1 — Financial Statements — Notes to Condensed Consolidated Financial Statements — Note 3 — Property and Equipment” for further details. Development expense includes 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 June 30, 2007 were primarily related to our activities in Hengqin Island. We expect that pre-opening expenses will continue to increase significantly in 2007 with the scheduled openings of The Venetian Macao and The Palazzo, and as we progress with our projects on the Cotai Strip, in Singapore and in Pennsylvania.
 
Depreciation and amortization expense for the three months ended June 30, 2007, increased $11.3 million as compared to the three months ended June 30, 2006. The increase was primarily the result of capital improvements being placed into service at The Venetian and Sands Macao. Additionally, there was $2.5 million in accelerated depreciation expense during the three months ended June 30, 2007, related to assets at The Venetian being replaced in connection with the room renovation project.
 
Interest Expense
 
The following table summarizes information related to interest expense on long-term debt:
 
                 
    Three Months Ended June 30,  
    2007     2006  
    (In thousands, except for percentages)  
 
Interest cost
  $ 112,376     $ 44,585  
Less: Capitalized interest
    (57,967 )     (20,900 )
                 
Interest expense, net
  $ 54,409     $ 23,685  
                 
Cash paid for interest
  $ 91,794     $ 37,820  
Average total debt balance
  $ 5,774,430     $ 2,301,277  
Weighted average interest rate
    7.8 %     7.7 %
 
Interest expense, net of amounts capitalized, was $54.4 million for the three months ended June 30, 2007, an increase of $30.7 million as compared to $23.7 million for the three months ended June 30, 2006. This increase is primarily attributable to an increase in our average long-term debt balances resulting primarily from the completion of the $2.5 billion Macao credit facility in May 2006 (increased to $3.3 billion in March 2007), the $1.44 billion


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Singapore bridge facility in August 2006 and the $5.0 billion new senior secured credit facility in May 2007. We expect interest expense will continue to increase as our long-term debt balances and interest rates increase. This increase was offset by the capitalization of $58.0 million of interest during the three months ended June 30, 2007, compared to $20.9 million of capitalized interest during the three months ended June 30, 2006. Leasehold interest in land payments made in Macao and Singapore are not considered qualifying assets and as such, are not included in the base amount which is used to determine capitalized interest. We expect that the capitalized interest amount will also continue to increase as The Venetian Macao and The Palazzo projects approach their opening dates later this year and as we increase our construction activities on the Cotai Strip, at the Marina Bay Sands and at Sands Bethworks.
 
Other Factors Affecting Earnings
 
Interest income for the three months ended June 30, 2007, was $21.4 million, an increase of $6.3 million as compared to $15.0 million for the three months ended June 30, 2006. The increase was primarily attributable to additional invested cash balances, primarily from our borrowings under the U.S. senior secured credit facilities and the Macao credit facility, which have not yet been spent.
 
Other expense for the three months ended June 30, 2007, was $2.3 million as compared to $14,000 for the three months ended June 30, 2006. The $2.3 million expense amount was primarily attributable to foreign exchange losses associated with intercompany lending activities in Macao.
 
The loss on early retirement of debt of $10.7 million for the three months ended June 30, 2007, was due to the refinancing of our U.S. senior secured credit facility and the early retirement of the Phase II mall construction loan.
 
Our effective income tax rate for the three months ended June 30, 2007, was 14.4%. The effective tax rate for the 2007 period was significantly lower than the United States federal statutory rate due primarily to a zero effective tax rate on our Macao net income as a result of a temporary income tax exemption in Macao on gaming operations, which is set to expire at the end of 2008. The effective income tax rate was 6.3% for the three months ended June 30, 2006, primarily due to the application of the aforementioned Macao temporary income tax exemption.
 
Six Months Ended June 30, 2007 Compared to the Six Months Ended June 30, 2006
 
Operating Revenues
 
Our net revenues consisted of the following:
 
                         
    Six Months Ended June 30,  
                Percent
 
    2007     2006     Change  
    (In thousands, except for percentages)  
 
Net Revenues
                       
Casino
  $ 924,613     $ 753,844       22.7 %
Rooms
    192,870       180,792       6.7 %
Food and beverage
    112,097       95,839       17.0 %
Convention, retail and other
    74,339       64,281       15.6 %
                         
      1,303,919       1,094,756       19.1 %
Less — promotional allowances
    (62,775 )     (47,385 )     (32.5 )%
                         
Total net revenues
  $ 1,241,144     $ 1,047,371       18.5 %
                         
 
Consolidated net revenues were $1.24 billion for the six months ended June 30, 2007, an increase of $193.8 million compared to $1.05 billion for the six months ended June 30, 2006. The increase in net revenues was due primarily to an increase in casino revenue of $170.8 million.
 
Casino revenues for the six months ended June 30, 2007, increased $170.8 million as compared to the six months ended June 30, 2006. Of the increase, $134.2 million was attributable to the growth of our casino operations at the Sands Macao due primarily to the Rolling Chip program which generated an increase in Rolling Chip volume


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of $6.16 billion and an increase in win percentage of 0.37 percentage points as compared to the six months ended June 30, 2006, and a $36.6 million increase primarily attributable to an increased win percentage of 4.8 percentage points at The Venetian as compared to the six months ended June 30, 2006. The following table summarizes the results of our casino activity:
 
                         
    Six Months Ended June 30,  
    2007     2006     Change  
    (In thousands, except for percentages)  
 
Sands Macao
                       
Total casino revenues
  $ 719,582     $ 585,386       22.9 %
Non-Rolling Chip table games drop
  $ 1,937,736     $ 2,102,952       (7.9 )%
Non-Rolling Chip table games win percentage
    18.5 %     18.6 %     (0.1 )pts
Rolling Chip volume
  $ 14,119,491     $ 7,955,154       77.5 %
Rolling Chip win percentage
    3.12 %     2.75 %     0.37 pts
Slot handle
  $ 614,454     $ 510,231       20.4 %
Slot hold percentage
    7.1 %     7.7 %     (0.6 )pts
The Venetian
                       
Total casino revenues
  $ 205,031     $ 168,458       21.7 %
Table games drop
  $ 634,107     $ 617,664       2.7 %
Table games win percentage
    25.1 %     20.3 %     4.8 pts
Slot handle
  $ 1,151,240     $ 1,052,151       9.4 %
Slot hold percentage
    6.1 %     6.3 %     (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 six months ended June 30, 2007, increased $12.1 million as compared to the six months ended June 30, 2006. The increase was attributable primarily to the increase in average daily room rate, offset by fewer room nights available due to our room renovation project. The following table summarizes the results of our room revenue activity:
 
                         
    Six Months Ended June 30,  
    2007     2006     Change  
 
The Venetian
                       
Average daily room rate
  $ 271     $ 246       10.2 %
Occupancy rate
    99.8 %     99.7 %     0.1 pts
Revenue per available room
  $ 271     $ 245       10.6 %
 
Food and beverage revenues for the six months ended June 30, 2007, increased $16.3 million as compared to the six months ended June 30, 2006. The increase was primarily attributable to food and beverage revenues at the Sands Macao, which increased $9.9 million due to the increased number of visitors.
 
Convention, retail and other revenues for the six months ended June 30, 2007, increased $10.1 million as compared to the six months ended June 30, 2006. The increase is primarily attributable to $8.4 million of other revenue related to non-refundable deposits and fees related to large group room cancellations and $5.6 million in revenues associated with the “Phantom-The Las Vegas Spectacular” and “Gordie Brown at The Venetian” performances, which began in June 2006 and October 2006, respectively.


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Operating Expenses
 
The breakdown of operating expenses is as follows:
 
                         
    Six Months Ended June 30,  
                Percent
 
    2007     2006     Change  
    (In thousands, except for percentages)  
 
Operating Expenses
                       
Casino
  $ 562,465     $ 422,586       33.1 %
Rooms
    43,645       43,748       (0.2 )%
Food and beverage
    50,526       46,871       7.8 %
Convention, retail and other
    36,572       32,122       13.9 %
Provision for doubtful accounts
    20,233       8,310       143.5 %
General and administrative
    118,671       112,152       5.8 %
Corporate expense
    43,213       25,205       71.4 %
Rental expense
    15,005       7,510       99.8 %
Pre-opening expense
    62,777       6,573       855.1 %
Development expense
    3,606       17,029       (78.8 )%
Depreciation and amortization
    66,953       49,433       35.4 %
Loss on disposal of assets
    239       1,537       (84.5 )%
                         
Total operating expenses
  $ 1,023,905     $ 773,076       32.4 %
                         
 
Operating expenses were $1.02 billion for the six months ended June 30, 2007, an increase of $250.8 million as compared to $773.1 million for the six months ended June 30, 2006. The increase in operating expenses was primarily attributable to higher operating revenues, growth of our operating businesses in Macao and to a lesser extent in Las Vegas, and pre-opening activities as more fully described below.
 
Casino department expenses for the six months ended June 30, 2007, increased $139.9 million as compared to the six months ended June 30, 2006. Of the $139.9 million increase, $78.6 million was due to the 39.0% gross win tax on casino revenues in Macao. Despite the higher gross win tax, casino operating margins at the Sands Macao are similar to those at The Venetian primarily because of lower labor, marketing and sales expenses in Macao. As the Rolling Chip volume increases as a percentage of our total gaming operations, casino margins will decrease due to the commissions paid under the Rolling Chip program. The increase in casino expenses reflects an elevated level of expenses of approximately $23.0 million at the Sands Macao associated with investments in our human resources and our Rolling Chip program. These elevated expenses are driven principally by our preparations for the opening of The Venetian Macao and we expect them to be eliminated from the Sands Macao upon the opening of The Venetian Macao. The remaining increase was primarily attributable to the additional payroll related expenses related to the continued growth of our operations at the Sands Macao.
 
Food and beverage department expenses for the six months ended June 30, 2007, increased $3.7 million as compared to the six months ended June 30, 2006. Convention, retail and other department expenses for the six months ended June 30, 2007, increased $4.5 million as compared to the six months ended June 30, 2006. These increases are primarily attributable to the increases in their respective departmental revenues as noted above.
 
The provision for doubtful accounts was $20.2 million for the six months ended June 30, 2007, compared to $8.3 million for the six months ended June 30, 2006, due primarily to a $10.6 million provision for one customer during the three months ended March 31, 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.


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General and administrative expenses for the six months ended June 30, 2007, increased $6.5 million as compared to the six months ended June 30, 2006. The increase was attributable to the growth of our businesses in Las Vegas and Macao.
 
Corporate expense for the six months ended June 30, 2007, increased $18.0 million as compared to the six months ended June 30, 2006. The increase was primarily attributable to a $4.7 million increase in legal fees as well as increases of $8.1 million in payroll related expenses and $3.8 million of other corporate general and administrative costs as we continue to build our corporate infrastructure to support our current and planned growth.
 
Rental expense for the six months ended June 30, 2007, increased $7.5 million as compared to the six months ended June 30, 2006. The increase is primarily attributable to the amortization of Singapore’s leasehold interest in land entered into in August 2006 and Macao’s leasehold interest in land entered into in February 2007.
 
Pre-opening and development expenses were $62.8 million and $3.6 million, respectively, for the six months ended June 30, 2007, compared to $6.6 million and $17.0 million, respectively, for the six months ended June 30, 2006. Pre-opening expense represents personnel and other costs incurred prior to the opening of new ventures that are expensed as incurred. Pre-opening expenses for the six months ended June 30, 2007, were primarily related to The Venetian Macao and other Cotai Strip projects and to the Marina Bay Sands project in Singapore. Also included in pre-opening expenses was a $4.8 million charge recorded during the three months ended June 30, 2007 to account for pre-opening expenses that were previously capitalized on the balance sheet during the years ended December 31, 2005 and 2006, and the three months ended March 31, 2007. See “Item 1 — Financial Statements — Notes to Condensed Consolidated Financial Statements — Note 3 — Property and Equipment” for further details. Development expense includes the costs associated with the Company’s evaluation and pursuit of new business opportunities, which are also expensed as incurred. Development expenses for the six months ended June 30, 2007, were primarily related to our activities in Hengqin Island and Europe. We expect that pre-opening expenses will continue to increase significantly in 2007 with scheduled openings of The Venetian Macao and The Palazzo, and as we progress with our other projects on the Cotai Strip, in Singapore and in Pennsylvania.
 
Depreciation and amortization expense for the six months ended June 30, 2007, increased $17.5 million as compared to the six months ended June 30, 2006. The increase was primarily the result of capital improvements being placed into service at The Venetian and Sands Macao. Additionally, there was $5.0 million in accelerated depreciation expense during the six months ended June 30, 2007, related to assets at The Venetian being replaced in connection with the room renovation project.
 
Interest Expense
 
The following table summarizes information related to interest expense on long-term debt:
 
                 
    Six Months Ended June 30,  
    2007     2006  
    (In thousands, except for percentages)  
 
Interest cost
  $ 193,808     $ 74,313  
Less: Capitalized interest
    (104,787 )     (29,213 )
                 
Interest expense, net
  $ 89,021     $ 45,100  
                 
Cash paid for interest
  $ 172,210     $ 69,725  
Average total debt balance
  $ 4,981,191     $ 1,978,690  
Weighted average interest rate
    7.8 %     7.5 %
 
Interest expense, net of amounts capitalized, was $89.0 million for the six months ended June 30, 2007, an increase of $43.9 million as compared to the six months ended June 30, 2006. This increase is primarily attributable to an increase in our average long-term debt balances resulting primarily from the completion of the $2.5 billion Macao credit facility in May 2006 (increased to $3.3 billion in March 2007), the $1.44 billion Singapore bridge facility in August 2006 and the $5.0 billion new senior secured credit facility in May 2007. We expect interest expense will continue to increase as our long-term debt balances and interest rates increase. This increase was offset by the capitalization of $104.8 million of interest during the six months ended June 30, 2007, compared to


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$29.2 million of capitalized interest during the six months ended June 30, 2006. Leasehold interest in land payments made in Macao and Singapore are not considered qualifying assets and as such, are not included in the base amount which is used to determine capitalized interest. We expect that the capitalized interest amount will also continue to increase as The Venetian Macao and The Palazzo projects approach their opening dates later this year and as we increase our construction activities on the Cotai Strip, at the Marina Bay Sands and at Sands Bethworks.
 
Other Factors Affecting Earnings
 
Interest income for the six months ended June 30, 2007, was $34.0 million, an increase of $8.8 million as compared to $25.2 million for the six months ended June 30, 2006. The increase was primarily attributable to additional invested cash balances, primarily from our borrowings under the U.S senior secured credit facilities and the Macao credit facility, which have not yet been spent.
 
Other expense for the six months ended June 30, 2007, was $9.3 million as compared to other income of $0.2 million for the six months ended June 30, 2006. The $9.3 million expense amount was primarily attributable to foreign exchange losses associated with intercompany lending activities in Macao.
 
The loss on early retirement of debt of $10.7 million for the six months ended June 30, 2007, was due to the refinancing of our U.S senior secured credit facility and the early retirement of the Phase II mall construction loan.
 
Our effective income tax rate for the six months ended June 30, 2007, was 11.9%. The effective income tax rate for the 2007 period was significantly lower than the United States federal statutory rate due primarily to a zero effective tax rate on our Macao net income as a result of a temporary income tax exemption in Macao on gaming operations, which is set to expire at the end of 2008. The effective tax rate was 9.2% for the six months ended June 30, 2006, due to the aforementioned Macao temporary income tax exemption.
 
Liquidity and Capital Resources
 
Cash Flows — Summary
 
Our cash flows consisted of the following:
 
                 
    Six Months Ended June 30,  
    2007     2006  
    (In thousands)  
 
Net cash provided by operations
  $ 177,317     $ 97,181  
                 
Investing cash flows:
               
Capital expenditures
    (1,692,049 )     (730,475 )
Change in restricted cash
    (90,469 )     (1,034,881 )
                 
Net cash used in investing activities
    (1,782,518 )     (1,765,356 )
                 
Financing cash flows:
               
Repayments of long-term debt
    (1,751,627 )     (79,607 )
Proceeds of long term-debt
    4,717,804       1,609,204  
Other
    (49,998 )     (37,244 )
                 
Net cash provided by financing activities
    2,916,179       1,492,353  
                 
Effect of exchange rate on cash
    6,059       975  
                 
Net increase (decrease) in cash and cash equivalents
  $ 1,317,037     $ (174,847 )
                 
 
Cash Flows — Operating Activities
 
The Venetian’s slot machine and retail hotel rooms businesses are generally conducted on a cash basis, its table games and group hotel rooms businesses are conducted on a cash and credit basis and its banquet business is conducted primarily on a credit basis resulting in operating cash flows being generally affected by changes in operating income and accounts receivables. The Sands Macao table games and slot machine play is currently


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conducted primarily on a cash basis. Net cash provided by operating activities for the six months ended June 30, 2007, was $177.3 million, an increase of $80.1 million as compared with $97.2 million for the six months ended June 30, 2006. The main factor contributing to the increase was a significant decrease in prepaid expenses and other assets, primarily due to payments made in 2006 to the Singapore government for deposits on the Marina Bay Sands project, offset by $108.9 million in land premium payments made in 2007 to the Macao government for The Venetian Macao and two other sites on the Cotai Strip (parcels 2 and 3).
 
Cash Flows — Investing Activities
 
Capital expenditures for the six months ended June 30, 2007, totaled $1.69 billion, including $78.7 million on expansions, improvements and maintenance capital expenditures at The Venetian and The Sands Expo Center in Las Vegas; $942.6 million for construction and development activities in Macao (including the Sands Macao, The Venetian Macao and other developments on the Cotai Strip); $128.7 million for construction and development activities in Singapore; $467.7 million for construction and development activities at The Palazzo and $74.4 million for corporate and other activities, primarily for the purchase of aircraft.
 
Restricted cash increased $90.5 million due primarily to additional borrowings in Macao and Singapore which increased their restricted cash balances by $426.3 million and $74.0 million, respectively. This was partially offset by decreases in restricted cash balances at The Venetian, The Palazzo and The Sands Expo Center of $374.7 million, $21.5 million and $18.3 million, respectively, due primarily to the refinancing of the new $5.0 billion senior secured credit facility and construction payments related to The Palazzo.
 
Cash Flows — Financing Activities
 
For the six months ended June 30, 2006, net cash flows provided from financing activities were $2.92 billion. The net increase was primarily attributable to the borrowings of $3.0 billion under the new U.S senior secured credit facility, $1.3 billion under the Macao credit facility and $205.4 million under the Singapore credit facility, offset by the payments (net of borrowings) of $1.43 billion for the existing U.S. senior secured credit facility and payments of $166.5 million for the Phase II mall construction loan and $90.9 million for The Sands Expo Center mortgage loan.
 
Capital and Liquidity
 
As of June 30, 2007, and December 31, 2006, we held unrestricted cash and cash equivalents of $1.79 billion and $468.1 million, respectively. We expect to fund our operations, capital expenditures at The Venetian, The Sands Expo Center and the Sands Macao (other than the Sands Macao expansion construction) and debt service requirements from existing cash balances, operating cash flows and borrowings under our Las Vegas and Macao revolving credit facilities.
 
In March 2007, the $2.5 billion Macao credit facility was amended to expand the use of proceeds and remove certain restrictive conditions. In April 2007, the lenders of the Macao credit facility approved a reduction of the interest rate margin for all classes of loans by 50 basis points and we exercised our rights under the Macao credit facility to access the $800.0 million of incremental facilities under the accordion feature set forth therein, which increased the funded term loan portion by $600.0 million, the revolving credit facility by $200.0 million (from $500.0 million to $700.0 million) and the total credit facility to $3.3 billion. As of June 30, 2007, we had fully drawn $700.0 million under the delayed draw facility, with no amounts outstanding under the revolving credit facility.
 
In February 2007, we entered into promissory notes totaling $72.0 million to finance the purchase of one airplane and to finance two others that were already owned. In April 2007, we entered into promissory notes totaling $20.3 million to finance the purchase of an additional airplane. In May 2007, we entered into a $5.0 billion senior secured credit facility and as of June 30, 2007, $2.0 billion remains available under the facility. See “Item 1 — Financial Statements — Notes to Condensed Consolidated Financial Statements — Note 4 — Long-Term Debt” for details on these financing transactions.


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Aggregate Indebtedness and Other Known Contractual Obligations
 
As of June 30, 2007, the following were material changes to our aggregated indebtedness and other known contractual obligations, which are set forth in the table included in our Annual Report on Form 10-K for the year ended December 31, 2006: (i) the $3.0 billion borrowing under the new U.S. senior secured credit facility, (ii) payoffs (net of borrowings) of $1.43 billion on the existing U.S. senior secured credit facility, (iii) payoff of $90.9 million on the Sands Expo Center mortgage loan, (iv) payoff of $114.5 million on the Phase II mall construction loan, (v) additional borrowing of $1.3 billion on the Macao credit facility, (vi) additional borrowing of $206.3 million on the Singapore credit facility, (vii) borrowings of $91.3 million on the airplane financings, (viii) borrowings of $6.2 million of other debt and (ix) being awarded the Macao land concession. The following table reflects the impact of the foregoing:
 
                                         
    Payments Due by Period Ending June 30, 2007(11)  
    Less than
                         
    1 Year     1-3 Years     3-5 Years     Thereafter     Total  
    (In thousands)  
 
New senior secured credit facility — term B(1)
  $ 30,000     $ 60,000     $ 60,000     $ 2,850,000     $ 3,000,000  
Senior secured credit facility(2)
    (2,925 )     (283,528 )     (1,143,675 )           (1,430,128 )
The Sands Expo Center mortgage loan(3)
    (90,868 )                       (90,868 )
Macao credit facility(4)
          26,000       698,000       576,000       1,300,000  
Singapore credit facility(5)
          206,317                   206,317  
Airplane financings(6)
    3,688       7,375       7,375       72,890       91,328  
Phase II mall construction loan(7)
    (114,500 )                       (114,500 )
Other debt(8)
    6,173                         6,173  
Macao subsidiary land lease(9)
    155,208       35,864       20,825       57,853       269,750  
Variable interest payments(10)
    217,686       433,315       524,524       438,697       1,614,222  
                                         
Total
  $ 204,462     $ 485,343     $ 167,049     $ 3,995,440     $ 4,852,294  
                                         
 
 
(1) Amount represents the $3.0 billion funded term loan which is part of the new $5.0 billion senior secured credit facility entered into on May 23, 2007. The $3.0 billion term loan matures on May 23, 2014, and is subject to quarterly amortization of $7.5 million and a balloon payment of the remaining balance due on May 23, 2014.
 
(2) Amount represents the payoff during 2007 of the outstanding $1.43 billion on the existing senior secured credit facility.
 
(3) Amount represents the payoff during 2007 of the outstanding $90.9 million on The Sands Expo Center mortgage loan.
 
(4) Amount represents the additional $1.3 billion borrowed during 2007 under the Term B Delayed Draw Facility and the Term B accordion. The Macao Term B Delayed Draw Facility matures on May 25, 2013, and is subject to nominal amortization for the first five years with the remainder of the loan payable in four equal installments in the last year immediately preceding its maturity date. The Macao Term B accordion matures on May 25, 2013, and is subject to nominal amortization for the first five years with the remainder of the loan payable in three equal installments in the last year immediately preceding its maturity date.
 
(5) Amount represents the additional $206.3 million outstanding at June 30, 2007. The Singapore credit facility matures on August 22, 2008, and has no interim amortization.
 
(6) Amount represents the airplane financings borrowed during 2007, which mature in March 2017.


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(7) Amount represents the payoff during 2007 of the outstanding $114.5 million on the Phase II mall construction loan.
 
(8) Amount represents the other debt borrowed during 2007, which matures on March 28, 2008.
 
(9) In February 2007, we were awarded a concession by lease for parcels 1, 2 and 3 on the Cotai Strip, including the parcels on which we are building The Venetian Macao and the Four Seasons hotel. Each parcel’s share of the remaining land premium balance will either be due upon completion of the corresponding resort or be payable through seven semi-annual payments to be made over a four year period and bearing interest at 5%, whichever comes first. The total remaining payment obligation under this lease was $269.8 million as of June 30, 2007.
 
(10) Amount represents the incremental increase in estimated variable interest payments based on the changes in long-term debt obligations noted above. Based on June 30, 2007, LIBOR rates of 5.4% plus the applicable interest rate spread in accordance with the respective debt agreements.
 
(11) We adopted the provisions of FIN No. 48 on January 1, 2007, and as of June 30, 2007, had a $12.0 million liability related to unrecognized tax benefits.
 
Restrictions on Distributions
 
We are a parent company with limited business operations. Our main asset is the stock and membership interests of our subsidiaries. The debt instruments of Las Vegas Sands, LLC contain significant restrictions on the payment of dividends and distributions to us by Las Vegas Sands, LLC. In particular, the $5.0 billion U.S. senior secured credit facility prohibits Las Vegas Sands, LLC from paying dividends or making distributions to us, or investing in us, with limited exceptions. Las Vegas Sands, LLC may make certain distributions to us to cover taxes, certain reasonable and customary operating costs and interest on certain pieces of indebtedness. In addition, Las Vegas Sands, LLC may make distributions to us in any amount up to $250.0 million to make certain investments that are otherwise permitted by the $5.0 billion senior secured credit facility.
 
The debt instruments of our subsidiaries, including the Macao credit facility for the construction of The Venetian Macao, contain certain restrictions that, among other things, limit the ability of certain subsidiaries to incur additional indebtedness, issue disqualified stock or equity interests, pay dividends or make other distributions, repurchase equity interests or certain indebtedness, create certain liens, enter into certain transactions with affiliates, enter into certain mergers or consolidations or sell our assets of our company without prior approval of the lenders or noteholders. Financial covenants included in the $5.0 billion U.S. senior secured credit facility and the Macao credit facility include a minimum interest coverage ratio and a maximum leverage ratio. Financial covenants that solely pertain to the Macao credit facility include maximum capital expenditure limitations and minimum consolidated adjusted EBITDA requirements.
 
Inflation
 
We believe that inflation and changing prices have not had a material impact on our net sales, revenues or income from continuing operations during the past year.
 
Special Note Regarding Forward-Looking Statements
 
This report contains forward-looking statements that are made pursuant to the Safe Harbor Provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements include the discussions of our business strategies and expectations concerning future operations, margins, profitability, liquidity, and capital resources. In addition, in certain portions included in this report, the words: “anticipates,” “believes,” “estimates,” “seeks,” “expects,” “plans,” “intends” and similar expressions, as they relate to our company or its management, are intended to identify forward-looking statements. Although we believe that these forward-looking statements are reasonable, we cannot assure you that any forward-looking statements will prove to be correct. These forward-looking statements involve known and unknown risks, uncertainties and other factors, which may cause our actual results, performance or achievements to be materially different from any future results, performance or


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achievements expressed or implied by these forward-looking statements. These factors include, among others, the risks associated with:
 
  •  general economic and business conditions which may impact levels of disposable income, consumer spending and pricing of hotel rooms;
 
  •  the uncertainty of tourist behavior related to spending and vacationing at casino resorts in Las Vegas and Macao;
 
  •  disruptions or reductions in travel due to conflicts with Iraq and any future terrorist incidents;
 
  •  outbreaks of infectious diseases, such as severe acute respiratory syndrome or avian flu, in our market areas;
 
  •  our dependence upon three properties in two markets for all of our cash flow;
 
  •  new developments, construction and ventures, including The Palazzo, The Venetian Macao and other Cotai Strip developments, the Marina Bay Sands in Singapore and Sands Bethworks;
 
  •  our ability to obtain sufficient funding for our developments, including our developments on the Cotai Strip and in Singapore;
 
  •  the passage of new legislation and receipt of governmental approvals for our proposed developments in Macao, Singapore and other jurisdictions where we are planning to operate;
 
  •  our substantial leverage and debt service (including sensitivity to fluctuations in interest rates and other capital markets trends);
 
  •  our insurance coverage, including the risk that we have not obtained sufficient coverage against acts of terrorism or will only be able to obtain additional coverage at significantly increased rates;
 
  •  government regulation of the casino industry, including gaming license regulation, the legalization of gaming in certain domestic jurisdictions, including Native American reservations, and regulation of gaming on the Internet;
 
  •  increased competition and additional construction in Las Vegas and Macao, including recent and upcoming increases in hotel rooms, meeting and convention space and retail space;
 
  •  fluctuations in the demand for all-suites rooms, occupancy rates and average daily room rates in Las Vegas;
 
  •  the popularity of Las Vegas as a convention and trade show destination;
 
  •  new taxes or changes to existing tax rates;
 
  •  our ability to meet certain development deadlines in Macao and Singapore;
 
  •  our ability to maintain our gaming subconcession in Macao;
 
  •  the completion of infrastructure projects in Macao;
 
  •  increased competition and other planned construction projects in Macao; and
 
  •  any future litigation.
 
All future written and verbal forward-looking statements attributable to us or any person acting on our behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this section. New risks and uncertainties arise from time to time, and it is impossible for us to predict these events or how they may affect us. Readers are cautioned not to place undue reliance on these forward-looking statements. We assume no obligation to update any forward-looking statements after the date of this report as a result of new information, future events or developments, except as required by federal securities laws.
 
ITEM 3 — QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 
Market risk is the risk of loss arising from adverse changes in market rates and prices, such as interest rates, foreign currency exchange rates and commodity prices. Our primary exposure to market risk is interest rate risk


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associated with our long-term debt. We attempt to manage our interest rate risk by managing the mix of our long-term fixed-rate borrowings and variable rate borrowings, and by use of interest rate cap agreements. The ability to enter into interest rate cap agreements allows us to manage our interest rate risk associated with our variable rate debt. We do not hold or issue financial instruments for trading purposes and do not enter into derivative transactions that would be considered speculative positions. Our derivative financial instruments consist exclusively of interest rate cap agreements, which do not qualify for hedge accounting. Interest differentials resulting from these agreements are recorded on an accrual basis as an adjustment to interest expense.
 
To manage exposure to counterparty credit risk in interest rate cap agreements, we enter into agreements with highly rated institutions that can be expected to fully perform under the terms of such agreements. Frequently, these institutions are also members of the bank groups providing our credit facilities, which management believes further minimizes the risk of nonperformance.
 
The table below provides information about our financial instruments that are sensitive to changes in interest rates. For debt obligations, the table presents notional amounts and weighted average interest rates by contractual maturity dates. Notional amounts are used to calculate the contractual payments to be exchanged under the contract. Weighted average variable rates are based on June 30, 2007, LIBOR rates plus the applicable interest rate spread in accordance with the respective debt agreements. The information is presented in U.S. dollar equivalents, which is the Company’s reporting currency, for the years ending June 30:
 
                                                                 
                                              Fair
 
    2008     2009     2010     2011     2012     Thereafter     Total     Value(1)  
    (In millions, except for percentages)  
 
                                                                 
LIABILITIES                                                                
Short-term debt
                                                               
Variable rate
  $ 43.6     $     $     $     $     $     $ 43.6     $ 43.6  
Average interest rate(2)
    6.9 %                                   6.9 %     6.9 %
Long-term debt
                                                               
Fixed rate
  $     $     $     $     $     $ 250.0     $ 250.0     $ 238.1  
Average interest rate(2)
                                  6.4 %     6.4 %     7.2 %
Variable rate
  $     $ 1,215.9     $ 91.2     $ 129.3     $ 730.7     $ 4,650.9     $ 6,818.0     $ 6,818.0  
Average interest rate(2)
          4.2 %     7.2 %     7.1 %     7.6 %     6.9 %     6.5 %     6.5 %
ASSETS                                                                
Cap Agreement(3)
  $     $     $     $ 0.3     $     $     $ 0.3     $ 0.3  
 
 
(1) The fair values are based on the borrowing rates currently available for debt instruments with similar terms and maturities and market quotes of our publicly traded debt.
 
(2) Based upon contractual interest rates for fixed rate indebtedness or current LIBOR rates for variable rate indebtedness.
 
(3) As of June 30, 2007, we have six interest rate cap agreements with a fair value of $0.3 million based on a quoted market value from the institution holding the agreements.
 
Borrowings under the $5.0 billion U.S. senior secured credit facility bear interest at our election, at either an adjusted Eurodollar rate or at an alternative base rate plus a credit spread. The revolving facility bears interest at the alternative base rate plus 0.5% per annum or at the adjusted Eurodollar rate plus 1.5% per annum and the term loans bear interest at the alternative base rate plus 0.75% per annum or at the adjusted Eurodollar rate plus 1.75% per annum, subject to downward adjustments based upon our credit rating. Borrowings under the Macao credit facility bear interest at our election, at either an adjusted Eurodollar rate (or in the case of the Local Term Loan, adjusted HIBOR) plus 2.25% per annum or at an alternative base rate plus 1.25% per annum, and is subject to a downward adjustment of 0.25% per annum from the beginning of the first interest period following the substantial completion of The Venetian Macao. Borrowings under the Singapore credit facility bear interest at the Singapore SWAP Offer


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Rate plus a spread of 1.35% per annum during the first twelve months that amounts are outstanding and a spread of 1.6% per annum during the second twelve months that amounts are outstanding. $72.0 million and $20.3 million of the borrowings under the airplane financings bear interest at LIBOR plus 1.5% and 1.25% per annum, respectively.
 
Foreign currency transaction losses for the six months ended June 30, 2007 were $7.8 million in relation to activity associated with our Macao and Singapore subsidiaries. We may be vulnerable to changes in U.S. dollar/pataca and U.S. dollar/Singapore dollar exchange rates. We do not hedge our exposure to foreign currency; however, we maintain a significant amount of our operating funds in the same currencies in which we have obligations thereby reducing our exposure to currency fluctuations.
 
See also “Liquidity and Capital Resources.”
 
ITEM 4 — CONTROLS AND PROCEDURES
 
Evaluation of Disclosure Controls and Procedures
 
Disclosure controls and procedures are designed to ensure that information required to be disclosed in the reports that the Company files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized, and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate, to allow for timely decisions regarding required disclosure. The Company’s Chief Executive Officer and its Chief Financial Officer have evaluated the disclosure controls and procedures (as defined in the Securities Exchange Act of 1934 Rules 13a-15(e) and 15d-15(e)) of the Company as of June 30, 2007, and have concluded that they are effective to provide reasonable assurance that the desired control objectives were achieved.
 
It should be noted that any system of controls, however well designed and operated, can provide only reasonable, and not absolute, assurance that the objectives of the system are met. In addition, the design of any control system is based in part upon certain assumptions about the likelihood of future events. Because of these and other inherent limitations of control systems, there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions, regardless of how remote.
 
Changes in Internal Control over Financial Reporting
 
There were no changes in the Company’s internal control over financial reporting that occurred during the fiscal quarter covered by this Quarterly Report on Form 10-Q that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
 
Part II
OTHER INFORMATION
 
ITEM 1 — LEGAL PROCEEDINGS
 
The Company is party to litigation matters and claims related to its operations. For more information, see the Company’s Annual Report on Form 10-K for the year ended December 31, 2006, and “Part I — Item 1 — Financial Statements — Notes to Condensed Consolidated Financial Statements — Note 7 — Commitments and Contingencies” of this Quarterly Report on Form 10-Q.
 
ITEM 1A — RISK FACTORS
 
There have been no material changes from the risk factors previously disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2006.


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ITEM 4 — SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
 
The Company’s annual meeting of stockholders was held on June 7, 2007. At the annual meeting, votes were taken for: (1) the election of directors and (2) the ratification of the selection of PricewaterhouseCoopers LLP as the Company’s independent registered public accounting firm.
 
The Company’s stockholders elected Sheldon G. Adelson, Irwin Chafetz and James L. Purcell to serve on the Board of Directors as Class III directors for three-year terms, which will expire in 2010. The service of Charles D. Forman and Irwin A. Siegel as Class I directors and Michael A. Leven, Andrew R. Heyer and William P. Weidner as Class II directors continued after the meeting. Stockholders also ratified the selection of PricewaterhouseCoopers LLP as the Company’s independent registered public accounting firm.
 
The following tables provide details regarding the number of votes cast by the Company’s stockholders with respect to each of the matters indicated above.
 
Election of directors:
 
                 
Nominees for Director
  Votes For     Votes Withheld  
 
Sheldon G. Adelson
    269,390,336       31,601,476  
Irwin Chafetz
    269,704,056       31,287,756  
James L. Purcell
    295,604,986       5,386,826  
 
Ratification of Independent Registered Public Accounting Firm:
 
                                 
    Votes For     Votes Against     Abstentions     Broker Non-Votes  
 
      300,894,044       57,003       40,767       0  


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LAS VEGAS SANDS CORP.
 
ITEM 6 — EXHIBITS</