<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
/X/ QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the quarter ended August 31, 1998.
Commission file number 333-53211.
Hard Rock Hotel, Inc.
- -------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
California 88-0306263
- -------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4455 Paradise Road, Las Vegas NV 89109
- -------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (702) 693-5000
Common Stock outstanding by class as of August 31, 1998
Common Stock shares
- -------------------------------------------------------------------------------
Class A Common Stock 12,000
Class B Common Stock 64,023
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 No X
--- ---
<PAGE>
HARD ROCK HOTEL, INC.
INDEX
<TABLE>
<CAPTION>
<S> <C> <C>
Part I: Financial Information
Item I: Financial Statements
Balance Sheets as of November 30, 1997 and August 31, 1998 (unaudited) . . . . . . . . . . . 1
Unaudited Statements of Operations for the three-months and
nine-months ended August 31, 1997 and 1998 . . . . . . . . . . . . . . . . . . . . . . . . . 2
Unaudited Statements of Cash Flows for the nine-months ended May 31, 1998. . . . . . . . . . 3
Notes to Condensed Financial Statements. . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Item II: Management's Discussion and Analysis of Financial Condition and Results of Operations. . . . 5
Item III: Quantitative and Qualitative Disclosures about Market Risks Not Applicable
Part II: Other Information
Item I: Legal Proceedings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Item 6: Exhibits and Reports on Form 8-k . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
(a) Exhibits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
(b) Reports on Form 8-k
None
</TABLE>
<PAGE>
HARD ROCK HOTEL, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
---------------------------------------
November 30, 1997 August 31, 1998
---------------------------------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 4,214,081 $ 5,756,364
Accounts receivable, net of allowance for doubtful accounts of
$200,000 in 1997 and $201,000 for the quarter ended August 31, 1998 2,966,562 3,145,698
Income tax refund receivable 2,443,041 3,715,041
Inventories 1,065,873 1,053,669
Prepaid and other current assets 835,071 1,367,964
Deferred income taxes 733,650 733,650
---------------------------------------
Total Current Assets 12,258,278 15,772,386
Property and equipment, net, at cost 89,768,576 101,140,785
Other assets 4,634,505 6,071,241
Deferred income taxes 2,894,386 2,894,386
---------------------------------------
Total Assets $ 109,555,745 $ 125,878,798
---------------------------------------
---------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable 2,892,768 3,718,663
Accrued expenses 4,385,701 3,359,361
Interest payable 77,167 4,995,000
Advances due to related party 470,234 -
Current obligations under capital leases 108,325 106,275
Long-term debt due within one year 6,000,000 -
---------------------------------------
Total current liabilities $ 13,934,195 $ 12,179,299
Deferred income taxes 3,628,036 3,628,036
Obligations under capital leases 204,490 120,914
Long-term debt due after one year 99,700,000 120,000,000
Commitments and contingencies - -
Redeemable common stock, no par value 25,000 250,000
Shareholders' equity (deficit):
Common stock, Class A voting, no par value:
Authorized shares -- 40,000
Issued and outstanding shares -- 12,000 - -
Common stock, Class B non-voting, no par value:
Authorized shares -- 160,000
Issued and outstanding shares -- 64,023 - -
Paid-in capital 7,508,250 7,508,250
Retained earnings (accumulated deficit) (15,444,226) (17,807,701)
---------------------------------------
Total shareholders' equity (deficit) (7,935,976) (10,299,451)
---------------------------------------
Total liabilities and shareholders' equity (deficit) $ 109,555,745 $ 125,878,798
---------------------------------------
---------------------------------------
</TABLE>
See accompanying notes.
1
<PAGE>
HARD ROCK HOTEL, INC.
STATEMENTS OF OPERATIONS
UNAUDITED
<TABLE>
<CAPTION>
Three months ended August 31, Nine months ended August 31,
------------------------------------------------------------------------
1997 1998 1997 1998
------------------------------------------------------------------------
<S> <C> <C> <C> <C>
REVENUES:
Casino $ 8,716,709 $ 7,697,599 $ 26,842,835 $ 27,479,244
Lodging 3,118,080 3,095,411 9,615,288 9,675,769
Food and beverage 4,203,585 5,163,461 12,625,371 14,434,837
Retail 3,600,678 2,626,360 11,358,419 9,033,669
Other income 589,063 512,210 1,585,323 1,682,652
------------------------------------------------------------------------
20,228,115 19,095,041 62,027,236 62,306,171
Less complimentaries (1,337,975) (1,451,104) (4,060,434) (4,659,356)
------------------------------------------------------------------------
Net Revenues 18,890,140 17,643,937 57,966,802 57,646,815
Costs and expenses:
Casino 4,407,298 4,323,946 13,537,802 14,071,531
Lodging 1,057,797 1,050,652 3,120,076 3,019,129
Food and beverage 2,620,731 3,157,237 7,832,865 8,569,324
Retail 1,637,603 1,238,987 5,272,848 4,258,811
Other 276,513 291,259 723,883 727,408
Marketing 706,586 1,015,547 2,432,177 3,661,668
General and administrative, including
$1.5 million in non-recurring legal fees
in the three and nine months ended
August 31, 1998 3,826,892 4,752,117 11,278,661 11,178,434
Depreciation and amortization 1,408,060 1,452,298 4,191,126 4,257,708
------------------------------------------------------------------------
Total costs and expenses 15,941,480 17,282,043 48,389,438 49,744,013
------------------------------------------------------------------------
Income from operations 2,948,660 361,894 9,577,364 7,902,802
Interest and other:
Interest income (expense), net (1,291,690) (2,825,662) (3,743,173) (8,042,500)
Other expenses, net (5,285) - (26,763) -
------------------------------------------------------------------------
(1,296,975) (2,825,662) (3,769,936) (8,042,500)
------------------------------------------------------------------------
Income (loss) before extraordinary loss and
provision for income taxes 1,651,685 (2,463,768) 5,807,428 (139,698)
Income tax provision (benefit) 595,000 (823,000) 2,083,000 13,000
------------------------------------------------------------------------
Income (loss) before extraordinary loss 1,056,685 (1,640,768) 3,724,428 (152,698)
Extraordinary loss-early extinguishment
of debt - net of taxes - - - (2,210,777)
------------------------------------------------------------------------
Net income (loss) $ 1,056,685 $ (1,640,768) $ 3,724,428 $ (2,363,475)
------------------------------------------------------------------------
------------------------------------------------------------------------
Net income (loss) per share $ 8.34 $ (21.58) $ 29.39 $ (31.09)
------------------------------------------------------------------------
------------------------------------------------------------------------
Shares used in per share calculation 126,705 76,023 126,705 76,023
------------------------------------------------------------------------
------------------------------------------------------------------------
</TABLE>
See accompanying notes.
2
<PAGE>
HARD ROCK HOTEL, INC.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Nine months ended August 31,
----------------------------------
1997 1998
----------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ 3,724,428 $ (2,363,475)
Adjustmets to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization 4,191,126 4,257,708
Amortization of loan fees and organizational costs 271,503 478,048
Issuance of common stock as compensation - 225,000
Early extinguishment of debt - 3,495,777
Changes in operating assets and liabilities:
Accounts receivable 125,373 (179,136)
Income tax refund receivable - (1,272,000)
Inventories 89,667 12,204
Prepaid and other current assets (23,965) (532,893)
Accounts payable (456,080) 825,895
Income tax payable (309,922) -
Interest payable 85,678 4,917,833
Accrued expenses 452,335 (1,026,340)
----------------------------------
Net cash provided by operating activities 8,150,143 8,838,621
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment (6,476,987) (15,629,917)
Change in advances due to related parties 483,981 (470,234)
Decrease (increase) in other assets (481,917) 13,624
----------------------------------
Net cash used in investing activities (6,474,923) (16,086,527)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of debt 3,500,000 120,000,000
Incurrence of loan fees on financing - (5,424,185)
Principal payments on long-term debt (3,600,000) (105,700,000)
Payments on capital lease obligations (75,500) (85,626)
----------------------------------
Net cash provided by (used in) financing activities (175,500) 8,790,189
----------------------------------
Net increase (decrease) in cash and cash equivalents 1,499,720 1,542,283
Cash and cash equivalents at beginning of period 7,343,383 4,214,081
----------------------------------
Cash and cash equivalents at end of period $ 8,843,103 $ 5,756,364
----------------------------------
----------------------------------
</TABLE>
See accompanying notes.
3
<PAGE>
HARD ROCK HOTEL, INC.
NOTES TO UNAUDITED FINANCIAL STATEMENTS
AUGUST 31, 1998
1. BASIS OF PRESENTATION
The accompanying unaudited financial statements of Hard Rock Hotel, Inc.
(the "Company") have been prepared in accordance with generally accepted
accounting principles for interim financial information and with
instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly,
they do not include all information and footnotes required by generally
accepted accounting principles for complete financial statements. In the
opinion of management, all adjustments (consisting of normal recurring
adjustments) considered necessary for a fair presentation have been
included. Operating results for the nine-month period ended August 31,
1998 are not necessarily indicative of the results that may be expected for
the year ending November 30, 1998. The unaudited interim financial
statements contained herein should be read in conjunction with the audited
financial statements and footnotes for the year ended November 30, 1997.
2. LONG TERM DEBT
On March 23, 1998 the Company obtained funding of approximately $115.3
million in net proceeds from the offering of $120 million aggregate
principal amount of its 9.25%, Senior Subordinated Notes due in 2005 (the
"Notes"). Of this amount, approximately $105.6 million was used to pay off
the Company's $120 million credit facility (the "Prior Credit Facility"),
entered into in September of 1997, including accrued interest. In
addition, on March 23, 1998, the Company secured a revolving line of credit
of $67 million under a new credit facility (the "New Credit Facility")
through a group of banks for which Bank of America National Trust and
Savings Association acts as administrative agent. Borrowings against the
line of credit may require repayments beginning in February 2000. In
connection with the retirement of the Prior Credit Facility, the Company
incurred an extraordinary pre-tax loss resulting from the write-off of $3.5
million in unamortized loan fees and financing cost.
3. COMMITMENTS AND CONTINGENCIES
As part of the expansion (the "Expansion") of the Hard Rock Hotel & Casino,
the Company has signed contracts aggregating approximately $59 million.
The total estimated cost of the expansion project is approximately $87
million.
LEGAL PROCEEDINGS
On January 5, 1998, Hard Rock Cafe International (USA) Inc. (f/k/a Rank
Licensing, Inc.), a subsidiary of Rank (the "Plaintiff"), filed an amended
complaint in the United State District Court for the Southern District of
New York against Peter A. Morton and the Company. The Plaintiff contends
that the reservation and use by Mr. Morton and the Company of the internet
domain names "hardrock.com" and "hardrockhotel.com" (the "Domain Names"),
and the use of certain marks and logos (the "Logos") in, and in connection
with merchandise offered on, internet websites operated under the Domain
Names, violate terms of certain agreements with Mr. Morton and federal and
state trademark and unfair competition law. The Plaintiff seeks an
injunction against the use of the Domain Names and Logos by Mr. Morton and
the Company, an order requiring Mr. Morton and the Company to assign the
Domain Names to the Plaintiff, and over $100 million in damages. During
the course of litigation, Mr. Morton and the Company transferred the
domain name "hardrock.com" to the plaintiff. Trial of this matter has
concluded, and the Company awaits a verdict. Management believes the
outcome of this litigation will not have a material adverse effect on the
Company, although there can be no assurance of the outcome of the lawsuit.
Revenues from sales of merchandise over the internet for fiscal year 1997
were less than $150,000. Through August 31, 1998 the Company has incurred
$1.5 million in legal fees in defense of this suit which has been charged
to general and administrative expenses on the Statement of Operations
Additionally, the Company is a defendant in various lawsuits relating to
routine matters incidental to its business. Management does not believe
that the outcome of any such litigation, in the aggregate, will have a
material adverse effect on the Company.
4
<PAGE>
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 company's financial statements, including the notes
thereto, and the other financial information appearing elsewhere herein and by
the audited financial statements and footnotes for the year ended November 30,
1997, which may be obtained upon request from the company.
OVERVIEW
Hard Rock Hotel, Inc.'s (the "Company") sole business is the operation of the
Hard Rock Hotel and Casino in Las Vegas, Nevada (the "Resort").
During the first nine months of Fiscal Year 1998, the Company hosted The Rolling
Stones at the Joint (the "Rolling Stones Event"), a special marquee event, which
generated significant national and international publicity. During the same
period, Hotel occupancy has remained at 100% with a higher average daily rate
than the same period in fiscal 1997. To capitalize on customer demand, the
Company has begun construction in February 1998 of an $87 million expansion of
the Resort (the "Expansion"). Key elements of the expansion are expected to
include (i) nearly doubling the number of hotel rooms, (ii) significantly
increasing the size and features of the swimming pool area (the "Beach Club")
and (iii) the addition of other amenities. The Expansion has been designed to
be constructed in phases in order to minimize disruption to the Resort.
However, if construction activities are more disruptive than management
currently anticipates net revenues and Adjusted EBITDA for fiscal year 1998
could be lower than the results achieved in fiscal year 1997.
To fund the expansion and retire the existing $120 million credit facility (the
"Prior Credit Facility") the Company completed on March 23, 1998 an offering
("the Offering"), of $120 million 9.25% Senior Subordinated Notes Offering due
2005 (the "Notes") and simultaneously closed on a new $67 million revolving line
of credit (the "New Credit Facility"), obtained through a group of banks for
which Bank of America National Trust and Savings Association acts as
administrative agent. As a result of the retirement of the Prior Credit
Facility, the Company recorded an extraordinary pre-tax loss from the write-off
of $3.5 million in unamortized loan fees and financing costs.
The Company believes that its systems are capable of functioning from and after
the year 2000 without any material additional costs. The ability of third
parties with whom the Company transacts business to adequately address their
year 2000 issues is outside the Company's control. There can be no assurance
that the failure of the Company or such third parties to adequately address
their respective year 2000 issues will not have a material adverse effect on the
Company.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements herein constitute "forward-looking statements." Such
forward-looking statements include the discussions of the business strategies of
the Company and expectations concerning future operations, margins,
profitability, liquidity, capital expenditures and capital resources. Although
management believes that the expectations in such forward-looking statements are
reasonable, it can give no assurance that any forward looking statements will
prove to be correct. Such forward-looking statements involve known and unknown
risks, uncertainties and other factors, which may cause the actual results,
performance or achievements of the Company to be materially different from any
future results, performance or achievements expressed or implied by such
forward-looking statements. Such factors include, among others, the risks
associated with new construction, competition and other planned construction in
Las Vegas, government regulation related to the gaming industry, uncertainty of
casino customer spending and vacationing in casino resorts in Las Vegas,
occupancy rates and average room rates in Las Vegas, the popularity of Las Vegas
as a convention and trade show destination, the completion of infrastructure
improvements in Las Vegas, including the on-going expansion of McCarran
International Airport, and general economic and business conditions that may
affect levels of disposable income and pricing of hotel rooms.
5
<PAGE>
RESULTS OF OPERATIONS
THREE MONTHS ENDED AUGUST 31, 1998 AND 1997
NET REVENUES AND OPERATING INCOME. Net revenues decreased 6.6% for the three
months ended August 31, 1998 to $17.6 million compared to $18.9 million for the
corresponding period of the prior year. Operating income decreased 87.7% for
the three months ended August 31, 1998 to $0.4 million compared to $2.9 million
for the corresponding period of the prior year. The decrease in revenues is
primarily attributable to decreased casino revenues (down 11.7%) and retail
sales (down 27.1%) partially offset by food and beverage revenues (up 22.8%).
Slot and retail revenues were negatively impacted by construction disruption in
the month of August due to extensive work done on the Hotel's self and valet
parking lots and renovation of the retail store and high-end slot area related
to the expansion. Operating income decreased primarily as a result of the
decreased revenues and the incurrence of $1.5 million in legal fees associated
with the Rank lawsuit.
CASINO. Casino revenues decreased 11.7% for the three months ended August
31, 1998 to $7.7 million compared to $8.7 million for the corresponding period
of the prior year. The decrease is primarily due to decreased table game
revenue due to below average hold. Net slot revenue decreased 4.6% for the
three months ended August 31, 1998 to $3.3 million compared to $3.5 million for
the corresponding period of the prior year. Casino departmental income
decreased 21.7% for the three months ended August 31, 1998 to $3.4 million from
$4.3 million, primarily as a result of the decreased revenues. Casino
departmental income as a percentage of casino revenues decreased to 43.8% in
1998 from 49.4% in 1997, primarily as a result of the decreased reveunes.
LODGING. Lodging revenues remained flat for the three months ended August
31, 1998 at $3.1 million. The average daily room rate ("ADR") for the three
months ended August 31, 1998 was $91.58, up slightly from $91.46 for the three
months ended August 31, 1997. Hotel occupancy remained at 100%. Lodging
departmental income also remained flat for the three months ended August 31,
1998 at $2.0 million. Lodging departmental income as a percentage of Lodging
revenues also remained flat at 66.1%.
FOOD AND BEVERAGE. Food and Beverage revenues increased 22.8% for the three
months ended August 31, 1998 to $5.2 million from $4.2 million for the
corresponding period of the prior year. The increase was primarily related to a
$472,000 increase in banquet food/beverage revenues and a $486,000 increase in
beverage revenues excluding banquets. Food and Beverage departmental income
increased 26.7% for the three months ended August 31, 1998 to $2.0 million from
$1.6 million, as a result of the increased revenues and decreased direct labor
costs. Food and Beverage departmental income as a percentage of Food and
Beverage revenues improved to 38.9% in 1998 from 37.7% in 1997, primarily as a
result of the incremental revenue.
RETAIL. Retail revenues decreased 27.1% for the three months ended August
31, 1998 to $2.6 million from $3.6 million for the corresponding period of the
prior year. Management believes the decrease is primarily attributable to a
diluted retail market from increased retail competition. Retail Departmental
income decreased 29.3% for the three months ended August 31, 1998 to $1.4
million from $2.0 million, as a result of the decreased revenues. Retail
departmental income as a percentage of Retail revenues decreased slightly to
52.8% in 1998 from 54.5% in 1997 as a result of managing retail expenses to the
reduction in revenues.
MARKETING, GENERAL AND ADMINISTRATIVE. Marketing, General and Administrative
expenses increased 27.2% for the three months ended August 31,1998 to $5.8
million from $4.5 million for the corresponding period of the prior year. The
increase is primarily attributable to the incurrence of $1.5 million in legal
fees associated with the Rank lawsuit.
DEPRECIATION AND AMORTIZATION. Depreciation and Amortization expense
increased slightly to $1.5 million for the three months ended August 31, 1998
from $1.4 million for the corresponding period of the prior year.
6
<PAGE>
NET INTEREST EXPENSE. Net Interest Expense increased 119% for the three
months ended August 31, 1998 to $2.8 million from $1.3 million for the
corresponding period of the prior year. The increase is attributable to the
financing of the buyout of Harveys 40% interest in the Resort and related
management agreement on October 24, 1997 for $45 million.
INCOME TAXES. The income tax provision reflects the federal statutory rate
adjusted for non-deductible expenses.
EXTRAORDINARY LOSS. In connection with securing expansion financing on March
23, 1998, the Company wrote off $3.5 million in unamortized loan fee costs
associated with the retirement of the Prior Credit Facility.
NET INCOME. As a result of the factors described above, the Company recorded
a net loss for the three months ended August 31, 1998 of $1.6 million compared
to net income of $1.1 million for the corresponding period of the prior year.
NINE MONTHS ENDED AUGUST 31, 1998 AND 1997
NET REVENUES AND OPERATING INCOME. Net revenues decreased 0.6% for the nine
months ended August 31, 1998 to $57.6 million compared to $58.0 million for the
corresponding period of the prior year. Operating income decreased 17.5% for
the nine months ended August 31, 1998 to $7.9 million compared to $9.6 million
for the corresponding period of the prior year. The decrease in revenues is
primarily attributable to decreased retail revenue of 20.5% offset by food and
beverage revenues (up 14.3%) and table games revenue (up 4.2%). Operating
income decreased primarily as a result of the increased marketing and
entertainment expenses of approximately $1.1 million associated with hosting the
Rolling Stones and the incurrence of $1.5 million in legal fees related to the
Rank lawsuit, offset by the elimination of management fees paid to Harveys
Casino Resorts.
CASINO. Casino revenues increased 2.4% for the nine months ended August 31,
1998 to $27.5 million compared to $26.8 million for the corresponding period of
the prior year. The increase is primarily due to increased table game play
benefited by having 8 additional Blackjack tables (in place of approximately 75
slot machines) for the entire nine months in 1998 versus only 4 months in the
same period of 1997, and strong play surrounding the Rolling Stones Event.
Despite the reduction in the number of slot machines, net slot machine revenue
stayed flat for the nine months ended August 31, 1998 at $11.0 million compared
to $10.9 for the corresponding period of the prior year. Casino departmental
income increased 0.8% for the nine months ended August 31, 1998 to $13.4 million
from $13.3 million, primarily as a result of the increased revenues. Casino
departmental income as a percentage of casino revenues decreased to 48.8% in
1998 from 49.6% in 1997, primarily as a result of increased complimentary costs.
LODGING. Lodging revenues increased 0.6% for the nine months ended August
31, 1998 to $9.7 million from $9.6 million for the corresponding period of the
prior year. The ADR for the nine months ended August 31, 1998 was $96.53, up
1.5% from $95.13 for the nine months ended August 31, 1997. Hotel occupancy
remained at 100%. Lodging departmental income increased 2.5% for the nine months
ended August 31, 1998 to $6.7 million from $6.5 million. Lodging departmental
income as a percentage of Lodging revenues increased to 68.8% in 1998 from 67.6%
in 1997.
FOOD AND BEVERAGE. Food and Beverage revenues increased 14.3% for the nine
months ended August 31, 1998 to $14.4 million from $12.6 million for the
corresponding period of the prior year. The increase was related to a $779,000
increase in banquet food and beverage revenues, a $554,000 increase in Joint bar
revenues and a $350,000 increase in Center Bar/Las Vegas Lounge revenues. Food
and Beverage departmental income increased 22.4% for the nine months ended
August 31, 1998 to $5.9 million from $4.8 million, as a result of the increased
revenues and decreased operating costs as a percent of revenue. Food and
Beverage departmental income as a percentage of Food and Beverage revenues
improved to 40.6% in 1998 from 38.0% in 1997, primarily as a result of the
incremental revenue.
7
<PAGE>
RETAIL. Retail revenues decreased 20.5% for the nine months ended August 31,
1998 to $9.0 million from $11.4 million for the corresponding period of the
prior year. Management believes the decrease is primarily attributable to a
diluted retail market from increased retail competition. Retail Departmental
income decreased 21.5% for the nine months ended August 31, 1998 to $4.8 million
from $6.1 million, as a result of the decreased revenues. Retail departmental
income as a percentage of Retail revenues decreased slightly to 52.9% in 1998
from 53.6% in 1997 as a result of managing retail expenses to the reduction in
revenues.
MARKETING, GENERAL AND ADMINISTRATIVE. Marketing, General and Administrative
expenses increased 8.2% for the nine months ended August 31,1998 to $14.8
million from $13.7 million for the corresponding period of the prior year. The
increase is attributable the costs associated with hosting The Rolling Stones
event of approximately $1.1 million, the incurrence of $1.5 million in legal
fees related to the Rank lawsuit and higher accrued management incentive fees of
approximately $0.4 million offset by the elimination of management fees paid to
Harveys of approximately $2.4 million.
DEPRECIATION AND AMORTIZATION. Depreciation and Amortization expense
increased to $4.3 million for the nine months ended August 31, 1998 from $4.2
million for the corresponding period of the prior year.
NET INTEREST EXPENSE. Net Interest Expense increased 115% for the nine
months ended August 31, 1998 to $8.0 million from $3.7 million for the
corresponding period of the prior year. The increase is attributable to the
financing of the buyout of Harveys 40% interest in the Resort and related
management agreement on October 24, 1997 for $45 million.
INCOME TAXES. The income tax provision reflects the federal statutory rate
adjusted for non-deductible expenses.
EXTRAORDINARY LOSS. In connection with securing expansion financing on
March 23, 1998, the Company wrote off $3.5 million in unamortized loan fee
costs associated with the retirement of the Prior Credit Facility.
NET INCOME. As a result of the factors described above, the Company recorded
a net loss for the nine months ended August 31, 1998 of $2.4 million compared
to net income of $3.7 million for the corresponding period of the prior year.
LIQUIDITY AND CAPITAL RESOURCES
On March 23, 1998, the Company completed the Offering of $120 million
aggregate principal amount of Notes; of this amount approximately $105.6
million was used to repay the Prior Credit Facility and approximately $5.4
million was used to pay fees associated with the Offering and New Credit
Facility. Concurrently with the Offering, the Company closed on the $67.0
million New Credit Facility to be used for the Expansion. At August 31, 1998
no amounts had been drawn on that facility.
For the nine months ended August 31, 1998, the Company's principal
source of funds was net financing activities of approximately $8.8 million
and operations of $8.8 million. The primary use of funds was the payment of
expansion and maintenance capital expenditures of $15.6 million. As of
August 31, 1998 the Company had cash and cash equivalents of $5.8 million.
Construction of the Expansion commenced in February 1998 and is expected to
be completed by the second quarter of 1999. Based on current plans,
approximately $42 million of capital expenditures related to the Expansion is
expected to be incurred in fiscal year 1998, with the remaining $45 million
expected to be incurred in fiscal 1999. However, timing for capital
expenditures relating to the Expansion may change depending on the actual
completion date for the Expansion. Failure to complete the Expansion within
budget or on schedule could have a material adverse effect on the Company.
The Company believes that its current cash balances, funds available under
the $67.0 million New Credit Facility, and cash flow from operations will be
sufficient to provide operating liquidity and complete the $87.0 million
Expansion. However, no assurances can be given with respect to the
sufficiency of such amounts. Failure to complete the Expansion within budget
or on schedule could have a material adverse effect on the Company.
8
<PAGE>
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
On January 5, 1998, Hard Rock Cafe International (USA) Inc. (f/k/a Rank
Licensing, Inc.), a subsidiary of Rank, filed an amended complaint in the
United States District Court for the Southern District of New York against
Peter A. Morton and the Company. The Plaintiff contends that the reservation
and use by Mr. Morton and the Company of the Domain Names "hardrock.com" and
"hardrockhotel.com", and the use of the Logos in, and in connection with
merchandise offered on, internet websites operated under the Domain Names,
violate terms of certain agreements with Mr. Morton and federal and state
trademark and unfair competition law. The Plaintiff seeks an injunction
against the use of the Domain Names and Logos by Mr. Morton and the Company,
an order requiring Mr. Morton and the Company to assign the Domain Names to
the Plaintiff, and over $100 million in damages. During the course of
litigation Mr. Morton and the Company transferred the domain name
"hardrock.com" to the Plaintiff. Trial of this matter has concluded, and the
Company awaits a verdict. Management believes the outcome of this
litigation will not have a material adverse effect on the Company, although
there can be no assurance of the outcome of the lawsuit. Revenues from sales
of merchandise over the internet for fiscal year 1997 were less than
$150,000. Through August 31, 1998 the Company has incurred 51.5 million in
legal fees in defense of this suit which has been charged to general and
administrative expenses on the Statement of Operations.
Additionally, the Company is a defendant in various lawsuits relating to
routine matters incidental to its business. Management does not believe that the
outcome of any such litigation, in the aggregate, will have a material adverse
effect on the Company.
9
<PAGE>
ITEM 6. EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ----------- --------------------------------------------------------------------------------------------------------
<C> <S>
27. FINANCIAL DATA SCHEDULE
27.1 Financial Data Schedule for fiscal quarters and nine months ended August 31, 1997 and 1998.
</TABLE>
10
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the Registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
HARD ROCK HOTEL, INC.
Date: October 13, 1998 By: /s/ BRUCE R. DALL
-------------------------------------
Bruce R. Dall
DULY AUTHORIZED OFFICER
/s/ BRUCE R. DALL
-------------------------------------
Bruce R. Dall
CHIEF FINANCIAL OFFICER AND TREASURER
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C> <C> <C>
<PERIOD-TYPE> 9-MOS 9-MOS 3-MOS 3-MOS
<FISCAL-YEAR-END> NOV-30-1998 NOV-30-1997 NOV-30-1998 NOV-30-1997
<PERIOD-START> DEC-01-1997 DEC-01-1996 JUN-01-1998 JUN-01-1997
<PERIOD-END> AUG-31-1998 AUG-31-1997 AUG-31-1998 AUG-31-1997
<CASH> 5,756 8,843 5,756 8,843
<SECURITIES> 0 0 0 0
<RECEIVABLES> 7,062 1,762 7,062 1,762
<ALLOWANCES> (201) (255) (201) (255)
<INVENTORY> 1,054 939 1,054 939
<CURRENT-ASSETS> 15,772 1,396 15,772 1,396
<PP&E> 119,840 103,265 119,840 103,265
<DEPRECIATION> 18,700 13,357 18,700 13,357
<TOTAL-ASSETS> 125,879 105,084 125,879 105,084
<CURRENT-LIABILITIES> 12,179 14,750 12,179 14,750
<BONDS> 120,120 54,537 120,120 54,537
0 0 0 0
0 0 0 0
<COMMON> 0 0 0 0
<OTHER-SE> (10,299) 34,486 (10,299) 34,486
<TOTAL-LIABILITY-AND-EQUITY> 125,879 105,084 125,879 105,084
<SALES> 0 0 0 0
<TOTAL-REVENUES> 57,647 57,967 17,644 18,890
<CGS> 0 0 0 0
<TOTAL-COSTS> 49,744 48,416 17,282 15,947
<OTHER-EXPENSES> 0 0 0 0
<LOSS-PROVISION> 0 0 0 0
<INTEREST-EXPENSE> 8,042 3,743 2,826 1,292
<INCOME-PRETAX> (140) 5,807 (2,464) 1,652
<INCOME-TAX> 13 2,083 (823) 595
<INCOME-CONTINUING> (153) 3,724 (1,641) 1,057
<DISCONTINUED> 0 0 0 0
<EXTRAORDINARY> 2,211 0 0 0
<CHANGES> 0 0 0 0
<NET-INCOME> (2,363) 3,724 (1,641) 1,057
<EPS-PRIMARY> (9.51) 29.39 (21.58) 8.34
<EPS-DILUTED> (9.51) 29.39 (21.58) 8.34
</TABLE>
