BREF HR, LLC - FORM 10-K/A - February 2, 2015

Attached files

file	filename
EXCEL - IDEA: XBRL DOCUMENT - BREF HR, LLC	Financial_Report.xls
EX-31.2 - EXHIBIT 31.2 - BREF HR, LLC	bref-20131231x10ka312.htm
EX-32.2 - EXHIBIT 32.2 - BREF HR, LLC	bref-20131231x10ka322.htm
EX-32.1 - EXHIBIT 32.1 - BREF HR, LLC	bref-20131231x10ka321.htm
EX-31.1 - EXHIBIT 31.1 - BREF HR, LLC	bref-20131231x10ka311.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K/A

(Amendment No. 1)



(Mark One)
X	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2013



_	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number: 000-54532

BREF HR, LLC

(Exact name of registrant as specified in its charter)



Delaware		27-4938906
(State or other jurisdiction of		(I.R.S. Employer
incorporation or organization)		Identification No.)

Three World Financial Center
250 Vesey Street, 15^th Floor New York, NY		10281
(Address of principal executive office)		(Zip Code)

(212) 417-7265

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

None

Securities registered pursuant to Section 12(g) of the Act:

Class A Units

(Title of Class)

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act of 1933. Yes __ No X

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. Yes __ No X

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), an(2) has been subject to such filing requirements for the past 90 days. Yes X No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes __ No X

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. X

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Securities Exchange Act of 1934.



Large accelerated filer __	Accelerated filer __	Non-accelerated filer X	Smaller reporting company __

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes __ No X

There is no aggregate market value of the registrant’s voting and non-voting common equity held by non-affiliates of the registrant as of June 30, 2013. There currently is no established public trading market for our Class A Units.

PART I

Explanatory Note

BREF HR, LLC, (the “Company”) is filing this Amendment No. 1 on Form 10-K/A (this “Amendment”) to amend the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2013 (the “Form 10-K”). This Amendment is being filed solely to provide a signed copy of the report of the Company’s independent registered public accounting firm because such signature was inadvertently omitted from the report that was included in the Form 10-K that was filed on May 9, 2014.

In addition, in connection with the filing of this Amendment, the Company has included new certifications of the Company’s Principal Executive Officer and Principal Financial Officer pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act of 2002. No other changes have been made to the Form 10-K. This Amendment speaks as of the original filing date of the Form 10-K, does not reflect any events that may have occurred subsequent to the original filing date, and does not modify or update in any way the disclosures contained in the original Form 10-K.

PART II


Item 8	Financial Statements and Supplementary Data

See the Financial Statements beginning on page 5.

PART III


Item 15	Exhibits and Financial Statement Schedules

(a) Financial Statements.

Financial Statements are included on page 5 of this Annual Report on Form 10-K/A

(b) Exhibits

An index of Exhibits are included on page 34 of this Annual Report on Form 10-K

Signatures

Pursuant to the requirements of Section 13 or 15d of the Securities Exchange Act of 1934, the registrant has caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.



	BREF HR, LLC, by its manager, BREF HR Management, LLC
Dated: February 2, 2015	By:	/s/ Andrea Balkan
		Andrea Balkan
		Authorized Representative

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.



Signature	Title	Date
/s/ William Warner	Principal Executive Officer	February 2, 2015
William Warner

/s/ Chad Konrad	Principal Financial Officer	February 2, 2015
Chad Konrad

Report of Independent Registered Public Accounting Firm

BREF HR Management, LLC, on behalf of

BREF HR, LLC and Subsidiaries

New York, New York

We have audited the accompanying consolidated balance sheets of BREF HR, LLC and subsidiaries (the “Company”) as of December 31, 2013 and 2012, and the related consolidated statements of operations and comprehensive loss, members’ equity (deficit), and cash flows for the years ended December 31, 2013 and 2012 and for the period March 1, 2011 to December 31, 2011. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of the BREF HR, LLC and subsidiaries as of December 31, 2013 and 2012, and the results of their operations and their cash flows for the years ended December 31, 2013 and 2012 and for the period March 1, 2011 to December 31, 2011, in conformity with accounting principles generally accepted in the United States of America.

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial statements, recurring losses from operations and the potential debt repayments at June 2, 2014 raise substantial doubt about its ability to continue as a going concern. Management’s plans concerning these matters are also discussed in Note 1. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

/s/ Deloitte & Touche LLP

Las Vegas, Nevada

May 9, 2014

Report of Independent Registered Public Accounting Firm

Board of Directors and Members

Hard Rock Hotel Holdings, LLC

Las Vegas, Nevada

We have audited the accompanying consolidated statements of operations and comprehensive income, members’ deficit, and cash flows of Hard Rock Hotel Holdings, LLC (“Company”) for the two-month period ended February 28, 2011. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

As discussed in Note 1, on March 1, 2011, the Company’s debt holders foreclosed on substantially all of the Company’s assets.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the results of operations and cash flows of Hard Rock Hotel Holdings, LLC for the two-month period ended February 28, 2011, in conformity with accounting principles generally accepted in the United States of America.

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the Company has suffered recurring losses from operations, has a net capital deficiency, and defaulted on its debt. On March 1, 2011, the Company’s debt holders foreclosed on substantially all of the Company’s assets. These factors among others raise substantial doubt about its ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

/s/ BDO USA, LLP

Las Vegas, Nevada

July 29, 2011

BREF HR, LLC
Consolidated Balance Sheets



($ in thousands)	As of December 31,
Assets	2013			2012
Current assets
Cash and cash equivalents	$	14,094		$	13,658
Accounts receivable, net	8,351			8,309
Inventories	2,947			2,519
Prepaid expenses and other current assets	3,002			3,861
Investment in joint venture	—			1,474
Related party receivable	435			885
Restricted cash	5,069			3,995
Total current assets	33,898			34,701

Property and equipment, net	479,008			499,164
Intangible assets, net	70,542			76,195
Restricted cash	19,354			17,781
Investment in joint venture	1,425			—
Total assets	$	604,227		$	627,841

Liabilities and Members' Equity (Deficit)
Current liabilities
Accounts payable	$	7,560		$	6,053
Construction related payables	847			302
Related party payables	220			406
Accrued expenses	20,816			23,676
Interest payable	61,165			—
Current portion of long term debt	686,850			—
Total current liabilities	777,458			30,437

Long term accrued expenses	177			568
Long term interest payable	10,547			43,963
Long term debt	—			632,864
Long term debt - due to affiliate	16,596			15,021
Total long term liabilities	27,320			692,416
Total liabilities	804,778			722,853

Members' equity (deficit)
Paid-in capital	86,673			86,673
Accumulated deficit	(287,224		)	(181,685		)
Total members' equity (deficit)	(200,551		)	(95,012		)
Total liabilities and members' equity (deficit)	$	604,227		$	627,841

The accompanying notes are an integral part of these consolidated financial statements.

BREF HR, LLC
Consolidated Statements of Operations and Comprehensive (Loss) Income



	Company									HRH Holdings

	For the years ended						Period from Mar 1, 2011 to			Period from Jan 1, 2011
($ in thousands)	December 31, 2013			December 31, 2012			December 31, 2011			to Feb 28, 2011
Revenue
Casino	$	43,965		$	43,572		$	34,641		$	5,973
Lodging	61,910			61,356			48,725			9,222
Food and beverage	73,924			79,348			69,908			12,390
Retail	2,649			2,789			2,588			426
Other	31,867			31,469			24,011			4,591
Gross revenues	214,315			218,534			179,873			32,602
Less: Promotional allowances	(19,702		)	(19,993		)	(15,220		)	(3,345		)
Net revenues	194,613			198,541			164,653			29,257

Costs and Expenses
Casino	35,593			35,444			29,717			5,666
Lodging	19,797			20,472			16,321			3,122
Food and beverage	43,540			44,747			37,005			5,748
Retail	1,525			1,682			1,696			273
Other	21,350			20,495			13,930			2,877
Marketing	9,324			8,650			5,867			843
Fee and expense reimbursements - related party	1,836			2,206			1,673			932
General and administrative	37,916			36,832			31,906			6,389
Depreciation and amortization	30,916			31,360			24,815			10,858
(Gain) loss on disposal of assets	(26		)	501			50			—
Pre-opening	39			433			146			—
Impairment of intangible assets	—			21,175			—			—
Total costs and expenses	201,810			223,997			163,126			36,708
(Loss) income from operations	(7,197		)	(25,456		)	1,527			(7,451		)
Interest income	23			36			66			8
Interest expense	(98,316		)	(89,554		)	(67,674		)	(14,870		)
Gain on forgiveness of debt	—			—			—			32,460
Loss on joint venture investment	(49		)	(630		)	—			—
(Loss) income before income tax expense	(105,539		)	(115,604		)	(66,081		)	10,147
Income tax expense	—			—			—			141
Net (loss) income	(105,539		)	(115,604		)	(66,081		)	10,006
Interest rate cap fair market value
adjustment, net of tax	—			203			(203		)	335
Comprehensive (loss) income	$	(105,539	)	$	(115,401	)	$	(66,284	)	$	10,341

The accompanying notes are an integral part of these consolidated financial statements.

BREF HR, LLC
Consolidated Statements of Members’ Equity (Deficit)



($ in thousands)	Paid-in Capital		Accumulated Deficit			Accumulated Other Comprehensive Income			Total Members' Equity (Deficit)
Balances at December 31, 2010 (HRH Holdings)	$	500,218	$	(692,397	)	$	(335	)	$	(192,514	)
Net income	—		10,006			—			10,006
Interest rate cap fair market value
adjustment, net of tax	—		—			335			335
Balances at February 28, 2011 (HRH Holdings)	$	500,218	$	(682,391	)	—			$	(182,173	)


Balances at March 1, 2011 (Company)	$	—	$	—		$	—		$	—
Issuance of members' equity	68,046		—			—			68,046
Contributions at closing of the Assignment	17,000		—			—			17,000
Additional paid in capital	1,627		—			—			1,627
Net loss	—		(66,081		)	—			(66,081		)
Interest rate cap fair market value
adjustment	—		—			(203		)	(203		)
Balances at December 31, 2011 (Company)	86,673		(66,081		)	(203		)	20,389
Net loss	—		(115,604		)	—			(115,604		)
Interest rate cap fair market value
adjustment	—		—			203			203
Balances at December 31, 2012 (Company)	86,673		(181,685		)	—			(95,012		)
Net Loss	—		(105,539		)	—			(105,539		)
Balances at December 31, 2013 (Company)	$	86,673	$	(287,224	)	$	—		$	(200,551	)

The accompanying notes are an integral part of these consolidated financial statements.



BREF HR, LLC Consolidated Statements of Cash Flows
	Company									HRH Holdings
	For the years ended						Period from Mar 1, 2011 to			Period from Jan 1, 2011
($ in thousands)	December 31, 2013			December 31, 2012			December 31, 2011			to Feb 28, 2011
Cash flows from operating activities
Net (loss) income	$	(105,539	)	$	(115,604	)	$	(66,081	)	$	10,006
Adjustment to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation	25,263			24,730			17,042			10,307
Gain on forgiveness of debt	—			—			—			(32,460		)
Provision for (recovery of) doubtful accounts	77			(325		)	1,627			5
Amortization of loan fees and costs	—			—			—			2,200
Impairment of licenses and trademarks	—			21,175			—			—
Amortization of intangible assets	5,653			6,630			7,773			551
Amortization of debt discount	34,173			28,914			17,856			—
Accrued non-cash interest applied to principal	21,388			11,273			9,154			—
Change in value of interest rate caps net of premium amortization	64			345			169			335
Loss on joint venture investment	49			630			—			—
(Income) loss on sale of assets	(26		)	501			50			—
Deferred income taxes	—			—			—			141
(Increase) decrease in assets:
Accounts receivable	(119		)	70			(619		)	(1,065		)
Inventories	(428		)	50			(360		)	508
Prepaid expenses	859			(550		)	(506		)	33
Related party receivable	335			(126		)	(759		)	4
Increase (decrease) in liabilities:
Accounts payable	1,507			2,623			(4,857		)	66
Related party payable	(186		)	406			—			945
Other accrued liabilities	(2,684		)	(2,135		)	3,955			6,916
Accrued interest payable	27,749			24,373			16,378			5,529
Net cash provided by operating activities	8,135			2,980			822			4,021
Cash flow from investing activities
Purchases of property and equipment	(5,153		)	(13,018		)	(4,839		)	(137		)
Payments on construction related payable	545			—			(347		)	(44		)
Reduction (increase) in restricted cash	—			—			—			16,527
Restricted cash contributions	(10,331		)	(9,988		)	(41,387		)	—
Restricted cash withdrawals	7,684			21,802			15,355			—
Loan to joint venture	(248		)	—			—			—
Repayments on joint venture debt	363			—			—			—
Investment in joint venture	—			(2,104		)	—			—
Proceeds from sale of operating assets	72			41			15			—
Net cash (used in) provided by investing activities	(7,068		)	(3,267		)	(31,203		)	16,346



BREF HR, LLC Consolidated Statements of Cash Flows
	Company									HRH Holdings
	For the years ended						Period from Mar 1, 2011 to			Period from Jan 1, 2011
($ in thousands)	December 31, 2013			December 31, 2012			December 31, 2011			to Feb 28, 2011
Cash flows from operating activities
Cash flow from financing activities
Proceeds from borrowings	—			—			13,000			—
Proceeds from members' equity contribution	—			—			18,627			—
Repayments on borrowings	—			(1,001		)	(1,093		)	(15,199		)
Purchase of interest rate caps	(64		)	(142		)	(372		)	—
Capital lease payments	(567		)	(1,730		)	(3,154		)	—
Net cash (used in) provided by financing activities	(631		)	(2,873		)	27,008			(15,199		)
Net increase (decrease) in cash and cash equivalents	436			(3,160		)	(3,373		)	5,168
Cash and cash equivalents, beginning of period	13,658			16,818			20,191			15,023
Cash and cash equivalents, end of period	$	14,094		$	13,658		$	16,818		$	20,191

Supplemental Disclosure of Cash Flow Information
Cash paid during the period for interest, net
of amounts capitalized	$	14,857		$	25,434		$	21,399		$	8,245

Supplemental Disclosure of Non-cash Investing and Financing Activities
Construction related payables	847			302			235			2,450
Long-term debt in exchange for land	—			—			—			(52,158		)
Land provided in exchange for forgiveness of debt	—			—			—			22,000
Deferred financing cost	—			—			—			276
Forgiveness of accrued interest in exchange for land	—			—			—			(2,578		)
Gain on forgiveness of debt in exchange for land	—			—			—			(32,460		)
Issuance of members' equity	—			—			68,046			—

The accompanying notes are an integral part of these consolidated financial statements.

BREF HR, LLC
Notes to Audited Consolidated Financial Statements

1. Company Structure and Significant Accounting Policies

Basis of Presentation and Nature of Business

BREF HR, LLC (the “Company”) is a Delaware limited liability company that was formed on February 11, 2011. The affairs of the Company are governed by a Limited Liability Company Agreement dated as of March 1, 2011 (the “LLC Agreement”).

Unless otherwise specified, the terms the “Company,” “we,” “us” or “our” refer to BREF HR, LLC and its consolidated subsidiaries, or any one or more of them, as the context may require.

The Company was formed by certain affiliates of Brookfield Financial, LLC (“Brookfield Financial”) to acquire the limited liability company interests of HRHH JV Junior Mezz, LLC (“HRHH JV Junior Mezz”) and HRHH Gaming Junior Mezz, LLC (“HRHH Gaming Junior Mezz”), which indirectly own the Hard Rock Hotel & Casino Las Vegas and certain related assets. These assets were acquired pursuant to the assignment from Hard Rock Hotel Holdings, LLC (“HRH Holdings”) in connection with the default by HRH Holdings and its subsidiaries on the real estate financing facility (the “Facility”), and the resulting settlement agreement, as described below. Brookfield Financial is managed by Brookfield Real Estate Financial Partners LLC (together with its affiliates, “Brookfield”). The transactions contemplated by such agreement are referred to as the “Assignment”, as described more fully herein.

Hard Rock Hotel Holdings, LLC (“HRH Holdings”), a Delaware limited liability company was formed on January 16, 2007 by DLJ Merchant Banking Partners (“DLJMB”) and Morgans Hotel Group Co. (“Morgans”) to acquire Hard Rock Hotel, Inc. (“HRH”), a Nevada corporation incorporated on August 30, 1993, and certain related assets.

Since March 1, 2011, the Hard Rock Hotel & Casino Las Vegas and related assets have been owned by the Company pursuant to the Assignment described below from HRH Holdings. The financial information of HRH Holdings for the two-month period ended February 28, 2011 has been included in the financial statements in this Form 10-K. Because of the change in basis of accounting as a result of the Assignment, the results of operations are not comparable for successor and predecessor periods.

The preparation of the consolidated financial statements are in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates, and those differences could be material.

The Company's Going Concern

The Company incurred a loss of $105.5 million for the year ended December 31, 2013, and has a net members' deficit of $200.6 million as of December 31, 2013. The Amended Facility allows the Company to accrue 'payable in kind' interest ("PIK interest"), representing the difference between interest accruing under the Amended Facility and the amounts paid. The outstanding PIK interest as of December 31, 2013 and 2012, was $39.8 million and $18.5 million, respectively. The PIK interest outstanding as of March 1, 2014 in the amount of $44.3 million became due and payable on March 3, 2014, as the operating performance of the Company did not meet a specified debt yield threshold for the twelve month period ending March 1, 2014. However, the lender entered into a Forbearance Agreement effective as of March 1, 2014, pursuant to which it agreed not to exercise any rights or remedies with respect to the PIK interest until June 2, 2014. Currently, the Company does not have sufficient funds to satisfy a demand for the PIK interest payment on June 2, 2014. The Company is currently assessing its options to satisfy the PIK interest payment obligation, including, but not limited to, negotiating a waiver of this requirement from the lender, selling off a portion of existing collateral or attempting to obtain borrowings from other sources. The Company's ability to continue as a going concern is dependent upon its ability to restructure its indebtedness, obtain alternative financing on acceptable terms, obtain approval from the lender to use available cash reserves to satisfy a portion of this potential obligation, or a combination thereof. However, there is no certainty on the outcome. We have placed mortgages on our hotel casino property to secure our indebtedness. In the event the PIK interest is not paid on June 2, 2014, among other lesser remedies, the lender may declare all unpaid principal and accrued interest under the Amended Facility due and payable immediately. If the PIK payment is not made on June 2, 2014 we risk losing some or all of our property to foreclosure. If this occurs, our business and results of operations would be materially adversely affected. These uncertainties raise substantial doubt about the Company’s ability to continue as a going concern.

The accompanying consolidated financial statements have been prepared on a going concern basis, which assumes continuity of operations and realization of assets and liabilities in the ordinary course of business. The consolidated financial statements do not include any adjustments that might result from the outcome of uncertainties, including the possibility that the Company loses some or substantially all of its assets to foreclosure as a result of these uncertainties.

HRH Holdings’ Going Concern Uncertainty

HRH Holdings’ consolidated financial statements were prepared assuming that HRH Holdings would continue as a going concern, which contemplated the realization of assets and the liquidation of liabilities in the normal course of business. HRH Holdings incurred significant losses and did not generate sufficient cash to fully cover the interest payments on the Facility and used funds from the reserves to meet its liquidity needs. The Facility matured on February 9, 2011 and HRH Holdings did not qualify for the extension option, resulting in a default. As of February 28, 2011, HRH Holdings had a total deficit of approximately $182.2 million. HRH Holdings’ history of recurring losses, negative working capital and limited access to capital, raised substantial doubt regarding HRH Holdings’ ability to continue as a going concern. Management of HRH Holdings reviewed its options and discussed with the lenders possibly restructuring the debt. However, on March 1, 2011, HRH Holdings, the lenders, as well as other interested parties, entered into the Assignment, which among other things, transferred 100% of the indirect equity interest in the Hard Rock Hotel & Casino, as described above. The consolidated financial statements of HRH Holdings do not include any adjustments that might result from the outcome of this uncertainty.

The Assignment

On March 1, 2011, HRH Holdings, Vegas HR Private Limited (the “Mortgage Lender”), Brookfield Financial, NRFC WA Holdings, LLC, Morgans and certain affiliates of DLJMBP, as well as other interested parties entered into the Agreement to Transfer in Lieu of Foreclosure and Settlement Agreement (the “Settlement Agreement”) pursuant to which the membership interests of HRHH JV Junior Mezz and HRHH Gaming Junior Mezz were transferred and assigned to the Company. The transactions contemplated by the Settlement Agreement are referred to as the “Assignment.”

The Assignment provided for, among other things:


•	the transfer by HRH Holdings to an affiliate of Brookfield Financial of 100% of the indirect equity interests in the Hard Rock Hotel & Casino Las Vegas and other related assets, namely HHRH JV Junior Mezz and HRHH Gaming Junior Mezz;


•	release of the non-recourse carve-out guaranties provided by HRH Holdings with respect to the loans made by the Mortgage Lender, Brookfield Financial and NRFC WA Holdings, LLC to the direct and indirect owners of the Hard Rock Hotel & Casino Las Vegas; and

•

termination of the Morgans management agreement dated as of February 2, 2007 and May 30, 2008, (the “Morgans Management Agreement”) with Morgans Hotel Group Management LLC (“Morgans Management”), pursuant to which we have engaged Morgans Management as (i) the exclusive operator and manager of the Hard Rock (excluding the operation of the gaming facilities which are operated by our subsidiary, HRHH Gaming, LLC) and (ii) the asset manager of the approximately 23-acre parcel adjacent to the Hard Rock and the land on which the Hard Rock Cafe restaurant is situated (which is subject to a lease between our subsidiary, HRHH Cafe, LLC, as landlord, and Hard Rock Cafe International (USA), Inc., as tenant).

In addition, Brookfield Financial, as a condition of the Assignment, entered into the Second Mortgage on March 1, 2011 with the Company in the amount of $30.0 million pursuant to which certain land, building and improvements, equipment, fixtures and personal properties were pledged as security and collateral.

In connection with agreements entered into in relation to the Assignment, the Company and specified affiliates are contingently liable to distribute certain excess cash flows to specified former lenders and owners of HRH Holdings. These amounts are payable pursuant to the terms of these agreements only in the event that the existing lenders under the Amended Facility and the Second Mortgage agreements are paid specified values in full. After considering the forecasted future performance of the Hard Rock Hotel & Casino Las Vegas and the cash distribution structure specified in the Amended Facility and the Second Mortgage, the Company has determined that the probability that any amounts will be distributed is remote and therefore no value has been attributed to these commitments.

The Assignment was accounted for as a business combination in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 805, Business Combinations. All assets and liabilities were recorded at their respective fair values as of the date of foreclosure.

The following table summarizes the net contributions and the fair value of the assets and liabilities acquired at the date of the Assignment (in thousands):



Assets
Other assets	$	71,825
Land, buildings and equipment	523,931
Intangible assets	111,773
Total assets	$	707,529

Liabilities & Members' Equity
Current liabilities	$	39,701
Long term debt	582,782
Total liabilities	622,483

Member' equity	85,046

Total liabilities & members' equity	$	707,529

Unaudited Pro Forma Financial Data

The following unaudited pro forma statement of operations for the year ended December 31, 2011, give effect to the Assignment as if it occurred on January 1, 2011. The unaudited pro forma statement of operations for the year ended December 31, 2011 includes the actual results of operations for the Company for the period from March 1, 2011 through December 31, 2011 and the pro forma results of operations for HRH Holdings for the period from January 1, 2011 to February 28, 2011 adjusted as described below. The unaudited pro forma consolidated financial statements are not necessarily indicative of the results that would have been reported had such transactions actually occurred on the date specified, nor are they indicative of the Company’s future results of operations or financial condition.

Unaudited Pro Forma Statement of Operations For the Year Ended December 31, 2011



($ in thousands)
Total revenues	$	193,910
Income before income taxes	(80,566		)
Net income	(80,566		)

Principles of Consolidation

The accompanying consolidated financial statements of the Company and HRH Holdings include the accounts of the Company and HRH Holdings and their subsidiaries, including interests consolidated as variable interest entities.

Consolidation of Variable Interest Entity

Prior to June 15, 2012, when LVHR became a wholly-owned consolidated subsidiary of the Company, LVHR was consolidated as a variable interest entity as the Company was deemed the primary beneficiary of LVHR as the Company had both (1) the power to direct the activities significantly impacting LVHR's economic performance and (2) the obligation to absorb LVHR's losses. Prior to June 15, 2012, the Company did not own any interest in LVHR or its affiliated entities, WG-Harmon and Warner Gaming, LLC, and LVHR was the third party operator of all gaming operations at the Hard Rock Hotel & Casino Las Vegas.

Cash and Cash Equivalents

Cash and cash equivalents consist of cash on hand and in banks and interest-bearing deposits with maturities at the date of purchase of three months or less. Cash equivalents are carried at cost which approximates fair value.

Deferred Income

Deferred income consists of sponsorship payments received from various vendors and suppliers. These sponsorship payments are amortized using the straight-line method over the life of the agreements. As of December 31, 2013 and 2012, the Company had $2.0 million and $4.1 million in deferred income, respectively.

Restricted Cash

We are obligated to maintain certain cash reserve funds for a variety of purposes as determined pursuant to the Amended Facility, including a requirement to deposit funds into a replacements and refurbishments reserve fund at amounts equal to three percent of the Hard Rock Hotel & Casino Las Vegas' gross revenues. Restricted cash consists of the following:



($ in thousands)	December 31, 2013		December 31, 2012
Current
Tax reserves	$	2,602	$	2,072
Insurance reserves	1,329		1,327
Other reserves	363		363
Workers' compensation reserves	775		233
Total current restricted cash	5,069		3,995
Long-term
Working capital reserves	14,399		16,148
Available restricted cash reserves for future capital expenditures	4,955		1,633
Total long-term restricted cash	19,354		17,781
Total restricted cash	$	24,423	$	21,776

Concentrations of Credit Risk

Financial instruments that potentially subject the Company and HRH Holdings to concentrations of credit risk consist principally of casino accounts receivable. The Company and HRH Holdings issues credit in the form of “markers” to approved casino customers following investigations of creditworthiness. Business or economic conditions or other significant events could affect the collectability of such receivables.

Substantially all accounts receivable are unsecured and are due primarily from casino and hotel patrons and convention functions. Non-performance by these parties would result in losses up to the recorded amount of the related receivables. Management does not anticipate significant non-performance and believes that they have adequately provided for uncollectible receivables.

Accounts receivable, including casino and hotel receivables, are typically non-interest bearing and are initially recorded at cost. Accounts are written off when management deems them to be uncollectible. Recoveries of accounts previously written off are recorded when received. An estimated allowance for doubtful accounts is maintained to reduce the receivables to their carrying amount, which approximates fair value. Such allowances are estimated based on specific review of customer accounts as well as management's experience with collection trends in the casino industry and current economic and business conditions.

Inventories

Inventories are stated at the lower of cost (determined using the first-in, first-out method), or market.

Property and Equipment, Net

Land improvements, buildings and improvements, equipment, furniture and fixtures, and memorabilia were recorded at fair value as of March 1, 2011. Subsequent additions are recorded at cost. The Company and HRH Holdings capitalize interest on funds disbursed during construction. There was no significant amount of interest capitalized for any of the periods presented. Depreciation and amortization are computed using the straight-line method over the estimated useful lives. Estimated useful lives are as follows:



Buildings and Building improvements	15-40 years
Equipment, furniture and fixtures	3-10 years

Gains or losses arising from dispositions are included in costs and expenses in the accompanying statements of operations. Costs of major improvements are capitalized, while costs of normal repairs and maintenance are charged to expense as incurred. Substantially all property and equipment is pledged as collateral for long-term debt at December 31, 2013 and 2012. For assets to be disposed of the Company recognizes the asset at the lower of carrying value or fair market value less costs of disposal, as estimated based on comparable asset sales, solicited offers, or a discounted cash flow model. We treat memorabilia as an indefinite-lived asset and therefore it is non-amortizing.

For the two-month period ended February 28, 2011, land improvements, buildings and improvements, equipment, furniture and fixtures, and memorabilia relating to HRH Holdings were recorded at historical cost. Depreciation and amortization were computed using the straight-line method over the estimated useful lives. Estimated useful lives were as follows:



Land improvements	12-15 years
Building improvements	15 years
Buildings	39-45 years
Equipment, furniture and fixtures	3-10 years
Memorabilia	40 years

Indefinite-lived Intangibles

The Company performs an annual impairment test for indefinite-lived intangible assets at December 31 of each year, or more frequently if impairment indicators exist. The impairment test consists of comparing the fair value of the asset with its carrying amount, and, if the carrying amount exceeds its fair value, an impairment loss would be recognized for the carrying amount in excess of its implied fair value.

The Hard Rock trade name and future trademark licensing are tested for impairment using the discounted net revenue stream based on the estimated future results of the Company.

During 2012, the Company recognized a non-cash impairment charge of $15.0 million relating to the Hard Rock trademark. See further discussion at Note 5, Intangible Assets. No impairments were recorded for the year ended December 31, 2013, for the ten-month period ended December 31, 2011 or for the two-month period ended February 28, 2011, related to these assets.

Finite-lived Intangible Assets

Intangible assets that have a definite life, such as trade names, in-place contracts and certain non-compete agreements, are amortized on a straight-line basis over their estimated useful lives or related contract. The Company and HRH Holdings each review the carrying value of its intangible assets that have a definite life for possible impairment whenever events or changes in circumstances indicate that their carrying value may not be recoverable. HRH Holdings and the Company then compare the estimated future cash flows of the asset, on an undiscounted basis, to the carrying value of the asset. If the undiscounted cash flows exceed the carrying value, no impairment is indicated. If the undiscounted cash flows do not exceed the carrying value, then an impairment is recorded based on the fair value of the asset, typically measured using a discounted cash flow model. All recognized impairment losses, whether for assets held for sale or assets to be held and used, are recorded as operating expenses.

Inherent in reviewing the carrying amounts of the above assets is the use of various estimates. First, the Company and HRH Holdings must determine the usage of the asset. Impairment of an asset is more likely to be recognized where and to the extent management

of the Company or HRH Holdings decides that such asset may be disposed of or sold. Assets must be tested at the lowest level for which identifiable cash flows exist. This testing means that some assets must be grouped and management of the Company and HRH Holdings exercises some judgement in grouping those assets. Future cash flow estimates are, by their nature, subjective and actual results may differ materially from estimates. If ongoing estimates of future cash flows are not met, the Company or HRH Holdings may have to record additional impairment charges in future accounting periods. Estimates of cash flows for the Company and HRH Holdings are based on the current regulatory, social and economic climates where operations are or were conducted as well as recent operating information and budgets for the Company’ and HRH Holdings’ business. These estimates could be negatively impacted by changes in federal, state or local regulations, economic downturns, or other events affecting various forms of travel and access to the Hard Rock Hotel & Casino Las Vegas.

During 2012, the Company recognized a non-cash impairment charge of $6.2 million relating to the Isleta license agreement. See further discussion at Note 5, Intangible Assets. No impairments were recorded for the year ended December 31, 2013, for the ten-month period ended December 31, 2011 or for the two-month period ended February 28, 2011, related to these assets.

Impairment of Long-Lived Assets

The carrying value of property and equipment to be held and used are evaluated for impairment whenever events and circumstances indicate that the carrying value of an asset may not be recoverable based on the estimated future undiscounted cash flows of the asset. If the undiscounted cash flows exceed the carrying value, no impairment is indicated. If the undiscounted cash flows are less than the assets carrying value, the impairment is measured based on fair value compared to carrying value, with fair value typically based on a discounted cash flow model. Assets to be disposed of are recorded at the lower of carrying value or fair market value less costs of disposal, as estimated based on comparable asset sales, solicited offers, or a discounted cash flow model.

No impairments were recorded for the years ended December 31, 2013 and 2012, the ten-month period ended December 31, 2011 or for the two-month period ended February 28, 2011.

Advertising Expenses

The costs of all advertising campaigns and promotions are expensed as incurred. Total advertising expense (exclusive of amounts related to pre-opening) for the years ended December 31, 2013 and 2012 and for the ten-month period ended December 31, 2011 was $6.5 million, $6.5 million and $3.3 million, respectively, for the Company. Total advertising expense (exclusive of amounts related to pre-opening) for the two-month period ended February 28, 2011 was $0.3 million for HRH Holdings.

Income Taxes

The Company is treated as a limited liability company and its default classification for tax purposes is that of a disregarded entity not subject to federal income taxes. Accordingly, the Company makes no provision for federal income taxes in its financial statements. The Company’s federal taxable income or loss, which is different than financial statement income or loss, is reportable by the member. The Company’s members are responsible for reporting their allocable share of the Company’s income, gains, deductions, losses and credits on their individual income tax returns. The Company may however, be subject to certain state and local taxes.

HRH Holdings is a limited liability company and, as such, does not pay taxes on an entity level but passes its earnings and losses through to its members. HRH Holdings does, however, own all of the stock of a Sub-Chapter C corporation, which is a tax paying entity. Income taxes of HRH Holdings’ subsidiaries are computed using the subsidiaries effective tax rate. HRH Holdings’ members are responsible for reporting their allocable share of HRH Holdings’ income, gains, deductions, losses and credits on their individual income tax returns.

HRH Holdings recorded $0.1 million of income tax expense for the two-month period ended February 28, 2011.

Revenues

Casino revenues are derived from patrons wagering on table games, slot machines, poker, sporting events and races. Table games generally include Blackjack or Twenty One, Craps, Baccarat and Roulette. Casino revenue is defined as the win from gaming activities, computed as the difference between gaming wins and losses, not the total amounts wagered. Casino revenue is recognized at the end of each gaming day.

Lodging revenues are derived from rooms and suites rented to guests and include related revenues for incidental services. Room revenue is recognized at the time the room or service is provided to the guest.

Food and beverage revenues are derived from food and beverage sales in the food outlets, including restaurants, room service, banquets and nightclub. Food and beverage revenue is recognized at the time the food and/or beverage is provided to the guest.

Retail and other revenues include retail sales, entertainment revenue, spa fees, commissions, estimated income for gaming chips and tokens not expected to be redeemed, fees for licensing the “Hard Rock” brand and other miscellaneous income. Retail and other revenues are recognized at the point in time the retail sale occurs, when entertainment and spa services are provided to the guest, when we determine that gaming chips or tokens are not expected to be redeemed or when licensing fees become due and payable.

Complimentaries

Revenues include the retail value of rooms, food and beverage, and other complimentaries provided to casino customers without charge, which are then subtracted to arrive at net revenues. The allocated costs of providing such complimentaries have been classified as casino operating expenses as follows:



	Company						HRH Holdings
	Year Ended		Year Ended		March 1, 2011 to		Jan 1, 2011 to
($ in thousands)	December 31, 2013		December 31, 2012		December 31, 2011		February 28, 2011
Food and beverage	$	5,102	$	7,289	$	5,440	$	1,220
Lodging	3,216		2,907		1,860		398
Other	1,045		1,293		890		147
Total costs allocated to
casino operating costs	$	9,363	$	11,489	$	8,190	$	1,765

Revenues are recognized net of certain sales incentives, including points redeemed for cash through customer loyalty programs, such as the player's club loyalty program, amounts of reimbursed airfare and marker discounts, and cash incentives earned in the Company's “Backstage Pass” slot club.

Reimbursed customer airfare and marker discounts were $1.3 million, $2.0 million and $1.3 million for the years ended December 31, 2013 and 2012 and for the ten-month period ended December 31, 2011, respectively. Reimbursed customer airfare and marker discounts were $285,000 for the two-month period ended February 28, 2011, respectively.

Derivative Instruments and Hedging Activities

All derivative instruments are recorded at fair value. The accounting for changes in the fair value of derivative instruments depends on the intended use of the derivative instruments and the resulting designation. Derivative instruments used to hedge the exposure to changes in the fair value of an asset, liability, or firm commitment attributable to a particular risk, such as interest rate risk, are considered fair value hedges. Derivative instruments used to hedge the exposure to variability in expected future cash flows, or other types of forecasted transactions, are considered cash flow hedges.

For derivative instruments designated as cash flow hedges, the effective portion of changes in the fair value of the derivative instrument is initially reported in other comprehensive income (outside of earnings) and subsequently reclassified to earnings when the hedged transaction affects earnings, and the ineffective portion of changes in the fair value of the derivative instrument is recognized directly in earnings. The effectiveness of each hedging relationship is assessed under the hypothetical derivative method, whereby the cumulative change in fair value of the actual derivative instrument is compared to the cumulative change in fair value of a hypothetical derivative instrument having terms that exactly match the critical terms of the hedged transaction. For derivative instruments that do not qualify for hedge accounting or when hedge accounting is discontinued, the changes in fair value of the derivative instrument are recognized directly in earnings.

The objective in using derivative instruments is to add stability to our interest expense and to manage exposure to interest rate movements or other identified risks. Interest rate caps are used as part of a cash flow hedging strategy. Interest rate swaps designated as cash flow hedges involve the receipt of fixed-rate payments in exchange for variable-rate amounts over the life of the debt agreements without exchange of the underlying principal amount.

The Company

Effective March 27, 2013, the Company entered into two cash flow hedges for a total notional amount $883.4 million at a LIBOR cap rate of 2.5%. At December 31, 2013, the LIBOR rate was 0.16825% on the total outstanding debt.

HRH Holdings

On February 9, 2010, HRH Holdings purchased five interest rate cap agreements with an aggregate notional amount of $1.285 billion and a LIBOR cap of 1.23313% approximately $1.6 million. These interest rate cap agreements expired on February 9, 2011. HRH Holdings designated four out of the five interest rate caps for hedge accounting as cash flow hedges. Accordingly, the effective portion of the change in fair value of these derivative instruments was recognized in other comprehensive income (loss). The changes in fair value of the remaining one interest rate cap that did not qualify for hedge accounting was recognized directly in earnings.

These derivative instruments expired as of February 28, 2011. The gain or (loss) in fair value included in HRH Holdings' comprehensive income for the two months ended February 28, 2011 was $0.3 million, net of premium amortization. Amounts reported in accumulated other comprehensive loss related to derivatives were reclassified to interest expense as interest payments were made on HRH Holdings' variable-rate debt. HRH Holdings reflected the change in fair value of all hedging instruments in cash flows from operating activities. The net gain or (loss) recognized in earnings during the reporting period representing the amount of the hedges' ineffectiveness was insignificant. For the two-month period ended February 28, 2011, HRH Holdings recognized $0.3 million in interest expense attributable to the derivatives not designated as hedges according to FASB ASC 815-10.

Fair Value of Financial Instruments

Fair value is a market-based measurement, not an entity-specific measurement. Therefore, fair value measurement is determined based on assumptions that market participants would use in pricing the asset or liability. As a basis for considering market participant assumptions in fair value measurements, a fair value hierarchy is used to distinguish between market participant assumptions based on market data obtained from sources independent of the reporting entity as follows:

Level 1: Observable inputs such as quoted prices in active markets for identical assets or liabilities that are accessible at the measurement date.

Level 2: Inputs, other than quoted prices in active markets, that are observable either directly or indirectly.

Level 3: Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.

The Company

Debt. To determine the fair value of our debt the Company utilizes a discounted cash flow model. The discount rate is determined utilizing historical market-based equity returns which are adjusted, as necessary, for entity specific factors. The Company has determined that our debt valuations are classified in Level 3 of the fair value hierarchy. As of December 31, 2013 and 2012, the fair value of the Company’s debt was estimated to be $641.3 million and $603.1 million, respectively. The carrying amount of debt was $703.4 million and $647.9 million, respectively.

HRH Holdings

Interest rate caps. HRH Holdings used interest rate caps to manage its interest rate risk. The valuation of these instruments was determined using widely accepted valuation techniques including discounted cash flow analysis on the expected cash flows of each derivative. This analysis reflected the contractual terms of the derivatives, including the period to maturity, and used observable market-based inputs, including interest rate curves and implied volatilities. HRH Holdings incorporated credit valuation adjustments to appropriately reflect both its own non-performance risk and the respective counterparty’s non-performance risk in the fair value measurements. HRH Holdings was exposed to credit loss in the event of a non-performance by the counterparties to its interest rate cap agreements; however, HRH Holdings believed that this risk was minimized because it monitored the credit ratings of the counterparties to such agreements. In adjusting the fair value of its derivative contracts for the effect of nonperformance risk, HRH Holdings had considered the impact of netting and any applicable credit enhancements, such as collateral postings, thresholds, mutual puts, and guarantees.

Although HRH Holdings had determined that the majority of the inputs used to value its derivatives fell within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with its derivatives utilized Level 3 inputs, such as estimates of current credit spreads to evaluate the likelihood of default by itself and its counterparties. However, HRH Holdings had assessed the significance of the impact of the credit valuation adjustments on the overall valuation of its derivative positions and had determined that the credit valuation adjustments were not significant to the overall valuation of its derivatives. As a result, HRH Holdings determined that its derivative valuations in their entirety were classified in Level 2 of the fair value hierarchy. As of February 28, 2011, the interest rate caps had all expired.

Valuation of Consideration Transferred in the Assignment

To estimate the fair value of consideration transferred to the Company in connection with the Assignment, we first estimated the Company’s total business enterprise value (the “BEV”). BEV, which was determined using Level 3 inputs, reflects the fair value of the core operations and was determined based on a combination of the market approach (25% weight) and income approach (75% weight) while the excess land was valued solely under the market approach and the new initiatives were valued using the income approach.

In constructing an income approach model for the core operations of the Company, we developed a “most likely” case projection of future revenues, expenses, depreciation, and capital expenditures for the years 2011 through 2016. The terminal (or residual) year value calculation using the Gordon Dividend Growth Model was made to capture business value beyond the forecast horizon. Other key inputs include a discount rate range of 13.50% to 14.50% and long term growth ranging from 2.50% to 3.00% for the core business. A discount rate of 35% was used for the new initiatives and intellectual property. Discount rates were chosen to reflect the estimated weighted average cost of capital derived for the Company based in part on certain financial metrics observed for a group of publicly traded guideline companies.

The market approach utilized the observed BEV-to-EBTIDA multiples of a group of publicly traded guideline companies operating in the gaming sector. Multiples were computed and applied to both trailing historical and forward looking EBITDA parameters. Upward adjustments were made to the observed multiples to reflect the Company’s pass-through tax status and a premise of control. Higher weight was accorded the income approach due to the expectation that several years may transpire before the financial performance of the Company grows to a stabilized level.

Recently Issued and Adopted Accounting Pronouncements

No new accounting pronouncements issued or effective during 2013 have had or are expected to have a material impact on the Company's financial position or result of operations.

2. Accounts Receivable, Net

Components of accounts receivable, net consists of the following:



	As of December 31,
($ in thousands)	2013			2012
Casino	$	2,999		$	3,677
Hotel	2,679			2,883
Other	3,352			2,708
	9,030			9,268
Less: allowance for doubtful accounts	(679		)	(959		)
Total accounts receivable, net	$	8,351		$	8,309

Activity in the allowance for doubtful accounts was as follows:



($ in thousands)
Balance at December 31, 2010 (HRH Holdings)	$	591
Additions - bad debt expense	2,476
Deductions - write off net of collections	(2,472		)
Balance at February 28, 2011	$	595


Fair value adjustments (Company)	$	(595	)
Balance at March 1, 2011 (Company)	—
Additions - bad debt expense	1,627
Deductions - write off net of collections	(307		)
Balance at December 31, 2011 (Company)	1,320
Additions - bad debt expense	(325		)
Deductions - write off net of collections	(36		)
Balance at December 31, 2012 (Company)	959
Additions - bad debt expense	77
Deductions - write off net of collections	(357		)
Balance at December 31, 2013 (Company)	$	679


3.	Inventories

Inventories consist of the following:



	As of December 31,
($ in thousands)	2013		2012
Restaurants and bars	$	1,848	$	1,739
Retail merchandise	975		699
Other inventory and operating supplies	124		81
Total inventories	$	2,947	$	2,519


4.	Property and Equipment, Net

Property and equipment consists of the following:



	As of December 31,
($ in thousands)	2013			2012
Land	$	115,600		$	115,600
Buildings and building improvements	342,159			341,940
Furniture, fixtures and equipment	79,943			77,005
Memorabilia	6,442			6,012
	544,144			540,557
Less: accumulated depreciation	(66,819		)	(41,603		)
Construction in progress	1,683			210
Total property and equipment, net	$	479,008		$	499,164

Depreciation relating to property and equipment for the Company was $25.3 million, $24.7 million and $17.0 million for the years ended December 31, 2013 and 2012 and the ten-month period ended December 31, 2011, respectively.

Depreciation relating to property and equipment for HRH Holdings was $10.3 million for the two month period ended February 28, 2011.


5.	Intangible Assets, Net

Intangible assets, net balances consist of the following:




	December 31, 2013
($ in thousands)	Gross Carrying Amount		Accumulated Impairment Losses			Accumulated Amortization			Net Carrying Amount		Remaining life (years)

Non-amortizing intangible assets
Hard Rock licensing	$	55,000	$	(15,000	)	$	—		$	40,000	Indefinite
Future Trademark licensing	7,000		—			—			7,000		Indefinite
	62,000		(15,000		)	—			47,000

Amortizing intangible assets
In-place contracts	29,000		(6,175		)	(8,492		)	14,333		0-7
Monster TM licensing	2,537		—			(1,875		)	662		1
Customer Relationships	3,000		—			(3,000		)	—		0
Sponsorship Agreements	1,300		—			(1,300		)	—		0
Market leases	1,736		—			(912		)	824		0-7
Player Relationships	10,000		—			(3,854		)	6,146		7
Other	2,200		—			(623		)	1,577		7
	49,773		(6,175		)	(20,056		)	23,542
Total net intangibles	$	111,773	$	(21,175	)	$	(20,056	)	$	70,542




	December 31, 2012
($ in thousands)	Gross Carrying Amount		Accumulated Impairment Losses			Accumulated Amortization			Net Carrying Amount

Non-amortizing intangible assets
Hard Rock licensing	$	55,000	$	(15,000	)	$	—		$	40,000
Future Trademark licensing	7,000		—			—			7,000
	62,000		(15,000		)	—			47,000

Amortizing intangible assets
In-place contracts	29,000		(6,175		)	(5,316		)	17,509
Monster TM licensing	2,537		—			(1,213		)	1,324
Customer Relationships	3,000		—			(3,000		)	—
Sponsorship Agreements	1,300		—			(1,191		)	109
Market leases	1,736		—			(594		)	1,142
Player Relationships	10,000		—			(2,685		)	7,315
Other	2,200		—			(404		)	1,796
	49,773		(6,175		)	(14,403		)	29,195
Total net intangibles	$	111,773	$	(21,175	)	$	(14,403	)	$	76,195

The Hard Rock Trademark and future licensing rights are not subject to amortization as they have an indefinite useful life. The in-place contracts, trade names, Customer Relationships, Sponsorship Agreements, Market leases and other amortizing intangible assets

are being ratably amortized on a straight-line basis over the estimated useful life which ranges from one to nine years. Player Relationships are amortized on an accelerated basis consistent with the expected timing of the Company’s realization of the economic benefits of such relationships.

For the years ended December 31, 2013 and 2012 and the ten month period ended December 31, 2011, the Company recorded amortization expense of $5.7 million, $6.6 million and $7.8 million, respectively.

The estimated amortization expense for the above amortizing intangible assets for each of the five succeeding fiscal years beginning December 31, 2014 is $4.0 million, $3.2 million, $3.2 million, $3.2 million and $3.2 million, respectively.

Pueblo of Isleta Impairment. On October 13, 2009, HRH Holdings executed a license agreement with the Pueblo of Isleta (the "Isleta license agreement"). Pursuant to the Isleta license agreement, the Company sublicensed certain intellectual property, including the “Hard Rock Hotel” and “Hard Rock Casino” trademarks, to Isleta in connection with a hotel and a casino that Isleta opened in Albuquerque, New Mexico. Under the terms of the Isleta license agreement, Isleta agreed to pay us a certain percentage of its annual gross revenues based on the performance of its Hard Rock Hotel/Casino as well as certain other license fees. On December 24, 2012, Isleta and the Company mutually agreed to terminate the Isleta license agreement. The termination of the Isleta license agreement occurred on June 30, 2013. As part of such termination, the Company recorded an impairment of Isleta intangible asset included in other licenses of $6.2 million in December 2012. The $6.2 million impairment charge represented discounted future licensing fees included in the March 1, 2011 fair value related to the agreement which were anticipated at that time had the agreement continued after June 30, 2013. The fair value of the Isleta agreement at December 31, 2012 was determined using the remaining discounted cash flow. This impairment charges is included within impairment of intangible assets reflected in the Consolidated Statement of Operations.

Hard Rock Licensing Impairment. An annual impairment test was performed as of December 31, 2013, and no impairment was recognized. During the second quarter of 2012, with forecasted net revenues differing from expectations, the Company performed an interim impairment analysis of the Hard Rock trademark. This analysis resulted in an impairment charge of $3.0 million for the second quarter of 2012. During the fourth quarter of 2012, the Company completed its annual impairment analysis of the Hard Rock trademark, which resulted in an additional impairment charge of $12.0 million due to updated forecasts and market conditions. The fair value of Hard Rock Licensing during 2012 was determined using the discounted cash flow of forecasted net revenues. These impairment charges were the result of reductions in the projected revenue due to the weak market environment and are included within Impairment of intangible assets reflected in the Consolidated Statement of Operations.

Intangible assets, net consists of the following for the HRH Holdings:



	HRH Holdings
	February 28, 2011
						Remaining
($ in thousands)	Amortization			Ending		life (years)

Non-amortizing intangible assets
Hard Rock Licensing	$	—		$	34,833	Indefinite
	$	—		$	34,833
Amortizing intangible assets
Rehab trade name	(40		)	1,420		6
Body English trade name	—			—		0
Pink Taco trade name	(23		)	129		1
Love Jones trade name	(3		)	19		1
Mr. Lucky's trade name	(20		)	110		1
Player relationships	(465		)	8,285		5
	(551		)	9,963

	$	(551	)	$	44,796

The Hard Rock licensing rights are not subject to amortization as they have an indefinite useful life. The trade names are being ratably amortized on a straight-line basis over the useful lives. Player relationships are amortized on an accelerated basis consistent with the expected timing of HRH Holdings’ realization of the economic benefits of such relationships.


6.	Accrued Expenses

Accrued expenses consist of the following:



	As of December 31,
($ in thousands)	2013		2012
Current
Deferred income	$	2,013	$	4,082
Capital leases obligations	391		599
Advance room, convention and customer deposits	6,631		4,575
Accrued salaries, payroll taxes and other employee benefits	1,163		3,001
Accrued miscellaneous taxes	1,479		1,187
Reserve for general liability and accrued legal claims	5,187		3,727
Other accrued liabilities	3,952		6,505
Total current accrued expenses	20,816		23,676
Long term
Capital leases obligations	177		568
Total long term accrued expenses	177		568
Total accrued expenses	$	20,993	$	24,244

7. Agreements with Related Parties

The Company

Engagement of WG-Harmon

During the years ended December 31, 2013 and 2012 and the ten month period ended December 31, 2011, the Company incurred $1.8 million, $1.8 million and $1.9 million, respectively, in management and incentive fees payable to WG-Harmon under the management agreements noted below which is included in general and administrative on the consolidated statement of operations. As of December 31, 2013 and 2012, the Company had $0.1 million and $0.4 million, respectively, payable to WG-Harmon which is included in related party payables on the consolidated balance sheets.

Gaming Operations

On March 1, 2011, LVHR entered into the Management Agreement (Gaming Operations) (the “Management Agreement”) with WG-Harmon, pursuant to which WG-Harmon agreed to manage the gaming operations at the Hard Rock Hotel & Casino Las Vegas for LVHR. The term of the Management Agreement began on March 1, 2011 and terminated on June 15, 2012. During the term of the Management Agreement, LVHR paid to WG-Harmon a base fee in the amount of $37,500 per month. LVHR also reimbursed WG-Harmon for reasonable fees and expenses incurred in connection with the performance of WG-Harmon’s duties under such agreement.

On December 22, 2011, the Company received a license from the Nevada Gaming Commission to serve as the operator of the gaming facilities at the Hard Rock Hotel & Casino Las Vegas and we were approved to acquire and own the equity securities of LVHR, subject to the Registration Statement becoming effective. Under Section 12(g)(1) of the Exchange Act, the Registration Statement became effective on December 22, 2011. LVHR became one of our subsidiaries and we assumed operation of the gaming facilities at the Hard Rock Hotel & Casino Las Vegas on June 15, 2012. On or about the same date that LVHR became one of our subsidiaries and we assumed operation of the gaming facilities at the Hard Rock Hotel & Casino Las Vegas, we restructured and converted LVHR from a Nevada corporation to a Nevada limited liability company known as LVHR Casino, LLC. Upon consummation of the restructure and conversion of LVHR: (i) LVHR Casino, LLC became a mortgage borrower under the Amended Facility and the Second Mortgage; (ii) LVHR Casino, LLC continued to own all of the assets that LVHR acquired on March 2, 2011 that are used at the Hard Rock Hotel & Casino Las Vegas gaming operations, and (iii) the revolving line of credit HRHH Gaming was obligated to make available to LVHR terminated. The Management Agreement terminated on June 15, 2012 without payment of any termination fee.

Non-Gaming Operations

On March 1, 2011, the Company and WG-Harmon entered in a Resort Management Agreement (the “Resort Management Agreement”), pursuant to which WG-Harmon managed the Hard Rock Hotel & Casino Las Vegas, other than the gaming operations and the liquor operations. The term of the Resort Management Agreement began on March 1, 2011 and continued until June 15, 2012, the date upon which LVHR became one of our subsidiaries and we assumed the operation of the gaming facilities at the Hard Rock Hotel & Casino Las Vegas. During the term of the Resort Management Agreement, the Company paid to WG-Harmon a base fee in the amount of $122,500 per month. In addition to such base fee, WG-Harmon has an incentive management fee based on performance of the adjusted EBITDA of the Hard Rock Hotel & Casino Las Vegas as set forth in the Resort Management Agreement.

On June 15, 2012, the Resort Management Agreement was replaced by the Amended and Restated Management Agreement (the “Amended Resort Management Agreement”). On June 15, 2012, the Company and WG-Harmon entered into the Amended Resort Management Agreement, pursuant to which WG-Harmon will manage the Hard Rock Hotel & Casino Las Vegas, including the gaming operations and the liquor operations. WG-Harmon is required to use commercially reasonable efforts to operate the Hard Rock Hotel & Casino Las Vegas, and has complete discretion and control in all matters related to the management and operation of the Hard Rock Hotel & Casino Las Vegas. The term of the Amended Resort Management Agreement began on June 15, 2012 and will continue until March 31, 2016. During the term of the Amended Resort Management Agreement, the Company will pay WG-Harmon a base fee in the amount of $160,000 per month, payable monthly, which base fee may be decreased to $150,000 per month if WG-Harmon is no longer providing certain construction services to the Company. In April 2013, a $10,000 reduction to the base fee was put in place. In addition to such base fee, the Owner will pay WG-Harmon an incentive management fee based on the performance of the adjusted EBITDA of the Hard Rock Hotel & Casino Las Vegas, as set forth in the Amended Resort Management Agreement.

Liquor Management

On March 1, 2011 the Company and WG-Harmon entered into a Liquor Management and Employee Services Agreement (the “Liquor Management Agreement”), relating to non-gaming operations at the Hard Rock Hotel & Casino Las Vegas. The term of the Liquor Management Agreement will terminate concurrently with the termination of the Resort Management Agreement. During the term of the Liquor Management Agreement WG-Harmon will pay to the Company monthly rent of $25,000 and deposit all liquor revenue into a lockbox account maintained by the Company pursuant to the Facility.

Effective December 23, 2011, the Clark County Liquor and Gaming Licensing Board (the “Clark County Board”) approved temporary liquor licenses for the Company to operate the liquor operations at the Hard Rock Hotel & Casino Las Vegas. On April 1, 2012, the Clark County Board approved an extension for the Company to operate the liquor operations at the Hard Rock Hotel & Casino Las Vegas. WG-Harmon will manage the liquor operations as one of its duties under the Amended Resort Management Agreement. The Liquor Management Agreement terminated on June 15, 2012, and such responsibilities were absorbed with the Amended Resort Management Agreement.

Second Mortgage Loan Agreement

On March 1, 2011, as part of the Assignment, the Company entered into a second mortgage loan agreement with Brookfield Financial (the “Second Mortgage”), a related party. See Note 8, Debt, for further discussion. During the years ended December 31, 2013 and

2012 and the ten-month period ended December 31, 2011, the Company had accrued interest of $4.6 million, $3.6 million and $2.4 million, respectively, under the Second Mortgage which is included in long term accrued expenses on the consolidated balance sheets.

Investment in Joint Venture

During 2012, CDO Restaurant Associates LLC (“CDO”), a Delaware limited liability company, was formed between the Company and Fox Restaurant Concepts, LLC (“Fox”) to operate a restaurant, Culinary Dropout, out of leased space at the Hard Rock Hotel and Casino Las Vegas. In 2012, the Company contributed 80% of the initial construction and pre-opening budget, or $2.1 million, and also loaned CDO $100,000 to cover pre-opening costs in excess of initial budgeted amounts. In 2012, the Company loaned CDO an additional $248,000 to cover final construction costs in excess of budgeted amounts. As of December 31, 2013, all loans have been repaid in full. The Company determined that the investment in CDO should be accounted for as an equity method investment. The loans bears interest at the greater of 8% or the reference rate publicly announced by Bank of America N.T. & S.A (3.25% at December 31, 2013) plus 4 percent. Loans are required to be repaid before any other distributions of net cash flow. Net cash flow is then distributed in proportion to the Members’ initial capital contributions, plus an 8% preferred return, and, once paid in full, in accordance with the 50% membership interest. The Company accounts for its investment in CDO under the equity method based on applicable accounting guidance as the Company does not hold a controlling financial interest in CDO.

For the years ended December 31, 2013 and 2012, the Company recorded a loss of $49,000 and $630,000, respectively, related to its equity in CDO. The Company’s share of the joint venture’s loss is included in equity in income of joint venture in the accompanying consolidated statements of operations. At December 31, 2013 and 2012, the Company’s net investment in CDO is $1.4 million and $1.5 million, respectively, which is included in other assets and other current assets, respectively, in the accompanying consolidated balance sheets. The classification of the investment in joint venture was based on the expected timing of the repayment of the initial construction and pre-opening budget contribution. There were no distributions to the members for the year ended December 31, 2013 and 2012.

CDO leases space from the Company under a ten-year operating lease expiring in August 2022. The lease has one five-year renewal option. Rent is paid monthly at 6% of sales, as defined in the agreement. CDO also pays a management fee of 6% of gross sales to Fox. Both the lease and the management agreement expire in August of 2022.

HRH Holdings

(i) Management Agreement

Engagement of Morgans Management. HRH Holdings’ subsidiaries, HRHH Hotel/Casino, LLC (“HRHH Hotel/Casino”), HRHH Development, LLC (“HRHH Development”) and HRHH Cafe, LLC (“HRHH Cafe”) entered into an Amended and Restated Property Management Agreement, dated as of May 30, 2008, (the “Management Agreement”) with Morgans Hotel Group Management LLC (“Morgans Management”), pursuant to which HRH Holdings engaged Morgans Management as (i) the exclusive operator and manager of the Hard Rock (excluding the operation of the gaming facilities which are operated by its subsidiary, HRHH Gaming, LLC) and (ii) the asset manager of the approximately 23-acre parcel adjacent to the Hard Rock and the land on which the Hard Rock Cafe restaurant is situated (which is subject to a lease between HRH Holdings’ subsidiary, HRHH Cafe, LLC, as landlord, and Hard Rock Cafe International (USA), Inc., as tenant).

Term; Termination Fee. The Management Agreement originally commenced on February 2, 2007 and had an initial term of 20 years. Morgans Management had the option to elect to extend this initial term for two additional 10-year periods. The Management Agreement provided certain termination rights for HRH Holdings and Morgans Management. Morgans Management was entitled to a termination fee if such a termination occurred in connection with a sale of HRH Holdings or the hotel at the Hard Rock. However, the Management Agreement was terminated with no termination fee in connection with the Assignment.

Base Fee, Chain Service Expense Reimbursement and Annual Incentive Fee. As compensation for its services, Morgans Management received a management fee equal to 4% of defined net non-gaming revenues including casino rents and all other rental income, a gaming facilities support fee equal to $828,000 per year and a chain service expense reimbursement, which reimbursement was subject to a cap of 1.5% of defined non-gaming revenues and all other income. Morgans Management was also entitled to receive an annual incentive fee of 10.0% of the Hotel EBITDA (as defined in the Management Agreement) in excess of certain threshold amounts, which increased each calendar year. However, as a result of the completion of the expansion project at the Hard Rock, the amount of such annual incentive fee was equal to 10% of annual Hotel EBITDA in excess of 90% of annual projected post-expansion

EBITDA of the Hard Rock, the property on which the Hard Rock Cafe restaurant is situated and the property adjacent to the Hard Rock (excluding any portion of the adjacent property not being used for the expansion). For purposes of the Management Agreement, “EBITDA” generally is defined as earnings before interest, taxes, depreciation and amortization in accordance with generally accepted accounting principles applicable to the operation of hotels and the uniform system of accounts used in the lodging industry, but excluding income, gain, expenses or loss that is extraordinary, unusual, non-recurring or non-operating. “Hotel EBITDA” generally is defined as EBITDA of the Hard Rock, the property on which the Hard Rock Cafe restaurant is situated and the property adjacent to the Hard Rock (excluding any portion of the adjacent property not used for the expansion), excluding an annual consulting fee payable to DLJMB HRH VoteCo, LLC (“DLJMB VoteCo”) under the JV Agreement (as defined below). Hotel EBITDA generally does not include any EBITDA attributable to any facilities operated by third parties at the Hard Rock, unless HRH Holdings owns or holds an interest in the earnings or profits of, or any equity interests in, such third party facility.

For the two-month period ended February 28, 2011, HRH Holdings accrued or paid a base management fee of $0.7 million and a gaming facilities support fee of $0.1 million.

(ii) Joint Venture Agreement Consulting Fee

Under HRH Holdings’ Second Amended and Restated Limited Liability Company Agreement (the “JV Agreement”), subject to certain conditions, HRH Holdings was required to pay DLJMB HRH VoteCo, LLC (“DLJMB VoteCo”) (or its designee) a consulting fee of $250,000 each quarter in advance. In the event HRH Holdings was not permitted to pay the consulting fee when required (pursuant to the terms of any financing or other agreement approved by its board of directors), then the payment of such fee was deferred until such time as it may be permitted under such agreement. DLJMB VoteCo is a member of HRH Holdings.

(iii) Technical Services Agreement

On February 2, 2007, HRH Holdings’ subsidiary, HRHH Hotel/Casino, LLC, and Morgans Management entered into a Technical Services Agreement pursuant to which HRH Holdings had engaged Morgans Management to provide technical services for its expansion project prior to its opening. Under the Technical Services Agreement, HRH Holdings was required to reimburse Morgans Management for certain expenses it incurred in accordance with the terms and conditions of the agreement.

(iv) Intercompany Land Acquisition Financing

Northstar was a lender to HRH Holdings under the land acquisition financing HRH Holdings had entered into with respect to an approximately 11-acre parcel of land located adjacent to the Hard Rock Hotel & Casino.


8.	Debt

The following table presents debt outstanding as of December 31, 2013 and 2012:



		As of December 31,
($ in thousands)	Final		Face value			Book value			Face value		Book value
Project name/lender	maturity		2013			2013			2012		2012
Amended facility -
Note A/Vegas HR Private Limited	March 1, 2018		$	575,213		$	504,775		$	553,826	$	472,740

Amended facility -
Note B/Vegas HR Private Limited	March 1, 2018		327,290			182,075			327,290		160,124

Second Mortgage -
Brookfield Financial	March 1, 2018		30,000			16,596			30,000		15,021
Total debt			932,503			703,446			911,116		647,885


Current portion of long-term debt			(902,503		)	(686,850		)	—		—
Total long-term debt			$	30,000		$	16,596		$	911,116	$	647,885

The difference between the face and book value of the debt represents debt discounts that are amortized to interest expense using the effective interest method over the term of the debt.

As discussed in Note 1, Company Structure and Significant Accounting Policies, the PIK interest will become due and payable on June 2, 2014. Currently, we believe the Company may not have sufficient funds to satisfy the expected PIK interest payment on June 2, 2014, and therefore, the Company could be in default upon notification by the lender. Accordingly, the Amended Facility, supplemental interest, and PIK interest is classified as current as of December 31, 2013.

As of December 31, 2013, the Company has outstanding $61.2 million in supplemental interest under the Amended Facility. In addition, the Company has outstanding $10.5 million in accrued interest and contractually owes $14.6 million under the Second Mortgage, the difference representing application of the effective interest method and its affects on accrued interest and amortization of the discount as of December 31, 2013.

Amended Facility. On March 1, 2011, as part of the Assignment, the Company assumed the obligations under the Facility and entered into the Amended Facility pursuant to which the land, building and improvements, equipment, fixtures and all personal properties were pledged as security and collateral. The Amended Facility has a maturity date of March 1, 2018 and provides for interest only at The London InterBank Offered Rate (LIBOR) plus 2.5% with a 1.5% LIBOR floor (total of 4% at December 31, 2013). In addition, supplemental interest is accrued at a rate sufficient to provide for the greater of 6.5% or LIBOR + 4% effective interest rate at maturity after consideration of all prior payments of principal and interest. The rates of accrual are dependent on fluctuations in the applicable LIBOR rate. The Amended Facility has a provision whereby if the cash available for debt service is less that the current interest due, the PIK interest will be automatically added to the outstanding principal balance of the Amended Facility and shall thereafter accrue interest. In addition, excess cash in the cash management account will be applied to the outstanding PIK interest, supplemental interest and principal according to the terms of the Amended Facility.

The Amended Facility requires that the Company repay in full all “paid in kind” interest (PIK Interest) outstanding on March 1, 2014 and February 28, 2016, in the event the Company has not made sufficient payments to the lender to provide a specified debt yield for the twelve month period ending March 1, 2014, on the terms specified in the Amended Facility. The Company did not meet the specified debt yield threshold as of March 1, 2014. However, on March 5, 2014, the lender entered into a Forbearance Agreement effective as of March 1, 2014, pursuant to which it agreed not to exercise any rights or remedies with respect to the PIK interest until June 2, 2014. The Company is currently assessing its options to satisfy the PIK interest payment obligation, including, but not limited to, negotiating a waiver of this requirement from the lender, selling off a portion of existing collateral or attempting to obtain

borrowings from other sources. However, there is no certainty on the outcome. If the PIK payment is not made on June 2, 2014 we risk losing some or all of our property to foreclosure. If this occurs, our business and results of operations would be materially adversely affected. The outstanding PIK interest as of December 31, 2013 and 2012 was $39.8 million and $18.5 million, respectively. See further discussion in Note 1, Company Structure and Significant Accounting Policies.

The total amount of the Company’s debt, under certain exceptions described in the Amended Facility, is due on March 1, 2018, and no principal payments are due until then.

Second Mortgage. On March 1, 2011, as part of the Assignment, the Company entered into the Second Mortgage loan agreement with Brookfield Financial in the amount of $30.0 million pursuant to which certain land, building and improvements, equipment, fixtures and personal properties were pledged as security and collateral. The Second Mortgage is subordinate in right of payment to the Amended Facility. The maturity date of the Second Mortgage is March 1, 2018 and provides for an effective interest rate of 15% payable at maturity.

The Amended Facility and Second Mortgage include affirmative and negative covenants, including, among others, restrictive covenants regarding incurrence of liens, sales or assets, distributions to affiliates, changes in business, cancellation of indebtedness, dissolutions, mergers and consolidations, as well as limitations on security issuances, transfers of any of the Company's real property and removal of any material article of furniture, fixture or equipment from the Company's real property. As of December 31, 2013, the Company was in compliance with all covenants.

The estimated annual amortization of the debt discounts under the effective interest method assuming estimated future cash flow payments of the Amended Facility and the Second Mortgage for each of the five succeeding years and thereafter, is as follows:



($ in thousands)	Amortization - Amended Facility		Amortization - Second Mortgage
2014	$	40,018	$	2,042
2015	47,530		2,645
2016	55,076		3,439
2017	62,321		4,445
2018	10,708		833
Thereafter	—		—
Total	$	215,653	$	13,404


9.	Commitments and Contingencies

Future minimum lease payments

Future minimum lease payments required under capital leases, included in our consolidated balance sheet as current and long term accrued expenses, as of December 31, 2013 are as follows:



	Payments due by
($ in thousands)	Less than 1 Year		1-3 Years		3-5 Years		More than 5 Years		Total
Capital leases
Gross capital leases	$	347	$	170	$	—	$	—	$	517
Imputed interest	44		7		—		—		51
Net capital leases	391		177		—		—		568
Total	$	391	$	177	$	—	$	—	$	568

Legal and Regulatory Proceedings

Our subsidiary HRHH IP was one of a number of defendants (“Defendants”) in an action ("Hard Rock IP Action") commenced by Hard Rock Cafe International (USA), Inc. (“HRCI”) on September 21, 2010 in the United States District Court for the Southern District of New York, captioned Hard Rock Cafe International (USA), Inc. v. Hard Rock Hotel Holdings, LLC, et al. asserting certain

failures to comply with the terms and requirements of the intellectual property licensure agreements to which the Company was a party. HRCI also commenced a separate arbitration proceeding before the American Arbitration Association with respect to certain claims, originally brought in the Hard Rock IP Action, that were deemed arbitrable by the judge in that action (“HRCI Arbitration”). The HRCI Arbitration arose from the same underlying facts as the Hard Rock IP Action. On June 13, 2013, the parties reached a settlement of both the Hard Rock IP Action and the HRCI Arbitration (“HRCI Settlement”), and the court entered the order of dismissal of the Hard Rock IP Action on June 13, 2013. The terms of the HRCI Settlement did not have a material effect on our business, or the results of operations or financial condition of the Company.

S&H Projects (“S&H”) filed a lawsuit against Hard Rock Hotel, Inc. (“HRHI”) on December 3, 2010 with regard to the closure of the Wasted Space lounge in October 2010, (“S&H Matter”). On August 12, 2013, the parties reached a settlement of the S&H Matter. The terms of the S&H Matter settlement did not have a material effect on our business, or the results of operations or financial condition of the Company.

The Company and affiliates Brookfield Real Estate Financial Partners, LLC, Brookfield Financial, LLC - Series B, and Brookfield Asset Management (US), Inc. are currently amongst a number of defendants (“Defendants”) in an action commenced by Mace Management Group, LLC (“Mace) and Mandown, LLC (“Mandown”) on June 12, 2012 in Nevada’s Eighth Judicial District Court in Clark County, Nevada (the “Mace/Mandown Action”). The Mace/Mandown Action relates to investments made by Mace/Mandown in Wasted Space Lounge, Rare 120 restaurant, the Johnny Smalls restaurant and Vanity nightclub (collectively, the “Venues”) at the Hard Rock Hotel and Casino Las Vegas. In general, all claims assert that actions taken by Defendants allegedly deprived Mace/Mandown of their initial investment and/or their share of profits from the Venues. The Mace/Mandown Action is in the preliminary stages and management has determined that based on the proceedings to date it does not believe the outcome of this matter will have a material effect on our business, or results of operations or financial condition of the Company.

Dolce Group Vegas, LLC filed a complaint against the Company, and affiliates Brookfield Asset Management (US), Inc., and Brookfield Financial, LLC - Series B, in Nevada’s Eighth Judicial District Court, Clark County, Nevada on July 13, 2011 (“Dolce Matter”). The plaintiff alleges breach of contract with respect to plaintiff’s contract to develop the “Rare 120” steakhouse concept for Hard Rock Hotel. On July 12, 2013, the parties reached a settlement of the Dolce Matter. The terms of the Dolce Matter settlement did not have a material effect on our business, or the results of operations or financial condition of the Company.

On July 27, 2012, the Company received notice of a Demand for Arbitration being filed by Monster Beverage Company (“Monster”) against the Company’s subsidiaries HRHH Hotel/Casino, LLC and HRHH IP, LLC (together the “HRHH Entities”) before the Judicial Arbitration and Mediation Service, or JAMS (the “Monster Beverage Action”). The gravamen of the Monster Beverage Action was a dispute between the HRHH Entities and Monster over rights to the “Rehab” beverage marks and brand. On August 16, 2013 the arbitrator issued a final arbitration award in favor of Monster, which was judicially confirmed on January 27, 2014. The outcome of the Monster Beverage Action did not have a material effect on our business, or the results of operations or financial condition of the Company.

We are also subject to a variety of other claims and lawsuits that arise in the ordinary course of our business. We do not believe the outcome of these and the other matters disclosed above will have a material effect on our business, results of operations or financial condition. As of December 31, 2013, the Company accrued approximately $4.6 million for all loss contingency matters and our best estimate of reasonably possible losses in excess of the amount accrued is not material to the financial statements.

10. Employee Benefit Plans

The Company’s current policy is, and HRH Holdings’ policy was, to pay discretionary cash incentive bonuses to eligible employees based upon individual and company-wide goals that are established by the Company and HRH Holdings, respectively, on an annual basis.

The Company’s current policy is, and HRH Holdings’ policy was, to maintain a 401(k) profit sharing plan whereby all employees over the age of 21 who have completed six months of continuous employment and 1000 hours of service are eligible for the plan. Such employees joining the plan may contribute, through salary deductions, no less than 1% nor greater than 50% of their annual compensation. The Company currently does not match contributions to the plan and recorded no charges for 401(k) contributions years ended December 31, 2013 and 2012.

11. Membership Interests

Membership Interests

The Company

Classes of Membership Interests

We have two classes of membership interests: Class A Units and Class B Units, each of which is 100% owned by its members. Holders of Class A Units are entitled to vote on any matter to be voted upon by our members. Except as provided by law, the holders of Class B Units do not have any right to vote.

Additional Capital Contributions

The members are not required to make any additional capital contributions to the Company. However, the members may make additional capital contributions to the Company at any time. During the years ended December 31, 2013 and 2012, no capital contributions were made to the Company. During the ten-month period ended December 31, 2011, the Company entered into a second mortgage loan agreement as part of the Assignment with Brookfield Financial in the amount of $30 million. The fair value of the debt as of the Assignment date was $13.0 million with the remaining $17.0 million accounted for as an equity contribution. In addition, Brookfield Financial made a $1.6 million cash contribution during the ten-month period ended December 31, 2011.

Cash Available for Distribution

We have not in the past paid cash distributions on our membership interests. We currently intend to retain all available funds and any future earnings for use in the operation and expansion of our business and do not anticipate paying any cash distributions in the foreseeable future. The terms of our current financing agreements preclude us, and any future financing agreements may preclude us, from paying any distributions. To the extent not prohibited by the terms of any financing agreement or applicable law, however, we may at some future date distribute available cash to our members.

Restrictions on Transfer

Our members generally are prohibited from transferring or encumbering our membership interests without the prior written consent of BREF HR Management or the holder of Class A Units. No transfer may be made unless certain general conditions are met, including that the transfer complies with applicable gaming regulations.

Distributions Upon Liquidation

We may be dissolved upon certain events, including at the election of the members. In the event of a dissolution, the cash proceeds from the liquidation, after payment of our liabilities, will be distributed to our members in accordance with their respective positive capital account balances as calculated under the LLC Agreement, subject to any necessary approvals from the Nevada Gaming Commission and/or the Nevada State Gaming Control Board.

No Sinking Fund Provisions or Rights to Redemption or Conversion

Holders of Class A Units or Class B Units have no redemption rights or conversion rights and do not benefit from any sinking fund.

HRH Holdings

Classes of Membership Interests

HRH Holdings had three classes of membership interests: Class A Membership Interests, Class B Membership Interests and Class C Membership Interests. Holders of Class A Membership Interests were entitled to vote on any matter to be voted upon by HRH Holdings’ members. Except as provided by law, the holders of Class B Membership Interests and Class C Membership Interests did not have any right to vote.

Initial Capital Contributions

On the Closing Date, pursuant to the Contribution Agreement, Morgans and Morgans Group LLC, an affiliate of Morgans (“Morgans LLC”) were deemed to have contributed to HRH Holdings one-third of the equity, or approximately $57.5 million, to fund a portion of the purchase price for the Acquisition by virtue of the application of the escrow deposits under the Acquisition Agreements to the purchase price for the Acquisition and by virtue of the credit given for the expenses Morgans LLC incurred in connection with the Acquisition. Affiliates of DLJMB contributed to HRH Holdings two-thirds of the equity, or approximately $115 million, to fund the remaining amount of the equity contribution for the Acquisition. In consideration for these contributions, HRH Holdings issued Class A Membership Interests and Class B Membership Interests to the affiliates of DLJMB, Morgans and Morgans LLC.

Additional Capital Contributions

For the two-month period ended February 28, 2011 the DLJMB Parties and the Morgans Parties did not make any contribution to HRH Holdings. Pursuant to an agreement between DLJMB IV HRH and Morgans, a portion of the amounts contributed to HRH Holdings by the parties were being treated as interest-free loans, which would convert into new equity in HRH Holdings on terms to be agreed upon by the parties or by a written appraisal or fairness opinion.

Cash Available for Distribution

To the extent not prohibited by the terms of any financing agreement or applicable law, HRH Holdings’ board of directors could cause HRH Holdings to distribute cash available for distribution to its members. Under the JV Agreement, the DLJMB Parties would receive a preferred return of capital in an amount based on a percentage of the fees paid by HRH Holdings to Morgans Management under the Management Agreement. Cash available for distribution would then be distributed among the members pro rata in proportion to their percentage interests (as adjusted to disregard the effect of any prior adjustments to the percentage interests made as a result of the posting of letters of credit). If at such time the DLJMB Parties had received a return of all of their capital contributions, then the cash available for distribution would be distributed to the Morgans Parties until they had received a return of all of their diluted capital contributions (as calculated under the JV Agreement). Then, cash available for distribution would be distributed among the members pro rata in proportion to the adjusted percentage interests until the Morgans Parties had received a return of all of their capital contributions. Thereafter, all remaining amounts would be distributed between the Morgans Parties, the DLJMB Parties and Class C Members pro rata in proportion to their profits percentage interests as of the date of such distribution.

Restrictions on Transfer

HRH Holdings’ members generally were prohibited from transferring or encumbering HRH Holdings’ membership interests without the prior written consent of HRH Holdings’ Class A members. Transfers of interests by a Morgans Party or a DLJ Fund (described below) in any intermediate subsidiary that indirectly held interests in HRH Holdings would be considered a transfer of such person’s indirect interest in HRH Holdings. The “DMJ Funds” included DLJMB Partners, DLJMB HRH Co-Investments, L.P., DLJ Offshore Partners IV, L.P., DLJ Merchant Banking Partners IV (Pacific), L.P. and MBP IV Plan Investors, LP. were all parties which indirectly held interest in HRH Holdings. Exceptions to the transfer prohibition applied to (a) transfers to subsidiaries of a DLJ Fund or Morgans, (b) transfers of the equity interests of a Morgans Party or a DLJ Fund (including pursuant to a change in control of those entities), and (c) after the earlier of February 2, 2011 and the termination date of the Management Agreement, in accordance with the right of first offer in favor of the other members under the JV Agreement. If the DLJMB Parties proposed to transfer more than 51% of HRH Holdings’ aggregate membership interests to a third party, then under certain circumstances the DLJMB Parties would be able to require the Morgans Parties and Class C Members to sell the same ratable share of HRH Holdings’ membership interests held by each of them to the third party on the same terms and conditions. If this drag-along right was not exercised, then under certain circumstances the Morgans Parties and the Class C Members could exercise a tag-along right to sell certain of HRH Holdings’ membership interests held by each of them to the third-party transferee on the same terms and conditions as under the sale by the DLJMB Parties. Notwithstanding these exceptions, no transfer could be made unless certain general conditions were met, including that the transfer complied with applicable gaming regulations.

Events of Default

The following constituted events of default under the JV Agreement (subject in certain cases to applicable cure periods): (a) any transfer in violation of the JV Agreement, (b) a material breach of the JV Agreement or a related fee agreement entered into by the members, (c) a determination by the gaming authorities that one of HRH Holdings’ members is an unsuitable person, (d) the failure to make a required capital contribution, (e) a material breach under the contribution agreement Morgans and DLJMB IV HRH entered into with respect to their initial capital contributions, (f) the incapacity of a member, (g) the attachment, execution or other judicial

seizure of substantial assets of member or its interest in HRH Holdings or (h) the perpetration of fraud or willful misconduct. Upon the occurrence of any event of default (and after the expiration of any applicable cure period) by a member, a non-affiliated member may (i) elect to dissolve HRH Holdings, (ii) purchase the entire interest of the defaulting member for 85.0% of the defaulting member’s “existing equity” in HRH Holdings (as defined in the JV Agreement), (iii) adjust the defaulting member’s capital account to equal such purchase price or (iv) revoke the defaulting member’s voting rights, right to participate in profits or distributions or right to receive information (subject to certain exceptions).

Distributions upon Liquidation

HRH Holdings could be dissolved upon certain events, including at the election of its members. In the event of dissolution, the cash proceeds from the liquidation, after payment of HRH Holdings’ liabilities, would be distributed to its members in accordance with their respective positive capital account balances as calculated under the JV Agreement.

No Sinking Fund Provisions or Rights to Redemption or Conversion

Holders of Class A Membership Interests or Class B Membership Interests had no redemption rights or conversion rights and did not benefit from any sinking fund.

12. Quarterly Financial Information (unaudited)

Quarterly financial information for the years ended December 31, 2013 and 2012 is summarized below:



	2013
($ in thousands)	First Quarter			Second Quarter			Third Quarter			Fourth Quarter
Net revenues	$	47,460		$	57,210		$	47,321		$	42,622
Operating (loss) income	(1,308		)	1,031			(3,999		)	(2,921		)
Loss before income taxes	(24,475		)	(23,029		)	(29,099		)	(28,936		)
Net loss	(24,475		)	(23,029		)	(29,099		)	(28,936		)



	2012
($ in thousands)	First Quarter			Second Quarter			Third Quarter			Fourth Quarter
Net revenues	$	51,248		$	54,302		$	49,724		$	43,267
Operating income (loss)	390			(797		)	(833		)	(24,216		)
Loss before income taxes	(21,677		)	(22,681		)	(23,659		)	(47,587		)
Net loss	(21,677		)	(22,681		)	(23,659		)	(47,587		)



EXHIBIT INDEX
EXHIBIT NUMBER		DESCRIPTION

2.1		Agreement to Transfer in Lieu of Foreclosure and Settlement Agreement dated as of March 1, 2011 by and among HRHH Hotel/Casino, LLC, HRHH Development, LLC, HRHH Gaming, LLC, HRHH IP, LLC, HRHH Cafe, LLC, HRHH Gaming Senior Mezz, LLC, HRHH JV Senior Mezz, LLC, HRHH Gaming Junior Mezz, LLC, HRHH Junior Mezz Two, LLC, HRHH Gaming Junior Mezz Two, LLC, Hard Rock Hotel, Inc., Hard Rock Hotel Holdings, LLC, Morgans Group LLC, DLJ MB IV HRH, LLC, Morgans Hotel Group Management LLC, BREF HR, LLC, NRFC HRH Holdings, LLC, Vegas HR Private Limited and Brookfield Financial, LLC—Series B; previously filed as Exhibit 2.1 to the Company’s registration statement on Form 10 (File No. 000-54532) filed on October 24, 2011.

3.1		Certificate of Formation, dated as of February 11, 2011, for BREF HR, LLC; previously filed as Exhibit 3.1 to the Company’s registration statement on Form 10 (File No. 000-54532) filed on October 24, 2011.

3.2		Limited Liability Company Agreement, dated as of March 1, 2011, for BREF HR, LLC by BREF HR Management, LLC, Brookfield Financial, LLC – Series B, Michele A. Dreyer and Mary S. Stawikey; previously filed as Exhibit 3.2 to the Company’s registration statement on Form 10 (File No. 000-54532) filed on October 24, 2011.

10.1		Fourth Amended and Restated Loan Agreement, dated as of March 1, 2011 by and among HRHH Hotel/Casino, LLC, HRHH Cafe, LLC, HRHH Development, LLC, HRHH IP, LLC, HRHH Gaming, LLC and Vegas HR Private Limited; previously filed as Exhibit 10.1 to the Company’s registration statement on Form 10 (File No. 000-54532) filed on October 24, 2011.

10.2		Second Mortgage Loan Agreement, dated as of March 1, 2011, among HRHH Hotel/Casino, LLC, HRHH Cafe, LLC, HRHH Development, LLC, HRHH IP, LLC, HRHH Gaming, LLC and Brookfield Financial, LLC – Series B; previously filed as Exhibit 10.2 to the Company’s registration statement on Form 10 (File No. 000-54532) filed on October 24, 2011.

10.3		Management Agreement (Gaming Operations) dated as of March 1, 2011 by and between LVHR Casino, Inc. WG-Harmon, LLC (Terminated June 15, 2012); previously filed as Exhibit 10.3 to the Company’s registration statement on Form 10 (File No. 000-54532) filed on October 24, 2011.

10.4		Amended and Restated Resort Management Agreement dated as of June 15 ,2012 by and between HRHH Hotel/Casino, LLC, HRHH Development, LLC, HRHH IP, LLC, HRHH Cafe, LLC and WG-Harmon, LLC; previously filed as Exhibit 10.4 of the Company's Annual Report on Form 10-K for the year ended December 31, 2011.

10.5		Amended and Restated Casino Lease dated as of June 15, 2012 by and between HRHH Hotel/Casino, LLC and LVHR Casino Inc.; previously filed as Exhibit 10.5 of the Company's Annual Report on Form 10-K for the year ended December 31, 2011.

10.6		Trademark License and Cooperation Agreement dated as of June 7, 1996 by and between Rank Licensing, Inc. and Peter A. Morton; previously filed as Exhibit 10.7 to the Company’s registration statement on Form 10 (File No. 000-54532) filed on October 24, 2011.

10.7		Omnibus Amendment and Joinder to Fourth Amended and Restated Loan Agreement and Loan Documents, dated as of June 15, 2012 by and among HRHH Hotel/Casino, LLC, HRHH Cafe, LLC, HRHH Development, LLC, HRHH IP, LLC, HRHH Gaming, LLC and Vegas HR Private Limited; previously filed as Exhibit 10.7 of the Company's Annual Report on Form 10-K for the year ended December 31, 2011.

14		Code of ethics; previously filed as Exhibit 14 of the Company's Annual Report on Form 10-K for the year ended December 31, 2011.

21.1		Subsidiaries of the Registrant; previously filed as Exhibit 21.1 to the Company’s registration statement on Form 10 (File No. 000-54532) filed on October 24, 2011.

31.1		Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2		Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1		Certification of Principal Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2		Certification of Principal Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101		Interactive data files pursuant to Rule 405 of Regulation S-T.

Attached files

BREF HR, LLC Reports

Also read