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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-Q
/X/ QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: June 30, 2000
OR
/ / 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 333-53211
Hard Rock Hotel, Inc.
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(Exact name of registrant as specified in its charter)
Nevada 88-0306263
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4455 Paradise Road, Las Vegas NV 89109
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (702) 693-5000
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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 [X] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Common Stock outstanding by class as of August 11, 2000
Class of Common Stock Shares
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Class A Common Stock 12,000
Class B Common Stock 64,023
<PAGE>
HARD ROCK HOTEL, INC.
INDEX
<TABLE>
<CAPTION>
Part I FINANCIAL INFORMATION
<S> <C> <C> <C>
Item 1. Financial Statements
Condensed Balance Sheets as of June 30, 2000
(unaudited)and November 30, 1999.....................3
Condensed Statements of Operations for the three-months
and six-months ended June 30, 2000
and 1999 (unaudited).................................4
Condensed Statements of Cash Flows for the six-months
ended June 30, 2000 and 1999 (unaudited).............5
Notes to Condensed Financial Statements....................6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations........................8
Item 3. Quantitative and Qualitative Disclosures about
Market Risk...............................................14
PART II OTHER INFORMATION
Item 1. Legal Proceedings.........................................15
Item 2. Changes in Securities and Use of Proceeds.................15
Item 4. Submission of Matters to a Vote of Security Holders.......15
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits.........................................15
(b) Reports on Form 8-K..............................16
</TABLE>
<PAGE>
Part I FINANCIAL INFORMATION
Item 1. Financial Statements
HARD ROCK HOTEL, INC.
CONDENSED BALANCE SHEETS
(in thousands, except share and per share amounts)
(unaudited)
<TABLE>
<CAPTION>
ASSETS
June 30, 2000 November 30, 1999
--------------- -----------------
<S> <C> <C>
Current assets:
Cash and cash equivalents....................................................... $ 5,848 $ 2,039
Accounts receivable, net of allowance for doubtful accounts..................... 4,349 6,370
Income tax refund receivable.................................................... - 87
Inventories..................................................................... 1,320 1,580
Prepaid expenses and other current assets....................................... 835 1,513
Deferred income taxes........................................................... 792 792
--------------- ---------------
Total current assets.......................................................... 13,144 12,381
--------------- ---------------
Property and equipment, net of accumulated depreciation and amortization........... 176,991 181,961
Other assets....................................................................... 5,109 5,570
--------------- ---------------
TOTAL ASSETS....................................................................... $ 195,244 $ 199,912
=============== ===============
LIABILITIES AND SHAREHOLDERS' DEFICIT
Current liabilities:
Accounts payable............................................................... $ 2,483 $ 3,461
Construction related payables.................................................. - 2,745
Accrued expenses............................................................... 8,584 7,044
Interest payable............................................................... 2,967 2,603
Current obligations under capital leases....................................... 41 93
--------------- ---------------
Total current liabilities................................................... 14,075 15,946
--------------- ---------------
Deferred income taxes.......................................................... 792 792
Long-term debt................................................................. 157,500 179,000
--------------- ---------------
Total long-term liabilities................................................. 158,292 179,792
--------------- ---------------
Total liabilities....................................................... 172,367 195,738
--------------- ---------------
Commitments and contingencies
Preferred stock, 9 1/4 Series A Cumulative, no par value, redeemable, 40,000
shares authorized, 28,000 shares issued and outstanding........................ 29,834 28,297
--------------- ---------------
Preferred stock, 9 1/4 Series B Cumulative, no par value, redeemable, one share
authorized, issued and outstanding............................................. 20,154 -
--------------- ---------------
Shareholders' deficit:
Common stock, Class A voting, no par value, 40,000 shares authorized, 12,000
shares issued and outstanding..................................................
Common stock, Class B non-voting, no par value, 160,000 shares authorized, 64,023
shares issued and outstanding..................................................
Paid-in capital .................................................................. 7,508 7,508
Accumulated deficit............................................................... (34,619) (31,631)
--------------- ---------------
Total shareholders' deficit.................................................... (27,111) (24,123)
--------------- ---------------
TOTAL LIABILITIES AND SHAREHOLDERS' DEFICIT....................................... $ 195,244 $ 199,912
=============== ===============
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONDENSED STATEMENTS.
3
<PAGE>
HARD ROCK HOTEL, INC.
CONDENSED STATEMENTS OF OPERATIONS
(in thousands, except share and per share amounts)
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------------------- -------------------------------
2000 1999 2000 1999
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Revenue:
Casino.................................................. $ 14,530 $ 9,102 $ 30,091 $ 18,024
Lodging................................................. 6,949 4,652 13,645 7,989
Food and beverage....................................... 9,317 5,714 17,190 10,224
Retail.................................................. 2,510 2,881 4,983 5,859
Other income............................................ 1,572 1,719 2,935 2,254
------------ ------------ ------------ ------------
Gross revenues...................................... 34,878 24,068 68,844 44,350
Less: promotional allowances...................... (3,159) (1,860) (5,454) (3,435)
------------ ------------ ------------ ------------
Net revenues........................................ 31,719 22,208 63,390 40,915
------------ ------------ ------------ ------------
Costs and expenses:
Casino.................................................. 7,227 5,150 15,007 10,086
Lodging................................................. 1,968 1,339 3,659 2,292
Food and beverage....................................... 4,865 3,920 9,730 6,776
Retail.................................................. 1,052 1,331 2,189 2,709
Other................................................... 797 546 1,483 791
Marketing............................................... 1,062 589 2,115 1,062
General and administrative.............................. 6,744 3,761 11,176 6,958
Depreciation and amortization........................... 2,849 2,165 5,986 3,737
Pre-opening............................................. - 4,584 - 4,584
------------ ------------ ------------ ------------
Total costs and expenses............................ 26,564 23,385 51,345 38,995
------------ ------------ ------------ ------------
Income (loss) from operations................................ 5,155 (1,177) 12,045 1,920
Other (expense):
Interest expense, net................................... (4,284) (3,355) (8,744) (5,989)
------------ ------------ ------------ ------------
Income (loss) before income tax (provision) benefit.......... 871 (4,532) 3,301 (4,069)
Income tax (provision) benefit............................... (55) 1,466 (104) 1,466
------------ ------------ ------------ ------------
NET INCOME (LOSS)............................................ 816 (3,066) 3,197 (2,603)
Preferred stock dividends.................................... (819) - (1,473) -
------------ ------------ ------------ ------------
Income (loss) applicable to common shareholders.............. $ (3) $ (3,066) $ 1,724 $ (2,603)
============ ============ ============ ============
BASIC AND DILUTED NET INCOME (LOSS) PER SHARE:
Applicable to common shareholders....................... $ (0.04) $ (40.33) $ 22.68 $ (34.24)
============ ============ ============ ============
Weighted average number of common shares outstanding......... 76,023 76,023 76,023 76,023
============ ============ ============ ============
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONDENSED STATEMENTS.
4
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HARD ROCK HOTEL, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(in thousands, except supplemental schedule)
(unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
-------------------------------
2000 1999
--------------- ---------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss)....................................... $ 3,197 $ (2,603)
Adjustments to reconcile net income
(loss) to net cash provided by (used
in) operating activities:
Depreciation and amortization....................... 5,986 3,737
Amortization of loan fees........................... 420 288
Deferred income taxes............................... - (1,864)
Changes in operating assets and liabilities:
Accounts receivable............................ 97 (417)
Inventories.................................... 384 (155)
Prepaid expenses and other
current assets............................... 582 (97)
Accounts payable............................... (2,165) 9,308
Accrued expenses............................... 1,109 554
Interest payable............................... (362) 783
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Net cash provided by(used in) operating activities........... 9,248 9,534
------------ ------------
Cash flow from investing activities:
Purchases of property and equipment..................... (1,150) (59,307)
Decrease (increase) in other assets..................... (139) (540)
------------ ------------
Net cash provided by (used in) investing activities.......... (1,289) (59,847)
------------ ------------
Cash flows from financing activities:
Proceeds from issuance preferred stock.................. 20,000 -
Proceeds from issuance long-term debt................... - 58,000
Principal payments on long-term debt.................... (24,500) -
Payments on capital lease obligations................... (50) (51)
------------ ------------
Net cash provided by (used in) financing activities.......... (4,550) 57,949
------------ ------------
Net increase (decrease) in cash and cash equivalents......... 3,409 7,636
Cash and cash equivalents, beginning of Period............... 2,439 (4,691)
------------ ------------
Cash and cash equivalents, end of period..................... $ 5,848 $ 2,945
============ ============
Supplemental disclosures of cash flow information:
Cash paid during the period for interest (net of amount
capitalized of $2,007 in the six months ended June 30,
1999)................................................... $ 8,686 $ 4,786
------------ ------------
Cash paid (received) during the period for income taxes...... $ (303) $ 400
------------ ------------
</TABLE>
Supplemental Schedule of Non-Cash Investing and Financing Activities:
The value of the 9 1/4% Series A Cumulative Preferred Stock and
9 1/4% Series B Cumulative Preferred Stock increased by approximately
$1,473,000 in unpaid accrued dividends for the six-month period ended
June 30, 2000.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONDENSED STATEMENTS.
5
<PAGE>
HARD ROCK HOTEL, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
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, certain notes and
other information have been condensed or omitted from the interim financial
statements presented in this Quarterly Report on Form 10-Q and they do not
include all information 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. The preparation of financial
statements in conformity with generally accepted accounting principles
requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements and the
amounts of revenues and expenses during the reporting period. Actual results
could differ from these estimates. Operating results for the three-month and
six-month periods ended June 30, 2000 are not necessarily indicative of
future financial results or the results that may be expected for the year
ending December 31, 2000. The unaudited interim financial statements
contained herein should be read in conjunction with the audited financial
statements and footnotes for the fiscal year ended November 30, 1999. The
Company has made certain financial statement reclassifications for the
three-month and six month periods ended June 30, 1999 in order to classify
amounts in a manner consistent with the three-month and six-month periods
ended June 30, 2000, respectively.
2. Long-Term Debt
At June 30, 2000, the Company had $120.0 million outstanding in Senior
Subordinated Notes due 2005 and and $37.5 million outstanding on its $42.0
million revolving credit facility through a group of banks.
Interest on the Notes is payable on each April 1 and October 1. The
Notes are general unsecured obligations of the Company, subordinated in right
of payment to all existing and future senior indebtedness, including all
borrowings under the credit facility. The Notes are subject to redemption at
the option of the Company, in whole or in part, at any time on or after April
1, 2002, at a premium to the face amount ($120 million) which decreases on
each subsequent anniversary date, plus accrued interest to the date of
redemption. The Notes contain covenants restricting or limiting the ability
of the Company to, among other things, pay dividends, incur additional
indebtedness, issue certain preferred stock and enter into transactions with
affiliates.
The Credit Facility.
Effective June 2000, the Company entered into an amendment with regard
to its revolving credit facility whereby, among other things: (i) the
commitment amount available under the credit facility was reduced to $42.0
million; (ii) the commitment will further begin reducing by $2.0 million the
last day of each fiscal quarter commencing with the fiscal quarter ending
March 31, 2001; (iii) the commitment will also reduce, beginning September
30, 2001 and on each succeeding September 30, by 50% of excess cash flow, as
defined, for the then most recently completed fiscal year; and, (iv) Peter
Morton has been released from a make-well agreement, as defined. The
reduction provisions in (ii) and (iii) above shall terminate the date upon
which the commitment available under the credit facility is reduced to $25.0
million. The credit facility expires on March 23, 2004.
The credit facility contains certain covenants including, among other
things, financial covenants, limitations on the Company from disposing of
capital stock, entering into mergers and certain acquisitions, incurring
liens or indebtedness, issuing dividends on stock, and entering into
transactions with affiliates. The credit facility is secured by substantially
all of the Company's property at the Las Vegas site. Interest on the credit
facility accrues on all individual borrowings at an interest rate determined
at the option of the Company, at either the LIBOR Index plus an applicable
margin (not to exceed 3.5%), or the Base Rate, defined as the higher of the
Federal Funds Rate plus .5%, or the reference rate, as defined, plus an
applicable margin (not to exceed 2.25%). The Company chose the LIBOR Index
for all borrowings outstanding at June 30, 2000. These margins are dependent
upon the Company's debt to EBITDA ratio, as defined. Interest accrued on the
Base Rate borrowings is due monthly, up to the maturity date, while interest
on LIBOR borrowings is due quarterly up to the maturity date.
6
<PAGE>
HARD ROCK HOTEL, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
3. Legal Proceedings
On August 27, 1999, Hark Rock Hotel, Inc. and Lily Pond Investments,
Inc. filed a Complaint for Declaratory Judgment against Gary Selesner in the
Eighth Judicial District of Clark County, Nevada, Case No. A407499, based on
the termination of Gary Selesner's employment. On September 16, 1999, Gary
Selesner filed an Answer and Counterclaim seeking damages alleging breach of
contract and breach of implied covenant of good faith and fair dealing.
Discovery in this matter is proceeding.
The Company is also involved with various legal matters related to its
business and has provided certain reserves based on estimates related to
those situations where management believes an unfavorable outcome is probable.
4. Preferred Stock Issuance
On May 30, 2000, the Company issued $20 million of its 9 1/4% Series B
Cumulative Preferred Stock to Desert Rock, Inc., a Nevada corporation, an
entity wholly owned by Peter A. Morton. The 9 1/4% Series B Cumulative
Preferred Stock contains terms substantially the same as the Company's 9 1/4%
Series A Cumulative Preferred Stock.
7
<PAGE>
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 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, 1999, which appear in our Annual Report on Form 10-K filed
with the SEC on February 28, 2000.
Management Changes
Subsequent to the three-month period ended June 30, 2000, Jonathan
Swain, the former Senior Vice President and General Manager of the Company,
resigned his employment relationship with the Company.
During the month of August 2000, Rick Richards was appointed to the
position of Senior Vice President and General Manager of the Company.
Mr. Richards most recently served as Senior Vice President of Casino
Operations at New York New York in Las Vegas. Prior to that, he was the Vice
President of Gaming Operations at the Hard Rock Hotel & Casino for one year.
OVERVIEW
Hard Rock Hotel, Inc.'s (the "Company") sole business is the operation
of the Hard Rock Hotel and Casino in Las Vegas, Nevada, which commenced
operations on March 9, 1995.
During the month of May 1999, the Company completed construction of its
expansion of the resort (the "Expansion"). The Expansion included 318
additional rooms, 4 new restaurants, 6,000 square feet of ballroom/banquet
facilities, new retail space, an 8,000 square foot spa/salon/fitness center
and a significantly enlarged swimming pool area featuring, among other
things, swim-up blackjack. Results of operations for periods prior to the
completion of the Expansion may not be comparable to results of operations
for periods after we completed the Expansion.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
All statements contained herein that are not historical facts, including
but not limited to, statements regarding our business strategies and
expectations concerning future operations, margins, profitability, liquidity,
capital expenditures and capital resources, are based on current
expectations. These statements are forward-looking in nature and involve a
number of risks and uncertainties. Generally, the words "anticipates,"
"believes," "estimates," "expects" and similar expressions as they relate to
the Company and its management are intended to identify forward-looking
statements. 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 and actual results may
differ materially. Among the factors that could cause actual results to
differ materially are the following: competition 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, and general economic and business conditions that may affect
levels of disposable income and pricing of hotel rooms, and other factors
described at various times in the Company's reports filed with the Securities
and Exchange Commission. The Company wishes to caution readers not to place
undue reliance on any forward-looking statements, which statements are made
pursuant to the Private Litigation Reform Act of 1995. The forward-looking
statements contained in this quarterly report on Form 10-Q speak only as of
the date that we have filed the report. We expressly disclaim any obligation
or undertaking to disseminate any updates or revisions to any forward-looking
statement contained in this report, including to reflect any change in our
expectations with regard to that forward-looking statement or any change in
events, conditions or circumstances on which that forward-looking statement
is based. For more information regarding risks inherent in an investment in
the Company, see the section "Business - Risk Factors" in our annual Report
on Form 10-K filed with the SEC on February 28, 2000.
RESULTS OF OPERATIONS
Three Months Ended June 30, 2000 and 1999
NET REVENUES. Net revenues increased 43% for the three-month period
ended June 30, 2000 to $31.7 million compared to $22.2 million for the
corresponding period of the prior year. The increase in revenues is primarily
attributable to a $5.4 million or 60% increase in casino revenue, a $3.6
million or 63% increase in food and beverage revenue and a $2.3 million or
49% increase in lodging revenue. These increases were partially offset by
decreases in retail revenues and other income and an increase in promotional
allowances related to items furnished to customers on a complimentary basis.
8
<PAGE>
CASINO REVENUES. The $5.4 million increase in casino revenues was
primarily due to a $4.0 million or 70% increase in table games revenue and a
$1.3 million or 38% increase in slot machine revenues. The increase in table
games revenues was due to increases in both table games drop and hold
percentage. Table games drop increased 34% to $56.7 million from $42.3
million. Average drop per table per day increased 25% despite a 7% increase
in the average number of table games in operation to 76 from 71. Table games
hold percentage increased 3.6 percentage points to 17.0% from 13.4%. The
result of these changes in drop, hold percent and average number of table
games in operation was an increase in average win per table game per day to
$1,393 from $873, an increase of $520 or 60%. Slot machine revenues increased
primarily due to an increase in handle. Slot machine handle increased 33% to
$92.1 million from $69.0 million. Slot machine win percentage remained
approximately constant changing 0.2 percentage points to 5.1% from 4.9%. The
Company decreased the average number of slot machines in operation to 681
from 732, a decrease of 51 or 7% between comparative periods. The net result
of these changes in slot machine handle, win percentage and average number of
slot machines in operation was an increase in average win per slot machine
per day to $75 from $51, an increase of $24 or 47%. The increases in table
games drop and slot machine handle were primarily due to having a full
quarter of operations following the Expansion and effective marketing
programs.
LODGING REVENUES. The $2.3 million increase in lodging revenues was
primarily due to an increase in average daily rooms available as a result of
the Expansion which was completed in May 1999, an increase in the average
daily room rate to $111 from $97, an increase of $14 or 14%, and an increase
in occupancy to 97% from 92%, an increase of 5 percentage points.
FOOD AND BEVERAGE REVENUES. The $3.6 million increase in food and
beverage revenues was primarily due to revenues from the new restaurants, an
increased number of hotel rooms served by room service, the 6,000 square feet
of ballroom/banquet facilities and the night club which opened in conjunction
with the Expansion.
RETAIL REVENUES. Retail revenues decreased to $2.5 million from $2.9
million, a decrease of $0.4 million or 14%. We believe the decrease in retail
revenues is due in part to a general market decline in the themed restaurant
merchandise segment and an expansion of other retail operations in Las Vegas.
OTHER INCOME. Other income remained approximately constant decreasing to
$1.6 million from $1.7 million, a decrease of $0.1 million or 6%. The Company
periodically records revenue related to chip float, representing
commemorative and other chips and tokens in public circulation management
believes will never be redeemed. During the comparative quarters, chip float
revenues decreased to $0.1 million from $0.8 million, and this decrease was
only partially offset by increases from the Expansion, including the Rock
Spa, Arcade and Beach Club operations.
PROMOTIONAL ALLOWANCES. Promotional allowances increased to $3.2 million
from $1.9 million, an increase of $1.3 million or 68%. The increase is due to
increases in casino customers and a greater array of available amenities as a
result of the Expansion. As a percentage of casino revenues, however,
promotional allowances increased only 2 percentage points, to 22% from 20%,
as a result of focusing offerings on premium customers.
CASINO EXPENSES. Casino expenses as a percentage of casino revenues
decreased to 50% from 57%, a decrease of 7 percentage points. The decrease
was primarily due to relative decreases in labor costs and the cost of rooms,
food and beverage furnished to customers on a complimentary basis in relation
to casino revenues offset partially by cash incentives to slot machine
customers which began being offered in January 2000 pursuant to changes in
the slot club program.
LODGING EXPENSES. Lodging expenses, prior to reclassifying the cost of
complimentaries, decreased as a percentage of lodging revenues to 34% from
37%, a decrease of 3 percentage points. The decrease is due primarily to
decreases in administrative, telephone operator and concierge labor costs in
relation to lodging revenues.
FOOD AND BEVERAGE COSTS AND EXPENSES. Food and beverage costs and
expenses in relation to food and beverage revenues, prior to reclassifying
the cost of complimentaries, decreased to 65% from 78%, a decrease of 13
percentage points. The decrease is primarily due to decreases in
administrative, pink taco and banquet labor costs in relation to food
revenues and higher beach club labor efficiencies compared with other outlets
offset partially by increases in room service labor costs in relation to food
revenues.
9
<PAGE>
RETAIL COSTS AND EXPENSES. Retail costs and expenses in relation to
retail revenues, prior to reclassifying the cost of complimentaries,
increased to 49% from 47%, an increase of 2 percentage points. The increase
is due primarily to increases in labor costs in relation to retail revenues.
OTHER COSTS AND EXPENSES. Other costs and expenses in relation to other
income, prior to reclassifying the cost of complimentaries, increased to 51%
from 32%, an increase of 19 percentage points. The increase is primarily due
the $0.7 million decrease in chip float revenue for which there is no
significant direct expense.
MARKETING, GENERAL AND ADMINISTRATIVE. Marketing, general and
administrative expenses in relation to gross revenues increased to 22% from
18%, an increase of 4 percentage points. The relative increase is primarily
due to providing certain reserves related to various claims and legal matters
offset partially by fixed costs related to the Expansion increasing at a
lower rate than gross revenues.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expense
increased to $2.8 million from $2.2 million, an increase of 27% primarily due
to the increased capital expenditures associated with the Expansion. Certain
equipment with a 5 year depreciable life became fully depreciated during the
three-month period ended June 30, 2000 as the property opened during March
1995.
PRE-OPENING EXPENSE. During the three-month period ended June 30, 1999,
the Company recorded $4.6 million of pre-opening expense related to the
opening of the Expansion.
NET INTEREST EXPENSE. Net interest expense increased to $4.3 million
from $3.4 million, an increase of $0.9 million or 26%. The increase is
primarily due to the increase in borrowings associated with the Expansion
offset partially by a decrease in borrowings as a result of using the $20.0
million in proceeds from the issuance of the 9 1/4% Series B Cumulative
Preferred Stock.
INCOME APPLICABLE TO COMMON SHAREHOLDERS. As a result of the factors
described above, the Company decreased loss applicable to common shareholders
from $3.1 million to break-even, an improvement of $3.1 million. The net
increases noted in the preceding paragraphs were offset partially by $0.8
million of preferred dividends declared on the 9 1/4% Series A Cumulative
Preferred Stock and 9 1/4% Series B Cumulative Preferred Stock issued between
the comparative quarters and the absence in the three-month period ended June
30, 2000 of a $1.5 million income tax benefit recognized in the three-month
period ended June 30, 1999.
Six Months Ended June 30, 2000 and 1999
NET REVENUES. Net revenues increased 55% for the six-month period ended
June 30, 2000 to $63.4 million compared to $40.9 million for the
corresponding period of the prior year. The increase in revenues is primarily
attributable to a $12.1 million or 67% increase in casino revenue, a $7.0
million or 68% increase in food and beverage revenue, a $5.7 million or 71%
increase in lodging revenue and a $0.7 million or 32% increase in other
income. These increases were partially offset by decreases in retail revenues
and an increase in promotional allowances related to items furnished to
customers on a complimentary basis.
CASINO REVENUES. The $12.1 million increase in casino revenues was
primarily due to a $8.9 million or 78% increase in table game revenues and a
$2.9 million or 44% increase in slot machine revenues. The increase in table
games revenues was due to increases in both table games drop and hold
percentage. Table games drop increased 43% to $118.0 million from $82.5
million. Average drop per table per day increased 52% despite a 17% increase
in the average number of table games in operation to 76 from 65. Table games
hold percentage increased 3.4 percentage points to 17.1% from 13.7%. The
result of these changes in drop, hold percentage and average number of table
games in operation was an increase in average win per table game per day to
$1,459 from $963, an increase of $496 or 52%. Slot machine revenues increased
due to an increase in handle offset partially by a decrease in win
percentage. Slot machine handle increased 56% to $206.6 million from $132.4
million. Slot machine win percentage decreased 0.4 percentage points to 4.5%
from 4.9%. The Company decreased the average number of slot machines in
operation to 669 from 728, a decrease of 59 or 8% between comparative
periods. The net result of
10
<PAGE>
these changes in slot machine handle, win percent and average number of slot
machines in operation was an increase in average win per slot machine per day
to $77 from $49, an increase of $28 or 57%. The increases in table games drop
and slot machine handle were primarily due to having a full six months of
operations following the Expansion and effective marketing programs.
LODGING REVENUES. The $5.7 million increase in lodging revenues was
primarily due to an increase in average daily rooms available as a result of
the Expansion which was completed in May 1999, an increase in the average
daily room rate to $110 from $100, an increase of $10 or 10%, and an increase
in occupancy to 96% from 94%, an increase of 2 percentage points.
FOOD AND BEVERAGE REVENUES. The $7.0 million increase in food and
beverage revenues was primarily due to revenues from the new restaurants, an
increased number of hotel rooms served by room service, the 6,000 square feet
of ballroom/banquet facilities and the night club which opened in conjunction
with the Expansion.
RETAIL REVENUES. Retail revenues decreased to $5.0 million from $5.9
million, a decrease of $0.9 million or 15%. We believe the decrease in retail
revenues is due in part to a general market decline in the themed restaurant
merchandise segment and an expansion of other retail operations in Las Vegas.
OTHER INCOME. Other income increased to $2.9 million from $2.2 million,
an increase of $0.7 million or 32%. The increase is due to the Expansion
including, the Rock Spa, Arcade and Beach Club operations and was offset only
partially by a decrease in chip float revenue representing commemorative and
other chips and tokens in public circulation management believes will never
be redeemed.
PROMOTIONAL ALLOWANCES. Promotional allowances increased to $5.5 million
from $3.4 million, an increase of $2.1 million or 62%. The increase is due to
increases in casino customers and a greater array of available amenities as a
result of the Expansion. As a percentage of casino revenues, however,
promotional allowances decreased 1 percentage point, to 18% from 19%, as a
result of focusing offerings on premium customers.
CASINO EXPENSES. Casino expenses as a percentage of casino revenues
decreased to 50% from 56%, a decrease of 6 percentage points. The decrease
was primarily due to relative decreases in labor costs and the cost of rooms,
food and beverage furnished to customers on a complimentary basis in relation
to casino revenues offset partially by cash incentives to slot machine
customers which began being offered in January 2000 pursuant to changes in
the slot club program.
LODGING EXPENSES. Lodging expenses, prior to reclassifying the cost of
complimentaries, decreased as a percentage of lodging revenues to 33% from
37%, a decrease of 4 percentage points. The decrease is due primarily to
decreases in administrative, telephone operator and concierge labor costs in
relation to lodging revenues.
FOOD AND BEVERAGE COSTS AND EXPENSES. Food and beverage costs and
expenses in relation to food and beverage revenues, prior to reclassifying
the cost of complimentaries, decreased to 67% from 76%, a decrease of 9
percentage points. The decrease is primarily due to decreases in
administrative, pink taco and banquet labor costs in relation to food
revenues and higher beach club labor efficiencies compared with other outlets
offset partially by increases in room service labor costs in relation to food
revenues.
RETAIL COSTS AND EXPENSES. Retail costs and expenses in relation to
retail revenues, prior to reclassifying the cost of complimentaries,
increased to 49% from 47%, an increase of 2 percentage points. The increase
is due primarily to increases in labor costs in relation to retail revenues.
OTHER COSTS AND EXPENSES. Other costs and expenses in relation to other
income, prior to reclassifying the cost of complimentaries, increased to 51%
from 35%, an increase of 16 percentage points. The increase is primarily due
the $0.7 million decrease in chip float revenue for which there is no
significant direct expense and relative labor percentages at certain new
facilities being higher than relative labor percentages in other operating
departments.
MARKETING, GENERAL AND ADMINISTRATIVE. Marketing, general and
administrative expenses in relation to gross revenues increased to 19% from
18%, an increase of 1 percentage point. The relative increase is primarily
due to providing certain reserves related to various claims and legal matters
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offset partially by fixed costs related to the Expansion increasing at a
lower rate than gross revenues.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization expense
increased to $6.0 million from $3.7 million, an increase of 62% primarily due
to the increased capital expenditures associated with the Expansion. Certain
equipment with a 5 year depreciable life became fully depreciated during the
six-month period ended June 30, 2000 as the property opened during March 1995.
PRE-OPENING EXPENSE. During the six-month period ended June 30, 1999,
the Company recorded $4.6 million of pre-opening expense related to the
opening of the Expansion.
NET INTEREST EXPENSE. Net interest expense increased to $8.7 million
from $6.0 million, an increase of $2.7 million or 45%. The increase is
primarily due to the increase in borrowings associated with the Expansion
offset partially by a decrease in borrowings as a result of using the $20.0
million in proceeds from the issuance of the 9 1/4% Series B Cumulative
Preferred Stock.
INCOME APPLICABLE TO COMMON SHAREHOLDERS. As a result of the factors
described above, the Company recognized net income applicable to common
shareholders of $1.7 million compared to a net loss applicable to common
shareholders of $2.6 million in the prior year period, an improvement of $4.3
million. The net increases noted in the preceding paragraphs were offset
partially by $1.5 million of preferred dividends declared on the 9 1/4%
Series A Cumulative Preferred Stock and 9 1/4% Series B Cumulative Preferred
Stock issued between the comparative periods and the absence in the six-month
period ended June 30, 2000 of a $1.5 million income tax benefit recognized in
the six-month period ended June 30, 1999.
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LIQUIDITY AND CAPITAL RESOURCES
For the six months ended June 30, 2000, the Company's principal sources
of funds were cash on-hand at December 31, 1999, cash provided by operating
activities of $9.2 million and proceeds from the issuance of $20.0 million of
9 1/4% Series B Cumulative Preferred Stock (the additional preferred share
sold pays dividends and matures in a manner consistent with the Company's
existing outstanding shares of 9 1/4% Series A Cumulative Preferred Stock).
The primary uses of funds were replacement capital expenditures of $1.2
million and a $24.5 million reduction in the outstanding borrowings under the
Company's credit facility. As a result, as of June 30, 2000 the Company had
cash and cash equivalents of $5.8 million. The Company believes that its
current cash balances and cash flow from operations and other sources of cash
will be sufficient to provide operating liquidity during the next year.
In conjunction with the $20 million reduction of the Company's
outstanding borrowings under its credit facility using the proceeds of the
9 1/4% Series B Cumulative Preferred Stock, subsequent to June 30, 2000, the
Company reduced its commitment amount available under its credit facility to
$42.0 million.
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Item 3. Quantitative and Qualitative Disclosures About Market Risk
Market risks relating to our operations result primarily from changes in
short-term LIBOR interest rates. We do not have any foreign exchange or other
significant market risk. We did not have any derivative financial instruments
at June 30, 2000.
Our exposure to market risk for changes in interest rates relates
primarily to our current credit facility. In accordance with the credit
facility, we enter into variable rate debt obligations to support general
corporate purposes, including capital expenditures and working capital needs.
We continuously evaluate our level of variable rate debt with respect to
total debt and other factors, including assessment of the current and future
economic environment.
We had $37.5 million and $59.0 million in variable rate debt outstanding
at June 30, 2000 and November 30, 1999, respectively. Based upon the variable
rate debt level at June 30, 2000, a hypothetical 10% adverse change in
interest rates would increase interest expense by approximately $0.4 million
on an annual basis, and likewise decrease our net earnings and cash flows. We
cannot predict market fluctuations in interest rates and their impact on our
variable rate debt, nor can there be any assurance that fixed rate long-term
debt will be available to us at favorable rates, if at all. Consequently,
future results may differ materially from the estimated adverse changes
discussed above.
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PART II OTHER INFORMATION
Item 1. Legal Proceedings
On August 27, 1999, Hark Rock Hotel, Inc. and Lily Pond
Investments, Inc. filed a Complaint for Declaratory Judgment
against Gary Selesner in the Eighth Judicial District of Clark
County, Nevada, Case No. A407499, based on the termination of
Gary Selesner's employment. On September 16, 1999, Gary Selesner
filed an Answer and Counterclaim seeking damages alleging breach
of contract and breach of implied covenant of good faith and fair
dealing. Discovery in this matter is proceeding.
The Company is also involved with various legal matters
related to its business and has provided certain reserves based
on estimates related to those situations where management
believes an unfavorable outcome is probable.
Item 2. Changes in Securities and Use of Proceeds
On May 30, 2000, the Company sold one share of its 9 1/4%
Series B Cumulative Preferred Stock to Desert Rock, Inc., a
Nevada corporation, for $20,000,000. The issuance of the
9 1/4% Series B Cumulative Preferred Stock was exempted from
registration pursuant to section 4(2) of the Securities Act of
1933, as amended, because Desert Rock purchased the share for
its own account and not with a view to distribution. The Company
used the proceeds from the 9 1/4% Series B Cumulative Preferred
Stock to reduce the outstanding balance under its credit
facility.
Item 4. Submission of Matters to a Vote of Security Holders
During May 2000, the Company solicited consent from the
record holders of its 9 1/4% Senior Subordinated Notes (the
"Notes") to amend the Indenture dated March 23, 1998 (the
"Indenture"), between the Company and U.S. Bank National Trust
Association, as Trustee. The Company received written consent
from the holders of more than a majority in principal amount of
the Notes then outstanding and subsequently amended the
Indenture, as provided in Exhibit 4.1 attached hereto.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<S> <C>
3. CERTIFICATE OF INCORPORATION AND BY-LAWS
*3.1 Second Amended and Restated Articles of Incorporation of the
Company.
**3.2 Certificate of Amendment of Second Amended and Restated Articles
of Incorporation.
**3.3 Certificate of Designation of 9 1/4% Series A Cumulative
Preferred Stock, no par value per share.
3.4 Certificate of Designation of 9 1/4% Series B Cumulative
Preferred Stock, no par value per share.
*3.5 Second Amended and Restated By-Laws of the Company.
</TABLE>
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<TABLE>
<S> <C>
4. INSTRUMENTS DEFINING THE RIGHTS OF SECURITY HOLDERS,
INCLUDING INDENTURES.
4.1 First Amendment to the Indenture, dated May 30, 2000,
between the Company and U.S. Bank Trust National Association,
as Trustee.
10. MATERIAL CONTRACTS.
*** 10.1 Form of Employment Agreement, dated April 3, 2000, between
the Company and James D. Bowen.
10.2 Subscription Agreement for one share of 9 1/4% Series B
Cumulative Preferred Stock of Hard Rock Hotel, Inc., dated
May 30, 2000, between Desert Rock Inc., a Nevada corporation,
and the Company.
10.3 Amendment No. 3 to Loan Agreement, dated as of June 30, 2000,
entered into with reference to the Loan Agreement, dated as of
March 23, 1998, by and among the Company, as Borrower, the
Lenders party thereto and Bank of America, N.A., as Agent.
27. FINANCIAL DATA SCHEDULE.
27.1 Financial Data Schedule for the six-month periods ended
June 30, 2000 and 1999.
99. ADDITIONAL EXHIBITS.
99.1 Assignment Agreement, dated as of August 4, 2000, entered into
with reference to the Loan Agreement, dated as of March 23,
1998, by and among the Company, as Borrower, the Lenders party
thereto and Bank of America, N.A., as Agent.
</TABLE>
* Incorporated by reference to designated exhibit to the Company's
Registration Statement on Form S-4, filed with the Securities and
Exchange Commission on May 21, 1998 (File No. 333-53211).
** Incorporated by reference to designated exhibit to our Report on
Form 10-Q, filed with the Securities and Exchange Commission for
the quarter ended August 31, 1999 (File No. 333-53211).
*** Incorporated by reference to designated exhibit to our Report on
Form 10-Q, filed with the Securities and Exchange Commission for
the quarter ended March 31, 2000 (File No. 333-53211).
(b) Reports on Form 8-K
February 29, 2000 regarding Items 7 and 8.
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CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
This document includes various "forward-looking statements" within the
meaning of Section 27A of the Securities Act of 1933, as amended, and
Sections 21E of the Securities Exchange Act of 1934, as amended, which
represent the Company's expectations or beliefs concerning future events.
Statements containing expressions such as "believes," "anticipates" or
"expects" used in the Company's press releases and periodic reports on Forms
10-K and 10-Q filed with the Securities and Exchange Commission are intended
to identify forward-looking statements. All forward-looking statements
involve risks and uncertainties. Although the Company believes its
expectations are based upon reasonable assumptions within the bounds of its
knowledge of its business and operations, there can be no assurances.
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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: August 11, 2000 By: /s/ RICK RICHARDS
-----------------------------------
Rick Richards
DULY AUTHORIZED OFFICER
/s/ JAMES D. BOWEN
------------------------------------
James D. Bowen
CHIEF FINANCIAL OFFICER
(PRINCIPAL FINANCIAL OFFICER)
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