----

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**SECURITIES AND EXCHANGE COMMISSION****Washington,D.C. 20549**

----

**FORM 10-Q**
| **ý****QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE** |            |
|-------------------------------------------------------------------------------------|-----------------|
|                                                                                | **ACT OF 1934** |
|                                                                                     |                 |  |

** **

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

**OR**
| **o****TRANSITION REPORT PURSUANT 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.**

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(Exactname of registrant as specified in its charter)

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

** (702) 693-5000**

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Registrant'stelephone number, including area code: 

             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

APPLICABLEONLY TO CORPORATE ISSUERS:

             Indicatethe number of shares outstanding of each of the issuer's classes of commonstock, as of the latest practicable date.
| Common Stock  outstanding by class as of August 13, 2001 |
|----------------------------------------------------------|
|                                                     |
|                                                     | Class  of Common Stock | Shares |   |
|                                                     |  |  |   |
|                                                     | Class  A Common Stock | 12,000 |   |
|                                                     | Class  B Common Stock | 64,023 |   |

 

----

----

 

 

HARDROCK HOTEL, INC.

INDEX

 

| Part I   | FINANCIAL  INFORMATION                                                                                                  |                                                                                   |
|----------|-------------------------------------------------------------------------------------------------------------------------|----------------------------------------------------------------------------------------|
|     |                                                                                                                    |                                                                                   |
|     | Item 1.                                                                                                                 | Financial Statements                                                                   |   |
|     |                                                                                                                    |                                                                                   |   |
|     | Condensed  Balance Sheets as of June 30, 2001 (unaudited) and December 31, 2000                                    |                                                                                   |
|     |                                                                                                                    |                                                                                   |
|     | Condensed  Statements of Operations for the three-month and six-month periods ended June  30, 2001 and 2000 (unaudited) |                                                                                   |
|     |                                                                                                                    |                                                                                   |
|     | Condensed  Statements of Cash Flows for the six-month periods ended June 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, except share amounts)

| ASSETS                                                                                                                                  |
|-----------------------------------------------------------------------------------------------------------------------------------------|
|                                                                                                                                    |   | June  30, 2001 |   | December  31, 2000 |   |
|                                                                                                                                    |   |  |   |  |   |
|                                                                                                                                    |   | (unaudited) |   |   |   |
| Current assets:                                                                                                                         |   |   |   |   |   |
|                                                                                                                                    | Cash and cash  equivalents |   | $ | 7,753 |   | $ | 7,979 |   |
|                                                                                                                                    | Accounts receivable,  net of allowance for doubtful accounts of $1,776 and $1,080 as of June 30,  2001 and December 31, 2000, respectively |   | 5,266 |   | 6,569 |   |
|                                                                                                                                    | Inventories |   | 1,649 |   | 1,865 |   |
|                                                                                                                                    | Prepaid expenses and  other current assets |   | 197 |   | 660 |   |
|                                                                                                                                    | Deferred income taxes |   | 852 |   | 852 |   |
|                                                                                                                                    |   |  |   |  |   |
|                                                                                                                                    | Total current assets |   |   | 15,717 |   |   | 17,925 |   |
|                                                                                                                                    |   |  |   |  |   |
| Property and  equipment, net of accumulated depreciation and amortization                                                               |   | 171,989 |   | 176,503 |   |
| Other assets                                                                                                                            |   | 4,040 |   | 4,549 |   |
|                                                                                                                                    |   |  |   |  |   |
| TOTAL ASSETS                                                                                                                            |   | $ | 191,746 |   | $ | 198,977 |   |
|                                                                                                                                    |   |  |   |  |   |
| Current liabilities:                                                                                                                    |   |   |   |   |   |
|                                                                                                                                    | Accounts payable |   | $ | 2,495 |   | $ | 3,100 |   |
|                                                                                                                                    | Construction related  payables |   | 299 |   | 2,479 |   |
|                                                                                                                                    | Accrued expenses |   | 9,838 |   | 13,289 |   |
|                                                                                                                                    | Current portion of  long-term debt |   | — |   | — |   |
|                                                                                                                                    | Interest payable |   | 3,040 |   | 3,025 |   |
|                                                                                                                                    |   |  |   |  |   |
|                                                                                                                                    | Total current  liabilities |   | 15,672 |   | 21,893 |   |
|                                                                                                                                    |   |  |   |  |   |
| Deferred income taxes                                                                                                                   |   | 852 |   | 852 |   |
| Long-term debt                                                                                                                          |   | 152,900 |   | 157,500 |   |
|                                                                                                                                    |   |  |   |  |   |
|                                                                                                                                    | Total long-term  liabilities |   | 153,752 |   | 158,352 |   |
|                                                                                                                                    |   |  |   |  |   |
|                                                                                                                                    | Total liabilities |   | 169,424 |   | 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 |   | 32,645 |   | 31,213 |   |
|                                                                                                                                    |   |  |   |  |   |
| Preferred stock, 9  1/4% Series B Cumulative, no par value, redeemable, one share authorized,  issued and outstanding                   |   | 22,059 |   | 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                                                                                                                     |   | (39,890 | ) | (41,081 | ) |
|                                                                                                                                    |   |  |   |  |   |
|                                                                                                                                    | Total shareholders'  deficit |   | (32,382 | ) | (33,573 | ) |
|                                                                                                                                    |   |  |   |  |   |
| TOTAL LIABILITIES AND  SHAREHOLDERS' DEFICIT                                                                                            |   | $ | 191,746 |   | $ | 198,977 |   |
|                                                                                                                                    |   |  |   |  |   |
|                                                                                                                                         |  |  |  |  |  |  |  |  |  |  |

*The accompanying notes are an integral part of thesecondensed financial statements.*

 

 

HARD ROCK HOTEL, INC.CONDENSED STATEMENTS OF OPERATIONS(in thousands, except share and per share amounts)(unaudited)

|                                                  | Three  months Ended June 30        |        | Six  Months Ended June 30 |       |
|-------------------------------------------------------|------------------------------------|-------------|---------------------------|------------|
|                                                  |                                    |        |                           |       |
|                                                  | 2001                               |        | 2000                      |       | 2001 |   | 2000 |   |
|                                                  |                                    |        |                           |       |  |   |  |   |
| Revenue:                                              |                               |        |                      |       |   |   |   |   |
|                                                  | Casino                             | $           | 13,528                    |       | $ |  14,363 |   | $ |  26,108 |   | $ |  29,662 |   |
|                                                  | Lodging                            | 7,234       |                      | 6,949      |   | 14,409 |   | 13,645 |   |
|                                                  | Food and beverage                  | 10,259      |                      | 9,317      |   | 20,189 |   | 17,190 |   |
|                                                  | Retail                             | 2,337       |                      | 2,510      |   | 4,641 |   | 4,983 |   |
|                                                  | Other income                       | 1,928       |                      | 1,572      |   | 3,663 |   | 2,935 |   |
|                                                  |                                    |        |                           |       |  |   |  |   |
|                                                  | Gross revenues                     | 35,286      |                      | 34,711     |   | 69,010 |   | 68,415 |   |
|                                                  | Less:  promotional allowances | (2,567      | )                         | (3,159     | ) | (5,398 | ) | (5,454 | ) |
|                                                  |                               |             |                      |            |   |  |   |  |   |
|                                                  | Net revenues                       | 32,719      |                      | 31,552     |   | 63,612 |   | 62,961 |   |
|                                                  |                                    |        |                           |       |  |   |  |   |
| Costs and expenses:                                   |                               |        |                      |       |   |   |   |   |
|                                                  | Casino                             | 8,199       |                      | 7,060      |   | 15,639 |   | 14,578 |   |
|                                                  | Lodging                            | 1,939       |                      | 1,968      |   | 3,655 |   | 3,659 |   |
|                                                  | Food and beverage                  | 5,206       |                      | 4,865      |   | 10,241 |   | 9,730 |   |
|                                                  | Retail                             | 965         |                      | 1,052      |   | 1,997 |   | 2,189 |   |
|                                                  | Other                              | 956         |                      | 797        |   | 1,769 |   | 1,483 |   |
|                                                  | Marketing                          | 1,069       |                      | 1,062      |   | 2,432 |   | 2,115 |   |
|                                                  | General and  administrative        | 5,077       |                      | 6,744      |   | 10,144 |   | 11,176 |   |
|                                                  | Depreciation and  amortization     | 3,085       |                      | 2,849      |   | 6,063 |   | 5,986 |   |
|                                                  |                                    |        |                           |       |  |   |  |   |
|                                                  | Total costs and  expenses          | 26,496      |                      | 26,397     |   | 51,940 |   | 50,916 |   |
|                                                  |                                    |        |                           |       |  |   |  |   |
| Income from operations                                | 6,223                              |        | 5,155                     |       | 11,672 |   | 12,045 |   |
| Other expense:                                        |                               |        |                      |       |   |   |   |   |
|                                                  | Interest expense, net              | 3,635       |                      | 4,284      |   | 7,843 |   | 8,744 |   |
|                                                  |                                    |        |                           |       |  |   |  |   |
| Income before  provision for income taxes             | 2,588                              |        | 871                       |       | 3,829 |   | 3,301 |   |
| Provision for income  taxes                           | 239                                |        | 55                        |       | 239 |   | 104 |   |
|                                                  |                                    |        |                           |       |  |   |  |   |
| NET INCOME                                            | 2,349                              |        | 816                       |       | 3,590 |   | 3,197 |   |
| Preferred stock  dividends                            | (1,215                             | )           | (819                      | )          | (2,399 | ) | (1,473 | ) |
|                                                  |                                    |        |                           |       |  |   |  |   |
| Income (loss)  applicable to common shareholders      | $                                  |  1,134 |                      | $          |  (3 | ) | $ |  1,191 |   | $ |  1,724 |   |
|                                                  |                                    |        |                           |       |  |   |  |   |
| BASIC AND DILUTED NET  INCOME (LOSS) PER SHARE:       |                               | ** **  |                      | ** ** |   | ** ** |   | ** ** |
|                                                  | Applicable to common  shareholders | $           |  14.92               |       | $ |  (0.04 | ) | $ |  15.67 |   | $ |  22.68 |   |
|                                                  |                                    |        |                           |       |  |   |  |   |
| Weighted average  number of common shares outstanding | 76,023                             |        | 76,023                    |       | 76,023 |   | 76,023 |   |
|                                                  |                                    |        |                           |       |  |   |  |   |
|                                                       |                                    |             |                           |            |  |  |  |  |  |  |  |  |  |  |  |  |

*The accompanying notes are anintegral part of these condensed financial statements.*

HARD ROCK HOTEL, INC.CONDENSED STATEMENTS OF CASH FLOWS(in thousands, except supplemental schedule)(unaudited)

|                                                  | Six  Months Ended June 30,                                                                   |   |
|-------------------------------------------------------|----------------------------------------------------------------------------------------------|--------|
|                                                  |                                                                                              |   |
|                                                  | 2001                                                                                         |   | 2000 |   |
|                                                  |                                                                                              |   |  |   |
| Cash flows from  operating activities:                |                                                                                         |   |   |   |
|                                                  | Net income                                                                                   | $      | 3,590 |   | $ | 3,197 |   |
|                                                  | Adjustments to  reconcile net income to net cash provided by (used in) operating activities: |   |   |   |   |
|                                                  | Depreciation and  amortization                                                               | 6,063  |   | 5,986 |   |
|                                                  | Amortization of loan  fees                                                                   | 580    |   | 420 |   |
|                                                  | Changes in operating  assets and liabilities:                                                |   |   |   |   |
|                                                  | Accounts receivable,  net                                                                    | 1,303  |   | 97 |   |
|                                                  | Inventories                                                                                  | 216    |   | 384 |   |
|                                                  | Prepaid expenses and  other current assets                                                   | 463    |   | 582 |   |
|                                                  | Accounts payable                                                                             | (605   | ) | (2,165 | ) |
|                                                  | Accrued expenses                                                                             | (3,451 | ) | 1,109 |   |
|                                                  | Interest payable                                                                             | 15     |   | (362 | ) |
|                                                  |                                                                                              |   |  |   |
| Net cash provided  by(used in) operating activities   | 8,174                                                                                        |   | 9,248 |   |
|                                                  |                                                                                              |   |  |   |
| Cash flow from  investing activities:                 |                                                                                         |   |   |   |
|                                                  | Purchases of property  and equipment                                                         | (1,549 | ) | (1,150 | ) |
|                                                  | Construction payables                                                                        | (2,180 | ) | — |   |
|                                                  | Decrease (increase) in  other assets                                                         | (71    | ) | (139 | ) |
|                                                  |                                                                                              |   |  |   |
| Net cash provided by  (used in) investing activities  | (3,800                                                                                       | )      | (1,289 | ) |
|                                                  |                                                                                              |   |  |   |
| Cash flows from  financing activities:                |                                                                                         |   |   |   |
|                                                  | Proceeds  from issuance of preferred stock                                                   | — |   | 20,000 |   |
|                                                  | Principal payments on  long-term debt                                                        | (4,600 | ) | (24,500 | ) |
|                                                  | Payments on capital  lease obligations                                                       | — |   | (50 | ) |
|                                                  |                                                                                              |   |  |   |
| Net cash provided by  (used in) financing activities  | (4,600                                                                                       | )      | (4,550 | ) |
|                                                  |                                                                                              |   |  |   |
| Net increase (decrease)  in cash and cash equivalents | (226                                                                                         | )      | 3,409 |   |
| Cash and cash  equivalents, beginning of period       | 7,979                                                                                        |   | 2,439 |   |
|                                                  |                                                                                              |   |  |   |
| Cash and cash  equivalents, end of period             | $                                                                                            | 7,753  |   | $ | 5,848 |   |
|                                                  |                                                                                              |   |  |   |
| Supplemental  disclosures of cash flow information:   |                                                                                         |   |   |   |
| Cash paid during the  period for interest             | $                                                                                            | 7,248  |   | $ | 8,686 |   |
|                                                  |                                                                                              |   |  |   |
| Cash paid during the  period for income taxes, net    | $                                                                                            | 232    |   | $ | (303 | ) |
|                                                  |                                                                                              |   |  |   |
|                                                       |                                                                                              |        |  |  |  |  |  |  |  |

*The accompanying notes are an integral part of thesecondensed financial statements.*

 

SupplementalSchedule of Non-Cash Investing and Financing Activities:

             Thevalue of the 9 1/4% Series A Cumulative Preferred Stock increased byapproximately $1,432,000 and $1,319,000 in unpaid accrued dividends for thesix-month periods ended June 30, 2001 and 2000, respectively.

             Thevalue of the 9 1/4% Series B Cumulative Preferred Stock increased byapproximately $967,000 and $154,000 in unpaid accrued dividends for thesix-month periods ended June 30, 2001 and 2000, respectively.

 

HARD ROCK HOTELNOTES TO CONSOLIDATED FINANCIALSTATEMENTS

 1.         BASIS OFPRESENTATION

             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 six-month periods ended June 30, 2001 are notnecessarily indicative of future financial results or the results that may beexpected 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-TERMDEBT

             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 June 30, 2001, the Companyhad $120.0 million outstanding in Notes and $32.9 million outstanding on its$42.0 million 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 thedate of 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 will reduce by $2.0 million on the lastday of each fiscal quarter commencing September 30, 2001, and will also reduce,beginning September 30, 2001 and on each succeeding September 30, by 50% ofExcess Cash Flow, as defined, for the then most recently completed fiscal year.

             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 or indebtedness,issuing dividends on stock, and entering into transactions withaffiliates.  The Credit Facility issecured by substantially all of the Company's property at the Las Vegas site.  Interest on the Credit Facility accrues onall individual borrowings at an interest rate determined at the option of theCompany, at either the LIBOR Index plus an applicable margin (not to exceed3.5% and aggregating 7.8% as of June 30, 2001), or the Base Rate, defined asthe higher of the Federal Funds Rate plus .5%, or the reference rate, asdefined, plus an applicable margin (not to exceed 2.25%).  The Company chose the LIBOR Index for allborrowings outstanding at June 30, 2001. These margins are dependent upon theCompany's debt to EBITDA ratio, as defined. Interest accrued on the Base Rate borrowings is due monthly, up to thematurity date, while interest on LIBOR borrowings is due quarterly up to thematurity date.

 

3.          LEGALPROCEEDINGS

             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 June 30,2001.  We expect the remaining phase ofthe project to occur during November and December 2001.

 

 

Item2.  Management's Discussion and Analysisof 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.

 

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.

 

SPECIAL NOTE REGARDING FORWARD-LOOKINGSTATEMENTS

             Allstatements contained herein that are not historical facts, including but notlimited to, statements regarding our business strategies and expectations concerningfuture operations, margins, profitability, liquidity, capital expenditures andcapital resources, are based on current expectations.  These statements are forward-looking in nature and involve anumber of risks and uncertainties. Generally, the words "anticipates," "believes,""estimates," "expects" and similar expressions as theyrelate to the Company and its management are intended to identifyforward-looking statements. Although management believes that the expectationsin such forward-looking statements are reasonable, it can give no assurancethat any forward looking statements will prove to be correct and actual resultsmay differ materially. Among the factors that could cause actual results todiffer materially are the following: competition in Las Vegas, governmentregulation related to the gaming industry, uncertainty of casino customerspending and vacationing in casino resorts in Las Vegas, occupancy rates andaverage room rates in Las Vegas, the popularity of Las Vegas as a convention andtrade show destination, the completion of infrastructure improvements in LasVegas, and general economic and business conditions that may affect levels ofdisposable income and pricing of hotel rooms, and other factors described atvarious times in the Company's reports filed with the Securities and ExchangeCommission.  The Company wishes tocaution readers not to place undue reliance on any forward-looking statements,which statements are made pursuant to the Private Litigation Reform Act of1995.  The forward-looking statementscontained in this quarterly report on Form 10-Q speak only as of the date thatwe have filed the report. We expressly disclaim any obligation or undertakingto disseminate any updates or revisions to any forward-looking statement containedin this report, including to reflect any change in our expectations with regardto that forward-looking statement or any change in events, conditions orcircumstances on which that forward-looking statement is based.  For more information regarding risksinherent in an investment in the Company, see the section "Business – RiskFactors" in our annual Report on Form 10-K filed with the SEC on April 2,2001.

 

RESULTS OF OPERATIONS

Three Months Ended June 30, 2001 and 2000

             NETREVENUES.  Net revenues increased 3% forthe three months ended June 30, 2001 to $32.7 million compared to $31.6million for the corresponding period of the prior year.  The increase in revenues is primarilyattributable to a $1.0 million or 11% increase in food and beverage revenues, a$0.6 million or 19% decrease in promotional allowances, a $0.3 million or 4%increase in lodging revenues and a $0.3 million or 19% increase in otherincome.  These changes were partiallyoffset by a $0.9 million or 6% decrease in casino revenues and a $0.2 millionor 8% decrease in retail revenues.

 

             CASINOREVENUES.  The $0.9 million decrease incasino revenues was primarily due to a $0.9 million or 10% decrease in tablegames revenues offset partially by a $0.1 million or 3% increase in slot machinerevenues.  The decrease in table gamesrevenues was due to a decrease in table games hold percentage offset partiallyby an increase in table games drop. Table games hold percentage decreased 4.2 percentage points to 12.8%from 17.0%.  Table games drop increased20% to $68.2 million from $56.7 million. The number of table games in operation increased to 83 from 76.  The result of these changes in holdpercentage, drop and number of table games in operation was a decrease in winper table game per day to $1,148 from $1,393, a decrease of $245 or 18%.  We have historically reported table gameshold percentage using the gross method, while casinos on the Las Vegas Stripreport hold percentage using the net method (which reduces the table game dropby marker repayments made in the gaming pit area).  For the purpose of comparison to properties on the Strip, our nethold percentages for the three-month periods ended June 30, 2001 and 2000 were14.8% and 19.1%, respectively.  Slotmachine revenues increased due to a increase in handle offset partially by adecrease in win percentage.  Slotmachine handle increased 6% to $92.0 million from $87.0 million.  Slot machine win percentage decreased 0.2percentage points to 5.0% from 5.2%.  Wedecreased the number of slot machines in operation to 643 from 681 betweencomparative periods.  The net result ofthese changes in slot machine handle, win percent and number of slot machinesin operation was an increase in win per slot machine per day to $79 from $73,an increase of $6 or 8%.  We believe theincrease in slot machine handle was primarily due to an increase in high limitplay during the 2ndquarter of the current year.

             LODGINGREVENUES.  The $0.3 million increase inlodging revenues was primarily due to an increase in the average daily roomrate (“ADR”) to $117 from $111, an increase of $6 or 5% and an increase inoccupancy to 98% from 97% an increase of 1 percentage point offset partially bya decrease in telephone sales and commissions, a trend which we expect tocontinue due to the increasing use of cellular telephones.  The increase in ADR was due in part toincreasing the rate charged to the casino on Fridays, Saturdays and holidaysfor complimentary rooms to an amount that more closely approximates current retailvalue; however, total complimentary room revenues remained constant due tofewer room nights offered to customers.

             FOODAND BEVERAGE REVENUES.  The $1.0 millionincrease in food and beverage revenues was primarily due to increases inbeverage revenues in the Center bar, Baby’s nightclub, the service bar, LasVegas lounge and the Joint offset by a decrease in banquet beveragerevenues.  Food revenues increased inMr. Lucky’s restaurant and the Pink Taco restaurant but were offset by adecrease in banquet food revenues and the elimination of the Counterrestaurant.  The Counter restaurant wasclosed permanently and has been replaced by a Starbucks coffee bar which openedduring July 2001.

             RETAILREVENUES.  Retail revenues decreased to$2.3 million from $2.5 million, a decrease of $0.2 million or 8%.  The decrease in retail revenues is due inpart 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 $1.6 million, an increase of $0.3 million or 19%.  The increase is primarily due to increasesin service fees and revenues from the sales of sundries.

             PROMOTIONALALLOWANCES.  Promotional allowancesdecreased to $2.6 million from $3.2 million, a decrease of $0.6 million or19%.  The amount of complimentary itemsoffered to table games customers is based on a percentage of the amountswagered.  The decrease was due in partto a relatively high level of promotional allowances during the prior yearperiod in relation to table games volume. Current year period complimentaries were prevented from decliningfurther due to increasing the rate charged to the casino on Fridays, Saturdaysand holidays for complimentary rooms to an amount that more closelyapproximates current retail value and due to the 20% increase in table gamesvolume.

             CASINOEXPENSES.  Casino expenses increased$1.1 million or 15% to $8.2 million from $7.1 million.  The increase was primarily due to increasedexpenses related to escalating table games volume as indicated by the 20%increase in table games drop.  Theincreased expenses included more credit discount arrangements made withcustomers to promote goodwill or secure timely payment and additional expensesrelated to potentially uncollectible credit extended to casino customers offsetpartially by decreases in the cost of complimentary items furnished tocustomers.  As a percentage of casinorevenues, casino expenses increased to 60% from 49%, an increase of 11percentage points due to the decrease in hold percentage to 12.8% from17.0%.  We expect that our efforts toincrease table games drop and slot handle may result in continued casinoexpenses commensurate with those incurred in the 2nd quarter of2001.

             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, valet labor and printing costs offset partially by increased housekeepinglabor and hotel amenities in relation to lodging revenues.

             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 59% from 65%, a decrease of 6 percentage points.  The decrease is primarily due to decreases in administrative andbanquet labor costs in relation to food revenues and a decrease in the cost ofbeverages in relation to beverage revenues.

             RETAILCOSTS AND EXPENSES.  Retail costs andexpenses in relation to retail revenues, prior to reclassifying the cost ofcomplimentaries to casino expense, decreased to 46% from 49%, a decrease of 3percentage points.  The decrease is dueto decreases in the cost of retail items and labor in relation to retailrevenues offset partially by increased credit card processing fees.

             OTHERCOSTS AND EXPENSES.  Other costs andexpenses in relation to other income decreased to 50% from 51%, a decrease of 1percentage point.  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 to17% from 22%, a decrease of 5 percentage points.  The relative decrease is primarily due to a reduction in claimsexpense and legal matters.

             DEPRECIATIONAND AMORTIZATION.  Depreciation andamortization expense increased to $3.1 million from $2.8 million, an increaseof 11% primarily due to the depreciation on capital expenditures associatedwith the room remodeling project, the first phase of which was completed duringDecember 2000.

             NETINTEREST EXPENSE.  Net interest expensedecreased to $3.6 million from $4.3 million, a decrease of $0.7 million or16%.  The decrease is primarily due tothe decrease in outstanding borrowings and the effective interest rate on theCompany’s Credit Facility.

             INCOMEAPPLICABLE TO COMMON SHAREHOLDERS.  As aresult of the factors described above, income applicable to common shareholderswas $1.1 million compared to break-even during the prior year period.  Preferred dividends declared increased $0.4million due to issuing $20 million of 9 1/4% Series B Cumulative PreferredStock on May 30, 2000 and compounding on dividends which were not distributed.

Six Months Ended June 30, 2001 and 2000

             NETREVENUES.  Net revenues increased 1% forthe six months ended June 30, 2001 to $63.6 million compared to $63.0million for the corresponding period of the prior year.  The increase in revenues is primarilyattributable to a $3.0 million or 17% increase in food and beverage revenues, a$0.8 million or 6% increase in lodging revenues and a $0.8 million or 28%increase in other income.  These changeswere partially offset by a $3.6 million or 12% decrease in casino revenues anda $0.4 million or 8% decrease in retail revenues.

             CASINOREVENUES.  The $3.6 million decrease incasino revenues was primarily due to a $2.4 million or 12% decrease in tablegames revenue and a $1.1 million or 12% decrease in slot machine revenues.  The decrease in table games revenues was dueto a decrease in table games hold percentage offset partially by an increase intable games drop.  Table games holdpercentage decreased 4.4 percentage points to 12.7% from 17.1%.  Table games drop increased 19% to $140.0million from $118.0 million.  The numberof table games in operation increased to 81 from 76.  The result of these changes in hold percentage, drop and numberof table games in operation was a decrease in win per table game per day to$1,219 from $1,462, a decrease of $243 or 17%.  For the purpose of comparison to properties on the Strip, our nethold percentages for the six-month periods ended June 30, 2001 and 2000 were14.8% and 19.2%, respectively.  Slotmachine revenues decreased due to a decrease in handle offset partially by anincrease in win percentage.  Slotmachine handle decreased 18% to $165.4 million from $201.3 million.  Slot machine win percentage increased 0.4percentage points to 4.8% from 4.4%.  Wedecreased the number of slot machines in operation to 647 from 668 betweencomparative periods.  The net result ofthese changes in slot machine handle, win percent and number of slot machinesin operation was a decrease in win per slot machine per day to $67 from $74, adecrease of $7 or 9%.  We believe thedecreases in slot machine handle were primarily due to a reduction of highlimit play during the current year period offset partially by increased play by“local” slot players.

             LODGINGREVENUES.  The $0.8 million increase inlodging revenues was primarily due to an increase in ADR to $119 from $109, anincrease of $10 or 9% offset partially by a decrease in telephone sales andcommissions, a trend which we expect to continue due to the increasing use ofcellular telephones.  Occupancy remainedconstant at 96% in both periods.  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 remained constant due to fewer room nights offered to customers.

             FOODAND BEVERAGE REVENUES.  The $3.0 millionincrease in food and beverage revenues was primarily due to increases inbeverage revenues in the Center bar, Baby’s nightclub, the service bar, LasVegas lounge, the Beach Club and banquets and increased admissions revenues forBaby’s nightclub.  Food revenuesincreased in Mr. Lucky’s restaurant and the Pink Taco restaurant but wereoffset partially by the elimination of the Counter restaurant.  The Counter restaurant was closedpermanently and has been replaced by a Starbucks coffee bar that opened duringJuly 2001.

          RETAILREVENUES.  Retail revenues decreased to$4.6 million from $5.0 million, a decrease of $0.4 million or 8%.  The decrease in retail revenues is due inpart to a general market decline in the themed restaurant merchandise segmentand an expansion of other retail operations in Las Vegas.

 

             OTHERINCOME.  Other income increased to $3.7million from $2.9 million, an increase of $0.8 million or 28%.  The increase is primarily due to increasesin service fees and revenues from the sales of sundries.

             PROMOTIONALALLOWANCES.  Promotional allowancesdecreased to $5.4 million from $5.5 million, a decrease of $0.1 million or2%.  The amount of complimentary itemsoffered to table games customers is based on a percentage of the amountswagered.  The decrease was due in partto a relatively high level of promotional allowances during the prior year periodin relation to table games volume.  Current year period complimentaries were prevented from decliningfurther due to increasing the rate charged to the casino on Fridays, Saturdaysand holidays for complimentary rooms to an amount that more closely approximatescurrent retail value and due to the 19% increase in table games volume.

             CASINOEXPENSES.  Casino expenses increased$1.0 million or 7% to $15.6 million from $14.6 million.  The increase was primarily due to increasedexpenses related to escalating table games volume as indicated by the 19%increase in table games drop.  Theincreased expenses included more credit discount arrangements made withcustomers to promote goodwill or secure timely payment, increasedreimbursements for customer travel and additional expenses related to potentiallyuncollectible credit extended to casino customers offset partially by decreasesin the cost of complimentary items furnished to customers.  As a percentage of casino revenues, casinoexpenses increased to 60% from 49%, an increase of 11 percentage points due tothe decrease in hold percentage to 12.7% from 17.1%.  We expect that our efforts to increase table games drop and slothandle may result in continued casino expenses commensurate with those incurredin current year period.

             LODGINGEXPENSES. Lodging expenses, prior to reclassifying the cost of complimentariesto casino expense, decreased as a percentage of lodging revenues to 31% from33%, a decrease of 2 percentage points. The decrease is due primarily to decreases in credit card processing feesoffset 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 60% from 67%, a decrease of 7 percentage points.  The decrease is primarily due to decreases in the relative costof beverage sales, beverage labor costs, credit card processing fees, printingand supplies costs and advertising expenses offset partially by increases inapparel expenses.

             RETAILCOSTS AND EXPENSES.  Retail costs andexpenses in relation to retail revenues, prior to reclassifying the cost ofcomplimentaries to casino expense, decreased to 48% from 49%, a decrease of 1percentage point.  The decrease is dueprimarily to decreases in the cost of labor in relation to retail revenues.

             OTHERCOSTS AND EXPENSES.  Other costs andexpenses in relation to other income decreased to 48% from 51%, a decrease of 3percentage 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 19%, a decrease of 1 percentage point.  The relative decrease is primarily due to a reduction in claimsexpense and legal matters offset partially by significant marketing expendituresassociated with the Howard Stern broadcast live from the casino following theSuperbowl in January and the event in March during which Playboy released itsApril magazine issue and a video each featuring “Girls of the Hard Rock.”

             DEPRECIATIONAND AMORTIZATION.  Depreciation andamortization expense increased to $6.1 million from $6.0 million, an increaseof 2% primarily due to the depreciation on capital expenditures associated withthe room remodeling project, the first phase of which was completed duringDecember 2000 offset partially by a decrease in depreciable assets related tocertain equipment with a 5 year depreciable life that became fully depreciatedduring the year ended December 31, 2000.

             NETINTEREST EXPENSE.  Net interest expensedecreased to $7.8 million from $8.7 million, a decrease of $0.9 million or10%.  The decrease is primarily due tothe decrease in outstanding borrowings and the effective interest rate on theCompany’s Credit Facility.

             INCOMEAPPLICABLE TO COMMON SHAREHOLDERS.  As aresult of the factors described above, income applicable to common shareholdersdecreased to $1.2 million from $1.7 million, a decrease of $0.5 million or29%.  Preferred dividends declaredincreased $0.9 million due to issuing $20 million of 9 1/4% Series B CumulativePreferred Stock on May 30, 2000 and compounding on dividends which were notdistributed.

 

             LIQUIDITYAND CAPITAL RESOURCES

             Forthe six months ended June 30, 2001 the Company's principal source of funds wascash provided by operating activities of $8.2 million.  The cash provided by operating activitiesincludes net income before non-cash expenses of $10.2 million offset by $2.1million of cash outflow due to changes in operating assets andliabilities.  The primary uses of fundswere capital expenditures of $1.5 million, a $2.2 million reduction inconstruction payables related to the hotel remodeling project and $4.6 millionof principal payments on the Company’s Credit Facility.  As a result, as of June 30, 2001, theCompany had cash and cash equivalents of $7.8 million.

             Wehave commenced an $8.0 million remodeling project of the 339 rooms in ouroriginal hotel tower.  We expect theproject to be completed in two phases. The first phase was completed during November and December 2000.  The second phase is currently scheduled tobe completed during November and December 2001.  As of June 30, 2001, we have made approximately $5.4 million ofcash payments related to the remodeling project and owe $0.3 million ofconstruction payables.

             Webelieve that our current cash balances and cash flow from operations and othersources of cash including the currently available borrowings under our $42.0million Credit Facility ($9.1 million as of June 30, 2001) will be sufficientto provide operating and investing liquidity during the next 12 months.  We may, however, need to raise additionalfunds prior to that time.  Our abilityto raise additional funds is limited by restrictions on our financing activitiesunder our Credit Facility and the Notes. We cannot be certain that additional financing will be available to uson favorable terms when required, if at all.

             The$42.0 million commitment under our Credit Facility will begin reducing by $2.0million the last day of each fiscal quarter commencing with the fiscal quarterending September 30, 2001 and will also reduce, beginning September 30, 2001,and on each succeeding September 30, by 50% of excess cash flow, as defined,for the then most recently completed fiscal year.  Based on our calculations, we generated no excess cash flow asdefined for the year ended December 31, 2000. Accordingly, no reduction, in excess of the standard reduction, of thecommitment will occur on September 30, 2001.

             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 bysubstantially all of our property.

             Asof June 30, 2001, $6.7 million aggregate in dividends have accrued on our9 1/4% Series A Cumulative Preferred Stock and 9 1/4% Series BCumulative Preferred Stock.

Item3.  Quantitative and QualitativeDisclosures About Market Risk

             Marketrisks relating to our operations result primarily from changes in short-termLIBOR interest rates.  We do not haveany foreign exchange or other significant market risk.  We did not have any derivative financialinstruments at June 30, 2001.

             Ourexposure to market risk for changes in interest rates relates primarily to ourcurrent Credit Facility.  In accordancewith the Credit Facility, we enter into variable rate debt obligations tosupport general corporate purposes, including capital expenditures and workingcapital needs.  We continuously evaluateour level of variable rate debt with respect to total debt and other factors,including assessment of the current and future economic environment.

             Wehad $32.9 million and $37.5 million in variable rate debt outstanding at June30, 2001 and December 31, 2000, respectively. Based upon these variable rate debt levels, a hypothetical 10% adversechange in interest rates (approximately a 76 basis point increase in theeffective interest rate) would increase interest expense by approximately $0.3million on an annual basis, and likewise decrease our earnings and cashflows.  We cannot predict marketfluctuations in interest rates and their impact on our variable rate debt, norcan there be any assurance that fixed rate long-term debt will be available tous at favorable rates, if at all. Consequently, future results may differ materially from the estimatedadverse changes discussed above.

PARTII            OTHER INFORMATION

 

Item 1.  Legal Proceedings

             Weare a defendant in various lawsuits relating to routine matters incidental toour business.  Management does notbelieve that the outcome of any litigation, in the aggregate, will have amaterial adverse effect on our business or results of operations.

Item 6.  Exhibits and Reports on Form 8-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. 4 to Loan Agreement.                                                                   |
|         |                 |                                                                                                       |  |

________________

|   | *    | Incorporated  by reference to designated exhibit to the Company's  Registration Statement on Form S-4, filed with the Securities  and Exchange Commission on May 21, 1998 (File No. 333-53211). |
|--------|------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   | **   | Incorporated  by reference to designated exhibit to our Report on Form 10-Q, filed with the  Securities and Exchange Commission for the quarter ended August 31, 1999  (File No. 333-53211).         |
|   | ***  | Incorporated  by reference to designated exhibit to our Report on Form 10-Q, filed with  Securities and Exchange Commission for the quarter ended June 30, 2000 (File  No. 333-53211).               |
|   | **** | Incorporated  by reference to designated exhibit to our Report on Form 10-K, filed with  Securities and Exchange Commission for the year ended December 31, 2000 (File  No. 333-53211).              |

 

                           (b)        Reportson Form 8-K

                                                     Reportdated April 30, 2001 regarding Items 4 and 7.

 

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 theundersigned thereunto duly authorized.

|                        | HARD  ROCK HOTEL, INC          |
|-----------------------------|--------------------------------|
| Date:  August 14, 2001 |                           |
|                        | /s/  RICK RICHARDS             |
|                        |                                |
|                        | Rick  Richards                 |
|                        | DULY  AUTHORIZED OFFICER       |
|                        |                           |
|                        | /s/  JAMES D. BOWEN            |
|                        |                                |
|                        | James  D. Bowen                |
|                        | CHIEF  FINANCIAL OFFICER       |
|                        | (PRINCIPAL  FINANCIAL OFFICER) |