ITEM 1. BUSINESS
The Company, through a wholly owned subsidiary, owns and operates an all-suite hotel-casino, the Rio Suite Hotel & Casino (the "Rio"), 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 over 2,500 suites, including over 1,500 suites contained in three connected 21-story hotel towers (the "Ipanema Towers") and over 1,000 suites in a new 41-story curved tower (the "Masquerade Tower"). On February 7, 1997, the Rio celebrated the grand opening of the public areas of its Phase V Expansion project, the Masquerade Village. With the Masquerade Village and Tower, the Rio features a 116,000 square foot casino; 14 restaurants, 14 bars and two coffee bars; a 737-seat entertainment complex; a 32,000 square foot retail area; and a 108,000 square foot outdoor entertainment area featuring a landscaped sand beach and three swimming pools. The Rio offers approximately 2,300 slot machines, approximately 100 table games, including a premium gaming area, a poker room, keno and a race and sports book.
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 golf 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. In addition to providing play on the golf course to local and tourist customers, the Company intends to use the Rio Secco Golf Club as part of golf packages for its guests. The Rio Secco Golf Club will also feature a golf school operated by Butch Harmon, the Butch Harmon School of Golf.
The Company has assembled 43 acres immediately adjacent to the Rio (seven of which are subject to options to purchase), bringing the total acreage at the Rio to 83 acres. In October 1997, the Company announced a new 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 commenced and includes a state-of-the-art convention and entertainment center adaptable to meet a variety of entertainment, meeting, special event and convention needs; a complex of nine ''Palazzo'' suites; a restaurant serving authentic Chinese food; a valet parking structure; a retail shopping area; an expanded outdoor area with an additional swimming pool; additional exhibition space in the Masquerade Village; an expansion of the Shutters premium gaming lounge; the creation of a concierge suite level in the Ipanema and Masquerade Towers; an expansion of the Rio's spa; a new road connecting the Rio and the Las Vegas Strip through an extension of Twain Avenue to Industrial Road; and additional customer parking.
This first phase of the New Rio Master Plan 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 in the conceptual stage. These conceptual phases currently include a separate hotel-casino of up
to 3,000 rooms 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 balance of New Rio Master Plan will be implemented successfully, if at all.
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.
MASQUERADE VILLAGE
On February 7, 1997, the Company opened the Masquerade Village, consisting of five new restaurants and additional retail, gaming and entertainment space. A sixth restaurant, the VooDoo Cafe & Lounge, located at the top of the new 41-story Masquerade Tower overlooking the Las Vegas Strip, opened on May 24, 1997. Inspired by European architecture, the 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 specialty retail shops and restaurants, and The Wine Cellar Tasting Room. New restaurants include Mama Marie's Cucina, Mask, Napa Restaurant, Bamboleo, The Village Seafood Buffet and the VooDoo Cafe & Lounge. The Masquerade Village also features a fully interactive $25 million indoor attraction, the 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 of the Masquerade Village, and a cast of specialty dancers, musicians, aerialists and costume stilt walkers. 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. The Rio's suites offer approximately 50% more space than other comparably priced Las Vegas hotel rooms. 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. The Company's restaurants have won awards year after year for their quality dining.
Management believes that friendly service combined with quality facilities are integral to generating repeat business. Management continually seeks to instill in each employee a sense of service excellence designed to exceed guest expectations. To motivate its employees, management strives to instill a sense of ''Team Rio'' in all of the Company's employees. 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 RitaTM character as a promotional ambassador to the Rio's hotel-casino guests and as a focal point for many promotional activities.
The high quality of the Company's facilities and service is reflected by the number of awards the Rio has received. In the 1997-1998 ZAGAT HOTEL AND RESTAURANT SURVEY, the Rio received awards for ''Best Accommodations,'' ''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.'' Recently, the Rio was named the "Best Value in the World" by TRAVEL & LEISURE MAGAZINE'S Second Annual Reader's Survey of hotels and cities around the world.
MARKETING STRATEGY
The Company's marketing efforts are targeted at both the local market 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 1997, the Carnival World Buffet served an average of approximately 6,550 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, and a variety of promotions directed at the local customer.
To attract visitors and fill the Rio's suites, 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 targeted 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 the Rio's casino marketing personnel. The Rio utilizes a variety of promotions, including credit availability, 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 over 2,500 suites, approximately 2,300 slot machines and approximately 100 table games.
GAMING. For the year ended December 31, 1997, the Rio offered 116,000 square feet of casino space containing approximately 2,300 slot machines; approximately 100 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 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 devotes substantial time and attention to the type, location and player activity of all gaming devices. The Company continually adds new and innovative gaming devices as they become available. By offering a variety of slot machines, the Company believes that it will attract and retain its slot customers.
HOTEL. With the completion of the remodeling program on the top two floors of the Ipanema Towers in the spring of 1998, including the conversion of some standard suites into "super" suites, the number of suites available at the Rio will be reduced from 2,582 to 2,542 suites. At that time, the Rio will have 124 multiple room suites and 2,418 standard suites. 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, tile in the bath areas, room safes and refrigerators. The Company's use of the term ''suite'' is currently the subject of litigation. See "Item 3. Legal Proceedings.''
RESTAURANTS. While important to attracting Las Vegas visitor gaming customers, the high quality, value and variety of food services are critical to consistently attracting local resident gaming customers to the Rio. To provide such variety, 13 bars, 13 restaurants and two coffee bars are located in the Rio's main floor area, and a bar and restaurant are located at the top of the new 41-story Masquerade Tower overlooking the Las Vegas Strip. During 1997, the Rio served an average of approximately 15,000 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:
ENTERTAINMENT AND OTHER ATTRACTIONS. The Masquerade Village, which opened on February 7, 1997, features the 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 specialty dancers, musicians, aerialists and costumed stilt-walkers. Rio guests can participate
in the show by traveling on a float in complete costume amid the performers. The Masquerade Village also contains fine specialty retail stores in a 32,000 square foot retail area.
The Rio's Copacabana Showroom is a unique, circular 737-seat video, entertainment complex which features two 12-foot by 90- foot video screens, multiple tiers of seating, and a stage. The Copacabana Showroom is utilized as an entertainment showroom, featuring nightly performances by Las Vegas' "Entertainer of the Year" Danny Gans, 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 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.
The Company has recently opened the Rio Secco Golf Club located in the master planned community of Seven Hills in Henderson, Nevada. The Rio Secco Golf Club will provide a world- class golf experience to its guests with the Butch Harmon School of Golf and an 18-hole championship course designed by famed course architect, Rees Jones.
EXPANSION STRATEGY
RIO MASTER PLAN. The Rio's conceptual master plan was originally designed to accommodate multiple expansions without significantly interrupting normal business operations. 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 December 31, 1997. As described in the New Rio Master Plan below, the Company has commenced construction on certain portions of this acreage.
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.
As of December 31, 1997, the Company has invested in excess of $560 million in the development, expansion and renovation of the Rio, including the acquisition of additional land.
NEW RIO MASTER PLAN. As part of the New Rio Master Plan, the Company has assembled 43 acres immediately adjacent to the Rio (seven of which are subject to options to purchase), bringing the total acreage at the Rio to 83 acres. The Company expects to implement the New Rio Master Plan in phases. The Company has commenced the first phase which will include a state-of-the-art convention and
entertainment center adaptable to meet a variety of entertainment, meeting, special event and convention needs, a complex of nine ''Palazzo'' suites, 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, the creation of a concierge suite level in the Ipanema and Masquerade Towers, an expansion of the Rio's spa, a new road connecting the Rio and the Las Vegas Strip through an extension of Twain Avenue to Industrial Road and additional customer parking.
The subsequent phases of the New Rio Master Plan are in the conceptual stage, but currently include a separate hotel-casino of up to 3,000 rooms 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 balance of New Rio Master Plan will be implemented successfully, if at all.
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 increasing competition from all other casinos and hotels in the greater Las Vegas area, including competitors located on the Las Vegas Strip, on the Boulder Highway, in Henderson, 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. As of December 31, 1997, there were approximately 44 major gaming properties located on or near the Las Vegas Strip, 15 located in the downtown area, five located on the Boulder Highway and 15 located in other areas in or near Las Vegas. In recent years, 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. For example, in 1997, New York-New York Hotel & Casino opened with 2,033 rooms, Harrah's Las Vegas completed an expansion of 986 rooms, and Caesars Palace completed an expansion of 1,200 rooms. According to the Las Vegas Convention and Visitors Authority, the Las Vegas hotel-motel room inventory was 105,304 as of December 31, 1997 and both construction of new properties and expansion of existing hotel-casinos are expected to increase this inventory to approximately 122,777 rooms by 1999. By the year 2000, nine new hotel-casinos, of which four are currently under construction, and one expansion project will have added over 19,000 rooms to Las Vegas. 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-track and off-track wagering, card parlors, riverboats, 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 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 State Gaming Control Board (the ''Nevada Board''), the Nevada Gaming Commission (the "Nevada Commission"), 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, Inc., a wholly owned subsidiary of the Company ("Rio Properties"), operates the Rio and is required to be licensed by the Nevada Gaming Authorities. The gaming license requires the periodic payment of fees and taxes and is not transferable. The Company is registered by the Nevada Commission as a publicly traded corporation (''Registered Corporation'') and as such, it is required periodically to submit detailed financial and operating reports to the Nevada Commission and furnish any other information which the Nevada Commission may require. The Company has obtained from the Nevada Gaming Authorities the various registrations, approvals, permits and licenses required in order to engage in gaming activities in Nevada.
The Nevada Gaming Authorities may investigate any individual who has a material relationship to, or material involvement with, the Company in order to determine whether such individual is suitable or should be licensed as a business associate of a gaming licensee. Officers, directors and certain key employees of the Company must file applications with the Nevada Gaming Authorities and may be required to be licensed or found suitable by the Nevada Gaming Authorities. Officers, directors and key employees of the Company who are actively and directly involved in gaming activities of the Company may be required to be licensed or found suitable by the Nevada Gaming Authorities. The Nevada Gaming Authorities may deny an application for licensing for any cause which they deem reasonable. A finding of suitability is comparable to licensing, and both require submission of detailed personal and financial information followed by a thorough investigation. The applicant for licensing or a finding of suitability
must pay all the costs of the investigation. Changes in licensed positions must be reported to the Nevada Gaming Authorities and, in addition to their authority to deny an application for a finding of suitability or licensure, the Nevada Gaming Authorities have jurisdiction to disapprove a change in a corporate position.
If the Nevada Gaming Authorities were to find an officer, director or key employee unsuitable for licensing or unsuitable to continue having a relationship with the Company, the Company would have to sever all relationships with such person. In addition, the Nevada Commission may require the Company to terminate the employment of any person who refuses to file appropriate applications. Determinations of suitability or of questions pertaining to licensing are not subject to judicial review in Nevada.
The Company is required to submit detailed financial and operating reports to the Nevada Commission. Substantially all material loans, leases, sales of securities and similar financing transactions by the Company must be reported to, or approved by, the Nevada Commission.
If it were determined that the Nevada Act was violated by the Company, the gaming licenses it holds could be limited, conditioned, suspended or revoked, subject to compliance with certain statutory and regulatory procedures. In addition, the Company and the persons involved could be subject to substantial fines for each separate violation of the Nevada Act at the discretion of the Nevada Commission. Further, a supervisor could be appointed by the Nevada Commission to operate the Company's gaming properties and, under certain circumstances, earnings generated during the supervisor's appointment (except for the reasonable rental value of the Company's gaming properties) could be forfeited to the State of Nevada. Limitation, conditioning or suspension of any gaming license or the appointment of a supervisor could (and revocation of any gaming license would) materially adversely affect the Company's gaming operations.
Any beneficial holder of the Company's voting securities, regardless of the number of shares owned, may be required to file an application, be investigated, and have such holder's suitability as a beneficial holder of the Company's voting securities determined, if the Nevada Commission has reason to believe that such ownership would otherwise be inconsistent with the declared policies of the State of Nevada. The applicant must pay all costs of investigation incurred by the Nevada Gaming Authorities in conducting any such investigation.
The Nevada Act requires any person who acquires more than 5% of the Company's voting securities to report the acquisition to the Nevada Commission. The Nevada Act requires that beneficial owners of more than 10% of the Company's voting securities apply to the Nevada Commission for a finding of suitability within 30 days after the Chairman of the Nevada Board mails the written notice requiring such filing. Under certain circumstances, an ''institutional investor,'' as defined in the Nevada Act, which acquires more than 10%, but not more than 15%, of the Company's voting securities may apply to the Nevada Commission for a waiver of such finding of suitability if such institutional investor holds the voting securities for investment purposes only. An institutional investor shall not be deemed to hold voting securities for investment purposes unless the voting securities were acquired and are held in the ordinary course of business as an institutional investor and not for the purpose of causing, directly or indirectly, the election of a majority of the members of the board of directors of the Company, any change in the Company's corporate charter, bylaws, management, policies or operations of the Company, or any of its gaming affiliates, or any other action which the Nevada Commission finds to be inconsistent with holding the Company's voting securities for investment purposes only. Activities which are not deemed to be inconsistent with holding voting securities for investment purposes only include: (i) voting on all matters voted on by stockholders; (ii) making financial and other inquiries of management of the type normally made by securities analysts for informational purposes and not to cause a change in its management, policies or operations; and (iii) such other activities as the Nevada Commission may determine to be
consistent with such investment intent. If the beneficial holder of voting securities who must be found suitable is a corporation, partnership or trust, it must submit detailed business and financial information including a list of beneficial owners. The applicant is required to pay all costs of investigation.
Any person who fails or refuses to apply for a finding of suitability or a license within 30 days after being ordered to do so by the Nevada Commission or the Chairman of the Nevada Board, may be found unsuitable. The same restrictions apply to a record owner if the record owner, after request, fails to identify the beneficial owner. Any stockholder found unsuitable and who holds, directly or indirectly, any beneficial ownership of the common stock of a Registered Corporation beyond such period of time as may be prescribed by the Nevada Commission may be guilty of a criminal offense. The Company is subject to disciplinary action if, after it receives notice that a person is unsuitable to be a stockholder or to have any other relationship with the Company, the Company (i) pays that person any dividend or interest upon voting securities of the Company, (ii) allows that person to exercise, directly or indirectly, any voting right conferred through securities held by that person, (iii) pays remuneration in any form to that person for services rendered or otherwise, or (iv) fails to pursue all lawful efforts to require such unsuitable person to relinquish his voting securities for cash at fair market value.
The Nevada Commission may, in its discretion, require the holder of any debt security of a Registered Corporation to file applications, be investigated and be found suitable to own the debt security of a Registered Corporation. If the Nevada Commission determines that a person is unsuitable to own such security, then pursuant to the Nevada Act, the Registered Corporation can be sanctioned, including the loss of its approvals, if without the prior approval of the Nevada Commission, it: (i) pays to the unsuitable person any dividend, interest, or any distribution whatsoever; (ii) recognizes any voting right by such unsuitable person in connection with such securities; (iii) pays the unsuitable person remuneration in any form; or (iv) makes any payment to the unsuitable person by way of principal, redemption, conversion, exchange, liquidation or similar transaction.
The Company is required to maintain a current stock ledger in Nevada which may be examined by the Nevada Gaming Authorities at any time. If any securities are held in trust by an agent or by a nominee, the record holder may be required to disclose the identity of the beneficial owner to the Nevada Gaming Authorities. A failure to make such disclosure may be grounds for finding the record holder unsuitable. The Company is also required to render maximum assistance in determining the identity of the beneficial owner. The Nevada Commission has the power to require the Company's stock certificates to bear a legend indicating that the securities are subject to the Nevada Act.
The Company may not make a public offering of its securities without the prior approval of the Nevada Commission if the securities or proceeds therefrom are intended to be used to construct, acquire or finance gaming facilities in Nevada, or to retire or extend obligations incurred for such purposes. On July 24, 1997, the Nevada Commission granted the Company prior approval to make public offerings for a period of two years, subject to certain conditions (the ''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 Company's stockholders for the purposes of acquiring control of the Company.
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 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 December 31, 1997, the Company employed approximately 5,000 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 Rio'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 and effect of any future union activities.
ITEM 2.
ITEM 2. 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 purchased options on an additional seven acres adjacent to the Rio site. Approximately 58 of the acres is subject to a deed of trust securing the Company's senior secured reducing revolving credit facility, the Amended and Restated Credit Agreement (the "Amended Bank Loan"), of which $24 million was outstanding at February 24, 1998. 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 approximately $3.8 million was outstanding on December 31, 1997.
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS
On April 26, 1994 and May 10, 1994, complaints in purported class action lawsuits (WILLIAM POULOS V. CAESARS WORLD, INC. ET AL., Case No. 94-478-Civ-Orl-22, and WILLIAM H. AHERN V. CAESARS WORLD, INC. ET AL., Case No. 94-532-Civ-Orl-22, respectively) were filed in the United States District Court for the Middle District of Florida (the "Florida Complaints"). The Florida Complaints were subsequently transferred to the United States District Court for the District of Nevada, Southern Division (the "United States District Court of Nevada"). On September 26, 1995, a complaint in a purported class action lawsuit (LARRY SCHRIER V. CAESARS WORLD, INC. ET AL., Case No. 95-923-LDG (RJJ)) was filed in United States District Court of Nevada (along with the Florida Complaints, the "Complaints"). The Complaints allege that manufacturers, distributors and casino operators of video poker and electronic slot machines, including the Company, have engaged in a course of conduct intended to induce persons to play such gaming machines 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. After the United States District Court of Nevada dismissed the Complaints, granting leave to plaintiffs to re- file, the plaintiffs filed an amended complaint on or about May 31, 1996. Subsequently, the United States District Court of Nevada consolidated the actions (and one other action styled WILLIAM POULOS V. AMERICAN FAMILY CRUISE LINE, N.V. ET AL., Case No. CV -S-95-936-LDG (RLH), 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 Company renewed its motions to dismiss and joined in motions to dismiss filed by other defendants. In late December 1997, the United States District Court of Nevada granted in part and denied in part Defendants' Motions to Dismiss for Failure to Plead Fraud with Particularity and for Failure to State a Claim; granted in part and denied in part Defendants' Motion to Strike Changes Made in Plaintiffs' Consolidated Amended Complaint; denied Cruise Ship Defendant's Motion to Dismiss for Lack of Subject Matter Jurisdiction; denied Defendant Princess Hotel's Motion to Dismiss Under the Act of State Doctrine; and denied Defendants' Motion for a Stay on Primary Jurisdiction and Abstention Grounds. In addition, the United States District Court of Nevada requested additional briefing from the parties with respect to Defendants' Motion to Dismiss for Lack of Personal Jurisdiction. Plaintiffs filed their Second
Consolidated Amended Complaint on or about January 8, 1998. The Answer to the Second Consolidated Amended Complaint was filed on February 11, 1998. Management believes that the substantive allegations in the Complaints are without merit and intends vigorously to defend the allegations.
On May 5, 1995, a purported class action lawsuit (HYLAND, ET AL. V. GRIFFIN INVESTIGATIONS, ET AL., Case No. 95-CV-2236 (JEI)) 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 (TOM PAYNE, ET AL. V. AZTAR CORPORATION, ET AL., Case No. 698592) was filed in the Superior Court of California, County of San Diego, against a number of gaming entities in Nevada, New Jersey and Louisiana, including the Company. In a subsequent amendment, Rio Properties was later added as a defendant. 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 citizens of California to play video poker based on a false belief concerning how the gaming machines operate, as well as to the extent to which the odds of the gaming machines are the same as live poker. The Company and Rio Properties filed motions to quash challenging personal jurisdiction. Thereafter, other defendants appeared and demurred to the complaint, and plaintiffs moved to certify the class. The motions to quash and for class certification were continued pending the outcome of the demurrers. On July 11, 1997, the court sustained the demurrers without leave to amend on grounds that an action by the court would interfere with the decisions of out-of-state regulators of the gaming industry, thus violating the Commerce Clause of the United States Constitution. Subsequently, the remaining defendants, including the Company and Rio Properties, entered into a stipulation with plaintiffs whereby plaintiffs agreed to dismiss the remaining defendants without prejudice pending the appeal of the court's order sustaining the demurrers and the remaining defendants agreed to toll the applicable statute of limitations during the pendency of the appeal. Plaintiffs have filed a Notice of Appeal. The Company and Rio Properties have specifically reserved their jurisdictional objections. Although the Company and Rio Properties are still technically defendants, management believes that the court's ruling will be applied to all defendants and that the Company and Rio Properties 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 (PARK EAST, INC. V. ANTHONY A. MARNELL II, ET AL., Case No. CV-596-01196-HDM (RLH)) was filed in the United States District Court 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 United States District Court of Nevada entered an order denying the motion to dismiss
the Company and the individual directors, and granting the motion to dismiss 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, Rio Properties filed a complaint in the United States District Court of Nevada (RIO PROPERTIES, INC. V. ROBERT P. BAKER, Case No. CV-S-97-00710-PMP (RLH)). The complaint seeks a declaration from the court that the use by Rio Properties 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 (ROBERT P. BAKER V. RIO PROPERTIES, INC., ET AL., Case No. BC 173 554), which was removed to the United States District Court for the Central District of California (Case No. 97-6364-WDK (AIJx)). 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 action. The parties have now stipulated to have the California action dismissed and proceed in United States District Court of Nevada. 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. On February 13, 1998, Mr. Baker filed a motion to amend his complaint to include the Company. This motion was denied on March 6, 1998. Management believes Mr. Baker's claims are without merit, and will vigorously pursue the declaratory relief action and defend the counterclaim.
Two lawsuits have been filed against a number of entities, including the Company, which have been consolidated under the designation, "Seven Hills Golf Course Litigation," by the Clark County, Nevada, District Court (the "Nevada District Court"). The cases are as follows: On October 15, 1997, a First Amended Complaint in a purported class action lawsuit (MARSHALL F. DANIEL, ET AL. V. AMERICAN NEVADA CORPORATION, ET AL., Case No. A377489) was filed in the Nevada District Court, seeking damages, declaratory relief and imposition of a constructive trust. On September 18, 1997, a First Amended Complaint (THE HELMER COMPANY OF NEVADA VS. SILVER CANYON PARTNERSHIP, ET AL., Case No. 377455) was filed in the Nevada District Court, seeking damages for fraud, deceit, promissory estoppel, injunctive relief, breach of contract and declaratory relief (the "Helmer Action"). These cases arise out of the Company's purchase of golf course property currently known as the Rio Secco Golf Club, which the Company purchased as an amenity for the customers of the Rio (the "Rio Customers"). Plaintiffs allege that the Company violated the relevant CC&R's in purchasing the golf course and is required to open the course to non-Rio Customers. Plaintiffs are claiming that their interests run with the land, which the Company denies. Plaintiff in the HELMER Action filed a Motion for Preliminary Injunction asking the Nevada District Court to require that the Company open the golf course for play to non-Rio Customers. Prior to the date set for the preliminary injunction hearing, the Company issued a press release opening the golf course for play to non-Rio Customers, which rendered the Motion for Preliminary Injunction moot. The Company agreed to keep the course open to non-Rio Customers pending final adjudication of the lawsuits as to the Company. On January 6, 1998, the Nevada District Court clarified the case management order to provide for a trial date of September 14, 1998, at which time the issues of local, public or private access to the golf course will be decided by the court, along with all equitable issues in the case. Any and all damage issues would be reserved for a later hearing. On March 9, 1998, the Nevada District Court certified a class consisting of all present and future record owners of residential lots within the Seven Hills Master-Planned Community with respect to the issue of right of access. On April 3, 1998, the Nevada District Court will hear motions for summary judgment filed by plaintiffs in the consolidated action on the issue of access and a motion for mandatory injunctive relief related to the issues of fees for play. Management believes that the substantive allegations in the complaints are without merit and that, aside from its own legal fees and
potential exposure for the legal fees of certain plaintiffs, there is no liability or exposure for money damages from any of the claims for relief brought against it. Accordingly, management intends vigorously to defend the Company against all allegations.
ITEM 4.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable.
PART II
ITEM 5.
ITEM 5. MARKET FOR REGISTRANT's COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
(a) Price Range of Common Stock
The Company's common stock, $.01 par value ("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.
The last reported sale price of the Common Stock on the NYSE on March 5, 1998 was $27.8125 per share. There were approximately 1,279 holders of record of the Company's Common Stock as of March 5, 1998.
(b) Dividend Policy
The Company has never declared or paid cash dividends on its Common Stock. The Company presently intends to retain earnings to finance the operation and expansion of its business and does not anticipate declaring cash dividends in the foreseeable future. Under the terms of the covenants in the Amended Bank Loan, the Company's wholly owned subsidiaries, Rio Properties and Rio Leasing, Inc. ("Rio Leasing") may pay dividends to the Company only if such funds are used for certain specific purposes. Under the terms of the Indentures (as defined herein), governing the 105/8 % Notes (as defined herein) and the 92% Notes (as defined herein), the payout of dividends and other distributions is subject to specified restrictions.
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA
ITEM 7.
ITEM 7. 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), issues related to the Year 2000, 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 Company introduced the Phase V Expansion project in phases. On February 7, 1997, the Company opened the Masquerade Village which included five new restaurants, over twenty 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 over one-half of the approximately 1,000 new suites in the Masquerade Tower, 447 of which had become available as of December 31, 1996. On May 24, 1997, the Company opened 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 in the master-planned community of Seven Hills, approximately 15 minutes south of the Rio. The Company renamed the facility as the Rio Secco Golf Club and opened the golf course for play in October 1997. The Company intends to use the Rio Secco Golf Course to provide golf vacation packages to its guests and to provide play on the course to local and tourist customers. The Rio Secco Golf Club will feature a clubhouse scheduled to open in the spring of 1998 and the Butch Harmon School of Golf.
The approach of the year 2000 has become a potential problem for businesses utilizing computers in their operations since many computer programs are date sensitive and will only recognize the last two digits of the year, thereby recognizing the year 2000 as the year 1900 or not at all (the "Year 2000 Issue"). Management has made a comprehensive assessment of the Company's exposure to the Year 2000 Issue and what will be required to ensure that the Company is Year 2000 compliant. The primary computer programs utilized in the Company's operations and financial reporting systems have been acquired from independent software vendors. All of these vendors have been formally contacted to determine whether their systems are Year 2000 compliant, and, if not, timelines have been or will be established as to when the Company will receive the required upgrades that assure that these systems will be Year 2000 compliant. Maintenance or modification costs associated with the Year 2000 Issue will be expensed as incurred, while the costs of any new software will be capitalized and amortized over the software's useful life. The Company does not expect to incur costs in connection with the Year 2000 Issue that would have a material impact on operations. Although the Company presently believes that all of its software programs will be Year 2000 compliant, there can be no assurances that the Company will not be adversely affected by the Year 2000 Issue.
RESULTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1997 AND 1996
The Company's net revenues increased to $392.1 million for the year ended December 31, 1997 from $219.6 million in the year ended December 31, 1996, an increase of $172.5 million or 79%. Casino revenues increased $101.6 million, or 90%, to $214.0 million in 1997, compared to $112.4 million in 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 1,884 and 79, respectively, in 1996 to 2,431 and 103, respectively, in 1997. Table game revenues were $122.8 million for 1997, an increase of $80.5 million, or 190%, from the $42.3 million in 1996. When comparing 1997 with 1996, the table game hold percentages were 21% and 16%, respectively, and table game handle increased to $573.1 million, or 114%, from $268.4 million. Management believes that the increase in table game handle was primarily due to the increased number of table games available, the increased customer traffic generated through the additional
suites and expanded casino and entertainment areas associated with the Phase V Expansion, and an increased emphasis by management on marketing to customers with higher credit limits and average wagers. Slot machine revenues were $84.4 million in 1997, an increase of $20.2 million, or 32%, from $64.2 million in 1996. Management believes that the increase in the average number of slot machines available and the increase in customer traffic generated through the additional suites and expanded casino and entertainment areas 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 18% to $6.9 million in 1997 from $5.8 million in the prior year.
Room revenues increased by $29.1 million, or 70%, to $70.4 million for 1997 from $41.3 million in 1996. Management believes that the primary reasons for the increase in room revenues were the additional availability of new suites in the new 41-story tower and an increase in the average room rate from $77 in 1996 to $91 in 1997. The occupancy rate was 90% in 1997 compared to 95% in 1996, with 284,000 more suite nights available and 233,000 more suites being occupied in 1997 than in 1996.
Food and beverage revenues increased $44.0 million, or 62%, to $114.8 million in 1997 compared to $70.8 million in 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, increased customer traffic generated through the additional suites 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 $10.2 million, or 66%, to $25.6 million for 1997 from $15.4 million in 1996. The primary reasons for this increase were an increase in showroom admissions, gift shop and other retail sales, increased telephone revenues due to the increase in suites occupied, and shop rental received from the retail outlets leased to third parties.
Before preopening expense, operating profit as a percentage of net revenues was 18% in 1997 compared to 17% in 1996. The one- time preopening expense, 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 45% in 1997 compared to 49% in 1996. Payroll and other volume related expenses, increased casino marketing and promotional costs and an increase in reserves associated with the potential uncollectibility of casino receivables of $21.9 million in 1997 compared to $0.3 million in 1996 are considered to be the primary contributors to the decrease in the casino operating profit margin. For the years ended December 31, 1997 and 1996, hotel operating profits were 71% and 68%, respectively, food and beverage operating profits were 22% in each year, and other operating department profit margins were 41% and 51%, respectively. The decrease in the operating profit margin for other operating departments is primarily due to the increase in retail sales, the correspondingly higher costs of merchandise, sales, payroll and other expenses associated with retail sales, and expenses incurred in 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 both years. In 1997, selling, general and administrative expenses included approximately $1.0 million associated with the Company=s unsuccessful effort to obtain one of three hotel-casino licenses in Detroit, Michigan.
Promotional allowances, which represent the retail value of rooms, food, beverage and other services provided to customers without charge, were 8% of total revenues in both 1997 and 1996.
Depreciation and amortization increased by $7.3 million, or 41%, to $24.9 million in 1997 compared to $17.6 million in 1996. This increase is primarily attributable to depreciation and amortization expense associated with the opening of the Phase V Expansion.
Interest expense increased by $18.1 million, or 220%, to $26.3 million in 1997 from $8.2 million in 1996. Interest expense was reduced by $4.4 million and $8.7 million in 1997 and 1996, respectively, due to interest being capitalized on the Phase V Expansion Project in 1996 and in early 1997, and on the development of the Rio Secco Golf Club and the New Rio Master Plan in 1997. This increase was primarily due to interest on financing of the Phase V Expansion.
Net income for 1997, after deducting $11.2 million ($7.1 million net after income tax) of preopening expenses associated with the opening of the Phase V Expansion, was $21.5 million. Adjusted on a pro forma basis for the one-time after-tax charge of $7.1 million for preopening expense, net income for 1997 would have been $28.6 million, compared to 1996 net income of $19.4 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 1995. An increase in table game revenues of $6.4 million, or 18%, to $42.5 million in 1996 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 13% 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 94.5% in both 1996 and 1995, with 567,332 available suite nights in 1996 compared to 494,105 available suite nights in 1995. 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 19% in 1996 and 1995, respectively. Casino operating profit was 49% in 1996 compared to 54% 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 additional marketing and personnel costs associated with the September 1996 opening of the Rio's new Shutters gaming area and the Masquerade Village that opened on February 7, 1997. Food and beverage operating profit was 22% and 20% for the years ended December 31, 1996 and 1995, respectively. Management believes that this improvement was the result of effective cost controls, a higher average food check, and the increase in the ratio of beverage sales to food sales when comparing the two years. Hotel operating profit was 68% in 1996 and 69% in 1995. Other operating expenses were 49% and 54% of other departmental revenues for the years ended December 31, 1996 and 1995, respectively, primarily due to increases in telephone and admissions revenues which do not require significant incremental expense. Selling, general and administrative expenses were 14% of net revenues in both years.
Promotional allowances, which represent the retail value of rooms, food, beverage and other products and services provided to customers without charge, were $20.4 million in 1996 and $18.8 million in 1995. The estimated cost of providing such promotional allowances was $11.4 million and $11.1 million in 1996 and 1995, respectively.
Depreciation and amortization increased $3.4 million, or 24%, to $17.6 million in 1996 compared to $14.2 million in 1995. This increase is attributable to (i) new suites being placed into service during the period from February 1995 through December 1995, and (ii) expanded public and back-of-the-house areas being placed into service during 1995 and 1996. This includes approximately $7.3 million in construction projects placed into service in 1996 which are associated with the Phase V Expansion project.
Interest expense increased $0.1 million in 1996 to $8.2 million from $8.1 million in 1995. Interest expense in 1996 was reduced by $8.7 million due to the capitalization of interest on amounts expended on the Phase V Expansion project. The $200.0 million Phase V Expansion includes approximately 1,000 new hotel suites, 477 of which opened in late December 1996, and approximately 120,000 of additional casino space, restaurants, retail, and interactive entertainment space, which opened on February 7, 1997. The remainder of the new hotel suites and the Voodoo Cafe and Lounge on the 40th and 41st floors of the Masquerade Tower opened during the first six months of 1997.
Net income was $19.4 million or $0.90 per share (diluted) compared to $0.87 per share (diluted) in 1995.
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 real operating profit margins in periods of general inflation by increasing minimum wagering limits for its games and increasing the prices of its hotel rooms, food and beverage and other items, and by taking action designed to increase the number of patrons. The industry may be able to maintain growth in gaming revenues by the tendency of customer gaming budgets to increase with inflation. Changes in specific prices (such as fuel and transportation prices) relative to the general rate of inflation may have a material effect on the hotel-casino industry.
LIQUIDITY AND CAPITAL RESOURCES
On February 4, 1997, the Company issued $125.0 million in principal amount of the Company's 9 1/2% Senior Subordinated Notes Due 2007. Approximately $112.0 million of the net proceeds of $121.6
million were utilized to reduce the principal amount that had been drawn under the Company's $200 million Rio Bank Loan.
During the fourth quarter of 1997, the Company issued 3,200,000 shares of its common stock for net proceeds of $65.6 million, $60.0 million of which was utilized to further reduce the principal amount that had been drawn under the Company's senior secured reducing revolving credit facility (the "Rio Bank Loan").
During the year ended December 31, 1997, net cash provided by operating activities was $48.1 million. Investing activities used $95.9 million, including $55.4 million related to the construction of the Phase V Expansion, $3.1 million related to the New Rio Master Plan, $6.8 million in land acquisitions adjacent to the Rio, and $22.0 million for the acquisition of and improvements to 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 access to the Las Vegas Strip and additions and improvements to the Rio. The improvements will include a 100,000 square foot state-of-the- art 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 the Ipanema and Masquerade Towers, and an expansion of the Rio's spa. These improvements, along with the new road, are scheduled to open in stages throughout 1998 and early 1999. In addition, site work has commenced for future development of the Rio property, with the New Rio Master Plan providing for a separate 3,000-room hotel-casino resort on a portion of the adjacent acreage recently acquired by the Company. The timetable, theme and cost of this separate hotel casino resort project have not yet been established.
On February 24, 1998, the Company amended and restated the Rio Bank Loan with the Amended Bank Loan increasing the amount available to $275 million, providing a mechanism whereby the Company may borrow an additional $25 million above and beyond the $275 million limit, and extending the maturity date to December 31, 2003. At February 24, 1998, $251 million was available for borrowing under the Amended Bank Loan. The Amended Bank Loan is secured by a first deed of trust on substantially all of the real property, equipment and improvements of Rio Properties, Rio Leasing and Rio Properties' subsidiaries, and is guaranteed by the Company.
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.
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
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, 1997 and 1996 and the related consolidated statements of income, stockholders' equity and cash flows for each of the three years in the period ended December 31, 1997. These financial statements and the schedules referred to below are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedules 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, 1997 and 1996, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1997, in conformity with generally accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the basic financial statements taken as a whole. The financial statement schedules listed in Item 14 are the responsibility of the Company's management and are presented for purposes of complying with the Securities and Exchange Commission's rules and are not part of the basic financial statements. These schedules have been subjected to the auditing procedures applied in the audits of the basic financial statements and, in our opinion, fairly state in all material respects the financial data required to be set forth therein in relation to the basic financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Las Vegas, Nevada February 24, 1998
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See Accompanying Notes to Consolidated Financial Statements
See Accompanying Notes to Consolidated Financial Statements
See Accompanying Notes to Consolidated Financial Statements
See Accompanying Notes to Consolidated Financial Statements
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., a Nevada corporation (the "Company"), and its wholly owned subsidiaries, each of which is a Nevada corporation, Rio Properties, Inc., which owns and operates the Rio ("Rio Properties"); Rio Development Company, Inc., which owns and operates the Rio Secco Golf Club in Henderson, Nevada; Rio Resort Properties, Inc.; Rio Leasing, Inc. ("Rio Leasing"), and Rio Properties' wholly owned subsidiaries, Cinderlane, Inc. and HLG, Inc.
All significant intercompany balances and transactions have been eliminated in consolidation.
RECLASSIFICATIONS
The financial statements for prior periods reflect certain reclassifications, which have no effect on net income, to conform with classifications adopted in the current 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 December 31, 1997, 1996, and 1995 was $4.4 million, $8.7 million and $0.9 million, respectively.
CASH AND CASH EQUIVALENTS
The Company classifies as cash equivalents all highly liquid debt instruments with a maturity of three months or less when purchased. Cash equivalents are carried at cost which approximates fair value.
PROPERTY AND EQUIPMENT
Land and improvements, building and improvements, and equipment, furniture and improvements are stated at cost.
Depreciation and amortization of property and equipment is computed using the straight-line method predominantly over the following estimated useful lives:
Building and improvements 7 to 45 years Equipment, furniture and improvements 3 to 15 years
Costs of major improvements are capitalized, while costs of normal repairs and maintenance are charged to expense as incurred.
PREOPENING EXPENSES
Preopening expenses consist principally of direct incremental personnel costs and other associated expenses. These expenses have been capitalized prior to the opening of the specific project and have been charged to expense at the commencement of the operations. A total of $11.2 million in preopening costs associated with the Phase V Expansion project 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 between estimated discounted future cash flows generated by the fixed assets and the carrying value related to those assets.
CASINO RECEIVABLES
The Rio extends credit to certain casino customers, both foreign and domestic, after investigation and evaluation of the creditworthiness of the individual. The Company maintains an allowance for doubtful accounts to reduce the casino receivables to their estimated collectible amount. At December 31, 1997, the allowance for doubtful accounts was 49.5% of the casino receivables. As of December 31, 1997, management believes that there are no concentrations of credit risk for which an allowance has not been established and recorded. The collectibility of foreign and domestic receivables could be affected by future economic or other significant events in the United States or in the countries in which such foreign customers reside.
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:
2. CONSOLIDATED STATEMENTS OF CASH FLOWS
The following supplemental disclosures are provided as part of the consolidated statements of cash flows:
3. ACCOUNTS RECEIVABLE
Components of accounts receivable are as follows:
============== =============
4. ACCRUED EXPENSES
Components of accrued expenses are as follows:
5. LONG-TERM DEBT
Long-term debt consists of the following:
On July 15, 1993, the Company originally entered into a revolving credit facility (the "Rio Bank Loan") in the amount of $65 million with a syndicate of banks led by Bank of America National Trust Savings and Association ("Bank of America NT&SA"). As a result of certain amendments, the Rio Bank Loan was increased in varied increments to $200 million in June 1996. On February 24, 1998, the Company amended and restated the Rio Bank Loan with the Amended and restated Credit Agreement (the "Amended Bank Loan") increasing the funds available in the revolving credit facility to $275 million, providing a mechanism whereby the Company may borrow an additional $25 million above and beyond the $275 million limit, and extending the maturity date to December 31, 2003. The Amended Bank Loan is a secured reducing revolving credit facility to be used to make allowed capital expenditures, to fund working capital needs and to pay for general corporate purposes.
The Amended Bank Loan bears interest based upon a "LIBOR Margin" of from 0.75% to 2.25%, or a "Base Rate Margin" of from 0% to 1.25% based upon a schedule determined with reference to the "Total Leverage Ratio" (as defined in the Amended Bank Loan) of Rio Properties. The "LIBOR Margin" is the amount in excess of the applicable LIBOR which is the London InterBank Offer Rate established in the London interbank market. The "Base Rate Margin" is the amount in excess of the applicable base rate, which is the rate per annum equal to the higher of the reference rate as it is publicly
announced from time to time by Bank of America NT&SA or 0.50% per annum above the latest Federal Funds rate. The Amended Bank Loan also provides for an unused facility fee ranging from 22.5 basis points to 45.0 basis points depending upon the same Total Leverage Ratio schedule utilized for the interest rate. The Amended Bank Loan requires periodic payments of interest and will require scheduled reductions of the maximum amount available commencing with scheduled reductions of $60 million at December 31, 2000, 2001 and 2002 and maturity at December 31, 2003.
The reference interest rate quoted by the Company's primary lenders at December 31, 1997 and 1996 was 8.25%. The margin on the Company's Base Rate borrowings at December 31, 1997 was 1.75%, which was reduced to 0.50% by the Amended Bank Loan.
At December 31, 1997, the three month Eurodollar Rate was 5.78125%. The margin on the Company's Eurodollar Rate borrowings at December 31, 1997 was 2.75% which was subsequently reduced to 1.5% by the Amended Bank Loan.
The Amended Bank Loan includes certain covenants that, among other things, restrict the Company's ability to pay dividends and make certain other restricted payments; incur additional indebtedness; grant liens, other than permitted liens; and sell material assets. The Amended Bank Loan also requires the Company to maintain certain financial ratios, including interest coverage and leverage ratios, and not to exceed certain fixed ratios of Senior Indebtedness (as defined in the Amended Bank Loan) to earnings before interest expense, income taxes, depreciation and amortization and extraordinary items.
To reduce the risks from interest rate fluctuations, the Company entered into interest rate swap agreements in the amount of $20 million from September 30, 1994 through December 29, 1995 and $15 million from December 29, 1995 through its expiration on June 28, 1996. In August 1994, the Company purchased a $40 million interest rate cap, effective September 30, 1994, for a three-year term, which provided for quarterly payments to the Company in the event that three-month LIBOR exceeded 7% on any quarterly reset date. As a result of entering into the interest rate swap agreements, the Company has recognized interest expense of $199,000, $208,859, and $18,638 for the years ended December 31, 1997, 1996 and 1995, respectively. The impact of these hedging activities on the Company's weighted average borrowing rate was negligible in each of the years. There were no deferred gains or losses related to the terminated interest rate swap and interest rate cap agreements.
The revolving credit features of the Rio Bank Loan and the Amended Bank Loan allow for the Company to pay down and reborrow principal under the revolving credit facility as the Company deems appropriate. The Company had $172 million and $47 million available under the Rio Bank Loan at December 31, 1997 and 1996, respectively, and $251 million available under the Amended Bank Loan at February 24, 1998.
The 10 5/8% Senior Subordinated Notes (the "10 5/8% Notes") and the 9 1/2% Senior Subordinated Notes (the "9 1/2% Notes") are unconditionally guaranteed on pari passu senior subordinated basis by Rio Properties. The 10 5/8% Notes and the 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
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 9 1/2% Notes. Upon a change in control of the Company (as defined in the Indentures), 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.
The estimated fair market value of the Company's 10 5/8% Notes and 9 1/2% Notes at December 31, 1997 were approximately $109.2 million and $132.5 million, respectively, versus their book value of $100 million and $121.9 million, respectively. The estimated fair market values are based on the quoted market prices on that date.
As of December 31, 1997, annual maturities of notes and loans payable are as follows:
The following assets collateralize the Rio Bank Loan and the Amended Bank Loan:
6. EARNINGS PER SHARE
The Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 128 - "Earnings Per Share" ("SFAS 128") which became effective for periods ending after December 15, 1997 and replaces historically 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. Application of SFAS 128 for periods ending prior to December 15, 1997 was not permitted, but its effect has been included in notes to the Company's financial statements filed with the Securities and Exchange
Commission for all periods during 1997. The following table reflects the Company's basic and diluted earnings per share for the years ended December 31, 1997, 1996 and 1995:
7. INCOME TAXES
The provision for income taxes consisted of the following:
The following schedule reconciles the Company's effective tax rate to the statutory rate:
The Company's deferred tax assets (liabilities) at December 31, 1997 consisted of the following:
The Company's deferred tax assets (liabilities) at December 31, 1996 consisted of the following:
The current portion of the Company's net deferred tax assets is included on the consolidated balance sheets under the heading prepaid expenses and other 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
The Company holds options to purchase two land parcels which total approximately seven acres adjacent to the Rio for a combined cost of approximately $5.5 million.
In addition, the Company has entered into an agreement with Clark County to install a road across certain of its recently acquired properties that will provide an additional east/west conduit for Las Vegas residents and tourists and allow for access to the Rio from the Las Vegas Strip. Upon completion, the Company will deed the roadway acreage to Clark County in exchange for the vacating by Clark County other acreage to the Company and reimbursing the Company for a majority of the Company's construction costs.
Rio Properties maintains an employee profit sharing plan for all employees who have accredited service. Contributions to the plan are discretionary and cannot exceed amounts permitted under the Internal Revenue Code. Contributions of $470,330, $376,736, and $278,835 have been authorized and charged to income for the years ended December 31, 1997, 1996, and 1995, respectively.
During 1997, the Company entered into four year operating leases for gaming equipment with an annual rent of $1.2 million.
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 On November 26, 1997 and December 24, 1997, the Company issued 3.2 million shares of common stock at a net share price of $20.16. The total net proceeds for the shares were received in the fourth quarter of 1997.
During 1997, the Company issued 268,300 shares of Common Stock at exercise prices ranging from $3.00 per share to $15.63 per share pursuant to stock options previously granted under the Company's Non-Statutory Stock Option Plan (the "NSOP") and 4,400 shares of Common Stock at $15.50 per share pursuant to stock options previously granted under the Company's 1995 Long Term Incentive Stock Option Plan (the "LTIP").
During 1996, the Company issued 175,795 shares of Common Stock at exercise prices ranging from $3.00 per share to $15.63 per share pursuant to stock options previously granted under the NSOP. In addition, the Company repurchased 144,500 shares of Common Stock from time to time in 1996 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. In addition, the Company repurchased 430,500 shares of Common Stock from time to time in 1995 in the open market at a total cost of $5.4 million. The repurchased shares of Common Stock were retired.
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 5 years, with an expiration 10 years from date of issuance.
The Company has granted 3,104,500 options at exercise prices ranging from $3.00 to $15.625 per share to key officers and employees under the NSOP. As of December 31, 1997, 1,138,345 options had been exercised and 492,200 options had been forfeited, resulting in 1,473,955 options outstanding and 25,200 options available to be granted under the NSOP.
Under the 1991 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 December 31, 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 LTIP, 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 at least the last reported sale price of the common stock on the date of the grant. As of December 31, 1997, 2,007,500 options had been granted at exercise prices ranging from $15.50 to $21.1875, 4,400 of which had been exercised and 32,200 options had been forfeited, resulting in 1,970,900 options outstanding and 24,700 options available to be granted.
The Company applies APB Opinion No. 25 and related interpretations in accounting for the plans. Accordingly, no compensation expense has been recognized for the stock options. FASB Statement 123 "Accounting for Stock-Based Compensation" ("SFAS 123") was issued by the FASB in 1995 and, if fully adopted, changes the methods for recognition of cost on plans similar to those of the Company. Had compensation cost for the Company's stock-based compensation plans been determined based on the fair market value of options on the dates of grant in 1997, 1996 and 1995 using the Black-Scholes option-pricing model with the following assumptions: (i) no dividends, (ii) expected volatility of 32% for 1997 and 37% for 1996 and 1995, (iii) risk free interest rates of 6.0%, 6.06% and 5.68% for 1997, 1996 and 1995, respectively, and (iv) expected lives of four years, the effect on net income and earnings per share would be as follows:
The weighted average fair market values of options granted in 1997, 1996 and 1995 were $5.08, $2.49 and $4.83, respectively.
10. RELATED PARTY TRANSACTIONS
With the approval of the Company's Audit Committee and Board of Directors, the Company has contracted with two affiliates of the Company's largest stockholder for the design and construction of four expansion projects at the Rio, including the 41-story Masquerade Tower with over 1,000 suites completed during the first six months of 1997, the previously completed Phase IV Expansion of 141 suites, the Phase III Expansion of 549 suites, and the Eastside Expansion of 437 suites. Each of these expansions included the addition of new public and back-of-the-house areas and improvements. In addition, the Company retained these two affiliates to perform various remodeling and improvements projects at the Rio. During 1997, the Company contracted with these affiliated entities for the completion of the Rio Secco Golf Club facility, including the clubhouse. The Company paid these entities, in the aggregate, approximately $64.7 million, $147.9 million, and $51.0 million during the years ended December 31, 1997, 1996 and 1995, respectively, for their services. The Company has entered into agreements with these affiliates for the expansion of the Rio pursuant to the New Rio Master Plan for an estimated cost of approximately $156.7 million.
An affiliate of the Company's largest stockholder rents a building located on the Las Vegas Strip to the Company which is utilized as a station for transporting customers by bus to and from the Rio. In addition, this affiliate provided real estate brokerage and administration services to the Company in connection with the purchase of the 38 acres adjacent to the Rio. Rent and fees paid to this affiliate,
including the reimbursement of expenses, were $0.9 million, $1.0 million and $0.9 million for the years ended December 31, 1997, 1996 and 1995, respectively. Expense reimbursements were 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.
In 1994, the Company entered into a five year agreement with an entity in which a director of the Company possesses a less than ten percent ownership interest. The Company entered into the Agreement prior to the time this individual joined the Company's Board of Directors. The agreement involves the lease of land upon which the Company has constructed two billboards. Payments made under the agreement for the years ended December 31, 1997 and 1996 were approximately $166,000 and $160,000, respectively.
In 1996, the Company entered into a two year agreement with entities in which a director of the Company was a principal stockholder and executive officer. These entities earned commissions totaling $122,000 and $159,000 for the years ended December 31, 1996 and 1995, respectively. Although these entities were acquired in June 1997 by a non- affiliated third party, the resulting entities, in which the director is now an employee, earned commissions totaling $188,000 for the year ended December 31, 1997. These commissions arose out of the acquisition and administration of various insurance coverages by the Company.
In October 1997, the Company entered into a lease with an affiliate of the Company's two largest stockholders for certain warehouse space with such lease including an option to purchase the warehouse. In 1997, the Company paid this entity $57,200.
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. DEBT GUARANTEE
Summarized financial information is provided below for Rio Properties, the Company's principal wholly-owned operating subsidiary, as sole guarantor to the 10 5/8% Notes and the 9 1/2% Notes which are pari passu under the guarantee. The two subordinated note issues are fully and unconditionally guaranteed by Rio Properties and are subordinated to all existing and future indebtedness and other liabilities (including trade payables) of the Company's subsidiaries.
Summarized financial statements of Rio Properties have not been prepared since the assets, pre-tax income and parents' net investment in the non-guarantor subsidiaries on an individual basis 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.
One of the Company's non-guarantor subsidiaries, Rio Development Company, Inc. ("Rio Development"), has recently acquired assets and liabilities associated with the purchase of the Rio Secco Golf Club. As of December 31, 1997, this subsidiary had current assets of $340,050; non-current assets of $31,542,602, including $5,635,073 due from the Company; current liabilities of $100,537 and non-current liabilities of $26,549,897, including $14,100,782 due Rio Properties. Prior to the purchase of the golf course in September 1997, the assets and operations of Rio Development were inconsequential.
ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None
PART III
ITEM 10.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
This information is incorporated by reference from the Company's Proxy Statement to be filed with the Commission in connection with the Company's annual meeting of stockholders on May 21, 1998.
ITEM 11.
ITEM 11. EXECUTIVE COMPENSATION
This information is incorporated by reference from the Company's Proxy Statement to be filed with the Commission in connection with the Company's annual meeting of stockholders on May 21, 1998.
ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
This information is incorporated by reference from the Company's Proxy Statement to be filed with the Commission in connection with the Company's annual meeting of stockholders on May 21, 1998.
ITEM 13.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
This information is incorporated by reference from the Company's Proxy Statement to be filed with the Commission in connection with the Company's annual meeting of stockholders on May 21, 1998.
PART IV
ITEM 14.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) 1. FINANCIAL STATEMENTS
Included in Part II of this report:
Consolidated Balance Sheets at December 31, 1997 and December 31, 1996.
For the Years Ended December 31, 1997, 1996 and 1995
Consolidated Statements of Income
Consolidated Statements of Stockholders' Equity
Consolidated Statements of Cash Flows.
Notes to Consolidated Financial Statements
2. FINANCIAL STATEMENT SCHEDULES
Included in Part IV of this report:
Schedule III - Condensed Financial Information of Registrant
Schedule VIII - Valuation and Qualifying Accounts
Other schedules are omitted because of the absence of conditions under which they are required or because the required information is given in the financial statements or notes thereto.
(b) REPORTS ON FORM 8-K
No reports on Form 8-K have been filed by the Company during the quarter ended December 31, 1997.
ITEM 14. EXHIBITS
NUMBER EXHIBIT DESCRIPTION
3.01 Amended and Restated Articles of Incorporation of Rio Hotel & Casino, Inc. filed July 19, 1994, are incorporated herein by reference from the Company's (SEC File No. 0-13760) Report on Form 10-Q for the Quarter Ended June 30, 1994, Part II, Item 6(a), Exhibit 4.01.
3.02 Amended and Restated Bylaws of Rio Hotel & Casino, Inc., certified March 20, 1997, is incorporated herein by reference from the Company's (SEC File No. 001-11569) Annual Report on Form 10-K for the Year Ended December 31, 1996, Part IV, Item 14(c), Exhibit 3.02.
4.01 Specimen common stock certificate for the common stock of Rio Hotel & Casino, Inc. is incorporated herein by reference from the Company's (SEC File No. 333-869) Registration Statement on Form S-3 filed on February 12, 1996, Part II, Item 15, Exhibit 4.03.
4.02 Rio Hotel & Casino, Inc. Non-Statutory Stock Option Plan, as amended February 25, 1998.
4.03 Rio Hotel & Casino, Inc. Directors' Stock Option Plan, as amended February 25, 1998.
4.04 Rio Suite Hotel & Casino Employee Retirement Savings Plan Trust Agreement dated February 11, 1991; First Amendment to the Rio Suite Hotel & Casino Employee Retirement Savings Plan dated March 20, 1992, effective April 1, 1992; Second Amendment to the Rio Suite Hotel & Casino Employee Retirement Savings Plan dated March 20, 1992, effective April 1, 1992; Third Amendment to the Rio Suite Hotel & Casino Employee Retirement Savings Plan dated December 14, 1992, effective August 15, 1992, and Rio Suite Hotel & Casino Employee Retirement Savings Plan, Participant Loan Program dated March 19, 1992 are incorporated herein by reference from the Company's (SEC File No. 33-56860) Registration Statement on Form S-8 filed January 8, 1993, Part II, Item 8, Exhibit 4.11; Rio Suite Hotel & Casino Employment Retirement Savings Plan dated February 21, 1991 is incorporated herein by reference from the Company's (SEC File No. 33-56860) Registration Statement on Form S-8 filed February 3, 1993, Part II, Item 8, Exhibit 4.11; Fourth Amendment to the Rio Suite Hotel & Casino Employee Retirement Savings Plan dated April 30, 1993, effective July 1, 1993; Fifth Amendment to the Rio Suite Hotel & Casino Employee Retirement Savings Plan dated August 17, 1993, effective July 1, 1993; Sixth Amendment to the Rio Suite Hotel & Casino Employee Retirement Savings Plan dated October 27, 1993, effective October 25, 1993; Seventh Amendment to the Rio Suite Hotel & Casino Employee Retirement Savings Plan Trust Agreement dated and effective December 16, 1993; and Eighth Amendment to the Rio Suite Hotel & Casino Employee Retirement Savings Plan dated May 3, 1994, effective May 1, 1994 are incorporated herein by reference from the Company's (SEC File No. 0- 13760) Report on Form 10-Q for the Quarter Ended June 30, 1994, Part II, Item 6(a), Exhibit 4.03; Ninth Amendment to the Rio Suite Hotel & Casino Employee Retirement Savings Plan dated August 26, 1994, effective August 25, 1994; Tenth Amendment to the Rio Suite Hotel & Casino Employee Retirement Savings Plan dated and effective January 1, 1995; Eleventh Amendment to the Rio Suite Hotel & Casino Employee Retirement Savings Plan dated and effective January 12, 1995 are incorporated herein by reference from the Company's (SEC File No. 0- 13760) Annual Report on Form 10-K for the Year Ended December 31, 1994, Part IV, Item 14(c), Exhibit 4.08; Twelfth Amendment to the Rio Suite Hotel & Casino Employee Retirement Savings Plan dated and effective December 21, 1995; and Thirteenth Amendment to the
NUMBER EXHIBIT DESCRIPTION
Rio Suite Hotel & Casino Employee Retirement Savings Plan dated and effective March 17, 1998.
4.05 Rio Hotel & Casino, Inc. 1995 Long-Term Incentive Plan, as amended March 20, 1997, is incorporated herein by reference from the Company's (SEC File No. 001-11569) Annual Report on Form 10-K for the Year Ended December 31, 1996, Item 14(c), Exhibit 4.07.
4.06 Credit Agreement among Bank of America National Trust and Savings Association, as agent for itself and other financial institutions, as Lenders, and Rio Properties, Inc., as Borrower, dated July 15, 1993; Line A Note executed by Rio Properties, Inc., as Borrower, in favor of Bank of America National Trust and Savings Association, in the amount of $9,692,307.70 dated July 15, 1993; Line A Note executed by Rio Properties, Inc., as Borrower, in favor of Bank of America Nevada, in the amount of $3,230,769.23, dated July 15, 1993; Line A Note executed by Rio Properties, Inc., as Borrower, in favor of Societe Generale, in the amount of $6,461,538.46, dated July 15, 1993; Line A Note executed by Rio Properties, Inc., as Borrower, in favor of NBD Bank, N.A., in the amount of $6,461,538.46, dated July 15, 1993; Line A Note executed by Rio Properties, Inc., as Borrower, in favor of First Security Bank of Idaho, N.A., in the amount of $6,461,538.46, dated July 15, 1993; Line A Note executed by Rio Properties, Inc., as Borrower, in favor of First Interstate Bank of Nevada, N.A., in the amount of $6,461,538.46, dated July 15, 1993; Line A Note executed by Rio Properties, Inc., as Borrower, in favor of U.S. Bank of Nevada, in the amount of $3,230,769.23, dated July 15, 1993; Line B Note executed by Rio Properties, Inc., as Borrower, in favor of Bank of America National Trust and Savings Association, in the amount of $5,307,692.30 dated July 15, 1993; Line B Note executed by Rio Properties, Inc., as Borrower, in favor of Bank of America Nevada, in the amount of $1,769,230.77, dated July 15, 1993; Line B Note executed by Rio Properties, Inc., as Borrower, in favor of First Interstate Bank of Nevada, N.A., in the amount of $3,538,461.54, dated July 15, 1993; Line B Note executed by Rio Properties, Inc., as Borrower, in favor of First Security Bank of Idaho, N.A., in the amount of $3,538,461.54, dated July 15, 1993; Line B Note executed by Rio Properties, Inc., as Borrower, in favor of NBD Bank, N.A., in the amount of $3,538,461.54, dated July 15, 1993; Line B Note executed by Rio Properties, Inc., as Borrower, in favor of Societe Generale, in the amount of $3,538,461.54, dated July 15, 1993; Line B Note executed by Rio Properties, Inc., as Borrower, in favor of U.S. Bank of Nevada, in the amount of $1,769,230.77, dated July 15, 1993; Revolving Note executed by Rio Properties, Inc., as Borrower, in favor of Bank of America National Trust and Savings Association, in the amount of $15,000,000, dated July 15, 1993; Revolving Note executed by Rio Properties, Inc., as Borrower, in favor of Bank of America Nevada, in the amount of $5,000,000, dated July 15, 1993; Revolving Note executed by Rio Properties, Inc., as Borrower, in favor of First Interstate Bank of Nevada, N.A., in the amount of $10,000,000, dated July 15, 1993; Revolving Note executed by Rio Properties, Inc., as Borrower, in favor of First Interstate Bank of Idaho, N.A., in the amount of $10,000,000, dated July 15, 1993; Revolving Note executed by Rio Properties, Inc., as Borrower, in favor of NBD Bank, N.A., in the amount of $10,000,000, dated July 15, 1993; Revolving Note executed by Rio Properties, Inc., as Borrower, in favor of Societe Generale, in the amount of $10,000,000, dated July 15, 1993; Revolving Note executed by Rio Properties, Inc., as Borrower, in favor of U.S. Bank of Nevada, in the amount of $5,000,000, dated July 15, 1993; Security Agreement executed by Rio Properties, Inc., as Debtor, in favor of Bank of America National Trust and Savings Association, as agent for itself and other financial institutions, as Secured Party, dated July 15, 1993;
NUMBER EXHIBIT DESCRIPTION
Construction Deed of Trust With Assignment of Rents and Fixture Filing among Rio Properties, Inc., as Trustor, Equitable Deed Company, as Trustee, and Bank of America National Trust and Savings Association, as agent for itself and the other financial institutions, as Beneficiary, dated July 15, 1993; Unsecured Indemnity Agreement executed by Rio Properties, Inc., as Indemnitor, in favor of Bank of America National Trust and Savings Association, as agent for itself and other financial institutions, dated July 15, 1993; Guaranty executed by Rio Hotel & Casino, Inc., as Guarantor, in favor of Bank of America National Trust and Savings Association, as agent for itself and other financial institutions, as Guaranteed Parties, dated July 15, 1993; and, Parent Guarantor Security Agreement by Rio Hotel & Casino, Inc., as Debtor, in favor of Bank of America National Trust and Savings Association, as agent for itself and other financial institutions, as Secured Party, dated July 15, 1993 are incorporated by reference from the Company's (SEC File No. 2-88147) Report on Form 8-K dated July 15, 1993, Item 7(c), Exhibit 28.01; First Amendment to Credit Agreement dated as of October 25, 1993 and Second Amendment and Waiver to Credit Agreement dated as of November 8, 1993 among Rio Properties, Inc., Bank of America National Trust and Savings Association, Bank of America Nevada, First Interstate Bank of Nevada, First Security Bank of Idaho, N.A., NBD Bank, N.A., Societe Generale, and U.S. Bank of Nevada are incorporated by reference from the Company's (SEC File No. 0-13760) Annual Report on Form 10-K for the Year Ended December 31, 1993, Part IV, Item 14(c), Exhibit 4.09; Third Amendment to Credit Agreement dated as of April 15, 1994 among Rio Properties, Inc., Bank of America National Trust and Savings Association, as Agent and as a Bank, Bank of America, Nevada, First Interstate Bank of Nevada, First Security Bank of Idaho, N.A., NBD Bank, N.A., Societe Generale, and U.S. Bank of Nevada; Memorandum of Amendments to Credit Agreement and Amendment to Construction Deed of Trust with Assignment of Rents and Fixture Filing dated as of May 9, 1994 by Rio Properties, Inc. and Bank of America National Trust and Savings Association are incorporated herein by reference from the Company's (SEC File No. 0-13760) Report on Form 10-Q for the Quarter Ended June 30, 1994, Part II, Item 6(a), Exhibit No. 4.02; Fourth Amendment to Credit Agreement among Rio Properties, Inc., as Borrower, and Bank of America National Trust and Savings Association, First Interstate Bank of Nevada, First Security Bank of Idaho, N.A., NBD Bank, N.A., Societe Generale, Bank of America, Nevada, U.S. Bank of Nevada, Bank of Scotland and Midlantic Bank, N.A., as Lenders; and Second Memorandum of Amendment to Credit Agreement and Amendment to Construction Deed of Trust with Assignment of Rents and Fixture Filing between Borrower and Bank of America National Trust and Savings Association, as agent for Lenders, dated December 16, 1994 are incorporated herein by reference from the Company's (SEC File No. 0-13760) Report on Form 8-K dated December 16, 1994, Item 7(c), Exhibit 10.01; Fifth Amendment to Credit Agreement dated as of March 20, 1995, among Rio Properties, Inc., Bank of America National Trust and Savings Association, as Agent and as a Bank, First Interstate Bank of Nevada, First Security Bank of Idaho, N.A., NBD Bank, N.A., Societe Generale, Bank of America Nevada, U.S. Bank of Nevada, Bank of Scotland and Midlantic Bank, N.A., as Banks, is incorporated herein by reference from the Company's (SEC File No. 0-13760) Annual Report on Form 10-K for the Year Ended December 31, 1994, Part IV, Item 14(c), Exhibit 10.09; Sixth Amendment to Credit Agreement dated as of July 31, 1995 among Rio Properties, Inc., Bank of America National Trust and Savings Association, as Agent and as a Bank, and First Interstate Bank of Nevada, First Security Bank of Idaho, N.A., NBD Bank, N.A., Societe Generale, Bank of America Nevada, U.S. Bank of Nevada, Bank of Scotland, Midlantic Bank, N.A., and Bank of Hawaii, as Banks, is incorporated herein by reference from the Company's (SEC File No. 0-13760) Report on Form 8-K dated September 15, 1995, Item 7(c), Exhibit 4.01; Seventh Amendment to Credit Agreement dated as of January 17, 1996 among Rio Properties, Inc., Bank of America National Trust and Savings Association, as Agent and as a Bank, and First Interstate Bank of Nevada, First Security Bank of Idaho, N.A., Societe Generale, Bank of America Nevada, U.S.
NUMBER EXHIBIT DESCRIPTION
Bank of Nevada, Bank of Scotland, Midlantic Bank, N.A., and Bank of Hawaii, as Banks, is incorporated herein by reference from the Company's (SEC File No. 1-11569) Annual Report on Form 10-K for the Year Ended December 31, 1995, Part IV, Item 14(c), Exhibit 4.08; Eighth Amendment to Credit Agreement dated as of June 17, 1996 among Rio Properties, Inc. and Bank of America National Trust and Savings Association, as Agent, and Wells Fargo Bank National Association, First Security Bank of Idaho, N.A., NBD Bank, Societe Generale, Bank of America Nevada, U.S. Bank of Nevada, Bank of Scotland, Midlantic Bank, N.A., and Bank of Hawaii, as Banks, is incorporated herein by reference from the Company's (SEC File No. 1-11569) Report on Form 10-Q for the Quarter Ended June 30, 1996, Item 6(a), Exhibit 10.01; Ninth Amendment to Credit Agreement dated as of January 13, 1997 among Rio Properties, Inc. and Rio Leasing, Inc., and Bank of America National Trust & Savings Association, as Agent and a Bank, and Wells Fargo Bank National Association, First Security Bank of Utah, N.A., NBD Bank, Societe Generale, U.S. Bank of Nevada, Bank of Scotland, PNC Bank, National Association, successor by merger to Midlantic Bank, N.A. and Bank of Hawaii, as Banks; and Tenth Amendment to Credit Agreement dated as of February 3, 1997 among Rio Properties, Inc. and Rio Leasing, Inc., and Bank of America National Trust and Savings Association, as Agent and a Bank, and Wells Fargo Bank National Association, First Security Bank, N.A., NBD Bank, Societe Generale, U.S. Bank of Nevada, Bank of Scotland, PNC Bank, National Association, successor by merger to Midlantic Bank, N.A., and Bank of Hawaii, as Banks, are incorporated herein by reference from the Company's (SEC File No. 001-11569) Annual Report on Form 10-K for the Year Ended December 31, 1996, Item 14(c), Exhibit 4.08; Eleventh Amendment to Credit Agreement and Waiver dated as of May 13, 1997 among Rio Properties, Inc., Rio Leasing, Inc., Bank of America National Trust & Savings Association, as Agent and as a Bank, and Wells Fargo Bank National Association, First Security Bank, N.A., NBD Bank, Societe Generale, U.S. Bank of Nevada, bank of Scotland, PNC Bank, National Association, successor by merger to Midlantic Bank, N.A., and Bank of Hawaii, as Banks; and Twelfth Amendment to Credit Agreement and Waiver dated as of May 13, 1997 among Rio Properties, Inc., Rio Leasing, Inc., Bank of America National Trust & Savings Association, as Agent as a Bank, and Wells Fargo Bank National Trust & Savings Association, First Security Bank, N.A., NBD Bank, Societe Generale, U.S. Bank of Nevada, Bank of Scotland, PNC Bank, National Association, successor by merger to Midlantic Bank, N.A., and Bank of Hawaii, as Banks, are incorporated herein by reference from the Company's (SEC File No. 001- 11569) Report on Form 10-Q for the Quarter Ended March 31, 1997, Item 6(a), Exhibit 4.01; and Thirteenth Amendment to Credit Agreement dated as of August 8, 1997 among Rio Properties, Inc. and Rio Leasing, Inc., as Borrowers, Bank of America National Trust and Savings Association, as Agent and as a Bank, and Wells Fargo Bank National Association, First Security Bank, N.A., NBA Bank, Societe Generale, U.S. Bank of Nevada, Bank of Scotland, PNC Bank, National Association, Successor By Merger to Midlantic Bank, N.A., and Bank of Hawaii, as Banks, is incorporated herein by reference from the Company's (SEC File No. 001-11569) Report on Form 10-Q for the Quarter Ended June 30, 1997, Item 6(a), Exhibit 4.01.
4.07 Indenture dated as of July 21, 1995, among Rio Hotel & Casino, Inc., Rio Properties, Inc. and IBJ Schroder Bank & Trust Company for the Company's 10 5/8% Senior Subordinated Notes Due 2005 is incorporated herein by reference from the Company's (SEC File No. 0-13760) Report on Form 8-K dated July 18, 1995, Item 7(c), Exhibit 4.3.
4.08 Indenture dated as of February 11, 1997, among Rio Hotel & Casino, Inc., Rio Properties, Inc. and IBJ Schroder Bank & Trust Company for the Company's 9 1/2% Senior Subordinated Notes Due
NUMBER EXHIBIT DESCRIPTION
2007 is incorporated herein by reference from the Company's (SEC File No. 0-13760) Report on Form 8-K dated February 4, 1997, Item 7(c), Exhibit 4.3.
4.09 Form of Letter of Transmittal to IBJ Schroder Bank & Trust Company as Exchange Agent for exchange of 9-1/2% Senior Subordinated Notes Due 2007 is incorporated herein by reference from the Company's (SEC File No. 333- 23895) Registration Statement on Form S-4 filed March 24, 1997, Part II, Item 21(A), Exhibit 4.14.
4.10 Amended and Restated Credit Agreement dated as of February 24, 1998 among Rio Properties, Inc. and Rio Leasing, Inc. and Bank of America National Trust and Savings Association as Agent and the other financial institutions party hereto is incorporated herein by reference from the Company's (SEC File No. 1-11569) Report on Form 8-K dated February 24, 1998, Item 7(c), Exhibit 4.1.
10.01 Interest Rate Swap Agreement dated as of July 28, 1993 between Rio Properties, Inc. and Bank of America National Trust and Savings Association is incorporated herein by reference from the Company's (SEC File No. 0- 13760) Annual Report on Form 10-K for the Year Ended December 31, 1993, Part IV, Item 14(c), Exhibit 10.11.
10.02 Architectural Agreement entered into as of February 9, 1995 between Rio Hotel & Casino, Inc., as Owner, and Anthony A. Marnell, Chartered, as Architect, is incorporated herein by reference from the Company's (SEC File No. 0-13760) Annual Report on Form 10-K for the Year Ended December 31, 1994, Part IV, Item 14(c), Exhibit 10.08.
10.03 Building Contract entered into as of February 27, 1995 between Marnell Corrao Associates, Inc., as General Contractor, and Rio Properties, Inc., as Owner, is incorporated herein by reference from the Company's (SEC File No. 0-13760) Annual Report on Form 10-K for the Year Ended December 31, 1994, Part IV, Item 14(c), Exhibit 10.09.
10.04 Real Estate Purchase and Sale Agreement entered into as of January 25, 1995 between Focus 2000, Inc., as Seller, and Rio Properties, Inc., as Buyer, is incorporated herein by reference from the Company's (SEC File No. 0- 13760) Annual Report on Form 10-K for the Year Ended December 31, 1994, Part IV, Item 14(c), Exhibit 10.10.
10.05 Exchange Agreement entered into as of January 6, 1995 between Allied Building Materials, Cinderlane, Inc., and Rio Hotel & Casino, Inc. is incorporated herein by reference from the Company's (SEC File No. 0-13760) Annual Report on Form 10-K for the Year Ended December 31, 1994, Part IV, Item 14(c), Exhibit 10.11.
10.06 Letter Agreement regarding Rate Cap Transaction dated August 11, 1994 between Bank of America National Trust and Savings Association and Rio Properties, Inc. is incorporated herein by reference from the Company's (SEC File No. 0-13760) Annual Report on Form 10-K for the Year Ended December 31, 1994, Part IV, Item 14(c), Exhibit 10.12.
10.07 Architectural Agreement entered into as of July 27, 1995 by and between Anthony A. Marnell II, Chtd., as Architect, and Rio Hotel & Casino, Inc., as Owner, is incorporated herein by reference from the Company's (SEC File No. 333-869) Registration Statement on Form S-3, filed on
NUMBER EXHIBIT DESCRIPTION
February 12, 1996, Part II, Item 16, Exhibit 10.10.
10.08 Building Contract entered into as of August 14, 1995 by and between Marnell Corrao Associates, Inc., as General Contractor, and Rio Properties, Inc., as Owner, is incorporated herein by reference from the Company's (SEC File No. 333-869) Registration Statement on Form S-3, filed on February 12, 1996, Part II, Item 16, Exhibit 10.11.
10.09 Form of Exchange Agency Agreement between Rio Hotel & Casino, Inc. and IBJ Schroder Bank & Trust Company is incorporated herein by reference from the Company's (SEC File No. 333-23895) Registration Statement on Form S-4 filed March 24, 1997, Part II, Item 21(A), Exhibit 10.12.
10.10 Employment Agreement dated as of November 25, 1996 between Rio Hotel & Casino, Inc. and David P. Hanlon; Employment Agreement dated as of March 7, 1997 between Rio Hotel & Casino, Inc. and Ronald J. Radcliffe; Employment Agreement dated as of March 7, 1997 between Rio Hotel & Casino, Inc. and I. Scott Bogatz are incorporated herein by reference from the Company's (SEC File No. 001-11569) Annual Report on Form 10-K for the Year Ended December 31, 1996, Part IV, Item 14(c), Exhibit 10.12.
10.11 Purchase Agreement dated as of June 1, 1997 among Rio Development Company, Inc. and Seven Hills Golf Limited Partnership is incorporated herein by reference from the Company's (SEC File No. 001-11569) Quarterly Report on Form 10-Q for the Quarter Ended June 30, 1997, Part II, Item 6(a), Exhibit 10.01.
10.12 Architectural Agreements entered into as of March 25, 1998 by and between Anthony A. Marnell II, Chtd., as Architect, and Rio Hotel & Casino, Inc., as Owner.
10.13 Building Contracts entered into as of March 25, 1998 by and between Marnell Corrao Associates, Inc., as General Contractor, and Rio Properties, Inc., as Owner.
21.01 List of subsidiaries of Registrant.
23.01 Consent of Arthur Andersen LLP.
27.01 Financial Data Schedule.
See Accompanying Notes to Consolidated Financial Statements
See Accompanying Notes to Consolidated Financial Statements
See Accompanying Notes to Consolidated Financial Statements
See Accompanying Notes to Consolidated Financial Statements
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
RIO HOTEL & CASINO, INC.
March 30, 1998 By: /s/ Ronald J. Radcliffe Ronald J. Radcliffe, Vice President, Treasurer and Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.