<PAGE>
As filed with the Securities and Exchange Commission on October 31, 1997.
Registration No. 333-
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------
FORM S-3
REGISTRATION STATEMENT
Under
The Securities Act of 1933
----------------------
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, (702) 252-7733
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
James A. Barrett, Jr.
President
3700 West Flamingo Road
Las Vegas, Nevada 89103
(702) 252-7733
(Name, address, including zip code, and telephone number,
including area code, of agents for service)
Copy to:
Michael J. Bonner Allan G. Sperling
Sherwood N. Cook David C. Lopez
David A. Barksdale Cleary, Gottlieb, Steen & Hamilton
Kummer Kaempfer Bonner & Renshaw One Liberty Plaza
3800 Howard Hughes Parkway, 7th Floor New York, New York 10006
Las Vegas, Nevada 89109 (212)225-2000
(702) 792-7000
Approximate date of proposed sale to the public: As soon as
practicable after this Registration Statement becomes effective.
If the only securities being registered on this Form are being
offered pursuant to dividend or interest reinvestment plans, please
check the following box. [ ]
If any of the securities being registered on this Form are to
be offered on a delayed or continuous basis pursuant to Rule 415
under the Securities Act of 1933, other than securities offered only
in connection with dividend or interest reinvestment plans , check
the following box. [ ]
If this Form is filed to register additional securities for an
offering pursuant to Rule 462(b) under the Securities Act, please
check the following box and list the Securities Act registration
statement number of the earlier effective registration statement
for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to
Rule 462(c) under the Securities Act, check the following box and
list the Securities Act registration statement number of the
earlier effective registration statement for the same offering.
[ ]
If delivery of the prospectus is expected to be made pursuant
to Rule 434, please check the following box. [ ]
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
==================================================================================================================
Amount of
Title of each class of Amount to be Offering Aggregate registration
securities to be registered registered<F1> price per share<F2> offering price<F2> fee
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, par value $0.01 3,450,000 $22.0625 $76,115,625 $ 23,066
==================================================================================================================
<FN>
<F1> Includes the maximum number of shares which may be offered and
sold pursuant to the Underwriters' over-allotment option.
<F2> Calculated in accordance with Rule 457(c) based upon the average
of the high and low prices reported on the New York Stock
Exchange on October 30, 1997.
</FN>
</TABLE>
The Registrant hereby amends this Registration Statement on such
date or dates as may be necessary to delay its effective date until
the Registrant shall file a further amendment which specifically
states that this Registration Statement shall thereafter become
effective in accordance with Section 8(a) of the Securities Act of
1933 or until the Registration Statement shall become effective on
such date as the Securities and Exchange Commission, acting pursuant
to said Section 8(a), may determine.
<PAGE>
Subject To Completion
October 31, 1997
Prospectus
3,000,000 Shares
Rio Hotel & Casino, Inc.
Common Stock
($0.01 par value)
All of the 3,000,000 shares (the "Shares") of common stock, $0.01
par value per share (the "Common Stock"), are being offered and
sold by Rio Hotel & Casino, Inc. (the "Company"). The Common Stock
is traded on the New York Stock Exchange ("NYSE") under the symbol
"RHC." On October 30, 1997, the last reported sale price of the
Common Stock as reported on the New York Stock Exchange Composite
Tape was $ 21.50 per share. See "Price Range of Common Stock."
See "Risk Factors" on page 8 for a discussion of certain factors
that should be considered by prospective purchasers of the Common
Stock offered hereby.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR
ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
NEITHER THE NEVADA GAMING COMMISSION NOR THE NEVADA STATE GAMING
CONTROL BOARD OR ANY OTHER GAMING AUTHORITY HAS PASSED UPON THE
ADEQUACY OR ACCURACY OF THIS PROSPECTUS OR THE INVESTMENT MERITS
OF THE COMMON STOCK OFFERED HEREBY. ANY REPRESENTATION TO THE
CONTRARY IS UNLAWFUL.
<TABLE>
<CAPTION>
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC DISCOUNT COMPANY <F1>
<S> <C> <C> <C>
Per Share............ $ $ $
Total (2)............ $ $ $
<FN>
<F1> Before deducting offering expenses payable by the Company
estimated to be $ .
<F2> The Company has granted to the Underwriters a 30-day option
to purchase up to 450,000 shares of Common Stock at the Price
to Public, less the Underwriting Discount, solely to cover
over-allotments, if any. If the Underwriters exercise such
option in full, the total Price to Public, Underwriting
Discount and Proceeds to Company will be $ ,
$ , and $ , respectively. See "Underwriting."
</FN>
</TABLE>
The shares of Common Stock are offered subject to receipt and
acceptance by the Underwriters, to prior sale and to the
Underwriters' right to reject any order in whole or in part and
to withdraw, cancel or modify the offer without notice. It is
expected that delivery of the shares will be made at the offices
of Salomon Brothers Inc, Seven World Trade Center, New York, New
York or through the facilities of The Depository Trust Company, on
or about , 1997.
Salomon Brothers Inc Merrill Lynch & Co.
The date of this Prospectus is , 1997.
[The following text appears vertically along the left margin.]
Information contained herein is subject to completion or
amendment. A registration statement relating to these securities
has been filed with the Securities and Exchange Commission. These
securities may not be sold nor may offers to buy be accepted prior
to the time the registration statement becomes effective. This
prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of
these securities in any State in which such offer, solicitation
or sale would be unlawful prior to registration or qualification
under the securities laws of any such State.
<PAGE>
CERTAIN PERSONS PARTICIPATING IN THE OFFERING MADE HEREBY MAY
ENGAGE IN TRANSACTIONS THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT
THE PRICE OF THE COMMON STOCK, INCLUDING PURCHASES OF THE COMMON
STOCK TO STABILIZE ITS MARKET PRICE, PURCHASES OF THE COMMON STOCK
TO COVER SOME OR ALL OF A SHORT POSITION IN THE COMMON STOCK
MAINTAINED BY THE UNDERWRITERS AND THE IMPOSITION OF PENALTY BIDS.
FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
AVAILABLE INFORMATION
The Company is subject to the informational requirements of
the Securities Exchange Act of 1934 (the "Exchange Act") and
in accordance therewith files reports, proxy and information
statements and other information with the Securities and Exchange
Commission (the "Commission"). Such reports, proxy and information
statements and other information filed by the Company may be
inspected and copied at the public reference facilities of the
Commission, Room 1024, Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549, as well as at the following Regional
Offices of the Commission: Seven World Trade Center, 14th Floor,
New York, New York 10048 and 500 West Madison Street, Suite 1400,
Chicago, Illinois 60601. Copies of such material may be obtained
by mail at prescribed rates. Requests should be directed to the
Commission at Judiciary Plaza, 450 Fifth Street, N.W., Washington,
D.C. 20549. In addition, the Commission maintains a web site
that contains such reports, proxy statements and other information
filed by the Company. The Commission web site address is
(http://www.sec.gov).
The Company has filed with the Commission a Registration
Statement on Form S-3 under th e Securities Act of 1933 (the
"Securities Act"), of which this Prospectus constitutes a part,
with respect to the Shares offered hereby. The Registration
Statement, including exhibits and schedules thereto, may be
obtained from the Commission's principal office at Judiciary Plaza,
450 Fifth Street, N.W., Washington, D.C. 20549, upon payment of
the fees prescribed by the Commission. Statements contained in
this Prospectus as to the contents of any document referred to are
not necessarily complete and in each instance reference is made
to the copy of the appropriate documen filed as an exhibit to, or
incorporated by reference into, the Registration Statement, each
statement being qualified in all respects by such reference.
INCORPORATION OF DOCUMENTS BY REFERENCE
The following documents, which have been filed by the
Company with the Commission are hereby incorporated by reference
into this Prospectus:
(i) The Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1996;
(ii) The Company's Quarterly Reports on Form 10-Q for
the fiscal quarters ended March 31, 1997, June 30, 1997 and
September 30, 1997; and
(iii) The Company's Current Report on Form 8-K dated February
4, 1997.
All documents filed by the Company after the date of this
Prospectus pursuant to Sections 13(a), 13(c), 14 or 15(d) of the
Exchange Act and prior to the termination of the offering hereunder
shall be deemed to be incorporated by reference into this
Prospectus and to be a part hereof from the date of filing of such
documents. Any statement contained in a document incorporated or
deemed to be incorporated by reference herein shall be deemed to
be modified or superseded for purposes of this Prospectus to the
extent that a statement contained herein or in any other
subsequently filed document which also is or is deemed to be
incorporated b y reference herein modifies or supersedes such
statement. Any such statement so
2
<PAGE>
modified or superseded shall not be deemed, except as so modified
or superseded, to constitute a part of this Prospectus.
The Company will provide without charge to each person to
whom a copy of this Prospectus is delivered, upon the written or
oral request of any such person, a copy of any or all of the
documents incorporated herein by reference, other than exhibits to
such documents (unless such exhibits are specifically incorporated
by reference in such documents). Written requests for such copies
should be directed to James A. Barrett, Jr., Rio Hotel & Casino,
Inc., at the Company's principal executive offices located at
3700 West Flamingo Road, Las Vegas, Nevada 89103. Telephone
requests may be directed to Mr. Barrett at (702) 252-7733.
3
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and
should be read in conjunction with, the documents incorporated
herein by reference. Unless indicated otherwise or the context
otherwise requires (i) references in this Prospectus to the
"Company" refer to Rio Hotel & Casino, Inc., a Nevada corporation,
and its subsidiaries, and (ii) references to the "Offering" refer
to the Shares being offered hereby. Unless otherwise indicated,
all information in this Prospectus assumes no exercise of the
Underwriters' over-allotment option. This Prospectus contains
forward-looking statements that involve risks and uncertainties.
Actual results could differ materially from those discussed in
the forward-looking statements as a result of certain factors,
including those set forth under "Risk Factors" and elsewhere in
this Prospectus.
The Company
Rio Hotel & Casino, Inc. owns and operates an all-suite
hotel-casino, the Rio Suite Hotel & Casino (the "Rio") in Las
Vegas, Nevada. This property utilizes a colorful Brazilian
Carnivale theme and currently features 2,582 suites, 116,000
square feet of casino space, 14 restaurants, approximately 2,500
slot machines, 109 table games and other related amenities,
including the Rio Secco Golf Club. The Rio is situated on an
elevated site near the Las Vegas Strip and adjacent to a major
exit from Interstate 15, the freeway linking Las Vegas with
Southern California. The Company markets to the middle to upper
income segments of gaming customers, including both local
residents and Las Vegas visitors. The Rio's all-suite concept,
diverse high quality dining and easy access provide an attractive
alternative to the Las Vegas Strip and a fun and comfortable
environment in which to enjoy gaming, dining and entertainment.
In June 1997, the Company completed a $200 million expansion,
exclusive of construction period interest and preopening costs (the
"Phase V Expansion"), centered around the Masquerade Village. The
Masquerade Village contains approximately 120,000 square feet of
public space wit h a Carnivale and Mardi Gras themed casino
expansion, featuring Masquerade Show in the Sky, an interactive $25
million indoor attraction, a variety of new restaurants and fine
specialty retail shops. The Phase V Expansion added a curved 41-
story hotel tower containing 1,031 suites and 27,000 square feet of
additional casino space.
In the third quarter of 1997, the Company also acquired
a golf course located in the master planned community of
Seven Hills in Henderson, Nevada, and intends to use the course to
provide a golf school operated by Butch Harmon and golf vacation
packages to its guests, in addition to providing play on the course
primarily to its local and tourist customers.
The Company's business strategy focuses on attracting
and fostering repeat business from customers in the middle to upper
income segments of the local resident and tourist markets. To
implement its business strategy, the Company capitalizes on its all-
suite concept, strategic location and fun-filled Carnivale and
Mardi Gras theme. The Company strives to provide a quality,
affordable gaming and entertainment experience in order to generate
high customer satisfaction and loyalty. The Rio's location at
Interstate 15 and Flamingo Road helps to attract both of its target
market segments. The Rio's value-priced suites provide an
attractive alternative to conventional Las Vegas rooms for visitors
who desire to avoid the crowds and congestion of the Las Vegas
Strip. Rio's suites offer approximately 50% more space than other
comparably priced Las Vegas hotel rooms. As a means to capitalize
on the high-quality amenities that the Rio offers, management has
increased its marketing efforts to premium players. Management
believes that it must offer consistent quality, a comfortable and
fun atmosphere and, most importantly, friendly service at affordable
prices to provide a high value experience to its customers.
4
<PAGE>
The high quality of the Company's facilities and service is
reflected by the large number of awards the Rio has received. In
the 1997-1998 Zagat Hotel and Restaurant Survey, the Rio received
awards for "Best Rooms," "Best Service," "Best Food" and "Best
Overall Hotel" in Las Vegas. In addition, the Rio was selected
by the American Academy of Hospitality Sciences to be the first
and only recipient of the Five Star Diamond Award for 1997 in Las
Vegas. The American Academy of Hospitality Sciences has bestowed
fewer than 100 hotels and resorts internationally with this
award. Furthermore, the 1997 Casino Player Magazine "Best of
Gaming" readers' poll voted the Rio best in 12 categories,
including "Best Overall Hotel & Casino."
Recent Developments
New Rio Master Plan. The Company has assembled 43 acres
immediately adjacent to the Rio (seven of which are subject to an
option to purchase), bringing the total acreage at the Rio to 83
acres. In October 1997, the Company announced a master plan (the
"New Rio Master Plan") for continued development of the existing
Rio site and the adjacent 43 acre site. The New Rio Master Plan
is expected to be implemented in phases, the first of which has
been commenced and includes an entertainment/meeting/special
event/convention center, a complex of nine "Palazzo" suites
designed for the premium market, a restaurant serving authentic
Chinese food, a valet parking structure, a retail shopping area,
an expanded outdoor entertainment area with an additional
swimming pool, additional exhibition space in the Masquerade
Village, an expansion of the Shutters premium gaming lounge,
creation of a concierge suite level in both of the Rio's existing
towers and an expansion of the Rio's spa, and a new road that
connects the Rio and the Las Vegas Strip by extending Twain
Avenue to Industrial Road.
This first phase is anticipated to be completed in stages
through 1998 and early 1999 at an estimated cost of $200 million.
Subsequent phases of the New Rio Master Plan are currently at the
conceptual stage. These phases currently include a separate
hotel of up to 3,000 rooms, up to nine additional luxury villas
and two additional parking structures. The timetable, theme and
cost of the subsequent phases have not yet been established, and
there can be no assurance that the New Rio Master Plan will be
implemented successfully, if at all. See "Risk Factors -
Construction and Development Risks."
Proposed Detroit Project. The Company, and Paradise Valley,
L.L.C., a Michigan limited liability company ("Paradise Valley"),
filed a joint application on July 31, 1997 with the City of
Detroit, Michigan to obtain one of the three licenses that will
be granted to operate a hotel-casino in that venue. Pursuant to
the terms of the agreement with Paradise Valley, the Company
would be the majority owner and controlling partner of the joint
venture company and would receive a management fee based on gross
revenues for operating the joint venture business. The total
investment is estimated to be approximately $750 million, with
the Company to provide $150 million in equity capital and the
joint venture company to raise the balance of the anticipated
investment through project financing obtained by the joint
venture company. At the present time, there are a number of
applicants for the three licenses that will be granted in the
City of Detroit, including two groups that have been designated
to receive preferred consideration by the City of Detroit. The
City of Detroit will select three applicants on November 7, 1997
with whom the City of Detroit will negotiate development
agreements for the three licenses. If chosen, the joint venture
company will begin the negotiation with the City of Detroit for
the final scope of the project and the formal licensing process.
Plans for the Detroit project are in the conceptual bidding
phase, and are contingent upon successful negotiations with the
City of Detroit, licensing and financing issues. There can be no
assurance that the joint venture company will be successful in
securing one of the gaming licenses.
Amended and Restated Rio Bank Loan. The Company currently
has a $200 million senior secured reducing revolving credit
facility (the "Rio Bank Loan") that matures June 30, 2001 with a
syndicate of banks led by Bank of America National Trust and
Savings Association ("Bank of America NT&SA"). As of September
30, 1997, $130.0 million was available for borrowing under the
Rio Bank Loan. Proceeds from the Rio Bank Loan may be used for
general corporate purposes. The Rio Bank Loan is secured by a
5
<PAGE>
first deed of trust on substantially all of the real property
owned by Rio Properties, Inc., the Company's principal operating
subsidiary ("Rio Properties"), and other real and personal
property, and is guaranteed by the Company, which guarantee is
secured by a pledge of the capital stock of Rio Properties. The
Company is currently engaged in discussions with Bank of America
NT&SA to amend and restate the Rio Bank Loan (the "Amended and
Restated Rio Bank Loan") to provide for a $275 million credit
facility that will mature December 31, 2003. The Amended and
Restated Rio Bank Loan will provide for greater borrowing
capacity, subject to compliance with certain financial tests, and
improved pricing. There can be no assurances that the Company
will be able to modify the Rio Bank Loan.
<TABLE>
<CAPTION>
The Offering
<S> <C>
Common Stock................................. 3,000,000 shares
Common Stock Outstanding after the Offering.. 24,412,841 shares<F1>
Use of Proceeds.............................. The Company will use the net
proceeds of the Offering to
reduce amounts outstanding
under the Rio Bank Loan
($70.0 million as of September
30, 1997). See "Use of
Proceeds."
New York Stock Exchange Symbol............... RHC
<FN>
<F1> Based upon shares outstanding as of September 30, 1997.
Does not include shares reserved for future issuance upon the
exercise of currently outstanding options ("Options"), of which
options for 1,407,155 shares are currently exercisable.
</FN>
</TABLE>
6
<PAGE>
Summary Consolidated Financial Data
The following table summarizes certain selected consolidated
financial data, which should be read in connection with the
Company's Consolidated Financial Statements and the Notes thereto
included elsewhere herein and with "Management's Discussion and
Analysis of Financial Condition and Results of Operations." The
summary consolidated financial data as of and for the years ended
December 31, 1993 and 1992 and as of December 31, 1994 have been
derived from the Company's audited financial statements. The
summary consolidated financial data as of and for the years ended
December 31, 1996 and 1995 and for the year ended December 31,
1994 have been derived from the Company's audited financial
statements included elsewhere herein. The summary consolidated
financial data presented below as of and for the nine months
ended September 30, 1997 and 1996 are derived from the Company's
unaudited consolidated financial statements included elsewhere
herein. The unaudited consolidated financial statements include
all adjustments (consisting of only normal recurring adjustments)
which the Company considers necessary for a fair presentation of
the Company's financial position and results of operations for
these periods. Operating results for the nine months ended
September 30, 1997 are not necessarily indicative of the results
that may be expected for future periods.
<TABLE>
<CAPTION>
Nine Months
Ended September 30, Year Ended December 31,
------------------- ------------------------------------------------------------
1997 1996 1996 1995 1994 1993 1992
------------------- ------------ ------------ ----------- ----------- ----------
(Unaudited)
Statements of Income Data:
<S> <C> <C> <C> <C> <C> <C> <C>
Net revenues..................... $270,693 $163,087 $219,581 $192,958 $146,424 $110,053 $82,633
Operating profit................. 38,046 30,649 37,994 37,558 25,928 20,304 12,454
Interest expense................. (19,199) (7,112) (8,215) (8,106) (1,923) (1,839) (3,801)
Net income....................... 11,968 15,068 19,366 18,745 15,966 10,649 6,308
Net income per share............. 0.55 0.70 0.90 0.87 0.74 0.55 0.41
Weighted average number of
common shares outstanding<F1>.. 21,575 21,549 21,534 21,593 21,720 19,538 15,318
Other Data:<F2>
EBITDA<F3>....................... $67,924 $43,187 $55,614 $51,790 $36,792 $27,848 $18,268
Average daily suite rate<F4>..... $88.84 $73.82 $76.93 $72.18 $63.80 $62.60 $64.09
Average daily hotel occupancy.... 90.0% 95.8% 94.5% 94.5% 95.9% 96.8% 96.5%
Hotel suites..................... 2,582 1,551 1,998 1,551 861 861 424
Casino square footage............ 116,000 89,000 89,000 89,000 89,000 79,000 54,000
Slot machines.................... 2,442 1,880 1,884 2,098 2,200 1,950 1,450
Table games...................... 102 76 79 73 53 44 31
Restaurant seats................. 4,152 2,540 2,540 2,540 2,440 1,843 1,209
- -------------------
<FN>
<F1> Includes Common Stock equivalents related to options
currently outstanding under the Company's Non-Statutory
Stock Option Plan (the "NSOP"), the Company's 1991
Directors' Stock Option Plan (the "Directors' Plan") and the
Company's 1995 Long-Term Incentive Plan (the "Incentive
Plan").
<F2> Other data relating to hotel suites, casino square footage
and restaurant seats represent amounts as of the end of the
period. Data related to slot machines and table games
represent averages for the period.
<F3> For purposes of the financial information contained in this
Prospectus, EBITDA consists of operating profit (loss) plus
depreciation and amortization, including amortization of
preopening costs associated with the Phase V Expansion.
EBITDA should not be construed as an alternative to
operating profit (as determined in accordance with generally
accepted accounting principles) as an indicator of the
Company's operating performance, or as an alternative to
cash flow from operating activities (as determined in
accordance with generally accepted accounting principles) as
a measure of liquidity. This line item enables comparison
of the Company's performance with the performance of other
companies that report EBITDA.
<F4> Average daily suite rate figures are actual rates expressed
in dollars.
<F5> Pro forma as adjusted amounts give pro forma effect to this
Offering and the application of the net proceeds therefrom.
See "Use of Proceeds" and "Capitalization."
</FN>
</TABLE>
<TABLE>
<CAPTION>
September 30, 1997
-------------------------------
Pro Forma
Actual As Adjusted<F5>
----------- -----------------
(Unaudited)
<S> <C>
Balance Sheet Data:
Cash and cash equivalents...................... $ 13,763
Total assets................................... 558,789
Long-term debt, including current maturities... 305,279
Stockholders' equity........................... 196,144
7
<PAGE>
RISK FACTORS
Except for historical information contained in this
Prospectus, the matters discussed herein contain forward-looking
statements made pursuant to the safe harbor provisions of Section
27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934, such as plans for future
expansion, capital spending and financing sources. Such forward-
looking statements are inherently uncertain, and investors must
recognize that actual results may differ from management's
expectations. Key factors affecting current and future
operations of the Company include the factors discussed below.
Prospective investors should consider carefully the
following factors in addition to the other information contained
in this Prospectus before making an investment in the Shares.
Management of Growth; Dependence on Key Personnel
The future expansion of the Rio, the development of
additional future gaming properties within Las Vegas and other
potential gaming jurisdictions, such as Detroit, Michigan, may
involve unforeseen difficulties and may require disproportionate
amounts of time and attention by the Company's management to its
various business activities as well as the unexpected allocation
of financial and other resources of the Company. Many management
duties within the Company are presently the responsibility of a
relatively small number of executives. To manage the Company's
future growth, the Company will be required, among other things,
to hire and train new personnel, continuously evaluate and
change, if necessary, its existing management structure and
control its operating expenses. The loss of the services of
certain key individuals could have a material adverse effect on
the Company's business, financial condition or results of
operations. Competition for new personnel in Las Vegas is
intense and there can be no assurance that in the future the
Company will be able to attract and retain qualified personnel.
Construction and Development Risks
Construction projects, such as those contemplated under the
New Rio Master Plan, and the potential development of the project
in Detroit, Michigan, entail significant risks, including
management's ability to control and manage such projects
effectively, shortages of materials or skilled labor, unforeseen
engineering, environmental or geological problems, work
stoppages, weather interference, floods and unanticipated cost
increases. No assurance can be given that the budgeted costs of
the Company's current and future projects will not be exceeded or
that any such projects will commence operations within the
contemplated schedules, if at all. In addition, the scope of the
licenses, permits and authorizations required to construct and
open a new facility or expand an existing facility are extensive,
and the failure to obtain such licenses, permits and
authorizations could prevent or delay the completion of
construction or opening of all or part of such facilities, affect
the design of features of the project or increase completion
costs.
Any development of new facilities will require the Company
to make a substantial capital investment and, depending on
timing, may require additional debt or equity financing. The New
Rio Master Plan or the Detroit project, if developed, are likely
to require significant additional debt or equity financing.
There can be no assurance that the cash flow generated by the
operations of the Company or any other new venture will be
sufficient to service any additional debt which may be incurred
in connection therewith. There can be no assurance that
additional financing can be obtained on terms acceptable to the
Company or otherwise. Further, there can be no assurance that
any expansion projects will add proportionately to the Company's
results of operations. See "Summary - Recent Developments" and
"Management's Discussion and Analysis of Financial Condition and
Results of Operations - Liquidity and Capital Resources."
8
<PAGE>
Competition
Intense competition exists in the gaming industry, and many
of the Company's competitors have significantly greater resources
than the Company. The Rio faces competition from all other
casinos and hotels in the Las Vegas area, including competitors
located on the Las Vegas Strip, the Boulder Strip and in downtown
Las Vegas. Such competition is primarily targeted toward local
residents and repeat visitors. The Company also faces
competition from non-hotel gaming facilities targeted toward
local residents. In recent months, several of the Company's
direct competitors have opened new hotel-casinos or have
commenced or completed major expansion projects, and other hotel-
casinos and expansions are planned. In the past two years, three
large hotel-casinos have opened on or near the Las Vegas Strip.
In addition, nine new hotel-casinos and two hotel-casino
expansions are under development, which will add approximately
21,500 rooms to the Las Vegas area before the year 2000. Major
expansions or enhancements of existing properties or the
construction of new properties by competitors could have a
material adverse effect on the Company's business, financial
condition and results of operations.
To a lesser extent, the Rio competes with hotel-casinos
located in the Laughlin and Reno-Lake Tahoe areas of Nevada and
in Atlantic City, New Jersey. The Company also competes with
state-sponsored lotteries, on and off track wagering, card
parlors, riverboat and Native American gaming ventures and other
forms of legalized gaming in the United States, as well as with
gaming on cruise ships and international gaming operations. In
addition, certain states have recently legalized, and several
other states are currently considering legalizing, casino gaming
in specific geographical areas within those states. The
development of casinos, lotteries and other forms of gaming in
other states, particularly areas close to Nevada, such as
California, could adversely affect the Company's business,
financial condition and results of operations.
For a more comprehensive discussion of competitive factors
affecting the Company's operations, see "Business - Competition."
Leverage and Debt Service
The Company has significant interest expense and principal
repayment obligations under the Company's indebtedness. To the
extent that borrowings are drawn under the Rio Bank Loan, Rio
Properties, the Company's principal operating subsidiary, will
have significant interest expense and principal repayment
obligations thereunder, which obligations are guaranteed by the
Company. Moreover, the Company currently has outstanding $100
million in aggregate principal amount of 10 5/8 % Senior
Subordinated Notes (the "10 5/8% Notes") and $125 million in
aggregate principal amount of 9 1/2% Senior Subordinated Notes
(the "9 1/2% Notes" and collectively with the 10 5/8 % Notes, the
"Notes"). As of September 30, 1997, the Company's consolidated
total indebtedness was $305.3 million. See "Use of Proceeds."
The Company is dependent upon distributions from Rio Properties
to meet substantially all of its interest expense and principal
repayment obligations under its indebtedness. Substantially all
of the operations of the Company are conducted through Rio
Properties.
The Rio Bank Loan includes covenants significantly
restricting the amount of funds which may be advanced by Rio
Properties to the Company and the amount of principal or interest
that may be repaid by Rio Properties to the Company on any
intercompany loans, and includes a covenant requiring the Company
to maintain a certain consolidated tangible net worth which
effectively limits the amount of funds which may be distributed
by Rio Properties to the Company in the form of dividends. The
Rio Bank Loan also contains numerous financial and operating
covenants, including requirements that Rio Properties and the
Company, on a consolidated basis, satisfy certain financial
ratios and maintain certain specified levels of
9
<PAGE>
net worth, as well as limitations on the incurrence of additional
indebtedness. Additionally, if Rio Properties does not satisfy
certain financial ratios and covenants under the Rio Bank Loan,
it will have available to it only a portion of the entire $200
million in the absence of a written waiver from the lenders. On
a pro forma basis giving effect to this Offering, as of September
30, 1997, Rio Properties would have had $ million outstanding
under the Rio Bank Loan. The Company is currently engaged in
discussions with Bank of America NT&SA to provide for the Amended
and Restated Bank Loan. The Amended and Restated Bank Loan will
provide for greater borrowing capacity, subject to compliance
with certain financial tests, and lower pricing. There can be no
assurance that the Company will be able to modify the Rio Bank
Loan or, if it were able to do so, that the Company will receive
more favorable terms thereunder. The Indentures for the Notes
(collectively, "Indentures") also contain certain covenants,
including a limitation on the incurrence of additional
indebtedness; however, the Indentures permit the Company to incur
certain financing indebtedness under the Rio Bank Loan and
certain other indebtedness without satisfying the coverage ratio
contained in such covenants. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -
Liquidity and Capital Resources."
The ability of the Company to meet its debt service
requirements and the ability of Rio Properties and the Company to
comply with covenants under the Rio Bank Loan and the Indentures
will be dependent upon future performance, which is subject to
financial, economic, competitive, regulatory and other factors
affecting the Company and its subsidiaries, many of which are
beyond their control. While the Company expects that its
operating cash flow will be sufficient to cover its expenses,
including interest costs, there can be no assurance with respect
thereto. If the Company is unable to generate sufficient cash
flow, it could be required to adopt one or more alternatives,
such as reducing or delaying planned expansions or capital
expenditures, selling or leasing assets, restructuring debt or
obtaining additional equity capital. There can be no assurance
that any of these alternatives could be effected on satisfactory
terms, and dependence on alternative sources of funds could
impair the Company's competitive position and reduce its future
cash flow. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
Reliance on Certain Markets
The Rio draws a substantial number of customers from
throughout the United States, particularly California. Adverse
economic conditions could have a material adverse effect on the
Company's operating results. In addition, an increase in fuel
costs or transportation prices, a decrease in airplane traffic, a
worsening of interstate highway congestion from California, or a
deterioration of relations with tour and travel agents, as they
affect travel to Las Vegas and the Company's facilities, could
materially adversely affect the Company's business, financial
condition and results of operations.
In addition, a significant component of the Rio's customers
are Las Vegas residents. Although management believes that the
population and economic strength of Las Vegas will continue to
grow, there can be no assurance with respect thereto. See
"Business - Las Vegas Market."
Control by Existing Stockholders, Certain Relationships and
Related Transactions
Officers and directors of the Company will beneficially own
or control approximately 19.2% of the outstanding Common Stock
(excluding shares issuable upon the exercise of outstanding
options), including 19.0% owned by Anthony A. Marnell II,
Chairman of the Board of Directors, after giving effect to this
Offering. Such individuals, if acting together, would be able to
effectively elect the entire Board of
10
<PAGE>
Directors as well as approve most matters submitted to the
stockholders for approval. See "Security Ownership of Certain
Beneficial Owners and Management."
Anthony A. Marnell II, Chtd. ("Marnell Chartered"), an
architectural firm, and Marnell Corrao Associates, Inc. ("Marnell
Corrao"), a construction company, each of which is controlled by
Mr. Marnell, have provided and continue to provide all project
design and construction services for the Company. Potential
conflicts of interest between the Company and Marnell Chartered
or Marnell Corrao could arise (for example, if a request for a
change order is presented affecting a construction contract
price). To address such issues, the Company's Board of Directors
utilizes an Audit Committee, consisting of two non-employee
directors that, among other things, reviews and reports to the
full Board of Directors on certain issues that involve potential
conflicts of interest.
Mr. Marnell and James A. Barrett, Jr., President of the
Company, are each officers of Marnell Corrao. Mr. Marnell is an
officer of Marnell Chartered. In these capacities,
Messrs. Marnell and Barrett each devote substantial time and
attention to the affairs of these enterprises. Messrs. Marnell
and Barrett are also involved in other businesses and
investments.
Nevada Gaming Regulations
The Nevada State Gaming Control Board and the Nevada
Commission and other local, county and state regulatory agencies
may, in compliance with certain statutory and regulatory
procedures, limit, condition, suspend or revoke a license or
approval to own the stock of the Company for any cause deemed
reasonable by such licensing agency. Substantial fines for
violations of gaming laws or regulations may be levied against
the Company and persons involved. In addition, the Company could
be subject to fines for each violation of the gaming laws.
Furthermore, a supervisor could be appointed by a state court at
the request of the Nevada Commission to operate any nonrestricted
gaming establishment operated by the Company if the licenses held
by the Company are revoked, suspended or otherwise lapse. In
such extraordinary circumstances, earnings generated by gaming
operations during a supervisor's appointment (except for
reasonable rental value) could be forfeited to the State of
Nevada. Suspension or revocation of any of the licenses or the
appointment of a supervisor by the Nevada Commission would have a
material adverse effect on the Company's business, financial
condition or results of operations. See "Business - Regulation
and Licensing."
Regulatory Disposition
The Nevada Commission may, in its discretion, require the
holder of any security of a corporation registered under the
Nevada Gaming Control Act and the Rules and Regulations
promulgated thereunder (collectively the "Nevada Act"), such as
the Shares, to file applications, be investigated and be found
suitable to own the security of a registered corporation. If a
beneficial holder of Shares is required by the Nevada Commission
to be found suitable, the holder shall apply for a finding of
suitability within 30 days after the Nevada Commission request.
The applicant for a finding of suitability must pay all costs of
such investigation. If the Nevada Commission determines that a
person is unsuitable to own such security, then, pursuant to the
regulations of the Nevada Commission, the registered corporation
can be sanctioned, including by the loss of its approvals, if,
without the prior approval of the Nevada Commission, it (i) pays
to the unsuitable person any dividend, interest or any
distribution whatsoever, (ii) recognizes any voting rights by
such unsuitable person in connection with such securities, (iii)
pays the unsuitable person remuneration in any form or (iv) makes
any payment to the unsuitable person by way of principal,
redemption, conversion, exchange, liquidation or similar
transaction. Further, if the holder or beneficial owner is
required to be found suitable and is not found suitable by the
Nevada Commission, (i) the holder
11
<PAGE>
shall, upon request of the Company, dispose of such holder's
Shares within 30 days or within the time prescribed by the Nevada
Commission, whichever is earlier, or (ii) the Company may, at its
option, redeem the holder's Shares at the lesser of (y) the
Current Market Price or (z) the price at which the Shares were
acquired by the holder, without, in any case, accrued and unpaid
interest to the date of the finding of unsuitability by the
Nevada Commission, unless payment of such interest is permitted
by the Nevada Commission. See "Business - Regulation and
Licensing."
Uncertain Effect of National Gambling Impact and Policy
Commission
The U.S. Congress has created the National Gambling Impact
and Policy Commission to conduct a comprehensive study of all
matters relating to the economic and social impact of gaming in
the United States. The enabling legislation provides that, not
later than two years after enactment of the enabling legislation,
the commission would be required to issue a report containing its
findings and conclusions, together with recommendations for
legislation and administrative actions. Any such
recommendations, if enacted into law, could adversely impact the
gaming industry and have a material adverse effect on the
Company's business, financial condition or results of operations.
From time to time, certain legislators have proposed the
imposition of a federal tax on gross gaming revenues. No
specific proposals for the imposition of such a federal tax are
currently pending. However, no assurance can be given that such
a tax will not be imposed in the future. Any such tax could have
a material adverse effect on the Company's business, financial
condition or results of operations.
Environmental Risks and Regulation
As is the case with any owner or operator of real property,
the Company is subject to a variety of federal, state and local
governmental regulations relating to the use, storage, discharge,
emission and disposal of hazardous materials. Failure to comply
with environmental laws could result in the imposition of severe
penalties or restrictions on operations by government agencies or
courts of law which could adversely affect operations. The
Company does not have environmental liability insurance to cover
such events.
The Company has in the past engaged in real estate
development projects and has owned several parcels of real
estate. While the Company is unaware of any significant
environmental hazard on properties it owns or has owned, in the
event of any discovery of such hazard, severe penalties,
including the costs of remediation, could be sought against the
Company.
Volatility of Stock Price
The trading price of the Common Stock could be subject to
wide fluctuations in response to periodic variations in operating
results and other events or factors, including the success of the
Company's development activities, legislation approving,
defeating or restricting gaming, other governmental actions,
developments in the gaming industry generally and announcements
by the Company or by competitors. In addition, the stock market,
and the gaming industry in particular, have experienced extreme
price and volume fluctuations in a manner which has often been
unrelated to the operating performance of such companies. These
broad market fluctuations may adversely affect the market price
of the Common Stock. A shift away from investor interest in
gaming in general could adversely affect the trading price of the
Common Stock in a manner unrelated to the Company's operating
performance.
12
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the
3,000,000 shares of Common Stock offered by the Company hereby at
an assumed public offering price of $ per share are
estimated to be approximately $ million (approximately
$ million if the Underwriters' over-allotment option is
exercised in full), after deducting the underwriting discount and
estimated offering expenses payable by the Company. The Company
will initially use the net proceeds to reduce amounts outstanding
under the Rio Bank Loan. At such times as funds are thereafter
needed by the Company, the Company will draw funds then available
under the Rio Bank Loan. The interest rate on the Rio Bank Loan
is a variable rate equal to either the Eurodollar Rate (as
defined in the Rio Bank Loan) or the Base Rate (as defined in the
Rio Bank Loan), at the election of the Company, plus a variable
margin (based upon the Company's leverage ratio) over the
Eurodollar Rate or the Base Rate, as applicable. The maturity
date of the Rio Bank Loan is June 30, 2001. As of September 30,
1997, the unpaid principal of the Rio Bank Loan was $70.0
million. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations - Liquidity and Capital
Resources."
DIVIDEND POLICY
The Company has never declared or paid any dividends on its
Common Stock, and the Board of Directors intends to retain all
earnings, if any, for use in the Company's business for the
foreseeable future. In addition, the Company's long-term debt
instruments contain various restrictions on the payment of cash
dividends.
PRICE RANGE OF COMMON STOCK
The Company's Common Stock began trading on the New York
Stock Exchange (the "NYSE") under the symbol "RHC" on January 11,
1996. Prior to this date, the Company's Common Stock was traded
on the Nasdaq National Market under the symbol "RIOH." The
following table sets forth the high and low closing sale prices
of the Company's Common Stock, as reported by the NYSE and the
Nasdaq National Market, during the periods indicated.
</TABLE>
<TABLE>
<CAPTION>
High Low
<S> <C> <C>
1995
First Quarter.............................. $14 $11 1/4
Second Quarter............................. 16 5/8 13 1/4
Third Quarter.............................. 14 3/4 12 1/2
Fourth Quarter ............................ 13 5/8 11 5/8
1996
First Quarter.............................. $15 1/4 $11 5/8
Second Quarter............................. 18 3/4 15
Third Quarter.............................. 17 5/8 13 3/8
Fourth Quarter ............................ 14 13 7/8
1997
First Quarter.............................. $17 1/4 14
Second Quarter............................. 15 5/8 13 5/8
Third Quarter.............................. 22 1/4 14 9/16
Fourth Quarter (through October 30, 1997). 24 1/2 20 1/8
</TABLE>
13
<PAGE>
The last reported sale price of the Common Stock on the NYSE
on October , 1997 was $ per share. There were approximately
holders of record of the Company's Common Stock as of
October , 1997.
CONSOLIDATED CAPITALIZATION
The following table sets forth the cash position and
capitalization of the Company at September 30, 1997 and as adjusted
to give pro forma effect to this Offering and the application of the
net proceeds therefrom. This table should be read in conjunction
with the more detailed information and financial statements appearing
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
September 30, 1997
----------------------
Pro Forma
Actual As Adjusted
-------- -----------
(In thousands)
<S> <C> <C>
Cash and cash equivalents $ 13,763 $
========= ===========
Current maturities of long-term debt $ 1,266 $
--------- -----------
Long-term debt:
Rio Bank Loan 70,000
10 5/8 % Notes 100,000
9 1/2% Notes, net of discount 121,563
Other long-term debt 12,451
--------- -----------
Total long-term debt 304,014
--------- -----------
Total debt 305,279
--------- -----------
Stockholders' equity:
Common stock; par value $.01 per
share, 100,000,000 shares
authorized, 21,412,841 shares
outstanding, 24,412,841
shares outstanding pro forma 214
Additional paid-in-capital 115,439
Retained earnings 80,491
--------- -----------
Total stockholders' equity 196,144
--------- -----------
Total capitalization $ 501,423 $
========= ===========
- --------------------
<FN>
<F1> Assumes $_______ per share net to the Company after
underwriting discount, and 3,000,000 shares issued. Total net
proceeds to the Company assumed to be $__________.
</FN>
</TABLE>
14
<PAGE>
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 Section 27A of the Securities Act of 1933 and Section 21E of
the Securities Exchange Act of 1934, 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.
Overview
During the first six months of 1997, the Phase V Expansion
project was phased into operation, which consisted of the opening
of (i) the Masquerade Village on February 7, 1997, including five
new restaurants, 21 retail shops, approximately 30,000 square
feet of gaming area, the Masquerade Show in the Sky, an
entertainment event featuring parade floats with live
entertainers suspended from the Masquerade Village's ceiling; and
the addition of approximately 1,000 new suites, 447 of which
became available as of December 31, 1996 with the additional new
suites becoming available in mid-March 1997; and (ii) in mid-May
1997, the uppermost floors of the 41-story Masquerade Tower
including 31 new suites and the VooDoo Lounge and Cafe on the
40th and 41st floors which offer panoramic views of the Las Vegas
valley.
In addition, during the third quarter of 1997, the Company
consummated the purchase of the Seven Hills Golf Course located
approximately 15 minutes south of the Rio. The facility has been
renamed the Rio Secco Golf Club. The Company intends to use the
course to provide a golf school and golf vacation packages to its
guests, and provide play on the course primarily to the Rio's
local and tourist customers. The golf course opened for play in
October 1997, and the clubhouse is scheduled to open in the
spring of 1998.
The Company, together with Paradise Valley, has filed a
joint application with the City of Detroit, Michigan to obtain
one of the three licenses that will be granted to operate a
hotel-casino in that venue. Pursuant to the terms of the
agreement with Paradise Valley, the Company would be the majority
owner and controlling partner of the joint venture company,
and would receive a management fee based on gross revenues for
operating the joint venture business. The total investment is
estimated to be approximately $750 million, with the Company
to provide $150 million in equity capital and to raise the balance
of the anticipated investment through project financing obtained
by the joint venture company. At the present time, there are a
number of applicants for the three licenses that will be granted
in the City of Detroit, including two groups that have been
designated to receive special consideration by the City of
Detroit. The City of Detroit will select three applicants on
November 7, 1997 with whom the City of Detroit will negotiate
development agreements for the three licenses. Plans for a
Detroit project are in the conceptual bidding phase, and are
contingent upon successful negotiations with the City of Detroit,
licensing and financing issues. There can be no assurance that
the joint venture company will be successful in securing one of
the gaming licenses.
15
<PAGE>
Results of Operations
Nine Months Ended September 30, 1997 and 1996
The Company's net revenues increased to $270.7 million for
the nine months ended September 30, 1997 from $163.1 million in
the nine months ended September 30, 1996, an increase of $107.6
million or 66%. Casino revenues increased $58.1 million, or 70%,
to $141.2 million for the nine months ended September 30, 1997,
compared to $83.1 million in the nine months ended September 30,
1996. With the opening of the Masquerade Village casino area on
February 7, 1997, the average number of slot machines and table
games available increased from 1,880 and 76, respectively, in the
nine months ended September 30, 1996, to 2,442 and 102,
respectively, in the nine months ended September 30, 1997. Table
game revenues were $74.1 million for the nine months ended
September 30, 1997, an increase of $43.7 million, or 144%, from
the $30.4 million in the nine months ended September 30, 1996.
When comparing the nine months ended September 30, 1997 and the
nine months ended September 30, 1996, the table game hold
percentages were 19% and 16%, respectively, and table game handle
increased to $381.9 million, or 100%, from $190.8 million.
Management believes that the increase in table game handle was
primarily due to the increased number of table games available
and the increased foot traffic associated with the Phase V
Expansion, and an increased emphasis by management on marketing
to customers with higher credit limits and average wagers. Slot
machine revenues were $62.2 million in the nine months ended
September 30, 1997, an increase of $13.9 million, or 29%, from
$48.3 million in the nine months ended September 30, 1996.
Management believes that the increase in the average number of
slot machines available and the increase in customer traffic
associated with the Phase V Expansion were the primary reasons
for the increase in slot machine revenues. Other casino
revenues, consisting of the race and sports books, keno and
poker, increased 11% to $4.9 million in the nine months ended
September 30, 1997 compared to $4.4 million in the nine months
ended September 30, 1996, primarily due to the increased foot
traffic associated with the opening of the Phase V Expansion.
Room revenues increased by $20.3 million, or 67%, to $50.4
million for the nine months ended September 30, 1997 from $30.1
million in the same period in the prior year. Management
believes that the primary reasons for the increase in room
revenues were the additional availability of the new suites in
the new 41-story tower and an increase in the average room rate
from $74 in the first nine months of 1996 to $89 in the current
year's nine month period. The occupancy rate was 90% during the
nine months ended September 30, 1997, compared to 96% for the
same period in the prior year, with 202,075 more rooms being
available and occupied in the 1997 nine month period.
Food and beverage revenues increased $30.0 million, or 57%,
to $83.0 million in the nine months ended September 30, 1997
compared to $53.0 million in the first nine months of 1996.
Management believes that the opening of the Masquerade Village,
including the initial five new restaurants and bars on February
7, 1997, the opening of the VooDoo Restaurant and Lounge on May
24, 1997 and increased customer traffic generated through the
additional rooms and expanded casino and entertainment areas were
the primary reasons for the increase. An increase in the average
food check also contributed to the increase in food and beverage
revenues.
Other revenues increased by $7.3 million, or 64%, to $18.7
million in the first nine months of 1997, from $11.4 million in
the prior year period. The primary reasons for this increase
were an increase in showroom admissions, gift shop and other
retail sales, increased telephone revenues due to the increase in
rooms occupied, and shop rental received from the retail outlets
leased to third parties in the Masquerade Village.
16
<PAGE>
Before preopening expense, operating profit as a percentage
of net revenue was 18% and 19% for the nine months ended
September 30, 1997 and 1996, respectively. The one-time
preopening costs, which consisted primarily of direct incremental
personnel costs and advertising and marketing expenses associated
with the opening of the Phase V Expansion on February 7, 1997,
totaled approximately $11.2 million. The casino operating margin
was 47% in the nine months ended September 30, 1997 compared to
52% in the same period in the prior year. Payroll and other
volume related expenses, increased casino marketing and
promotional costs and an increase in reserves associated with the
potential uncollectibility of casino receivables of $11.8 million
for the nine months ended September 30, 1997 compared to $0.1
million in the same period in the prior year, are the primary
contributors to the decrease in the casino operating profit
margin. For the nine months ended September 30, 1997 and 1996,
hotel operating profits were 70% and 67%, respectively, food and
beverage operating profits were 23% in each of the periods, and
other operating department profit margins were 40% and 49%,
respectively. The decrease in the operating profit margin for
other departments is primarily due to the increase in retail
sales and the correspondingly higher costs of sales, payroll and
other expenses associated with retail sales and expenses
associated with the operation of the Masquerade Show in the Sky
which opened on February 7, 1997. Selling, general and
administrative expenses were 14% of net revenues in each of the
nine month periods.
Promotional allowances, which represent the retail value of
rooms, food, beverage and other services provided to customers
without charge, were 8% and 9% of total revenues for the nine
month periods ended September 30, 1997 and 1996, respectively.
The decrease in promotional allowances as a percentage of total
revenues is primarily due to the increase in total revenues.
Depreciation and amortization increased by $6.2 million, or
49%, to $18.7 million in the first nine months of 1997 compared
to $12.5 million in the prior year period. This increase is
primarily attributable to depreciation and amortization expense
associated with the opening of the Phase V Expansion.
Interest expense increased by $12.1 million, or 170%, to
$19.2 million for the nine months ended September 30, 1997, from
$7.1 million in the same period in 1996. This increase was
primarily due to the issuance on February 11, 1997 of the
Existing 9 1/2% Notes.
Net income for the nine month period ended September 30,
1997, after deducting $11.2 million ($7.1 million net after
taxes) of preopening costs associated with the opening of the
Phase V Expansion, was $12.0 million. Adjusted on a pro forma
basis for the one-time after-tax charge of $7.1 million for
preopening costs, net income for the first nine months ended
September 30, 1997 would have been $19.1 million, compared to net
income for the nine months ended September 30, 1996 of $15.1
million.
Years Ended December 31, 1996 and 1995
Net revenues for the Company increased to $219.6 million in
1996 from $193.0 million in 1995, an increase of $26.6 million or
14%. Casino revenues increased $6.9 million, or 7%, to
$112.4 million in 1996 from $105.5 million in the prior year. An
increase in table game revenues of $6.4 million, or 18%, to
$42.5 million in the current year from $36.1 million in 1995 was
the primary component of the increase. Slot machine revenues
were $64.2 million in 1996, an increase of $1.2 million, or 2%,
from 1995 revenues of $63.0 million. Race and sports book
revenues were $0.2 million and $0.3 million lower, respectively,
in 1996 than in 1995, primarily due to a lower hold percentage in
the sports book and a decrease in total wagers in the race book
which was negatively impacted by a pricing dispute concerning the
live televising of races from California race tracks. Management
believes that the increase in table game revenues was
attributable to an increase in the number of available and
occupied rooms and an average of 14 more table games being
available in 1996 compared to 1995. In 1996, management believes
that slot machine
17
<PAGE>
revenues were negatively impacted by a 12% decrease in the
average number of slot machines available when compared to 1995
as a result of temporary space limitations due to the Phase V
Expansion and casino remodeling projects.
Room revenues increased by $7.5 million, or 22%, to $41.3
million in 1996 from $33.8 million in 1995, primarily due to 365,
184 and 141 new hotel suites being placed into service in
February 1995, March 1995 and December 1995, respectively. Hotel
occupancy percentage was 95% in both years, with 567,332
available room nights in 1996 compared to 494,105 available room
nights in the prior year. The average room rate increased to
$76.93 in 1996 from $72.18 in 1995.
Food and beverage revenues increased to $70.8 million in
1996 from $60.0 million in 1995, an increase of $10.8 million or
18%. Higher average food checks and increased beverage sales
contributed to this increase.
Other revenues increased by $3.0 million, or 24%, to $15.4
million in 1996 compared to $12.4 million in 1995. Increased
telephone revenues from the additional hotel suites, as well as
increased merchandise sales, salon revenues and admissions to
entertainment activities, were the primary reasons for the
increase in other revenues.
Operating profit as a percentage of net revenue was 17% and
20% in 1996 and 1995, respectively. Casino operating profit was
50% in 1996 compared to 55% in 1995. Management believes that
the decline in the casino operating margin 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 preopening marketing and
personnel costs associated with the September 1996 opening of the
Rio's new Shutters gaming area and the Masquerade Village that
opened on February 7, 1997. Food and beverage operating profit
was 22% and 20% for the years ended December 31, 1996 and 1995,
respectively. Management believes that this improvement was the
result of effective cost controls, a higher average food check,
and the increase in the ratio of beverage sales to food sales
when comparing the two years. Hotel operating profit was 68% in
1996 and 69% in 1995. Other operating expenses were 49% and 54%
of other departmental revenues for the years ended December 31,
1996 and 1995, respectively, primarily due to increases in
telephone and admissions revenues which do not require
significant incremental expense. Selling, general and
administrative expenses were 14% of net revenues in both years.
Promotional allowances, which represent the retail value of
rooms, food, beverage and other products and services provided to
customers without charge, were $20.4 million in 1996 and $18.8
million in 1995. The estimated cost of providing such
promotional allowances was $11.4 million and $11.1 million in
1996 and 1995, respectively.
Depreciation and amortization increased $3.4 million, or
24%, to $17.6 million in 1996 compared to $14.2 million in 1995.
This increase is attributable to (i) new suites being placed into
service during the period from February 1995 through December
1995, and (ii) expanded public and back-of-the-house areas being
placed into service during 1995 and 1996. This includes
approximately $7.3 million in construction projects placed into
service in 1996 which are associated with the Phase V Expansion
project.
Interest expense increased $0.1 million in 1996 to $8.2
million from $8.1 million in 1995. Interest expense in 1996 was
reduced by $8.7 million due to the capitalization of interest on
amounts expended on the Phase V Expansion project. The $200.0
million Phase V Expansion includes approximately 1,000 new hotel
suites, 477 of which opened in late December 1996, and
approximately 120,000 of additional casino space, restaurants,
retail, and interactive entertainment space, which opened on
February 7, 1997. The
18
<PAGE>
remainder of the new hotel suites and the VooDoo Lounge and
Restaurant on the 41st floor of the new tower opened during the
second quarter of 1997.
Net income was $19.4 million or $0.90 per share (fully
diluted) compared to $0.87 per share (fully diluted) in 1995. As
a percentage of pre-tax income, federal income taxes decreased
from 36.4% in 1995 to 35.0% in 1996, primarily due to a change in
accounting for employee meals which were provided at no cost to
employees Prior to the change in accounting for these meals,
with this change having been adopted by a majority of Nevada's
hotel/casinos, the Internal Revenue Service has alleged that such
meals are subject to the 50% meals and entertainment
disallowance.
Years Ended December 31, 1995 and 1994
Net revenues for the Company increased to $193.0 million for
1995 from $146.4 for 1994, an increase of $46.6 million or 32%.
Casino revenues increased to $105.5 million for 1995 from $87.2
million for 1994, an increase of $18.3 million or 21%. The
increase in casino revenues was due primarily to an increase in
slot machine revenues of $8.5 million or 16% to $63.0 million for
1995 from $54.5 million for 1994 and an increase in table games
revenues of $10.3 million or 40% to $36.1 million for 1995 from
$25.8 million for 1994, resulting from the additional slot
machines and table games discussed above, as well as an increase
in the per unit win of both slots and table games.
Room revenues increased by $14.5 million or 76% to $33.8
million for 1995 from $19.3 million for 1994. 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 placed into service in March 1995, and 141 new hotel
suites placed into service in December 1995. The additional 690
suites placed into service in 1995 increased the Rio's total to
1,551 suites compared to 861 suites for 1994. Demand for the
Rio's suites remained high during 1995 with a 95% average daily
occupancy compared to a 96% average daily occupancy during 1994.
The average number of suites available during 1995 was 1,354
compared to 861 during 1994. The average daily room rate during
1995 was $72.18 compared to $63.80 during 1994.
Food and beverage revenues increased to $60.0 million for
1995 from $47.6 million for 1994, an increase of $12.4 million or
26%. The successful opening in February 1994 of the Copacabana
Showroom, a 430-seat video, entertainment and restaurant complex;
the successful opening in April 1994 of Fiore, a 186-seat fine
dining restaurant; the successful opening in June 1994 of Club
Rio, a late-night dance club; the successful completion in
November 1994 of a 50% expansion of the Carnival World Buffet to
980 seats; and increased beverage sales as a result of increased
gaming customers all contributed to the increase in food and
beverage revenues.
Other revenues for 1995 were $12.4 million, which included
entertainment admission revenues of $4.1 million, retail sales of
$4.1 million, interest income of $0.4 million and miscellaneous
other operating revenues, primarily telephone revenues, of $3.8
million. This represented an increase in other revenues of $5.2
million, or 72%, compared to the $7.2 million in other revenues
generated during 1994. The increase in other revenues resulted
primarily from increased entertainment admission revenues, retail
sales and telephone revenues resulting from increased business
levels.
Operating profit for the Company increased to $37.6 million
for 1995 from $25.9 million for 1994, an increase of $11.7
million or 45%. Management believes that the improvement in
operating results was due to the additional 365 new hotel suites
placed into service in February 1995, the additional 184 new
hotel suites placed into service in March 1995, the additional
141 new hotel suites placed into service in December 1995, an
average monthly increase from 1994 levels of approximately 174
slot machines and
19
<PAGE>
19 table games, additional restaurant capacity and improved
operating efficiencies in the hotel department.
The Company's operating margins were relatively consistent
during 1995 compared to 1994. Operating profit as a percentage
of net revenues was 19% during 1995 compared to 18% during 1994.
Casino operating profit was relatively constant at 55% during
1995 compared to 56% during 1994. Food and beverage operating
profit remained relatively constant at 20% during 1995 compared
to 19% during 1994. Hotel operating profit increased to 69%
during 1995 compared to 66% during 1994 due to efficiencies
resulting from increased customer volume, effective cost controls
and a higher average room rate during 1995 compared to 1994.
Selling, general and administrative expenses were 14% of net
revenues in both 1995 and 1994.
During 1995, promotional allowances were $18.8 million, or
9% of gross revenues, which represented the retail value of
rooms, food, beverage and other services provided to customers
without charge. The estimated cost of providing such promotional
allowances was $11.1 million. This compares to 1994 when
promotional allowances were $14.9 million, or 9% of gross
revenues, and the estimated cost of providing such promotional
allowances was $9.1 million.
Depreciation and amortization increased by $3.3 million or
31% to $14.2 million for 1995 compared to $10.9 million for 1994.
This increase is attributable to depreciation expense from
various completed expansion projects such as the Company's
Eastside Expansion and the Phase III Expansion.
Other expenses of the Company increased primarily because of
higher interest expense. Borrowing levels increased in 1995
compared to 1994 due to funding costs of the various expansion
projects. Also, in July 1995, in anticipation of the funding
requirements for the Phase V Expansion, the Company issued
$100.0 million of the 10 5/8 % Notes. The fixed coupon rate of
10 5/8 % was higher than the floating rate that the Company was
paying under the Rio Bank Loan. Consequently, the issuance of
these notes resulted in an increase in interest expense.
Interest expense for 1995 was reduced by $949,423 because of
interest capitalized on amounts expended on the Phase III
Expansion, the Phase IV Expansion and the Phase V Expansion.
Interest expense for 1994 was reduced by $619,887 because of
interest capitalized on amounts expended on the Eastside
Expansion and the Phase III Expansion. Other income for 1994 was
a one-time gain of $1.1 million related to the resale of two real
estate parcels previously owned by the Company. A one-time gain
of $966,510 related to the sale of real estate which was sold by
the Company to a related party in December 1991. In April 1994,
the real estate was resold to a non-related party. Pursuant to
the terms of the sales agreement between the Company and the
related party, the Company was entitled to a portion of the
resale proceeds, which equaled $966,510, net of expenses.
Another one-time gain of $173,500 related to the sale of a second
piece of real property owned by the Company until May 1991, when
it was sold to a non-related party. Pursuant to the terms of the
sales agreement, the Company was entitled to a portion of the
resale proceeds or refinancing amount, which equaled $173,500,
net of expenses.
Net income for 1995 increased 17% to $18.7 million or $0.87
per share (fully diluted) from $16.0 million or $0.74 per share
(fully diluted) for 1994 as a result of the factors discussed
above.
Impact of Inflation
Absent changes in competitive and economic conditions or in
specific prices affecting the industry, the Company believes that
the hotel-casino industry may be able to maintain its operating
profit margins in periods of general inflation by increasing
minimum wagering limits for its games and increasing the prices
of its hotel rooms, food and beverage and other items, and by
taking action designed to increase the number
20
<PAGE>
of patrons. The industry may be able to maintain growth in
gaming revenues by the tendency of customer gaming budgets to
increase with inflation. Changes in specific prices (such as
fuel and transportation prices) relative to the general rate of
inflation may have a material effect on the hotel-casino
industry.
Liquidity and Capital Resources
On February 4, 1997, the Company issued $125 million in
principal amount of the Company's 9 1/2% Senior Subordinated
Notes Due 2007. Approximately $112.0 million of the net proceeds
of $121.6 million were utilized to reduce the principal amount
that had been drawn under the Company's $200 million Rio Bank
Loan, thereby increasing the amount available to the Company
under the line of credit by a corresponding amount.
During the nine months ended September 30, 1997, net cash
provided by operating activities was $32.5 million. Net cash
used in investing activities was $77.0 million, including
approximately $54.5 million related to the construction of the
Phase V Expansion, $6.1 million in land acquisitions adjacent to
the Rio, and $16.4 million for the acquisition of the Rio Secco
Golf Club. The Company obtained an $8.0 million loan from Bank
of America in May 1997 as partial funding of its estimated $28.0
million investment, including the assumption of $4.5 million in
debt, in the Rio Secco Golf Club, which will include a clubhouse,
golf school and other associated amenities.
Should the Company and its joint venture partners be
selected for one of three authorized licenses for hotel-casinos
in Detroit, the Company and the joint venture company will be
required to obtain financing. Based upon present conceptual
plans, the total project cost is presently estimated to be
approximately $750 million. No assurance can be given that the
Company and its joint venture partner will be selected as one of
the preferred applicants or that the Company and its joint
venture partner will obtain acceptable financing.
Covenants under the Company's bank line of credit currently
restrict the Company's ability to finance the proposed Detroit
project. The Company has commenced preliminary discussions with
the banks and believes that covenant waivers or amendments can be
negotiated. However, no assurance can be given at this time that
such waivers or amendments will be received.
The Company has commenced the first phase of the New Rio
Master Plan, which will include a new road providing additional
access to the Las Vegas Strip, site work for a future resort and
various additions to the Rio. The improvements to the Rio will
include a 100,000 square foot entertainment/meeting/special
event/convention center, 10,000 square feet of new retail space,
nine "Palazzo" suites, an additional swimming pool, a 650-car
valet parking garage, an authentic Chinese restaurant, 20,000
square feet of additional exhibition space in the Masquerade
Village, an expansion of the Shutters premium gaming lounge,
creation of a concierge suite level in both of the Rio's existing
hotel towers, and an expansion of the Rio's spa. These
improvements, along with the new road, are scheduled to open in
stages through 1998 and early 1999. The New Rio Master Plan also
provides for a separate 3,000-room hotel casino resort on the 43-
acre site adjacent to the Rio. The timetable, theme and cost
of this separate hotel casino resort project have not yet been
established.
The Rio Bank Loan is a $200 million senior secured reducing
revolving credit facility that matures June 30, 2001 obtained
from a syndicate of banks led by Bank of America NT&SA. As of
September 30, 1997, $130.0 million was available for borrowing
under the Rio Bank Loan. Proceeds from the Rio Bank Loan may be
used for general corporate purposes. The Rio Bank Loan is
secured by a first deed of trust on substantially all of the real
property owned by Rio Properties, and other real and personal
property, and
21
<PAGE>
is guaranteed by the Company, which guarantee is secured by a
pledge of the capital stock of Rio Properties. The Company is
currently engaged in discussions with Bank of America NT&SA to
amend and restate the Rio Bank Loan to provide for a $275 million
credit facility that will mature December 31, 2003. The Amended
and Restated Rio Bank Loan will provide for greater borrowing
capacity, subject to compliance with certain financial tests, and
lower pricing. There can be no assurances that the Company will
be able to modify the Rio Bank Loan.
Based upon cash on hand, cash available through borrowings,
including additional issuances of debt, and cash provided by
operations, the Company believes that it has adequate cash
available to fund real estate purchase commitments, the first
phase of the New Rio Master Plan, ongoing maintenance and
upgrades, investment commitments associated with the acquisition
of the Rio Secco Golf Club and the Company's operations.
22
<PAGE>
BUSINESS
The Company owns and operates an all-suite hotel-casino, the
Rio Suite Hotel & Casino, in Las Vegas, Nevada. Situated on an
elevated site adjacent to the Flamingo Road exit from Interstate
15, the freeway linking Las Vegas with Southern California, the
Rio is strategically positioned to attract travelers along
Interstate 15, tourists visiting the Las Vegas Strip and local
Las Vegas residents. The Company markets to both local residents
and Las Vegas visitors. Management believes that the Rio's all-
suite concept, diverse high quality dining, easy access and ample
parking provide an attractive alternative to the Las Vegas Strip
and a fun and comfortable environment in which to enjoy gaming,
dining and entertainment.
The Rio is decorated throughout in a fun-filled Carnivale
and Mardi Gras theme. The Rio features 2,582 suites, including
1,551 suites contained in three connected 21-story hotel towers
and 1,031 suites in a new 41-story curved tower. On February 7,
1997, the Rio celebrated the grand opening of the public areas of
its Phase V Expansion project, the Masquerade Village, and now
features a 116,000 square foot casino; 14 restaurants and 14
bars; a 595-seat entertainment complex; a 32,000 square foot
retail area; a 108,000 square foot outdoor entertainment area
featuring a landscaped sand beach and three swimming pools; and
parking for approximately 3,600 cars. The Rio's casino offers
approximately 2,500 slot machines, 109 table games, including a
premium gaming area, a poker room, keno and a race and sports
book.
The Rio has completed the $200 million Phase V Expansion,
exclusive of construction period interest and preopening costs,
centered around the Masquerade Village. The Masquerade Village
contains approximately 120,000 square feet of public space with a
Carnivale and Mardi Gras themed casino expansion, featuring
Masquerade Show in the Sky, an interactive $25 million indoor
attraction, a variety of new restaurants and fine specialty
retail shops. The Phase V Expansion added a curved 41-story
hotel tower containing 1,031 suites and 27,000 square feet of
additional casino space.
On September 8, 1997, the Company acquired the Seven Hills
Golf Course in Henderson, Nevada, a suburb of Las Vegas, and
renamed it the Rio Secco Golf Club. The course, located in the
master-planned community of Seven Hills, is complete and opened
for play in October 1997. The clubhouse is under construction
and is scheduled for completion during the second quarter of
1998. The Company intends to use the course to provide a golf
school operated by Butch Harmon and golf vacation packages to its
guests, in addition to providing play on the course primarily to
its local and tourist customers.
The Company was incorporated in California in 1981 and
reincorporated in Nevada in 1988. The Company changed its name
from MarCor Resorts, Inc. to Rio Hotel & Casino, Inc. in February
1992. Its executive offices are located at 3700 West Flamingo
Road, Las Vegas, Nevada 89103, and its telephone number is
(702) 252-7733.
Masquerade Village
On February 7, 1997, the Company opened its Masquerade
Village, consisting of five new restaurants and additional
retail, gaming and entertainment space. A sixth restaurant, the
VooDoo Cafe, located at the top of the new 41-story tower
overlooking the Las Vegas Strip, opened on May 24, 1997.
Inspired by European architecture, Masquerade Village blends
celebrations of Carnivale in Rio de Janeiro and Venice, and Mardi
Gras in New Orleans, into a unique entertainment experience.
The Masquerade Village includes fine specialty retail shops
and restaurants, and a wine cellar and tasting room. Retail
stores include a Nicole Miller boutique, GUESS? Footwear, Speedo
Authentic Fitness, Watch Zone by Sunshade Optique, Alegre and
Reel Outfitters. New restaurants include Mama
23
<PAGE>
Marie's Cucina, Mask, Napa Restaurant and The Wine Cellar Tasting
Room, Bamboleo, Village Seafood Buffet and The VooDoo Cafe. The
Masquerade Village features a fully interactive $25.0 million
indoor attraction, Masquerade Show in the Sky. The Masquerade
Show in the Sky consists of three complete parades, each with its
own themed music, costumes and live performers. The show
features five floats in each of the three parades, suspended on a
950-foot track located over the casino floor. A cast of 36
specialty dancers, musicians, aerialists and costume stilt
walkers perform in 17 performing areas. Rio guests can
participate in the show by traveling on a float in complete
costume amid the performers.
Business Strategy
The Company's business strategy focuses on attracting and
fostering repeat business from customers in the local resident
and tourist markets in the middle to upper income segments. To
implement its business strategy, the Company capitalizes on its
unique all-suite concept, strategic location, and Carnivale and
Mardi Gras theme. The Company strives to provide a quality,
affordable gaming and entertainment experience in order to
generate high customer satisfaction and loyalty. As a means to
capitalize on the high-quality amenities that the Rio offers,
management has increased its marketing efforts to premium
players. The Rio's value-priced suites and restaurants provide an
attractive alternative to conventional Las Vegas properties for
visitors who desire to avoid the crowds and congestion of the Las
Vegas Strip. The Interstate 15 and Flamingo Road location also
permits the Rio to attract local residents.
To encourage repeat visits, the Company attempts to ensure
that each customer has an enjoyable, high quality and high value
experience. Management believes that it must offer consistent
quality, a comfortable and fun atmosphere and, most importantly,
friendly service at affordable prices to provide a high value
experience to its customers. Accordingly, the Rio's suites offer
guests approximately 50% more space than comparably priced Las
Vegas hotel rooms. Similarly, the Company's restaurants have won
awards year after year for their quality dining. All of the Rio's
restaurants offer generous portions of high quality food at
reasonable prices which management believes is a major factor in
attracting the value-conscious customer.
Management believes that friendly service combined with a
quality facility are integral to generating repeat business from
locals as well as tourists. As a result, management continually
seeks to instill in each employee a sense of service excellence
designed to exceed guest expectations. To motivate its employees,
management also strives to instill a sense of "Team Rio" in all
of the Company's employees by making the Rio a fun place to work.
Management strongly believes that its employees are one of the
Company's biggest assets.
The Company has created an identifiable and innovative
marketing presence and continues to build on its "signature" Rio
theme. The Rio's Carnivale theme incorporates bright colors,
creative interior designs, festive employee costumes and other
exotic touches to contribute to its tropical ambiance. The
Masquerade Village expands on the Carnivale theme to blend
Carnivale and Mardi Gras entertainment experiences through
architecture, retail and restaurant areas, and the Masquerade
Show in the Sky. The Rio's message of a fun-filled, colorful
atmosphere is constantly emphasized. The Rio has developed the
Rio Rita(TM) character as a promotional ambassador to the Rio's
hotel-casino guests and as a focal point upon which many
promotional activities have been built, such as Carnival
Dice(TM), Rio Rita's(TM) Lotto Bucks, Carnival Days(TM), Conga
Mania(TM) and Brazilia Days(TM).
The high quality of the Company's facilities and service is
evidenced by the large number of awards the Rio has received. In
the 1997-1998 Zagat Hotel and Restaurant Survey, the Rio received
awards for "Best Rooms," "Best Service," "Best Food" and "Best
Overall Hotel" in Las Vegas. In
24
<PAGE>
addition, the Rio was selected by the American Academy of
Hospitality Sciences to be the first and only recipient of the
Five Star Diamond Award for 1997 in Las Vegas. The Academy has
bestowed fewer than 100 hotels and resorts internationally with
this award. Furthermore, the 1997 Casino Player Magazine "Best
of Gaming" readers poll voted the Rio best in 12 categories,
including "Best Overall Hotel & Casino."
Marketing Strategy
The Company's marketing efforts are targeted at both the
local patron and the tourist market. To market to local patrons,
the Rio relies on its convenient location, its ample parking, its
value-priced food and its slot machine variety. Management
believes that its restaurants, in particular the Carnival World
Buffet, are among the Rio's primary attractions for local
patrons. The Carnival World Buffet is one of the most popular
buffets in Las Vegas due to its extensive selections, its high
quality food and the entertainment provided by the live-action
cooking stations. During 1996, the Carnival World Buffet served
an average of approximately 6,600 people per day. In addition to
its emphasis on food and beverage, the Rio also has an aggressive
marketing program which encompasses frequent radio, television
and newspaper advertising, a variety of promotions directed at
the local customer and other programs such as check cashing
promotions.
To attract visitors and fill the Rio's hotel rooms, the
Company markets primarily to three segments of the tourist
market: independent travel, wholesale and special casino
customers. The independent travel segment consists of those
travelers not affiliated with groups who make their reservations
directly with the Rio or through independent travel agents. To
attract the independent traveler, the Rio periodically utilizes
print media, radio and direct mail to advertise in Southern
California, Phoenix and other travel markets. In addition, the
Company's sales force frequently attends trade shows in order to
establish relationships with and promote the Rio to travel agents
nationwide. The wholesale segment comprises those patrons
participating in travel packages offered by air tour operators.
To capture this segment of the market, the Rio has developed
specialized marketing programs for, and cultivated relationships
with, these operators. Finally, special casino customers are
those frequent gaming customers who are in regular communication
with Rio casino marketing personnel. The Company offers VIP
services, casino hosts and a premium gaming lounge to certain
special casino customers. The Rio utilizes a variety of
promotions, including credit availability, and special events and
other amenities in marketing to this segment.
The Rio
Since 1992, the Company has consistently expanded the Rio
under its master plan. The Rio has 2,582 suites, approximately
2,500 slot machines and 109 table games.
25
<PAGE>
<TABLE>
<CAPTION>
As of and for the
Nine Months Ended As of and for the Year Ended December 31,
September 30, ----------------------------------------------------
1997 1996 1995 1994 1993 1992
------------ -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Average daily suite rate $88.84 $76.93 $72.18 $63.80 $62.60 $64.09
Average daily hotel
occupancy 90.0% 94.5% 94.5% 95.9% 96.8% 96.5%
Hotel suites 2,582 1,998 1,551 861 861 424
Casino square footage 116,000 89,000 89,000 89,000 79,000 54,000
Slot machines <F1> 2,442 1,884 2,098 2,200 1,950 1,450
Table games <F1> 102 79 73 53 44 31
Restaurant seats 4,152 2,540 2,540 2,440 1,843 1,209
- -------------
<FN>
<F1> Average number available during the period.
</FN>
</TABLE>
Gaming. With the opening of the Masquerade Village on
February 7, 1997, the Rio now offers 116,000 square feet of casino
space containing approximately 2,500 slot machines; 109 table games,
including "21," craps, roulette, pai gow poker, Caribbean stud
poker, baccarat and mini-baccarat; other casino games such as keno
and poker; and a race and sports book.
Gaming operations at the Rio are continually being monitored
and modified to respond to both changing market conditions and
customer demand in an effort to attract new customers while
retaining its existing customer base. New and innovative
slot and table games have been introduced based on customer feedback
and demand from both local customers and Las Vegas visitors.
Management has introduced such games as Rio Rita's(TM) Royals,
Rio Rita's(TM) Bonus Poker, Sneaky Queens(TM) and Mambo Bucks(TM).
Management devotes substantial time and attention to the type,
location and player activity of all gaming devices. The Company
believes that to continue to attract and retain slot customers, it
must expand the number and variety of slot machines on its casino
floor, particularly its higher denomination slot machines.
Hotel. The Rio's three connected 21-story hotel towers
contain a total of 1,551 suites, comprised of 1,504 standard Rio
suites, 16 "super" suites, 18 "cariocas" suites, six two-story
penthouse suites , and seven executive suites that combine a
conference room and an adjoining suite. The new 41-story hotel
tower contains a total of 1,031 suites, comprised of 949 standard
suites, 78 executive suites, three "hospitality" suites ranging
in size from 1,612 to 2,418 square feet, and one "Presidential"
suite consisting of 2,989 square feet. The Company has
progressively added new hotel suites since 1993 to meet its
consistently strong demand. Despite such expansion, the Rio
has maintained average occupancy rates of 95% for both 1995 and
1996, and 90% during the nine months ended September 30, 1997.
The standard Rio suite measures approximately 600 square
feet, compared to approximately 400 square feet for the typical
Las Vegas hotel room. The Carnivale theme is carried throughout
the guest suites in wall coverings, art work and other designer
accents. Suite amenities include carved wood finishes, cut glass,
polished granite surfaces, marble tile in the bath areas, room
safes and refrigerators.
Restaurants. While important to attracting Las Vegas
visitor gaming customers, the high quality, value and variety of
food services are critical to consistently attracting the
local resident gaming customer to the Rio. To provide such
variety, 13 bars and 13 restaurants are located in the Rio's main
floor area, and a bar and restaurant are located at the top of
the new 41-story tower overlooking the Las Vegas Strip.
26
<PAGE>
During 1996, before the addition of the six restaurants
contained in the Phase V Expansion project, the Rio served
an average of approximately 12,000 meals per day, including
banquets and room service. The following table sets forth, for
each restaurant, the type of service provided and the current
seating capacity:
<TABLE>
<CAPTION>
Number
Type of Seats
---- --------
<S> <C> <C>
All American Bar & Grille Steaks, ribs, chicken and seafood 202
Antonio's Italian fine-dining 100
Beach Cafe 24-hour full menu coffee shop 318
featuring American and Chinese
cuisine
Buzios Seafood and oyster bar 160
Carnival World Buffet Buffet with live action cooking 1,040
featuring Brazilian, Chinese,
Italian, Mexican, Japanese, Western
BBQ and traditional buffet
Toscano's Deli & Market Deli items, pizza and pasta, ice 104
cream and gelato, and a large
selection of bakery products
Copacabana Showroom Entertainment showroom and Club Rio 595
nightclub
Fiore Rotisserie & Grille Fine-dining featuring rotisserie- 186
grilled seafood, beef and poultry
Mama Marie's Cucina Family style casual Italian dining 150
Mask Far Eastern restaurant 175
Napa Restaurant and The Fine-dining featuring French country 174
Wine Cellar Tasting Room cuisine and daily wine tastings
Bamboleo Latin restaurant featuring foods 250
from south of the border
Village Seafood Buffet Fresh seafood buffet 332
VooDoo Cafe New Orleans flavored restaurant 366<F1>
featuring Creole and Cajun cuisine
-----
Total 4,152
- -------------- =====
<FN>
<F1> Includes the VooDoo Cafe Patio featuring outdoor seating for
48.
</FN>
</TABLE>
Entertainment and Other Attractions. Masquerade Village,
which opened on February 7, 1997, features Masquerade Show in the
Sky, an interactive entertainment experience consisting of three
complete parades, each with its own themed music, costumes and
live performances. The show, designed to emulate celebrations of
Carnivale in Rio de Janeiro and Venice, and Mardi Gras in New
Orleans, consists of five floats in each of the three parades
suspended along a 950-foot track located above the casino floor,
and a cast of 36 specialty dancers, musicians, aerialists and
costumed stilt-walkers. Rio guests can participate in the show by
traveling on a float in complete costume amid the performers.
The Masquerade Village also contains fine specialty retail stores
in a 32,000 square foot retail area.
The Rio's Copacabana Showroom is a unique, circular 595-seat
video, entertainment and restaurant complex which features two
12-foot by 90-foot video screens, an exhibition cooking area,
multiple tiers of dining room seating and a stage. The Copacabana
Showroom is utilized as an
27
<PAGE>
entertainment showroom and a late-night dance club, Club Rio.
The showroom is also used for casino-hosted events, concerts,
viewing of sporting events on the large video screens, and
corporate meetings that capitalize on the unique audio visual
qualities of the room.
The Ipanema Lounge and Mambo's Lounge each offer live
entertainment in separate casino cocktail settings. The Rio also
houses a spa, a hair and beauty salon, and an exercise room, as
well as approximately 13,250 square feet of public meeting and
banquet room facilities.
The Rio's pool/outdoor entertainment area is approximately
108,000 square feet and includes a landscaped sand beach, an
11-foot waterfall, three swimming pools, a multi-level spa,
and two terrace bars and food service facility. The Company
hosts beach parties, volleyball games, outdoor concerts with
name performers and other special events, including professional
sporting events.
The Company has also acquired a golf course located in the
master planned community of Seven Hills in Henderson, Nevada, and
intends to use the course to provide a golf schoo l and golf
vacation packages to its guests, in addition to providing play on
the course primarily to its local and tourist customers.
Expansion Strategy
Rio Master Plan. The Rio's conceptual master plan was
originally designed to accommodate multiple expansions without
significantly interrupting normal business operations. This
design included construction of a reinforced foundation for the
hotel tower and an elevator core to support and facilitate
additional room construction. The Company has also assembled
ample acreage to allow future expansions. Starting from its
original 30 acres, the Company acquired 15 additional acres in
1989 and 1991 and has purchased or has acquired an option to
purchase an additional 38 acres as of September 30, 1997.
Management believes that a high quality, well-maintained
property offering innovative entertainment is integral to
success in the highly competitive Las Vegas gaming market.
This belief has driven the Company's master plan development
strategy. The Company has added substantial new facilities at
the Rio every year since 1992.
<TABLE>
<CAPTION>
Start
Date Opening
----- -------
<S> <C> <C>
Initial Construction 12/88 1/90
Casino (10,000 sq. ft.)/Buffet Expansion 7/92 12/92
Phase II Expansion
Buzios Restaurant 1/93 5/93
Meeting Rooms 1/93 8/93
437-Suite Tower 1/93 9/93
Eastside Expansion
Two-Story Parking Garage 7/93 10/93
Casino Space (25,000 sq. ft.) 7/93 12/93
Copacabana Showroom 7/93 2/94
Fiore Restaurant 7/93 4/94
Expanded Pool Area 7/93 4/94
</TABLE>
28
<PAGE>
<TABLE>
<CAPTION>
Start
Date Opening
----- -------
<S> <C> <C>
Phase III Expansion
Three-Story Parking Garage 5/94 8/94
Casino Space (10,000 sq. ft.) 5/94 11/94
Buffet Expansion 5/94 11/94
549-Suite Tower 5/94 2/95
Phase IV Expansion
141-Suite Addition 4/95 12/95
Buzios Expansion 4/95 12/95
Meeting Rooms Expansion 4/95 11/95
Health Club and Salon 4/95 12/95
Phase V Expansion
1,031-Suite Tower 9/95 6/97<F1>
Casino Space (27,000 sq. ft.) 9/95 2/97
Masquerade Village 9/95 2/97
Spa and Salon Expansion 9/95 2/97
Four-Story Parking Garage 9/95 7/96
Expanded Pool Area 9/95 2/97
VooDoo Cafe 9/95 5/97
- ----------------
<FN>
<F1> The new suites were opened in several phases commencing
December 31, 1996 and continuing through the second quarter
of 1997.
</FN>
</TABLE>
As of September 30, 1997, the Company has invested in excess
of $550 million in the development, expansion and renovation of
the Rio.
New Rio Master Plan. The Company has assembled 43 acres
immediately adjacent to the Rio (seven of which are subject
to an option to purchase), bringing the total acreage at the
Rio to 83 acres. In October 1997, the Company announced the New
Rio Master Plan for continued development of the existing Rio
site and the adjacent 43 acre site. The New Rio Master Plan
is expected to be implemented in phases, the first of which has
been commenced and includes an entertainment/meeting/special
event/convention center, a complex of nine "Palazzo" suites designed
for the premium market, a restaurant serving authentic Chinese
food, a valet parking structure, a retail shopping area, an
expanded outdoor entertainment area with an additional swimming
pool, additional exhibition space in the Masquerade Village,
an expansion of the Shutters premium gaming lounge, creation of
a concierge suite level in both the Rio's existing towers and
an expansion of the Rio's spa, and a new road that connects the Rio
and the Las Vegas Strip by extending Twain Avenue to Industrial Road.
This first phase is anticipated to be completed in stages
through 1998 and early 1999 at an estimated cost of $200 million.
Subsequent phases of the New Rio Master Plan are currently at the
conceptual stage. These phases currently include a separate hotel
of up to 3,000 rooms, up to nine additional luxury villas and two
additional parking structures. The timetable, theme and cost of
the subsequent phases have not yet been established and there can
be no assurance that the New Rio Master Plan will be implemented
successfully if at all. See "Risk Factors - Construction and
Development Risks."
29
<PAGE>
Proposed Detroit Project. The Company, and Paradise Valley filed a joint
application on July 31, 1997 with the City of Detroit, Michigan to obtain one
of the three licenses that will be granted to operate a hotel-
casino in that venue. Pursuant to the terms of the agreement
with Paradise Valley, the Company would be the majority owner and
controlling partner of the joint venture company, and would
receive a management fee based on gross revenues for operating
the joint venture business. The total investment is estimated to
be approximately $750 million, with the Company to provide $150
million in equity capital and the joint venture company to raise
the balance of the anticipated investment through project
financing obtained by the joint venture company. At the present
time, there are a number of applicants for the three licenses
that will be granted in the City of Detroit, including two groups
that have been designated to receive preferred consideration by
the City of Detroit. The City of Detroit will select three
applicants on November 7, 1997 with whom the City of Detroit will
negotiate development agreements for the three licenses. If
chosen, the joint venture company will begin the negotiation with
the City of Detroit for the final scope of the project and the
formal licensing process. Plans for the Detroit project are in
the conceptual bidding phase, and are contingent upon successful
negotiations with the City of Detroit, licensing and financing
issues. There can be no assurance that the joint venture company
will be successful in securing one of the gaming licenses.
Las Vegas Market
The large and expanding Las Vegas gaming market includes
both local residents and Las Vegas visitors. Located in Clark
County, Las Vegas has a local population of approximately 1.0
million. Clark County has had one of the fastest growing
populations in the United States. Between 1995 and 1996, the
population increased by 8% versus 1% for the United States as a
whole. The number of visitors traveling to Las Vegas increased
at a steady and significant rate from 15.2 million in 1986 to
29.6 million visitors in 1996, a compound annual growth rate of
7%. Aggregate expenditures by visitors increased at an estimated
compound annual growth rate of 12% from $7.5 billion in 1986 to
$22.5 billion (estimate) in 1996. The number of hotel/motel
rooms increased by approximately 65% from 61,394 in 1988 to
101,106 in 1996. Despite this significant increase in
hotel/motel rooms, Las Vegas' hotel occupancy rate exceeded 85%
in each year from 1986 to 1996 and averaged 90% during that
period.
In conjunction with the expansion of gaming in the United
States, Las Vegas has sought to increase its popularity as a
vacation and convention destination. An increasing number of
destination resorts are developing non-gaming entertainment to
complement their gaming in order to draw visitors to Las Vegas.
The MGM Grand Hotel and Theme Park opened in December 1993 with
approximately 5,000 hotel rooms, a multi-themed casino and a
large-scale amusement and entertainment facility. Shortly before
the MGM opening, the Luxor's 2,600-room project along with
Treasure Island's 2,900-room complex adjacent to the Mirage
opened. In 1996, the second wave of large-scale resort openings
commenced, with the Stratosphere Hotel Casino consisting of 1,444
rooms opening in April 1996 and the Monte Carlo Casino Resort
with 3,014 rooms opening in June 1996. The latest large-scale
destination resort on the Las Vegas Strip, New York-New York,
opened in January 1997 with 2,034 rooms. By the end of 1999, it
is anticipated that at least nine new large destination resorts
and approximately 21,500 additional hotel rooms will be opened in
Las Vegas.
Competition
The gaming industry includes land-based casinos, dockside
casinos, riverboat casinos, casinos located on Native American
land and other forms of legalized gaming. There is intense
competition among companies in the gaming industry, some of which
have significantly greater resources than the Company.
30
<PAGE>
The Rio faces competition from all other casinos and hotels
in the Las Vegas area, including competitors located on the Las
Vegas Strip, on the Boulder Highway and in downtown Las Vegas.
Such competition includes a number of hotel-casinos targeted
primarily toward local residents, as well as numerous non-hotel
gaming facilities targeted toward local residents. In recent
months, several of the Company's direct competitors have opened
new hotel-casinos or have commenced or completed major expansion
projects, and other expansions are in progress or are planned.
As of July 31, 1997, there were approximately 44 major gaming
properties located on or near the Las Vegas Strip, 16 located in
the downtown area, five located on the Boulder Highway and 15
located in other areas in or near Las Vegas. According to the Las
Vegas Convention and Visitors Authority, the Las Vegas hotel-
motel room inventory was 103,916 as of July 31, 1997 and both
construction of new properties and expansion of existing hotel-
casinos is expected to increase inventory to approximately
115,500 rooms by 1998. In the past year two new mega-resorts
have opened on or near the Las Vegas Strip. Nine new hotel-
casinos and two hotel-casino expansions are under development,
which will add approximately 21,500 rooms to the Las Vegas area
by the year 2000. Major expansions or enhancements of existing
properties or the construction of new properties by competitors,
could have a material adverse effect on the Company's business.
To a lesser extent, the Rio competes with hotel-casinos
located in the Laughlin and Reno-Lake Tahoe areas of
Nevada and in Atlantic City, New Jersey. The Company also
competes with state-sponsored lotteries, on- and off-track
wagering, card parlors, riverboat and Native American gaming
ventures and other forms of legalized gaming in the United
States, as well as with gaming on cruise ships and international
gaming operations. In addition, many states have recently
legalized, and additional other states are currently considering
legalizing, casino gaming in specific geographic areas within
those states. The Company believes that the growth in the
legalization of gaming is fueled by a combination of increasing
popularity and acceptability of gaming activities and the desire
and need for states and local communities to generate revenues
without increasing general taxation. The Company believes that
the legalization of unlimited land-based casino gaming in or near
any major metropolitan area, such as Chicago or Los Angeles,
could have a material adverse effect on its current hotel-casino
business. The development of casinos, lotteries and other forms
of gaming in other states, particularly in areas close to Nevada,
such as California, could adversely affect the Company's
operations.
As its principal methods of competition, the Company
utilizes what management believes to be its all-suite concept
based upon a Carnivale theme, diverse high quality dining and
ample parking, which management believes provide an attractive
alternative to the closest source of the Company's competition,
the Las Vegas Strip, and a fun and comfortable environment in
which to enjoy gaming, dining and entertainment.
Regulation and Licensing
The ownership and operation of casino gaming facilities in
Nevada are subject to: (i) the Nevada Gaming Control Act and the
regulations promulgated thereunder (collectively, the "Nevada
Act"); and (ii) various local regulations. The Company's gaming
operations are subject to the licensing and regulatory control of
the Nevada Commission, the Nevada State Gaming Control Board (the
"Nevada Board"), and the Clark County Liquor and Gaming Licensing
Board (the "Clark County Board"). The Nevada Commission, the
Nevada Board, and the Clark County Board are collectively
referred to as the "Nevada Gaming Authorities."
The laws, regulations and supervisory procedures of the
Nevada Gaming Authorities are based upon declarations of public
policy which are concerned with, among other things: (i) the
prevention of unsavory or unsuitable persons from having a direct
or indirect involvement with gaming at any time or in
31
<PAGE>
any capacity; (ii) the establishment and maintenance of
responsible accounting practices and procedures; (iii) the
maintenance of effective controls over the financial practices of
licensees, including the establishment of minimum procedures for
internal fiscal affairs and the safeguarding of assets and
revenues, providing reliable record keeping and requiring the
filing of periodic reports with the Nevada Gaming Authorities;
(iv) the prevention of cheating and fraudulent practices; and
(v) providing a source of state and local revenues through
taxation and licensing fees. Changes in such laws, regulations
and procedures could have an adverse effect on the Company's
gaming operations.
Rio Properties, which operates the casino, is required to be
licensed by the Nevada Gaming Authorities. The gaming license
requires the periodic payment of fees and taxes and is not
transferable. The Company is registered by the Nevada Commission
as a publicly traded corporation ("Registered Corporation") and
as such, it is required periodically to submit detailed financial
and operating reports to the Nevada Commission and furnish any
other information which the Nevada Commission may require. The
Company has obtained from the Nevada Gaming Authorities the
various registrations, approvals, permits and licenses required
in order to engage in gaming activities in Nevada.
The Nevada Gaming Authorities may investigate any individual
who has a material relationship to, or material involvement with,
the Company in order to determine whether such individual is
suitable or should be licensed as a business associate of a
gaming licensee. Officers, directors and certain key employees of
the Company must file applications with the Nevada Gaming
Authorities and may be required to be licensed or found suitable
by the Nevada Gaming Authorities. Officers, directors and key
employees of the Company who are actively and directly involved
in gaming activities of the Company may be required to be
licensed or found suitable by the Nevada Gaming Authorities. The
Nevada Gaming Authorities may deny an application for licensing
for any cause which they deem reasonable. A finding of
suitability is comparable to licensing, and both require
submission of detailed personal and financial information
followed by a thorough investigation. The applicant for licensing
or a finding of suitability must pay all the costs of the
investigation. Changes in licensed positions must be reported to
the Nevada Gaming Authorities and in addition to their authority
to deny an application for a finding of suitability or licensure,
the Nevada Gaming Authorities have jurisdiction to disapprove a
change in a corporate position.
If the Nevada Gaming Authorities were to find an officer,
director or key employee unsuitable for licensing or unsuitable
to continue having a relationship with the Company, the Company
would have to sever all relationships with such person. In
addition, the Nevada Commission may require the Company to
terminate the employment of any person who refuses to file
appropriate applications. Determinations of suitability or of
questions pertaining to licensing are not subject to judicial
review in Nevada.
The Company is required to submit detailed financial and
operating reports to the Nevada Commission. Substantially all
material loans, leases, sales of securities and similar financing
transactions by the Company must be reported to, or approved by,
the Nevada Commission.
If it were determined that the Nevada Act was violated by
the Company, the gaming licenses it holds could be limited,
conditioned, suspended or revoked, subject to compliance with
certain statutory and regulatory procedures. In addition, the
Company and the persons involved could be subject to substantial
fines for each separate violation of the Nevada Act at the
discretion of the Nevada Commission. Further, a supervisor could
be appointed by the Nevada Commission to operate the Company's
gaming properties and, under certain circumstances, earnings
generated during the supervisor's appointment (except for the
reasonable rental value of the Company's gaming properties) could
be forfeited to the State of Nevada. Limitation, conditioning or
suspension of any gaming license or the appointment of a
supervisor could (and revocation of any gaming license would)
materially adversely affect the Company's gaming operations.
32
<PAGE>
Any beneficial holder of the Company's voting securities,
regardless of the number of shares owned, may be required to file
an application, be investigated, and have such holder's
suitability as a beneficial holder of the Company's voting
securities determined, if the Nevada Commission has reason to
believe that such ownership would otherwise be inconsistent with
the declared policies of the State of Nevada. The applicant must
pay all costs of investigation incurred by the Nevada Gaming
Authorities in conducting any such investigation.
The Nevada Act requires any person who acquires more than 5%
of the Company's voting securities to report the acquisition to
the Nevada Commission. The Nevada Act requires that beneficial
owners of more than 10% of the Company's voting securities apply
to the Nevada Commission for a finding of suitability within 30
days after the Chairman of the Nevada Board mails the written
notice requiring such filing. Under certain circumstances, an
"institutional investor," as defined in the Nevada Act, which
acquires more than 10%, but not more than 15%, of the Company's
voting securities may apply to the Nevada Commission for a waiver
of such finding of suitability if such institutional investor
holds the voting securities for investment purposes only. An
institutional investor shall not be deemed to hold voting
securities for investment purposes unless the voting securities
were acquired and are held in the ordinary course of business as
an institutional investor and not for the purpose of causing,
directly or indirectly, the election of a majority of the members
of the board of directors of the Company, any change in the
Company's corporate charter, bylaws, management, policies or
operations of the Company, or any of its gaming affiliates, or
any other action which the Nevada Commission finds to be
inconsistent with holding the Company's voting securities for
investment purposes only. Activities which are not deemed to be
inconsistent with holding voting securities for investment
purposes only include: (i) voting on all matters voted on by
stockholders; (ii) making financial and other inquiries of
management of the type normally made by securities analysts for
informational purposes and not to cause a change in its
management, policies or operations; and (iii) such other
activities as the Nevada Commission may determine to be
consistent with such investment intent. If the beneficial holder
of voting securities who must be found suitable is a corporation,
partnership or trust, it must submit detailed business and
financial information including a list of beneficial owners. The
applicant is required to pay all costs of investigation.
Any person who fails or refuses to apply for a finding of
suitability or a license within 30 days after being ordered to do
so by the Nevada Commission or the Chairman of the Nevada Board,
may be found unsuitable. The same restrictions apply to a record
owner if the record owner, after request, fails to identify the
beneficial owner. Any stockholder found unsuitable and who
holds, directly or indirectly, any beneficial ownership of the
common stock of a Registered Corporation beyond such period of
time as may be prescribed by the Nevada Commission may be guilty
of a criminal offense. The Company is subject to disciplinary
action if, after it receives notice that a person is unsuitable
to be a stockholder or to have any other relationship with the
Company, the Company (i) pays that person any dividend or
interest upon voting securities of the Company, (ii) allows that
person to exercise, directly or indirectly, any voting right
conferred through securities held by that person, (iii) pays
remuneration in any form to that person for services rendered or
otherwise, or (iv) fails to pursue all lawful efforts to require
such unsuitable person to relinquish his voting securities for
cash at fair market value.
The Nevada Commission may, in its discretion, require the
holder of any debt security of a Registered Corporation to file
applications, be investigated and be found suitable to own the
debt security of a Registered Corporation. If the Nevada
Commission determines that a person is unsuitable to own such
security, then pursuant to the Nevada Act, the Registered
Corporation can be sanctioned, including the loss of its
approvals, if without the prior approval of the Nevada
Commission, it: (i) pays to the unsuitable person any dividend,
interest, or any distribution whatsoever; (ii) recognizes any
voting right by such unsuitable person in connection with such
securities; (iii) pays the unsuitable person remuneration in any
33
<PAGE>
form; or (iv) makes any payment to the unsuitable person by way
of principal, redemption, conversion, exchange, liquidation or
similar transaction.
The Company is required to maintain a current stock ledger
in Nevada which may be examined by the Nevada Gaming Authorities
at any time. If any securities are held in trust by an agent or
by a nominee, the record holder may be required to disclose the
identity of the beneficial owner to the Nevada Gaming
Authorities. A failure to make such disclosure may be grounds for
finding the record holder unsuitable. The Company is also
required to render maximum assistance in determining the identity
of the beneficial owner. The Nevada Commission has the power to
require the Company's stock certificates to bear a legend
indicating that the securities are subject to the Nevada Act.
The Company may not make a public offering of its securities
without the prior approval of the Nevada Commission if the
securities or proceeds therefrom are intended to be used to
construct, acquire or finance gaming facilities in Nevada, or to
retire or extend obligations incurred for such purposes. On
July 24, 1997, the Nevada Commission granted the Company prior
approval to make public offerings for a period of one year,
subject to certain conditions ("Shelf Approval"). However, the
Shelf Approval may be rescinded for good cause without prior
notice upon the issuance of an interlocutory stop order by the
Chairman of the Nevada Board. Such approval does not constitute a
finding, recommendation or approval by the Nevada Commission or
the Nevada Board as to the accuracy or adequacy of the prospectus
or the investment merits of the securities. Any representation to
the contrary is unlawful.
Changes in control of the Company through merger,
consolidation, stock or asset acquisitions, management or
consulting agreements, or any act or conduct by a person whereby
such person obtains control, may not occur without the prior
approval of the Nevada Commission. Entities seeking to acquire
control of a Registered Corporation must satisfy the Nevada Board
and Nevada Commission in a variety of stringent standards prior
to assuming control of such Registered Corporation. The Nevada
Commission may also require controlling stockholders, officers,
directors and other persons having a material relationship or
involvement with the entity proposing to acquire control, to be
investigated and licensed as part of the approval process
relating to the transaction.
The Nevada legislature has declared that some corporate
acquisitions opposed by management, repurchases of voting
securities and corporate defense tactics affecting Nevada gaming
licensees, and Registered Corporations that are affiliated with
those operations, may be injurious to stable and productive
corporate gaming. The Nevada Commission has established a
regulatory scheme to ameliorate the potentially adverse effects
of these business practices upon Nevada's gaming industry and to
further Nevada's policy to: (i) assure the financial stability
of corporate gaming operators and their affiliates; (ii) preserve
the beneficial aspects of conducting business in the corporate
form; and (iii) promote a neutral environment for the orderly
governance of corporate affairs. Approvals are, in certain
circumstances, required from the Nevada Commission before the
Company can make exceptional repurchases of voting securities
above the current market price thereof and before a corporate
acquisition opposed by management can be consummated. The Nevada
Act also requires prior approval of a plan of recapitalization
proposed by the Company's Board of Directors in response to a
tender offer made directly to the Registered Corporation's
stockholders for the purposes of acquiring control of the
Registered Corporation.
Licensee fees and taxes, computed in various ways depending
on the type of gaming or activity involved, are payable to the
State of Nevada and to the counties and cities in which the
Nevada licensee's respective operations are conducted. Depending
upon the particular fee or tax involved, these fees and taxes are
payable either monthly, quarterly or annually and are based upon
either (i) a percentage of the gross
34
<PAGE>
revenues received, (ii) the number of gaming devices operated or
(iii) the number of table games operated. A casino entertainment
tax is also paid by casino operations where entertainment is
furnished in connection with the selling of food or refreshments.
Nevada licensees that hold a license as an operator of a slot
route, or a manufacturer's or distributor's license, also pay
certain fees and taxes to the State of Nevada.
Any person who is licensed, required to be licensed,
registered, required to be registered, or is under common control
with such persons (collectively, "Licensees"), and who proposes
to become involved in a gaming venture outside of Nevada is
required to deposit with the Nevada Board, and thereafter
maintain, a revolving fund in the amount of $10,000 to pay the
expenses of investigation of the Nevada Board of their
participation in such foreign gaming. The revolving fund is
subject to increase or decrease at the discretion of the Nevada
Commission. Thereafter, Licensees are required to comply with
certain reporting requirements imposed by the Nevada Act.
Licensees are also subject to disciplinary action by the Nevada
Commission if they knowingly violate any laws of the foreign
jurisdiction pertaining to the foreign gaming operation, fail to
conduct the foreign gaming operation in accordance with the
standards of honesty and integrity required of Nevada gaming
operations, engage in activities that are harmful to the State of
Nevada or its ability to collect gaming taxes and fees, or employ
a person in the foreign operation who has been denied a license
or finding of suitability in Nevada on the ground of personal
unsuitability.
Employees
As of September 30, 1997, the Company employed approximately
4,900 employees. None of the Company's employees are covered by
collective bargaining agreements. The Company believes that its
relationship with its employees is good.
Properties
The Company owns approximately 76 acres, consisting of the
45-acre site in Las Vegas on which the Rio is located and 31
acres of land adjacent to the current Rio site. The Company has
purchase options on an additional seven acres adjacent to the Rio
site. With the exception of approximately 18 of the recently
acquired acres, all of the Company's acreage is subject to a deed
of trust securing the Rio Bank Loan, of which $70.0 million was
outstanding at September 30, 1997. The Company also owns
approximately 64 acres on the Boulder Highway southeast of Las
Vegas (the "Old Vegas Site"). The Old Vegas Site is being held
for sale.
The Company owns the Rio Secco Golf Club south of Las Vegas
which is subject to a deed of trust securing a loan from ORIX USA
Corporation (the "Orix Loan"). The maximum principal amount that
may be borrowed under the Orix Loan is $6.0 million of which $3.8
million was outstanding on September 30, 1997.
Legal Proceedings
On April 26, 1994 and May 10, 1994, complaints
("Complaints") in purported class action lawsuits were filed in
the United States District Court, Middle District of Florida,
against 41 manufacturers, distributors and casino operators of
video poker and electronic slot machines, including the Company.
The Complaints allege 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 Complaints allege violations of the
Racketeer Influenced and Corrupt Organizations Act (the "RICO
Act"), as well as claims of common law fraud, unjust enrichment
and negligent misrepresentation, and seek damages in excess of $1
35
<PAGE>
billion without any substantiation of that amount. The Company
filed motions to dismiss the Complaints. The Nevada District
Court dismissed the Complaints, granting leave to plaintiffs to
refile, and denying as moot all other pending motions, including
those of the Company. The plaintiffs filed an amended complaint
on or about May 31, 1996. The Company renewed its motions to
dismiss based on abstraction and related doctrines, and joined in
the motions to dismiss filed by other defendants, which were
based on defects in the pleadings. The Nevada District Court
consolidated the actions (and one other in which the Company is
not a named defendant), ordered plaintiffs to file a consolidated
amended complaint on or before February 14, 1997, and ordered all
defense motions, including those of the Company, withdrawn
without prejudice. The parties established a steering committee
to address motion practice, scheduling and discovery matters.
The plaintiffs filed their consolidated amended complaint on
February 14, 1997. The Company renewed its motions to dismiss
and joined in motions to dismiss filed by other defendants.
Management believes that the substantive allegations in the
Complaint are without merit and that the consolidated amended
complaint is subject to the same defects addressed in earlier
motions, and intends vigorously to defend the allegations.
On September 26, 1995, a complaint in a purported class
action lawsuit was filed in the United States District Court for
the District of Nevada, Southern District, 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 plaintiff
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 Complaints. The
Company filed a motion to dismiss the complaint. The plaintiff's
attempts to consolidate this action with the Complaints were not
successful. The court entered an order granting the motions to
dismiss based upon defects in the pleadings, and denying as moot
all other pending motions, including those of the Company. The
court granted the plaintiff until September 30, 1996 within which
to file an amended complaint that complies with the applicable
pleading requirements. The plaintiff filed an amended complaint
on or about September 30, 1996. The Company renewed its motion
to dismiss based upon abstention and related doctrines, and based
upon defects in the pleadings. Management believes that the
complaint is without merit and intends vigorously to defend the
allegations.
On May 5, 1995, a purported class action lawsuit was filed
in the United States District Court for the District of New
Jersey (Camden Division). The Company, together with 76 other
casino operators and others, is named as a defendant in the
action. The action, purportedly brought on behalf of "card
counters," alleges that the casino operators exclude "card
counters" from play and share information about "card counters."
The action is based on alleged violations of federal antitrust
law, the Fair Credit Reporting Act, and various state consumer
protection laws. The amount of damages sought by the plaintiffs
in the action is unspecified. The Company has made a motion to
dismiss the complaint. The court has not yet ruled on the
motion. Management believes that the complaint is without merit
and the Company intends vigorously to defend the allegations.
On March 27, 1996, a complaint in a purported class action
lawsuit was filed in the Superior Court of California, County of
San Diego, against numerous gaming entities, including the
Company. The complaint, almost identical in nature to the other
class action suits filed against the gaming industry, alleges
that the defendants have engaged in a course of conduct intended
to induce persons to play gaming devices 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
Company joined in an attempt to remove the case to federal
36
<PAGE>
court which was not successful. The Company filed a motion to
dismiss the complaint for lack of personal jurisdiction. The
motion is pending. As with the other class action lawsuits,
management believes that the complaint is without merit and the
Company intends vigorously to defend the allegations.
On December 27, 1996, a purported stockholder derivative
action was filed in the United States District Court for the
District of Nevada, against the Company as a nominal defendant,
five of the Company's directors, Marnell Corrao and Marnell
Chartered. The complaint alleges that pursuant to construction
contracts and architectural contracts with Marnell Corrao and
Marnell Chartered, respectively, the Company paid unfair amounts
in exchange for the services provided. The complaint alleges
breach of fiduciary duty by each of the director defendants and
seeks rescission of the contracts, damages to compensate the
Company to the extent that contract amounts are unfair to the
Company, and injunctive relief prohibiting the Company from
entering into similar contracts with Mr. Marnell or entities
which he controls. A motion to dismiss the complaint was filed
on January 27, 1997. The court has not yet ruled on this motion.
37
<PAGE>
CERTAIN TRANSACTIONS
General. Anthony A. Marnell II, Chairman of the Board,
Chief Executive Officer, and largest stockholder of the Company,
is the controlling stockholder and Chief Executive Officer of
Marnell Chartered, Austi International, Inc. ("Austi") and
Marnell Corrao Associates ("Marnell Corrao"), and Mr. Marnell
holds a majority ownership interest in MarCor Limited Partnership
("MCLP"), a limited partnership engaged in real estate
development. A family corporation controlled by James A.
Barrett, Jr., President and a director of the Company, is the
general partner of MCLP, and Mr. Barrett is a director of Austi
and Marnell Carrao.
Consulting, Construction, and Architectural Services to and
by Affiliates. Marnell Chartered, Austi and Marnell Corrao have
provided design and construction services for various Rio
expansion projects and the Rio Secco Golf Club. The construction
contract for the third Rio tower, completed in March 1995, was
for an amount not to exceed $60,511,775; the contract for an
addition to the second Rio tower, completed in December 1995, was
for an amount not to exceed $18,117,258; the contract for the
fourth Rio tower completed in May 1997, was for an amount not to
exceed $180,609,117; and the contract with an affiliate of Mr.
Marnell for completion of the Rio Secco Golf Club was for an
amount of approximately $700,000. In the nine months ended
September 30, 1997, the Company paid a total of $50,100,507
million in connection with these and other construction
contracts. Design contracts for these same projects were in
amounts not to exceed $2,496,836, $731,000, and $7,051,558,
respectively. In the nine months ended September 30, 1997, the
Company paid a total of $1,303,149 million in connection with
these and other design projects.
Services Provided by Related Parties. Entities in which
John A. Stuart, a director of the Company, is a principal
stockholder and executive officer earned commissions totaling
$157,138 for the nine months ended September 30, 1997, arising
out of the acquisition and administration of various insurance
coverages by the Company.
Certain Transactions with Marnell Corrao. The Company
retained Marnell Corrao to provide real estate brokerage and
administration services in connection with the acquisition of
properties adjacent to the Rio, 31 acres of which have been
purchased as of September 30, 1997 with an additional seven acres
subject to purchase options. In addition, in 1997 Marnell Corrao
rented a site centrally located on the Las Vegas Strip to the
Company for a transportation center. Fees paid to Marnell
Corrao, including reimbursement of expenses and real estate
brokerage commissions and rent, were $826,618 in the nine months
ended September 30, 1997. Expenses were reimbursed at cost and
management believes the brokerage commissions and rent were on
terms at least as favorable as would have been obtained from non-
affiliated parties.
Indemnification of Directors and Officers. Section 78.751
of Chapter 78 of the Nevada Revised Statutes, Article XII of the
Company's Articles of Incorporation and Article XIII of the
Company's Bylaws contain provisions for indemnification of
officers, directors, employees and agents of the Company. The
Articles of Incorporation provision requires the Company to
indemnify such persons to the full extent permitted by Nevada
Law. Each person will be indemnified in any proceeding if he
acted in good faith and in a manner which he reasonably believed
to be in, or not opposed to, the best interest of the Company.
Indemnification would cover expenses, including attorneys' fees,
judgments, fines and amounts paid in settlement.
The Company's Articles of Incorporation also provide that
the Company's Board of Directors may cause the Company to
purchase and maintain insurance on behalf of any present or past
director or officer
38
<PAGE>
insuring against any liability asserted against such person
incurred in the capacity of director or officer or arising out of
such status, whether or not the corporation would have the power
to indemnify such person. The Company presently has directors'
and officers' liability insurance in effect.
Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers or persons
controlling the Company pursuant to the foregoing provisions, the
Company has been informed that in the opinion of the SEC such
indemnification is against public policy as expressed in the
Securities Act and is therefore unenforceable.
Transaction Review. The Company believes that the
transactions described above are on terms at least as favorable
as would have been obtainable from non-related parties. The
Company requires that the Audit Committee of the Board of
Directors review related party transactions.
For further information concerning related party
transactions, see the Company's proxy statement in connection
with the 1997 Annual Meeting of the Company's Stockholders.
39
<PAGE>
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding
beneficial ownership of the Company's Common Stock as of
September 30, 1997 (i) by each person (or a group of affiliated
persons) who is known by the Company to own beneficially more
than five percent of the Company's Common Stock, (ii) by the
executive officers named in the Summary Compensation Table
contained in the Company's Proxy Statement prepared in connection
with the 1997 Annual Meeting of the Company's stockholders and
(iii) by all directors and executive officers as a group.
<TABLE>
<CAPTION>
Shares
Beneficially Owned Shares
Prior To This Beneficially Owned
Name and Address of Beneficial Owner Offering <F1> <F2> After This Offering
- --------------------------------------- -------------------------- -----------------------
Amount Percent Amount Percent
------------- -------- ------------- --------
<S> <C> <C> <C> <C>
Anthony A. Marnell II 5,135,618<F3> 23.4% 5,135,618<F3> 20.6%
4495 S. Polaris Avenue
Las Vegas, Nevada 89103
James A. Barrett, Jr. 1,952,833<F4> 9.1% 1,952,833<F4> 8.0%
4495 S. Polaris Avenue
Las Vegas, Nevada 89103
Private Capital Management, Inc. 1,474,500 6.9% 1,474,500 6.0%
3003 Tamiami Trail North
Naples, Florida 34103
The Capital Group Companies, Inc. 1,582,700<F5> 7.4% 1,582,700<F6> 6.5%
333 South Hope Street
Los Angeles, California 90071
Chilton Investment Co., Inc. 1,402,600<F6> 6.6% 1,402,600<F7> 5.7%
320 Park Avenue, 22ND Floor
New York, New York 10022
All Executive Officers and 5,580,706<F7> 25.0% 5,580,706<F8> 22.1%
Directors asa group (8 persons)
- -----------------
<FN>
<F1> Unless otherwise noted, the persons identified in this table
have sole voting and sole investment power with regard to
the shares beneficially owned by them.
<F2> Includes shares issuable upon exercise of options which are
exercisable within 60 days of the stated date.
<F3> Includes options to purchase 488,000 shares issuable to
Mr. Marnell under the NSOP, which are not listed below.
Mr. Marnell beneficially owns the following shares which
are held of record by the following entities:
Common
Stock
---------
Anthony A. Marnell II, IRA 15,500
Certain trusts established for the
benefit of Mr. Marnell's family (the
"Family Trusts") (a) 908,515
Austi (b) 1,893,051
MarCor Limited Partnership ("MCLP") (c) 1,828,245
Shares held by Mr. Marnell's spouse and 2,307
children
Total Shares 4,647,618
(a) Mr. Marnell holds sole voting and investment power
over the shares held by the Family Trusts.
(b) Mr. Marnell owns 100% of Austi through the Marnell
Trust.
40
<PAGE>
(c) Mr. Marnell owns 84.56% of MCLP, a limited partnership.
James A. Barrett, Jr. controls the remaining 15.44% of
MCLP including, through a family corporation, the 4.25%
general partner interest.
<F4> Includes options to purchase 103,000 shares issuable to
Mr. Barrett under the NSOP. Of the shares currently held
by Mr. Barrett, 2,000 shares are held in his individual
retirement account; 6,538 shares are held in certain of his
spouse's and children's accounts; 13,000 shares are held by
the Barrett Family Revocable Living Trust through a family
corporation and 50 shares are held directly by the trust;
and 1,828,245 shares are held by MCLP. Mr. Barrett's
ownership in MCLP is 15.44%; however, all of the shares of
the Company's Common Stock held by MCLP are being reported
herein as beneficially owned by Mr. Barrett as a result of
his family corporation's position as sole general partner
of MCLP. Control of MCLP remains with Mr. Marnell as a
result of his ability to remove the general partner. Not
included are 3,000 shares held in certain trusts for which
Mr. Barrett is sole trustee.
<F5> The Capital Group Companies, Inc. reported on Schedule 13G
(Amendment No. 1), dated February 12, 1997, that it had
sole voting power with respect to 200,000 shares, and,
through an operating subsidiary, Capital Research and
Management Company, had sole dispositive power with respect
to 1,382,700. Sole voting power with respect to the same
1,382,700 shares is held by SMALLCAP World Fund, Inc. which
is advised by Capital Research and Management Company.
<F6> Chilton Investment Co., Inc. reported on Schedule 13D
(Amendment No. 1), dated August 28, 1997, that it had sole
voting power with respect to 24,463 shares and sole
dispositive power with respect to 1,377,957 shares. Sole
voting power with respect to the same 1,377,957 shares is
held by Richard L. Chilton, Jr.
<F7> Includes options to purchase 591,000 shares under the NSOP,
options to purchase 208,000 shares under the Company's 1995
Long-Term Incentive Plan ("Incentive Plan"), and options to
purchase 96,000 shares under the Directors' Plan.
</FN>
</TABLE>
41
<PAGE>
UNDERWRITING
Subject to the terms and conditions set forth in an
underwriting agreement (the "Underwriting Agreement") between the
Company, Salomon Brothers Inc and Merrill Lynch, Pierce, Fenner &
Smith Incorporated, as representatives of the several
underwriters (the "Representatives"), the Company has agreed to
sell to each of the Underwriters named below (the
"Underwriters"), and each such Underwriter has severally agreed
to purchase from the Company, the aggregate number of Shares set
forth opposite its name below:
<TABLE>
<CAPTION>
NUMBER OF SHARES
UNDERWRITERS OF COMMON STOCK
- ------------ ----------------
<S> <C>
Salomon Brothers Inc
Merrill Lynch, Pierce, Fenner & Smith Incorporated
----------------
Total 3,000,000
</TABLE> ================
In the Underwriting Agreement, the several Underwriters have
agreed, subject to the terms and conditions set forth therein, to
purchase all of the above-listed shares if any such shares are
purchased. In the event of a default by any Underwriter, the
Underwriting Agreement provides that, in certain circumstances,
the purchase commitments of the nondefaulting Underwriters may be
increased or the Underwriting Agreement may be terminated.
The Company has been advised by the Representatives that the
several Underwriters propose initially to offer the above-listed
shares to the public at the Price to Public set forth on the
cover page of this Prospectus and to certain dealers at such
price less a concession not in excess of $ per share.
The Underwriters may allow, and such dealers may reallow, a
concession not in excess of $ per share to other
dealers. After the initial public offering, the public offering
price and such concession may be changed.
The Company has granted the Underwriters an option,
exercisable during the 30-day period after the date of this
Prospectus, to purchase up to 450,000 additional shares of Common
Stock at the same price per share as the initial 3,000,000 shares
of Common Stock to be purchased by the several Underwriters. The
Underwriters may exercise such option only to cover over-
allotments, if any, incurred in connection with the sale of the
shares of Common Stock made hereby. To the extent that the
Underwriters exercise such option, each Underwriter will have a
firm commitment, subject to certain conditions, to purchase the
same proportion of the additional shares as the number of shares
of Common Stock set forth opposite such Underwriter's name in the
table above bears to the total number of shares of Common Stock
initially offered by the Underwriters.
The Company has agreed with the Underwriters not to offer,
sell or contract to sell, or otherwise directly or indirectly
dispose of (whether by actual disposition or effective economic
disposition due to cash settlement or otherwise), or announce the
offering of, any other shares of Common Stock or any securities
convertible into, or exchangeable for, shares of Common Stock,
for a period of 120 days following the date of this Prospectus
without the prior written consent of Salomon Brothers Inc. The
Company may, however, issue Common Stock upon the exercise of
options outstanding on the date of this Prospectus.
The directors and executive officers of the Company have
agreed with the Underwriters not to offer, sell, contract to
sell, pledge or otherwise dispose of, or file a registration
statement with the Commission in respect of, or establish or
increase a put equivalent position or liquidate or decrease a
call
42
<PAGE>
equivalent position within the meaning of Section 16 of the
Securities Exchange Act of 1934 (the "Exchange Act") with respect
to, any shares of capital stock of the Company or any securities
convertible into or exercisable or exchangeable for such capital
stock, or publicly announce an intention to effect any such
transaction, for a period of 120 days following the date of this
Prospectus without the prior written consent of Salomon Brothers
Inc, other than (i) any shares of Common Stock offered hereby,
(ii) any option or warrant or the conversion of a security
outstanding on the date of, and described in, this Prospectus and
(iii) shares of Common Stock disposed of as bona fide gifts
approved by Salomon Brothers Inc.
In connection with the offering made hereby, certain
Underwriters and selling group members and their respective
affiliates may engage in transactions that stabilize, maintain or
otherwise affect the market price of the Common Stock. Such
transactions may include stabilization transactions effected in
accordance with Rule 104 of Regulation M under the Exchange Act,
pursuant to which such persons may bid for or purchase Common
Stock for the purpose of stabilizing its market price. The
Underwriters also may create a short position for the account of
the Underwriters by selling more Common Stock in connection with
the offering made hereby than they are committed to purchase from
the Company, and in such case may purchase Common Stock in the
open market following completion of the Offering made hereby to
cover all or a portion of such short position. The Underwriters
may also cover all or a portion of such short position, up to
450,000 shares of Common Stock, by exercising the Underwriters'
over-allotment option referred to above. In addition, Salomon
Brothers Inc, on behalf of the Underwriters, may impose "penalty
bids" under contractual arrangements with the Underwriters
whereby it may reclaim from an Underwriter (or dealer
participating in the offering made hereby), for the account of
other Underwriters, the selling concession with respect to Common
Stock that is distributed in the offering made hereby but
subsequently purchased for the account of the Underwriters in the
open market. Any of the transactions described in this paragraph
may result in the maintenance of the price of the Common Stock at
a level above that which might otherwise prevail in the open
market. None of the transactions described in this paragraph is
required, and, if they are undertaken, they may be discontinued
at any time.
The Underwriting Agreement provides that the Company will
indemnify the several Underwriters against certain liabilities
and expenses, including liabilities under the Securities Act, or
contribute to payments that the Underwriters may be required to
make in respect thereof.
LEGAL MATTERS
The validity of the shares of Common Stock being offered
hereby and certain other legal matters in connection with this
Offering will be passed upon for the Company by Kummer Kaempfer
Bonner & Renshaw, Las Vegas, Nevada. Certain legal matters in
connections with this Offering will be passed upon for the
Underwriters by Cleary, Gottlieb, Steen & Hamilton, New York, New
York.
EXPERTS
The "Consolidated Financial Statements" of the Company as of
and for the years ended December 31, 1996, 1995 and 1994,
appearing in this Prospectus, have been audited by Arthur
Andersen LLP, independent certified public accountants, as stated
in their report appearing herein.
43
<PAGE>
<TABLE>
<CAPTION>
RIO HOTEL & CASINO, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
----
<S> <C>
Report of Independent Public Accountants F-2
Consolidated Balance Sheets as of December 31,
1996 and 1995 and September 30, 1997 (Unaudited) F-3
Consolidated Statements of Income for the Years
Ended December 31, 1996, 1995 and 1994, and for
the Nine Months Ended September 30, 1997 and
1996 (Unaudited) F-4
Consolidated Statements of Cash Flows for the
Years Ended December 31, 1996, 1995 and 1994,
and for the Nine Months Ended September 30,
1997 and 1996 (Unaudited) F-5
Consolidated Statements of Stockholders' Equity
for the Years Ended December 31, 1996, 1995 and
1994 and for the Nine Months Ended September 30,
1997 (Unaudited) F-6
Notes to Consolidated Financial Statements F-7
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
Rio Hotel & Casino, Inc.:
We have audited the accompanying consolidated balance sheets
of RIO HOTEL & CASINO, INC. (a Nevada corporation) and
subsidiaries as of December 31, 1996 and 1995 and the related
consolidated statements of income, stockholders' equity and cash
flows for each of the three years in the period ended
December 31, 1996. 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 generally
accepted auditing standards. Those standards require that we
plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the financial position
of Rio Hotel & Casino, Inc. and subsidiaries as of December 31,
1996 and 1995, and the results of their operations and their cash
flows for each of the three years in the period ended
December 31, 1996, in conformity with generally accepted
accounting principles.
ARTHUR ANDERSEN LLP
Las Vegas, Nevada
February 7, 1997
F-2
<PAGE>
</TABLE>
<TABLE>
<CAPTION>
RIO HOTEL & CASINO, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
September 30, December 31,
1997 1996 1995
--------------- --------------- ---------------
(Unaudited)
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents $ 13,762,819 $ 10,623,094 $ 19,992,695
Accounts receivable, net 22,552,463 8,690,105 4,313,442
Federal income taxes receivable 0 1,147,106 190,914
Inventories 4,739,936 3,871,345 1,794,850
Prepaid expenses and other current assets 7,429,651 5,534,895 4,638,090
--------------- --------------- ---------------
Total current assets 48,484,869 29,866,545 30,929,991
--------------- --------------- ---------------
Property and equipment:
Land and improvements 86,047,368 51,311,851 37,509,960
Building and improvements 406,396,476 196,918,053 192,818,896
Equipment, furniture and improvements 79,827,477 72,052,458 68,500,267
Less: accumulated depreciation (76,326,969) (60,501,211) (46,707,850)
--------------- --------------- ---------------
495,944,352 259,781,151 252,121,273
Construction in progress 265,978 190,210,277 17,173,483
--------------- --------------- ---------------
Net property and equipment 496,210,330 449,991,428 269,294,756
--------------- --------------- ---------------
Other assets, net 14,094,004 14,691,613 8,566,847
--------------- --------------- ---------------
$ 558,789,203 $ 494,549,586 $ 308,791,594
=============== =============== ===============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt $ 1,265,510 $ 352,239 $ 25,252
Accounts payable 7,308,067 5,854,830 4,562,132
Accrued expenses 24,771,022 11,967,407 9,136,226
Accounts payable - related party 2,121,363 19,604,470 6,641,506
Accrued interest 8,392,763 7,072,067 4,726,915
--------------- --------------- ---------------
Total current liabilities 43,858,725 44,851,013 25,092,031
--------------- --------------- ---------------
Non-current liabilities:
Long-term debt, less current maturities 304,013,531 253,949,283 110,176,765
Deferred income taxes 14,773,002 13,874,060 10,634,898
--------------- --------------- ---------------
Total non-current liabilities 318,786,533 267,823,343 120,811,663
--------------- --------------- ---------------
Total liabilities 362,645,258 312,674,356 145,903,694
Stockholders' equity: --------------- --------------- ---------------
Common stock, $0.01 par value;
100,000,000 shares authorized;
21,412,841; 21,170,441 and 21,139,146 shares
issued and outstanding 214,129 211,705 211,392
Additional paid-in capital 115,439,296 113,140,798 113,520,158
Retained earnings 80,490,520 68,522,727 49,156,350
--------------- --------------- ---------------
Total stockholders' equity 196,143,945 181,875,230 162,887,900
--------------- --------------- ---------------
$ 558,789,203 $ 494,549,586 $ 308,791,594
=============== =============== ===============
</TABLE>
See Accompanying Notes to Consolidated Financial Statements
F-3
<PAGE>
<TABLE>
<CAPTION>
RIO HOTEL & CASINO, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
Nine Months Ended
September 30, For the Year Ended December 31,
------------------------------ -------------------------------------------------
1997 1996 1996 1995 1994
-------------- ------------- -------------- -------------- --------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C>
Revenues:
Casino $ 141,215,071 $ 83,082,679 $ 112,458,824 $ 105,546,531 $ 87,164,738
Room 50,398,228 30,112,121 41,346,275 33,826,095 19,261,477
Food and beverage 83,048,512 52,992,883 70,789,839 60,009,994 47,648,778
Other 18,694,761 11,446,560 15,369,085 12,386,275 7,235,891
Casino promotional allowances (22,663,473) (14,546,973) (20,382,531) (18,810,726) (14,886,794)
-------------- ------------- -------------- -------------- --------------
270,693,099 163,087,270 219,581,492 192,958,169 146,424,090
-------------- ------------- -------------- -------------- --------------
Expenses:
Casino 74,432,544 40,005,532 56,825,539 48,071,953 38,696,281
Room 14,996,447 9,876,771 13,134,549 10,413,883 6,631,787
Food and beverage 64,025,064 40,615,871 54,899,850 48,257,881 38,795,127
Other 11,253,083 5,862,380 7,496,518 6,646,950 4,959,250
Selling, general and administrative 38,062,029 23,539,507 31,610,710 27,777,901 20,550,142
Depreciation and amortization 18,677,833 12,538,158 17,620,555 14,231,307 10,863,844
Preopening costs 11,200,000 - - - -
-------------- ------------- -------------- -------------- --------------
232,647,000 132,438,219 181,587,721 155,399,875 120,496,431
-------------- ------------- -------------- -------------- --------------
Operating profit 38,046,099 30,649,051 37,993,771 37,558,294 25,927,659
-------------- ------------- -------------- -------------- --------------
Other income (expense):
Interest expense (19,199,170) (7,112,247) (8,215,285) (8,105,680) (1,923,237)
Other income - - - - 1,140,010
-------------- ------------- -------------- -------------- --------------
(19,199,170) (7,112,247) (8,215,285) (8,105,680) (783,227)
-------------- ------------- -------------- -------------- --------------
Income before income tax provision 18,846,929 23,536,804 29,778,486 29,452,614 25,144,432
Income tax provision (6,879,136) (8,469,211) (10,412,109) (10,707,135) (9,178,023)
-------------- ------------- -------------- -------------- --------------
Net income $ 11,967,793 $ 15,067,593 $ 19,366,377 $ 18,745,479 $ 15,966,409
============== ============= ============== ============== ==============
Earnings per common share:
Net income $ 0.55 $ 0.70 $ 0.90 $ 0.87 $ 0.74
============== ============= ============== ============== ==============
Weighted average number of common
shares outstanding 21,574,545 21,549,457 21,528,006 21,591,325 21,720,121
============== ============= ============== ============== ==============
</TABLE>
See Accompanying Notes to Consolidated Financial Statements
F-4
<PAGE>
<TABLE>
<CAPTION>
RIO HOTEL & CASINO, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended
September 30, For the Year Ended December 31,
-------------------------------- ----------------------------------------------
1997 1996 1996 1995 1994
-------------- -------------- -------------- -------------- --------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income $ 11,967,793 $ 15,067,593 $ 19,366,377 $ 18,745,479 $ 15,966,409
Adjustments to reconcile net income
to net cash provided by
operating activities:
Compensation expense recognized
from stock option grant 86,560 79,409 108,360 87,627 141,975
Depreciation and amortization 18,677,833 12,538,163 17,620,555 14,231,307 10,863,844
Provision for uncollectible accounts 11,603,861 63,872 292,138 1,002,463 512,999
Deferred income taxes 1,289,832 742,490 2,198,017 3,122,621 1,693,101
(Increase) decrease in assets:
Accounts receivable (25,466,219) (1,428,276) (4,668,801) (2,026,109) (790,677)
Inventories (868,591) (1,936,951) (2,076,495) (416,252) (510,231)
Prepaid expenses and other current
assets (1,364,247) 67,453 (1,106,609) 659,627 (827,476)
Other, net 1,029,446 454,061 (6,311,840) (843,335) (2,881,750)
Increase (decrease) in liabilities:
Accounts payable 1,453,236 (542,729) 1,292,699 2,136,487 (522,443)
Accrued federal income tax payable - - - - 546,142
Accrued expenses 12,803,614 4,964,299 2,831,182 1,305,520 1,306,086
Accrued interest 1,320,696 (1,438,175) 2,345,152 4,375,051 297,896
-------------- -------------- -------------- -------------- --------------
Net cash provided by operating
activities 32,533,814 28,631,209 31,890,735 42,380,486 25,795,875
-------------- -------------- -------------- -------------- --------------
Cash flows from investing activities:
Purchase of equipment, furniture and
improvements (54,506,586) (112,036,884) (169,539,111) (63,326,652) (66,053,542)
Purchase of land and improvements (22,449,129) (11,500,910) (13,522,603) (12,781,239) -
-------------- -------------- -------------- -------------- --------------
Net cash used in investing
activities (76,955,715) (123,537,794) (183,061,714) (76,107,891) (66,053,542)
-------------- -------------- -------------- -------------- --------------
Cash flows from financing activities:
Proceeds from borrowings 82,200,000 86,000,000 143,000,000 10,000,000 60,014,175
Net proceeds from common stock
issuance 1,292,963 1,146,710 1,162,910 969,251 1,022,700
Net proceeds from issuance of senior
subordinated notes 121,562,500 - - 96,750,244 -
Repurchase of common stock - (1,209,850) (2,220,600) (5,386,225) -
Costs paid in connection with prior
common stock offering and stock
exchange rights - - - - (119,529)
Payments on notes and loans payable (157,493,837) (32,527) (140,932) (125,039,428) (18,358)
-------------- -------------- -------------- -------------- --------------
Net cash (used in) provided by
financing activities 47,561,626 85,904,333 141,801,378 (22,706,158) 60,898,988
-------------- -------------- -------------- -------------- --------------
Net increase (decrease) in cash and
cash equivalents 3,139,725 (9,002,252) (9,369,601) (56,433,563) 20,641,321
Cash and cash equivalents, beginning of
period 10,623,094 19,992,695 19,992,695 76,426,258 55,784,937
-------------- -------------- -------------- -------------- --------------
Cash and cash equivalents, end of period $ 13,762,819 $ 10,990,443 $ 10,623,094 $ 19,992,695 $ 76,426,258
============== ============== ============== ============== ==============
</TABLE>
See Accompanying Notes to Consolidated Financial Statements
F-5
<PAGE>
<TABLE>
<CAPTION>
RIO HOTEL & CASINO, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Common Stock
------------------------
Number of Additional Retained Total
Shares Amount Paid-In Earnings Stockholders'
----------- ---------- -------------- ------------ --------------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1993 21,147,796 $ 211,478 $ 115,182,541 $ 14,444,462 $ 129,838,481
Tax benefit of stock options exercised 886,132 886,132
Exercise of stock options 223,550 2,236 1,003,934 1,006,170
Net income for the year 15,966,409 15,966,409
Compensation expense for stock
options granted in 1993 141,975 141,975
----------- ---------- -------------- ------------- ---------------
Balance, December 31, 1994 21,371,346 213,714 117,214,582 30,410,871 147,839,167
Tax benefit of stock options exercised 632,601 632,601
Exercise of stock options 198,300 1,983 965,467 967,450
Repurchase of common stock (430,500) (4,305) (5,381,920) (5,386,225)
Common stock offering costs 1,801 1,801
Net income for the year 18,745,479 18,745,479
Compensation expense for stock
options granted in 1993 87,627 87,627
----------- ---------- -------------- ------------- ---------------
Balance, December 31, 1995 21,139,146 211,392 113,520,158 49,156,350 162,887,900
Tax benefit of stock options exercised 570,283 570,283
Exercise of stock options 175,795 1,758 1,161,152 1,162,910
Repurchase of common stock (144,500) (1,445) (2,219,155) (2,220,600)
Net income for the year 19,366,377 19,366,377
Compensation expense for stock
options granted in 1993 108,360 108,360
----------- ---------- -------------- ------------- ---------------
Balance, December 31, 1996 21,170,441 211,705 113,140,798 68,522,727 181,875,230
Tax benefit of stock options exercised 921,399 921,399
Exercise of stock options 242,400 2,424 1,290,539 1,292,963
Repurchase of common stock
Net income for the nine months 11,967,793 11,967,793
Compensation expense for stock
options granted 86,560 86,560
----------- ---------- -------------- ------------- ---------------
Balance, September 30, 1997 21,412,841 $ 214,129 $ 115,439,296 $ 80,490,520 $ 196,143,945
=========== ========== ============== ============= ===============
</TABLE>
See Accompanying Notes to Consolidated Financial Statements
F-6
<PAGE>
RIO HOTEL & CASINO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Significant Accounting Policies and Related Matters
Principles of Consolidation and Basis of Presentation
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. (formerly MarCor Development
Company, Inc.); Rio Resort Properties, Inc. (formerly MarCor
Resort Properties, Inc.); Rio Leasing, Inc.; and Rio Properties'
wholly owned subsidiaries, Cinderlane, Inc. and HLG, Inc.
All significant intercompany balances and transactions have
been eliminated in consolidation.
All amounts related to September 30, 1997 and 1996 are
unaudited.
Reclassifications
The financial statements for prior periods reflect certain
reclassifications, which have no effect on net income, to conform
with classifications adopted in a subsequent year.
Use of Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles 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 financial statements and the
reported amounts of revenues and expenses during the reporting
period. Actual results could differ from these estimates.
Capitalization of Interest
The Company capitalizes interest on funds disbursed during
the active construction phases of real estate development and
other major projects. Interest capitalized during the years ended
1996, 1995, and 1994 was $8.7 million, $0.9 million and $0.6
million, respectively. For the nine month periods ended
September 30, 1997 and 1996, capitalized interest was $3.8
million and $4.0 million, respectively.
Property and Equipment
Land and improvements, building and improvements, and
equipment, furniture and improvements are stated at cost.
Depreciation and amortization of property and equipment is
computed using the straight-line method predominantly over the
following estimated useful lives:
Building and improvements.............. 7 to 45 years
Equipment, furniture and improvements.. 3 to 15 years
F-7
<PAGE>
Costs of major improvements are capitalized, while costs of
normal repairs and maintenance are charged to expense as
incurred.
Preopening Costs
Preopening costs consist principally of direct incremental
personnel costs and advertising and marketing expenses. These
costs are capitalized prior to the opening of the specific
project and are charged to expense at the commencement of
operations. At December 31, 1996, included in other non-current
assets is $5.2 million in preopening costs. A total of $11.2
million of preopening costs was expensed in the first quarter of
1997.
Impairment
Management reviews existing information and analyses of the
Company and its operations as well as indicators of impairment
(such as dramatic changes in the manner in which an asset is used
or forecasts showing lack of long-term profitability) to
determine whether an impairment may exist. The Company considers
relevant cash flow and profitability information, including
estimated future operating results, trends and other available
information, in assessing whether the carrying value of its fixed
assets can be recovered. Upon a determination that the carrying
value of an asset will not be recovered from its future
undiscounted cash flows, the carrying value of that asset would
be considered impaired and will be reduced by a charge to
operations in the amount of the impairment. Impairment is
measured as any deficiency in estimated discounted future cash
flows of the fixed assets to recover the carrying value related
to those assets.
Inventories
Inventories are stated at the lower of cost or market. Cost
is determined by using the first-in, first-out method.
Revenue and Promotional Allowances
Casino revenues represent the net win from gaming wins and
losses. The retail value of rooms, food, beverage and other
services provided to customers without charge is included in
gross revenue and deducted as promotional allowances. The
estimated departmental costs of providing such promotional
allowances are included in casino costs and expenses as follows:
<TABLE>
<CAPTION>
Nine Months Ended
September 30, For the Year Ended December 31,
-------------------------- ----------------------------------------
1997 1996 1996 1995 1994 (Unaudited)
------------ ---------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C>
Room......................... $ 2,192,664 $1,255,269 $ 1,808,138 $ 1,940,936 $1,273,154
Food and beverage............ 9,144,233 6,845,047 9,429,800 9,020,152 7,823,819
Other operating expenses.... 508,074 140,021 206,163 104,921 44,888
----------- ---------- ----------- ----------- ----------
$11,844,971 $8,240,337 $11,444,101 $11,066,009 $9,141,861
=========== ========== =========== =========== ==========
</TABLE>
Earnings Per Share
Earnings per common share are computed on the basis of the
weighted average number of common shares and common stock
equivalents outstanding during the period.
F-8
<PAGE>
The Financial Accounting Standards Board recently issued
Statement of Financial Accounting Standards No. 128 - "Earnings
Per Share" ("SFAS 128"). SFAS 128 is effective for financial
statements issued for periods after December 15, 1997 and
replaces currently reported earnings per share with "basic," or
undiluted, earnings per share and "diluted" earnings per share.
Basic earnings per share is computed by dividing net income by
the weighted average number of shares outstanding during the
period, while diluted earnings per share reflects the additional
dilution for all potentially dilutive securities, such as stock
options. Earlier application of SFAS 128 is not permitted, and
the Company will adopt the provisions of SFAS 128 for 1998
financial statements, including the required restating of all
previously reported earnings per share.
The following table reflects the Company's pro forma
earnings per share for the nine month periods ended September 30,
1997 and 1996 and the years ended December 31, 1996, 1995 and
1994 as determined in accordance with SFAS 128:
<TABLE>
<CAPTION>
Nine Months Ended Years Ended
September 30, December 31,
----------------- ---------------------------
1997 1996 1996 1995 1994
------- -------- ------- ------- -------
Earnings per share: (Unaudited)
<S> <C> <C> <C> <C> <C>
As reported $0.55 $0.70 $0.90 $0.87 $0.74
Basic $0.56 $0.71 $0.91 $0.88 $0.75
Diluted $0.55 $0.70 $0.90 $0.87 $0.74
</TABLE>
Hedging Transaction
The Company was a party to an interest rate swap agreement
and has purchased an interest rate cap (Note 6). Any net
payments made or received by the Company in connection with this
interest rate swap agreement or interest rate cap, or any other
hedging transaction that the Company may enter into, will be
classified as cash flows from operating activities.
Premiums paid for the interest rate cap agreements are
amortized to interest expense over the shorter of the original
life of the debt or the term of the cap. Unamortized premiums
are included in other assets in the consolidated balance sheet.
Accounts receivable under the agreements are accrued as a
reduction of interest expense. Amounts payable under the
interest rate swap agreements are included in interest expense.
Income Taxes
Effective January 1, 1993, the Company implemented the
provisions of SFAS 109. SFAS 109 utilizes the liability method
and deferred taxes are determined based on the estimated future
tax effects of differences between the financial statement and
tax bases of assets and liabilities given the provisions of the
enacted tax laws.
2. Cash and Cash Equivalents
Cash and cash equivalents at September 30, 1997,
December 31, 1996 and 1995 include $2.0 million, $3.0 million and
$10.0 million, respectively, in overnight repurchase agreements
with a bank. These items are recorded at cost which approximates
market value and are considered cash equivalents for purposes of
the Consolidated Statements of Cash Flows.
F-9
<PAGE>
3. Consolidated Statements of Cash Flows
The following supplemental disclosures are provided as part
of the Consolidated Statements of Cash Flows:
<TABLE>
<CAPTION>
Nine Months Ended
September 30, For the Year Ended December 31,
------------------------- ----------------------------------------
1997 1996 1996 1995 1994
------------------------- ----------------------------------------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Cash payments made for
interest (net of amounts
capitalized)...............$17,596,459 $7,736,982 $4,773,537 $3,904,540 $1,919,556
=========== ========== ========== ========== ==========
Cash payments made for
income taxes...............$ 2,500,000 $6,600,000 $8,600,000 $7,100,000 $6,240,000
=========== ========== ========== ========== ==========
</TABLE>
Non-cash financing and investing activities:
September 30, 1997
Purchase of property and equipment financed through payables
totaled $2,121,363.
Purchase of land and improvements financed through debt
issuance totaled $4,483,448.
Tax benefit arising from the exercise of non-qualified stock
options totaled $921,399.
September 30, 1996
Purchase of property and equipment financed through payables
totaled $25,139,541.
Purchase of land financed through debt issuance totaled
$1,215,110.
Tax benefit arising from the exercise of stock options under
the Company's Non-Statutory Stock Option Plan totaled $556,213.
December 31, 1996
Purchase of property and equipment financed through payables
totaled $19,604,470.
Purchase of property and equipment financed through long-
term debt totaled $140,435.
Tax benefit arising from the exercise of stock options
granted under the NSOP totaled $570,283.
December 31, 1995
Purchase of property and equipment financed through payables
totaled $6,556,126.
Purchase of land financed through long-term debt totaled
$62,042.
Accounts receivable increased by $85,380. This was financed
through payables and will be reimbursed to the Company.
F-10
<PAGE>
Tax benefit arising from the exercise of stock options
granted under the Company's Non-Statutory Stock Option Plan
("NSOP") totaled $632,601.
December 31, 1994
Purchase of property and equipment financed through payables
totaled $10,026,210.
Tax benefit arising from the exercise of stock options
granted under NSOP totaled $886,132.
4. Accounts Receivable
Components of receivables are as follows:
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996 1995
------------- ---------- ----------
(Unaudited)
<S> <C> <C> <C>
Casino..................................$30,097,232 $6,318,124 $3,267,244
Hotel................................... 4,668,905 3,244,388 1,757,640
Other................................... 507,016 244,423 113,250
----------- ---------- ----------
35,273,153 9,806,935 5,138,134
Less allowance for doubtful accounts...(12,720,690) (1,116,830) (824,692)
----------- ---------- ----------
$22,552,463 $8,690,105 $4,313,442
=========== ========== ==========
</TABLE>
5. Accrued Expenses
Components of accrued expenses are as follows:
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996 1995
------------- ---------- ----------
(Unaudited)
<S> <C> <C> <C>
Accrued salaries, wages and related benefits..$14,037,063 $5,615,310 $4,065,736
Progressive slot machines and other gaming
accruals...................................... 3,103,805 2,862,652 2,532,964
Accrued gaming taxes.......................... 2,766,881 1,646,333 1,714,232
Other accrued liabilities..................... 4,863,273 1,843,112 823,294
----------- ----------- ----------
$24,771,022 $11,967,407 $9,136,226
=========== =========== ==========
</TABLE>
F-11
<PAGE>
6. Long-Term Debt
<TABLE>
<CAPTION>
Long-term debt consists of the following:
September 30, December 31,
1997 1996 1995
-------------- ------------ ------------
(Unaudited)
<S> <C> <C> <C>
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 substantially all of the Rio's
real property, equipment and improvements. $70,000,000 $153,000,000 $10,000,000
10 5/8 % Senior Subordinated Notes,
interest only payable semi-annually;
principal due July 15, 2005. 100,000,000 100,000,000 100,000,000
9 1/2% Senior Subordinated Notes, interest
only payable semi-annually, net of
unamortized discount of $3,212,090;
principal due April 15, 2007 121,787,910 - -
Note payable, interest payable monthly
based on the prime rate, quarterly
principal payments of $400,000 commencing
May 31, 1998 with any remaining balance
due May 31, 2000. 8,000,000 - -
Other 5,491,131 1,301,522 202,017
------------- ------------- -------------
305,279,041 254,301,522 110,202,017
Less current maturities (1,265,510) (352,239) (25,252)
------------- ------------- -------------
$304,013,531 $253,949,283 $110,176,765
============= ============= =============
</TABLE>
The prime interest rate quoted by the Company's primary
lenders at September 30, 1997 was 8.50%.
At September 30, 1997, the six month Eurodollar Rate was
5.875%. The margin on the Company's Eurodollar Rate borrowings
at September 30, 1997 was 3.0%.
The Rio Bank Loan was originally entered into on July 15,
1993 in the amount of $65 million with a syndicate of banks led
by Bank of America National Trust and Savings Association ("Bank
of America NT&SA"). As a result of certain amendments, the Rio
Bank Loan was increased to $125 million in December 1994, to $175
million in September 1995, and to $200 million in June 1996. The
Rio Bank Loan is a secured reducing revolving credit facility to
be used (a) to refinance the pre-amendment Rio Bank Loan, (b) to
finance the Phase V Expansion, (c) to finance acquisition of land
adjacent to the Rio for up to $40 million, and (d) for general
corporate purposes.
F-12
<PAGE>
The Rio Bank Loan matures on June 30, 2001 and bears
interest based upon a "LIBOR Spread" of from 1% to 3%, or a "Base
Rate Spread" of from 0% to 2% based upon a schedule determined
with reference to the "Funded Debt to EBITDA Ratio" of Rio
Properties. The "LIBOR Spread" is the amount in excess of the
applicable LIBOR rate which is the London Interbank Offer rate
established in the London interbank market. The "Base Rate
Spread" is the amount in excess of the applicable base rate,
which is the rate per annum equal to the higher of the reference
rate as it is publicly announced from time to time by Bank of
America NT&SA or 0.50% per annum above the latest Federal Funds
rate. The Rio Bank Loan also provides for an unused facility fee
ranging from 31.25 basis points to 50.00 basis points depending
upon the same Funded Debt to EBITDA ratio schedule utilized for
the interest rate. (A basis point is one one-hundredth of one
percent.) The Rio Bank Loan requires monthly or quarterly
payments of interest and requires scheduled reductions of the
maximum amount available under the Rio Bank Loan commencing with
a $10.0 million reduction at December 31, 1997, a $7.5 million
reduction at the end of each quarter during 1998, a $10.0 million
reduction at the end of each quarter during 1999, a $12.5 million
reduction at the end of each quarter during 2000, and a $35.0
million reduction at March 31, 2001 and maturity at June 30,
2001.
To reduce the risks from interest rate fluctuations, the
Company entered into interest rate swap agreements in the amount
of $20.0 million from September 30, 1994 through December 29,
1995 and $15.0 million from December 29, 1995 through its
expiration on June 28, 1996. In August 1994, the Company
purchased a $40.0 million interest rate cap, effective September
30, 1994, for a three-year term, which provides for quarterly
payments to the Company in the event that three month LIBOR
exceeds 7% on any quarterly reset date. The interest rate cap
agreement expired by its terms on September 30, 1997.
As a result of entering into interest rate swap agreements
and cap agreements, the Company has recognized interest expense
of $199,000 and $142,526 for the nine months ended September 30,
1997 and 1996, respectively, and $208,859, $18,638 and $83,833
for the years ended December 31, 1996, 1995 and 1994,
respectively. The impact of these hedging activities on the
Company's weighted average borrowing rate was an increase of
approximately 0.01% for each of the nine months ended September
30, 1997 and 1996 and 0.22%, 0.03% and 0.26% for the years ended
December 31, 1996, 1995 and 1994, respectively.
As of the nine months ended September 30, 1997, and the
years ended December 31, 1996, 1995 and 1994, there were no
deferred gains and losses relating to terminated interest rate
swap and interest rate cap agreements.
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 utilized
this ability by reborrowing $10 million on December 29, 1995 and
repaid $9 million on January 2, 1996 under the terms of the Rio
Bank Loan. During the third quarter of 1995, the Company used
the net proceeds from the 10 5/8 % Subordinated Notes to reduce
amounts outstanding under the Rio Bank Loan, and in the first
quarter of 1997, used the net proceeds from the 9 1/2%
Subordinated Notes to reduce amounts under the Rio Bank Loan.
The Company had $130 million, $47 million and $165 million
available under the Rio Bank Loan at September 30, 1997,
December 31, 1996 and December 31, 1995, respectively.
F-13
<PAGE>
As of September 30, 1997, at which time outstanding
borrowings under the Rio Bank Loan were $70.0 million, annual
maturities of total notes and loans payable are as follows:
<TABLE>
<CAPTION>
Year Ending (Unaudited)
<S> <C>
September 30, 1998 $ 1,265,510
September 30, 1999 1,655,311
September 30, 2000 6,176,683
September 30, 2001 70,189,990
September 30, 2002 204,269
Thereafter 225,787,278
--------------
$ 305,279,041
==============
</TABLE>
The carrying values of assets included in the consolidated
financial statements, which collateralize bank loans payable, are
as follows:
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996 1995
-------------- ------------ ------------
(Unaudited)
<S> <C> <C> <C>
Building and improvements..................$406,396,476 $196,918,053 $192,818,896
Equipment, furniture and improvements... 79,827,477 72,052,458 68,500,267
Land and improvements...................... 58,780,484 35,345,485 33,676,354
Construction in progress................... 265,973 190,210,277 17,173,483
------------ ------------ ------------
$545,270,410 $494,526,273 $312,169,000
============ ============ ============
</TABLE>
The 10 5/8 % Senior Subordinated Notes (the "10 5/8 % Notes")
and the 9 1/2% Senior Subordinated Notes (the "Existing 9 1/2%
Notes") are unconditionally guaranteed on a pari passu senior
subordinated basis by Rio Properties. The 10 5/8 % Notes and the
Existing 9 1/2% Notes (together "the Notes") are pari passu in
right of payment, are subordinated in right of payment to all
existing and future Senior Indebtedness (as defined in the
indentures for the Notes, the "Indentures") of the Company, and
are structurally subordinated to all existing and future
indebtedness and other liabilities (including trade payables) of
the Company's subsidiaries.
The 10 5/8 % Notes may be redeemed at the option of the
Company, in whole or in part, at any time on or after July 15,
2000, at the redemption prices set forth in the Indenture for the
10 5/8 % Notes. The Existing 9 1/2% Notes may be redeemed at the
option of the Company, in whole or in part, at any time after
April 15, 2002, at the redemption prices set forth in the
Indenture for the Existing 9 1/2% Notes. Upon a change in
control of the Company (as defined in the Indenture), each holder
of the Notes will have the right to require the Company to
repurchase all or part of such holder's Notes at a price equal to
101% of the aggregate principal amount thereof, plus accrued and
unpaid interest, if any, to the date of repurchase. Each
Indenture contains certain covenants that, among other things,
limit the ability of the Company and its Restricted Subsidiaries
(as defined in the Indentures) to incur additional indebtedness,
pay dividends or make other distributions, make investments,
repurchase subordinated obligations or capital stock, create
certain liens (except, among others, liens securing Senior
Indebtedness), enter into certain transactions with affiliates,
sell assets of the Company or its subsidiaries, issue or sell
subsidiary stock, create or permit to exist restrictions on
distributions from subsidiaries, or enter into certain mergers
and consolidations.
F-14
<PAGE>
7. Income Taxes
The federal income tax provisions for the nine months ended
September 30, 1997 and for the years ended December 31, 1996,
1995 and 1994 consist of the following:
<TABLE>
<CAPTION>
Nine Months
Ended
September 30, Year Ended December 31,
1997 1996 1995 1994
------------- ----------- ----------- -----------
(Unaudited)
<S> <C> <C> <C> <C>
Current $4,667,904 $8,214,092 $7,681,015 $6,643,993
Deferred 2,211,232 2,198,017 3,026,120 2,534,030
------------- ----------- ----------- ----------
$6,879,136 $10,412,109 $10,707,135 $9,178,023
============= =========== =========== ==========
</TABLE>
The following schedule reconciles the Company's effective
tax rate to the statutory rate:
<TABLE>
<CAPTION>
For the Nine
Months Ended
September 30, For the Year Ended December 31,
1997 1996 1995 1994
------------- -------- --------- --------
(Unaudited)
<S> <C> <C> <C> <C>
Statutory rate 35.0% 35.0% 35.0% 35.0%
Depreciation on premium allocated
in Rio Partnership exchange 1.3% 0.2% 0.4% 0.5%
Disallowance for tax purposes of
certain meals, travel and
entertainment expenses 2.0% 0.2% 1.5% 1.2%
Other (1.8)% (0.4)% (0.5)% (0.2)%
------------- --------- --------- ---------
Effective rate 36.5% 35.0% 36.4% 36.5%
============= ========= ========= =========
</TABLE>
During 1994, the Company utilized all remaining alternative
minimum tax credit carryforwards.
The Company's deferred tax assets (liabilities) at
September 30, 1997 and December 31, 1996 consisted of the
following:
<TABLE>
<CAPTION>
September 30, 1997 December 31, 1996
------------------------------ ----------------------------
Current Non-Current Current Non-Current
------------- -------------- ------------ -------------
(Unaudited)
<S> <C> <C> <C> <C>
Depreciation & amortization $ - $(15,189,459) - $(11,539,037)
Deferred employee benefits 810,233 - $581,000 -
Bad debt expense 498,786 - 390,890 -
Preopening costs - - - (1,275,043)
Other deferred tax items, net - 416,457 728,019 (1,059,980)
------------- ------------- ----------- -------------
$ 1,309,019 $(14,773,002) $1,699,909 $(13,874,060)
============= ============= =========== =============
</TABLE>
F-15
<PAGE>
The Company's deferred tax assets (liabilities) at
December 31, 1995 consisted of the following:
<TABLE>
<CAPTION>
Current Non-Current
---------- -------------
<S> <C> <C>
Depreciation & amortization $ - $(11,399,852)
Deferred employee benefits 370,122 -
Bad debt expense 288,642 -
Other deferred tax assets, net - 764,954
---------- -------------
$ 658,764 $(10,634,898)
========== =============
</TABLE>
The current portion of the Company's net deferred tax assets
is included on the Consolidated Balance Sheet under the heading
"Prepaid Expenses and Other Current 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. Commitments and Contingencies
Effective January 1, 1991, Rio Properties maintains an
employee profit sharing plan for all employees who have
accredited service. Contributions to the plan are discretionary
and cannot exceed amounts permitted under the Internal Revenue
Code. Contributions of $376,736, $278,835 and $215,039 have been
authorized and charged to income for the years ended December 31,
1996, 1995 and 1994, respectively. For the nine months ended
September 30, 1997, contributions of $358,358 were charged to
income.
In the normal course of business, the Company is involved
with various negotiations and legal matters. In addition, Rio
Properties is a potential defendant in various personal injury
allegations. Management is of the opinion that the effect of
these matters is not material to the consolidated financial
statements.
9. Stockholders' Equity
Common Stock
During the nine months ended September 30, 1997, the Company
issued 242,400 shares of Common Stock at exercise prices ranging
from $3.00 per share to $15.625 per share pursuant to options
previously granted under the Company's Non-Statutory Stock Option
Plan ("NSOP") and other non-statutory options previously granted
under the Company's Long-Term Incentive Plan.
During 1996, the Company issued 175,795 shares of Common
Stock at exercise prices ranging from $3.00 per share to $15.625
per share pursuant to options previously granted under the NSOP.
During 1996, the Company repurchased 144,500 shares of
Common Stock from time to time in the open market at a total cost
of $2.2 million. The repurchased shares of Common Stock were
retired.
During 1995, the Company issued 198,300 shares of Common
Stock at exercise prices ranging from $3.00 per share to $14.25
per share pursuant to options previously granted under the NSOP.
F-16
<PAGE>
During 1995, the Company repurchased 430,500 shares of
Common Stock from time to time in the open market at a total cost
of $5.4 million. The repurchased shares of Common Stock were
retired.
During 1994, the Company issued 223,550 shares of Common
Stock at exercise prices ranging from $3.00 per share to $15.625
per share pursuant to options previously granted under the
Company's NSOP.
Stock Options
The Company has various stock option plans under which
options may be granted to officers, outside directors, employees,
agents or independent contractors of the Company. The options
granted typically vest ratably over five years, with an
expiration 10 years from date of issuance.
<TABLE>
<CAPTION>
Nine Months Ended
September 30, Year Ended December 31,
------------------------ ------------------------------------
1997 1996 1996 1995 1994
---------- ---------- ---------- ---------- ----------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Options outstanding,
beginning of period........ 2,389,555 1,853,850 1,853,850 1,999,050 1,957,800
Granted..................... 1,204,000 793,000 828,000 294,000 337,500
Exercised................... (242,400) (172,195) (175,795) (198,300) (223,550)
Forfeited................... (31,100) (101,300) (116,500) (240,900) (72,700)
---------- ---------- ---------- ---------- ----------
Options outstanding,
end of period.............. 3,320,055 2,373,355 2,389,555 1,853,850 1,999,050
========== ========== ========== ========== ==========
Options available for
grant at end of period..... 365,000 1,563,900 1,484,300 259,400 212,500
Options exercisable at
end of period.............. 1,407,155 730,115 996,755 894,717 586,050
Average exercise price
of options exercised
during the period.......... $5.33 $6.65 $6.62 $5.21 $4.57
Average exercise price
of options outstanding
at end of period........... $14.05 $12.75 $12.40 $10.63 $7.04
Average exercise price
of options granted
during the period.......... $15.49 $15.35 $15.37 $13.01 $12.56
Average exercise price
of options forfeited
during the period.......... $13.98 $12.91 $14.04 $12.43 $12.33
</TABLE>
The Company has granted 2,879,500 options at exercise prices
ranging from $3.00 to $15.625 per share to key officers and
employees under the Company's NSOP. As of September 30, 1997,
1,120,445 options had been exercised and 483,400 options had been
forfeited, resulting in 1,275,655 options outstanding and 241,400
options available to be granted under the NSOP.
Under the Directors Stock Option Plan, as amended, options
to purchase up to 200,000 shares of common stock may be granted
to non-employee directors. The option exercise price is 100% of
the fair market value of the common stock on the date of grant.
As of September 30, 1997, 138,000 options had been granted at
exercise prices ranging from $3.00 per share to $16.625 per
share, 30,000 options had been
F-17
<PAGE>
exercised and 22,000 options had been forfeited, resulting in
86,000 options outstanding and 84,000 options available to be
granted.
Under the 1995 Long-Term Incentive Plan, options to purchase
up to 2,000,000 shares of the Company's common stock may be
granted to executive officers, key employees and outside
consultants of the Company. The option exercise price is equal
to or more than the last reported sale price of the common stock
on the date of the grant. As of September 30, 1997, 1,979,000
options had been granted at exercise prices ranging from $15.50
to $16.75 per share. A total of 2,000 options had been exercised
and 18,600 options had been forfeited, resulting in 1,958,400
options outstanding and 60,200 options available to be granted.
The Company applies APB Opinion No. 25 and related
interpretations in accounting for the plans. Accordingly, no
compensation expense has been recognized for the stock options.
FASB Statement 123 "Accounting for Stock-Based Compensation"
("SFAS 123") was issued by the FASB in 1995 and, if fully
adopted, changes the methods for recognition of cost on plans
similar to those of the Company. Had compensation cost for the
Company's stock-based compensation plans been determined based on
the fair market value of options on the dates of grant for the
nine month periods ended September 30, 1997 and 1996 and years
ended December 31, 1996 and 1995 using the Black-Scholes option-
pricing model with the following assumptions: (i) no dividends,
(ii) expected volatility of 35% for the nine months ended
September 30, 1997 and 37% for the nine months ended September
30, 1996 and years ended December 31, 1996 and 1995, (iii) risk
free interest rates of 6.00% and 5.62% for the nine month periods
ended September 30, 1997 and 1996, respectively, and 6.06% and
5.68% for the years ended December 31, 1996 and 1995,
respectively, (iv) and expected lives of four years, the effect
on net income and earnings per share would be as follows:
<TABLE>
<CAPTION>
Nine Months Ended
September 30, Year Ended December 31,
--------------------------- ---------------------------
1997 1996 1996 1995
----------- ----------- ----------- -----------
(Unaudited)
<S> <C> <C> <C> <C>
Net income - As reported $11,967,793 $15,067,593 $19,366,377 $18,745,479
=========== =========== =========== ===========
-Proforma $11,606,426 $14,618,359 $18,286,839 $18,692,445
=========== =========== =========== ===========
Primary Earnings per share -
As reported $0.55 $0.70 $0.90 $0.87
=========== =========== =========== ===========
-Proforma $0.49 $0.68 $0.86 $0.87
=========== =========== =========== ===========
Fully diluted earnings per share
As reported $0.55 $0.70 $0.90 $0.87
=========== =========== =========== ===========
-Proforma $0.49 $0.68 $0.86 $0.87
=========== =========== =========== ===========
</TABLE>
The weighted average fair market value of options granted in
1996 and 1995 were $2.49 and $4.83, respectively.
10. Related Party Transactions
The Company contracted with two affiliates of the Company's
largest stockholder for the design and construction of a 41-story
hotel tower containing approximately 1,000 suites (the "Phase V
Expansion") for a total of approximately $200 million. The Phase
V Expansion project was completed during the first nine months of
1997.
F-18
<PAGE>
The Company contracted with two affiliates of the Company's
largest stockholder for the design and construction of three
previous expansion projects, the 437 new suite Eastside Expansion
for a total of $57.6 million, the 549 new suite Phase III
Expansion for a total of $64.2 million and the 141 new suite
Phase IV Expansion for a total of $18.8 million. Each of these
expansions included the addition of new public and back-of-the-
house areas and improvements.
An affiliate of the Company's largest stockholder provided
real estate brokerage services to the Company in connection with
the purchase of 31 acres adjacent to the Rio and the acquisition
of the options to purchase an additional seven acres. In
addition, in 1997, the affiliate rented a site centrally located
on the Las Vegas Strip to the Company for a transportation
center. Rent and fees paid in connection with these property
acquisitions, including reimbursement of expenses, were $826,618
for the nine months ended September 30, 1997 and $999,910 and
$878,428 for the years ended December 31, 1996 and 1995,
respectively. Nominal amounts were paid by the Company to the
affiliate for similar purposes during 1994. Expense
reimbursements were generally reimbursed at the affiliate's cost,
and real estate brokerage commissions are believed to be on terms
at least as favorable as would have been obtained from non-
affiliated parties.
Two director/officers of the Company are associated with
affiliated entities as noted above which render various
architectural and construction services for the Company. The
Company paid these entities, in the aggregate, including the
above-referenced Eastside Expansion, Phase III Expansion, Phase
IV Expansion and Phase V Expansion, approximately $48.1 million,
$147.9 million, $51.0 million and $50.4 million during the nine
months ended September 30, 1997, and the years ended December 31,
1996, 1995 and 1994, respectively, for their services.
Entities in which a director of the Company is the principal
stockholder and the executive officer received commissions from
the Company totaling approximately $157,000, $122,000, $159,000
and $125,000 for the nine months ended September 30, 1997, and
the years ended December 31, 1996, 1995 and 1994, respectively,
arising out of the acquisition of various insurance coverages by
the Company.
In 1997, the Company contracted with an affiliate of the
Company's largest stockholder for completion of the Rio Secco
Golf Club, with the exception of a clubhouse, for $5.7 million.
A new contract will be entered into for the construction of the
clubhouse for approximately $6.5 million. During the nine months
ended September 30, 1997, the Company paid approximately $3.3
million on the initial contract.
The Company believes that the transactions described above
are on terms at least as favorable as would have been obtained
from non-related parties.
11. Subsequent Event
On February 4, 1997, the Company entered into an agreement
with Salomon Brothers Inc and BancAmerica Securities, Inc. (the
"Initial Purchasers") for the sale by the Company of $125 million
in principal amount of 9 1/2% Senior Subordinated Notes Due 2007
(the "9 1/2% Notes"). The 9 1/2% Notes were purchased by the
Initial Purchasers for resale to qualified institutional
investors. The net proceeds from the sale of the 9 1/2% Notes
(approximately $121.5 million after the deduction of a 2.75%
discount to the Initial Purchasers and offering expenses of
approximately $0.1 million), were used to reduce amounts
outstanding under the Rio Bank Loan, thereby increasing the
amount available under the Rio Bank Loan by the same amount.
F-19
<PAGE>
The 9 1/2% Notes were issued under an indenture (the "New
Indenture") dated February 11, 1997 among the Company, Rio
Properties and IBJ Schroder Bank & Trust Company, as trustee.
The following summary of certain provisions of the New Indenture
does not purport to be complete and is subject to the provisions
of the New Indenture and the 9 1/2% Notes. Capitalized terms not
otherwise defined have the same meanings assigned to them in the
New Indenture.
The 9 1/2% Notes mature on April 15, 2007. Interest payment
dates under the 9 1/2% Notes are April 15 and October 15,
commencing April 15, 1997. Together with the 10 5/8 % Notes, the
9 1/2% Notes are unconditionally guaranteed (the "Rio Guarantee")
on a senior subordinated basis by Rio Properties. The 9 1/2%
Notes are subordinated in right of payment to all existing and
future Senior Indebtedness (as defined in the New Indenture) of
the Company and are structurally subordinated to all existing and
future indebtedness and other liabilities (including trade
payables) of the Company's subsidiaries. The Rio Guarantee is
subordinated in right of payment to all existing and future
Senior Indebtedness (as defined in the New Indenture) of Rio
Properties and is structurally subordinated to all existing and
future indebtedness and other liabilities (including trade
payables) of Rio Properties' subsidiaries.
The 9 1/2% Notes may be redeemed at the option of the
Company, in whole or in part, at any time on or after April 15,
2002, at the redemption prices set forth in the New Indenture,
plus accrued and unpaid interest, if any, through the redemption
date. The 9 1/2% Notes will be redeemed from any holder or
beneficial owner of the 9 1/2% Notes which is required to be
found suitable and is not found suitable by the Nevada Gaming
Commission.
Upon a Change of Control of the Company (as defined in the
New Indenture), each holder of the 9 1/2% Notes will have the
right to require the Company to repurchase all or part of such
holder's 9 1/2% Notes at a price equal to 101% of the aggregate
principal amount thereof, plus accrued and unpaid interest, if
any, to the date of repurchase. The Company's obligation to
repurchase the 9 1/2% Notes is guaranteed on a senior
subordinated basis by Rio Properties. The New Indenture contains
certain covenants that, among other things, limit the ability of
the Company and its Restricted Subsidiaries (as defined in the
New Indenture) to incur additional indebtedness, pay dividends or
make other distributions, make investments, repurchase
subordinated obligations or capital stock, create certain liens
(except, among others, liens securing Senior Indebtedness), enter
into certain transactions with affiliates, sell assets of the
Company or its subsidiaries, issue or sell subsidiary stock,
create or permit to exist restrictions on distributions from
subsidiaries, or enter into certain mergers and consolidations.
12. Debt Guarantee
Summarized financial information is provided below for Rio
Properties, the Company's principal wholly owned operating
subsidiary, as sole guarantor to the 10 5/8 % Notes and the 9 1/2%
Notes which are pari passu under the guarantee. The two
subordinated note issues are fully and unconditionally guaranteed
by Rio Properties and are subordinated to all existing and future
indebtedness and other liabilities (including trade payables) of
the Company's subsidiaries.
Summarized financial statements of Rio Properties and the
Company's other subsidiaries have not been prepared since the
assets, pre-tax income and parents' net investment in the non-
guarantor subsidiaries on an individual and combined basis are
inconsequential, except as described below. In addition, the
Company's operations and assets other than its investment in its
subsidiaries are inconsequential. The difference in net equity
between the Company and Rio Properties is principally a result of
the Company's purchase in 1990 and 1992 of minority interests in
a subsidiary, resulting in the payment of premiums of
approximately $13.7 million and $1.3 million, respectively. The
premiums were
F-20
<PAGE>
allocated by the Company, based on fair market values, among
land, building and equipment, furniture and improvements.
<TABLE>
<CAPTION>
Nine Months Ended Year Ended December 31,
September 30, 1997 1996 1995
------------------ -------------- ---------------
<S> <C> <C> <C>
Current assets $ 40,902,711 $ 30,139,122 $ 29,995,415
Non-current assets 489,955,214 448,469,956 262,320,009
Current liabilities 57,843,169 56,301,870 33,216,257
Non-current liabilities 292,447,093 253,949,282 110,176,765
Revenues 270,675,793 219,577,608 192,537,954
Operating profit 38,028,793 37,959,885 37,138,205
Income before income taxes 19,092,179 29,744,600 29,451,596
Net income 12,123,176 19,327,165 18,733,318
</TABLE>
One of the Company's non-guarantor subsidiaries, Rio
Development, Inc. ("Rio Development") has recently acquired
assets and liabilities associated with the purchase of a golf
course. As of September 30, 1997, this subsidiary had current
assets of $95,513; non-current assets of $26,140,110, including
$5,635,073 due from the Company; current liabilities of $909,283
and non-current liabilities of $20,356,084, including $8,789,646
due Rio Properties. Prior to September 30, 1997, the assets and
operations of Rio Development were inconsequential.
F-21
<PAGE>
No dealer, salesperson or any other 3,000,000 Shares
person has been authorized to give any
information or to make any
representations other than those
contained in this Prospectus in
connection with the offer made by this
Prospectus and, if given or made, such
information or representations must
not be relied upon as having been Rio Hotel &
authorized by the Company or the Casino, Inc.
Underwriters. Neither the delivery of
this Prospectus nor any sale made
hereunder shall, under any
circumstances, create any implication
that there has been no change in the Common Stock
affairs of the Company since the dates ($0.01 par value)
as of which information is given in
this Prospectus. This Prospectus does
not constitute an offer or
solicitation by anyone in any
jurisdiction in which such offer or
solicitation is not authorized or in
which the person making such offer or
solicitation is not qualified to do so
or to any person to whom it is
unlawful to make such offer or
solicitation.
----------------------------------
Table of Contents
PAGE
Available Information 2
Incorporation of Documents by Reference 2
Prospectus Summary 4
Use of Proceeds 13
Dividend Policy 13
Price Range of Common Stock 13
Consolidated Capitalization 14
Management's Discussion and
Analysis of Financial
Condition and Results of Salomon Brothers Inc
Operations 15 Merrill Lynch & Co.
Business 23
Certain Transactions 38
Security Ownership of Certain
Beneficial Owners and
Management 40
Underwriting 42
Legal Matters 43
Experts 43
Index to Consolidated Prospectus
Financial Statements F-1 Dated October __, 1997
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. Other Expenses of Issuance and Distribution
The estimated expenses of the issuance and distribution of
the Shares offered hereby, as set forth below, will be borne
entirely by the Company:
<TABLE>
<CAPTION>
Item Amount
---- ------
<S> <C>
Securities and Exchange Commission Registration Fee.......... $ 23,066
Blue Sky Fees................................................ *
NASD Fee..................................................... *
Transfer Agents Fees and Expenses............................ *
Printing Expenses............................................ *
Legal Fees and Expenses...................................... *
Accounting Fees and Expenses................................. *
Miscellaneous Expenses....................................... *
--------
Total $
========
*To be filed by amendment.
</TABLE>
ITEM 15. Indemnification of Directors and Officers
Section 78.751 of Chapter 78 of the Nevada Revised Statutes
and Article XII of the Company's Articles of Incorporation
contain provisions for indemnification of officers, directors,
employees and agents of the Company. The Articles of
Incorporation require the Company to indemnify such persons to
the full extent permitted by Nevada law. Each person will be
indemnified in any proceeding if he acted in good faith and in a
manner which he reasonably believed to be in, or not opposed to,
the best interest of the Company. Indemnification would cover
expenses, including attorneys' fees, judgments, fines and amounts
paid in settlement.
The Company's Articles of Incorporation and Bylaws also
provide that the Company's Board of Directors may cause the
Company to purchase and maintain insurance on behalf of any
present or part director or officer insuring against any
liability asserted against such person incurred in the capacity
of director or officer or arising out of such status, whether or
not the Company would have the power to indemnify such person.
The Company presently has directors' and officers' liability
insurance in effect.
II-1
<PAGE>
ITEM 16. Exhibits
Exhibit
Number Description
- ------- -----------
1.01 Form of Underwriting Agreement (to be filed by
amendment).
5.01 Opinion and consent of Kummer Kaempfer Bonner &
Renshaw as to the legality of securities being
registered.
23.01 Consent of Kummer Kaempfer Bonner & Renshaw, contained
in Exhibit 5.01.
23.02 Consent of Arthur Andersen LLP.
24.01 Power of Attorney (see p. II-3).
ITEM 17. Undertakings
(a) The undersigned Registrant hereby undertakes that, for
purposes of determining any liability under the Securities Act of
1933, each filing of the Registrant's annual report pursuant to
Section 13(a) or Section 15(d) of the Securities Exchange Act of
1934 (and, where applicable, each filing of an employee benefit
plan's annual report pursuant to Section 15(d) of the Securities
Exchange Act of 1934) that is incorporated by reference in this
Registration Statement shall be deemed to be a new Registration
Statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
(b) The undersigned Registrant hereby undertakes that, for
purposes of determining any liability under the Securities Act of
1933, (i) the information omitted from the form of Prospectus
filed as a part of this Registration Statement in reliance upon
Rule 430A and contained in the form of prospectus filed by the
Registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the
Securities Act shall be deemed to be part of this Registration
Statement as of the time it was declared effective; and (ii) each
post-effective amendment that contains a form of Prospectus shall
be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering
thereof.
(c) Insofar as indemnification for liabilities arising
under the Securities Act of 1933 may be permitted to directors,
officers and controlling persons of the Registrant pursuant to
the foregoing provisions, or otherwise, the Registrant has been
advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities
(other than the payment of the Registrant of expenses incurred or
paid by a director, officer or controlling person of the
Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in
the Act and will be governed by the final adjudication of such
issue.
II-2
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933,
the Registrant certifies that it has reasonable grounds to
believe that it meets all of the requirements for filing on
Form S-3 and has duly caused this Registration Statement to
be signed on its behalf by the undersigned, thereunto duly
authorized in the City of Las Vegas, State of Nevada on
October 30, 1997.
Rio Hotel & Casino, Inc.
By:/s/ James A. Barrett, Jr.
James A. Barrett, Jr.
President
The undersigned Directors and Officers of Rio Hotel &
Casino, Inc. hereby appoint James A. Barrett, Jr. or Ronald J.
Radcliffe as attorney-in-fact for the undersigned, with full
power of substitution, for and in the name, place and stead of
the undersigned, to sign and file with the Securities and
Exchange Commission under the Securities Act of 1933 any and all
amendments (including post-effective amendments) and exhibits to
this Registration Statement, additional registration statements
related hereto filed under Rule 462(b) and any and all
applications and other documents to be filed with the Securities
and Exchange Commission pertaining to the registration of the
securities covered hereby, with full power and authority to do
and perform any and all acts and things whatsoever requisite and
necessary or desirable, hereby ratifying and confirming all
that said attorney-in-fact, or his substitute or substitutes,
may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933,
this Registration Statement has been signed by the following
persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title
Date
<S> <C> <C>
/s/ Anthony A. Marnell, II Chairman of the Board of October 31, 1997
Anthony A. Marnell II Directors and Chief Executive
Officer (Principal Executive
Officer)
/s/ James A. Barrett, Jr. President and Director October 30, 1997
James A. Barrett, Jr.
/s/ David P. Hanlon Executive Vice President, Chief October 31, 1997
David P. Hanlon Operating Officer and Director
II-3
<PAGE>
/s/ Ronald J. Radcliffe Vice President, Treasurer and October 31, 1997
Ronald J. Radcliffe Chief Financial Officer
(Principal Financial and
Accounting Officer)
/s/ John A. Stuart Director October 31, 1997
John A. Stuart
/s/ Thomas Y. Hartley Director October 31, 1997
Thomas Y. Hartley
_______________________ Director ___________, 1997
Peter M. Thomas
</TABLE>
II-4
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Page
Number Description Number
- ------- ----------- ------
<S> <C> <C>
1.01 Form of Underwriting Agreement (to be filed by amendment).
5.01 Opinion and consent of Kummer Kaempfer Bonner & Renshaw
as to the legality of securities being registered.
23.01 Consent of Kummer Kaempfer Bonner & Renshaw,
contained in Exhibit 5.01.
23.02 Consent of Arthur Andersen LLP.
24.01 Power of Attorney (see p. II-3).
</TABLE>
<PAGE>
EXHIBIT 5.01
[Original printed on letterhead of
Kummer Kaempfer Bonner & Renshaw]
October 31, 1997
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
RE: RIO HOTEL & CASINO, INC.
REGISTRATION STATEMENT ON FORM S-3
3,450,000 SHARES OF COMMON STOCK
Ladies and Gentlemen:
As counsel to Rio Hotel & Casino, Inc., a Nevada
corporation (the "Company"), we are rendering this opinion in
connection with the registration by the Company of 3,450,000
shares (the "Shares") of the Company's common stock, $.01 par
value, including 450,000 shares subject to an over-allotment
option, and the proposed issuance and sale of the Shares under
the above-referenced registration statement.
We have examined all instruments, documents and records
which we deemed relevant and necessary for the basis of our
opinion hereinafter expressed. In such examination, we have
assumed the genuineness of all signatures and the authenticity of
all documents submitted to us as originals and the conformity to
the originals of all documents submitted to us as copies.
Based on such examination and subject to the completion
of all conditions to closing provided under the relevant
underwriting agreement, and subject to such other limitations
hereinabove provided, we are of the opinion that the Company has
the full power and authority under the laws of the state of
Nevada, and under its Articles of Incorporation and Bylaws to
issue the Shares and that such Shares are validly authorized
shares of common stock of the Company, and when issued, will be
legally issued, fully paid and nonassessable.
<PAGE>
October 31, 1997
Page 2
We hereby consent to the filing of the foregoing
opinion as an Exhibit to the above-referenced registration
statement filed on the date hereof with the Securities and
Exchange Commission under the Securities Act of 1933, as amended,
and to the use of our name in such registration statement and in
the related Prospectus under the heading "Legal Matters."
Sincerely,
/s/ Kummer Kaempfer Bonner & Renshaw
KUMMER KAEMPFER BONNER & RENSHAW
<PAGE>
EXHIBIT 23.02
<PAGE>
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use
of our reports and to all references to our Firm included in or
made a part of this Registration Statement.
ARTHUR ANDERSEN LLP
Las Vegas, Nevada
October 31, 1997
