<PAGE>
FORM 10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended May 31, 1998
--------------
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 1-12802
HARVEYS CASINO RESORTS
(Exact Name of Registrant as Specified in its Charter)
Nevada 88-0066882
------ ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Highway 50 & Stateline Avenue
P.O. Box 128
Lake Tahoe, Nevada 89449
------------------ -----
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (702) 588-2411
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 __
On July 7, 1998 the registrant had outstanding 10,065,982 shares of its $.01
par value, common stock.
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HARVEYS CASINO RESORTS
INDEX
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION PAGE NO.
<S> <C>
Item 1. Financial Statements
Condensed Consolidated Balance Sheets,
May 31, 1998 and November 30, 1997 3
Condensed Consolidated Statements of
Income For the Three Months Ended
and the Six Months Ended May 31, 1998 and 1997 4
Condensed Consolidated Statements of Cash
Flows For the Six Months Ended May 31, 1998 and 1997 5
Notes to Condensed Consolidated Financial
Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 10
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 17
Item 2. Changes in Securities 17
Item 3. Defaults Upon Senior Securities 17
Item 4. Submission of Matters to a Vote of Security Holders 17
Item 5. Other Information 17
Item 6. Exhibits and Reports on Form 8-K 17
SIGNATURES 18
</TABLE>
2
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
HARVEYS CASINO RESORTS
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
May 31, November 30,
1998 1997
-------- --------
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 59,052 $ 55,035
Accounts and notes receivable, net 5,404 5,264
Prepaid expenses 6,279 3,447
Other current assets 4,506 4,310
-------- --------
Total current assets 75,241 68,056
Property and equipment (net of accumulated
depreciation of $137,155 and $128,110) 317,284 318,270
Notes receivable - related parties 1,884 1,876
Other assets 15,488 15,263
-------- --------
Total assets $409,897 403,465
-------- --------
-------- --------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Current portion of long-term debt $ 122 $ 633
Accounts and contracts payable 5,422 5,991
Income taxes payable 3,445 7,056
Accrued expenses 21,017 20,945
-------- --------
Total current liabilities 30,006 34,625
Long-term debt, net of current portion 150,209 150,220
Deferred income taxes 23,023 23,023
Other liabilities 17,494 16,240
-------- --------
Total liabilities 220,732 224,108
-------- --------
Stockholders' equity
Preferred stock, $.01 par value; 5,000,000
shares authorized; none issued - -
Common stock, $.01 par value; 30,000,000
shares authorized; shares issued 10,079,671
and 9,853,488 101 99
Additional paid-in capital and other 43,451 39,043
Retained earnings 145,838 140,415
Treasury stock, at cost; 13,483 shares and
12,516 shares (225) (200)
-------- --------
Total stockholders' equity 189,165 179,357
-------- --------
Total liabilities and stockholders' equity $409,897 $403,465
-------- --------
-------- --------
</TABLE>
The accompanying notes are an integral part of these statements.
3
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HARVEYS CASINO RESORTS
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Months Six Months
Ended May 31, Ended May 31,
-------------- --------------
1998 1997 1998 1997
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Revenues
Casino $ 61,030 $ 55,252 $ 115,470 $ 99,249
Lodging 8,083 7,515 15,685 14,461
Food and beverage 11,058 10,811 21,752 19,971
Other 1,659 1,571 3,380 3,168
Management fees and joint venture - 1,676 - 2,670
Less: Casino promotional allowances (5,293) (5,116) (10,978) (9,695)
--------- --------- --------- ---------
Total net revenues 76,537 71,709 145,309 129,824
--------- --------- --------- ---------
Costs and expenses
Casino 28,505 25,679 55,655 47,581
Lodging 3,474 3,432 6,600 6,549
Food and beverage 7,369 7,363 14,359 14,361
Other operating 704 675 1,422 1,338
Selling, general and administrative 19,239 18,477 38,134 34,892
Depreciation and amortization 5,055 4,523 10,364 8,944
--------- --------- --------- ---------
Total costs and expenses 64,346 60,149 126,534 113,665
--------- --------- --------- ---------
Operating income 12,191 11,560 18,775 16,159
--------- --------- --------- ---------
Other income (expense)
Interest income 455 120 904 163
Interest expense (4,449) (4,896) (8,913) (9,847)
Other, net (42) (101) (60) 215
--------- --------- --------- ---------
Total other income (expense) (4,036) (4,877) (8,069) (9,469)
--------- --------- --------- ---------
Income before income taxes 8,155 6,683 10,706 6,690
Income tax provision (3,263) (2,705) (4,283) (2,708)
--------- --------- --------- ---------
Net income $ 4,892 $ 3,978 $ 6,423 $ 3,982
--------- --------- --------- ---------
--------- --------- --------- ---------
Income per common share
Basic $ 0.49 $ 0.41 $ 0.64 $ 0.41
--------- --------- --------- ---------
--------- --------- --------- ---------
Diluted $ 0.48 $ 0.40 $ 0.64 $ 0.41
--------- --------- --------- ---------
--------- --------- --------- ---------
Dividends declared per common share $ 0.05 $ 0.05 $ 0.10 $ 0.10
--------- --------- --------- ---------
--------- --------- --------- ---------
Weighted average common shares used in
calculating income per common share
Basic 10,065,954 9,822,152 9,980,392 9,817,845
---------- ---------- ---------- -----------
---------- ---------- ---------- -----------
Diluted 10,146,529 9,829,885 10,060,009 9,829,204
---------- ---------- ---------- -----------
---------- ---------- ---------- -----------
</TABLE>
The accompanying notes are an integral part of these statements.
4
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HARVEYS CASINO RESORTS
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
<TABLE>
<CAPTION>
Six Months Ended May 31,
------------------------
1998 1997
---- ----
<S> <C> <C>
Cash flows from operating activities
Net income $ 6,423 $ 3,982
Adjustments to reconcile net income to net cash
provided by operating activities
Depreciation and amortization 10,364 8,944
Reduction of income taxes payable (2,687) -
Other, net (4,085) 3,199
-------- --------
Net cash provided by operating
activities 10,015 16,125
-------- --------
Cash flows from investing activities
Capital expenditures (7,863) (15,638)
Proceeds from disposition of assets 44 3,603
Other, net (7) (109)
-------- --------
Net cash used in investing activities (7,826) (12,144)
-------- --------
Cash flows from financing activities
Principal payments on long-term debt (523) (12,028)
Dividends paid (1,000) (982)
Proceeds from long-term debt - 9,688
Exercise of options to purchase stock 3,382 196
Other, net (31) (27)
-------- --------
Net cash provided by (used in)
financing activities 1,828 (3,153)
-------- --------
Increase in cash and cash equivalents 4,017 828
Cash and cash equivalents at beginning of period 55,035 21,121
-------- --------
Cash and cash equivalents at end of period $59,052 $ 21,949
-------- --------
Supplemental cash flows disclosure
Cash paid for interest, net of amounts
capitalized $ 8,388 $ 9,372
Cash paid for income taxes 6,970 663
</TABLE>
The accompanying notes are an integral part of these statements.
5
<PAGE>
HARVEYS CASINO RESORTS
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation and Consolidation - Harveys Casino Resorts, a Nevada
corporation, (the "Company") is engaged in the casino entertainment
industry. In 1996, the Company formed a wholly-owned subsidiary, Harveys
Tahoe Management Company, Inc. ("HTMC") to own and operate the Company's
resort on the south shore of Lake Tahoe, Nevada. On May 22, 1997, HTMC was
licensed by the Nevada gaming authorities and on June 1, 1997 the Company
transferred the ownership of Harveys Resort Hotel/Casino to HTMC. The
Company, through its wholly-owned subsidiary, Harveys C. C. Management
Company, Inc. ("HCCMC"), owns and operates Harveys Wagon Wheel Hotel/Casino
in Central City, Colorado. Until April 30, 1996, HCCMC owned 70% of the
equity interest in Harveys Wagon Wheel Casino Limited Liability Company
("HWW") which owned Harveys Wagon Wheel Hotel/Casino. On April 30, 1996,
the Company acquired all of the 30% minority interest in HWW in exchange
for common stock of the Company. On June 1, 1997, the Company contributed
its 30% interest in HWW to HCCMC. Subsequently, HWW was liquidated and
HCCMC became the sole owner and operator of Harveys Wagon Wheel
Hotel/Casino. Until October 24, 1997, the Company, through its wholly-owned
subsidiary, Harveys L.V. Management Company, Inc. ("HLVMC"), owned
40% of the equity interest in Hard Rock Hotel, Inc. ("HRHC"), which owns
the Hard Rock Hotel and Casino in Las Vegas, Nevada. HLVMC had a contract
to manage the Las Vegas hotel and casino. On October 24, 1997 the Company
sold its 40% equity interest and its interest in the management contract to
HRHC. Additionally, the Company's wholly-owned subsidiary, Harveys Iowa
Management Company, Inc. ("HIMC") is the owner and operator of Harveys
Casino Hotel, a riverboat casino, hotel and convention center complex in
Council Bluffs, Iowa.
The condensed consolidated financial statements include the accounts of
Harveys Casino Resorts and its wholly-owned subsidiaries. All significant
intercompany accounts and transactions have been eliminated.
The condensed consolidated balance sheet as of November 30, 1997 has been
prepared from the audited financial statements at that date. The
accompanying condensed consolidated financial statements have been prepared
by the Company, without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission. Accordingly, certain information and
footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been
condensed or omitted.
In the opinion of management, all adjustments, consisting only of normal
recurring adjustments, necessary for a fair presentation of financial
condition, results of operations and cash flows have been included. The
results of operations for the interim periods should not be considered
indicative of results for a full fiscal year. These financial statements
should be read in conjunction with the financial statements, and notes
thereto, in the Company's Annual Report on Form 10-K for the year ended
November 30, 1997.
6
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2. Proposed Merger -At the Company's annual meeting of stockholders, held May
14, 1998, the Company's stockholders voted to adopt an Agreement and Plan
of Merger, dated as of February 1, 1998 (the "Merger Agreement") and
approved the merger described therein (the "Merger"). Pursuant to the
Merger Agreement, the Company has agreed to merge with Harveys Acquisition
Corporation, a Delaware corporation which is an affiliate of Colony
Investors III, L.P., a Delaware limited partnership and controlled
affiliate of Colony Capital, Inc. of Los Angeles, California ("Colony
Capital"). Upon closing of the Merger, the Company will be an affiliate of
Colony Capital. The all-cash transaction values each of the approximately
10.1 million outstanding common shares of the Company at $28 and each of
the outstanding options to purchase approximately 0.7 million common shares
of the Company at $28 less the option exercise price per share. Closing of
the Merger is subject to a number of conditions, including receipt of all
necessary regulatory approvals, including those of Nevada, Colorado and
Iowa gaming authorities. If the Merger has not closed by September 1,
1998, the Company's stockholders would receive additional consideration
under certain circumstances. The additional consideration would be an
amount in cash, without interest, equal to the difference, if positive, of
(a) the product of (i) $1.96 times (ii) a fraction the numerator of which
shall be the number of days elapsed from and including September 1, 1998 to
and excluding the date the Merger closes and the denominator of which shall
be 365, minus (b) the quotient of (1) the aggregated amount of all cash
dividends paid on the Company's common stock during the period from and
including September 1, 1998 to and excluding the date the Merger closes,
divided by (2) the number of shares of the Company's common stock upon
which the cash consideration is to be paid plus the number of shares of the
Company's common stock underlying the stock options to acquire the
Company's common stock upon which the cash consideration is to be paid.
3. Net Income Per Common Share - As of December 1, 1997, the Company adopted
the provisions of Statement of Financial Accounting Standards ("SFAS") No.
128, Earnings Per Share. The Company has restated the prior periods net
income per common share to conform with the provisions of SFAS No. 128.
Basic net income per common share is calculated by dividing net income by
the weighted average number of common shares outstanding during the period.
Diluted net income per common share is calculated by dividing net income by
the weighted average number of common and common equivalent shares
outstanding during the period. Common equivalent shares include restricted
stock and stock options outstanding and exercisable for the purpose of
calculating diluted net income per common share. The Company has no other
potentially dilutive securities.
7
<PAGE>
A reconciliation of net income and shares for basic and diluted net income
per common share follows (dollars in thousands, except per share amounts):
<TABLE>
<CAPTION>
Three Months Three Months
Ended May 31, 1998 Ended May 31, 1997
------------------ ------------------
Per Share Per Share
Income Shares Amount Income Shares Amount
------- ---------- -------- ------ --------- -------
<S> <C> <C> <C> <C> <C> <C>
Basic net income per common share $ 4,892 10,065,954 $ 0.49 $3,978 9,822,152 $ 0.41
-------- -------
-------- -------
Effect of dilutive securities 80,575 7,733
------- ---------- ------ ---------
Diluted net income per common share $ 4,892 10,146,529 $ 0.48 $3,978 9,829,885 $ 0.40
------- ---------- ------- ------ --------- -------
------- ---------- ------- ------ --------- -------
Six Months Six Months
Ended May 31, 1998 Ended May 31, 1997
------------------ ------------------
Per Share Per Share
Income Shares Amount Income Shares Amount
------- ---------- -------- ------ --------- -------
Basic net income per common share $ 6,423 9,980,392 $ 0.64 $ 3,982 9,817,845 $ 0.41
-------- -------
-------- -------
Effect of dilutive securities 79,617 11,359
-------- --------- -------- ---------
Diluted net income per common share $ 6,423 10,060,009 $ 0.64 $ 3,982 9,829,204 $ 0.41
-------- ---------- -------- -------- --------- -------
-------- ---------- -------- -------- --------- -------
</TABLE>
4. Recently Issued Accounting Standards - The Financial Accounting Standards
Board ("FASB") has issued SFAS No. 131, Disclosures About Segments of an
Enterprise and Related Information, which establishes new standards for
determining a reportable segment and for disclosing information regarding
each such segment. A reportable segment is an operating segment: (a) that
engages in business activities from which it earns revenues and incurs
expenses, (b) whose operating results are regularly reviewed by the
enterprise's chief operating decision maker in deciding how to allocate
resources and in assessing performance, (c) for which discrete financial
information is available, and (d) that exceeds specific quantitative
thresholds. SFAS No. 131 will be effective for the Company beginning
December 1, 1998. On adoption, and to the extent practicable, segment
information for earlier comparative periods will be restated. The Company
anticipates, with the adoption of SFAS No. 131, it will expand its segment
disclosures relative to its Nevada, Colorado and Iowa operations. The
Company believes the segment information required to be disclosed under
SFAS No. 131 will have no effect on the Company's consolidated results of
operations, financial position or cash flows, but will be more
comprehensive than previously provided, including expanded disclosure of
income statement and balance sheet items for each of its reportable
operating segments.
The Accounting Standards Executive Committee of the American Institute of
Certified Public Accountants has issued Statement of Position ("SOP") 98-5,
Reporting on the Costs of Start-Up Activities. SOP 98-5 requires costs of
start-up activities (commonly referred to as pre-opening costs in the
gaming industry) to be expensed as incurred. The Company will be required
to adopt SOP 98-5 beginning December 1, 1999, although earlier adoption is
encouraged. On adoption, restatement of
8
<PAGE>
previously issued financial statements will not be permitted. The initial
effect of adopting SOP 98-5 will be reported as the cumulative effect of a
change in accounting principle. The Company has not yet determined if it
will elect to adopt SOP 98-5 early nor has it determined what effect, if
any, the adoption of SOP 98-5 will have on the financial position or
results of operations of the Company.
5. Subsidiary Guarantors - The 10 5/8% Senior Subordinated Notes due 2006 (the
"Senior Subordinated Notes"), issued by the Company are guaranteed by all
direct and indirect subsidiaries of the Company ( the "Subsidiary
Guarantors") except for subsidiaries which are inconsequential. The
guarantees are full and unconditional and are joint and several. The
aggregate assets, liabilities, earnings, and equity of the Subsidiary
Guarantors are substantially equivalent to the assets, liabilities,
earnings, and equity of the Company on a consolidated basis. Separate
financial statements and other disclosures concerning the Subsidiary
Guarantors have not been included because management has determined they
are not material to investors. If the Merger is consummated (See Note 2),
under the terms of the Indenture governing the Senior Subordinated Notes,
each holder of the Senior Subordinated Notes will have the right to require
the Company to repurchase such holder's Senior Subordinated Notes at 101%
of the principal amount plus accrued and unpaid interest to the repurchase
date.
9
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
OVERVIEW
The Company currently owns and operates: (a) Harveys Resort Hotel/Casino on the
south shore of Lake Tahoe, Nevada, (b) Harveys Wagon Wheel Hotel/Casino in
Central City, Colorado and (c) Harveys Casino Hotel in Council Bluffs, Iowa.
Until October 24, 1997, the Company, through its wholly-owned subsidiary, HLVMC,
owned 40% of the equity interest in HRHC, which owns the Hard Rock Hotel and
Casino in Las Vegas, Nevada. HLVMC had a contract to manage the Las Vegas hotel
and casino. On October 24, 1997, the Company sold its 40% equity interest and
its interest in the management contract to HRHC.
The following table presents certain operating results for the Company's
properties. The operating results for Harveys Resort Hotel/Casino, which, since
June 1, 1997, has been owned and operated by the Company's wholly-owned
subsidiary, HTMC, have been presented for all periods, excluding the effects of
corporate and future business development expenses. Those expenses have been
presented under the caption "Corporate and Development". The operating results
of HLVMC, for the three months and six months ended May 31, 1997, include the
fees earned by such entity for managing the operations of the Hard Rock Hotel
and Casino and the 40% equity interest in the income of the Hard Rock Hotel and
Casino. The Company sold its interests in HRHC on October 24, 1997.
<TABLE>
<CAPTION>
Results of Operations Three Months Six Months
Ended May 31, Ended May 31,
------------- -------------
1998 1997 1998 1997
-------- -------- ------- --------
(dollars in thousands)
<S> <C> <C> <C> <C>
Net Revenues
Harveys Resort Hotel/Casino $ 31,777 $ 31,784 $ 59,451 $ 56,019
Harveys Wagon Wheel Hotel/Casino 16,257 12,149 30,772 22,431
Harveys Casino Hotel - Iowa 28,503 26,100 55,086 48,704
Harveys L. V. Management Company - 1,676 - 2,670
Operating Income (Loss)
Harveys Resort Hotel/ Casino $ 5,411 $ 5,158 $ 7,456 $ 6,352
Harveys Wagon Wheel Hotel/ Casino 4,188 2,792 7,409 4,362
Harveys Casino Hotel - Iowa 5,602 5,105 10,157 8,670
Harveys L. V. Management Company - 1,621 - 2,559
Corporate and Development (3,010) (3,116) (6,247) (5,784)
EBITDA (1)
Harveys Resort Hotel/ Casino $ 7,699 $ 7,147 $ 12,254 $ 10,329
Harveys Wagon Wheel Hotel/ Casino 5,096 3,548 9,223 5,868
Harveys Casino Hotel - Iowa 7,345 6,655 13,639 11,750
Harveys L. V. Management Company - 1,676 - 2,670
Corporate and Development (2,894) (2,943) (5,977) (5,514)
</TABLE>
Note to the operating results
(1) EBITDA (operating income plus depreciation and amortization) should not be
construed as an indicator of the Company's operating performance, or as an
alternative to cash flows from operating activities as a measure of
liquidity. The Company has presented EBITDA solely as supplemental
disclosure because the Company believes that it enhances the understanding
of the financial performance of companies with substantial depreciation and
amortization.
10
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COMPARISON OF THE QUARTER ENDED MAY 31, 1998 TO THE QUARTER ENDED MAY 31, 1997
The Company's consolidated net revenues for the second quarter of fiscal 1998
amounted to approximately $76.5 million, a new record for the Company's second
quarter and an increase of $4.8 million, or 6.7%, over net revenues recorded in
the second quarter of fiscal 1997. The improvement was largely attributable to
the $4.1 million increase in net revenues recognized at Harveys Wagon Wheel
Hotel/Casino. The Colorado property enjoyed the benefit of the 530 space
parking garage which opened early in the third quarter of fiscal 1997. Harveys
Casino Hotel in Iowa recorded an increase in net revenues of $2.4 million due,
in part, to expanded gaming facilities which opened near the end of the first
fiscal quarter and increased the slot machine count by approximately 180
machines. Net revenues from the Company's Lake Tahoe property equaled those of
the second quarter of fiscal 1997. The revenue contribution from the management
fees and equity in earnings from the Hard Rock Hotel and Casino declined, by
$1.7 million, as a result of the sale of the Company's interests in the Hard
Rock Hotel and Casino in October 1997.
Casino revenues for the second quarter of fiscal 1998 amounted to approximately
$61.0 million, an improvement of $5.8 million, or 10.5%, over the comparable
quarter of the prior year. Harveys Wagon Wheel Hotel/Casino produced an
increase of approximately $4.1 million in casino revenues over the prior year
comparable quarter. The gaming activity at the Council Bluffs property produced
an increase of approximately $2.2 million in casino revenues. The Company's
Lake Tahoe casino revenues declined by approximately $0.6 million. Casino
costs and expenses increased for the comparable periods, up $2.8 million to
$28.5 million. The Council Bluffs casino accounted for $1.8 million of the
increase while the Colorado operations accounted for approximately $1.7 million
of the increase and the Lake Tahoe operations recorded a $0.6 million
improvement in casino costs. The increase in casino costs and expenses was
attributable to increases in gaming taxes and licenses and promotional expenses,
a consequence of increased casino revenues.
Lodging revenues for the fiscal 1998 second quarter improved by approximately
$0.6 million, or 7.5%, over the prior year second quarter and amounted to $8.1
million. The hotel facility in Lake Tahoe contributed $0.5 million of the
quarter-over-quarter increase. The improvement in lodging revenues can be
attributed to an increase in the occupancy rate at all properties. Lodging
profits improved by approximately $0.5 million.
Food and beverage revenues for the current fiscal year second quarter amounted
to $11.1 million, an improvement of over $0.2 million, or 2.3%, over prior year
second quarter. Food and beverage revenues from the Council Bluffs property
contributed an increase of nearly $0.2 million. Food and beverage profits and
margins increased for the quarter-to-quarter comparison due to increased
revenues at all properties and the controlling of related costs.
Other revenues and the contribution from management fees and equity in the
earnings from the Hard Rock Hotel and Casino decreased approximately $1.6
million, or 48.9%, in the aggregate as a result of the sale of the Company's
interests in the Hard Rock Hotel and Casino.
Selling, general and administrative expenses increased by approximately $0.7
million, or 4.1%, to $19.2 million for the current fiscal year second quarter.
The Lake Tahoe operations recognized a decrease of approximately $0.1 million in
overall selling, general and administrative expenses from the second quarter of
fiscal 1997 compared to the current fiscal year second quarter, while these
expenses increased by $0.9 million at the Central City property. Corporate
expenses decreased by approximately $0.1 million. The quarter-over-quarter
increase in selling, general and administrative expenses resulted from increased
advertising and promotional expenses.
11
<PAGE>
Depreciation and amortization expenses increased by approximately $0.5 million,
or 11.8 percent. The increase was attributable to replacements and improvements
at the operating properties.
Interest expense, net of interest income and interest capitalized, decreased by
approximately $0.8 million, or 16.4%, to $4.0 million for the second quarter of
fiscal 1998. The decrease was attributable to the use of the proceeds from the
Company's October 1997 sale of its interests in the Hard Rock Hotel and Casino.
A portion of the proceeds was used to pay off the outstanding balance under the
Company's reducing revolving credit agreement with a consortium of banks (the
'Credit Facility'), thereby reducing interest expenses. The balance of the
proceeds was invested in cash equivalents, resulting in an increase in interest
income. Approximately $0.2 million of interest expense was capitalized in the
second quarter of fiscal 1997 in connection with the construction of the parking
facility in Central City. No interest was capitalized in the second quarter of
fiscal 1998.
As a result of the above, net income for the second quarter of fiscal 1998
amounted to $4.9 million compared to $4.0 million for the second quarter of
fiscal 1997, an increase of 23.0 percent.
COMPARISON OF THE SIX MONTHS ENDED MAY 31, 1998 TO THE SIX MONTHS ENDED MAY 31,
1997
The Company's consolidated net revenues for the six months ended May 31, 1998
amounted to approximately $145.3 million, an increase of $15.5 million, or
11.9%, over net revenues recorded in the same period of fiscal 1997. The
improvement was attributable to an increase in net revenues at all of the
Company's properties. Harveys Wagon Wheel Hotel/Casino experienced an increase
in net revenues of $8.4 million. The increased net revenues from the Colorado
property demonstrated the value of additional on-site parking brought on by the
opening of the 530 space parking garage in June 1997. Net revenues at Harveys
Casino Hotel in Iowa improved by $6.4 million due, in part, to the casino
expansion. Net revenues from the Company's Lake Tahoe property increased by
approximately $3.4 million due, in part, to a decrease in weather related road
closures or controls in the first quarter of 1998 compared to 1997. The
revenue contribution from the management fees and equity in earnings from the
Hard Rock Hotel and Casino declined by approximately $2.7 million as a result
of the sale of the Company's interests in the Hard Rock Hotel and Casino in
October 1997.
Casino revenues for the first half of fiscal 1998 amounted to approximately
$115.5 million, an improvement of $16.2 million, or 16.3%, over the
comparable prior year period. Harveys Wagon Wheel Hotel/Casino produced an
increase of approximately $8.4 million in casino revenues over the prior year
comparable period. The six months of gaming activity in Iowa produced an
increase of approximately $6.1 million in casino revenues. The Company's
Lake Tahoe casino revenues improved by approximately $1.8 million. Casino
costs and expenses increased for the comparable periods, up $8.1 million to
$55.7 million for the current year period. The Council Bluffs casino
accounted for $5.0 million of the increase while the Colorado operations
accounted for approximately $3.4 million of the increase. The Lake Tahoe
operations produced a $0.3 million improvement in casino costs due to lower
promotional costs and the reduction of other operating costs.
Lodging revenues for the fiscal 1998 six month period improved by approximately
$1.2 million, or 8.5%, over the prior year comparable period and amounted to
$15.7 million. The hotel facility at Lake Tahoe contributed $0.9 million of the
lodging revenues improvement and the Council Bluffs hotel contributed
approximately $0.3 million of the lodging revenues improvement. Lodging profits
improved by approximately $1.2 million. The improvement in lodging profit
margins was the result of all properties recording revenue improvements and
overall lodging costs and expenses remaining level.
12
<PAGE>
Food and beverage revenues for the current fiscal year period amounted to $21.8
million, an improvement of approximately $1.8 million, or 8.9%, over the 1997
period. The Lake Tahoe property contributed an increase of approximately $1.0
million and the Council Bluffs property contributed an increase of approximately
$0.7 million. The Central City property contributed an increase of $0.1 million
in beverage revenues. Food and beverage profits and margins improved for the
period-to-period comparison due to increased revenues at all operating
properties and the controlling of related costs.
Other revenues and the contribution from management fees and equity in the
earnings from the Hard Rock Hotel and Casino decreased by approximately $2.5
million, or 42.1%, in the aggregate as a result of the sale of the Company's
interests in the Hard Rock Hotel and Casino.
Selling, general and administrative expenses increased by approximately $3.2
million, or 9.3%, to $38.1 million for the current fiscal year period. The
operations in Central City experienced an increase of approximately $1.7 million
in selling, general and administrative expenses. The Lake Tahoe operations
recognized an increase in overall selling, general and administrative expenses
of approximately $1.0 million while Corporate expenses increased by $0.5
million. Selling, general and administrative expenses in Council Bluffs
remained level.
Depreciation and amortization expenses increased by $1.4 million, or 15.9
percent. The depreciation expense at the Lake Tahoe property included a charge
of approximately $0.4 million related to the disposal of assets necessary to
facilitate the construction of a Hard Rock Cafe on the casino floor scheduled to
open early in the third quarter of fiscal 1998. The balance of the increase was
attributable to the completion of the parking garage in Central City and
replacements and improvements at the operating properties.
Interest expense, net of interest income and interest capitalized, decreased by
approximately $1.7 million to $8.0 million for the first six months of fiscal
1998. The decrease was attributable to the use of the proceeds from the
Company's October 1997 sale of its interests in the Hard Rock Hotel and
Casino. A portion of the proceeds was used to pay the outstanding balance under
the Company's Credit Facility, thereby reducing interest expenses. The balance
of the proceeds was invested in cash equivalents, resulting in an increase in
interest income. Approximately $0.3 million of interest expense was capitalized
in fiscal 1997 in connection with the construction of the parking facility in
Central City. No interest was capitalized in fiscal 1998.
Net income for the first six months of fiscal 1998 amounted to approximately
$6.4 million compared to $4.0 million for the prior fiscal year period, an
increase of 61.3 percent.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary sources of liquidity and capital resources during the
first six months of fiscal year 1998 have been cash flow from operations and
the proceeds of approximately $3.4 million from the exercise of options to
purchase shares of the Company's common stock.
During the first half of fiscal 1998, the Company expended approximately $7.0
million in cash for income taxes. Additionally, the Company made cash payments
for dividends of approximately $1.0 million during the period and incurred
additional cash expenditures of approximately $7.9 million in connection with
capital improvements and replacements, approximately $5.0 million of which was
related to casino expansion and remodeling in Council Bluffs, which was
completed near the end of the first quarter of fiscal 1998.
13
<PAGE>
At May 31, 1998, the Company had approximately $59.1 million of cash and cash
equivalents and a maximum of approximately $113.0 million available under the
Credit Facility, subject to compliance with certain financial covenants.
The Company expects that its primary capital needs for the remainder of fiscal
year 1998 will include approximately $11.6 million of capital expenditures at
the Company's current facilities, dividend payments and debt service.
The Company's debt at May 31, 1998, including the current portion of
approximately $0.1 million, amounted to $150.3 million and consisted of $150
million of Senior Subordinated Notes and approximately $0.3 million of other
debt.
The maximum available principal balance under the Credit Facility at May 31,
1998 was $115 million, reduced by outstanding borrowings and letter of credit
exposure. At May 31, 1998 there were no outstanding borrowings under the
Credit Facility, the letters of credit exposure was $2.0 million and the maximum
amount available was approximately $113.0 million, subject to compliance with
financial covenants.
In 1998, required repayments of principal under the Credit Facility, assuming
maximum principal amounts are outstanding, total $11.5 million. The year-end
maximum principal balance outstanding under the Credit Facility reduces to
$103.5 million in 1998, $92 million in 1999, $74.75 million in 2000 and $57.5
million in 2001. The Company is required to make payments reducing the
principal balance outstanding under the Credit Facility to the applicable
maximum permitted principal balance on October 1 of each of 1998, 1999, 2000 and
2001. The Credit Facility is secured by all of the real and personal property
of : (a) HTMC, (b) HIMC, (c) HCCMC, and (d) HCR Services Company, Inc.
("HCRSC"), a wholly-owned subsidiary of the Company, as well as all of the
contracts the Company has entered into in connection with its ownership and
operation of: (i) HTMC, (ii) HIMC, (iii) HCCMC, and (iv) HCRSC. Additionally
security is provided by a pledge of the stock of the following subsidiaries of
the Company: HLVMC, HCCMC, HIMC, HTMC, HCRSC and Reno Projects, Inc., a
wholly-owned subsidiary of the Company. Interest on borrowings outstanding
under the Credit Facility is payable, at the Company's option, at either the
London Inter-Bank Offering Rate ("LIBOR") or the prime rate of Wells Fargo
Bank, National Association ("Wells Fargo"), in each case plus an applicable
margin. The applicable margins as of May 31, 1998 were 1.50% with respect to
the LIBOR based interest rate, and 0.00%, with respect to the Wells Fargo
prime rate based interest rate.
The Credit Facility contains certain financial and other covenants. The
financial covenants prevent the Company from making any investments in or
advances to affiliates without the prior written consent of the lenders under
the Credit Facility. The covenants allow the declaration and payment of
dividends without prior written consent of the lenders if certain fixed charge
coverage ratios are maintained. The covenants require the Company to maintain
certain set standards with respect to: (a) minimum tangible net worth, (b) fixed
charge coverage ratios, and (c) minimum annual capital expenditures. The
financial covenants also limit the Company's ability to incur additional
indebtedness. The Company was in compliance with these covenants at May 31,
1998.
The Senior Subordinated Notes are governed by an indenture ( the 'Indenture')
and are general unsecured obligations of the Company, subordinated in right of
payment to all existing and future Senior Debt of the Company (as defined in the
Indenture). The Senior Subordinated Notes are guaranteed by each of the
Restricted Subsidiaries of the Company ( as defined in the Indenture). Each
guarantee is a general unsecured obligation of the guaranteeing Restricted
Subsidiary, subordinated in right of payment to all existing and future Senior
Debt of each guaranteeing Restricted Subsidiary. At May 31, 1998, the
guaranteeing Restricted Subsidiaries are HCCMC, HIMC, HLVMC and HTMC.
14
<PAGE>
Interest on the Senior Subordinated Notes is payable semi-annually on June 1
and December 1 of each year. The Senior Subordinated Notes will mature on
June 1, 2006. The Senior Subordinated Notes are redeemable at the option of
the Company, in whole or in part, at any time on or after June 1, 2001 at
prices ranging from 105.313% of the principal amount plus accrued and unpaid
interest, to 100% of the principal amount plus accrued and unpaid interest
beginning June 1, 2004 and thereafter. Upon a Change of Control (as defined
in the Indenture) each holder of the Senior Subordinated Notes will have the
right to require the Company to repurchase such holder's Senior Subordinated
Notes at 101% of the principal amount plus accrued and unpaid interest to the
repurchase date. If the Merger is consummated, a Change of Control will be
deemed to have occurred and the holders of the Senior Subordinated Notes will
be able to require the Company to effect such a repurchase.
The Indenture contains certain covenants that impose limitations on, among other
things, (a) the incurrance of additional indebtedness by the Company or any
Restricted Subsidiary, (b) the payment of dividends, (c) the repurchase of
capital stock and the making of certain other Restricted Payments and Restricted
Investments (as defined in the Indenture) by the Company or any Restricted
Subsidiary, (d) mergers, consolidations and sales of assets by the Company or
any Restricted Subsidiary, (e) the creation or incurrance of liens on the assets
of the Company or any Restricted Subsidiary, and (f) transactions by the Company
or any of its subsidiaries with Affiliates ( as defined in the Indenture).
These limitations are subject to a number of qualifications and exceptions as
described in the Indenture. The Company was in compliance with these covenants
at May 31, 1998.
The Company believes that its existing cash and cash equivalents, cash flows
from operations and its borrowing capacity under the Credit Facility are
sufficient to meet the cash requirements of its existing operations during
fiscal 1998, including capital improvements and replacements at the operating
properties, dividends and debt service requirements.
Unless a significant number of holders of the Senior Subordinated Notes exercise
their rights to effect a repurchase of the Senior Subordinated Notes upon the
consummation of the Merger, which the Company does not consider likely, the
existing sources of cash also provide the Company some flexibility in potential
expansion of current operations or in its pursuit of new gaming opportunities in
existing and emerging jurisdictions. The realization of such expansion
opportunities may require capital investments in excess of current resources and
additional financing may be required. The Company believes that additional
funds could be obtained through additional debt or equity financing. However,
any such financing would require the consent of Harveys Acquisition Corporation
under the terms of the Merger Agreement and no assurance can be made that such
consent would be granted or that such financing would be available at terms
acceptable to the Company, if at all.
15
<PAGE>
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 that actual results will not materially
differ from expected results. The Company cautions that these and similar
statements included in this report and in previously filed periodic reports,
including reports filed on Forms 10-K and 10-Q, are further qualified by
important factors that could cause actual results to differ materially from
those in the forward-looking statements. Such factors include, without
limitation, the following; increased competition in existing markets or the
opening of new gaming jurisdictions; a decline in the public acceptance of
gaming; the limitation, conditioning or suspension of any of the Company's
gaming licenses; increases in or new taxes imposed on gaming revenues or gaming
devices; a finding of unsuitability by regulatory authorities with respect to
the Company's officers, directors or key employees; loss or retirement of key
executives; significant increases in fuel or transportation prices; adverse
economic conditions in the company's key markets; severe and unusual weather in
the Company's key markets; adverse results of significant litigation matters.
Readers are cautioned not to place undue reliance on forward-looking statements,
which speak only as of the date thereof. The Company undertakes no obligation
to publicly release any revision to such forward-looking statements to reflect
events or circumstances after the date thereof.
16
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
Not Applicable
Item 2 Changes in Securities.
Not Applicable
Item 3. Defaults Upon Senior Securities
Not Applicable
Item 4. Submission of Matters to a Vote of Security Holders
The Company's annual meeting of shareholders was held on May 14, 1998.
Matters voted upon at the meeting were: (i) a proposal to adopt an
Agreement and Plan of Merger, dated as of February 1, 1998 and
approve the merger described therein (the "Merger") providing for
the merger of the Company and Harveys Acquisition Corporation, a
Nevada corporation ("Acq Corp") which is an affiliate of Colony
Capital, Inc., a Delaware corporation and, (ii) the election of
three directors to serve for a term of three years in the event that
the Merger was not approved or is not consummated, or a term
representing the period from the annual meeting of the Company's
shareholders until the time the Merger becomes effective, if the
Merger is consummated.
In respect to the adoption of the Agreement and Plan of Merger and
the approval of the Merger the following vote was recorded:
8,216,306 votes for, 192,611 votes against, 1,657,590 abstentions or
broker non-votes. In respect to the election of directors the
following vote was recorded: Richard F. Kudrna, Sr., 9,506,657 votes
for, 80,595 votes withheld, 479,255 abstentions or broker non-votes;
Jessica L. Ledbetter, 9,506,558 votes for, 80,696 votes withheld,
479,253 abstentions or broker non-votes; Franklin L. Rahbeck,
9,506,605 votes for, 80,648 votes withheld, 479,254 abstentions or
broker non-votes.
Item 5. Other Information.
Not Applicable
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
See attached Exhibit Index
(b) Reports on Form 8-K
None
17
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
HARVEYS CASINO RESORTS
----------------------
Registrant
Date: July 10, 1998 /s/ John J. McLaughlin
----------------------
John J. McLaughlin,
Senior Vice President,
Chief Financial Officer and Treasurer
(Authorized Officer and Principal
Financial Officer)
18
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description
- -------- -------------------------------------------------------------------
3.1 Restated Articles of Incorporation of the Registrant (1)
3.2 Sixth Amended Bylaws of the Registrant (2)
4.1 Form of Stock Certificate of the Registrant (1)
4.2 Indenture, dated as of May 15, 1996 by and among the Registrant
(the "Issuer") Harveys Wagon Wheel Casino Limited Liability
Company, Harveys C. C. Management Company, Inc., Harveys Iowa
Management Company, Inc. and Harveys L. V. Management Company,
Inc. (the "Guarantors") and IBJ Schroder Bank & Trust Company as
Trustee (including form of Note) (3)
4.3 First Supplemental Indenture, dated as of June 5, 1996,
supplementing the Indenture as of May 15, 1996 among the
Registrant (the "Issuer"), Harveys Wagon Wheel Casino Limited
Liability Company, Harveys C. C. Management Company, Inc.,
Harveys Iowa Management Company, Inc. and Harveys L.V. Management
Company, Inc. (the "Guarantors"), and IBJ Schroder Bank and Trust
Company as Trustees (4)
4.4 Second Supplemental Indenture, dated as of May 22, 1997,
supplementing the Indenture as of May 15, 1996 among the
Registrant (the "Issuer"), Harveys C. C. Management Company,
Inc., Harveys Wagon Wheel Limited Liability Company, Harveys Iowa
Management Company, Inc., and Harveys L. V. Management Company,
Inc. (the "Guarantors"), and IBJ Schroder Bank and Trust Company
as Trustee (5).
27.1 Financial Data Schedule (6)
27.2 Financial Data Schedule (restated) (6)
_______________________
(1) Incorporated herein by reference to Registration Statement
No. 33-70670.
(2) Incorporated herein by reference to the Registrant's Quarterly
Report on Form 10-Q for the period ended May 31, 1996.
(3) Incorporated herein by reference to Registration Statement
No. 333-3576.
(4) Incorporated herein by reference to Registrant's Current Report
of Form 8-K filed June 14, 1996.
(5) Incorporated herein by reference to Registrant's Quarterly Report
on Form 10-Q for the period ended August 31, 1997.
(6) Filed herewith
19
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> NOV-30-1998
<PERIOD-START> DEC-01-1997
<PERIOD-END> MAY-31-1998
<CASH> 59,052
<SECURITIES> 0
<RECEIVABLES> 5,756
<ALLOWANCES> 352
<INVENTORY> 3,853
<CURRENT-ASSETS> 72,241
<PP&E> 454,439
<DEPRECIATION> 137,155
<TOTAL-ASSETS> 409,897
<CURRENT-LIABILITIES> 30,006
<BONDS> 150,209
0
0
<COMMON> 101
<OTHER-SE> 189,064
<TOTAL-LIABILITY-AND-EQUITY> 409,897
<SALES> 25,132
<TOTAL-REVENUES> 145,309
<CGS> 9,637
<TOTAL-COSTS> 78,036
<OTHER-EXPENSES> 48,498
<LOSS-PROVISION> 358
<INTEREST-EXPENSE> 8,913
<INCOME-PRETAX> 10,706
<INCOME-TAX> 4,283
<INCOME-CONTINUING> 6,423
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,423
<EPS-PRIMARY> .64
<EPS-DILUTED> .64
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1,000
<S> <C> <C> <C>
<PERIOD-TYPE> 6-MOS 9-MOS 12-MOS
<FISCAL-YEAR-END> NOV-30-1996 NOV-30-1996 NOV-30-1996
<PERIOD-START> DEC-01-1995 DEC-01-1995 DEC-01-1995
<PERIOD-END> MAY-31-1996 AUG-31-1996 NOV-30-1996
<CASH> 23,969 20,370 21,121
<SECURITIES> 1,975 1,998 470
<RECEIVABLES> 5,175 5,197 9,048
<ALLOWANCES> 219 246 288
<INVENTORY> 3,005 3,438 3,321
<CURRENT-ASSETS> 39,588 37,229 41,148
<PP&E> 411,981 417,262 427,885
<DEPRECIATION> 106,351 109,015 112,977
<TOTAL-ASSETS> 382,858 383,880 393,768
<CURRENT-LIABILITIES> 33,403 33,386 29,435
<BONDS> 179,110 173,571 181,354
0 0 0
0 0 0
<COMMON> 98 98 98
<OTHER-SE> 141,226 146,860 149,665
<TOTAL-LIABILITY-AND-EQUITY> 382,858 383,880 393,768
<SALES> 20,404 35,023 46,254
<TOTAL-REVENUES> 108,254 183,103 247,749
<CGS> 6,277 11,787 16,411
<TOTAL-COSTS> 57,094 93,199 126,019
<OTHER-EXPENSES> 42,718 65,664 87,709
<LOSS-PROVISION> 450 704 906
<INTEREST-EXPENSE> 5,059 10,092 15,099
<INCOME-PRETAX> 4,154 14,687 19,605
<INCOME-TAX> 1,585 5,834 7,791
<INCOME-CONTINUING> 2,569 8,853 11,814
<DISCONTINUED> 0 0 0
<EXTRAORDINARY> 141 522 522
<CHANGES> 0 0 0
<NET-INCOME> 2,428 8,331 11,292
<EPS-PRIMARY> .26<F1> .87 1.17
<EPS-DILUTED> .25 .86 1.16
<FN>
<F1>Restated to include the effect of SFAS No. 128 on earnings per share
</FN>
</TABLE>
