拉斯維加斯金沙集團 (LVS) 2009 Q2 法說會逐字稿

Thank you for your patience.

Good afternoon.

I will be your conference operator today.

At this time I would like to welcome everyone to the Las Vegas Sands Corporation second quarter earnings conference call.

All lines have been placed on mute.

After the speakers remarks there will be a question-and-answer session.

(Operator Instructions).

Thank you.

I would now like to turn the call over to Mr.

Daniel Briggs, Vice President of Investor Relations.

Sir, you may begin.

Good afternoon, everyone, and thank you for joining us today.

On the call with me today are Mr.

Sheldon G.

Adelson, our Chairman and Chief Executive Officer, Mike Leven, our President and Chief Operating Officer, Rob Goldstein, Executive Vice President and President of the Venetian Las Vegas and the Palazzo, and Keith Kay our Chief Financial Officer.

Before we begin I need to remind you that today's conference call contains forward-looking statements that we are making under the Safe Harbor provisions of federal securities laws.

I would also like to caution you that the Company's actual results could differ materially from the anticipated results those forward-looking statements.

Please see today's press release under the caption, Forward-looking Statements, for a discussion of risks that may affect results.

In addition we may discussed adjusted EBITDA, adjusted net income, adjusted diluted EPS, and adjusted property EBITDAR, which are non-GAAP measures.

A definition and reconciliation of each of those measures to the most comparable GAAP financial measures are included in the press release.

Please note that this presentation is being recorded.

I will now turn the call over to Mr.

Adelson.

Thanks Dan, and thank you all for joining us today.

I want to begin the call, today, by making a couple of interesting points, a couple of very important points.

First, while there's no doubt that the operating environment in both Las Vegas and Macau remains challenging, our properties are holding up quite well.

People are continuing to visit our properties in great numbers and we are generating solid cash flow from a diverse set of revenue streams in both markets.

The implementation of our cost savings program has enabled us to significantly enhance cash flow generation and has positioned us to deliver greater operating margins when the economy eventually recovers.

As we have stated in the past, we have continued to advance five or six different options, to increase our liquidity.

We look forward to updating you about this in the near future.

And finally, the management team here is the right team to execute our plan.

I am extremely pleased that Rob has now formally extended his contract with us, and will be an important member of our management team in the years ahead.

In addition, Mike is implementing good leadership in Asia to add depth and strength to our management team there.

Now, I would like to turn the call over to Mike, and he will tell you more.

Thank you, Sheldon, and thank you all for joining us today.

Let me provide a quick update on the three principle components of our plan.

First, to maximize cash flow from our current operating profits in Las Vegas and Macau, by right-sizing our business and implementing cost control with efficiency measures, we have now increased our cost saving initiatives to more than $500 million of annualized savings.

This is $30 million more than we had previously targeted, and we will continue our efforts to identify additional opportunities to increase that $500 million number.

As of June 30th, we have successfully implemented approximately 69% of these identified costs, eliminating $345 million of costs from our running rate.

Turning to the second element of our plan, delivery of our Singapore and Bethlehem developments as scheduled.

We were pleased to have successfully opened Sands Bethlehem on May 22nd, and to have turned the focus of our efforts there towards building operating momentum at the property.

At Marina Bay Sands in Singapore, construction development and preopening activities continue on pace.

And we are targeting an opening of the property in the first quarter of 2010.

The third component of our plan is to generate sufficient liquidity to enable us to execute de-leveraging and growth strategies.

As Sheldon mentioned a moment ago, we are advancing a number of opportunities that would generate additional liquidity.

We are pursuing options and look forward to updating you in the near future.

I will now turn the call over to Rob to provide an update on our Las Vegas operations.

Thanks, Mike.

Despite a difficult environment in Las Vegas marketplace overall, our properties delivered adjusted property EBITDAR of $78 million in the second quarter.

We generate $107 million in adjusted property EBITDAR in last year's second quarter.

The primary driver of the reduced performance in Las Vegas was lower hotel revenues, which were down by nearly $30 million, principally as a result of lower ADR across our suite product due to competitive rate reductions and the higher segment of the marketplace.

Visitation of both our Las Vegas properties remains healthy.

Occupancy for our combined 7,100 rooms was 90% per quarter, with an ADR of $195.

Our strategy to maximize cash flow in this environment remains the same, maintain high levels of occupancy to both hotels, fill as many rooms as possible with segments that are less rate-sensitive, such as group and corporate meeting business during the mid-week periods, and FIT business on weekends.

Our Table Games business, in particular, our high end Baccarat business, has held up well, compared to Las Vegas marketplace overall.

Second quarter table drop was $386 million compared to $408 million in the second quarter of last year, a decrease of approximately 5.4%.

Slot run was $48.2 million, a decrease of less than 4% compared to last year's second quarter.

Despite the relative stability in our business overall, we remain cognizant of the challenging operating environment, particularly with respect to room revenues.

We are, thus, continuing to reduce our costs and right size our Las Vegas operations and that eliminated approximately $135 million from the run rate as of June 30, the implementation of over cost savings programs.

Although we are making cost cuts which principally involves back of house functions, we continue to strive to provide a five star, five dime experience for our guests.

Customer service excellence remains at the center of our culture; it is what we do and stand for.

We believe these cost initiatives have been implemented with no degradation to the customer experience.

We expect to have fully implemented approximately $200 million in annualized cost savings across our Las Vegas operations by end of this year.

We will continue to seek additional opportunities to reduce our costs; we'll maintain our philosophy, maintaining our award-winning customer service.

So in summary people are still visiting our Las Vegas properties in large numbers for both leisure and business purposes, but they are spending less once they arrive, particularly on rooms and non-gaming activities.

In this environment, we believe our all-suite asset base with its luxury yet approachable appeal, diverse dining, retail, and entertainment offerings that appeal to a wide range of customers, consumer tastes, and budgets, will continue to generate solid cash flow.

As our cost savings programs are fully implemented, our properties will be positioned to perform well when the environment turns in the future.

With that I will turn it back to Mike and look forward to addressing your questions at the completion of the prepared remarks.

Thanks, Rob.

Let's turn to Macau and start with the Venetian Macau, which generated approximately $110 million of adjusted property EBITDA for the second quarter of 2009.

The property generated a record $140 million of EBITDA in the second quarter of 2008.

The decrease in adjusted EBITDA for the quarter compared to last year was negatively impacted by $10 million to the impact of entertainment losses related to the Cirque du Soleil production and the write off during the quarter of certain retail receivables.

Visits to the property have remained very strong, with the Venetian Macau enjoying more than 5.4 million visits during the second quarter.

That visitation drove healthy Mass Play and hotel occupancy for the quarter while Rolling Play has also remained solid.

Our Cotai Jet-Ferry service carried nearly one million passengers in second quarter, while our Convention and Group business accounted for approximately 13% of our room nights sold.

The three prong strategy for the Venetian Macau will continue throughout 2009 with the first initiative, the right sizing of our business and the full implementation of our cost savings program as well as other efficiency initiatives front and center.

We have now expanded that program to targeted at least $300 million in annualized cost savings across our Macau operations.

The program is designed to reduce our operating costs while preserving as many Macanese local jobs as possible and maintaining a high quality customer experience for our guests.

As of June 30, 2009, we have implemented approximately 70% of our targeted savings, that adds up to $210 million of our annual run rate.

The impact of the cost savings will become more pronounced in the coming quarters, as the savings from recently enacted cost reductions are realized and as we continue to execute on additional initiatives.

Other important areas of the cost reduction program include transportation, utilities and general hotel operating costs.

Although we have accomplished a great deal, our work will continue on pace and we will update you on our progress as the year continues.

The second strategy is to grow our Mass Table and Slot business.

Our Cotai Jet-Ferry service remains an important infrastructure component in support of visitation to the Cotai strip in the Venetian Macau.

We expect the eventual ramp up of City of Dreams complex to add further critical mass to the Cotai strip, increasing our ferry occupancy over time, which may have been impacted in the quarter by the effect of the H1N1 virus, and ultimately to increase visitation to the Venetian Macau.

The promotional offerings of the Cotai jet are being targeted to casino customers, and the service continues to drive traffic to the property.

The direct service to Cotai strip is an important contributor to strong slot play for the quarter, which was up nearly 20% compared to the second quarter of 2008 and to healthy non-rolling chip table games played.

The third initiative is to manage our VIP business.

The Venetian Macau Rolling Chip volume of $9.8 billion during the second quarter was consistent with the second quarter of last year and up over 13% sequentially from the first quarter of 2009.

VIP revenues in the market overall to the quarter were down 19%, so we are pleased with the Venetian Macau's relative performance.

While the VIP business remains an important component of our business, it contributes less than 12% of our adjusted property EBITDA of the Venetian Macau, although that figure was impacted by lower hold this year compared to last year.

That 12% compares to approximately 25% during the second quarter of 2008 and illustrates the increasingly diversified nature of our cash flows, with over 30% coming from non-gaming sources, principally hotel rooms, entertainment, and retail, and nearly 60% coming from replay and slots in the second quarter 2009.

Our principle objectives for the VIP Rolling business remain the careful management of the business and the control of credit risk, while we focus on our developments of more profitable direct play.

During the second quarter, our non-junket VIP play at the Venetian Macau represented 16% of our total volume compared to 13% in the second quarter of 2008.

So, in summary, these three strategies have contributed to a solid performance for Venetian Macau during the quarter.

The full implement of our cost savings program will contribute additional EBITDA in the coming quarters.

Let me spend a moment on the Sands Macau.

The Sands delivered $61 million in adjusted property EBITDA for the quarter compared to $54 million in the second quarter last year.

The results reflected healthy mass gaming volumes and expanded EBITDA margins on a smaller revenue base.

The cost savings initiatives we implemented at the property to date are positively impacting both the Sands EBITDA margins and its financial performance.

The Sands remains a leader in mass play on the Macau peninsula delivering non-rolling drop of greater than $595 million and nearly $300 million in slot handle.

Rolling volume of $4.7 billion was down compared to the quarter one year ago.

We will continue to implement additional savings and other efficiency measures to further reduce the Sands cost structure.

Now I will comment the Four Seasons Hotel.

The property generated nearly $6 million in adjusted property EBITDA during the second quarter.

Although we have experienced a slower ramp up than we planned, awareness of the property is growing.

With weekend play and visitation in particular gaining momentum, the Four Seasons Hotel reached 44.5% occupancy with a ADR of $291 for the second quarter of 2009.

Looking ahead, we hope to benefit from both the launch of new marketing programs at the property and the natural increase in visitation to Cotai, as our neighbor, the City of Dreams, continues to mature.

We should also benefit from the recent addition of our nineteen luxurious Paiza Mansions, which have been full since they have opened.

These exclusive suites, among the most luxurious in our portfolio are being marketed directly to VIP customers residing throughout the region.

That covers our Macau operations.

Let's spend another moment on Sands Bethlehem in Bethlehem, Pennsylvania.

The property opened on May 22nd and has received a wonderful reception from the City of Bethlehem, the people of the Lehigh valley and the wider region.

Visitation to the property, particularly on weekends, has been very healthy.

We expect to increase visitation and play the property as our player development, promotion and busing programs mature in the months ahead, particularly in the midweek business situation.

Turning our development activities at Marina Bay Sands at Singapore, construction, development, and preopening activities continue on pace, and we continue to target a first quarter 2010 opening.

We are working closely with the Singapore tourism board, and we will continue to do so throughout the summer and fall as we collaboratively work to finalize our opening dates.

With that, let me turn the call over to Ken to provide an update on our liquidity initiatives and capital resources, overall.

Thanks, Mike.

As Mike mentioned previously, advancing opportunities that will generate liquidity, enhance our credit position and enable us to execute our deleveraging strategy is an important aspect of our plan.

We are advancing a number of options to do just that, which may include the sale of a minority equity interest in our Macau operation.

We look forward to providing you with an update of our progress on these opportunities in the near future as they come to fruition.

With respect to our $500 million of cost savings, we have achieved approximately $345 million in total cost savings across Las Vegas and Macau.

Of the $70 million realized in the second quarter of 2009, approximately $35 million was realized in Las Vegas, and approximately $35 million was realized across our Macau operations.

An important point with all these cost savings measures is we view them as permanent.

We expect to realize significantly improved EBITDAR margins as revenue expand.

Turning to liquidity and capital resources, as of June 30th, we have approximately $2.7 billion of cash, cash equivalents, and restricted cash on the balance sheet.

In addition, we have approximately $1.3 billion had dollars of availability under our un-drawn credit facilities at current exchange rates, principally through our Singapore credit facility.

So together, we have approximately $4 billion of cash, cash equivalents and available sources of liquidity.

The uses for that $4 billion includes approximately $2 billion of capital expenditures through the opening of Singapore.

Total debt is $10.8 billion, of which no significant maturities occur until May of 2011, when approximately $570 million related to our Macau revolver comes due.

And then in May 2012 when our US revolver is due.

Scheduled for the remainder of 2009 total $63.3 and $198.8 million, respectively.

In addition, to not having near-term maturities on the outstanding debt, the cost of borrowing is quite low, with a current weighted average rate of approximately 2.97%, which reflects a healthy reduction from the weighted average second quarter rate of 5.6% in 2008.

With respect to our debt covenants, for our domestic credit facility, our trailing twelve months EBITDAR at June 30th, 2009 for compliance purposes was $452 million.

At June 30th, 2009, our total gross domestic debt for compliance purposes was $5.2 billion.

Our cash balances within the US restricted group were $2.2 billion, and our calculated net debt for covenant compliance purposes was $3.1 billion.

Our leverage ratio was covenant compliance was 6.76 times compared to a maximum leverage covenant for US credit facility of 7 times.

For the Venetian Macau restricted group, our trailing twelve month EBITDAR at June 30th for compliance purposes was $827 million.

At June 30th, 2009, the Venetian Macau restricted group total gross debt for compliance purposes was $3.17 billion.

Our leverage ratio for covenant compliance purposes was 3.83 times, compared to a maximum leverage covenant in the Venetian Macau of four times.

Our cash balances within the Venetian Macau were $473 million; and with that I will turn the call back over to Sheldon.

Thanks, Ken.

Before we go into the Q&A, let me make a couple of final points.

First, we are singularly focused on the execution of our plan, and that plan is quite straightforward -- to maximize cash flow from current operations, open Singapore, and generate additional liquidity toward to enhance our credit position and our balance sheet.

We are executing on these things and have complete confidence we'll complete them.

Today, we will be very well-positioned to resume our industry-leading growth trajectory.

We possess very high quality assets and differentiated operating strategies in each of our markets.

Our assets have broad appeal across diverse customer segments.

And our highly profitable mass business in Macau positions us quite well.

Our Singapore property, an asset with the potential to generate the strongest growth in our entire portfolio is targeted to open approximately six months from today.

And I would like to make another point that some -- that seems to get lost in the shuffle of figures.

That is our original business plan.

Our original business model was to build core and non-core assets, sell off the non-core assets at the right time, and pay down or pay off all of the financing related to building the core assets.

So when we talk about owing $10 billion plus, first of all, we break it up into three groups.

About a little more than, there's about one-third of it, a little under one-third in Singapore.

It is totally relying upon the Singapore asset.

That is its primary collateral, and we feel quite good about Singapore.

The leasing activity in the recent past has really under gone a thrust in demand.

So the activity in the GDP and Singapore is improving quickly.

So we expect overall, that our original business plan will be amply executed in Singapore by selling the cash flow of the retail mall in Singapore, and either substantially reduce or eliminate the total debt to build Singapore.

In the case of Macau, the cash flow and the sale, of course we have to wait until the commercial property market improves, but it is going better in Asia than it is in the United States, and we expect it to, when everybody reasonably expects it to get back to normal.

When it gets back to normal we will sell our retail -- we will consider selling our retail if we can get the exaggerated price we are looking for.

And we do intend to start selling the Four Seasons serviced apartments as condominiums, hopefully by the end of the this year.

And, I was in China this past weekend on Sunday night, and the South China Morning Post saying that there was becoming a shortage of apartments in Hong Kong.

So, people are opening up their, they're picking up their mattresses and taking their money out and starting to buy apartments, and they made reference to the old style of Hong Kong apartment sales that several projects had sold out within two or three days of their being exposed to the apartment.

We do expect a very good response on the Four Seasons apartments.

In Las Vegas, as the market returns to normal, and your guess is as good as ours, but things appearing to be more normal in today's currently than it has been over the last six to twelve months.

We will be able to, hopefully, restart our condominium project, the St.

Regis Project, for condos and then substantially reduce our debt in the Las Vegas market plus upstreaming money from Macau and Singapore.

What I want to say is that our business plan, our business model is just completely different from other business models.

Other business models rely upon paying off the debt to build the properties, only through operations.

So we are not looking only to operations to pay off our debt; we're looking to our very unique fundamental business plan.

By selling off our retail and our apartments, and reducing the eliminating all of our debt, so we don't feel as uncomfortable as just the superficial look might encourage some people to look, where they would say, "hey they've got a lot of debt and how are they going to pay that off quickly from operations?" Well, we have the non-core assets that we build to make a substantial dent in those debt numbers.

So with that now, I think it's time to move to Q & A.

(Operator Instructions).

Our first question will come from Joe Greff with JPMorgan.

Good afternoon, everyone.

I have a couple of questions on the second quarter results and then I will if I could ask some big picture strategy questions of you, Sheldon, and Ken on liquidity.

The $10 million write off that you refer in the Press Release.

Mike, I believe you said that was in the $110 million of adjusted EBITDAR in the quarter?

Right.

Okay.

What was the net hold impact at the Venetian Macau if you were to address for normal and VIP and Mass?

The Venetian Macau.

Yes, sir.

It's about $17 million.

$17 million net benefit?

Yes.

Okay.

All right.

And then corporate expense, obviously, you refer to what the big year-over-year increase was; if you were to back out that one item referred to, what is the normalized corporate run rate in the quarter and going forward?

One more time.

If you back out the one time item in corporate expense, what's a normalized level there?

Yes, it is probably in the -- well, there's two to answer that question, in the environment in which we are also including cost avoidance, meaning limiting salary increases and not paying bonuses, it is probably in the $20 million range; obviously, when business conditions improve, and then you would expect bonus compensation or incentive compensation to come back.

For the time being, it is around to $20 million a quarter.

Ken, Sheldon, what is the timetable for you that you, you think you can come through, and figure out a liquidity situation before the Venetian Macau covenants start to put a noose around your neck and then from a timing perspective, what is the earliest you can do something in Hong Kong?

What do you mean do something in Hong Kong?

You mean go to have dinner there?

You will probably do that pretty soon.

We have great Chinese restaurants at our place.

You're probably doing an IPO in Hong Kong.

If you were to have everything set like I think you are, what is the earliest you could do assuming the market is receptive

Why a fishing expedition, Joe?

I will just repeat.

We have not finally decided, when we finally decide what route we are going to take, we will announce it.

Until we do announce it, no final decision and none of the five or six approaches we are taking are decided upon.

We may take two or three steps of the five or six that we are considering.

I know there has been a lot of publicity about, since Wynn filed his IPO in Hong Kong.

It has been almost a given that we are going to follow on.

So, I would just like to caution that that final decision is not yet made.

We are still talking to all of the people with whom we have spoken before.

We are talking to construction companies about putting money up for five and six.

So I think that the decision is as to what route to take, hopefully, will make it within the next month, within the next thirty days, and stop, start to implement those decisions before the end of the year.

We are anxiously looking forward to starting lots five and six and have a reasonable feeling that we will be able to get the financing to do that.

And we will announce if and when we are going to do an IPO and otherwise if and when we are going to do private equity or any other form of financing, but I can tell you this.

Negotiations and discussions are going on virtually every single day.

And so there's no final decision yet.

The opportunities become more plentiful and more palatable as each day goes by.

I wish we had a year or so to wait, but we shouldn't do that.

We should -- we will get money and improve our liquidity position as soon as we can.

Thank you.

You're welcome.

The next question will come from Janet Brashear with Sanford Bernstein.

Hi, Janet.

Hi.

How are you?

Thanks.

First question, if I could ask this without incurring Sheldon's wrath, I am curious about the City of Dreams.

It appears that it has posted some significant share gains in July.

I am curious as to whether you would characterize those as market expansion or share shift.

If it is share shift, who's losing to them?

Well, I could tell you that we have, the fellow who runs all of Macau was just here for board meeting presentations that have occurred the last couple of days.

He said we put up a camera to watch the traffic going across the street.

And he said for every one person that goes from our property to their property, two people come back.

Now, you know, you have these, it is, we just don't have somebody there with a clicker.

We have these, I don't know these high-tech gadgets that count people as they walk in, and that's how we get counts.

You want my incur my wrath, Janet.

You are absolutely positive in your prior report that the City of Dreams was going to cannibalize us.

The fact of the matter is that our attendance is going up and very happy to say that because the traffic at I think to all of Macau had a sunk a little bit.

Because of the H1N1, we will call it the swine flu scares, we think that's abating now and that there are more people coming, and I think we are back to, for instance, over the past weekend on one day, we had 94,000 people at the Venetian Macau and the next day we had 98,000.

And a normal high demand peak period for a weekend would be give or take 100,000 for each of the weekend days.

So the City of Dreams is contributing to the solidity of the Cotai strip location.

And we feel quite comfortable.

So, we are going to allow them connect to our overpass walk way that goes -- pedestrian -- raised pedestrian walkways to go over the main street.

So we are not concerned about them taking traffic from us.

We know that our properties will be the must-see properties and whatever people they get that go to the, that come to Cotai to go to the City of Dreams will also go to our properties, the Venetian, Four Seasons, and when we open five and six, which we hope to do within a year from the time we started, we will be the major beneficiaries of the cross traffic.

Can I ask about the Sands in the peninsula, all the revenue components are down, yet your EBITDAR margin is up an impressive six points and your EBITDAR is up 13%.

How do you do that?

By cooking the books, just kidding, just kidding.

Mike, you want to answer that.

I think that the Sands situation has been some of the planning on how we are working the floor and also some cost reductions that have gone in and have been implemented in the Sands that have produced better EBITDA, also significant degree of mass-market gaming, which is higher profitable in the margin basis.

That's why you are seeing, I think, the margins are so much better.

And they are continuing as well.

One final question, Sheldon.

I would like to just finish off what Mike said, they're continuing, we normally don't go into the current quarter when we make the call, but it is continuing on the upside, above the run rate of the second quarter.

Okay.

Thank for that.

Sheldon as you meet with the Casino Association, it has been reported that some of the topics are tax rates and junket commissions, are there other issues at the forefront of those discussions?

Well, I wasn't at the last meeting.

Steven was.

I was there a couple of meeting ago and we all signed a document at the time saying we all agreed to put a cap on the junket rate commission.

But in the interim, we have agreed with City of Dreams and we are both holding.

And we are staying at 1.25 including comps.

There, to the best of my recollection, there was no material, there was no discussion about any other material issue.

I brought up discussion about the getting better handling of the -- at the airport and talked about the other issues about the light rail and adding on to the -- and accelerating the completion of the Cotai ferry -- the (inaudible) ferry terminal where we bring our ferries into.

But there was no substantial discussion of any other materials.

Thank you.

Your next question comes from Cameron Mcknight with Buckingham.

Hi guys, how are you?

Good.

How are you doing?

Well.

Very quickly.

Wondering if you can give us an update on the re-negotiation of the covenants with the Macau bank group.

Update on the covenants?

Covenant negotiations.

Yes.

We, that process continues.

We've got some pretty favorable feedback in our recent discussions with them, and we are optimistic that we will bring that to favorable conclusion in the near term.

There's always a low bid and high ask, and just like in every negotiation, we are trying to bridge the gaps.

Got it.

So would it be fair to say that it is more about the price, rather than whether it will happen?

I think that's fair to say.

There's always give and take in negotiations as Sheldon mentioned, and we think we'll some to amenable conclusion for both sides.

I think, if you are thinking is, that they're not giving it to us, that's not the case at all.

There is a definite package of goodies they want, which, obviously, we as the other side think are highly exaggerated, but doesn't that happen in every negotiation?

Absolutely.

And the expiry on your offer was tomorrow.

Is that correct?

I don't know.

The original date is, but that is to be extended.

Okay.

Sure.

And just a question for Rob.

Rob, are you able to give us some color on what happened with the slot floor at Venetian Las Vegas during the quarter.

Sure.

We have been refiguring our floor the last three or four quarters to reflect less poker play and our goal is to, as you see by the numbers, are hope is increasing our handles off but that's calculating the thought process because we don't see the value on the poker play we take in previously, and we still drove good results in this market.

We are down very little compared to the market, very pleased with it.

And it is our belief the poker business gets tougher and tougher, so we are de-emphasizing.

We still have poker play available but some of the team play and some of the tougher customer we passes on, and we have just gone to better margin and better results.

Got it.

So how should we think about slots going forward?

Are the other volume numbers you posted this quarter indicative of what we might expect in the coming quarters, or was there some degree of disruption in there as well.

I think we will continue to, hopefully, flat or improve last year's results through the third quarter.

One thing that is happening in the slot side of the business is that we were giving more rooms away, we never did in the past, complimentary rooms to the slot segment.

We do that because it is available to us, obviously, occupancies are off a bit.

But if there is one part of the business that I feel good about, it's our slot business.

So go to our numbers, versus our competitors and I am very pleased.

We will continue to move upward.

We just want to manage the costs because our goal at the end of the day is make money not just drive revenue.

Thanks very much.

You're welcome.

Your next question comes from Steve Kent with Goldman Sachs.

Hi.

A couple of questions.

First, Mike, could you just talk a little bit about the expense reduction program, and I will tell you that the Company, LVS, has always been very return focused and pretty tight fisted.

So to find $500 million in expenses is impressive and I just want to know the strategy of how you are doing that and how it is not impacting the consumer in any significant way, and then Rob maybe you can just talk about the convention calendar over the next twelve months and also what your plans are to react to the City Center opening.

The answer to the -- thank you.

The answer to the first part of that first question regarding the millions of dollars that we have found, first of all, let me say that, that previous management before I got here had identified a significant amount of that, we just went to a different, into a different situation starting around the beginning of April, finding more.

That's split about $200 million, probably $200 million in Las Vegas, $300 million in Macau.

We track very, very consistently, our guest satisfaction, customer complaints and what have you, and we have seen absolutely no increase in customer objections or problems with what we have done.

We have carefully gone through every potential savings situation in order to identify those non-customer related activities.

Some are what we call soft, you know advertising, marketing expenditures, things of that kind and some are high costs, which represent payroll activities and payroll situations.

Changing where we do business, in the course of call centers, and things of that kind that represent savings that is don't affect the customer whatsoever.

Clearly, the number sounds very, very large, but one has to recognize that these operations are enormous in size.

You are dealing with 7,100 suites in Las Vegas or 3,600 or 3,500 suites in between the Sands and the Venetian Macau.

The numbers of employees, the numbers of transactions and the number of activities are gargantuan in size.

So, we have been able to very carefully find ways to do business differently and to achieve those numbers.

We are very, very aware of we can't absorb customer complaints and we monitor them.

I would say we have done a really good job, and we've seen nothing that indicates we have gone too far, and frankly, I think we are close to the end of the situation, with our identification.

We will find more stuff around the edges, because you always do.

But we are watching it everyday to make sure we don't go too far.

Steve, as to the Group side of business, it is there.

There is demand.

The good news is demand is there, it is returning, getting better for both the balance of this year and '10, '11.

The issue is going to be rate, because obviously, we would love to go back to running 45% of our mix being group driven, and it enables us to fill ADRs and the revenues with it.

I don't think we will get there because of the rate issues.

We can fill the hotel and get the 40% to 45% again, but we are not seeing rates we used to; we are holding back a bit trying to be more judicious, look at other segments (inaudible) might be wholesale until we see the place we are comfortable with it.

That being said, July bookings this year both really increase -- And we are happy with what we are seeing and demand pattern is strong.

It is simply pressures on the rate that has us concerned.

We believe we will come back but it is not as, it would be wrong to say that it is back to levels like we see it at and again it is a function of rate, not a function of demand.

I think this is Sheldon.

I think that, and knowing the convention market like I do, I think that what we are seeing is people are seeing rates that hotels are willing to sell at today to different groups.

They think that'll last forever, but we are not succumbing to those low ball rates and low ball offers, because as the market gets back to normal and we're seeing it move faster back to normal, as Rob just said, we have had a very good July, selling July.

I mean to sell for future months.

I think that as people understand that we expect the market to go back to normal the room rates will go back to normal.

We just have to hold on tight and not cave in to the low rate mentality that these show organizers, show producers, want us to cave into.

But listen, we have got to, we can't be as, we can't be as strong as we were in the past.

We'll have to take a little bit of time to ramp up to get back to normal.

Thanks.

Your next question comes from Dennis Forst with Keybanc.

Yes.

Good afternoon.

I wanted to ask Rob about the Palazzo and Venetian hold percentages.

I noticed that there was a big difference between the win per table at the Palazzo versus the Venetian that would indicate the Venetian to me that the Venetian had a very low hold.

You would with be correct to assume that.

All right.

But again it swings dramatically, same happening this month it swings dramatically and some months we play lucky one place versus the other.

There's two types of business on the table game side.

There is the Mass Table and there is the High End.

On the High End side, we do have a lot of volatility.

This month we have had extraordinarily amounts of High End play in the Palazzo, and it depends on where it's at.

You can almost assume that our Mass Play will come in at 15, 16, 17, and at the end of day our High End play will come in the high 20s.

We handled over $10 billion in Las Vegas since we opened the Venetian and the truth we always held in the high 20s, 28, 29, 30.

In the end, that's where we will be at but you will have volatility and expect that.

It is not surprising.

Why are there so many more tables at the Palazzo and more important than that, the trend sequentially, you added tables at Palazzo in the second quarter and dropped the Venetian by about 15 tables.

We are moving our, we are constantly looking at our mix; we are not looking any more at this building as a Venetian versus Palazzo or vice versa.

We're looking at it as "what's the right mix of tables and slots on both sides?

You can see we have down sized our slot floor dramatically from the opening at Palazzo.

We keep looking at what we need to have on the floor.

As you know in Las Vegas, the capacity issues; I think, in every hotel in this town, there's probably too many slot machines relative to the demand, but I think the table games we are trying to right-size it there as well, looking at staffing where demand is at, but at the end of the day, we will have enough tables and slots to satisfy the busiest weekend, the busiest night.

We are just trying to staff it intelligently, and honestly, buying slots machines these days is obviously expensive and we want the right mix.

There is no magic to it.

We treat it as one large gaming floor, we look at demand patterns, look at the traffic, we're constantly looking at our cost side, and frankly, it is just simply a day in day out exercise trying to right-size the tables and slots.

And getting back to your question of volatility, volatility is what it is, and you are going to have nights where you are going to win money in table games, especially off the high end Baccarat play where they're betting a lot of money and you have nights when you lose a lot of money.

I don't think there's any magic to it.

It doesn't matter, Venetian, Palazzo, in the end, it's the same building to us.

Okay.

And you had mentioned that in the Group business, that when things are good, you get about 45% of your rooms.

Yes.

What has it been the last six months.

We've dipped down in the first quarter; for the year, we have dip down below 25%.

And again, the interesting part of the equation is that demand is there.

There's demand coming back online from especially the pharmaceuticals, the fast food not seeing a return in the financials with the automotive but there's demands on the group side and it continues to get stronger.

The problem we're having is rate pressure.

In a perfect world, back in 2007-2008, until the third quarter, we ran 44% occupancy of our mix was Group and we are now dipping down below 25%, which is not where we want to be at.

Again we are not going to take rates that is are simply silly relative to the (inaudible), and the wholesale FIT market.

We will move into the free comped rooms and slot, et cetera.

Okay.

And then you mentioned Palazzo had a lot of High End business in July.

How was the whole.

I'm not going to talk about that, am I?

We can't talk about that.

You can't?

No.

Okay.

And then lastly, can you give what the Palazzo's contribution, EBITDA contribution, was in that $78 million?

Usually each quarter you breaking out the two properties.

Is that handy, I have cumulative.

One second and I will dig that out for you.

We didn't break it out for the numbers pull it out.

While he's looking for that, I want to, I wanted to expand on the answer I gave before about liquidity.

So I want to emphasize that there is no question whatsoever that in the near future we are going to have a decision on which is the best opportunity for us to be in the liquidity that we would like to have.

So there's not a question of "if?" It is only a question of "when?" And what are the most, what are the most favorable terms for us.

So when we, when with e come out with the answer, it will be, it will be an answer that will be the best answer available in the market today.

The question of contributions, it is $45 million EBITDAR for the quarter up from $34.7million, Q2 of 2008, and the leading factor there would be our ADR climb to $207.

The Palazzo is getting stronger everyday.

It seems like to Palazzo is becoming the place of choice.

The handle is higher, you have more tables, room rates are higher.

It has to have to do with the location.

Yes.

Closer to the higher end properties than the Venetian, next to the Harrah's property.

The Venetian is a ten-year-old product.

The Palazzo is newer and fresher.

The room product in the Venetian is extraordinary, as good as the room product; we spent $100 million to make the room product in the Venetian compete, we're working, looking at the casino floor.

But you are right the Palazzo has become a very successful product and sandwiched between Wynn and Venetian, it has great cross traffic, but we also knew Palazzo would get there, and it's gotten there.

Is this Dennis?

Yes, Sheldon, it is.

Hey, Dennis.

Anyway, thank you very much, and keep up the good work.

Good luck going forward.

The original plan for the Palazzo was to create a property that appealed to different tastes and not just to duplicate tastes of people who like the Venetian.

And since it is newer, and it took a lot longer to get it open, from the -- compared to the relative to the time we first opened the Venetian -- so obviously we got a higher rate out of that because it is newer and people expect to pay higher rate.

So it is really accomplishing the basic purpose for which we established it.

Your next question is from Larry Klatzkin with Jefferies & Company.

I thought Larry got lost.

Hey, save the best for last.

A couple of things, one the commission cap agreement among the various operators; Sheldon, is there a method set up for enforcing that and how do you expect it will affect your bottom line?

I think it affects the bottom line -- Ken, can you give us an estimate of how the commission effects our bottom line?

Yes, it should be an improvement; it's probably north of about $30 million.

As far as -- on an annual basis.

That's just the Venetian, not for the Sands.

That's just one property.

That would be the Venetian -- Four Seasons.

30 to -- 30 to 40 million minimum.

Yes.

All right.

What was the first half of question, Larry?

Enforcement for that since Macau not everybody follows the rules.

Well, that's a good question.

There's been no when I was there, I committed to do it on the honor system.

At the breech of which will be reason to beat people up with a wet spaghetti noodle.

All right.

I just don't know how it is going to be.

Well, to quote Frances Tandy, head of the Economic and Finance Ministry, said that there will be, it would suggest that half a million dollar per occurrence breech of the regulation because this will not be just an agreement amongst the operators, it will be embedded in the law.

So, there's been no final agreement on it.

The, the most is the possibility of $.5 million penalty, but who knows.

All right.

And then as far as the new administrator coming in, Sheldon, what are your expectations.

You mean the new chief executive.

Yes.

Fernando Choi, yes, we visited with him.

I don't have a lot of experience with him but the experience we do have with had him is very positive.

He's a very bright guy; he earned a Ph.D.

in the US, and he is, he's a very, very bright person, a very -- he's not going to be a bull in a china shop or at least that's what the press says.

He's going to continue a lot of the same policies, but then change some of them.

The one thing that Edmund Ho was quick to point out, he wouldn't open the door to the question of reducing taxation.

What I want to point out there is the taxation is 35%, and that's what they think of it.

We think of it as 40% because it is a 4% additional tax, but it goes the Macau foundation.

They don't call that a tax, they call that a contribution.

That can be easily removed by just dictate from the chief executive.

He doesn't have to go to the legislative counsel for that, like he would have to go to reduce anything from the 35%.

So we round it out at 40% because there is a small taxes on per machine, per table they probably equal 1%.

What we are looking at is number one he has stated repeatedly that tax reduction is on the front burner, and even Stanley Ho was talking about tax reduction at the, at the gaming association meeting to compete with Taiwan and compete with Singapore and the Philippines.

So it appears there's a lot of momentum in favor of a tax reduction.

Okay.

And then as far as Pennsylvania tables, I know the government made some comments when you opened.

What are your hopes for that and what upside can you see

My last memo from our government affairs guys came out two days ago and said it appears pretty likely that it will pass before the end of the summer and I remember when I was there for the opening, the head of the gaming commission said it will take nine months to implement the rules.

That will be a big game change at Bethlehem, it will be the closest full casino to New York City.

Thank you.

They said it is likely to pass by the end of the summer.

And if it doesn't it will pass for sure in the fall.

Okay.

Last question, general growth, what is the final result on that?

Did you end up getting the mall back?

What exactly happened there?

General growth, that's a misnomer right now, general shrink.

Discussions and positioning is still occurring.

We don't know what we are going to be able to achieve there.

All right.

Thanks, Sheldon.

Our final question will come from Rachel Rothman with Wedbush Morgan.

Let me add on to what I said before, general counsel tells me that general growth is in bankruptcy.

So it is up to the bankruptcy court.

Okay, Rachel.

Go ahead.

Thank you.

I just had a bigger picture question on Las Vegas, if I can specifically on room rates and RevPAR and occupancy.

Looking out to 2010 as we think about the three buckets of your business, the leisure traveler or gambler, and convention or association business, and the individual or FIT business, I guess you guys cut rate enough to sustain occupancy but historically it has been pretty hard to drive rate on leisure guests and conventions and associations and FIT being a late cycle play.

How should we think about rate improvement and then as we look at the cost containment with the costs already being taken out of business, will any further rate decline, how should we think about the flow through from RevPAR to EBITDA in years two and three of the downturn.

That's a tough question to answer but what I want to point out to you is that our property is substantially differentiated from other properties.

We are not just a hotel.

We are an all suite hotel that has the, that has amenities, we're an integrated resort, that other properties don't have.

So, for instance we have many hundreds of thousands of square feet of shopping where other hotels have either none or small amounts.

The only property that connects -- there are two other properties that connect with large shopping mall, Caesar's palace to The Forum and the Desert Passage that connects to the Planet Hollywood -- or that surrounds the casino and Planet Hollywood.

So we have four showrooms here, and most of the hotels have only one.

We're a different value proposition.

So when people look at paying, we think we can get away with something $50 to $75 more that what just a plain hotel room can get.

So not all hotels, not all Vegas properties are created equal.

We think we are created a little more equal than others, and our ability to get back to normalized ADR is probably better and faster than our competitors.

Of course, Bellagio and Wynn still have a very high level of appreciation.

I think we will continue to balance the segments you referenced; and obviously we have to look, your point about the bookings and timing is an issue for us.

We can fill the hotel if we want to going up to 10, 11 with group sizes, but the rates are unfavorable.

We will watch the rates in all segments and play to them.

The one we are moving into is the leisure FIT casino because we think there's an upside there for us.

It is better to have a balance toward those two segments, but when the rates return, and the group market that will be our first choice because of the midweek bookings and also because of the banquet, but we are watching all of them closely.

We believe rates will move up this fall; as everyone realizes, Las Vegas is too cheap xerox copy products are too good to be selling at these rates and post-Labor Day, we will see return to a better placement rate issues in those segments.

I guess on the margin flow through if we can use an analogy from the hotel industry, yourself being from the hotel industry, looking at the progression coming out of the 2001 reception in September 11th, by 2003 RevPAR declines had moderated if I recall correctly, maybe they wer just down 0.5%, but EBITDA margins in the industry overall fell 300 basis points as the flow through was pretty severe most of the low hanging fruit out of the call structure had already been taken.

So, I guess, how should we think about the potential relationship between RevPAR to EBITDA margin flow through as we enter years two and three of the downturn here without, you know, material rate up tick.

I think we have a lot of upside in this company because we have right-sized the building.

I think every dollar that we have -- as the ADRs climb, it should be healthy.

We have a structure that a $20 or $30 ADR would be very impactful to us.

I think 90% plus would flow through to the EBITDAR.

After seeing what's happening in the hotel industry and hospitality if you look at it on a non-casino basis, over the cycles since 1990, what happened in the business over the last four or five years is that room rate had dramatic increases all over the place, and now what you're seeing is it coming back, but it will never go to where it had originally started from; it generally goes back and then goes forward.

It's two steps forward, one step back situation.

What you see is right-sizing going on in a lot of situations, but some are not as pliable as we are here, to really gain the maximum advantage because we have so many rooms and so much demand.

We think the problem is more psychological than it is actual and basically just a couple of weekends ago, we had a $241 weekend rate here.

That's available to us, and if these cost of operations of flow through is positively astronomical, you will get $0.90 on the dollar to come through to the bottom line at the EBITDA level flows really right through, and that's really our hope is we are very well positioned to be able to take advantage of any kind of improvement in the marketplace, some of which is created by the market and some is which created by the operators themselves who are willing to take the risks, and go higher.

And we are already, they're already implementing some of those strategies.

Thank you very much.

I would now like to turn the call back over to management for closing remarks.

Closing remarks.

I just want to go back to what I said earlier about the liquidity issue.

This is something that is first priority on my mind, on our minds, and we expect to have an announcement about that in the near future.

But it is an expression but it is a -- it is a something of plenty.

We have five or six different opportunities to mix and match certain opportunities that are out there, for instance to have partners -- to have construction companies front money for lots five and six.

We were talking to two companies.

We are still talking to both, although one of them is getting very close.

There's a possibility that a new market is opened up and the possibility of selling bonds, which was not on our schedule before, has popped up.

There is the possibility of private equity and of course the possibility of doing an IPO.

That also comes with something that we are not used to here in States, and that's called pre-IPO financing; and in some cases some of the IPOs in Hong Kong sell pre-IPO financing for very significant amount percentages of what they anticipate for an IPO.

So there is also financing for lots five and six.

There's not one of these issues that are turning more solid than they are turning more positive.

Each of these issues is turning more positive.

The terms are looking better as each day goes by.

So we don't want to make a final decision until we feel that we are at a plateau of improvement in the deal.

So, we are focusing on -- we will have the liquidity, we do have liquidity now, and we'll have even much more liquidity later on, and we hope to restart a couple of the projects or maybe all of them we stopped in the not too distance future for which we will have adequate financing.

So I want to thank all of you for being part of this call and we will talk to you again next quarter.

Thank you.

Ladies and gentlemen, this will conclude today's conference call.

You may now disconnect.