**SECURITIES AND EXCHANGE COMMISSION**

**Washington,D.C. 20549**

** **

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** **

**FORM 10-Q**

** **

**ý****QUARTERLY REPORT UNDERSECTION 13 OR 15(d)**

**OF THE SECURITIES EXCHANGE ACT OF 1934**

** **

**For thequarterly period ended: September 30, 2001**

** **

**OR**

** **

**o****TRANSITION REPORTPURSUANT TO SECTION 13 OR 15(d)**

**OF THE SECURITIES EXCHANGE ACT OF 1934**

** **

**For thetransition period from                          to**

** **

** **

**Commissionfile number 333-53211**

** **

**Hard Rock Hotel, Inc.**

(Exact name ofregistrant as specified in its charter)

 

| **Nevada**                                |   | **88-0306263**      |
|-------------------------------------------|--------|---------------------|
| (State or other  jurisdiction of          |   | (I.R.S. Employer    |
| incorporation or  organization)           |   | Identification No.) |
|                                      |   |                |
| **4455  Paradise Road, Las Vegas NV**     |   | **89109**           |
| (Address of principal  executive offices) |   | (Zip Code)          |

 

Registrant's telephonenumber, including area code:  **(702) 693-5000**

 

----

 

Indicateby check mark whether the registrant (1) has filed all reports required to befiled by Section 13 or 15(d) of the Securities Exchange Act of 1934 during thepreceding 12 months (or for such shorter period that the registrant wasrequired to file such reports), and (2) has been subject to such filingrequirements for the past 90 days. Yes ý No o

 

 

APPLICABLE ONLY TOCORPORATE ISSUERS:

 

      Indicate the number of sharesoutstanding of each of the issuer's classes of common stock, as of the latestpracticable date.

 

Common Stock outstandingby class as of November 14, 2001

 

| **Class  of Common Stock** |   | **Shares** |
|----------------------------|--------|------------|
| Class A Common Stock       |   | 12,000     |
| Class B Common Stock       |   | 64,023     |

 

 

 

 

HARD ROCK HOTEL, INC.

 

INDEX

 

 
| Part I   | FINANCIAL INFORMATION                                                                                                             |                 |
|----------|-----------------------------------------------------------------------------------------------------------------------------------|----------------------|
|     |                                                                                                                              |                 |
| Item 1.  | Financial Statements                                                                                                              |                 |
|     |                                                                                                                              |                 |
|     | Condensed  Balance Sheets as of September 30, 2001 (unaudited) and December 31,  2000                                        |                 |
|     |                                                                                                                              |                 |
|     | Condensed Statements  of Operations for the three-month and nine-month periods ended  September 30, 2001 and 2000(unaudited) |                 |
|     |                                                                                                                              |                 |
|     | Condensed Statements  of Cash Flows for the nine-month periods ended September 30, 2001 and 2000  (unaudited)                     |                 |
|     |                                                                                                                              |                 |
|     | Notes to  Condensed Financial Statements                                                                                          |                 |
|     |                                                                                                                              |                 |
| Item  2. | Management's  Discussion and Analysis of Financial Condition and Results of Operations                                            |                 |
|     |                                                                                                                              |                 |
| Item  3. | Quantitative  and Qualitative Disclosures about Market Risk                                                                       |                 |
|     |                                                                                                                              |                 |
| PART  II | OTHER  INFORMATION                                                                                                                |                 |
|     |                                                                                                                              |                 |
| Item  1. | Legal  Proceedings                                                                                                                |                 |
|     |                                                                                                                              |                 |
| Item 6:  | Exhibits and  Reports on Form 8-K                                                                                                 |                 |
|     |                                                                                                                              |                 |
|     | (a)                                                                                                                               | Exhibits             |   |
|     |                                                                                                                              |                 |
|     | (b)                                                                                                                               | Reports  on Form 8-K |   |
|          |                                                                                                                                   |                      |  |  |

 

Part I       FINANCIAL INFORMATION

 

Item1.    Financial Statements

 

HARD ROCK HOTEL, INC.

CONDENSED BALANCE SHEETS

(in thousands, exceptshare amounts)

 
| **ASSETS**                                                                                                                                      |
|-------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                                                                                                            |   |   |   |   |   |
|                                                                                                                                            |   | **September 30,** |   | **December 31,** |   |
|                                                                                                                                            |   | **2001** |   | **2000** |   |
|                                                                                                                                            |   | **(unaudited)** |   |   |   |
| Current assets:                                                                                                                                 |   |   |   |   |   |
| Cash and cash  equivalents                                                                                                                      |   | $ | 7,721 |   | $ | 7,979 |   |
| Accounts  receivable, net of allowance for doubtful accounts of $2,151 and $1,080 as of  September 30, 2001 and December 31, 2000, respectively |   | 4,618 |   | 6,569 |   |
| Inventories                                                                                                                                     |   | 1,414 |   | 1,865 |   |
| Prepaid expenses  and other current assets                                                                                                      |   | 733 |   | 660 |   |
| Deferred income  taxes                                                                                                                          |   | 852 |   | 852 |   |
| Total current  assets                                                                                                                           |   | 15,338 |   | 17,925 |   |
|                                                                                                                                            |   |   |   |   |   |
| Property and  equipment, net of accumulated depreciation and amortization                                                                       |   | 169,542 |   | 176,503 |   |
|                                                                                                                                            |   |   |   |   |   |
| Other assets                                                                                                                                    |   | 3,239 |   | 4,549 |   |
|                                                                                                                                            |   |   |   |   |   |
| TOTAL ASSETS                                                                                                                                    |   | $ | 188,119 |   | $ | 198,977 |   |
|                                                                                                                                            |   |   |   |   |   |
|                                                                                                                                            |   |   |   |   |   |
|                                                                                                                                            |   |   | ** ** |   | ** ** |
| Current  liabilities:                                                                                                                           |   |   |   |   |   |
| Accounts payable                                                                                                                                |   | $ | 1,519 |   | $ | 3,100 |   |
| Construction  related payables                                                                                                                  |   | 299 |   | 2,479 |   |
| Accrued expenses                                                                                                                                |   | 8,859 |   | 13,289 |   |
| Interest payable                                                                                                                                |   | 6,036 |   | 3,025 |   |
| Total current  liabilities                                                                                                                      |   | 16,713 |   | 21,893 |   |
|                                                                                                                                            |   |   |   |   |   |
| Deferred income  taxes                                                                                                                          |   | 852 |   | 852 |   |
| Long-term debt                                                                                                                                  |   | 148,900 |   | 157,500 |   |
| Total long-term  liabilities                                                                                                                    |   | 149,752 |   | 158,352 |   |
| Total  liabilities                                                                                                                              |   | 166,465 |   | 180,245 |   |
|                                                                                                                                            |   |   |   |   |   |
| Commitments and  contingencies                                                                                                                  |   |   |   |   |   |
|                                                                                                                                            |   |   |   |   |   |
| Preferred stock,  9 1⁄4% Series A Cumulative, no par value, redeemable, 40,000 shares authorized,  28,000 shares issued and outstanding      |   | 33,400 |   | 31,213 |   |
| Preferred stock,  9 1⁄4% Series B Cumulative, no par value, redeemable, one share authorized,  issued and outstanding                        |   | 22,569 |   | 21,092 |   |
|                                                                                                                                            |   |   |   |   |   |
| Shareholders'  deficit:                                                                                                                         |   |   |   |   |   |
| Common stock,  Class A voting, no par value, 40,000 shares authorized, 12,000 shares issued  and outstanding                                    |   | - |   | - |   |
| Common stock,  Class B non-voting, no par value, 160,000 shares authorized, 64,023 shares  issued and outstanding                               |   | - |   | - |   |
| Paid-in capital                                                                                                                                 |   | 7,508 |   | 7,508 |   |
| Accumulated  deficit                                                                                                                            |   | (41,823 | ) | (41,081 | ) |
| Total  shareholders' deficit                                                                                                                    |   | (34,315 | ) | (33,573 | ) |
|                                                                                                                                            |   |   |   |   |   |
| TOTAL  LIABILITIES AND SHAREHOLDERS' DEFICIT                                                                                                    |   | $ | 188,119 |   | $ | 198,977 |   |
|                                                                                                                                            |   |   |   |   |   |

 

*Theaccompanying notes are an integral part of these condensed financialstatements.*

 

HARD ROCK HOTEL, INC.

CONDENSED STATEMENTS OFOPERATIONS

(in thousands, exceptshare and per share amounts)

(unaudited)

 

 
|                                                       |   | **Three Months Ended September 30** |       | **Nine Months Ended September 30** |       |
|------------------------------------------------------------|--------|-------------------------------------|------------|------------------------------------|------------|
|                                                       |   | **2001**                            |       | **2000**                           |       | **2001** |   | **2000** |   |
| Revenue:                                                   |   |                                |       |                               |       |   |   |   |   |
| Casino                                                     |   | $                                   | 11,363     |                               | $          | 12,009 |   | $ | 37,471 |   | $ | 41,671 |   |
| Lodging                                                    |   | 6,397                               |       | 6,696                              |       | 20,806 |   | 20,341 |   |
| Food and  beverage                                         |   | 9,455                               |       | 10,017                             |       | 29,644 |   | 27,207 |   |
| Retail                                                     |   | 2,153                               |       | 2,320                              |       | 6,794 |   | 7,303 |   |
| Other income                                               |   | 1,893                               |       | 1,407                              |       | 5,556 |   | 4,342 |   |
| Gross  revenues                                            |   | 31,261                              |       | 32,449                             |       | 100,271 |   | 100,864 |   |
| Less:  promotional allowances                         |   | (2,450                              | )          | (2,952                             | )          | (7,848 | ) | (8,406 | ) |
| Net revenues                                               |   | 28,811                              |       | 29,497                             |       | 92,423 |   | 92,458 |   |
|                                                       |   |                                |       |                               |       |   |   |   |   |
| Costs and  expenses:                                       |   |                                |       |                               |       |   |   |   |   |
| Casino                                                     |   | 8,064                               |       | 6,810                              |       | 23,703 |   | 21,388 |   |
| Lodging                                                    |   | 1,862                               |       | 1,863                              |       | 5,517 |   | 5,522 |   |
| Food and  beverage                                         |   | 5,141                               |       | 5,223                              |       | 15,382 |   | 14,953 |   |
| Retail                                                     |   | 894                                 |       | 1,138                              |       | 2,891 |   | 3,327 |   |
| Other                                                      |   | 1,023                               |       | 943                                |       | 2,792 |   | 2,426 |   |
| Marketing                                                  |   | 851                                 |       | 1,397                              |       | 3,283 |   | 3,512 |   |
| General and  administrative                                |   | 4,885                               |       | 5,973                              |       | 15,029 |   | 17,149 |   |
| Depreciation and  amortization                             |   | 3,052                               |       | 3,069                              |       | 9,115 |   | 9,055 |   |
| Total costs and  expenses                                  |   | 25,772                              |       | 26,416                             |       | 77,712 |   | 77,332 |   |
|                                                       |   |                                |       |                               |       |   |   |   |   |
| Income from  operations                                    |   | 3,039                               |       | 3,081                              |       | 14,711 |   | 15,126 |   |
|                                                       |   |                                |       |                               |       |   |   |   |   |
| Other expense:                                             |   |                                |       |                               |       |   |   |   |   |
| Interest  expense, net                                     |   | 3,826                               |       | 4,130                              |       | 11,669 |   | 12,874 |   |
|                                                       |   |                                |       |                               |       |   |   |   |   |
| Income (loss)  before (provision) benefit for income taxes |   | (787                                | )          | (1,049                             | )          | 3,042 |   | 2,252 |   |
|                                                       |   |                                |       |                               |       |   |   |   |   |
| Income tax  (provision) benefit                            |   | 119                                 |       | -                                  |       | (120 | ) | (104 | ) |
| NET  INCOME (LOSS)                                         |   | (668                                | )          | (1,049                             | )          | 2,922 |   | 2,148 |   |
|                                                       |   |                                |       |                               |       |   |   |   |   |
| Preferred stock  dividends                                 |   | (1,265                              | )          | (1,158                             | )          | (3,664 | ) | (2,631 | ) |
| Loss applicable  to common shareholders                    |   | $                                   | (1,933     | )                                  | $          | (2,207 | ) | $ | (742 | ) | $ | (483 | ) |
|                                                       |   |                                |       |                               |       |   |   |   |   |
| BASIC AND  DILUTED NET LOSS PER SHARE:                     |   |                                | ** ** |                               | ** ** |   | ** ** |   | ** ** |
|                                                       |   |                                |       |                               |       |   |   |   |   |
| Applicable to  common shareholders                         |   | $                                   | (25.43     | )                                  | $          | (29.03 | ) | $ | (9.76 | ) | $ | (6.35 | ) |
|                                                       |   |                                |       |                               |       |   |   |   |   |
| Weighted average  number of common shares outstanding      |   | 76,023                              |       | 76,023                             |       | 76,023 |   | 76,023 |   |

 

*The accompanyingnotes are an integral part of these condensed financial statements.*

 

HARD ROCK HOTEL, INC.

CONDENSED STATEMENTS OFCASH FLOWS

(in thousands, exceptsupplemental schedule)

(unaudited)

 

 

 
|                                                                                         |   | **Nine Months Ended  September 30,** |   |
|----------------------------------------------------------------------------------------------|--------|--------------------------------------|--------|
|                                                                                         |   | **2001**                             |   | **2000** |   |
| Cash flows from  operating activities:                                                       |   |                                 |   |   |   |
| Net income                                                                                   |   | $                                    | 2,922  |   | $ | 2,148 |   |
| Adjustments to  reconcile net income to net cash provided by (used in) operating activities: |   |                                 |   |   |   |
| Depreciation and  amortization                                                               |   | 9,115                                |   | 9,055 |   |
| Amortization of  loan fees                                                                   |   | 764                                  |   | 630 |   |
| Changes in  operating assets and liabilities:                                                |   |                                 |   |   |   |
| Accounts  receivable, net                                                                    |   | 1,951                                |   | (666 | ) |
| Inventories                                                                                  |   | 451                                  |   | 628 |   |
| Prepaid expenses  and other current assets                                                   |   | (73                                  | )      | 334 |   |
| Accounts payable                                                                             |   | (1,581                               | )      | (2,468 | ) |
| Accrued expenses                                                                             |   | (4,430                               | )      | 1,753 |   |
| Interest payable                                                                             |   | 3,011                                |   | 2,543 |   |
| Net cash  provided by (used in) operating activities                                         |   | 12,130                               |   | 13,957 |   |
|                                                                                         |   |                                 |   |   |   |
| Cash flows from  investing activities:                                                       |   |                                 |   |   |   |
| Purchases of  property and equipment                                                         |   | (2,154                               | )      | (2,860 | ) |
| Construction  payables                                                                       |   | (2,180                               | )      | 700 |   |
| Decrease  (increase) in other assets                                                         |   | 546                                  |   | (15 | ) |
| Net cash  provided by (used in) investing activities                                         |   | (3,788                               | )      | (2,175 | ) |
|                                                                                         |   |                                 |   |   |   |
| Cash flows from  financing activities:                                                       |   |                                 |   |   |   |
| Proceeds  from issuance of preferred stock                                                   |   | -                                    |   | 20,000 |   |
| Principal  payments on long-term debt                                                        |   | (8,600                               | )      | (25,500 | ) |
| Payments on  capital lease obligations                                                       |   | -                                    |   | (74 | ) |
| Net cash  provided by (used in) financing activities                                         |   | (8,600                               | )      | (5,574 | ) |
|                                                                                         |   |                                 |   |   |   |
| Net increase  (decrease) in cash and cash equivalents                                        |   | (258                                 | )      | 6,208 |   |
| Cash and cash  equivalents, beginning of period                                              |   | 7,979                                |   | 2,439 |   |
| Cash and cash  equivalents, end of period                                                    |   | $                                    | 7,721  |   | $ | 8,647 |   |
|                                                                                         |   |                                 |   |   |   |
| Supplemental  disclosures of cash flow information:                                          |   |                                 |   |   |   |
| Cash paid during  the period for interest                                                    |   | $                                    | 7,894  |   | $ | 9,701 |   |
| Cash paid  (received) during the period for income taxes, net                                |   | $                                    | 178    |   | $ | (156 | ) |
|                                                                                         |   |                                 |   |   |   |

 

SupplementalSchedule of Non-Cash Investing and Financing Activities:

 

                The value of the 9 1/4% Series ACumulative Preferred Stock increased by approximately $2,187,000 and $2,014,000in unpaid accrued dividends for the nine-month periods ended September 30, 2001and 2000, respectively.

 

                The value of the 9 1/4% Series BCumulative Preferred Stock increased by approximately $1,477,000 and $617,000in unpaid accrued dividends for the nine-month periods ended September 30, 2001and 2000, respectively.

 

 

*Theaccompanying notes are an integral part of these condensed financialstatements.*

 

 

HARD ROCK HOTEL, INC.

NOTES TO CONDENSEDFINANCIAL STATEMENTS

 

 

1.             BASIS OF PRESENTATION

 

**Theaccompanying unaudited financial statements of Hard Rock Hotel, Inc. (the"Company") have been prepared in accordance with generally acceptedaccounting principles for interim financial information and with instructionsto Form 10-Q and Article 10 of Regulation S-X.   Accordingly, certain notes and other information have beencondensed or omitted from the interim financial statements presented in thisQuarterly Report on Form 10-Q and they do not include all information requiredby generally accepted accounting principles for complete financialstatements.  In the opinion ofmanagement, all adjustments (consisting of normal recurring adjustments)considered necessary for a fair presentation have been included.  The preparation of financial statements inconformity with generally accepted accounting principles requires management tomake estimates and assumptions that affect the reported amounts of assets andliabilities and disclosure of contingent assets and liabilities at the date ofthe financial statements and the amounts of revenues and expenses during thereporting period.  Actual results coulddiffer from these estimates.  Operatingresults for the three-month and nine-month periods ended September 30, 2001 arenot necessarily indicative of future financial results or the results that maybe expected for the year ending December 31, 2001.  The unaudited interim financial statements contained hereinshould be read in conjunction with the audited financial statements and footnotesfor the year ended December 31, 2000. The Company has made certain financial statement reclassifications forthe 2000 financial statements in order to classify amounts in a mannerconsistent with the 2001 financial statements which have had no effect upon netincome.**

** **

** **

2.             LONG-TERM DEBT

 

InMarch 1998, the Company offered $120 million aggregate principal amount of its9.25%, Senior Subordinated Notes due in 2005 (the "Notes").  Concurrent with the execution of the Notes,the Company secured a senior secured reducing revolving line of credit under anew credit facility (the "Credit Facility") through a group ofbanks.  As of September 30, 2001, theCompany had $120.0 million outstanding in Notes and $28.9 million outstandingwith $11.1 million available on its Credit Facility.

 

NOTES

 

Intereston the Notes is payable on each April 1 and October 1.  The Notes are general unsecured obligationsof the Company, subordinated in right of payment to all existing and futuresenior indebtedness, including all borrowings under the Credit Facility.  The Notes are subject to redemption at theoption of the Company, in whole or in part, at any time on or afterApril 1, 2002, at a premium to the face amount ($120 million) thatdecreases on each subsequent anniversary date, plus accrued interest to the dateof redemption.  The Notes containcovenants restricting or limiting the ability of the Company to, among otherthings, pay dividends, incur additional indebtedness, issue certain preferredstock and enter into transactions with affiliates.

 

CREDITFACILITY

 

Theamount available under the commitment began reducing by $2.0 million onSeptember 30, 2001 and will continue to reduce by $2.0 million on the last dayof each subsequent fiscal quarter until it reaches $25.0 million.  Beginning September 30, 2001 and on eachsucceeding September 30, the credit line reduces by 50% of Excess Cash Flow, asdefined, for the then most recently completed fiscal year.  Based on our calculations, we generated noExcess Cash Flow for the year ended December 31, 2000.  Accordingly, no reduction, in excess of thestandard reduction, of the commitment occurred on September 30, 2001 and as ofthat date the total commitment under the Credit Facility was $40.0 million.

 

Thesereduction provisions shall terminate on the date upon which the commitmentavailable under the Credit Facility is reduced to $25.0 million.  The Credit Facility expires on March 23,2004.

 

TheCredit Facility contains certain covenants including, among other things,financial covenants, limitations on the Company from disposing of capitalstock, entering into mergers and certain acquisitions, incurring liens orindebtedness, issuing dividends on stock, and entering into transactions withaffiliates.  The Credit Facility issecured by substantially all of the Company's property at the Las Vegassite.  Interest on the Credit Facilityaccrues on all individual borrowings at an interest rate determined at theoption of the Company, at either the LIBOR Index plus an applicable margin (notto exceed 3.5% and aggregating 7.3% as of September 30, 2001), or the BaseRate, defined as the higher of the Federal Funds Rate plus .5%, or theReference Rate, plus an applicable margin (not to exceed 2.25%).  The Company chose the LIBOR Index for allborrowings outstanding at September 30, 2001.  These margins are dependent upon the Company's debt to EBITDAratio, as defined.  Interest accrued onthe Base Rate borrowings is due monthly, up to the maturity date, whileinterest on LIBOR borrowings is due quarterly up to the maturity date.

 

 

3.             LEGAL PROCEEDINGS

 

TheCompany is involved with various legal matters related to its business and hasprovided certain reserves based on estimates related to those situations wheremanagement believes an unfavorable outcome is probable.  The Company’s management does not believethat the ultimate outcome of such matters will have a material adverse impacton the financial condition or results of operations of the Company.

 

 

4.             COMMITMENTS

 

Inconjunction with an $8.0 million remodeling project of the 339 rooms in ouroriginal hotel tower, the Company has entered into a $4.7 million constructioncontract of which $1.7 million remains to be completed as of September 30,2001.  We expect the remaining phase ofthe project to occur during November and December 2001.

 

Item 2.                    Management's Discussion andAnalysis of Financial Condition and Results of Operations

 

Thefollowing discussion should be read in conjunction with, and is qualified inits entirety by, the Company's financial statements, including the notesthereto, and the other financial information appearing elsewhere herein and bythe audited financial statements and footnotes for the year ended December 31,2000, which may be obtained upon request from the Company.

 

 

SPECIALNOTE REGARDING FORWARD-LOOKING STATEMENTS

 

Allstatements contained herein that are not historical facts, including but notlimited to, statements regarding our business strategies and expectationsconcerning future operations, margins, profitability, liquidity, capital expendituresand capital resources, are based on current expectations.  These statements are forward-looking innature and involve a number of risks and uncertainties.  Generally, the words"anticipates," "believes," "estimates,""expects" and similar expressions as they relate to the Company andits management are intended to identify forward-looking statements. Althoughmanagement believes that the expectations in such forward-looking statementsare reasonable, it can give no assurance that any forward looking statementswill prove to be correct and actual results may differ materially. Among thefactors that could cause actual results to differ materially are the following:competition in Las Vegas, government regulation related to the gaming industry,uncertainty of casino customer spending and vacationing in casino resorts inLas Vegas, occupancy rates and average room rates in Las Vegas, the popularityof Las Vegas as a convention and trade show destination, the completion ofinfrastructure improvements in Las Vegas, and general economic and businessconditions that may affect levels of disposable income and pricing of hotelrooms, and other factors described at various times in the Company's reportsfiled with the Securities and Exchange Commission.  The Company wishes to caution readers not to place undue relianceon any forward-looking statements, which statements are made pursuant to thePrivate Litigation Reform Act of 1995. The forward-looking statements contained in this quarterly report onForm 10-Q speak only as of the date that we have filed the report. We expresslydisclaim any obligation or undertaking to disseminate any updates or revisionsto any forward-looking statement contained in this report, including to reflectany change in our expectations with regard to that forward-looking statement orany change in events, conditions or circumstances on which that forward-lookingstatement is based.  For moreinformation regarding risks inherent in an investment in the Company, see thesection "Business – Risk Factors" in our annual Report on Form 10-Kfiled with the SEC on April 2, 2001.

 

 

MANAGEMENTCHANGES

 

OnSeptember 26, 2001, Rick Richards the former Senior Vice President and GeneralManager of the Company, resigned his employment relationship with the Company.

 

 

OVERVIEW

 

HardRock Hotel, Inc.'s (the "Company") sole business is the operation ofthe Hard Rock Hotel and Casino in Las Vegas, Nevada, which commenced operationson March 9, 1995.

 

 

IMPACTOF SEPTEMBER 11, 2001 TRAGIC EVENTS

 

                The tragic eventsof September 11 have had a negative impact on the Company’s net revenues andearnings.  The continuing effectsrelated to these events cannot be estimated with a reasonable level ofconfidence at this time. Further terrorist attacks, or the escalation of armedconflicts, may continue to adversely affect our results of operations.

 

RESULTSOF OPERATIONS

 

ThreeMonths Ended September 30, 2001 and 2000

 

NETREVENUES.  Net revenues decreased 2% forthe three months ended September 30, 2001 to $28.8 million compared to$29.5 million for the corresponding period of the prior year.  The decrease in revenues is attributable toa $0.6 million or 5% decrease in casino revenues, a $0.5 million or 5% decreasein food and beverage revenues, a $0.3 million or 4% decrease in lodgingrevenues and a $0.1 million or 4% decrease in retail revenues.  These decreases were partially offset by a$0.5 million or 17% decrease in promotional allowances for items furnished tocustomers on a complimentary basis and a $0.5 million or 36% increase in otherrevenues.

 

CASINOREVENUES.  The $0.6 million decrease incasino revenues to $11.4 million from $12.0 million was primarily due to a $0.7million or 18% decrease in slot machine revenues.  Slot machine revenues decreased due to decreases in handle andwin percentage.  Slot machine handledecreased $7.1 million or 8% to $77.0 million from $84.1 million.  Slot machine win percentage decreased 0.4 ofa percentage point to 4.2% from 4.6%. We decreased the number of slot machines in operation to 623 from 686between comparative periods.  The netresult of these changes in slot machine handle, win percentage and number ofslot machines in operation was a decrease in win per slot machine per day to$56 from $61, a decrease of $5 or 8%. We believe the decrease in slot machine handle was primarily due to adecrease in high limit play during the third quarter of the current yearperiod.  Table games revenues remainedconstant at $8.1 million between periods as table games hold percentagedecreased but was offset by an increase in table games drop.  Table games hold percentage decreased 0.3 ofa percentage point to 12.4% from 12.7%. Table games drop increased $1.7 million or 3% to $65.2 million from$63.5 million.  The number of table gamesin operation increased to 84 from 76. The net result of these changes in hold percentage, drop and number oftable games in operation was a decrease in win per table game per day to $1,042from $1,157, a decrease of $115 or 10%. We have historically reported table games hold percentage using thegross method, while casinos on the Las Vegas Strip report hold percentage usingthe net method (which reduces the table game drop by marker repayments made inthe gaming pit area).  For the purposeof comparison to properties on the Strip, our net hold percentages for thethree-month periods ended September 30, 2001 and 2000 were 14.4% and 14.5%,respectively.

 

LODGINGREVENUES.  The $0.3 million decrease inlodging revenues to $6.4 million from $6.7 million was due to decreases intelephone sales and occupancy percentage offset partially by an increase in theaverage daily room rate (“ADR”).  Thedecrease in PBX charges is a trend that we expect to continue due to the increasinguse of cellular telephones.  Theoccupancy percentage decreased to 94% from 96%, a decrease of 2 percentagepoints.  ADR increased to $107 from$106, an increase of $1 or 1%.  Theincrease in ADR was due in part to increasing the rate charged to the casino onFridays, Saturdays and holidays for complimentary rooms to an amount that moreclosely approximates current retail value; however, total complimentary roomrevenues decreased due to fewer room nights offered to customers.

 

FOODAND BEVERAGE REVENUES.  The $0.5 milliondecrease in food and beverage revenues to $9.5 million from $10.0 million wasprimarily due to a $0.8 million or 50% decrease in banquet food and beveragerevenues due to a reduction of events in August and due to cancelled eventsafter the September 11 tragedy.  Nevertheless,many of the cancelled events were rescheduled for future periods.  Baby’s nightclub revenues also decreased$0.1 or 7% primarily due to being closed for a period after September 11.  The 10/7 bar has been permanently closedcausing a $0.1 million reduction in beverage revenues.  These decreases were offset partially byincreases in food revenues in Mr. Lucky’s restaurant and the Pink Tacorestaurant and beverage revenues in the casino service bar and Beach Clubbar.  The Counter restaurant has been replacedby a Starbucks coffee bar that opened during July 2001.  Starbucks has earned revenues that are $0.1million or 110% higher than the Counter’s revenues were during the prior yearperiod.

 

RETAILREVENUES.  Management believes the $0.1million decrease in retail revenues to $2.2 million from $2.3 million was duein part to a continuing general market decline in the themed restaurantmerchandise segment and an expansion of other retail operations in Las Vegas.

 

OTHERINCOME.  Other income increased to $1.9million from $1.4 million, an increase of $0.5 million.  The increase is primarily due to increasesin service fees and revenues from the sales of sundries.

 

PROMOTIONALALLOWANCES.  Promotional allowancesdecreased to $2.5 million from $3.0 million, a decrease of $0.5 million.  The amount of complimentary items offered totable games customers is based on a percentage of the amounts wagered.  The decrease was due in part to a relativelyhigh level of promotional allowances during the prior year period in relationto table games volume.  Current yearperiod complimentaries were prevented from declining further due to increasingthe rate charged to the casino on Fridays, Saturdays and holidays forcomplimentary rooms to an amount that more closely approximates current retailvalue and due to the 3% increase in table games volume.

 

CASINOEXPENSES.  Casino expenses increased$1.3 million or 19% to $8.1 million from $6.8 million.  The increase was due in part to increasedlabor and other expenses related to escalating table games volume as indicatedby the 3% increase in table games drop. The increased expenses also included more credit discount arrangementsmade with customers to promote goodwill or secure timely payment and additionalexpenses related to potentially uncollectible credit extended to casinocustomers offset partially by decreases in the cost of complimentary itemsfurnished to customers.  As a percentageof casino revenues, casino expenses increased to 71% from 57%, an increase of14 percentage points.  We expect thatour efforts to increase table games drop may result in continued casinoexpenses that are in excess or prior year periods.

 

LODGINGEXPENSES. Lodging expenses, prior to reclassifying the cost of complimentariesto casino expense, remained constant as a percentage of lodging revenues at35%.

 

FOODAND BEVERAGE COSTS AND EXPENSES.  Foodand beverage costs and expenses in relation to food and beverage revenues,prior to reclassifying the cost of complimentaries to casino expense, increasedto 64% from 62%, an increase of 2 percentage points.  The increase is primarily due to an increase in the cost of foodin relation to food revenues.

 

RETAILCOSTS AND EXPENSES.  Retail costs andexpenses in relation to retail revenues, prior to reclassifying the cost ofcomplimentaries to casino expense, decreased to 45% from 53%, a decrease of 8percentage points.  The decrease is dueto decreases in the cost of retail items and labor in relation to retailrevenues.

 

OTHERCOSTS AND EXPENSES.  Other costs andexpenses in relation to other income decreased to 54% from 67%, a decrease of13 percentage points.  The decrease isprimarily due to increases in other revenues as noted above for which therewere no corresponding increases in costs or expenses.

 

MARKETING,GENERAL AND ADMINISTRATIVE.  Marketing,general and administrative expenses in relation to gross revenues decreased to18% from 23%, a decrease of 5 percentage points.  The relative decrease is primarily due to a reduction in claimsexpense and legal matters, employee incentives, advertising expenses andentertainment costs.  These decreaseswere offset partially by increases in utilities, severance payments and theaccelerated timing of certain marketing promotions.

 

DEPRECIATIONAND AMORTIZATION.  Depreciation andamortization expense remained constant at $3.1 million.

 

NETINTEREST EXPENSE.  Net interest expensedecreased to $3.8 million from $4.1 million, a decrease of $0.3 million or7%.  The decrease is primarily due todecreases in outstanding borrowings and the effective interest rate on theCompany’s Credit Facility.

 

LOSSAPPLICABLE TO COMMON SHAREHOLDERS.  Lossapplicable to common shareholders was $1.9 million compared to $2.2 millionduring the prior year period. In addition to the factors described above, theloss decreased due to the realization of a $0.1 million income tax benefitoffset by a $0.1 million increase in preferred dividends.  Preferred dividends declared increased dueto compounding returns on dividends that were not distributed.

 

 

NineMonths Ended September 30, 2001 and 2000

 

NETREVENUES.  Net revenues decreased $0.1million or less than 1% for the nine months ended September 30, 2001 to$92.4 million compared to $92.5 million for the corresponding period of theprior year.  The decrease in revenues isprimarily attributable to a $4.2 million or 10% decrease in casino revenues anda $0.5 million or 7% decrease in retail revenues.  These decreases were partially offset by a $2.4 million or 9%increase in food and beverage revenues, a $1.3 million or 30% increase in otherincome, a $0.5 million or 2% increase in lodging revenues and a $0.6 million or7% decrease in promotional allowances for items furnished to customers on acomplimentary basis.

 

 

CASINOREVENUES.  The $4.2 million decrease incasino revenues to $37.5 million from $41.7 million was primarily due to a $2.4million or 8% decrease in table games revenue and a $1.7 million or 13%decrease in slot machine revenues.  Thedecrease in table games revenues was due to a decrease in table games holdpercentage offset partially by an increase in table games drop.  Table games hold percentage decreased 3.0percentage points to 12.6% from 15.6%. Table games drop increased $23.7 million or 13% to $205.2 million from$181.5 million.  The number of tablegames in operation increased to 82 from 76. The net result of these changes in hold percentage, drop and number oftable games in operation was a decrease in win per table game per day to $1,159from $1,360, a decrease of $201 or 15%. For the purpose of comparison to properties on the Strip, our net holdpercentages for the nine-month periods ended September 30, 2001 and 2000 were14.6% and 17.6%, respectively.  Slotmachine revenues decreased due to a decrease in handle offset partially by anincrease in win percentage.  Slotmachine handle decreased $43.0 million or 15% to $242.4 million from $285.4million.  Slot machine win percentageincreased 0.1 of a percentage point to 4.6% from 4.5%.  We decreased the number of slot machines inoperation to 639 from 674 between comparative periods.  The net result of these changes in slotmachine handle, win percentage and number of slot machines in operation was adecrease in win per slot machine per day to $63 from $69, a decrease of $6 or9%.  We believe the decrease in slotmachine handle was primarily due to a reduction of high limit play during thecurrent year period offset partially by increased play by “local” slot players.

 

LODGINGREVENUES.  The $0.5 million increase inlodging revenues to $20.8 million from $20.3 million was primarily due to anincrease in ADR offset partially by decreases in occupancy percentage and PBXcharges.  ADR increased to $115 from$108, an increase of $7 or 6%.  Theincrease in ADR was due in part to increasing the rate charged to the casino onFridays, Saturdays and holidays for complimentary rooms to an amount that moreclosely approximates current retail value; however, total complimentary roomrevenues decreased due to fewer room nights offered to customers.  The occupancy percentage decreased to 95%from 96%, a decrease of 1 percentage point. The decrease in telephone sales and commissions is a trend that weexpect to continue due to the increasing use of cellular telephones.

 

FOODAND BEVERAGE REVENUES.  The $2.4 millionincrease in food and beverage revenues to $29.6 million from $27.2 million wasprimarily due to increases in beverage revenues in the Center bar, Baby’snightclub, the service bar, Las Vegas lounge, the Beach Club and increasedadmissions revenues for Baby’s nightclub. Food revenues increased in Mr. Lucky’s restaurant and the Pink Tacorestaurant.  The Counter restaurant hasbeen replaced by a Starbucks coffee bar that opened during July 2001.  Starbucks has earned revenues that arehigher than the Counter’s revenues were during the prior year period.  These increases were offset partially bydecreases in banquet food and beverage revenues due to a reduction of events inAugust and due to cancelled events after the September 11 tragedy and thepermanent closing of the 10/7 bar. Nevertheless, many of the cancelled banquet events have been rescheduledfor future periods.

 

RETAILREVENUES.  Management believes the $0.5million decrease in retail revenues to $6.8 million from $7.3 million was duein part to a continuing general market decline in the themed restaurantmerchandise segment and an expansion of other retail operations in Las Vegas.

 

OTHERINCOME.  Other income increased to $5.6million from $4.3 million, an increase of $1.3 million.  The increase is primarily due to increasesin service fees and commissions and revenues from the sales of sundries andcigars.

 

PROMOTIONALALLOWANCES.  Promotional allowancesdecreased to $7.8 million from $8.4 million, a decrease of $0.6 million.  The amount of complimentary items offered totable games customers is based on a percentage of the amounts wagered.  The decrease was due in part to a relativelyhigh level of promotional allowances during the prior year period in relation totable games volume.  Current year periodcomplimentaries were prevented from declining further due to increasing therate charged to the casino on Fridays, Saturdays and holidays for complimentaryrooms to an amount that more closely approximates current retail value and dueto the 13% increase in table games volume.

 

 

CASINOEXPENSES.  Casino expenses increased$2.3 million or 11% to $23.7 million from $21.4 million.  The increase was primarily due to increasedlabor and other expenses related to escalating table games volume as indicatedby the 13% increase in table games drop. The increased expenses included more credit discount arrangements madewith customers to promote goodwill or secure timely payment, increasedreimbursements for customer travel and additional expenses related topotentially uncollectible credit extended to casino customers offset partiallyby decreases in the cost of complimentary items furnished to customers.  As a percentage of casino revenues, casinoexpenses increased to 63% from 51%, an increase of 12 percentage points in partdue to the decrease in hold percentage. We expect that our efforts to increase table games drop and slot handlemay result in continued casino expenses that are in excess of prior yearperiods.

 

LODGINGEXPENSES. Lodging expenses, prior to reclassifying the cost of complimentariesto casino expense, decreased as a percentage of lodging revenues to 32% from34%, a decrease of 2 percentage points. The decrease is due primarily to decreases in credit card processingfees offset partially by increased housekeeping labor in relation to lodgingrevenues.

 

FOODAND BEVERAGE COSTS AND EXPENSES.  Foodand beverage costs and expenses in relation to food and beverage revenues,prior to reclassifying the cost of complimentaries to casino expense, decreasedto 61% from 65%, a decrease of 4 percentage points.  The decrease is primarily due to decreases in the cost of foodand beverage and beverage labor costs in relation to revenues.

 

RETAILCOSTS AND EXPENSES.  Retail costs andexpenses in relation to retail revenues, prior to reclassifying the cost ofcomplimentaries to casino expense, decreased to 47% from 51%, a decrease of 4percentage points.  The decrease is dueprimarily to decreases in the cost of goods sold and labor in relation toretail revenues.

 

OTHERCOSTS AND EXPENSES.  Other costs andexpenses in relation to other income decreased to 50% from 56%, a decrease of 6percentage points.  The decrease isprimarily due to increases in other revenues as noted above for which therewere no corresponding increases in costs or expenses.

 

MARKETING,GENERAL AND ADMINISTRATIVE.  Marketing,general and administrative expenses in relation to gross revenues decreased to18% from 20%, a decrease of 2 percentage points.  The relative decrease is primarily due to a reduction in claimsexpense and legal matters, employee incentives and entertainment costs.  These decreases were offset partially byincreases in utilities, severance payments and the accelerated timing of certainmarketing promotions.

 

DEPRECIATIONAND AMORTIZATION.  Depreciation andamortization expense remained constant at $9.1 million due to the depreciationon capital expenditures associated with the room remodeling project, the firstphase of which was completed during December 2000 offset by a decrease indepreciable assets related to certain equipment with a 5 year depreciable lifethat became fully depreciated during the year ended December 31, 2000.

 

NETINTEREST EXPENSE.  Net interest expensedecreased to $11.7 million from $12.9 million, a decrease of $1.2 million or9%.  The decrease is primarily due todecreases in outstanding borrowings and the effective interest rate on theCompany’s Credit Facility.

 

LOSSAPPLICABLE TO COMMON SHAREHOLDERS.  Theeffects of the factors described above were offset by a $1.1 million increasein preferred dividends declared resulting in a loss applicable to commonshareholders of $0.7 million compared to $0.5 million during the prior yearperiod. Preferred dividends declared increased due to issuing $20.0 million of9 1/4% Series B Cumulative Preferred Stock on May 30, 2000 and compounding ondividends which were not distributed.

 

LIQUIDITYAND CAPITAL RESOURCES

 

Forthe nine months ended September 30, 2001 the Company's principal source offunds was cash provided by operating activities of $12.1 million.  The cash provided by operating activitiesincludes net income before non-cash expenses of $2.9 million offset by $0.7million of cash outflow due to changes in operating assets andliabilities.  The primary uses of fundswere capital expenditures of $2.2 million, a $2.2 million reduction inconstruction payables related to the hotel remodeling project and $8.6 millionof principal payments on the Company’s Credit Facility.  As a result, as of September 30, 2001, theCompany had cash and cash equivalents of $7.7 million.

 

Weare in the process of an $8.0 million remodeling project of the 339 rooms inour original hotel tower.  The projectis being completed in two phases.  Thefirst phase was completed during November and December 2000.  The second phase commenced during November2001 and is currently scheduled to be completed during December 2001.  As of September 30, 2001, we have madeapproximately $5.4 million of cash payments related to the remodeling projectand owe $0.3 million of construction payables.

 

Webelieve that our current cash balances and cash flow from operations and othersources of cash including the currently available borrowings under our $40.0million Credit Facility ($11.1 million available as of September 30, 2001) willbe sufficient to provide operating and investing liquidity during the next 12months.  We may, however, need to raiseadditional funds prior to that time. Our ability to raise additional funds is limited by restrictions on ourfinancing activities under our Credit Facility and the Notes.  We cannot be certain that additionalfinancing will be available to us on favorable terms when required, if at all.

 

Thecommitment under our Credit Facility began reducing by $2.0 million onSeptember 30, 2001 and will continue to reduce by $2.0 million on the last dayof each subsequent fiscal quarter until it reaches $25.0 million.  Beginning September 30, 2001 and on eachsucceeding September 30, the credit line reduces by 50% of Excess Cash Flow, asdefined, for the then most recently completed fiscal year.  Based on our calculations, we generated noexcess cash flow as defined for the year ended December 31, 2000.  Accordingly, no reduction, in excess of thestandard reduction, of the commitment occurred on September 30, 2001 and as ofthat date the total commitment under the Credit Facility was $40.0 million.

 

TheCredit Facility contains certain covenants including, among other things,financial covenants, limitations on our ability to dispose of capital stock,enter into mergers and certain acquisitions, incur liens or indebtedness, issuedividends on stock, and enter into transactions with affiliates.  The Credit Facility is secured by substantiallyall of our property.

 

Asof September 30, 2001, $8.0 million aggregate in dividends have accrued on our9 1/4% Series A Cumulative Preferred Stock and 9 1/4% Series BCumulative Preferred Stock.

Item 3.    Quantitative and Qualitative DisclosuresAbout Market Risk

 

 

Market risks relating to our operations resultprimarily from changes in short-term LIBOR interest rates.  We do not have any foreign exchange or othersignificant market risk.  We did nothave any derivative financial instruments at September 30, 2001.

 

Our exposure to marketrisk for changes in interest rates relates primarily to our current CreditFacility.  In accordance with the CreditFacility, we enter into variable rate debt obligations to support general corporatepurposes, including capital expenditures and working capital needs.  We continuously evaluate our level ofvariable rate debt with respect to total debt and other factors, includingassessment of the current and future economic environment.

 

Wehad $28.9 million and $37.5 million in variable rate debt outstanding atSeptember 30, 2001 and December 31, 2000, respectively.  Based upon these variable rate debt levels,a hypothetical 10% adverse change in interest rates (approximately a 73 basispoint increase in the effective interest rate) would increase interest expenseby approximately $0.2 million on an annual basis, and likewise decrease ourearnings and cash flows.  We cannotpredict market fluctuations in interest rates and their impact on our variablerate debt, nor can there be any assurance that fixed rate long-term debt willbe available to us at favorable rates, if at all.  Consequently, future results may differ materially from theestimated adverse changes discussed above.

 

PARTII                 OTHER INFORMATION

 

 

Item1.                    Legal Proceedings

 

                We are a defendant in variouslawsuits relating to routine matters incidental to our business.  Management does not believe that the outcomeof any litigation, in the aggregate, will have a material adverse effect on ourbusiness or results of operations.

 

Item 6.                    Exhibits and Reports on Form8-K

 

 

                                                (a)           Exhibits

 
| **Exhibit** |   |                                                                                                      |
|-------------|--------|-----------------------------------------------------------------------------------------------------------|
| **Number**  |   | **Description**                                                                                           |
|        |   |                                                                                                      |
| 3.     |   | CERTIFICATE  OF INCORPORATION AND BY-LAWS                                                                 |
|        |   |                                                                                                      |
| *3.1        |   | Second  Amended and Restated Articles of Incorporation of the Company.                                    |
|        |   |                                                                                                      |
| **3.2       |   | Certificate  of Amendment of Second Amended and Restated Articles of Incorporation.                       |
|        |   |                                                                                                      |
| **3.3       |   | Certificate  of Designation of 91⁄4% Series A Cumulative Preferred Stock, no par value per  share.     |
|        |   |                                                                                                      |
| ***3.4      |   | Certificate  of Designation of 91⁄4% Series B Cumulative Preferred Stock, no par value per  share.     |
|        |   |                                                                                                      |
| *3.5        |   | Second  Amended and Restated By-Laws of the Company.                                                      |
|        |   |                                                                                                      |
| 10.    |   | MATERIAL  CONTRACTS                                                                                       |
|        |   |                                                                                                      |
| 10.1        |   | Amendment  No. 1 to Employment Agreement, dated November 8, 2000, between the Company  and James D. Bowen |

 

----

*          Incorporated by reference to designated exhibit to theCompany's Registration Statement on Form S-4, filed with the Securities andExchange Commission on May 21, 1998 (File No. 333-53211).

 

**       Incorporated by reference to designatedexhibit to our Report on Form 10-Q, filed with the Securities and ExchangeCommission for the quarter ended August 31, 1999 (File No. 333-53211).

 

***     Incorporated by reference to designatedexhibit to our Report on Form 10-Q, filed with Securities and ExchangeCommission for the quarter ended June 30, 2000 (File No. 333-53211).

 

(b)           Reports on Form 8-K

 

None.

SIGNATURES

 

Pursuantto the requirements of the Securities Exchange Act of 1934, as amended, theRegistrant has duly caused this report to be signed on its behalf by the undersignedthereunto duly authorized.

 
|                          | HARD  ROCK HOTEL, INC.                                     |
|-------------------------------|------------------------------------------------------------|
|                          |                                                       |
| Date:  November 14, 2001 | /s/  JAMES D. BOWEN                                        |
|                          | James  D. Bowen                                            |
|                          | CHIEF  FINANCIAL OFFICER                                   |
|                          | (DULY  AUTHORIZED OFFICER AND PRINCIPAL FINANCIAL OFFICER) |
|                          |                                                       |
|                          |                                                       |