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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 February 28,1999
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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
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HARVEYS CASINO RESORTS
----------------------
(Exact Name of Registrant as Specified in its Charter)
Nevada 88-0066882
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(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
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (775) 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
-- --
The number of shares outstanding of the registrant's Class A Common Stock, $0.01
par value was 39,910 and the number of shares outstanding of the registrant's
Class B Common Stock, $0.01 par value was 3,991,000, each as of April 9, 1999.
1
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HARVEYS CASINO RESORTS
INDEX
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION Page No.
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Item 1. Financial Statements
<S> <C>
Condensed Consolidated Balance Sheets,
February 28, 1999 and November 30, 1998 3
Condensed Consolidated Statements of Operations For the Period
of December 1, 1998 through February 1, 1999, the Period of
February 2, 1999 (the date of acquisition) through February
28, 1999 and the Three Months Ended February 28, 1998 4
Condensed Consolidated Statements of Cash Flows For the Period
of December 1, 1998 through February 1, 1999, the Period of
February 2, 1999 (the date of acquisition) through February
28, 1999 and the Three Months Ended February 28, 1998 5
Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 14
Item 3. Quantitative and Qualitative Disclosures About Market Risk 22
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 24
Item 2. Changes in Securities 24
Item 3. Defaults Upon Senior Securities 24
Item 4. Submission of Matters to a Vote of Security Holders 24
Item 5. Other Information 24
Item 6. Exhibits and Reports on Form 8-K 24
SIGNATURES 25
</TABLE>
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PART 1-FINANCIAL INFORMATION
Item 1. Financial Statements
HARVEYS CASINO RESORTS
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
February 28, November 30,
1999 1998
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ASSETS
<S> <C> <C>
Current assets
Cash and cash equivalents $ 27,257 $ 67,299
Marketable securities 657 10,657
Accounts and notes receivable, net 5,347 4,566
Prepaid expenses 4,829 3,677
Other current assets 3,657 4,148
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Total current assets 41,747 90,347
Property and equipment (net of accumulated depreciation of
$1,734 and $146,207) 405,701 315,351
Notes receivable 90 1,875
Cost in excess of net assets acquired 72,762 -
Other assets 17,821 16,585
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Total assets $538,121 $ 424,158
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Current portion of long-term debt $ - $ 220
Accounts and contracts payable 8,124 5,032
Accrued expenses 22,136 24,892
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Total current liabilities 30,260 30,144
Long-term debt, net of current portion 302,424 150,000
Deferred income taxes 53,993 24,948
Other liabilities 20,960 18,612
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Total liabilities 407,637 223,704
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Preferred stock, $.01 par value; 1,000,000 shares authorized, 10 Series A and
99,990 Series B 13 1/2% senior redeemable convertible cumulative shares
outstanding (liquidation value $55,000) 55,619 -
Stockholders' equity
Common stock, $.01 par value; at February 28, 1999 20,000,000 shares
authorized and 4,040,000 shares issued; at November 30, 1998,
30,000,000 shares authorized and 10,079,671 shares issued 40 101
Additional paid-in capital and other 74,960 43,496
Retained earnings (accumulated deficit) (135) 157,111
Treasury stock, at cost; 14,560 shares - (254)
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Total stockholders' equity 74,865 200,454
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Total liabilities and stockholders' equity $ 538,121 $ 424,158
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</TABLE>
The accompanying notes are an integral part of these statements.
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HARVEYS CASINO RESORTS
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands)
<TABLE>
<CAPTION>
Predecessor Company February 2, 1999 Three Months
December 1,1998 to (date of acquisition) Ended
February 1, 1999 to February 28, 1999 February 28,1998
---------------- -------------------- ----------------
<S> <C> <C> <C>
Revenues
Casino $ 41,454 $18,680 $54,440
Lodging 5,958 2,855 7,604
Food and beverage 8,108 3,749 10,694
Other 1,271 656 1,720
Less: Casino promotional allowances (5,003) (2,079) (5,686)
--------- ---------- ---------
Total net revenue 51,788 23,861 68,772
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Costs and expenses
Casino 21,146 8,988 27,150
Lodging 1,997 977 3,127
Food and beverage 4,727 2,238 6,991
Other operating 592 281 718
Selling, general and administrative 13,558 6,417 18,895
Depreciation and amortization 3,553 1,942 5,308
Consent fee and merger costs 19,879 - -
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Total cost and expenses 65,452 20,843 62,189
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Operating income (loss) (13,664) 3,018 6,583
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Other income (expense)
Interest income 338 8 453
Interest expense (3,016) (2,248) (4,464)
Other, net 77 17 (21)
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Total other income (expense) (2,601) (2,223) (4,032)
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Income (loss) before income taxes and extraordinary item (16,265) 795 2,551
Income tax benefit (provision) 3,904 (311) (1,020)
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Income (loss) before extraordinary item (12,361) 484 1,531
Loss on early retirement of debt, net of taxes (869) - -
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Net income (loss) $(13,230) $ 484 $ 1,531
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</TABLE>
The accompanying notes are an integral part of these statements.
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HARVEYS CASINO RESORTS
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
<TABLE>
<CAPTION>
Predecessor Company February 2, 1999 Three Months
December 1,1998 to (date of acquisition) Ended
February 1, 1999 to February 28, 1999 February 28, 1998
---------------- -------------------- -----------------
<S> <C> <C> <C>
Cash flows from operating activities
Net income (loss) $ (13,230) $ 484 $ 1,531
Adjustments to reconcile net income (loss)to net
cash provided by (used in) operating activities
Depreciation and amortization 3,553 1,942 5,308
Write-off of debt issuance costs, net of tax 869 - -
Change in income taxes payable (3,904) 231 (5,580)
Accrual of consent fee and merger costs 19,823 - -
Other, net (2,260) (2,727) (1,685)
-------- -------- --------
Net cash provided by (used in) operating
activities 4,851 (70) (426)
-------- -------- --------
Cash flows from investing activities
Capital expenditures (3,830) (2,549) (3,694)
Proceeds from sale of marketable securities 10,000 - -
Proceeds from notes receivable - 1,839 -
Other, net (296) 8 31
-------- -------- --------
Net cash provided by (used in) investing
activities 5,874 (702) (3.663)
-------- -------- --------
Cash flows from financing activities
Principal payments on long-term debt (220) (199,000) (350)
Dividends paid - - (496)
Debt issuance costs - (2,865) -
Proceeds from long-term debt - 172,000 -
Consent fee and merger costs (56) (19,823) -
Exercise of options to purchase stock - - 3,995
Other, net (31) - (12)
-------- -------- --------
Net cash provided by (used in) financing
activities (307) (49,688) 3,137
-------- -------- --------
Increase (decrease) in cash and cash equivalents 10,418 (50,460) (952)
Cash and cash equivalents at beginning of period 67,299 77,717 55,035
-------- -------- --------
Cash and cash equivalents at end of period $ 77,717 $ 27,257 $54,083
-------- -------- --------
-------- -------- --------
</TABLE>
The accompanying notes are an integral part of these statements.
5
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HARVEYS CASINO RESORTS
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation and Consolidation - Harveys Casino Resorts, a Nevada
corporation (the 'Company'), is engaged in the casino entertainment
industry. Through its wholly-owned subsidiary, Harveys Tahoe Management
Company, Inc. ('HTMC'), the Company owns and operates Harveys Resort
Hotel/Casino on the south shore of Lake Tahoe, Nevada. 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. 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.
On February 2, 1999, Harveys Acquisition Corporation, a Nevada corporation
('HAC'), which was formed at the direction of Colony Investors III, L. P.,
a Delaware limited partnership ('Colony III'), merged with and into the
Company (the 'Merger').
The Merger occurred pursuant to an Agreement and Plan of Merger dated as of
February 1, 1998 (the 'Merger Agreement') between the Company and HAC. In
the Merger, each share of common stock ('Common Stock') of the Company
outstanding at the time the Merger became effective (the 'Effective Time')
(other than shares of Common Stock held in the Company's treasury) was
converted into the right to receive $28.7343 in cash as provided in the
Merger Agreement. At the Effective Time, shareholders of the Company were
entitled to receive an aggregate amount equal to approximately $289.3
million and option holders received compensation in the approximate amount
of $10 million as buyout and/or termination of various stock options. The
capital stock of HAC prior to the Merger became the capital stock of the
Company after the Merger. The Company was the surviving corporation in the
Merger and is continuing its business operations as conducted prior to the
Merger.
The Merger has been accounted for using purchase method accounting which
requires the purchase price paid in the Merger to be allocated to the
individual assets acquired and the liabilities assumed based on their
fair value at the Effective Time. As a result, the condensed consolidated
financial statements for the period subsequent to the Merger are
presented on a different basis of accounting than those for the periods
prior to the Merger and, therefore, are not directly comparable.
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, 1998 has been
prepared from the audited financial statements at that date. The
accompanying condensed consolidated financial
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statements at February 28, 1999 and 1998 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 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, 1998.
Cost in Excess of Net Assets Acquired - Net assets acquired in the Merger
are stated at fair value at the time of the Merger. Certain items
affecting the allocation of the purchase price are not finalized. The
preliminary purchase price allocation as of February 28, 1999
follows (in thousands):
<TABLE>
<S> <C>
Merger consideration paid for outstanding common stock $289,252
Merger consideration paid for stock options 9,998
Direct costs of the Merger 6,647
--------
Allocated purchase cost 305,897
--------
Fair value of:
Assets acquired 512,949
Liabilities assumed 279,978
--------
Net assets acquired 232,971
--------
Cost in excess of net assets acquired $ 72,926
--------
--------
</TABLE>
The cost in excess of net assets acquired is being amortized over a 40 year
period and is shown net of accumulated amortization of approximately
$164,000 at February 28, 1999.
Recently Issued Accounting Standards - The Financial Accounting Standards
Board ('FASB') has issued Statement of Financial Accounting Standards
('SFAS') No. 130 - Reporting Comprehensive Income, which establishes
standards for reporting and display of comprehensive income and its
components. SFAS No. 130 requires that an enterprise classify items of
other comprehensive income by their nature in a financial statement and
display the accumulated balance of other comprehensive income separately
from retained earnings and additional paid-in capital in the equity section
of a statement of financial position. SFAS No. 130 will be effective
7
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for the Company's fiscal year ending November 30, 1999. Management intends
to comply with the disclosure requirements of SFAS No. 130. Management does
not anticipate that the adoption of SFAS No. 130 will have a significant
effect on the Company's earnings or its financial position.
The 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; (i) that
engages in business activities from which it earns revenues and incurs
expenses, (ii) whose operating results are regularly reviewed by the
enterprise's chief operating decision maker in deciding how to allocate
resources and in assessing performance, (iii) for which discrete financial
information is available, and (iv) that exceeds specific quantitative
thresholds. SFAS No. 131 will be effective for the Company's fiscal year
ending November 30, 1999. On adoption, and to the extent practicable,
segment information for earlier comparative years 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 FASB has issued SFAS No 132 - Employers' Disclosure about Pensions and
Other Postretirement Benefits, which revises employers' disclosures about
pensions and other postretirement benefit plans. It does not change the
measurement or recognition of those plans. SFAS NO. 132 standardizes the
disclosure requirements for pensions and other postretirement benefits to
the extent practicable, requires additional information on changes in the
benefit obligations and fair value of plan assets that will facilitate
financial analysis, and eliminates certain other disclosures. SFAS No. 132
suggests combined formats for presentation of pension and other
postretirement benefit disclosures. SFAS No. 132 will be effective for the
Company's fiscal year ending November 30, 1999. Management intends to
comply with the disclosure requirements of SFAS No. 132.
The Accounting Standards Executive Committee of the American Institute of
Certified Public Accountants has issued Statement of Position ('SOP') No.
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. On adoption,
restatement of 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 what effect, if any, the adoption of SOP 98-5 will have on
the financial position or results of operations of the Company.
8
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2. EFFECTS OF THE MERGER FINANCING
HAC financed the Merger and paid related fees and expenses with; (i)
proceeds of $75 million from the issuance of shares of its Class A Common
Stock (the 'Class A Common') and Class B Common Stock (the 'Class B
Common') to Colony HCR Voteco LLC, a Delaware limited liability company
('Voteco') and Colony III, respectively, (ii) proceeds of $55 million from
the issuance of shares of its 13 1/2% Series A Senior Redeemable
Convertible Cumulative Preferred Stock (the 'Series A Preferred') and
13 1/2% Series B Senior Redeemable Convertible Cumulative Preferred Stock
(the 'Series B Preferred') to Voteco and Colony III, respectively, (iii)
borrowings in the amount of $172 million under a loan agreement dated as of
January 28, 1999 (the 'HAC Loan') between HAC as borrower and Wells Fargo
Bank, National Association ('Wells Fargo') as lender, and (iv) the
Company's available cash.
Prior to the Merger, the Company was a publicly held company. Following the
Merger, Colony III owns 97% of the Class B Common, which represents
approximately 96% of the common equity interest in the Company.
Following the Merger, the Company granted to certain executive officers
of the Company 1,200 shares of Class A Common and 120,000 shares of
Class B Common; approximately 3% of the outstanding shares of each class
of common stock. Voteco, whose sole members, owners and managers are
officers of the indirect general partner of Colony III, owns 97% of the
voting power in the Company through the ownership of 97% of the Class A
Common. As a result, Voteco is able to govern all matters of the Company
that are subject to the vote of the Company's stockholders, including the
appointment of directors and the amendment of the Company's Articles of
Incorporation and Bylaws. In addition, Colony III owns 99.99% of the
outstanding shares of the Company's preferred stock and Voteco owns .01% of
the outstanding shares of preferred stock.
In addition, in the Merger the directors of HAC became directors of the
Company. Charles W. Scharer, the Chairman of the Board of Directors,
President and Chief Executive Officer of the Company prior to the
Merger, was appointed a director, President and Chief Executive Officer
of the Company at the Effective Time.
3. PREFERRED STOCK
The Series A Preferred and Series B Preferred (together, the 'Preferred
Stock') are entitled to quarterly dividends at an annual rate of 13 1/2% of
the $550 per share liquidation value (the 'Liquidation Value'). To the
extent not paid in cash, dividends will cumulate and compound quarterly at
an annual rate of 13 1/2% of the Liquidation Value. The Series A Preferred
and Series B Preferred are subject to mandatory redemption on February 1,
2011 for cash at the
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Liquidation Value plus any accrued and unpaid dividends, out of any funds
legally available therefor. The Company has the right to redeem the Series
A Preferred and the Series B Preferred at any time for cash at the
Liquidation Value plus any accrued and unpaid dividends. If a Change of
Control (as defined in the Certificates of Designation for the Preferred
Stock) of the Company occurs, the Company will be required to offer to
purchase all outstanding shares of the Series A Preferred and Series B
Preferred (the 'Change of Control Offer') for cash at a price of 101% of
the Liquidation Value plus any accrued and unpaid dividends. However, the
Company will not be required to make the Change of Control Offer on or
prior to the earlier of (i) the date on which all of the Company's 10 5/8%
Senior Subordinated Notes due 2006 (the 'Senior Subordinated Notes') have
been repaid, repurchased or redeemed in full, and (ii) June 1, 2006, the
date the Senior Subordinated Notes mature. The Certificates of Designation
contain covenants which limit restricted payments or investments; limit
consolidation, merger and the sale of assets; mandate the provision of
financial reports; and limit business activities. In the event of a sale or
other disposition of all but not less than all of the Series A Preferred
and Series B Preferred by the original holders and/or certain related
parties (but not any other transferees) to one or more persons other than
the original holders and certain related parties, the dividend rate and
other rights, preferences and privileges of the Series A Preferred and
Series B Preferred may, at the election of the holders of a majority of the
Series A Preferred, be amended so that the Series A Preferred and Series B
Preferred would, in the opinion of an independent financial advisor chosen
by the electing holders, have a market value of 100% of the Liquidation
Value thereof plus any accrued and unpaid dividends; provided that in no
event shall the reset dividend rate exceed 15 1/2% per annum.
Alternatively, the electing holders may effectuate the foregoing by
exchanging all of the Series A Preferred and Series B Preferred for a new
class of preferred stock having terms to which the Series A Preferred and
Series B Preferred would have been reset as aforesaid. Upon the receipt of
all applicable gaming approvals the Series A Preferred and Series B
Preferred are convertible, at the per share rate of 28.7309164 shares of
the Class A Common and Class B Common, respectively, subject to customary
antidilution adjustments. Any accrued and unpaid dividends at the time of a
conversion will be required to be paid in cash or, at the Company's
election, may be satisfied with additional shares of the corresponding
Class A Common or Class B Common.
At February 28, 1999, the aggregate Liquidation Value of the Series A
Preferred and Series B Preferred was $55 million. Additionally, at February
28, 1999 there were accrued, undeclared dividends of $618,750 relative to
the Preferred Stock. The Company was in compliance with the covenants under
the Certificates of Designation as of February 28, 1999.
4. LONG-TERM DEBT
Note Payable to Banks - Immediately following the Merger, the Company used
an initial disbursement of $172 million under an Amended and Restated
Credit Agreement dated December 9, 1998 among the Company and certain of
its subsidiaries as borrowers, (the 'Borrowers'), Wells
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Fargo Bank as swingline lender, letter of credit issuer and agent and the
lenders party thereto to repay the $172 million outstanding under the HAC
Loan. The Amended and Restated Credit Agreement dated December 9, 1998 (the
'Credit Facility') which has a total availability of $185 million, provides
for a revolving loan facility, and a swingline facility and a letter of
credit facility under each of which the Company may borrow up to $5
million.
Interest on the outstanding principal balance accrues at a base rate equal
to the higher of (i) the prime rate, and (ii) the Federal Funds Rate (as
defined in the Credit Facility) plus one-half of one percent; plus an
applicable margin which is initially 1.75%. The Company may under certain
circumstances elect to have interest accrue at the London Inter-Bank
Offering Rate ('LIBOR') plus an applicable margin which is initially 3.0%.
In the future, the applicable margins may be changed, based on the ratio of
the Borrower's total funded debt to earnings before interest, taxes,
depreciation and amortization ('EBITDA').
The Credit Facility is secured by substantially all of the Company's and
the other Borrowers' assets including, subject to applicable gaming
approvals, a pledge of all of the capital stock of each of HTMC, HCCMC,
HIMC and HCR Services Company, Inc. ('HCRSC'), a wholly-owned subsidiary of
the Company, mortgages on all material real property owned or leased by the
Borrowers and the accounts receivable, inventory, equipment and intangibles
of the Borrowers. The Credit Facility will mature and be fully due and
payable on February 2, 2004. The permitted principal balance of the Credit
Facility will be reduced on a quarterly basis, commencing on August 31,
2000. The Credit Facility contains a number of covenants that, among other
things, subject to applicable gaming approvals, restrict the ability of the
Company and the other Borrowers to dispose of assets, incur additional
indebtedness, prepay the Senior Subordinated Notes, pay dividends, create
liens on assets, make investments, loans or advances, engage in mergers or
consolidations, change the business conducted by the Company or the other
Borrowers or engage in certain transactions with affiliates and otherwise
restrict certain corporate activities. In addition, under the Credit
Facility, the Company and the other Borrowers will be required to maintain
specified financial ratios and net worth requirements, satisfy specified
financial tests, including interest coverage tests, and maintain certain
levels of annual capital expenditures. The Credit Facility contains events
of default customary for facilities of this nature. Specifically, the
Credit Facility prohibits the payment of cash dividends on the Preferred
Stock, unless the Leverage Ratio is less than or equal to 3 to 1. 'Leverage
Ratio' is calculated by reference to the Borrowers and any other
subsidiaries of the Company subsequently designated as a 'Restricted
Subsidiary' under the Credit Facility and refers to the ratio of total
indebtedness to EBITDA. The Company was in compliance with the covenants
under the Credit Facility as of February 28, 1999.
The Credit Facility replaced the Company's existing credit facility at the
Effective Time. Consequently, the unamortized deferred loan fees and other
financing costs associated with the existing credit facility were expensed
at that time as an extraordinary item, net of tax. Loan fees and other
financing costs related to the Credit Facility are being amortized to
interest expense over the term of the Credit Facility.
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Senior Subordinated Notes - Prior to the Merger, the Company amended the
indenture which governs the Senior Subordinated Notes (the 'Indenture')
with the changes becoming operative at the Effective Time. The Company
sought and received the consent of the holders of its Senior Subordinated
Notes to: (i) the one-time waiver of the applicability of the Indenture to
the Merger, including the waivers of (a) the change of control covenant in
the Indenture and (b) the 'Merger, Consolidation or Sale of Assets'
provision in the Indenture that might have restricted the financing of the
Merger and related transactions, and (ii) the amendment of the definition
of 'Consolidated Cash Flow' in the Indenture to add back certain costs
related to the Merger.
The fair market value of the Company's Senior Subordinated Notes
immediately following the Merger was 105% of the principal amount. Applying
purchase method accounting to the Merger, a premium of $7.5 million was
recorded relative to the Senior Subordinated Notes. The premium is being
amortized as a reduction of interest expense over the remaining term of the
Senior Subordinated Notes.
5. EMPLOYEE BENEFIT PLANS
Long-Term Incentive Plan - The Company's Long-Term Incentive Plan and the
rights to participate therein were terminated at the Effective Time in
exchange for lump sum payments in the aggregate amount of approximately
$3.1 million.
Supplemental Retirement Plans and Postretirement Benefits - The rights of
certain executives (each an 'Executive' and together the 'Executives') to
participate in a supplemental executive retirement plan (the 'SERP') were
terminated at the Effective Time and the accrued SERP benefits due the
Executives as agreed upon between each of the Executives and the Company
were approximately $2.6 million in the aggregate. One-half of the amount
due each executive was paid in a lump sum and the remaining amounts were
deemed to be distributed to each Executive and invested pursuant to certain
deferred compensation agreements entered into between the Company and each
of the Executives.
At the Effective Time, members of the Company's board of directors who were
asked to resign were paid a lump sum payment of the compensation due under
the Company's Outside Directors' Retirement Plan. The aggregate of the lump
sum payments was $750,000.
Purchase method accounting required the recognition of a liability to the
extent the projected benefit obligation of the Company's pension plan
exceeded plan assets at the time of the Merger. Any previously existing
unrecognized net gain or loss, unrecognized prior-service cost, and
unrecognized net obligation was eliminated. Likewise, a liability for the
accumulated post-retirement benefit obligation in excess of the fair value
of plan assets relative to the Company's postretirement medical benefit
plans was recognized. As a result of the foregoing, the Company recognized
an increase in the net liability attributable to its supplemental
retirement plans and postretirement benefit plans of approximately $7.2
million.
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6. CONSENT FEE AND MERGER RELATED COSTS
At the time of the Merger, the Company recognized approximately $19.9 million
of expense related to: (i) a consent fee paid to the consenting holders of
the Senior Subordinated Notes, (ii) compensation and pension benefits due to
certain members of management and the board of directors due to the change of
control resulting from the Merger, and (iii) financial advisory services and
other costs.
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Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
OVERVIEW
On February 2, 1999, HAC merged with and into the Company, completing the
acquisition of the Company by Voteco and Colony III, affiliates of Colony
Capital. The Company was the surviving corporation in the Merger and is
continuing its business operations as conducted prior to the Merger, which
include the ownership and operation of: (i) Harveys Resort Hotel/Casino on the
south shore of Lake Tahoe, Nevada, (ii) Harveys Wagon Wheel Hotel/Casino in
Central City, Colorado, and (iii) Harveys Casino Hotel in Council Bluffs, Iowa.
The following table presents certain operating results for the Company's
properties. For comparative purposes, results for the first quarter of fiscal
1999 have been presented on a combined three-month basis by aggregating the
results of the Company for the period December 1, 1998 through February 1,
1999 with the results of the Company for the period February 2, 1999 (the
date of acquisition) through February 28, 1999.
<TABLE>
<CAPTION>
Combined
Predecessor Company February 2, 1999 Three Months Three Months
December 1, 1998 to (date of acquisition) to Ended Ended
February 1, 1999 February 28, 1999 February 28, 1999 February 28, 1998
---------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Results of Operations (Dollars in thousands)
Net Revenues
Harveys Resort Hotel/Casino $ 21,413 $ 9,736 $ 31,149 $27,674
Harveys Wagon Wheel Hotel/Casino 9,713 4,486 14,199 14,515
Harveys Casino Hotel - Iowa 20,662 9,639 30,301 26,583
---------- ------ ---------- --------
$ 51,788 $23,861 $ 75,649 $68,772
---------- ------- ---------- --------
---------- ------- ---------- --------
Operating Income (Loss)
Harveys Resort Hotel/Casino $ 2,374 $ 1,039 $ 3,413 $ 2,046
Harveys Wagon Wheel Hotel/Casino 1,554 820 2,374 3,220
Harveys Casino Hotel - Iowa 4,382 2,094 6,476 4,555
Corporate and Development (2,095) (935) (3,030) (3,238)
Consent fee and merger costs (19,879) - (19,879) -
---------- ------- ---------- --------
$ (13,664) $ 3,018 $ (10,646) $ 6,583
---------- ------- ---------- --------
---------- ------- ---------- --------
EBITDA (1)
Harveys Resort Hotel/Casino $ 3,922 $ 1,780 $ 5,702 $ 4,555
Harveys Wagon Wheel Hotel/Casino 2,183 1,141 3,324 4,126
Harveys Casino Hotel - Iowa 5,669 2,748 8,417 6,294
Corporate and Development (2,006) (710) (2,716) (3,084)
---------- ------- ---------- --------
$ 9,768 $ 4,959 $ 14,727 $ 11,891
---------- ------- ---------- --------
---------- ------- ---------- --------
</TABLE>
Note to the operating results
(1) EBITDA (operating income plus depreciation and amortization and excluding
non-recurring items) 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 allows for a more complete analysis of results of operations. Because
companies do not calculate EBITDA identically, the presentation of EBITDA
herein is not necessarily comparable to similarly entitled measures of
other companies. EBITDA is not intended to represent and should not be
considered more meaningful than, or an alternative to, measures of
operating performance as determined in accordance with generally accepted
accounting principles.
14
<PAGE>
RESULTS OF OPERATIONS, QUARTER ENDED FEBRUARY 28, 1999 COMPARED TO QUARTER ENDED
FEBRUARY 28, 1998
As a result of the Merger, the results of operations for the period subsequent
to the Merger are presented on a different basis of accounting than those for
the period prior to the Merger and, therefore, the combined results for the
three months ended February 28, 1999 are not directly comparable to the results
for the three months ended February 28, 1998. However, management believes that
a comparison of the three month periods provides a meaningful discussion of the
results of operations at its three operating properties. The items of
comparability most affected by the Merger are depreciation and amortization,
interest expense and income taxes.
The Company's consolidated net revenues for the first quarter of fiscal 1999
amounted to approximately $75.6 million, a new record for the Company's first
quarter and an increase of $6.9 million, or 10.0%, over net revenues recorded in
the first quarter of fiscal 1998. The improvement was attributable to net
revenue increases at the Lake Tahoe and Iowa properties. Net revenues from the
Company's Lake Tahoe property increased by approximately $3.5 million, or 12.6%.
Net revenues at Harveys Casino Hotel in Iowa improved by $3.7 million or 14.0%.
The net revenue increases were driven by increased casino revenue at both the
Lake Tahoe and Iowa properties. Harveys Wagon Wheel Hotel/Casino experienced a
2.2% decrease in net revenues, down $0.3 million. The decrease was experienced
primarily in casino revenues and is the result of new competition coming online
in late December in nearby Black Hawk, Colorado.
Casino revenues for the first quarter of fiscal 1999 amounted to
approximately $60.1 million, an improvement of $5.7 million over the
comparable quarter of the prior year. The gaming activity in Council Bluffs
produced an increase of approximately $3.2 million in casino revenues over
the comparable quarter of the prior year. The Company's Lake Tahoe casino
revenues improved by approximately $2.7 million over the first quarter of
1998. The increase in casino revenues at Lake Tahoe was the result of an
increase in wagering volume and was achieved despite a decrease in the win
percentages. In Iowa, the increase in casino revenues was the result of
increased volume and a stronger slot machine win percentage. Harveys Wagon
Wheel Hotel/Casino decreased approximately $0.2 million in casino revenues
over the prior year comparable quarter due primarily to the new competition.
Casino costs and expenses increased for the comparable periods, up $3.0
million to $30.1 million for the current year period. The Council Bluffs
casino accounted for $1.5 million of the increase while Colorado operations
accounted for approximately $0.2 million of the increase and the Lake Tahoe
operations recorded a $1.3 million increase in casino costs. The increase in
casino costs and expenses was attributable principally to increases in gaming
taxes and licenses and promotional expenses.
Lodging revenues for the fiscal 1999 first quarter improved by approximately
$1.2 million over the prior year first quarter and amounted to $8.8 million.
The hotel facility at Lake Tahoe contributed $1.1 million of the
quarter-over-quarter increase. The improvement in lodging revenues was mainly
due to an increase in the occupancy rate. Lodging profits improved by
approximately $1.4 million.
15
<PAGE>
Food and beverage revenues for the current fiscal year first quarter amounted to
approximately $11.9 million, an improvement of nearly $1.2 million, or 10.9%,
over prior year first quarter. Food and beverage revenues from the Lake Tahoe
property contributed an increase of approximately $0.7 million, while Council
Bluffs revenues increased approximately $0.5 million. Food and beverage profits
and margins increased for the quarter-to-quarter comparison due to improvements
at both the Lake Tahoe and Council Bluffs properties resulting from increased
revenues and the controlling of related costs.
Selling, general and administrative expenses increased by approximately $1.1
million, or 5.7%, to $20.0 million for the current fiscal year first quarter.
The Lake Tahoe operations recognized an increase in overall selling, general and
administrative expenses of approximately $0.9 million from the first quarter of
fiscal 1998 compared to the current fiscal year first quarter, while these
expenses increased by $0.4 million at the Central City property and $0.2 million
at the Iowa property. Corporate expenses decreased by approximately $0.4
million. The quarter-to-quarter increase in selling, general and administrative
expenses resulted from increased advertising and promotional expenses, taxes and
licenses, and employee programs.
Depreciation and amortization expenses increased by approximately $0.2 million,
primarily as the result of amortization of the cost in excess of net assets
acquired in the Merger.
At the time of the Merger, the Company recognized approximately $19.9 million
of expense related to: (i) a consent fee paid to the consenting holders of
the Senior Subordinated Notes, (ii) compensation and pension benefits due to
certain members of management and the board of directors due to the change of
control resulting from the Merger, and (iii) financial advisory services and
other costs.
Interest expense, net of interest income increased by approximately $0.9 million
to $4.9 million for the first quarter of fiscal 1999. The increase was
attributable to the additional borrowing from the Credit Facility.
The Company recognized an extraordinary loss of approximately $0.9 million,
net of tax, on the early retirement of its previously existing credit
facility which was retired at the Effective Time.
As a result of the above, the net loss for the first quarter of fiscal 1999
amounted to $12.7 million compared to net income of $1.5 million for the
first quarter of fiscal 1998. Excluding the loss on early retirement of debt,
net of tax, and excluding the after tax effect of approximately $13.8 million
attributable to the consent fee and merger costs, net income for the first
quarter of fiscal 1999 would have been approximately $1.9 million.
LIQUIDITY AND CAPITAL RESOURCES
Effects of the Merger Financing - At the Effective Time the leverage and fixed
charge obligations of the Company substantially increased. HAC financed the
Merger with (i) proceeds of $75 million from the issuance of its Class A Common
to Voteco and its Class B Common to Colony III, (ii) proceeds of $55 million
from the issuance of its Series A Preferred to Voteco and its Series B Preferred
to Colony III, (iii) borrowings of $172 million under the HAC Loan and (iv) the
Company's available cash (collectively, the 'Merger Financing'). Upon
consummation of the Merger, the HAC Loan was refinanced through the Credit
Facility.
16
<PAGE>
The maximum borrowings available under the Credit Facility at February 28, 1999
was $185 million. The maximum principal balance of the Credit Facility will
reduce on a quarterly basis, commencing on August 31, 2000. The Credit Facility
will mature and be fully due and payable on February 2, 2004. Interest on
borrowings outstanding under the Credit Facility will be payable, at the
Company's option, at either the LIBOR or an alternative base rate, in each case
plus an applicable margin. In the future, the applicable margins may be changed,
based on the ratio of the Borrowers' total funded debt to EBITDA. The Credit
Facility contains a number of covenants that, among other things, subject to
applicable gaming approvals, restrict the ability of the Company and the other
Borrowers to dispose of assets, incur additional indebtedness, prepay any of the
Senior Subordinated Notes, pay dividends, create liens on assets, make
investments, loans or advances, engage in mergers or consolidations, change the
business conducted by the Company or the other Borrowers or engage in certain
transactions with affiliates and otherwise restrict certain corporate
activities. In addition, under the Credit Facility, the Company and the other
Borrowers are required to maintain specified financial ratios and net worth
requirements, satisfy specified financial tests, including interest coverage
tests, and maintain certain levels of annual capital expenditures. The Credit
Facility contains events of default customary for facilities of this nature.
Specifically, the Credit Facility prohibits the payment of cash dividends on the
Preferred Stock, unless the Leverage Ratio is less than or equal to 3 to 1.
'Leverage Ratio' is calculated by reference to the Company, HCCMC, HIMC, HLVMC
and HTMC and any other subsidiaries of the Company subsequently designated under
the Credit Facility and refers to the ratio of total indebtedness to EBITDA.
The Preferred Stock is entitled to quarterly dividends at an annual rate of 13
1/2% of the $550 per share Liquidation Value. To the extent not paid in cash,
dividends will cumulate and compound quarterly at an annual rate of 13 1/2% of
the Liquidation Value. The Preferred Stock is subject to mandatory redemption on
February 1, 2011 for cash at the Liquidation Value plus any accrued and unpaid
dividends, out of any funds legally available therefor. The Company has the
right to redeem the Preferred Stock at any time for cash at the Liquidation
Value plus any accrued and unpaid dividends. The Certificates of Designation
contain covenants which limit restricted payments or investments; limit
consolidation, merger and the sale of assets; mandate the provision of financial
reports; and limit business activities. Upon the receipt of all applicable
gaming approvals the Series A Preferred and Series B Preferred are convertible,
at the per share rate of 28.7309164 shares of the Class A Common and Class B
Common, respectively, subject to customary anti-dilution adjustments. Any
accrued and unpaid dividends at the time of a conversion will be required to be
paid in cash or, at the Company's election, may be satisfied with additional
shares of the corresponding Class A Common or Class B Common in an amount to be
determined in accordance with the conversion rate.
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. The
guaranteeing Restricted Subsidiaries are HCCMC, HIMC, HLVMC and HTMC.
17
<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.
Prior to the Merger, the Company amended the Indenture with the changes becoming
operative at the Effective Time. The Company sought and received the consent of
the holders of its Senior Subordinated Notes to: (i) the one-time waiver of the
applicability of the Indenture to the Merger, including the waivers of (a) the
change of control covenant in the Indenture and (b) the 'Merger, Consolidation
or Sale of Assets' provision in the Indenture that might have restricted the
financing of the Merger and related transactions, and (ii) the amendment of the
definition of 'Consolidated Cash Flow' in the Indenture to add back certain
costs related to the Merger.
The Indenture contains certain covenants that impose limitations on, among other
things, (i) the incurrence of additional indebtedness by the Company or any
Restricted Subsidiary, (ii) the payment of dividends, (iii) 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, (iv) mergers, consolidations and sales of assets by the Company or
any Restricted Subsidiary, (v) the creation or incurrence of liens on the assets
of the Company or any Restricted Subsidiary, and (vi) 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.
As of February 28, 1999, the Company was in compliance with the covenants under
the Credit Facility, the Certificates of Designation and the Indenture.
At the time of the Merger the Company borrowed $172 million under the Credit
Facility and used the proceeds to retire the HAC Loan. Additionally, the
Company paid approximately $23.0 million in the aggregate for: (i) the
consent fee due to the consenting holders of the Senior Subordinated Notes,
(ii) debt issuance costs of the Credit Facility, and (iii) compensation and
pension benefits due to the change of control resulting from the Merger.
During the first quarter of fiscal 1999, the Company received $10.0 million
from the sale of marketable securities and received payment in full of the
approximate $1.8 million due the Company under notes from a related party
trust. During the first quarter, the Company expended approximately $6.4
million on capital improvements and replacements, including approximately
$1.0 million on the parking garage under construction at Harveys Casino Hotel
in Council Bluffs. The Company has budgeted approximately $18.6 million for
maintenance capital expenditures and property improvements and approximately
$15.0 million for construction of the parking garage in fiscal 1999. From the
Effective Time through February 28, 1999, the Company reduced the outstanding
balance under the Credit Facility by $27.0 million.
18
<PAGE>
At February 28, 1999, the Company had $295.0 million in long-term debt
consisting of $150.0 million of Senior Subordinated Notes and $145.0 million
outstanding under the Credit Facility. The Company had approximately $27.3
million in cash and cash equivalents and approximately $39.2 million
available under the Credit Facility, net of an outstanding letter of credit
and subject to compliance with certain financial covenants.
The Company believes that its existing cash and cash equivalents, cash flows
from operations and its borrowing capacity under the Credit Facility will be
sufficient to meet the cash requirements of its existing operations during,
at the least, the next twelve months, including capital improvements and
replacements at the operating properties and debt service requirements. The
Company currently believes that its capital expenditures in respect to
existing operations beyond the next twelve months will consist of debt
service requirements and capital improvements and replacements in the
ordinary course, which the Company expects to be met by then-existing cash,
cash flows from operations and borrowing capacity under the Credit Facility.
The Company does not currently anticipate incurring balloon or other
extraordinary payments on long-term obligations or any other extraordinary
demands or commitments beyond the next twelve months. The Company does not
expect that cash dividends will be paid on the Preferred Stock prior to 2004
because of, among other reasons, restrictions in the Credit Facility and the
Indenture on the payment of cash dividends.
YEAR 2000
Many technological systems (including those that employ embedded technology such
as microcontrollers) rely on hardware, software and components that were
originally designed to recognize a date by using the last two digits of a four
digit year. Tasks performed by technological systems using these truncated
fields may not work properly for dates from 2000 and beyond. This could result
in system failures or miscalculations causing disruptions of, or the inability
to engage in, normal business operations. This is generally known as the "Year
2000 Problem".
The Company has established a task force to coordinate its response to the
Year 2000 Problem. This task force includes the Company's Chief Executive
Officer, Chief Financial Officer, and the Director of Information Systems as
well as support staff.
The Year 2000 compliance programs developed for the Company consist of the
following phases: (i) compilation of an inventory of systems and equipment
that may cause a Year 2000 Problem ('Critical Systems and Equipment'), (ii)
identification and prioritization of the Critical Systems and Equipment from
the inventory compiled and inquiries of third parties with whom the Company
does significant business (i.e., vendors and suppliers) as to the state of
their Year 2000 readiness, (iii) analysis of the identified Critical Systems
and Equipment to determine which systems and equipment are not Year 2000
compliant and evaluation of the costs to repair or replace those systems, and
(iv) repair or replacement and testing of noncompliant Critical Systems and
Equipment and the testing of Critical Systems and Equipment for which
representation as to Year 2000 compliance has not been received or for which
representation has been received but has not been confirmed.
19
<PAGE>
The Company is not currently planning to use any independent verification and
validation process to assure the reliability of their risk and cost estimates.
However, this position will continue to be reevaluated as the Year 2000
compliance programs proceed at the Company's facilities.
The Company also initiated a more limited review of the Year 2000 Problem as it
relates to business associates of the Company, including material vendors,
suppliers, financial institutions and utility and communications providers. The
scope of the review was generally limited to inquiries of such business
associates. Based on the responses received, the Company is not aware of any
Year 2000 Problem impact on a material business associate that would have a
material adverse affect on the Company's business operations. However, there can
be no assurances that all of the Company's material business associates will be
Year 2000 compliant in a timely manner.
The Company relies on systems in many areas of its business operations
('Systems') including casino operations, retail outlets, hotel operations,
accounting and finance, facilities and environmental, communications and
administration. The Company has not developed a comprehensive contingency plan,
although a number of Systems are 'backed up' by manual procedures that have been
employed during times Systems have been unavailable. The Company will continue
to assess the need for a comprehensive contingency plan as implementation of the
corrective action plan continues and as the review of business associates'
readiness progresses.
The Company is in the process of implementing its corrective action plan. The
Company is utilizing internal resources and external resources to achieve the
plan objectives. The Company anticipates that the required modifications,
upgrades and replacements of Systems will most likely be completed in the
second quarter of fiscal year 1999, allowing for additional testing and
revisions, if necessary, before 2000. The Company believes that its
corrective action plan, including the timelines, is adequate and realistic.
Nevertheless, if one or more of the Company's Systems has been overlooked or
if implementation of the corrective action plan fails to achieve Year 2000
compliance for one or more Systems, or if a key business associate fails to
provide necessary products or services due to Year 2000 Problem business
disruptions, there could be a material adverse impact on the Company's
business operations or financial performance. With respect to the Company's
Systems, the most reasonable likely worst case scenario if a Year 2000
Problem occurred would be the necessity to perform manually those procedures
customarily performed by a noncompliant System. This could result in a
slowdown of normal business operations and would likely be more costly. The
performing of procedures manually would continue until such time as the
noncompliant System could be made compliant or a suitable alternative could
be found and installed. With respect to a key business associate, the most
reasonable likely worst case scenario if a Year 2000 Problem occurred would
be the failure to deliver to the Company essential utilities, which could
result in the inability of one or more of the Company's hotel/casinos to
operate and require the affected property or properties to close until such
utilities could be restored.
20
<PAGE>
The Company estimates that the costs to achieve Year 2000 compliance, including
those costs that are capitalizable, will be approximately $4.4 million and will
be expended through 2000. The Company incurred costs of approximately $1.0
million in fiscal year 1998, including approximately $0.7 million that was
capitalized. An additional $1.9 million has been expended in the first quarter
of fiscal 1999, of which approximately $1.6 million has been capitalized. The
Company expects to incur an additional cost of approximately $1.5 million in
fiscal 1999, approximately $1.4 million of which will be for capital
acquisitions. The Company believes that its expenditures in fiscal 2000 will not
be material. These estimates are based on the Companys' evaluation and
experience to date and are subject to modification as implementation of the
corrective action plan progresses. There can be no assurances that the estimated
costs are adequate or achievable, and actual costs could materially differ from
the estimate.
21
<PAGE>
Item 3. Quantitative and Qualitative Disclosures About Market Risk
The Company is exposed to market risk from changes in interest rates. The
Company had no variable rate debt at November 30, 1998, however, as a result of
the financing of the Merger in part through the Credit Facility, the Company now
has variable rate debt. The amount outstanding under the Credit Facility at
February 28, 1999 was $145 million, subject to a one-month LIBOR based interest
rate of 7.94%. Assuming an identical outstanding balance for the remainder of
the fiscal year, a hypothetical immediate 100 basis point increase in interest
rates would increase interest expense for the remainder of the year by
approximately $1.1 million.
Additionally, the fair value of the Company's fixed rate long-term debt,
consisting of the $150 million of Senior Subordinated Notes and the $7.5
million premium on the Senior Subordinated Notes at February 28, 1999, and the
fair value of the Company's fixed rate Preferred Stock issued as part of the
Merger financing, are sensitive to differences between market interest rates and
rates at the time of issuance. A hypothetical immediate 100 basis point increase
in interest rates at February 28, 1999 would have decreased the fair value of
the Company's fixed rate long-term debt by approximately $14.2 million.
Conversely, a 100 basis point decrease in interest rates would have increased
the fair value of the Company's outstanding long-term debt at February 28, 1999
by approximately $17.3 million. A hypothetical immediate 100 basis point
increase in interest rates would have decreased the fair value of the Company's
fixed rate Preferred Stock by approximately $3.8 million at February 28, 1999.
Conversely, a 100 basis point decrease in interest rates would have increased
the fair value of the Preferred Stock by approximately $4.4 million.
The Company did not enter into any derivative financial contracts in fiscal 1998
or the first quarter of fiscal 1999. The Company may use derivative financial
instruments in the future as a risk management tool. The Company does not use
derivative financial instruments for speculative or trading purposes.
22
<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.
23
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
Not Applicable
Item 2. Changes in Securities.
On February 2, 1999, the Company merged with HAC. As a result of the
Merger: (i) the outstanding capital stock of the Company was canceled
and the capital stock of HAC became the capital stock of the Company
as the surviving corporation, (ii) the Company delisted its common
stock from the New York Stock Exchange, and (iii) the common stock of
the Company is no longer publicly held or traded.
A more detailed description of the Merger is set forth in the
Company's Current Report of Form 8-K filed on February 16, 1999. The
constituent instruments defining the rights of the Company's
stockholders are filed as exhibits to the Company's Current Report
on Form 8-K, filed on February 16, 1999. Such exhibits are
incorporated into this quarterly report by reference.
Item 3. Defaults Upon Senior Securities
Not Applicable
Item 4. Submission of Matters to a Vote of Security Holders
None
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
On February 16, 1999, the Company filed a Current Report on Form
8-K, under Item 1. Change of Control, to report the closing of
the Merger.
24
<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: April 13, 1999 /s/ John J. McLaughlin
----------------------------------------
John J. McLaughlin,
Senior Vice President,
Chief Financial Officer and Treasurer
(Authorized Officer and Principal Financial
Officer)
25
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------- -----------------------------------------------------------------
<S> <C>
3.1 Amendments to Articles of Incorporation of Harveys Casino Resorts as
Surviving Constituent Entity (filed as Exhibit A to Articles of Merger
of Harveys Acquisition Corporation into Harveys Casino Resorts). (4) (Articles
of Incorporation are incorporated herein by reference to Harveys
Acquisition Corporations's Registration Statement on Form 10 (File No.
0-25093), filed November 20, 1998).
3.2 Certificate of Designation of the 13-1/2% Series A Senior Redeemable
Convertible Cumulative Preferred Stock. ($0.01 per value per share) and the
13-1/2% Series B Redeemable Convertible Cumulative Preferred Stock ($0.01
par value per share) of Harveys Casino Resorts (4)
3.3 Eighth Amended and Restated Bylaws of the Registrant (5)
4.1 Form of Stock Certificate of the Registrant (5)
4.2 Indenture, dated as of May 15, 1996 (the "Original Indenture") by and
among the Registrant, 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) (1)
4.3 First Supplemental Indenture, dated as of June 5, 1996, supplementing the
Original Indenture (2)
4.4 Second Supplemental Indenture, dated as of May 22, 1997, supplementing the
Original Indenture (3)
4.5 Third Supplemental Indenture, dated as of December 24, 1998, among the
Registrant, Harveys Tahoe Management Company, Inc., Harveys C. C.
Management Company, Inc., Harveys Iowa Management Company, Inc., Harveys L.
V. Management Company, Inc. and IBJ Schroder Bank and Trust Company,
supplementing the Original Indenture (5)
4.6 Fourth Supplemental Indenture, dated as of December 24, 1998, among the
Registrant, Harveys Tahoe Management Company, Inc., Harveys C. C.
Management Company, Inc., Harveys Iowa Management Company, Inc., Harveys L.
V. Management Company, Inc. and IBJ Schroder Bank and Trust Company,
supplementing the Original Indenture (5)
27 Financial Data Schedule (6)
</TABLE>
-----------------------------------------------
(1) Incorporated herein by reference to Registration Statement No.
333-3576
(2) Incorporated herein by reference to Registrant's Current Report on
Form 8-K filed June 14, 1996
(3) Incorporated herein by reference to Registrant's Quarterly Report on
Form 10-Q for the period ended August 31, 1997
26
<PAGE>
(4) Incorporated herein by reference to Registrant's Current Report on
Form 8-K filed February 16, 1999
(5) Incorporated herein by reference to the Registrant's Annual Report on
Form 10-K for the period ended November 30, 1998
(6) Filed herewith
27
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