UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
( X ) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: September 30, 1996
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from: to
Commission file number 1-11569
RIO HOTEL & CASINO, INC.
(Exact name of registrant as specified in its charter)
NEVADA 95-3671082
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3700 West Flamingo Road, Las Vegas, Nevada 89103
(Address of principal executive offices) (Zip Code)
(702) 252-7733
(Registrant's telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year, if changed
since last report)
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15 (d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
Indicate the number of shares outstanding of each of the
issuer's classes of common stock, as of the latest practicable
date.
21,170,441 as of November 1, 1996
(Amount Outstanding) (Date)
<PAGE>
FORM 10-Q
TABLE OF CONTENTS
PAGE
NUMBER
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements 3
Consolidated Balance Sheets 3
Consolidated Statements of Income 4
Consolidated Statements of Cash Flows 5
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 9
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 14
Item 2. Changes in Securities 14
Item 3. Defaults Upon Senior Securities 14
Item 4. Submission of Matters to a Vote of Security
Holders 15
Item 5. Other Information 15
Item 6. Exhibits and Reports on Form 8-K 15
SIGNATURES 16
EXHIBIT INDEX 17
2
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
<CAPTION>
RIO HOTEL & CASINO, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
September 30, December 31,
1996 1995
(Unaudited)
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 10,990,443 $ 19,992,695
Accounts receivable, net 5,677,846 4,313,442
Federal income taxes receivable 450,058 190,914
Inventories 3,731,801 1,794,850
Prepaid expenses and other current assets 4,867,706 4,638,090
Total current assets 25,717,854 30,929,991
Property and equipment:
Land and improvements 47,890,821 37,509,960
Building and improvements 195,762,408 192,818,896
Equipment, furniture and improvements 74,033,008 68,500,267
Less: accumulated depreciation (58,887,367) (46,707,850)
258,798,870 252,121,273
Construction in progress 141,534,800 17,173,483
Net property and equipment 400,333,670 269,294,756
Other assets, net 7,786,648 8,566,847
$ 433,838,172 $ 308,791,594
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt $ 342,845 $ 25,252
Note payable 1,000,000
Accounts payable 4,019,403 4,562,132
Accrued expenses 14,100,525 9,136,226
Accounts payable - related party 24,178,394 6,641,506
Accrued interest 3,288,740 4,726,915
Total current liabilities 46,929,907 25,092,031
Non-current liabilities:
Long-term debt, less current maturities 197,002,902 110,176,765
Deferred income taxes 11,377,388 10,634,898
Total non-current liabilities 208,380,290 120,811,663
Total liabilities 255,310,197 145,903,694
Stockholders' equity:
Common stock, $0.01 par value;
100,000,000 shares authorized;
21,236,341 and 21,139,146 shares
issued and outstanding 212,364 211,392
Additional paid-in capital 114,091,669 113,520,158
Retained earnings 64,223,942 49,156,350
Total stockholders' equity 178,527,975 162,887,900
$ 433,838,172 $ 308,791,594
See accompanying Notes to Consolidated Financial Statements
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
RIO HOTEL & CASINO, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three Months Ended
Sept. 30, 1996 Sept. 30, 1995
<S> <C> <C>
Revenues:
Casino $ 26,854,235 $ 26,828,711
Room 9,789,581 8,865,708
Food and beverage 17,719,076 15,482,583
Other 3,839,645 3,265,364
Casino promotional allowances (5,012,827) (4,677,966)
53,189,710 49,764,400
Expenses:
Casino 14,111,383 11,784,518
Room 3,237,079 2,825,428
Food and beverage 13,660,134 12,100,367
Other 1,959,971 1,746,780
Selling, general and administrative 7,652,922 7,846,109
Depreciation and amortization 4,283,761 3,279,224
44,905,250 39,582,426
Operating profit 8,284,460 10,181,974
Other income (expense):
Interest income 36,620 197,629
Interest expense (1,757,065) (2,628,218)
(1,720,445) (2,430,589)
Income before income tax provision 6,564,015 7,751,385
Income tax provision (2,297,532) (2,866,694)
Net income $ 4,266,483 $ 4,884,691
Earnings per common share:
Primary:
Net income $ 0.20 $ 0.23
Weighted average number of common
shares outstanding 21,519,072 21,633,878
Fully diluted:
Net income $ 0.20 $ 0.23
Weighted average number of common
shares outstanding 21,543,485 21,633,878
See accompanying Notes to Consolidated Financial Statements
</TABLE>
<TABLE>
<CAPTION>
RIO HOTEL & CASINO, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (Continued)
(Unaudited)
Nine Months Ended
Sept. 30, 1996 Sept. 30, 1995
<S> <C> <C>
Revenues:
Casino $ 83,082,679 $ 76,796,240
Room 30,112,121 25,026,342
Food and beverage 52,992,883 44,531,840
Other 11,293,144 8,856,114
Casino promotional allowances (14,546,973) (13,661,681)
162,933,854 141,548,855
Expenses:
Casino 40,005,532 33,718,226
Room 9,876,771 7,641,962
Food and beverage 40,615,871 35,907,312
Other 5,862,380 4,934,415
Selling, general and administrative 23,539,507 21,040,377
Depreciation and amortization 12,538,158 10,386,640
132,438,219 113,628,932
Operating profit 30,495,635 27,919,923
Other income (expense):
Interest income 153,416 301,224
Interest expense (7,112,247) (5,410,950)
(6,958,831) (5,109,726)
Income before income tax provision 23,536,804 22,810,197
Income tax provision (8,469,211) (8,499,509)
Net income $ 15,067,593 $ 14,310,688
Earnings per common share:
Primary:
Net income $ 0.70 $ 0.66
Weighted average number of common
shares outstanding 21,549,457 21,633,529
Fully diluted:
Net income $ 0.70 $ 0.66
Weighted average number of common
shares outstanding 21,563,090 21,635,455
See accompanying Notes to Consolidated Financial Statements
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
RIO HOTEL & CASINO, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended
September 30,
1996 1995
<S> <C> <C>
Cash flows from operating activities:
Net income $ 15,067,593 $ 14,310,688
Adjustments to reconcile net income to net
cash provided by operating activities:
Compensation expense recognized from
stock option grant 79,409 58,477
Depreciation and amortization 12,538,163 10,386,640
Provision for uncollectible accounts 63,872 211,908
Deferred income taxes 742,490 2,506,408
(Increase) decrease in assets:
Accounts receivable (1,428,276) (1,181,769)
Inventories (1,936,951) (62,796)
Prepaid expenses and other current assets 67,453 231,709
Other, net 454,061 (1,026,048)
Increase (decrease) in liabilities:
Accounts payable (542,729) 972,097
Accrued federal income tax 609,125
Accrued expenses 4,964,299 2,098,365
Accrued interest (1,438,175) 1,778,592
Net cash provided by operating activities 28,631,209 30,893,396
Cash flows from investing activities:
Purchase of land and improvements (11,500,910) (10,711,864)
Purchase of equipment, furniture and
improvements (112,036,884) (46,810,997)
Net cash used in investing activities (123,537,794) (57,522,861)
Cash flows from financing activities:
Proceeds from borrowings 86,000,000
Net proceeds from issuance of senior
subordinated notes 96,869,021
Net proceeds from common stock issuance 1,146,710 878,651
Payments on notes and loans payable (32,527) (124,964,759)
Repurchase of common stock (1,209,850) (3,237,788)
Net cash provided by (used in) financing activities 85,904,333 (30,454,875)
Net decrease in cash and cash equivalents (9,002,252) (57,084,340)
Cash and cash equivalents, beginning of period 19,992,695 76,426,258
Cash and cash equivalents, end of period $ 10,990,443 $ 19,341,918
See accompanying Notes to Consolidated Financial Statements
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
RIO HOTEL & CASINO, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Supplemental Disclosure of Cash Flow Information
Nine Months Ended
September 30,
1996 1995
<S> <C> <C>
Cash payments made for interest, net of amounts capitalized $ 7,736,982 $ 3,723,580
Cash payments made for income taxes $ 6,600,000 $ 5,500,000
Non-cash investing and financing activities:
Purchase of property and equipment financed through accounts
payable $24,178,394 $ 4,149,939
Short-term note payable issued in the purchase of land $ 1,000,000
Debt assumed in the purchase of land $ 215,110
Financing of equipment purchases $ 961,147
Bond offering costs financed through accounts payable $ 109,200
Tax benefit arising from the exercise of stock options under
the Company's Non-Statutory Stock Option Plan $ 556,213 $ 609,125
</TABLE>
6
<PAGE>
RIO HOTEL & CASINO, INC. and SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 - The consolidated financial statements include the
accounts of Rio Hotel & Casino, Inc. and its wholly
owned subsidiaries Rio Properties, Inc. ("Rio
Properties," which owns and operates the Rio Suite
Hotel & Casino [the "Rio"] in Las Vegas, Nevada), Rio
Development Company, Inc., Rio Resort Properties, Inc.,
Rio Leasing, Inc. and Rio Properties' wholly owned
subsidiary Cinderlane, Inc. (collectively the
"Company").
All significant intercompany balances and transactions
have been eliminated in consolidation.
The consolidated balance sheet as of September 30, 1996
and the related consolidated statements of income for
the three month and nine month periods ended
September 30, 1996 and 1995 and the consolidated
statements of cash flows for the nine month periods
ended September 30, 1996 and 1995 are unaudited but, in
the opinion of management, reflect all adjustments
necessary for a fair presentation of results for such
periods. The results of operations for an interim
period are not necessarily indicative of the results
for the full year. The consolidated financial
statements should be read in conjunction with the
consolidated financial statements and notes thereto
contained in the Company's annual report for the year
ended December 31, 1995.
NOTE 2 - LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30, 1996 DECEMBER 31, 1995
<S> <C> <C>
Bank loan ("Rio Bank Loan"),
originally a $65 million
revolving credit facility,
which was amended to be a
$200 million revolving credit
facility with interest equal to
the Eurodollar Rate or the Base
Rate, plus a margin. The loan
matures on June 30, 2001 and is
collateralized by a first deed
of trust on the Rio's real
property, equipment and
improvements. $ 96,000,000 $ 10,000,000
10 5/8% Senior Subordinated
Notes, interest only payable
semi-annually; principal due
July 15, 2005. 100,000,000 100,000,000
Other 1,345,747 202,017
197,345,747 110,202,017
Less current maturities (342,845) (25,252)
$197,002,902 $110,176,765
</TABLE>
The prime interest rates quoted by the Company's
primary lenders at September 30, 1996 and
December 31, 1995 were 8.25% and 8.50%, respectively.
7
<PAGE>
RIO HOTEL & CASINO, INC. and SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 3 - INCOME TAXES
The Company accounts for income taxes in accordance
with Financial Accounting Standards Board Statement No.
109, "Accounting for Income Taxes" ("SFAS No. 109").
The provisions for income taxes for the nine months
ended September 30, 1996 and 1995 were $8,469,211 and
$8,499,509, respectively, which represent effective
rates of 36.0% and 37.3%, respectively. A
reconciliation between the statutory rates and the
effective rates is as follows:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Statutory Rate 35.0% 35.0%
Depreciation on the premium
allocated in the exchange for
limited partnership units 0.4% 0.4%
Disallowance for tax purposes of
certain meals, travel and
entertainment expenses 0.0% 1.7%
Other 0.6% 0.2%
Effective Rate 36.0% 37.3%
</TABLE>
The Company's deferred tax assets (liabilities) at
September 30, 1996 consisted of the following:
<TABLE>
<CAPTION>
CURRENT NON-CURRENT
<S> <C> <C>
Depreciation and amortization ($13,082,515)
Deferred employee benefit $ 843,478
Bad debt expense 310,997
Other deferred tax liabilities, net 1,705,127
$1,154,475 ($11,377,388)
</TABLE>
The current portion of the Company's net deferred tax
assets is included on the Consolidated Balance Sheets
under the heading "Prepaid Expenses and Other Assets".
The Company has determined that it is probable that the
full amount of the tax benefit from the deferred tax
assets will be realized and, therefore, has not
recorded a valuation allowance to reduce the carrying
value of the deferred tax assets.
8
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
STATEMENT ON FORWARD-LOOKING INFORMATION
Certain information included herein contains statements that
may be considered forward-looking statements within the meaning
of the Private Securities Litigation Reform Act of 1995, such
as statements relating to plans for future expansion, capital
spending and financing sources. Such forward-looking
information involves important risks and uncertainties that
could significantly affect anticipated results in the future
and, accordingly, such results may differ from those expressed
in any forward-looking statements made herein. These risks and
uncertainties include, but are not limited to, those relating
to construction activities, dependence on existing management,
gaming regulations (including actions affecting licensing),
leverage and debt service (including sensitivity to
fluctuations in interest rates), domestic or global economic
conditions and changes in federal or state tax laws or the
administration of such laws.
MATERIAL CHANGES IN RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
REVENUES
The Company's net revenues increased to $53.2 million in the
third quarter of 1996 from $49.8 million in the same period in
the prior year, an increase of $3.4 million or 7%. Casino
revenues were $26.9 million in the three months ended September
30, 1996 compared to $26.8 million in the third quarter of
1995. Management believes that a lower table game hold
percentage in July 1996 and disruptions associated with the
Phase V Expansion program, including the temporary removal of
up to 400 slot machines from the casino floor (resulting in an
average of 249 fewer slot machines being available when
comparing this year's third quarter with the same period in
1995) were the primary reasons for casino revenues to remain
unchanged when comparing the two quarters. Although management
is making every effort to avoid operational disruptions from
the expansion and construction program, it is anticipated that
there will be occasions during the fourth quarter of 1996 when
disruptions may occur. The Phase V Expansion is scheduled to
open in phases, with approximately one-half of the 1,026 new
hotel suites scheduled to open on January 1, 1997, and the
balance becoming available throughout the first quarter. The
Masquerade Village which includes the expanded casino and
retail areas is expected to open in early February 1997, and
the new Voodoo lounge and restaurant on the 41st floor of the
new tower is expected to open in April 1997.
Room revenues increased by $0.9 million or 10% to $9.8 million
in the third quarter of 1996 from $8.9 million in the third
quarter of 1995. The increase in room revenues resulted
primarily from 141 new hotel suites being placed into service
in December 1995. Demand for the Rio's suites remained high,
with occupancy rates of 94% being attained in each of the
quarters.
Food and beverage revenues increased to $17.7 million in the
third quarter of 1996 from $15.5 million in the third quarter
of 1995, an increase of $2.2 million or 14%. An increase in
the average food check contributed to the increase in food and
beverage revenues.
Other revenues increased by $0.5 million or 18% to $3.8 million
in the three months ended September 30, 1996 compared to $3.3
million in the third quarter of 1995. Increased telephone
revenues from the additional hotel suites, as well as increased
merchandise sales and admissions to entertainment activities
were the primary reasons for the increase in other revenues.
OPERATING MARGINS
Operating profit as a percentage of net revenues was 16% and
20% for the quarters ended September 30, 1996 and 1995,
respectively. Casino operating profit was 47% in the third
quarter of 1996 compared to 56% in the same period in 1995.
Management believes that the decline in the operating margin in
the casino was due to increased payroll and pre-opening
marketing and other expenses associated with the completion and
opening of the new High Limit gaming area in September 1996
coupled with maintaining similar casino revenues when comparing
the two fiscal quarters. Food and beverage operating profit
was 23% during the third quarter of 1996 compared to 22% in the
third quarter of 1995. Management believes that the
improvement is primarily the result of a higher average food
check during the three month period ended
9
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
MATERIAL CHANGES IN RESULTS OF OPERATIONS
THREE MONTHS SEPTEMBER 30, 1996 AND 1995
September 30, 1996 compared to the same period in the prior
year. Hotel operating profit was 67% during the third quarter
of 1996 compared to 68% during the third quarter of 1995.
Management believes that the decline in the hotel operating
margin is the result of increases in normal operating expenses
including salaries, wages, benefits and travel agent
commissions. Other expenses were 51% of other revenues for the
three months ended September 30, 1996 compared to 53% in the
third quarter of the prior year. Management believes the
improvement is due to the increase in other revenues,
particularly telephone and entertainment admissions, which do
not require significant incremental expense. Selling, general
and administrative expenses decreased from 16% of revenues for
the quarter ended September 30, 1995 to 14% for the quarter
ended September 30, 1996. The primary reason for this decrease
is that certain advertising and production costs associated
with opening the Phase V Expansion were deferred and will be
expensed coincidental with the opening of the project.
PROMOTIONAL ALLOWANCES
Promotional allowances, which represent the retail value of
rooms, food, beverage and other services provided to customers
without charge, were 8.6% of gross revenues in each of the
quarters ended September 30, 1996 and 1995.
DEPRECIATION AND AMORTIZATION
Depreciation and amortization increased by $1.0 million or 31%
to $4.3 million in the third quarter of 1996 compared to $3.3
million in the third quarter of 1995. This increase is
primarily attributable to depreciation expense from the $20.0
million Phase IV Expansion project which was completed in
December 1995 and included 141 new hotel suites, approximately
5,400 square feet of meeting room space, doubled the size of
Buzios seafood restaurant, added a new health club and salon
facility and included a variety of back-of-the-house
improvements. In addition, approximately $7.3 million of
construction projects, including the new multi-level parking
structure associated with the Phase V Expansion project which
will allow for direct access into the Masquerade Village, have
been placed into service and are being depreciated.
OTHER INCOME (EXPENSE)
Interest expense decreased by approximately $0.9 million or 33%
to $1.8 million in the third quarter of 1996 from $2.6 million
in the third quarter of 1995. Interest expense in the third
quarter of 1996 was reduced by $2.5 million because of interest
capitalized on amounts expended on the Phase V Expansion
project, which will center around a 41-story curved tower
containing over 1,000 new hotel suites. This project will also
include approximately 60,000 square feet of public area which
will provide additional casino space, restaurants, new retail
and interactive entertainment space as well as an expanded pool
and beach area and additional parking facilities. Interest
expense in the third quarter of 1995 was reduced by $246,000
because of interest capitalized on amounts expended on the
Phase IV Expansion project.
NET INCOME
Net income for the third quarter of 1996 was $4.3 million or
$0.20 per share (fully diluted) compared to $4.9 million or
$0.23 per share (fully diluted) for the third quarter of 1995.
10
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
MATERIAL CHANGES IN RESULTS OF OPERATIONS
NINE MONTHS SEPTEMBER 30, 1996 AND 1995
REVENUES
Net revenues for the Company increased to $162.9 million in the
first nine months of 1996 from $141.5 million in the 1995 nine
month period, an increase of approximately $21.4 million or
15%. Casino revenues increased $6.3 million, or 8%, to $83.1
million in the 1996 period from $76.8 million in the period
ended September 30, 1995. Table game and slot machine revenues
were the main contributors to this increase, with table game
revenues increasing to $30.4 million and slot machine revenues
to $48.3 million in the nine months ended September 30, 1996
from $25.8 million and $46.2 million in the same period in the
prior year, respectively. Management believes that the
increase in table game revenues was primarily the result of 13
more tables being available in the 1996 period and an increase
in the number of available and occupied rooms. The increase in
slot machine revenues occurred primarily in the first three
months of 1996, with revenues remaining relatively flat in the
second and third quarters when compared to the same periods in
1995. Management believes that this was primarily due to a 12%
decrease in the number of slot machines available during a
significant portion of the nine months ended September 30, 1996
from the number of machines available in the prior year period
as a result of space limitations associated with the Phase V
Expansion and casino remodeling projects.
Room revenues increased by $5.1 million or 20% to $30.1 million
in the nine months ended September 30, 1996 from $25.0 million
in the prior year period. The increase in room revenue
resulted primarily from the addition of 365 new hotel suites
placed into service in February 1995, 184 new hotel suites
being placed into service in March 1995 and an additional 141
new hotel suites being placed into service in December 1995.
The hotel occupancy percentage increased to 95.8% in the 1996
period based on 424,686 available room nights from 95.2% in the
1995 period based on 360,258 room nights available.
Food and beverage revenues increased to $53.0 million in the
nine month period ended September 30, 1996 from $44.5 million
in the same period in 1995, an increase of $8.5 million or
19.0%. An increase in the average food check and increased
beverage sales contributed to the increase in food and beverage
revenues.
Other revenues increased by $2.4 million or 27.5% to $11.3
million in the 1996 period compared to $8.9 million in the nine
month period in 1995. Increased telephone revenues from the
additional hotel suites, as well as increased merchandise sales
and admissions to entertainment activities were the primary
reasons for the increase in other revenues.
OPERATING MARGINS
Operating profit as a percentage of net revenues was 19% and
20% for the nine month periods ended September 30, 1996 and
1995, respectively. Casino operating profit was 52% in the
nine month period in 1996 compared to 56% in the same period in
1995. Management believes that the decline in the operating
margin in the casino was due to (i) the change in the ratio
between table game revenues, which traditionally have a lower
operating margin, and slot machine revenues and (ii) the
incurrence of pre-opening marketing and staff costs associated
with the September 1996 opening of the new High Limit gaming
area. Food and beverage operating profit was 23% in the nine
month period ended September 30, 1996 compared to 19% during
the first nine months of 1995. Management believes that this
improvement is the result of effective cost controls and a
higher average food check in the 1996 period. Hotel operating
profit was 67% for the first nine months of 1996 compared to
69% in the prior year period. Management believes that the
decline in the hotel operating margin is the result of
increases in normal operating expenses including salaries,
wages, benefits and travel agent commissions. Other expenses
were 52% of other revenues for the nine months ended September
30, 1996 compared to 56% in the first nine months of 1995.
Management believes the improvement is due to the increase in
other revenues, particularly telephone and entertainment
admissions, which do not require significant incremental
expense. Selling, general and administrative expenses were 14%
and 15% of net revenues for the nine month periods ended
September 30, 1996 and 1995, respectively.
11
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
MATERIAL CHANGES IN RESULTS OF OPERATIONS
NINE MONTHS SEPTEMBER 30, 1996 AND 1995
PROMOTIONAL ALLOWANCES
Promotional allowances, which represent the retail value of
rooms, food, beverage and other services provided to customers
without charge, were $14.5 million or 8.0% of gross revenues in
the first nine months of 1996. The estimated cost of providing
such promotional allowances was $8.2 million. This compares to
promotional allowances in the same nine month period in 1995 of
$13.7 million or 9% of gross revenues at an estimated cost of
$8.0 million.
DEPRECIATION AND AMORTIZATION
Depreciation and amortization increased by $2.1 million or 21%
to $12.5 million in the first nine months of 1996 compared to
$10.4 million in the same period in the prior year. This
increase is primarily attributable to the 365 new hotel suites
which were placed into service in February 1995 and 184 new
hotel suites in March 1995, as well as completion in December
1995 of the Phase IV Expansion project which included 141 new
hotel suites, the addition of approximately 5,400 square feet
of meeting room space, the expansion of Buzios seafood
restaurant, the addition of a new health club and salon
facility and a variety of back-of-the-house improvements. In
addition, approximately $7.3 million in construction projects,
including the new multi-level parking garage which is part of
the Phase V Expansion project which will allow for direct
access into the Masquerade Village, have been placed into
service in 1996 and are being depreciated.
OTHER INCOME (EXPENSE)
Interest expense increased by $1.7 million or 31% to $7.1
million in the first nine months of 1996 from $5.4 million in
the same period in 1995. Interest expense increased primarily
as a result of the Company's July 1995 issuance of $100 million
in principal amount of 10 5/8% Senior Subordinated Notes Due
2005, the proceeds from which were primarily utilized to repay
the Rio Bank Loan, and to increased borrowings in connection
with the Phase V Expansion project. Interest expense in the
first nine months of 1996 was reduced by $4.0 million because
of interest capitalized on amounts expended on the Phase V
Expansion project, which will center around a 41-story curved
tower containing over 1,000 new hotel suites. This project
will also include approximately 60,000 square feet of public
area which will provide additional casino space, restaurants,
new retail and interactive entertainment space as well as an
expanded pool and beach area and additional parking facilities.
Interest expense in the first six months of 1995 was reduced by
$0.6 million because of interest capitalized on amounts
expended on the Phase III and Phase IV Expansion projects.
NET INCOME
Net income for the first nine months of 1996 was $15.1 million
or $0.70 per share (fully diluted) compared to $14.3 million or
$0.66 per share (fully diluted) for the first nine months of
1995.
MATERIAL CHANGES IN FINANCIAL CONDITION
LIQUIDITY AND CAPITAL RESOURCES
In June 1996, the Rio Bank Loan was increased to $200 million.
This increase is for general corporate purposes and for
architectural, engineering and development costs associated
with a second hotel-casino with up to 3,000 rooms that is being
master-planned for the Rio's 77 acre site. The Rio Bank Loan
still matures on June 30, 2001 and requires scheduled
reductions of the maximum amount available commencing with a
$10 million reduction at December 31, 1997, a $7.5 million
reduction at the end of each quarter during 1998, a $10 million
reduction at the end of each quarter during 1999, a $12.5
million reduction at the end of each quarter during 2000, a $35
million reduction at March 31, 2001 and maturity at June 30,
2001.
12
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
MATERIAL CHANGES IN RESULTS OF OPERATIONS
NINE MONTHS SEPTEMBER 30, 1996 AND 1995
At September 30, 1996, cash and cash equivalents were $11.0
million compared with $20.0 million at December 31, 1995. At
September 30, 1996, the Company had $104.0 million available
under the Rio Bank Loan. The revolving credit feature of the
Rio Bank Loan allows the Company to pay down and reborrow
principal under the line of credit as the Company deems
appropriate. The Company did not utilize this ability at the
end of the third quarter of 1996, but the Company did borrow
$10 million on December 29, 1995 and repaid $9 million on
January 2, 1996. The decrease in cash is primarily due to the
decision of the Company not to draw down any amount of the
available Rio Bank Loan at the end of the quarter, as well as
the use of cash and cash equivalents to make capital
expenditures for the Company's $200 million Phase V Expansion
and the previously reported acquisition of land adjacent to the
Rio.
During the first nine months of 1996, cash provided by
operating activities was $28.6 million. Investing activities
used $123.5 million of the Company's cash during the first nine
months of 1996. Approximately $2.6 million of such
expenditures was related to the Company's Phase III Expansion,
approximately $2.3 million was related to the Company's Phase
IV Expansion and approximately $101.3 million was related to
the Company's Phase V Expansion. During the first nine months
of 1996, the Company spent approximately $10.9 million toward
the acquisition of approximately 34 acres of land adjacent to
the Rio. The balance of cash used in investing activities was
expended on other capital projects.
During the fourth quarter of 1994, the Board of Directors
authorized the Company to make discretionary repurchases of up
to 2 million shares of its common stock ("Common Stock") from
time to time in the open market or otherwise. During the first
nine months of 1996, the Company repurchased 75,000 shares of
Common Stock at an average cost of $16.13 per share.
Under the Rio Bank Loan, the Company is subject to annual
capital expenditure limits of $7.5 million plus the amount
available of unused capital expenditures from the prior fiscal
year, but not to exceed $12.5 million in a calendar year.
However, the Company received a written waiver to allow the
Company to construct the Phase III Expansion, the Phase IV
Expansion and the Phase V Expansion. In addition, the Company
received a written waiver from the lenders to allow the Company
to invest up to $35.0 million in land adjacent to the Rio.
Because of the annual restrictions on capital expenditures
contained in the Rio Bank Loan, any other significant new
capital improvements will also require the consent of the
lenders.
As of October 1, 1996 the Company's capital commitments include
approximately $98.7 million for the Phase V Expansion and
$9.1 million under commitments for the balance of the purchase
price and/or option price of certain of the land parcels
adjacent to the Rio for which the entire purchase price has not
been funded. Based upon cash on hand, cash available through
borrowings under the Rio Bank Loan and cash from operations,
the Company believes that it has adequate cash available to
fund the remaining cost of the Phase V Expansion and the real
estate purchase commitments.
13
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
LARRY SCHREIER V. CAESARS WORLD, INC., ET AL., Case No. 95-923-
LDG (RJJ), instituted on September 26, 1995, in the United
States District Court for the District of Nevada, Southern
District. An individual, purportedly representing a class,
filed a complaint against four manufacturers, three
distributors and 38 casino operators, including the Company,
that manufacture, distribute or offer for play video poker and
electronic slot machines. The individual allegedly intends to
seek class certification of the interests he claims to
represent. The complaint alleges that the defendants have
engaged in a course of conduct intended to induce persons to
play such games based on a false belief concerning how the
gaming machines operate, as well as the extent to which there
is an opportunity to win on a given play. The complaint
alleges violations of the RICO Act, as well as claims of
common law fraud, unjust enrichment and negligent
misrepresentation, and seeks damages in excess of $1 billion,
without any substantiation of that amount. The complaint is
similar to the Poulos Complaint and the Ahern Complaint
described in the Company's Form 10-K for the year ended
December 31, 1995. The Company filed a motion to dismiss the
complaint. Plaintiff's attempts to consolidate this action
with the Ahern Complaint and Poulos Complaint were not
successful. The Nevada District Court entered an order
granting the motions to dismiss based on defects in the
pleadings, and denying as moot all other pending motions,
including those of the Company. The Court granted plaintiffs
until September 30, 1996 within which to file an amended
complaint that complies with the applicable pleading
requirements. The plaintiffs filed an amended complaint on or
about September 30,1996. The Company renewed its motion to
dismiss based on abstention and related doctrines, and based on
defects in the pleadings. Management believes that the
complaint is without merit and intends vigorously to defend the
allegations.
ITEM 2. CHANGES IN SECURITIES
During the third quarter of 1996, certain options granted
pursuant to the Company's Non-Statutory Stock Option Plan were
exercised, resulting in the issuance of 29,000 shares of the
Company's Common Stock.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
NONE
14
<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
NONE
ITEM 5. OTHER INFORMATION
On October 8, 1996, David P. Hanlon was appointed Executive
Vice President and Chief Operating Officer of the Company and
President and Chief Operating Officer of Rio Properties.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
11.01 Computation of Earnings Per Common Share
27.01 Financial Data Schedule
(b) REPORT ON FORM 8-K
NONE
15
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act
of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned thereunto duly authorized.
Rio Hotel & Casino, Inc.
(Registrant)
November 11, 1996 /s/ Ronald J. Radcliffe
(Date) RONALD J. RADCLIFFE
Treasurer and Chief Financial Officer
(Duly Authorized Officer and
Principal Financial Officer)
16
<PAGE>
EXHIBIT INDEX
SEQUENTIAL
PAGE
EXHIBIT DESCRIPTION NUMBER
11.01 Computation of Earnings per Common Share 18
27.01 Financial Data Schedule 20
17
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 10,990
<SECURITIES> 0
<RECEIVABLES> 6,566
<ALLOWANCES> 889
<INVENTORY> 3,732
<CURRENT-ASSETS> 25,718
<PP&E> 459,221
<DEPRECIATION> 58,887
<TOTAL-ASSETS> 433,838
<CURRENT-LIABILITIES> 46,930
<BONDS> 197,003
0
0
<COMMON> 212
<OTHER-SE> 178,316
<TOTAL-LIABILITY-AND-EQUITY> 433,838
<SALES> 163,087
<TOTAL-REVENUES> 163,087
<CGS> 0
<TOTAL-COSTS> 132,438
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7,112
<INCOME-PRETAX> 23,537
<INCOME-TAX> 8,469
<INCOME-CONTINUING> 15,068
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 15,068
<EPS-PRIMARY> .70
<EPS-DILUTED> .70
</TABLE>
EXHIBIT 11.01
<TABLE>
<CAPTION>
RIO HOTEL & CASINO, INC. AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER COMMON SHARE
(Unaudited)
Three Months Ended
September 30,
1996 1995
<S> <C> <C>
Primary:
Earnings:
Net income $ 4,266,483 $ 4,884,691
Shares:
Weighted average number of common shares
and equivalents outstanding 21,223,058 21,338,335
Stock options 296,014 295,543
Weighted average number of common shares
outstanding, as adjusted 21,519,072 21,633,878
Earnings per common share:
Net income per common share $ 0.20 $ 0.23
Fully diluted:
Earnings:
Net income $ 4,266,483 $ 4,884,691
Shares:
Weighted average number of common shares
and equivalents outstanding 21,223,058 21,338,335
Stock options 320,427 295,543
Weighted average number of common shares
outstanding, as adjusted 21,543,485 21,633,878
Earnings per common share:
Net income per common share $ 0.20 $ 0.23
</TABLE>
18
<PAGE>
EXHIBIT 11.01
<TABLE>
<CAPTION>
RIO HOTEL & CASINO, INC. AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER COMMON SHARE
(Unaudited)
Nine Months Ended
September 30,
1996 1995
<S> <C> <C>
Primary:
Earnings:
Net income $ 15,067,593 $ 14,310,688
Shares:
Weighted average number of common shares
and equivalents outstanding 21,209,461 21,308,367
Stock options 339,996 325,162
Weighted average number of common shares
outstanding, as adjusted 21,549,457 21,633,529
Earnings per common share:
Net income per common share $ 0.70 $ 0.66
Fully diluted:
Earnings:
Net income $ 15,067,593 $ 14,310,688
Shares:
Weighted average number of common shares
and equivalents outstanding 21,209,461 21,308,367
Stock options 353,629 327,088
Weighted average number of common shares
outstanding, as adjusted 21,563,090 21,635,455
Earnings per common share:
Net income per common share $ 0.70 $ 0.66
</TABLE>
19
<PAGE>
