RIO HOTEL & CASINO INC, POS AM, 1997-11-21

RIO HOTEL & CASINO INC
POS AM, 1997-11-21
MISCELLANEOUS AMUSEMENT & RECREATION

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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 21, 1997.
REGISTRATION NO. 333-39279
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

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POST-EFFECTIVE AMENDMENT NO. 1

FORM S-3

REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933

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RIO HOTEL & CASINO, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

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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:

<TABLE>
<S> <C>
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
</TABLE>

APPROXIMATE DATE OF PROPOSED SALE TO THE PUBLIC: As soon as practicable
after this Registration Statement becomes effective.

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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.

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3,000,000 SHARES

RIO HOTEL & CASINO, INC. [LOGO OF RIO HOTEL & CASINO, INC.]

COMMON STOCK

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 November 20, 1997, the last
reported sale price of the Common Stock as reported on the New York Stock
Exchange Composite Tape was $21.1875 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.

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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>
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Price to Underwriting Proceeds to
Public Discount Company(1)
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<S> <C> <C> <C> <C>
Per Share.............................. $21.00 $0.84 $20.16
Total(2)............................... $63,000,000 $2,520,000 $60,480,000
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</TABLE>
(1) Before deducting offering expenses payable by the Company estimated to be
$450,000.

(2) The Company has granted to the Underwriter 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
Underwriter exercises such option in full, the total Price to Public,
Underwriting Discount and Proceeds to Company will be $72,450,000,
$2,898,000, and $69,552,000, respectively. See "Underwriting."

The shares of Common Stock are offered subject to receipt and acceptance by
the Underwriter, to prior sale and to the Underwriter's 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 office
of NationsBanc Montgomery Securities, Inc. (the "Underwriter") on or about
November 26, 1997.

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NationsBanc Montgomery Securities, Inc.

November 21, 1997.
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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 UNDERWRITER 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, 13th 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). Material filed by the Company can also be
inspected at the offices of the New York Stock Exchange, 20 Broad Street, New
York, New York 10005.

The Company has filed with the Commission a Registration Statement on Form
S-3 under the 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 document 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

2
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which also is or is deemed to be incorporated by reference herein modifies or
supersedes such statement. Any such statement so 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
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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 Underwriter's 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, 15 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 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.

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.

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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 Casino Player 1997
"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."

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 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.

5
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THE OFFERING

Common Stock Offered........ 3,000,000 shares

Common Stock Outstanding
after the Offering......... 24,412,841 shares(1)

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"

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(1) Based upon the 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.

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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,
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1997 1996 1996 1995 1994 1993 1992
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(UNAUDITED) (DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENTS OF INCOME
DATA:
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(1) 15,068 19,366 18,745 15,966 10,649 6,308
Net income per share.... $ 0.55(1) $ 0.70 $ 0.90 $ 0.87 $ 0.74 $ 0.55 $ 0.41
Weighted average number
of common shares
outstanding (000s)(2).. 21,575 21,549 21,534 21,593 21,720 19,538 15,319
OTHER DATA:(3)
EBITDA(4)............... $ 67,924 $ 43,187 $ 55,614 $ 51,790 $ 36,792 $ 27,848 $18,268
Average daily suite
rate(5)................ $ 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 2,142 1,968 1,474 1,147
Table games............. 102 76 79 65 46 33 31
Restaurant seats........ 4,168 2,705 2,705 2,575 2,345 1,843 1,209
</TABLE>

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<CAPTION>
SEPTEMBER 30, 1997
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PRO FORMA
ACTUAL AS ADJUSTED(6)
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(UNAUDITED)
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BALANCE SHEET DATA:
Cash and cash equivalents............................ $ 13,763 $ 13,763
Total assets......................................... 558,789 558,789
Long-term debt, including current maturities......... 305,279 245,249
Stockholders' equity................................. 196,144 256,174
</TABLE>
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(1) Includes pretax, preopening expenses of $11.2 million ($7.1 million after
tax). Before this expense, net income and net income per share would have
been $19.1 million and $0.88, respectively.

(2) 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").

(3) 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.

(4) 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.

(5) Average daily suite rate figures are actual rates expressed in dollars.

(6) 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."

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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, 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, 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 is 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."

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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, if
built, 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.

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 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

9
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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 $10.0 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 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

10
<PAGE>

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. The Company and five members of the Board of Directors are parties
to a lawsuit challenging the validity of certain contracts entered into
between the Company, and Marnell Chartered and Marnell Corrao. See "Business--
Legal Proceedings."

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 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."

11
<PAGE>

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 the public offering price of
$21.00 per share are estimated to be approximately $60,030,000 (approximately
$69,102,000 if the Underwriter's 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>
<CAPTION>
HIGH LOW
------- --------
<S> <C> <C>
1995
First Quarter........................................... $14.00 $11.25
Second Quarter.......................................... 16.625 13.25
Third Quarter........................................... 14.75 12.50
Fourth Quarter.......................................... 13.625 11.625
1996
First Quarter........................................... $15.25 $11.625
Second Quarter.......................................... 18.75 15.00
Third Quarter........................................... 17.625 13.375
Fourth Quarter.......................................... 14.00 13.875
1997
First Quarter........................................... $17.25 $14.00
Second Quarter.......................................... 15.625 13.625
Third Quarter........................................... 22.25 14.5625
Fourth Quarter (through November 20, 1997).............. 24.50 20.50
</TABLE>

The last reported sale price of the Common Stock on the NYSE on November 20,
1997 was $21.1875 per share. There were approximately 1,324 holders of record
of the Company's Common Stock as of November 17, 1997.

13
<PAGE>

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(1)
-------- --------------
(IN THOUSANDS)
<S> <C> <C>
Cash and cash equivalents............................. $ 13,763 $ 13,763
======== ========
Current maturities of long-term debt.................. $ 1,266 $ 1,266
-------- --------
Long-term debt:
Rio Bank Loan....................................... 70,000 9,970
10 5/8% Notes....................................... 100,000 100,000
9 1/2% Notes, net of discount....................... 121,788 121,788
Other long-term debt................................ 12,225 12,225
-------- --------
Total long-term debt.............................. 304,013 243,983
-------- --------
Total debt........................................ 305,279 245,249
-------- --------
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............................................ 214 244
Additional paid-in-capital............................ 115,439 175,439
Retained earnings..................................... 80,491 80,491
-------- --------
Total stockholders' equity........................ 196,144 256,174
-------- --------
Total capitalization.............................. $501,423 $501,423
======== ========
</TABLE>
- --------

(1) Assumes $20.01 per share net to the Company after underwriting discount
and offering expenses, and 3,000,000 shares issued. Total net proceeds to
the Company assumed to be $60,030,000.

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.

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

15
<PAGE>

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 Cafe 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.

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.

16
<PAGE>

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 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

17
<PAGE>

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 remainder of the
new hotel suites and the VooDoo Lounge and Cafe 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 below,
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

18
<PAGE>

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 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

19
<PAGE>

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 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.

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.

20
<PAGE>

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 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.

21
<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 Marie's
Cucina, Mask, Napa Restaurant and The Wine Cellar Tasting Room, Bamboleo,
Village

22
<PAGE>

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 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.

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).

23
<PAGE>

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 Casino
Player 1997 "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.

<TABLE>
<CAPTION>
AS OF AND
FOR THE
NINE MONTHS AS OF AND FOR THE YEAR ENDED
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(1)......... 2,442 1,884 2,142 1,968 1,474 1,147
Table games(1)........... 102 79 65 46 33 31
Restaurant seats......... 4,168 2,705 2,575 2,345 1,843 1,209
</TABLE>
- --------
(1) Average number available during the period.

24
<PAGE>

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 is a luxury room measuring 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. The Company's use of the term "suite" is
currently the subject of litigation. See "Business--Legal Proceedings."

25
<PAGE>

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. 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
---- --------
<C> <S> <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 cream 104
and gelato, and a large selection of
bakery products
Copacabana Showroom....... Entertainment showroom and Club Rio
nightclub 595
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
Wine Cellar Tasting Room. Fine-dining featuring French country
cuisine and daily wine tastings 174
Bamboleo.................. Latin restaurant featuring foods from
south of the border 250
Village Seafood Buffet.... Fresh seafood buffet 332
VooDoo Cafe............... New Orleans flavored restaurant 366(1)
featuring Creole and Cajun cuisine
Rio Java.................. Gourmet coffee and espresso bar,
featuring fresh breads and pastries 16
-----
Total.............. 4,168
=====
</TABLE>
- --------
(1) Includes the VooDoo Cafe Patio featuring outdoor seating for 48.

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.

26
<PAGE>

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 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 school 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.

27
<PAGE>

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
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(1)
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
</TABLE>
- --------
(1) The new suites were opened in several phases commencing December 31, 1996
and continuing through the second quarter of 1997.

As of September 30, 1997, the Company has invested in excess of $550 million
in the development, expansion and renovation of the Rio.

28
<PAGE>

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."

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.

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,

29
<PAGE>

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 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

30
<PAGE>

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.

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

31
<PAGE>

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 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,

32
<PAGE>

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 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

33
<PAGE>

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. Certain local unions have announced an intention to
focus their organizational efforts on existing non-union hotel-casinos such as
the Rio. Recently these local unions have distributed literature to some of
the Company's employees. The Company believes that its relations with its
employees are good and that it provides competitive wages and benefits to its
employees. The Company, however, cannot predict the nature of any future union
activities.

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

Complaints were filed on May 10, 1994 in the United States District Court
for the Middle District of Florida (subsequently transferred to the United
States District Court for the District of Nevada, Southern Division), on April
26, 1994 in the United States District Court for the Middle District of
Florida (subsequently transferred to the United States District Court for the
District of Nevada, Southern Division) and September 26, 1995 in the United
States District Court for the District of Nevada, Southern Division.
Plaintiffs in these actions, each purportedly representing a class, filed
complaints against manufacturers, distributors and casino operators of video
poker and electronic slot machines, including the Company, alleging 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 charge defendants with violations of the Racketeer
Influenced and Corrupt Organizations Act, as well as claims of common law
fraud, unjust enrichment and negligent misrepresentation, and seek damages in
excess of $1 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 re-file, 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 abstention 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 action 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 have established a steering committee
to address motion practice, scheduling and discovery matters. Plaintiffs filed
their consolidated amended complaint on February 14, 1997. The defendants,
including the Company, filed consolidated motions to dismiss the consolidated
amended complaints. The motions to dismiss are based on defects in the
pleadings, failure to state a claim, and abstention and related doctrines.
Management believes that the substantive allegations in the complaints are
without merit and intends vigorously to defend the allegations.

34
<PAGE>

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 a number of
gaming entities, including the Company. The complaint, which is primarily a
narrower version of 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 court which was not successful. The
Company filed a motion to dismiss the complaint for lack of personal
jurisdiction. The motion is pending. In the interim, several defendants which
did not have jurisdiction motions filed a motion to demur, arguing that the
action should not be considered by the California court because the matter is
relegated to the Nevada regulatory system pursuant to the Commerce Clause of
the U.S. Constitution. After a hearing conducted on July 11, 1997, the court
sustained the demur without leave to amend. Although the Company is still
technically a defendant in the case, management believes that the court's
ruling will be applied to all defendants and the Company will be dismissed
from the action. In addition, 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. On January
27, 1997, the Company and the director defendants filed a motion to dismiss
and a joinder in the Company's motion to dismiss. On April 21, 1997, the court
entered an order denying the motion to dismiss of the Company and the
individual directors, and granting the motion to dismiss of Marnell Corrao and
Marnell Chartered. The Company and the remaining defendants have filed an
answer to the complaint and discovery proceedings have not yet begun.

On June 10, 1997, the Company filed a complaint in the United States
District Court for the District of Nevada entitled Rio Properties Inc. v.
Robert P. Baker. The complaint seeks a declaration from the court that the use
of the term "suite" is not misleading under either the federal trademark act
or California's advertising code. Subsequently, on July 16, 1997, Mr. Baker
filed a related action in California state court entitled Robert P. Baker v.
Rio Properties, Inc., et al., which was removed to federal court in
California. Mr. Baker alleges that the use of the term "all-suite" in
advertising directed into California is misleading and violates California law
on the grounds that the Rio's rooms are not partitioned. Mr. Baker
unsuccessfully sought to have the Nevada action dismissed in favor of the
California litigation. The parties have now stipulated to have the California
action dismissed and proceed in the Nevada court. Mr. Baker filed a
counterclaim in the Nevada action seeking compensatory damages under
California's advertising code for all California residents who have stayed in
any of the Rio's accommodations, injunctive relief prohibiting use of the term
"suite" by Rio to describe its accommodations and other relief deemed
appropriate by the court. Management believes Mr. Baker's claims are without
merit and the Company will vigorously pursue the declaratory relief action and
defend the counterclaim.

35
<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 Corrao.

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 a
contract for completion of the Rio Secco Golf Club was for an amount of
approximately $5,700,000. In the nine months ended September 30, 1997, the
Company paid a total of $50,100,507 in connection with these and other
construction contracts. Design contracts for these same projects, not
including the Rio Secco Golf Club, 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 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 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.

36
<PAGE>

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.

37
<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 SHARES
OWNED PRIOR TO BENEFICIALLY
THIS OWNED AFTER THIS
OFFERING(1)(2) OFFERING
-------------------- --------------------
NAME AND ADDRESS OF BENEFICIAL OWNER AMOUNT PERCENT AMOUNT PERCENT
------------------------------------ --------- ------- --------- -------
<S> <C> <C> <C> <C>
Anthony A. Marnell II................ 5,135,618(3) 23.4% 5,135,618(3) 20.6%
4495 S. Polaris Avenue
Las Vegas, Nevada 89103
James A. Barrett, Jr. ............... 1,952,833(4) 9.1% 1,952,833(4) 8.0%
4495 S. Polaris Avenue
Las Vegas, Nevada 89103
The Capital Group Companies, Inc. ... 1,582,700(5) 7.4% 1,582,700(5) 6.5%
333 South Hope Street
Los Angeles, California 90071
Private Capital Management, Inc. .... 1,474,500 6.9% 1,474,500 6.0%
3003 Tamiami Trail North
Naples, Florida 34103
Chilton Investment Co., Inc. ........ 1,402,600(6) 6.6% 1,402,600(6) 5.7%
320 Park Avenue, 22nd Floor
New York, New York 10022
All Executive Officers and Directors
as a group
(8 persons)......................... 5,580,706(7) 25.0% 5,580,706(7) 22.1%
</TABLE>
- --------
(1) 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.

(2) Includes shares issuable upon exercise of options which are exercisable
within 60 days of the stated date.

(3) 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:

<TABLE>
<CAPTION>
COMMON STOCK
------------
<S> <C>
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 children.............. 2,307
---------
Total Shares............................................... 4,647,618
</TABLE>
--------
(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.

(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.

(4) 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

38
<PAGE>

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.

(5) 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.

(6) Chilton Investment Co., Inc. reported on Schedule 13D (Amendment No. 1),
dated August 28, 1997, that it had sole voting power with respect to
24,643 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.

(7) 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.

39
<PAGE>

UNDERWRITING

Subject to the terms and conditions set forth in an underwriting agreement
(the "Underwriting Agreement") between the Company and NationsBanc Montgomery
Securities, Inc., the Company has agreed to sell the Shares to the
Underwriter, and the Underwriter has agreed to purchase the Shares from the
Company.

In the Underwriting Agreement, the Underwriter has agreed, subject to the
terms and conditions set forth therein, to purchase all of the Shares if any
are purchased.

The Company has been advised by the Underwriter that it proposes initially
to offer the 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 $0.47 per share. After the initial public
offering, the public offering price and such concession may be changed.

The Company has granted the Underwriter 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 Underwriter. The
Underwriter 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.

The Company has agreed with the Underwriter 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 NationsBanc Montgomery Securities, 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
Underwriter 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 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 NationsBanc Montgomery
Securities, 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 NationsBanc Montgomery Securities,
Inc.

In connection with the offering made hereby, the Underwriter and certain
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 Underwriter also may create a
short position for the account of the Underwriter by selling more Common Stock
in connection with the offering made hereby than it is 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 Underwriter may also cover all or a
portion of such short position, up to 450,000 shares of Common Stock, by
exercising the Underwriter's over-allotment option referred to above. In
addition, the Underwriter may impose "penalty bids" under contractual
arrangements with dealers participating in the offering made hereto whereby it
may reclaim from such dealers, for the account of the Underwriter, the selling
concession with respect to Common

40
<PAGE>

Stock that is distributed in the offering made hereby but subsequently
purchased for the account of the Underwriter 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
Underwriter against certain liabilities and expenses, including liabilities
under the Securities Act, or contribute to payments that the Underwriter 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
Underwriter 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.

41
<PAGE>

RIO HOTEL & CASINO, INC. AND SUBSIDIARIES

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
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
</TABLE>

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>

RIO HOTEL & CASINO, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

ASSETS

<TABLE>
<CAPTION>
DECEMBER 31,
SEPTEMBER 30, --------------------------
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.... -- 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>

RIO HOTEL & CASINO, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

<TABLE>
<CAPTION>
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>

RIO HOTEL & CASINO, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
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>

RIO HOTEL & CASINO, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
COMMON STOCK
-------------------- TOTAL
NUMBER OF ADDITIONAL RETAINED STOCKHOLDERS'
SHARES AMOUNT PAID-IN CAPITAL EARNINGS EQUITY
---------- -------- --------------- ----------- -------------
<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:

<TABLE>
<S> <C>
Building and improvements.................................... 7 to 45 years
Equipment, furniture and improvements........................ 3 to 15 years
</TABLE>

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

F-7
<PAGE>

RIO HOTEL & CASINO, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

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.

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.

F-8
<PAGE>

RIO HOTEL & CASINO, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

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
SEPTEMBER YEARS ENDED
30, DECEMBER 31,
----------- -----------------
1997 1996 1996 1995 1994
----- ----- ----- ----- -----
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Earnings per share:
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>

RIO HOTEL & CASINO, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

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.

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.

F-10
<PAGE>

RIO HOTEL & CASINO, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

4. ACCOUNTS RECEIVABLE

Components of receivables are as follows:

<TABLE>
<CAPTION>
DECEMBER 31,
SEPTEMBER 30, -----------------------
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>
DECEMBER 31,
SEPTEMBER 30, ----------------------
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>

RIO HOTEL & CASINO, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

6. LONG-TERM DEBT

Long-term debt consists of the following:

<TABLE>
<CAPTION>
DECEMBER 31,
SEPTEMBER 30, --------------------------
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.

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

F-12
<PAGE>

RIO HOTEL & CASINO, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

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.

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>

F-13
<PAGE>

RIO HOTEL & CASINO, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

The carrying values of assets included in the consolidated financial
statements, which collateralize bank loans payable, are as follows:

<TABLE>
<CAPTION>
DECEMBER 31,
SEPTEMBER 30, -------------------------
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.

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 YEAR ENDED DECEMBER 31,
SEPTEMBER 30, ----------------------------------
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>

F-14
<PAGE>

RIO HOTEL & CASINO, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

The following schedule reconciles the Company's effective tax rate to the
statutory rate:

<TABLE>
<CAPTION>
NINE MONTHS YEAR ENDED
ENDED DECEMBER 31,
SEPTEMBER 30, ------------------
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>

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

F-15
<PAGE>

RIO HOTEL & CASINO, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

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.

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.

F-16
<PAGE>

RIO HOTEL & CASINO, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

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 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

F-17
<PAGE>

RIO HOTEL & CASINO, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

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.

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

F-18
<PAGE>

RIO HOTEL & CASINO, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

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.

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

F-19
<PAGE>

RIO HOTEL & CASINO, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

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.

F-20
<PAGE>

RIO HOTEL & CASINO, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

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 allocated by the Company, based on fair market
values, among land, building and equipment, furniture and improvements.

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
NINE MONTHS ENDED -------------------------
SEPTEMBER 30, 1997 1996 1995
------------------ ------------ ------------
(UNAUDITED)
<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 PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN OR
INCORPORATED BY REFERENCE 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 AUTHORIZED BY THE COMPANY OR THE
UNDERWRITER. 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 AFFAIRS OF THE COMPANY SINCE THE DATES 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 SOLICITATION.

-------------------

TABLE OF CONTENTS

-------------------

<TABLE>
<CAPTION>
Page
----
<S> <C>
Available Information..................................................... 2
Incorporation of Documents by Reference................................... 2
Prospectus Summary........................................................ 4
Risk Factors.............................................................. 8
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
Operations............................................................... 15
Business.................................................................. 22
Certain Transactions...................................................... 36
Security Ownership of Certain Beneficial Owners and Management............ 38
Underwriting.............................................................. 40
Legal Matters............................................................. 41
Experts................................................................... 41
Index to Consolidated Financial Statements................................ F-1
</TABLE>

3,000,000 SHARES

RIO HOTEL & CASINO, INC.

[LOGO OF RIO HOTEL & CASINO, INC.]

COMMON STOCK

----------------
PROSPECTUS
----------------

NationsBanc Montgomery Securities, Inc.

November 21, 1997

- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 16. EXHIBITS

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
1.01 Form of Underwriting Agreement.*
5.01 Opinion and consent of Kummer Kaempfer Bonner & Renshaw as to the
legality of securities being registered.*
Consent of Kummer Kaempfer Bonner & Renshaw, contained in Exhibit
23.01 5.01.*
23.02 Consent of Arthur Andersen LLP.
24.01 Power of Attorney.*
</TABLE>
- --------
* Filed previously.

II-1
<PAGE>

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Post-effective Amendment No. 1 to the Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized in the City of Las Vegas, State of Nevada on November 21, 1997.

Rio Hotel & Casino, Inc.

By: /s/ Ronald J. Radcliffe
_________________________________
Ronald J.Radcliffe
Vice President, Treasurer and
Chief Financial Officer

Pursuant to the requirements of the Securities Act of 1933, this Post-
effective Amendment No. 1 to the 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>
* Chairman of the Board of November 21, 1997
____________________________________ Directors and Chief
Anthony A. Marnell II Executive Officer
(Principal Executive
Officer)

* President and Director November 21, 1997
____________________________________
James A. Barrett, Jr.

* Executive Vice President, November 21, 1997
____________________________________ Chief Operating Officer and
David P. Hanlon Director

* Chairman of the Board of November 21, 1997
____________________________________ Directors and Chief
Anthony A. Marnell II Executive Officer
(Principal Executive
Officer)

/s/ Ronald J. Radcliffe Vice President, Treasurer November 21, 1997
____________________________________ and Chief Financial Officer
Ronald J. Radcliffe (Principal Financial and
Accounting Officer)

* Director November 21, 1997
____________________________________
John A. Stuart

* Director November 21, 1997
____________________________________
Thomas Y. Hartley

Director
____________________________________
Peter M. Thomas
</TABLE>

*By: /s/ Ronald J. Radcliffe
__________________________
Ronald J. Radcliffe
Attorney-in-fact

II-2
<PAGE>

EXHIBIT INDEX

<TABLE>
<CAPTION>
EXHIBIT PAGE
NUMBER DESCRIPTION NUMBER
------- ----------- ------
<C> <S> <C>
23.02 Consent of Arthur Andersen LLP.
</TABLE>

<PAGE>

EXHIBIT 23.02

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.

/s/ Arthur Andersen LLP
ARTHUR ANDERSEN LLP

Las Vegas, Nevada

November 21, 1997