UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
( X ) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: September 30, 1997
---------------------------------
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from: to
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Commission file number 1-11569
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RIO HOTEL & CASINO, INC.
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(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
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(Address of principal executive offices) (Zip Code)
(702) 252-7733
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(Registrant's telephone number, including area code)
Not Applicable
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(Former name, former address and former fiscal year, if changed
since last report)
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15 (d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
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Indicate the number of shares outstanding of each of the
issuer's classes of common stock, as of the latest practicable
date.
21,453,360 shares of Common Stock,
$0.01 par value as of October 29, 1997
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<PAGE>
FORM 10-Q
TABLE OF CONTENTS
PAGE
NUMBER
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements 3
Consolidated Balance Sheets 3
Consolidated Statements of Income 4
Consolidated Statements of Cash Flows 5
Supplemental Disclosure of Cash Flow Information 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 9
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 15
Item 2. Changes in Securities 15
Item 3. Defaults Upon Senior Securities 15
Item 4. Submission of Matters to a Vote of Security Holders 15
Item 5. Other Information 15
Item 6. Exhibits and Reports on Form 8-K 15
SIGNATURES 16
EXHIBIT INDEX 17
2
<PAGE>
<TABLE>
<CAPTION>
RIO HOTEL & CASINO, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
September 30, December 31,
1997 1996
---------------- ---------------
(Unaudited)
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 13,762,819 $ 10,623,094
Accounts receivable, net 22,552,463 8,690,105
Federal income taxes receivable - 1,147,106
Inventories 4,739,936 3,871,345
Prepaid expenses and other current assets 7,429,651 5,534,895
---------------- ---------------
Total current assets 48,484,869 29,866,545
---------------- ---------------
Property and equipment:
Land and improvements 86,047,368 51,311,851
Building and improvements 406,396,476 196,918,053
Equipment, furniture and improvements 79,827,477 72,052,458
Less: accumulated depreciation (76,326,969) (60,501,211)
---------------- ---------------
495,944,352 259,781,151
Construction in progress 265,978 190,210,277
---------------- ---------------
Net property and equipment 496,210,330 449,991,428
---------------- ---------------
Other assets, net 14,094,004 14,691,613
---------------- ---------------
$ 558,789,203 $ 494,549,586
================ ===============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt $ 1,265,510 $ 352,239
Accounts payable 7,308,067 5,854,830
Accrued expenses 24,771,022 11,967,407
Accounts payable - related party 2,121,363 19,604,470
Accrued interest 8,392,763 7,072,067
---------------- ---------------
Total current liabilities 43,858,725 44,851,013
---------------- ---------------
Non-current liabilities:
Long-term debt, less current maturities 304,013,531 253,949,283
Deferred income taxes 14,773,002 13,874,060
---------------- ---------------
Total non-current liabilities 318,786,533 267,823,343
---------------- ---------------
Total liabilities 362,645,258 312,674,356
---------------- ---------------
Stockholders' equity:
Common stock, $0.01 par value;
100,000,000 shares authorized;
21,412,841 and 21,170,441 shares
issued and outstanding 214,129 211,705
Additional paid-in capital 115,439,296 113,140,798
Retained earnings 80,490,520 68,522,727
---------------- ---------------
Total stockholders' equity 196,143,945 181,875,230
---------------- ---------------
$ 558,789,203 $ 494,549,586
================ ===============
</TABLE>
See accompanying Notes to Consolidated Financial Statements
3
<PAGE>
<TABLE>
<CAPTION>
RIO HOTEL & CASINO, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three Months Ended Nine Months Ended
----------------------------------- -----------------------------------
Sept. 30, 1997 Sept. 30, 1996 Sept. 30, 1997 Sept. 30, 1996
---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Revenues:
Casino $ 57,155,106 $ 26,854,235 $ 141,215,071 $ 83,082,679
Room 17,667,809 9,789,581 50,398,228 30,112,121
Food and beverage 30,888,182 17,719,076 83,048,512 52,992,883
Other 7,006,583 3,876,265 18,694,761 11,446,560
Casino promotional allowances (9,142,737) (5,012,827) (22,663,473) (14,546,973)
--------------- --------------- --------------- ---------------
103,574,943 53,226,330 270,693,099 163,087,270
--------------- --------------- --------------- ---------------
Expenses:
Casino 30,684,216 14,111,383 74,432,544 40,005,532
Room 5,347,864 3,237,079 14,996,447 9,876,771
Food and beverage 24,111,801 13,660,134 64,025,064 40,615,871
Other 4,154,300 1,959,971 11,253,083 5,862,380
Selling, general and administrative 13,529,920 7,652,922 38,062,029 23,539,507
Depreciation and amortization 6,440,433 4,283,761 18,677,833 12,538,158
Preopening expense - - 11,200,000 -
--------------- --------------- --------------- ---------------
84,268,534 44,905,250 232,647,000 132,438,219
--------------- --------------- --------------- ---------------
Operating profit 19,306,409 8,321,080 38,046,099 30,649,051
Interest expense 7,101,757 1,757,065 19,199,170 7,112,247
--------------- --------------- --------------- ---------------
Income before income tax 12,204,652 6,564,015 18,846,929 23,536,804
Income tax provision (4,449,386) (2,297,532) (6,879,136) (8,469,211)
--------------- --------------- --------------- ---------------
Net income $ 7,755,266 $ 4,266,483 $ 11,967,793 $ 15,067,593
=============== =============== =============== ===============
Earnings per common share:
Net income $ 0.36 $ 0.20 $ 0.55 $ 0.70
Weighted average number of common =============== =============== =============== ===============
shares outstanding 21,830,799 21,519,072 21,574,545 21,549,457
=============== =============== =============== ===============
</TABLE>
See accompanying Notes to Consolidated Financial Statements
4
<PAGE>
<TABLE>
<CAPTION>
RIO HOTEL & CASINO, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended
September 30,
------------------------------------
1997 1996
---------------- ---------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 11,967,793 $ 15,067,593
Adjustments to reconcile net income to net
cash provided by operating activities:
Compensation expense recognized from
stock option grant 86,560 79,409
Depreciation and amortization 18,677,833 12,538,163
Provision for uncollectible accounts 11,603,861 63,872
Deferred income taxes 1,289,832 742,490
(Increase) decrease in assets:
Accounts receivable (25,466,219) (1,428,276)
Inventories (868,591) (1,936,951)
Prepaid expenses and other current assets (1,364,247) 67,453
Other, net 1,029,446 454,061
Increase (decrease) in liabilities:
Accounts payable 1,453,236 (542,729)
Accrued expenses 12,803,614 4,964,299
Accrued interest 1,320,696 (1,438,175)
---------------- ---------------
Net cash provided by operating activities 32,533,814 28,631,209
---------------- ---------------
Cash flows from investing activities:
Purchase of land and improvements (6,062,970) (11,500,910)
Purchase of equipment, furniture and
improvements (54,506,586) (112,036,884)
Funds used for purchase of golf course (16,386,159) -
---------------- ---------------
Net cash used in investing activities (76,955,715) (123,537,794)
---------------- ---------------
Cash flows from financing activities:
Proceeds from borrowings 82,200,000 86,000,000
Net proceeds from issuance of senior
subordinated notes 121,562,500 -
Net proceeds from common stock issuance 1,292,963 1,146,710
Payments on notes and loans payable (157,493,837) (32,527)
Repurchase of common stock - (1,209,850)
---------------- ---------------
Net cash provided by financing activities 47,561,626 85,904,333
---------------- ---------------
Net increase (decrease) in cash and cash equivalents 3,139,725 (9,002,252)
Cash and cash equivalents, beginning of period 10,623,094 19,992,695
---------------- ---------------
Cash and cash equivalents, end of period $ 13,762,819 $ 10,990,443
================ ===============
</TABLE>
See accompanying Notes to Consolidated Financial Statements
5
<PAGE>
<TABLE>
<CAPTION>
RIO HOTEL & CASINO, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
(Unaudited)
Nine Months Ended
September 30,
---------------------------------
1997 1996
--------------- --------------
<S> <C> <C>
Cash payments made for interest, net of
capitalized interest $ 17,596,459 $ 7,736,982
=============== ==============
Cash payments made for income taxes $ 2,500,000 $ 6,600,000
=============== ==============
Non-cash investing and financing activities:
Purchase of property and equipment financed
through accounts payable $ 2,121,363 $ 24,178,394
=============== ==============
Debt assumed in purchase of land and golf
course $ 4,483,448 $ 215,110
=============== ==============
Debt incurred in the purchase of land $ - $ 1,000,000
=============== ==============
Financing of equipment purchases $ - $ 961,147
=============== ==============
Tax benefit arising from the exercise of
non-qualified options under the Company's
stock option plans $ 921,399 $ 556,213
=============== ==============
</TABLE>
6
<PAGE>
RIO HOTEL & CASINO, INC. and SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 - 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., Rio
Resort Properties, Inc., Rio Leasing, Inc. and Rio
Properties' wholly owned subsidiaries, HLG, Inc. and
Cinderlane, Inc. (collectively the "Company").
All significant intercompany balances and transactions
have been eliminated in consolidation.
The consolidated balance sheet as of September 30, 1997
and the related consolidated statements of income for the
three and nine month periods ended September 30, 1997 and
1996 and consolidated statement of cash flows for the nine
month periods ended September 30, 1997 and 1996 are
unaudited but, in the opinion of management, reflect all
adjustments necessary for a fair presentation of results
for such periods. The results of operations for an
interim period are not necessarily indicative of the
results for the full year. The consolidated financial
statements should be read in conjunction with the
consolidated financial statements and notes thereto
contained in the Company's annual report for the year
ended December 31, 1996. The consolidated balance sheet
at December 31, 1996 contained herein was derived from
audited financial statements, but does not include all
disclosures included in the Company's annual report for
the year ended December 31, 1996, and applicable under
generally accepted accounting principles.
NOTE 2 - PREOPENING EXPENSE
On February 7, 1997 the Company opened the Masquerade
Village casino, retail, dining and entertainment complex.
In addition, the Company opened approximately 1,000 new
suites beginning December 31, 1996 through the first six
months of 1997. Operating expenses for the first nine
months of 1997, all of which were included in the three
months ended March 31, 1997, include $11.2 million in one-
time preopening expenses, consisting primarily of direct
incremental personnel costs and advertising and marketing
expenses, associated with the expansion.
NOTE 3 - LONG-TERM DEBT
On February 4, 1997, the Company entered into an agreement
with Salomon Brothers Inc and BancAmerica Securities, Inc.
for the sale by the Company of $125 million in principal
amount of the Company's 9 1/2% Senior Subordinated Notes
Due 2007. The net proceeds from the sale of the notes,
which was received on February 11, 1997 net of an original
issue discount of 2.75%, was $121,562,500.
NOTE 4 - EARNINGS PER COMMON SHARE
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.
7
<PAGE>
The following table reflects the Company's pro-forma
earnings per share for the three and nine month periods
ended September 30, 1997 and 1996 as determined in
accordance with SFAS 128:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------- -------------------
1997 1996 1997 1996
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Earnings per share:
As reported $ 0.36 $ 0.20 $ 0.55 $ 0.70
Basic $ 0.36 $ 0.23 $ 0.56 $ 0.71
Diluted $ 0.35 $ 0.20 $ 0.55 $ 0.70
</TABLE>
8
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
STATEMENT ON FORWARD-LOOKING INFORMATION
Certain information included herein contains statements that may
be considered forward-looking statements within the meaning of
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.
MATERIAL CHANGES IN RESULTS OF OPERATIONS
OVERVIEW
During the first six months of 1997, the Masquerade Village
and Tower 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 opening of the upper most floors of the 41-story
Masquerade Tower including 31 new suites and the VooDoo
Restaurant and Lounge on the 40th and 41st floors which offers
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, L.L.C., a Michigan
limited liability company ("Paradise Valley"), has filed a
joint application with the City of Detroit, Michigan to obtain
one of the three licenses 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. Plans for a Detroit project are in the conceptual
bidding phase, and are contingent upon licensing and financing
issues. There can be no assurance that the Company and
Paradise Valley will be successful in securing one of the
gaming licenses.
THREE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
REVENUES
The Company's net revenues increased to $103.6 million in the
three months ended September 30, 1997 from $53.2 million in
the three months ended September 30, 1996, an increase of
$50.3 million or 95%. Casino revenues increased
$30.3 million, or 113%, to $57.2 million for the three months
ended September 30, 1997, compared to $26.9 million in the
three 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 1,784 and 75, respectively, in the three months
ended September 30, 1996
9
<PAGE>
to 2,491 and 106, respectively, in the three months ended
September 30, 1997. Table game revenues were $33.6 million
for the three months ended September 30, 1997, an increase of
$24.0 million, or 250%, from the $9.6 million reported in the
three months ended September 30, 1996. When comparing the
three months ended September 30, 1997 and the three months
ended September 30, 1996, the table game hold percentage was
22.3% and 15.7%, respectively, and table game handle increased
to $144.9 million, or 137%, from $61.1 million. Management
believes that increased customer traffic associated with the
Masquerade Village and Tower and an increased emphasis by
management on marketing to table game customers with higher
credit limits and higher average wagers, were the primary
contributors to the increased table game revenues. Slot
machine revenues were $21.7 million in the three months ended
September 30, 1997, an increase of $5.9 million, or 37%, from
revenues in the three months ended September 30, 1996 of $15.8
million. The increase in the average number of slot machines
available and the increase in customer traffic associated with
the Masquerade Village and Tower expansion are considered to
be the primary reasons for the increase in slot machine
revenues. Other casino revenues, consisting of the race and
sports books, keno and poker, increased 29% from $1.4 million
in the three months ended September 30, 1996 to $1.8 million
in the three months ended September 30, 1997, due to the
increase in customer traffic associated with the Masquerade
Village and Tower expansion.
Room revenues increased by $7.9 million, or 80%, to $17.7
million in the three months ended September 30, 1997 from $9.8
million in the three months ended September 30, 1996.
Management believes that the primary reasons for the increase
in room revenues were the additional availability of the new
suites in the Masquerade Tower and an increase in the average
room rate from $73 in the three months ended September 30,
1996 to $89 in the three months ended September 30, 1997. The
occupancy rate was 89.0% during the three months ended
September 30, 1997, compared to 94.3% for the three months
ended September 30, 1996, with 79,813 and 63,389 more rooms
being available and occupied, respectively, in the three
months ended September 30, 1997.
Food and beverage revenues increased $13.2 million, or 74%,
to $30.9 million in the three months ended September 30, 1997,
compared to $17.7 million in the three months ended September
30, 1996. Management believes that the opening of the
Masquerade Village, including the initial five new restaurants
and bars on February 7, 1997, and the VooDoo Restaurant and
Lounge on May 24, 1997, and increased customers generated
through the additional rooms, 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 $3.1 million, or 81%, to $7.0 million
in the three months ended September 30, 1997, from $3.9
million in the three months ended September 30, 1996. 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 rentals received from the retail outlets leased to third
parties in the Masquerade Village.
OPERATING MARGINS
Operating profit as a percentage of net revenue was 19% for
the three months ended September 30, 1997 and 16% for the
three months ended September 30, 1996, respectively. The
casino operating margin was $26.5 million, or 46%, in the
three months ended September 30, 1997 compared to $12.7
million, or 47%, in the three months ended September 30, 1996.
Management believes that payroll and other volume related
expenses, including casino marketing and promotional costs,
together with an increase in reserves associated with the
potential uncollectibility of casino receivables of $6.2
million in the three months ended September 30, 1997 compared
to no change in the three months ended September 30, 1996,
were primary contributors to the decrease in the casino
operating profit margin. For the three months ended
September 30, 1997 and 1996, hotel operating profits were 70%
and 67%, respectively; food and beverage operating profits
were 22% and 23%, respectively; and other operating department
profit margins were 41% and 49%, respectively, with the
decrease 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
commenced operations on February 7, 1997. Selling, general
and administrative expenses as a percentage of net revenue,
decreased from 14% for the three months ended September 30,
1996 to 13% for the three months ended September 30, 1997.
10
<PAGE>
PROMOTIONAL ALLOWANCES
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
three months ended September 30, 1997 and 1996, respectively.
The percentage decrease was primarily due to the increase in
total revenues.
DEPRECIATION AND AMORTIZATION
Depreciation and amortization increased by $2.1 million, or
50%, to $6.4 million in the in the three months ended
September 30, 1997, compared to $4.3 million in the three
months ended September 30, 1996. This increase is primarily
attributable to depreciation and amortization expense
associated with the opening of the Masquerade Village and
Tower.
OTHER INCOME (EXPENSE)
Interest expense increased by $5.3 million, or 304%, to $7.1
million in the in the three months ended September 30, 1997,
from $1.8 million in the in the three months ended September
30, 1996, primarily due to the issuance on February 11, 1997
of $125 million in principal amount of 9 1/2% Senior
Subordinated Notes Due 2007.
NET INCOME
Net income for the three months ended September 30, 1997 was
$7.8 million, or $0.36 per common share, compared to $4.3
million or $0.20 per common share for the three months ended
September 30, 1996.
NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
REVENUES
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 19.4% and 16.0%, 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 Masquerade Village and Tower expansion, and an increased
emphasis by management on marketing to customers with higher
credit limits and higher average wagers. Slot machine
revenues were $62.2 million in the first 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 Masquerade Village and Tower 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 from $4.4 million in
the nine months ended September 30, 1996, primarily due to the
increased foot traffic associated with the opening of the
Masquerade Village and Tower 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 nine months ended September 30, 1996.
Management believes that the primary reasons for the increase
in room revenues were the additional availability of the new
suites in the
11
<PAGE>
Masquerade Tower and an increase in the average room rate from
$74 in the nine months ended September 30, 1996 to $89 in the
nine months ended September 30, 1997. The occupancy rate was
90.0% during the nine months ended September 30, 1997,
compared to 95.6% for the nine months ended September 30, 1996
same period in the prior year; with 202,075 more rooms being
available and occupied in the nine months ended September 30,
1997 compared to the nine months ended September 30, 1996.
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 ended
September 1996. Management believes that the opening of
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 nine months ended September 30, 1997, from
$11.4 million in the nine months ended September 30, 1996.
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 rentals received from the retail outlets
leased to third parties in the Masquerade Village.
OPERATING MARGINS
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 expenses, which consisted primarily of direct
incremental personnel costs and advertising and marketing
expenses associated with the opening of the Masquerade Village
and Tower 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 nine
months ended September 30, 1996. 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 nine months ended September 30, 1996,
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, with the decrease
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 months ended September 30, 1996.
PROMOTIONAL ALLOWANCES
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
Depreciation and amortization increased by $6.2 million, or
49%, to $18.7 million in the nine months ended September 30,
1997, compared $12.5 million in the nine months ended
September 30, 1996. This increase is primarily attributable
to depreciation and amortization expense associated with the
opening of the Masquerade Village and Tower.
OTHER INCOME (EXPENSE)
Interest expense increased by $12.1 million, or 170%, to $19.2
million for the nine months ended
12
<PAGE>
September 30, 1997, from $7.1 million in the nine months ended
September 30, 1996, or 170%, primarily due to the issuance on
February 11, 1997 of $125 million in principal amount of 9
1/2% Senior Subordinated Notes Due 2007.
NET INCOME
Net income for the nine months ended September 30, 1997, after
deducting $11.2 million ($7.1 million net after taxes) of
preopening expenses associated with the opening of the
Masquerade Village and Tower, was $12.0 million. Adjusted on
a pro forma basis for the one-time charge of $7.1 million for
preopening expense, net income for the 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.
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 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 $125.0 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 $121.5 million were utilized to reduce the
principal amount that had been drawn under the Company's
$200.0 million bank line of credit (the "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 Masquerade Village and Tower 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 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 a new master plan
(the "New Rio Master Plan"). The first phase of the New Rio
Master Plan will include a new road which will provide
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 fleet 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
13
<PAGE>
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. When the
Company elects to proceed beyond the first phase of the New
Rio Master Plan, the Company may require additional debt
and/or equity financing.
The Rio Bank Loan is a $200.0 million senior secured reducing
revolving credit facility that matures June 30, 2001 obtained
from a syndicate of banks led by Bank of America National
Trust 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 first deed of trust on substantially all of the
real property owned by 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 $275.0 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 borrowing,
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.
14
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
NONE
ITEM 2. CHANGES IN SECURITIES
NONE
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
NONE
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
NONE
ITEM 5. OTHER INFORMATION
NONE
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
11.01 Computation of Earnings Per Common Share
27.01 Financial Data Schedule
(b) REPORT ON FORM 8-K
NONE
15
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act
of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned thereunto duly authorized.
Rio Hotel & Casino, Inc.
(Registrant)
October 31, 1997 /s/ Ronald J. Radcliffe
(Date) RONALD J. RADCLIFFE
Vice President, Treasurer and
Chief Financial Officer
(Duly Authorized Officer and
Principal Financial Officer)
16
<PAGE>
EXHIBIT INDEX
SEQUENTIAL PAGE
EXHIBIT DESCRIPTION NUMBER
11.01 Computation of Earnings per Common Share 18
27.01 Financial Data Schedule 19
17
<PAGE>
EXHIBIT 11.01
<TABLE>
<CAPTION>
RIO HOTEL & CASINO, INC. AND SUBSIDIARIES
COMPUTATION OF EARNINGS (LOSS) PER COMMON SHARE
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
----------------------------- ------------------------------
1997 1996 1997 1996
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Primary:
Earnings:
Net income $ 7,755,266 $ 4,266,483 $ 11,967,793 $ 15,067,593
============= ============= ============= =============
Shares:
Weighted average number of common shares
and equivalents outstanding 21,352,637 21,223,058 21,266,193 21,209,461
Stock options 478,162 296,014 308,352 339,996
------------- ------------- ------------- -------------
Weighted average number of common shares
outstanding, as adjusted 21,830,799 21,519,072 21,574,545 21,549,457
============= ============= ============= =============
Earnings per common share:
Net income per common share $ 0.36 $ 0.20 $ 0.55 $ 0.70
============= ============= ============= =============
</TABLE>
18
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
consolidated balance sheet and statements of income of Rio Hotel & Casino, Inc.,
as of and for the quarter ended September 30, 1997, and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 13,763
<SECURITIES> 0
<RECEIVABLES> 35,273
<ALLOWANCES> 12,721
<INVENTORY> 4,740
<CURRENT-ASSETS> 48,485
<PP&E> 572,537
<DEPRECIATION> 76,327
<TOTAL-ASSETS> 558,789
<CURRENT-LIABILITIES> 43,859
<BONDS> 305,279
0
0
<COMMON> 214
<OTHER-SE> 195,930
<TOTAL-LIABILITY-AND-EQUITY> 558,789
<SALES> 270,693
<TOTAL-REVENUES> 270,693
<CGS> 0
<TOTAL-COSTS> 220,438
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 12,209
<INTEREST-EXPENSE> 19,199
<INCOME-PRETAX> 18,847
<INCOME-TAX> 6,879
<INCOME-CONTINUING> 11,968
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 11,968
<EPS-PRIMARY> 0.55
<EPS-DILUTED> 0
</TABLE>
