-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Ex3NPJ49lwnRFOFG4iFKlKkLz88cIYj+G4XtRWsPBRdG7x+bCRIMJWVkvxyJ0Cmh ECGwXm32h1qfGhQGNLoshA== 0000906477-96-000013.txt : 19960612 0000906477-96-000013.hdr.sgml : 19960612 ACCESSION NUMBER: 0000906477-96-000013 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19951231 FILED AS OF DATE: 19960325 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: RIO HOTEL & CASINO INC CENTRAL INDEX KEY: 0000734380 STANDARD INDUSTRIAL CLASSIFICATION: 7990 IRS NUMBER: 953671082 STATE OF INCORPORATION: NV FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-11569 FILM NUMBER: 96537767 BUSINESS ADDRESS: STREET 1: 3700 W FLAMINGO RD CITY: LAS VEGAS STATE: NV ZIP: 89103 BUSINESS PHONE: 7022527733 MAIL ADDRESS: STREET 1: 3700 WEST FLAMINGO RD CITY: LAS VEGAS STATE: NV ZIP: 89103 FORMER COMPANY: FORMER CONFORMED NAME: MARCOR RESORTS INC DATE OF NAME CHANGE: 19920305 FORMER COMPANY: FORMER CONFORMED NAME: MARCOR DEVELOPMENT CO INC DATE OF NAME CHANGE: 19890911 FORMER COMPANY: FORMER CONFORMED NAME: F&M IMPORTING INC DATE OF NAME CHANGE: 19861002 10-K 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K (MARK ONE) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED] For the fiscal year ended December 31, 1995 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED] For the transition period from to Commission file number 1-11569 RIO HOTEL & CASINO, INC. (Exact name of registrant as specified in its charter) Nevada 95-3671082 (State or other jurisdiction (I.R.S. Employer of incorporation or organization Identification No.) 3700 West Flamingo Road, Las Vegas, Nevada 89103 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (702) 252-7733 Securities registered pursuant to Section 12(b) of the Act: Name of each Title of each class exchange on which registered Common Stock, $.01 par value New York Stock Exchange Securities registered pursuant to Section 12(g) of the Act: Common Stock, $.01 par value (Title of class) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] The aggregate market value of voting stock held by non- affiliates of the registrant as of February 29, 1996, based on the closing price as reported on the New York Stock Exchange of $13.75 per share, was approximately $222,537,398. Indicate the number of shares outstanding of each of the registrant's classes of common stock, as of February 29, 1996. Common Stock, $.01 par value 21,178,746 DOCUMENTS INCORPORATED BY REFERENCE The information required by Part III of this Report is incorporated by reference from the Rio Hotel & Casino, Inc. Proxy Statement to be filed with the Commission not later than 120 days after the end of the fiscal year covered by this Report. 2 PART I ITEM 1. BUSINESS Rio Hotel & Casino, Inc. (the "Company") owns and operates the country's only all-suite hotel-casino, the Rio Suite Hotel & Casino (the "Rio") in Las Vegas, Nevada. Situated on a 45-acre 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 unique all-suite concept, diverse high quality dining, easy access and ample parking provide an attractive alternative to the Strip and a fun and comfortable environment in which to enjoy gaming, dining and entertainment. Decorated throughout in a fun-filled Brazilian Carnival and rain forest theme, the Rio is currently comprised of an 89,000 square foot casino, three 21-story hotel towers containing 1,551 suites, eight restaurants, seven bars, a 430-seat entertainment complex, meeting and banquet space, a 59,000 square foot outdoor entertainment area featuring a landscaped sand beach and two swimming pools and parking for over 3,200 cars. The Rio's casino offers approximately 2,000 slot machines, 76 table games, a poker room, keno and a race and sports book. The Rio originally opened in 1990 with 424 suites and 44,000 square feet of casino space. Within the past three years the Rio has been expanded to its present configuration in phases in accordance with its original master plan. In the fall of 1993, the Company added a second hotel tower with 437 suites, a new restaurant and meeting rooms through a $37 million expansion (the "Phase II Expansion" or "Tower Expansion"). In April 1994, the Company completed a $25 million expansion (the "Eastside Expansion") which included a 25,000 square foot addition to the casino, a two-story parking garage, a new restaurant and the Copacabana showroom. In March 1995, the Rio completed a $75 million expansion (the "Phase III Expansion") which encompassed a third hotel tower with 549 suites, 10,000 square feet of casino space, a new three-level parking garage and a 50% expansion to its award winning Carnival World Buffet. In December 1995, the Company completed a $20 million expansion (the "Phase IV Expansion") which added 141 suites, approximately 5,400 square feet of meeting room space, doubled the size of the existing Buzios seafood restaurant, added a new health club and salon facility and included a variety of back-of-the-house improvements. Completion of the Phase IV Expansion brought the Rio's total number of hotel suites to 1,551. In June 1995, the Company announced a three-phased expansion and development plan intended to be implemented over the next several years. The three-phased expansion and development plan consists of an approximately $185 million expansion at the Rio (the "Phase V Expansion"), acquisition of approximately 22 acres of land adjacent to the Rio to be master-planned for the development of another hotel-casino and the purchase of approximately 64 acres southeast of Las Vegas (the "Old Vegas Site") for possible future hotel-casino development. Of the 22 acres of land adjacent to the Rio, approximately 5 acres were purchased in 1995 and acquisition agreements have been entered into for the remaining 17 acres. The Company expects to finalize the purchase of all 17 acres during 1996. 3 The Company was incorporated in California in 1981 and reincorporated in Nevada in 1988. The Company changed its name from MarCor Resorts, Inc. to Rio Hotel & Casino, Inc. in February 1992. Its executive offices are located at 3700 West Flamingo Road, Las Vegas, Nevada 89103, and its telephone number is (702) 252-7733. PHASE V EXPANSION The Phase V Expansion, for which construction commenced in September 1995, will center around a 41-story curved tower containing approximately 1,000 new suites located immediately southeast of the existing towers. The Phase V Expansion is planned to include 120,000 square feet of public space containing a casino expansion with capacity for approximately 600 slot machines and 30 table games, new retail and entertainment space, 6 additional restaurants, including one restaurant at the top of the tower overlooking the Strip, as well as an expanded pool and beach area and additional parking facilities. The new suites will be similar in size and decor to the existing suites. As currently contemplated, the public area expansion will be based upon a Brazilian Carnival Mardi Gras theme. The new casino area will provide regular entertainment, as periodically a themed overhead entertainment attraction will provide an interactive show with patrons. The attraction will feature performers dressed in festive attire who will sing and dance. The attraction may change to celebrate different holidays and special events. Management believes the Phase V Expansion will increase the number of tour and travel customers while enhancing the amenities available to local patrons. Given the Rio's high average occupancies and significant room turnaways, management believes that the additional room inventory will be successfully absorbed. Opening of the Phase V Expansion is expected to occur in the spring of 1997. BUSINESS STRATEGY The Company's business strategy focuses on attracting and fostering repeat business from customers in the local resident and tourist markets in the middle to upper-middle income segments. To implement its business strategy, the Company capitalizes on its unique all-suite concept, strategic location, Brazilian Carnival theme, diverse product offering and friendly service. The Company strives to provide a quality, affordable gaming and entertainment experience in order to generate high customer satisfaction and loyalty. The Rio's value-priced suites and restaurants provide an attractive alternative to conventional Las Vegas properties for visitors who desire to avoid the crowds and congestion of the Strip. The Interstate 15 and Flamingo Road location is also ideal for attracting local residents. To encourage repeat visits, the Company attempts to ensure that each customer has an enjoyable, high quality and high value experience. Management believes that it must offer consistent quality, a comfortable and fun atmosphere and, most importantly, friendly service at affordable prices to provide a high value experience to its customers. Accordingly, the Rio's suites offer guests approximately 50% more space than comparably priced Las Vegas hotel rooms. Similarly, the Company's restaurants have won awards year after year for their quality dining. All of the Rio's 4 restaurants offer generous portions of high quality food at reasonable prices which management believes is a major factor in attracting the value-conscious local customer. Management believes that friendly service combined with a quality facility are integral to generating repeat business from locals as well as tourists. As a result, management continually seeks to instill in each employee a sense of service excellence designed to exceed guest expectations. To motivate its employees, management also strives to instill a sense of "Team Rio" in all of the Company's employees. 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 Brazilian Carnival and rain forest theme incorporates bright colors, creative interior designs, festive employee costumes and other exotic touches to contribute to its tropical ambiance. The Rio's message of a fun-filled, colorful atmosphere is constantly emphasized. The Rio has developed the Rio Rita(TM) character as a promotional ambassador to the Rio's hotel-casino guests and as a focal point upon which many promotional activities have been built, such as Rio Rita's(TM) Paycheck Poker Wheel, Carnival Dice(TM), the Jackpot Jungle(TM), Rio Rita's(TM) Lotto Bucks, Carnival Days(TM), Copacabana(TM) Dinner Show, Conga Mania(TM) and Brazilia Days(TM). The Company advertises extensively in the Las Vegas area print, television and radio media, and periodically in Southern California, Phoenix and other regional markets. The success of the Company's business strategy is evidenced by the large number of awards the Rio has received. In March 1995, the Rio won recognition through 10 "Best of Las Vegas" awards in an annual readers' survey published by Nevada's largest daily newspaper. Among others, these distinctions included: "Best Buffet," "Best Italian Restaurant," "Best Coffee Shop," "Best Steakhouse," "Friendliest Employees" and "Most Efficient Service." In addition, the Rio received recognition in the 1995 ZAGAT U.S. HOTELS, RESORTS & SPAS SURVEY for "Best Rooms," "Best Dining," "Best Service" and "Best Overall" in Las Vegas. Since these awards, however, are based upon subjective criteria, undue significance should not be attributed to these awards. Management believes that these awards exemplify the Company's reputation for quality and value. MARKETING STRATEGY The Company's marketing efforts are targeted at both the local patron and the tourist market. To market to local patrons, the Rio relies on its convenient location, its ample parking, its value-priced food and its slot machine variety. Management believes that its restaurants, in particular the Carnival World Buffet, are some of the Rio's greatest 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 1995, the Carnival World Buffet served an average of approximately 7,500 people per day. In addition to its emphasis on food and beverage, the Rio also has an aggressive marketing program which encompasses frequent radio, television and newspaper advertising, a variety of promotions directed at the local customer and other programs such as check cashing promotions. To attract visitors and fill the Rio's hotel rooms, the Company markets primarily to three segments of the tourist market: independent travel, wholesale and special casino customers. The 5 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 regional travel markets. In addition, the Company's sales force frequently attends trade shows in order to establish relationships with and promote the Rio to travel agents nationwide. The wholesale segment comprises those patrons participating in travel packages offered by air tour operators. To capture this segment of the market, the Rio has developed specialized marketing programs for, and cultivated relationships with, these operators. Finally, special casino customers are those frequent gaming customers who are in regular communication with Rio casino marketing personnel. The Rio utilizes a variety of promotions and special events and other amenities in marketing to this segment. RIO LOCATION The Rio is strategically located to take advantage of the dynamic residential and commercial growth of the western portion of metropolitan Las Vegas, while offering proximity and easy access to the "Old Four Corners" (Flamingo Road and the Strip) and the "New Four Corners" (Tropicana Avenue and the Strip) areas of the Las Vegas Strip. THE RIO Since 1992, the Company has consistently expanded the Rio under its master plan. Upon the completion of the Phase V Expansion, the Rio will have approximately 2,550 suites, 2,600 slot machines and 92 table games.
APPROXIMATE TOTALS AFTER AS OF AND FOR THE YEAR ENDED COMPLETION DECEMBER 31, OF 1995 1994 1993 1992 PHASE V Casino square footage 89,000 89,000 79,000 54,000 120,000 Slot machines 2,098 2,200 1,950 1,450 2,600 Table games 73 53 44 31 92 Hotel suites 1,551 861 861 424 2,550 Average daily hotel occupancy 94.5% 95.9% 96.8% 96.5% -- Average daily room rate $72.18 $63.80 $62.60 $64.09 -- Restaurant seats 2,540 2,440 1,843 1,209 3,840
GAMING. The Rio has 89,000 square feet of casino space. The casino currently has approximately 2,000 slot machines; 76 table games, including "21," craps, roulette, pai gow poker, Caribbean stud poker and mini-baccarat; other casino games such as keno and poker; and a race and sports book. Gaming operations at the Rio are continually being monitored and modified to respond to both changing market conditions and customer demand in an effort to attract new customers while retaining its existing customer base. New and innovative slot and table games have been introduced based on 6 customer feedback and demand from both local customers and Las Vegas visitors. Management has introduced such games as Rio Rita's(TM) Royals, Rio Rita's(TM) Bonus Poker, Sneaky Queens(TM), Mambo Bucks(TM) and Rio Rita's(TM) Paycheck Poker Wheel. Management devotes substantial time and attention to the type, location and player activity of all gaming devices. HOTEL. The Rio's 21-story hotel towers contain a total of 1,551 suites, comprised of 1,504 standard Rio suites, 16 "super" suites, 18 "cariocas" suites, 6 two-story penthouse suites, and 7 executive suites that combine a conference room and an adjoining suite. The Company has progressively added new hotel suites since 1993 to meet its consistently strong demand. Despite such expansion, the Rio has maintained average occupancy rates of 95.9% and 94.5% for 1994 and 1995, respectively. During 1994 and 1995, management believes that approximately two potential room night bookings were turned away for each room night booking accepted. The Phase V Expansion will add another approximately 1,000 suites in the spring of 1997. The standard Rio suite measures approximately 600 square feet, compared to approximately 400 square feet for the typical Las Vegas hotel room. The Brazilian Carnival and rain forest theme is carried throughout the guest suites in wall coverings, art work and other designer accents. Suite amenities include carved wood finishes, cut glass, polished granite surfaces, marble tile in the bath areas, room safes and refrigerators. RESTAURANTS. While important to attracting Las Vegas visitor gaming customers, the high quality, value and variety of food services are critical to consistently attracting the local resident gaming customer to the Rio. To provide such variety, seven bars and eight restaurants are located in the Rio's main floor area. The Rio currently serves an average of approximately 13,000 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:
NUMBER TYPE OF SEATS All American Bar Steaks, ribs, chicken and seafood 202 & Grille Antonio's Italian fine-dining 100 Beach Cafe 24-hour full menu coffee shop 318 featuring American and Chinese cuisine Buzios Seafood and oyster bar 160 Carnival World Buffet with live action cooking 1,040 Buffet featuring Brazilian, Chinese, Italian, Mexican, Japanese, Western BBQ and traditional buffet 7 Toscano's Deli & Deli items, pizza and pasta, ice 104 Market cream and gelato, and a large selection of bakery products Copacabana Copacabana Dinner Show and Club Rio 430 Showroom nightclub Fiore Rotisserie Fine-dining featuring rotisserie- 186 & Grille grilled seafood, beef and poultry Total 2,540
ENTERTAINMENT AND OTHER ATTRACTIONS. The Rio's Copacabana Showroom is a unique, circular 430-seat video, entertainment and restaurant complex which features two 12-foot by 90-foot video screens, an exhibition cooking area, multiple tiers of dining room seating and a stage. The Copacabana Showroom features the Copacabana Dinner Show, a musical review designed around the Rio's theme. After the dinner show the Copacabana Showroom is converted into Club Rio, a late-night dance club. 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 gift shop, a Rio logo shop, a spa, a hair and beauty salon, and an exercise room, as well as approximately 13,250 square feet of public meeting and banquet room facilities. The Rio's pool/outdoor entertainment area is approximately 59,000 square feet and includes a landscaped sand beach, an 11- foot waterfall, two swimming pools, a multi-level spa, and a terrace bar and food service facility. The Company hosts beach parties, volleyball games, outdoor concerts with name performers and other special events, including professional sporting events. EXPANSION STRATEGY RIO MASTER PLAN. The Rio's conceptual master plan was originally designed to accommodate multiple expansions without significantly interrupting normal business operations. This design included construction of a reinforced foundation for the hotel tower and a elevator core to support and facilitate additional room construction. The Company has also assembled ample acreage to allow future expansions. Starting from its original 30 acres, the Company acquired additional acreage in 1989 and 1991, bringing the current Rio site to 45 acres, exclusive of the additional 22 acres currently under acquisition as described elsewhere herein. 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. 8
START DATE OPENING Initial Construction 12/88 1/90 Casino (10,000 sq. ft.)/Buffet Expansion 7/92 12/92 Phase II Expansion Buzios Restaurant 1/93 5/93 Meeting Rooms 1/93 8/93 437-Suite Tower 1/93 9/93 Eastside Expansion Two-Story Parking Garage 7/93 10/93 Casino Space (25,000 sq. ft.) 7/93 12/93 Copacabana Showroom 7/93 2/94 Fiore Restaurant 7/93 4/94 Expanded Pool Area 7/93 4/94 Phase III Expansion Three-Story Parking Garage 5/94 8/94 Casino Space (10,000 sq. ft.) 5/94 11/94 Buffet Expansion 5/94 11/94 549-Suite Tower 5/94 2/95 Phase IV Expansion 141-Suite Addition 4/95 12/95 Buzios Expansion 4/95 12/95 Meeting Rooms Expansion 4/95 11/95 Health Club and Salon 4/95 12/95
To date, the Company has invested in excess of $250 million in the development, expansion and renovation of the Rio. The Phase V Expansion will continue the Rio's commitment to continued development and provide new, innovative entertainment attractions. ADDITIONAL GAMING OPPORTUNITIES. The Company has also entered into commitments to acquire approximately 22 acres of land adjacent to the Rio site, bringing the total Rio acreage to approximately 67 acres. The entire Rio site is now being master- planned for the development of another hotel-casino, the size and timing of which has not yet been determined. As the third step in its strategic plan to provide further growth for the Company, in 1995 the Company purchased the approximately 64 acre Old Vegas Site southeast of Las Vegas in Henderson, Nevada. The Old Vegas Site, already zoned for a hotel- casino, is situated where the Boulder Highway enters the Las Vegas valley from Phoenix and Laughlin along U.S. Highway 93-95. The timing and scale of the proposed development has not yet been determined. Moreover, the Company may pursue additional opportunities that management believes to be in the best interests of the Company. 9 COMPETITION The gaming industry includes land-based casinos, dockside casinos, riverboat casinos, casinos located on Native American land and other forms of legalized gaming. There is intense competition among companies in the gaming industry, some of which have significantly greater resources than the Company. The Rio faces competition from all other casinos and hotels in the Las Vegas area, including competitors located on the Las Vegas Strip, on the Boulder Highway and in downtown Las Vegas. Such competition includes a number of hotel-casinos targeted primarily toward local residents, as well as numerous non-hotel gaming facilities targeted toward local residents. In recent months, several of the Company's direct competitors have opened new hotel-casinos or have commenced or completed major expansion projects, and other expansions are in progress or are planned. As of December 31, 1995, there were 37 major gaming properties located on or near the Las Vegas Strip, 14 located in the downtown area, 4 located on the Boulder Highway and 11 located in other areas in or near Las Vegas. According to the Las Vegas Convention and Visitors Authority, the Las Vegas hotel-motel room inventory was 90,046 as of December 31, 1995. Seven new hotel- casinos and 7 hotel-casino expansions are under construction or have been announced, which will add approximately 19,000 rooms to the Las Vegas area over approximately the next two years. Four of the new hotel-casinos are major resorts with a theme and an attraction which are expected to draw significant numbers of visitors. 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 Mesquite, Laughlin and Reno-Lake Tahoe areas of Nevada and in Atlantic City, New Jersey. The Company also competes with state-sponsored lotteries, on- and off-track wagering, card parlors, riverboat and Native American gaming ventures and other forms of legalized gaming in the United States, as well as with gaming on cruise ships and international gaming operations. In addition, many states have legalized, and additional other states are currently considering legalizing, casino gaming 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. According to the Attorney General of California, as of January 1996, there were approximately 9,000 slot machines illegally located in approximately 30 casinos on Native American land throughout California, including four casinos in the Palm Springs area. In November 1995, a proposed initiative for the approval of gaming on Native American land in California was submitted to the California Attorney General's office but is facing opposition from certain government, law enforcement and religious leaders. 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 unique all-suite concept based upon a Brazilian Carnival and rain forest theme, diverse high quality dining, friendly service and ample parking, which management believes provide an attractive alternative 10 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, "Nevada Act"); and (ii) various local regulations. The Company's gaming operations are subject to the licensing and regulatory control of the Nevada Commission, the Nevada State Gaming Control Board (the "Nevada Board"), and the Clark County Liquor and Gaming Licensing Board (the "Clark County Board"). The Nevada Commission, the Nevada Board, and the Clark County Board are collectively referred to as the "Nevada Gaming Authorities." The laws, regulations and supervisory procedures of the Nevada Gaming Authorities are based upon declarations of public policy which are concerned with, among other things: (i) the prevention of unsavory or unsuitable persons from having a direct or indirect involvement with gaming at any time or in any capacity; (ii) the establishment and maintenance of responsible accounting practices and procedures; (iii) the maintenance of effective controls over the financial practices of licensees, including the establishment of minimum procedures for internal fiscal affairs and the safeguarding of assets and revenues, providing reliable record keeping and requiring the filing of periodic reports with the Nevada Gaming Authorities; (iv) the prevention of cheating and fraudulent practices; and (v) providing a source of state and local revenues through taxation and licensing fees. Changes in such laws, regulations and procedures could have an adverse effect on the Company's gaming operations. The Company, which operates the casino, is required to be licensed by the Nevada Gaming Authorities. The gaming license requires the periodic payment of fees and taxes and is not transferable. The Company is registered by the Nevada Commission as a publicly traded corporation ("Registered Corporation") and as such, it is required periodically to submit detailed financial and operating reports to the Nevada Commission and furnish any other information which the Nevada Commission may require. The Company has obtained from the Nevada Gaming Authorities the various registrations, approvals, permits and licenses required in order to engage in gaming activities in Nevada. The Nevada Gaming Authorities may investigate any individual who has a material relationship to, or material involvement with, the Company in order to determine whether such individual is suitable or should be licensed as a business associate of a gaming licensee. Officers, directors and certain key employees of the Company must file applications with the Nevada Gaming Authorities and may be required to be licensed or found suitable by the Nevada Gaming Authorities. Officers, directors and key employees of the Company who are actively and directly involved in gaming activities of the Company may be required to be licensed or found suitable by the Nevada Gaming Authorities. The Nevada Gaming Authorities may deny an application for licensing for any cause which they deem reasonable. A finding of suitability is comparable to licensing, and both require submission of detailed personal and financial information followed by a thorough investigation. The applicant for licensing or a finding of suitability must pay all the costs of the investigation. Changes in licensed positions must be reported to the Nevada Gaming Authorities and in addition to their authority to deny an application for a finding of suitability or licensure, the Nevada Gaming Authorities have jurisdiction to disapprove a change in a corporate position. 11 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 12 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 27, 1995, the Nevada Commission granted the Company prior approval to make public offerings for a period of one year, subject to certain conditions ("Shelf Approval"). However, the Shelf Approval may be rescinded for good cause without prior notice upon the issuance of an interlocutory stop order by the Chairman of the Nevada Board. Such approval does not constitute a finding, recommendation or approval by the Nevada Commission or the Nevada Board as to the 13 accuracy or adequacy of the prospectus or the investment merits of the securities. Any representation to the contrary is unlawful. Changes in control of the Company through merger, consolidation, stock or asset acquisitions, management or consulting agreements, or any act or conduct by a person whereby such person obtains control, may not occur without the prior approval of the Nevada Commission. Entities seeking to acquire control of a Registered Corporation must satisfy the Nevada Board and Nevada Commission in a variety of stringent standards prior to assuming control of such Registered Corporation. The Nevada Commission may also require controlling stockholders, officers, directors and other persons having a material relationship or involvement with the entity proposing to acquire control, to be investigated and licensed as part of the approval process relating to the transaction. The Nevada legislature has declared that some corporate acquisitions opposed by management, repurchases of voting securities and corporate defense tactics affecting Nevada gaming licensees, and Registered Corporations that are affiliated with those operations, may be injurious to stable and productive corporate gaming. The Nevada Commission has established a regulatory scheme to ameliorate the potentially adverse effects of these business practices upon Nevada's gaming industry and to further Nevada's policy to: (i) assure the financial stability of corporate gaming operators and their affiliates; (ii) preserve the beneficial aspects of conducting business in the corporate form; and (iii) promote a neutral environment for the orderly governance of corporate affairs. Approvals are, in certain circumstances, required from the Nevada Commission before the Company can make exceptional repurchases of voting securities above the current market price thereof and before a corporate acquisition opposed by management can be consummated. The Nevada Act also requires prior approval of a plan of recapitalization proposed by the Company's Board of Directors in response to a tender offer made directly to the Registered Corporation's stockholders for the purposes of acquiring control of the Registered Corporation. Licensee fees and taxes, computed in various ways depending on the type of gaming or activity involved, are payable to the State of Nevada and to the counties and cities in which the Nevada licensee's respective operations are conducted. Depending upon the particular fee or tax involved, these fees and taxes are payable either monthly, quarterly or annually and are based upon either (i) a percentage of the gross revenues received, (ii) the number of gaming devices operated or (iii) the number of table games operated. A casino entertainment tax is also paid by casino operations where entertainment is furnished in connection with the selling of food or refreshments. Nevada licensees that hold a license as an operator of a slot route, or a manufacturer's or distributor's license, also pay certain fees and taxes to the State of Nevada. Any person who is licensed, required to be licensed, registered, required to be registered, or is under common control with such persons (collectively, "Licensees"), and who proposes to become involved in a gaming venture outside of Nevada is required to deposit with the Nevada Board, and thereafter maintain, a revolving fund in the amount of $10,000 to pay the expenses of investigation of the Nevada Board of their participation in such foreign gaming. The revolving fund is subject to increase or decrease at the discretion of the Nevada Commission. Thereafter, Licensees are required to comply with certain reporting requirements imposed by the Nevada Act. Licensees are also subject to disciplinary action by the Nevada Commission if they knowingly violate any laws of the foreign jurisdiction pertaining to the foreign gaming operation, fail to conduct the foreign gaming operation in 14 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, 1995, the Company employed approximately 3,074 employees. None of the Company's employees is covered by collective bargaining agreements. The Company believes that its relationship with its employees is good. ITEM 2. PROPERTIES The Company owns the 45-acre site in Las Vegas on which the Rio is located. The Rio site is subject to a deed of trust securing the Company's $175 million revolving credit facility (the "Rio Bank Loan"), of which $125 million and $10 million were outstanding at December 31, 1994 and 1995, respectively. The Company is in the process of accumulating 22 acres of land adjacent to the current Rio site. In 1995 the Company purchased approximately five of such acres of improved land (the "Warehouse Site"). The purchase of the remaining approximately 17 additional acres of land is currently in escrow, which upon closing will bring the total Rio acreage to approximately 67 acres. The entire Rio site, including the Warehouse Site and the additional property the Company is acquiring, is now being master- planned for the development of another hotel-casino, the size and timing of which has not yet been determined. In 1995 the Company purchased the approximately 64 acre Old Vegas Site on Boulder Highway southeast of Las Vegas. The Company is presently considering various development options for the property. ITEM 3. LEGAL PROCEEDINGS William H. Ahern v. Caesars World, Inc., et al., Case No. 94- 532-Civ-Orl-22, instituted on May 10, 1994 (the "Ahern Complaint") and William Poulos v. Caesars World, Inc., et al., Case No. 94-478-Civ-Orl-22, instituted on April 26, 1994 (the "Poulos Complaint") (collectively, the Ahern Complaint and the Poulos Complaint are referred to as the "Complaints"). Two individuals, each purportedly representing a class, filed the Complaints in the United States District Court, Middle District of Florida, against 41 manufacturers, distributors and casino operators of video poker and electronic slot machines, including the Company. The Complaints allege that the defendants have engaged in a course of conduct intended to induce persons to play such games based on a false belief concerning how the gaming machines operate, as well as the extent to which there is an opportunity to win on a given play. The Complaints allege violations of the Racketeer Influenced and Corrupt Organizations Act (the "RICO Act"), as well as claims of common law fraud, unjust enrichment and negligent misrepresentation, and seek damages in excess of $1 billion without any substantiation of that amount. The Complaints were consolidated and transferred to the United States District Court for the District of Nevada. Management believes that the Complaints are without merit and intends vigorously to defend the allegations. 15 Larry Schreier v. Caesars World, Inc., et al., Case No. 95- 923-LDG (RJJ), instituted on September 26, 1995, in the United States District Court for the District of Nevada, Southern District. An individual, purportedly representing a class, filed a complaint against four manufacturers, three distributors and 38 casino operators, including the Company, that manufacture, distribute or offer for play video poker and electronic slot machines. The individual allegedly intends to seek class certification of the interests he claims to represent. The complaint alleges that the defendants have engaged in a course of conduct intended to induce persons to play such games based on a false belief concerning how the gaming machines operate, as well as the extent to which there is an opportunity to win on a given play. The complaint alleges violations of the RICO Act, as well as claims of common law fraud, unjust enrichment and negligent misrepresentation, and seeks damages in excess of $1 billion. The complaint is similar to the Poulos Complaint and the Ahern Complaint. The Company filed a motion to dismiss the complaint. The court has not yet ruled on the motion. Plaintiff's attempts to consolidate this action with the Ahern Complaint and Poulos Complaint were not successful. Management believes that the complaint is without merit and intends vigorously to defend the allegations. Hyland, et al. v. Griffin Investigations, et al., Case No. 95-CV-2236 (JEI) instituted on May 5, 1995 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. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Not applicable. 16 PART II 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.
High Low 1994 First Quarter $18 1/8 $14 1/4 Second Quarter 16 1/2 12 5/8 Third Quarter 14 3/8 12 3/8 Fourth Quarter 14 1/8 11 11/16 1995 First Quarter 14 11 1/4 Second Quarter 16 5/8 13 1/4 Third Quarter 14 3/4 12 1/2 Fourth Quarter 13 5/8 11 5/8 1996 First Quarter (through 14 3/8 11 7/8 February 29, 1996)
The last reported sale price of the Common Stock on the NYSE on February 29, 1996 was $13.75 per share. There were approximately 1,607 holders of record of the Company's Common Stock as of February 29, 1996. (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 Rio Bank Loan (as defined below), the Company's wholly owned subsidiary, Rio Properties, Inc. ("Rio Properties") cannot pay dividends to the Company without the consent of the lenders. Under the terms of the Indenture (as defined below), governing the Subordinated Notes (as defined below), the payout of dividends and other distributions is subject to specified restrictions. 17
Item 6. Selected Financial Data (1) Year Ended December 31, 1995 1994 1993 Revenues from Continuing Operations $192,537,954 $146,299,304 $109,981,585 Income from Continuing Operations $ 18,745,479 $ 15,966,409 $ 11,679,991 Loss from Discontinued Operations - - - - - - - - - Minority Interest in Earnings - - - - - - $ - - - Extraordinary Items - - - $ - - - $ (253,711) Cumulative Effect of Accounting Change - - - $ - - - (776,888) Net Income $ 18,745,479 $ 15,966,409 $ 10,649,392 Primary Earnings Per Common Share: Income from Continuing Operations $ 0.87 $ 0.74 $ 0.60 Loss from Discontinued Operations - - - - - - - - - Extraordinary Items - - - $ - - - $ (0.01) Cumulative Effect of Accounting Change - - - $ - - - (0.04) Net Income $ 0.87 $ 0.74 $ 0.55 Total Assets $308,791,594 $301,165,272 $218,050,376 Long-Term Debt, net of current $110,176,765 $110,146,869 $ 56,875,753 Total Stockholders' Equity $162,887,900 $147,839,167 $129,838,481 Cash Dividends Declared Per Common Share - - - - - - - - -
Year ended December 31, 1992 1991 Revenues from Continuing Operations $ 82,475,164 $ 65,784,480 Income from Continuing Operations $ 5,756,628 $ 381,181 Loss from Discontinued Operations $ - - - $ (395,102) Minority Interest in Earnings $ (242,240) $ (33,164) Extraordinary Items $ 793,511 166,168 Cumulative Effect of Accounting Change - - - - - - Net Income $ 6,307,899 $ 119,083 Primary Earnings Per Common Share: Income from Continuing Operations $ 0.37 $ 0.03 Loss from Discontinued Operations $ - - - $ (0.03) Extraordinary Items $ 0.05 0.01 Cumulative Effect of Accounting Change - - - - - - Net Income $ 0.42 $ 0.01 Total Assets $149,518,427 $112,267,283 Long-Term Debt, net of current $ 50,906,000 $ 53,494,595 Total Stockholders' Equity $ 86,872,151 $ 47,731,447 Cash Dividends Declared Per Common Share - - - - - - (1) The Company divested its real estate operations in December 1991 and results from these operations are stated and shown above as discontinued operations.
18
RIO HOTEL & CASINO, INC. AND SUBSIDIARIES SELECTED QUARTERLY FINANCIAL INFORMATION (UNAUDITED) First Second Third (In thousands except per share data) Quarter Quarter Quarter 1995 (a) Revenues $ 43,828 $ 47,956 $ 49,765 Operating profit 8,387 9,351 10,182 Net income 4,512 4,914 4,884 Net income per common share (b) $ 0.21 $ 0.23 $ 0.23 1994 (a) Revenues $ 34,049 $ 36,168 $ 37,371 Operating profit 6,622 6,923 6,746 Net income 3,979 4,780 4,022 Net income per common share (b) $ 0.17 $ 0.22 $ 0.19
Fourth (In thousands except per share data) Quarter Total 1995 (a) Revenues $ 50,989 $ 192,538 Operating profit 9,218 37,138 Net income 4,435 18,745 Net income per common share (b) $ 0.21 $ 0.87 1994 (a) Revenues $ 38,711 $ 146,299 Operating profit 5,512 25,803 Net income 3,185 15,966 Net income per common share (b) $ 0.15 $ 0.74 (a)There were no dividends paid in 1995 or 1994 (b)Net income per share calculations for each quarter are based on the weighted average number of common stock and common stock equivalents outstanding during the respective quarters. Accordingly, the sum of the quarters does not equal the full year income per share for 1995 or 1994.
19 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW The Rio's revenues and profits are derived largely from its gaming activities, although the Company also seeks to maximize revenues from food and beverage, lodging, entertainment and retail sales. The Rio generally views its non-casino related operations as complementary to its core casino operations. The Rio utilizes entertainment primarily as a casino marketing tool. The Rio expects to maintain a food and beverage pricing structure designed to maximize casino customer foot traffic. The Company's sole business is the operation of the Rio, which opened in January 1990. The Rio was originally owned and operated by a limited partnership (the "Rio Partnership") formed by the Company in 1988. Through a series of transactions involving an exchange of preferred stock for partnership interests and later a merger of Rio Partnership into Rio Properties, the Company increased its ownership of the Rio from 34.4% in 1988 to 100% in 1992. Prior to 1990, the Company's operations consisted of real estate development and management. In December 1991, the Company sold all real estate assets and operations not used or held for the operation or expansion of the Rio. In 1995, as part of the Company's three-phased expansion and development plan, the Company entered into agreements for the purchase of approximately 22 acres adjacent to the Rio and approximately 64 acres southeast of Las Vegas, both of which may be developed into future hotel-casino projects. The Rio was designed to permit multiple expansions in accordance with a conceptual master plan and has received necessary governmental approvals for the Phase V Expansion. An $8 million buffet-casino expansion was completed in December 1992; the $37 million Tower Expansion was completed in September 1993; and the $25 million Eastside Expansion was completed in April 1994. In May 1994, the Company commenced its Phase III Expansion, an expansion which contained a total of 549 additional suites (365 new suites were placed into service in February 1995 and the remaining suites were placed into service in March 1995), approximately 10,000 square feet of new casino area that accommodated approximately 300 additional slot machines (opened November 1994), an expansion of the Carnival World Buffet by approximately 50% (opened November 1994), a 527-space, three- level parking garage (opened August 1994), and associated back-of- the-house enhancements. The Phase III Expansion was completed in phases from August 1994 through March 1995. In April 1995, the Company commenced its $20 million Phase IV Expansion. The project added 141 suites to the existing 1,410 suites, added approximately 5,400 square feet of meeting room space, increased the size of the existing Buzios seafood restaurant to approximately 160 seats, added a new health club and salon facility and included a variety of back-of-the-house improvements. Completion of the Phase IV Expansion occurred in stages through the end of 1995. See "Item l. Business-Expansion Strategy". 20 YEARS ENDED DECEMBER 31, 1995 AND 1994 Operating profit for the Company increased to $37.1 million for 1995 from $25.8 million for 1994, an increase of $11.3 million or 44%. Management believes that the improvement in operating results was due to the additional 365 new hotel suites placed into service in February 1995, the additional 184 new hotel suites placed into service in March 1995, the additional 141 new hotel suites placed into service in December 1995, an average monthly increase from 1994 levels of approximately 174 slot machines and 19 table games, additional restaurant capacity and improved operating efficiencies in the hotel department. Net revenues for the Company increased to $192.5 million for 1995 from $146.3 for 1994, an increase of $46.2 million or 32%. Casino revenues increased to $105.5 million for 1995 from $87.2 million for 1994, an increase of $18.3 million or 21%. The increase in casino revenues was due primarily to an increase in slot machine revenues of $8.5 million or 16% to $63.0 million for 1995 from $54.5 million for 1994 and an increase in table games revenues of $10.3 million or 40% to $36.1 million for 1995 from $25.8 million for 1994, resulting from the additional slot machines and table games discussed above, as well as an increase in the per unit win of both slots and table games. Room revenues increased by $14.5 million or 76% to $33.8 million for 1995 from $19.3 million for 1994. The increase in room revenue resulted primarily from the addition of 365 new hotel suites placed into service in February 1995, 184 new hotel suites placed into service in March 1995, and 141 new hotel suites placed into service in December 1995. The additional 690 suites placed into service in 1995 increased the Rio's total to 1,551 suites compared to 861 suites for 1994. Demand for the Rio's suites remained high during 1995 with a 94% average daily occupancy compared to a 96% average daily occupancy during 1994. The average number of suites available during 1995 was 1,354 compared to 861 during 1994. The average daily room rate during 1995 was $72.18 compared to $63.80 during 1994. Food and beverage revenues increased to $60.0 million for 1995 from $47.6 million for 1994, an increase of $12.4 million or 26%. The successful opening in February 1994 of the Copacabana Showroom, a 430-seat video, entertainment and restaurant complex; the successful opening in April 1994 of Fiore, a 186-seat fine dining restaurant; the successful opening in June 1994 of Club Rio, a late-night dance club; the successful completion in November 1994 of a 50% expansion of the Carnival World Buffet to 980 seats; and increased beverage sales as a result of increased gaming customers all contributed to the increase in food and beverage revenues. Other revenues for 1995 were $12.0 million, which included entertainment admission revenues of $4.1 million, retail sales of $4.1 million and miscellaneous other operating revenues, primarily telephone revenues, of $3.8 million. This represented an increase in other revenues of $4.9 million, or 68%, compared to the $7.1 million in other revenues generated during 1994. The increase in other revenues resulted primarily from increased entertainment admission revenues, retail sales and telephone revenues resulting from increased business levels. 21 The Company's operating margins were relatively consistent during 1995 compared to 1994. Operating profit as a percentage of net revenues was 19% during 1995 compared to 18% during 1994. Casino operating profit was relatively constant at 55% during 1995 compared to 56% during 1994. Food and beverage operating profit remained relatively constant at 20% during 1995 compared to 19% during 1994. Hotel operating profit increased to 69% during 1995 compared to 66% during 1994 due to efficiencies resulting from increased customer volume, effective cost controls and a higher average room rate during 1995 compared to 1994. Selling, general and administrative expenses were 14% of net revenues in both 1995 and 1994. During 1995, promotional allowances were $18.8 million, or 9% of gross revenues, which represented the retail value of rooms, food, beverage and other services provided to customers without charge. The estimated cost of providing such promotional allowances was $11.1 million. This compares to 1994 when promotional allowances were $14.9 million, or 9% of gross revenues, and the estimated cost of providing such promotional allowances was $9.1 million. Depreciation and amortization increased by $3.3 million or 31% to $14.2 million for 1995 compared to $10.9 million for 1994. This increase is attributable to depreciation expense from various completed expansion projects such as the Company's Eastside Expansion and the Phase III Expansion. Other expenses of the Company increased primarily because of higher interest expense. Borrowing levels increased in 1995 compared to 1994 due to funding costs of the various expansion projects. Also, in July 1995, in anticipation of the funding requirements for the Phase V Expansion, the Company issued $100 million in 10 5/8% Senior Subordinated Notes. (See "Item 7. Liquidity and Capital Resources"). The fixed coupon rate of 10 5/8% was higher than the floating rate that the Company was paying under the Rio Bank Loan. Consequently, the issuance of these notes resulted in an increase in interest expense. Interest expense for 1995 was reduced by $949,423 because of interest capitalized on amounts expended on the Phase III Expansion, the Phase IV Expansion and the Phase V Expansion. Interest expense for 1994 was reduced by $619,887 because of interest capitalized on amounts expended on the Eastside Expansion and the Phase III Expansion. Other income for 1994 was a one-time gain of $1.1 million related to the resale of two real estate parcels previously owned by the Company. A one-time gain of $966,510 related to the sale of real estate which was sold by the Company to a related party in December 1991. In April 1994, the real estate was resold to a non-related party. Pursuant to the terms of the sales agreement between the Company and the related party, the Company was entitled to a portion of the resale proceeds, which equaled $966,510, net of expenses. Another one-time gain of $173,500 related to the sale of a second piece of real property owned by the Company until May 1991, when it was sold to a non-related party. Pursuant to the terms of the sales agreement, the Company was entitled to a portion of the resale proceeds or refinancing amount, which equaled $173,500, net of expenses. Net income for 1995 increased 17% to $18.7 million or $0.87 per share (fully diluted) from $16.0 million or $0.74 per share (fully diluted) for 1994 as a result of the factors discussed above. 22 YEARS ENDED DECEMBER 31, 1994 AND 1993 Operating profit for the Company increased to $25.8 million for 1994 from $20.2 million for 1993, an increase of $5.6 million or 27.5%. Management believes that the improvement in operating results was due to increased business levels in 1994 as a result of having an additional 437 hotel suites for nine months of the year, an addition of approximately 800 slot machines (approximately 500 slot machines were added in December 1993 and approximately 300 slot machines were added in November 1994), an addition of approximately 13 table games and additional restaurant capacity compared to 1993. Net revenues for the Company increased to $146.3 million for 1994 from $110.0 million for 1993, an increase of $36.3 million or 33%. Casino revenues increased to $87.2 million for 1994 from $71.3 million for 1993, an increase of $15.9 million or 22%. The increase in casino revenues was due primarily to an increase in slot machine revenues of $9.3 million or 20% to $54.5 million for 1994, from $45.2 million for 1993, and an increase in table games revenues of $6.0 million or 30% to $25.8 million for 1994, from $19.8 million for 1993, resulting from the additional slot machines and table games discussed above. Room revenues increased to $19.3 million for 1994 from $12.3 million for 1993, an increase of $6.9 million or 56%. The increase in room revenues resulted primarily from the addition of 437 suites during the fourth quarter of 1993 (375 new suites were placed in service in September 1993 and 62 suites were placed in service in October 1993), bringing the Company's total to 861 suites available during 1994. Demand for the Rio's suites remained high during 1994, at a 96% average daily occupancy compared to a 97% average daily occupancy during 1993. The average daily room rate during 1994 was $63.80 compared to $62.60 during 1993. Food and beverage revenues increased to $47.6 million for 1994 from $32.6 million for 1993, an increase of $15.1 million or 46%. The increase was principally due to the successful opening in February 1994 of a new 430-seat video, entertainment and restaurant complex, the successful opening in April 1994 of a new 186-seat fine dining restaurant, the successful completion in November 1994 of a 50% expansion of the Carnival World Buffet to 980 seats, an increase in the number of patrons served in other Rio restaurants and an increase in the average food check. Other revenues for the year ended December 31, 1994 were $7.1 million, which included entertainment admission revenues of $1.9 million, retail sales of $2.6 million and miscellaneous other operating revenues, primarily telephone revenues of $2.6 million. This represented an increase in other revenues of $2.9 million, or 69%, compared to the $4.2 million in other revenues generated during the twelve months ended December 31, 1993. The increase of $2.9 million was attributable to increases of approximately $0.9 million in each of admission revenues, retail sales, and miscellaneous other revenues. The Company's operating margins were relatively consistent during 1994 compared to 1993. Operating profit as a percentage of net revenues was 18% in both 1994 and 1993. Casino operating profit was 56% in both 1994 and 1993. Food and beverage operating profit improved to 23 19% during 1994 compared to 15% during 1993 as a result of an increase in volume, price increases and effective cost control measures. Hotel operating profit improved to 66% during 1994 compared to 64% during 1993 as a result of a higher average room rate and effective cost control measures. Selling, general and administrative expenses were 14% of net revenues during 1994, of which $421,367 were expenses related to gaming development. This compares favorably to 1993 when selling, general and administrative expenses were 15% of net revenues, which did not include any material expenditures related to gaming development. During 1994, promotional allowances were $14.9 million, or 9% of gross revenues, which represented the retail value of rooms, food, beverage and other services provided to customers without charge. The estimated cost of providing such promotional allowances was $9.1 million. This compares to 1993 when promotional allowances were $10.4 million, or 9% of gross revenues, and the estimated cost of providing such promotional allowances was $6.9 million. Depreciation and amortization increased to $10.9 million for 1994 from $7.5 million for 1993, an increase of $3.3 million or 44%. This increase is attributable to a full year of depreciation on the Phase II Expansion which was completed in September 1993, depreciation on the Eastside Expansion which was completed in phases by April 1994 and depreciation on the Phase III Expansion projects completed during 1994. Other income for 1994 was a one-time gain of $1.1 million related to the resale of certain real estate previously owned by the Company. A one-time gain of $966,510 related to the sale of real estate which was sold by the Company to a related party in December 1991. In April 1994, the real estate was resold to a non-related party. Pursuant to the terms of the sales agreement between the Company and the related party, the Company was entitled to a portion of the resale proceeds, which equaled $966,510, net of expenses. A one-time gain of $173,500 related to the sale of real estate owned by the Company until May 1991, when it was sold to a non-related party. Pursuant to the terms of the sales agreement, the Company was entitled to a portion of the resale proceeds or refinancing amount, which equaled $173,500, net of expenses. Income before extraordinary items and cumulative effect of a change in accounting principle increased 37% to $16.0 million or $0.74 per share (fully diluted) for 1994, from $11.7 million or $0.60 per share (fully diluted) for 1993. The results for 1993 were impacted by the cumulative effect of a change in accounting principle resulting from the adoption of Financial Accounting Standards Board Statement No. 109, "Accounting for Income Taxes" ("SFAS 109"). Adoption of SFAS 109 resulted in a one-time, non- cash charge in the amount of $776,888 or ($0.04) per share (fully diluted). The results for 1993 were also adversely affected by the extraordinary loss on early extinguishment of debt, net of income tax benefit, of $253,711 or ($0.01) per share (fully diluted). Net income for 1994 increased 50% to $16.0 million or $0.74 per share (fully diluted) from $10.6 million or $0.55 per share (fully diluted) for 1993 as a result of the factors discussed above. 24 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 At December 31, 1995, the Company had working capital of $5.8 million compared with $50.2 million at December 31, 1994. Cash and cash equivalents were $20.0 million at December 31, 1995 compared with $76.4 million at December 31, 1994. At December 31, 1995, the Company had $165.0 million available under its bank facility while the bank facility was fully utilized at December 31, 1994. The decrease in both working capital and cash is primarily due to the use of cash and cash equivalents during 1995 to repay principal under the Rio Bank Loan and the decision of the Company not to draw down the full amount of the available Rio Bank Loan at the end of 1995, as well as the use of cash and cash equivalents to make capital expenditures for the Company's $75 million Phase III Expansion, the $20 million Phase IV Expansion, the $185 million Phase V Expansion, the purchase of land adjacent to the Rio and the purchase of the approximately 64 acre Old Vegas Site, both of which may be developed into future hotel casino projects. During 1995, cash provided by operating activities was $42.4 million. Investing activities used $76.1 million of the Company's cash during 1995. Approximately $27.2 million of such expenditures was related to the Phase III Expansion, approximately $18.1 million was related to the Phase IV Expansion and approximately $7.9 million was related to the Phase V Expansion. During the first quarter of 1995, the Company acquired an approximately 5-acre site adjacent to the Rio site, on which a former commercial warehouse is located, at a purchase price of $3.2 million (net of credit for profit participation from the seller to which the Company was entitled and net of rental proceeds during the term of the escrow). During the second quarter of 1995, the Company acquired the Old Vegas Site at a purchase price of $5.7 million (net of credit for profit participation from the seller to which the Company was entitled). The Old Vegas Site and additional land acquisitions are part of the Company's recently announced three phase expansion and development plan. During 1995, the Company spent approximately $11.7 million toward the acquisition of certain real property adjacent to the Rio. The balance of cash used in investing activities was expended on other capital projects. During the fourth quarter of 1994, the Board of Directors authorized the Company to make discretionary repurchases of up to 2 million shares of its Common Stock from time to time in the open market or otherwise. During 1995, the Company repurchased 430,500 shares of Common Stock at a total cost of $5.4 million. The repurchased shares of Common Stock were retired. 25 Under the Rio Bank Loan, the Company is subject to annual capital expenditure limits of $7.5 million plus the amount available of unused capital expenditures from the prior fiscal year, but not to exceed $12.5 million annually in any event. However, the Company received a written waiver to allow the Company to construct the Phase III Expansion, the Phase IV Expansion and the Phase V Expansion. Because of the annual restrictions on capital expenditures by the Company contained in the Rio Bank Loan, any other significant new capital improvements to the Rio will also require the consent of the lenders. As of January 1, 1996 the Company's capital commitments include approximately $2.0 million for the remainder of the Phase III Expansion, $1.9 million for the Phase IV Expansion, $177.1 million for the Phase V Expansion and $8.6 million under commitments for the purchase of real estate. Based upon cash on hand, cash available through borrowings under the Rio Bank Loan and cash from operations, the Company believes that it has adequate cash available to fund the remaining cost of the Phase III Expansion, the Phase IV Expansion, the Phase V Expansion and the real estate purchase commitments. In July 1993, the Company obtained a secured reducing revolving credit facility ("the Rio Bank Loan") in the original principal amount of $65 million with a syndicate of banks consisting of Bank of America National Trust Savings and Association ("B of A"), Bank of America Nevada, Societe Generale, NBD Bank, N.A., First Security Bank of Idaho, N.A., First Interstate Bank of Nevada, N.A. and U. S. Bank of Nevada. As a result of certain amendments, in December 1994, the Rio Bank Loan was increased to $125 million and in September 1995, the Rio Bank Loan was increased to $175 million. As amended, the Rio Bank Loan is a secured reducing revolving credit facility to be used (a) to refinance the pre-amendment Rio Bank Loan, (b) to finance the Phase V Expansion, (c) to finance acquisition of land adjacent to the Rio for up to $30 million, (d) for Common Stock repurchases up to $10 million, and (e) for general corporate purposes. As amended, the Rio Bank Loan matures on June 30, 2001 and bears interest based upon a "LIBOR Spread" of from 1% to 3%, or a "Base Rate Spread" of from 0% to 2% based upon a schedule determined with reference to the "Funded Debt to EBITDA Ratio" of Rio Properties. The "LIBOR Spread" is the amount in excess of the applicable LIBOR rate which is the London interbank offer rate established in the London interbank market. The "Base Rate Spread" is the amount in excess of the applicable base rate, which is the rate per annum equal to the higher of the reference rate as it is publicly announced from time to time by Bank of America in San Francisco or 0.50% per annum above the latest Federal Funds rate. The Rio Bank Loan also provides for an unused facility fee ranging from 31.25 basis points (one one- hundredth of one percent) to 50.0 basis points depending upon the same Funded Debt to EBITDA ratio schedule utilized for the interest rate. The Rio Bank Loan requires monthly payments of interest and requires scheduled reductions of the maximum amount available under the Rio Bank Loan commencing with a $10 million reduction at December 31, 1997, a $7.5 million reduction at the end of each quarter during 1998 and 1999, a $10.0 million reduction at the end of each quarter during 2000, a $32.5 million reduction at March 31, 2001 and maturity at June 30, 2001. 26 To reduce the risks from interest rate fluctuations, the Company has previously 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 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 provides for quarterly payments to the Company in the event that three-month LIBOR exceeds 7% on any quarterly reset date. The Company is exposed to credit risks in the event of non-performance by the counterparty. However, the Company does not anticipate non-performance by the counterparty. The counterparty under these agreements is B of A, the lead bank in the syndicate participating in the Rio Bank Loan. Management believes that the financial resources of B of A and its competitive position within the national banking industry significantly reduce the chances of non-performance under the interest rate swap and cap agreements. The Rio Bank Loan is secured by a first deed of trust on the Rio, a security interest in substantially all of Rio Properties other real and personal property, and a guaranty by Rio Hotel & Casino, Inc., including a pledge of the Company's stock in Rio Properties. The Rio Bank Loan provides that Rio Hotel & Casino, Inc. will be permitted to accumulate and hold up to $5 million in assets which are not to be pledged for the benefit of the Rio Bank Loan lenders. The Rio Bank Loan contains certain customary financial covenants to which the Company is subject. Those covenants include a requirement that Rio Properties maintain a maximum ratio of Total Debt (as defined in the Rio Bank Loan) to EBITDA (as defined in the Rio Bank Loan) ranging from 3.0 to 1 at December 31, 1995, increasing to 4.25 to 1 for the six month period ending March 31, 1997 and decreasing to 3.0 to 1 at December 31, 1997 and thereafter. Rio Properties must meet a maximum ratio of Senior Debt (as defined in the Rio Bank Loan) to EBITDA from 1.75 to 1 through December 31, 1995 up to 3.0 to 1 for the six months ended March 31, 1997 and reducing to 1.75 to 1 at December 31, 1997 and thereafter. Rio Properties must maintain a maximum Interest Coverage Ratio (as defined in the Rio Bank Loan) of 2.0 to 1 through the fiscal quarter ending December 31, 1996, reducing to 1.5 to 1 for the fiscal quarter ending March 31, 1997 and increasing to 3.0 to 1 for the fiscal quarter ending December 31, 1998 and thereafter. Minimum Consolidated Tangible Net Worth (as defined in the Rio Bank Loan) requirements of $125 million, plus 75% of accumulated net income after December 31, 1994 (not reduced by any consolidated net losses) plus 100% of the net proceeds of any equity offering by Rio Properties or the Company must be maintained. A maximum annual capital expenditure permitted under the Rio Bank Loan is $7.5 million annually, plus the amount available of unused capital expenditures from the prior fiscal year, but not to exceed $12.5 million, annually in any event. A specific carve- out of $200 million for the Phase V Expansion and $30 million for the identified adjacent Rio land acquisition is incorporated in the Rio Bank Loan. The Rio Bank Loan also provides for a basket for $10 million for the repurchase of equity shares of the Company through open market purchases over the life of the Rio Bank Loan. On July 18, 1995, the Company entered into an agreement with Salomon Brothers Inc. and Montgomery Securities (the "Initial Purchasers") for the sale by the Company of $100 million in principal amount of the Company's 10 5/8% Senior Subordinated Notes Due 27 2005 (the "Old Notes"). The Old Notes were purchased by the Initial Purchasers for resale to qualified institutional investors. The net proceeds from the sale of the Old Notes (approximately $96.7 million after the deduction of a 2.75% discount to the Initial Purchasers and offering expenses of approximately $0.5 million), borrowings under the Rio Bank Loan, cash on hand and cash from operations will be used to finance the Company's approximately $185 million Phase V Expansion. Pending such use, the net proceeds were used to reduce amounts outstanding under the Rio Bank Loan. Pursuant to a registration agreement between the Company and the Initial Purchasers, the Company registered on Form S-4 under the Securities Act of 1933 $100 million principal amount of 10 5/8% Senior Subordinated Notes Due 2005 (the "New Notes") which were exchanged for the Old Notes (the Old Notes and the New Notes are collectively referred to as the "Subordinated Notes"). The Subordinated Notes were issued under an indenture (the "Indenture") dated July 21, 1995 among the Company, Rio Properties and IBJ Schroder Bank & Trust Company, as trustee. The following summary of certain provisions of the Indenture does not purport to be complete and is subject to the provisions of the Indenture and the Subordinated Notes. Capitalized terms not otherwise defined have the same meanings assigned to them in the Indenture. The Subordinated Notes mature on July 15, 2005. Interest payment dates under the Subordinated Notes are January 15 and July 15, commencing January 15, 1996. The Subordinated Notes are fully and unconditionally guaranteed (the "Rio Guarantee") on a senior subordinated basis by Rio Properties. The Subordinated Notes are subordinated in right of payment to all existing and future Senior Indebtedness of the Company and are structurally subordinated to all existing and future indebtedness and other liabilities (including trade payables) of the Company's subsidiaries. The Rio Guarantee is subordinated in right of payment to all existing and future Senior Indebtedness (as defined in the Indenture) of Rio Properties and is structurally subordinated to all existing and future indebtedness and other liabilities (including trade payables) of Rio Properties' subsidiaries. The Subordinated 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, plus accrued and unpaid interest, if any, through the redemption date. The Subordinated Notes will be redeemed from any holder or beneficial owner of the Subordinated Notes which is required to be found suitable and is not found suitable by the Nevada Gaming Commission. Upon a Change of Control of the Company (as defined in the Indenture), each holder of Subordinated Notes will have the right to require the Company to repurchase all or part of such holder's Subordinated Notes at a price equal to 101% of the aggregate principal amount thereof, plus accrued and unpaid interest, if any, to the date of repurchase. The Company's obligation to repurchase the Subordinated Notes is guaranteed on a senior subordinated basis by Rio Properties. The Indenture contains certain covenants that, among other things, limit the ability of the Company and its Restricted Subsidiaries (as defined in the Indenture) to incur additional indebtedness, pay dividends or make other distributions, make investments, repurchase subordinated obligations or capital stock, create certain liens (except, among others, liens 28 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. On May 2, 1995, the Company announced a three-phase expansion and development plan to grow the Company over the next several years. The plan includes the Phase V Expansion on the existing Rio site, acquisition of approximately 22 acres of land adjacent to the Rio site to be master-planned for another hotel- casino property and the purchase of the Old Vegas Site for possible future hotel-casino development. The Company cannot accurately state the timing for the funding requirements of the approximately $185 million Phase V Expansion costs. Construction commenced in September 1995 and opening is expected to occur in the spring of 1997. The Company spent approximately $7.9 million on the Phase V Expansion in 1995 and management anticipates that the bulk of the funds will be applied in 1996 and the balance of the funds will be applied in 1997. The $185 million Phase V Expansion will be financed with the proceeds from the Subordinated Notes, funds available under the Rio Bank Loan, cash on hand and cash from operations. As described above, the Company has acquired approximately five acres of land adjacent to the Rio and has entered into agreements to acquire an additional approximately 17 acres of land adjacent to the Rio site. The combined cost of the approximately 22 acres is approximately $20.3 million, which the Company will fund through cash on hand, cash available through borrowings under the Rio Bank Loan and cash from operations. The entire Rio site is now being master-planned for the development of another hotel-casino, the size and timing of which has not yet been determined. As the third step in its expansion and development plan to provide further growth for the Company, the Company acquired the Old Vegas Site southeast of Las Vegas. The cost of the Old Vegas Site was approximately $5.7 million (net of a credit for profit participation from the seller to which the Company was entitled) which the Company funded through cash on hand and cash available through borrowings under the Rio Bank Loan. The timing of the proposed development on the Old Vegas Site has not yet been determined. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 29 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, 1995 and 1994 and the related consolidated statements of income, stockholders' equity and cash flows for each of the three years in the period ended December 31, 1995. 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, 1995 and 1994, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1995, in conformity with generally accepted accounting principles. As discussed in Note 7 to the consolidated financial statements, effective January l, 1993, the Company changed its method of accounting for income taxes. 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 January 26, 1996 30
RIO HOTEL & CASINO, INC. and SUBSIDIARIES CONSOLIDATED BALANCE SHEETS DECEMBER 31, DECEMBER 31, 1995 1994 ASSETS CURRENT ASSETS: CASH AND CASH EQUIVALENTS $ 19,992,695 $ 76,426,258 ACCOUNTS RECEIVABLE, NET 4,313,442 3,204,416 FEDERAL INCOME TAXES RECEIVABLE 190,914 139,329 INVENTORIES 1,794,850 1,378,598 PREPAID EXPENSES AND OTHER CURRENT ASSETS 4,638,090 4,716,701 TOTAL CURRENT ASSETS 30,929,991 85,865,302 PROPERTY AND EQUIPMENT: LAND AND IMPROVEMENTS 37,509,960 24,666,679 BUILDING AND IMPROVEMENTS 192,818,896 137,005,432 EQUIPMENT, FURNITURE, AND IMPROVEMENTS 68,500,267 43,108,873 LESS: ACCUMULATED DEPRECIATION (46,707,850) (32,826,276) 252,121,273 171,954,708 CONSTRUCTION IN PROGRESS 17,173,483 38,521,773 NET PROPERTY AND EQUIPMENT 269,294,756 210,476,481 OTHER ASSETS: OTHER, NET 8,566,847 4,823,489 $ 308,791,594 $ 301,165,272 LIABILITIES & STOCKHOLDERS' EQUITY CURRENT LIABILITIES: CURRENT MATURITIES OF LONG-TERM DEBT $ 25,252 $ 15,032,534 ACCOUNTS PAYABLE 4,562,132 2,425,645 ACCRUED EXPENSES 9,136,226 7,830,706 ACCOUNTS PAYABLE-RELATED PARTY 6,641,506 10,026,210 ACCRUED INTEREST 4,726,915 351,864 TOTAL CURRENT LIABILITIES 25,092,031 35,666,959 NON-CURRENT LIABILITIES: LONG-TERM DEBT, LESS CURRENT MATURITIES 110,176,765 110,146,869 DEFERRED INCOME TAXES 10,634,898 7,512,277 TOTAL NON-CURRENT LIABILITIES 120,811,663 117,659,146 TOTAL LIABILITIES 145,903,694 153,326,105 COMMITMENTS AND CONTINGENCIES STOCKHOLDERS' EQUITY: COMMON STOCK, $0.01 PAR VALUE; 100,000,000 SHARES AUTHORIZED; 21,139,146 (1995) AND 21,371,346 (1994) SHARES ISSUED AND OUTSTANDING 211,392 213,714 ADDITIONAL PAID-IN CAPITAL 113,520,158 117,214,582 RETAINED EARNINGS 49,156,350 30,410,871 TOTAL STOCKHOLDERS' EQUITY 162,887,900 147,839,167 $ 308,791,594 $ 301,165,272 SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
31
RIO HOTEL & CASINO, INC. and SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME FOR THE YEAR ENDED DECEMBER 31, 1995 1994 1993 REVENUES: CASINO $ 105,546,531 $ 87,164,738 $ 71,295,870 ROOM 33,826,095 19,261,477 12,334,207 FOOD AND BEVERAGE 60,009,994 47,648,778 32,573,861 OTHER 11,966,060 7,111,105 4,172,272 CASINO PROMOTIONAL ALLOWANCES (18,810,726) (14,886,794) (10,394,625) 192,537,954 146,299,304 109,981,585 EXPENSES: CASINO 48,071,953 38,696,281 31,177,642 ROOM 10,413,883 6,631,787 4,441,851 FOOD AND BEVERAGE 48,257,881 38,795,127 27,799,449 OTHER 6,646,950 4,959,250 2,784,746 SELLING, GENERAL AND ADMINISTRATIVE 27,777,901 20,550,142 16,001,309 DEPRECIATION AND AMORTIZATION 14,231,307 10,863,844 7,544,326 155,399,875 120,496,431 89,749,323 OPERATING PROFIT 37,138,079 25,802,873 20,232,262 OTHER INCOME (EXPENSE): INTEREST INCOME 420,215 124,786 71,747 INTEREST EXPENSE (8,105,680) (1,923,237) (1,838,713) OTHER INCOME, NET - - - 1,140,010 - - - (7,685,465) (658,441) (1,766,966) INCOME BEFORE INCOME TAX PROVISION 29,452,614 25,144,432 18,465,296 INCOME TAX PROVISION (10,707,135) (9,178,023) (6,785,305) INCOME BEFORE EXTRAORDINARY ITEMS 18,745,479 15,966,409 11,679,991 EXTRAORDINARY ITEMS: LOSS ON EARLY EXTINGUISHMENT OF DEBT, NET OF INCOME TAX BENEFIT - - - - - - (253,711) CUMULATIVE EFFECT OF A CHANGE IN ACCOUNTING PRINCIPLE: ADOPTION OF SFAS NO. 109 - - - - - - (776,888) NET INCOME $18,745,479 $15,966,409 $ 10,649,392 SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
32
RIO HOTEL & CASINO, INC. and SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (CONTINUED) FOR THE YEAR ENDED DECEMBER 31, 1995 1994 1993 EARNINGS PER COMMON SHARE: PRIMARY: INCOME APPLICABLE TO COMMON SHARES $0.87 $0.74 $0.60 EXTRAORDINARY ITEMS: LOSS ON EARLY EXTINGUISHMENT OF DEBT, NET OF INCOME TAX BENEFIT - - - - - - ($0.01) CUMULATIVE EFFECT OF A CHANGE IN ACCOUNTING PRINCIPLE: ADOPTION OF SFAS 109 - - - - - - ($0.04) NET INCOME $0.87 $0.74 $0.55 WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING 21,591,325 21,720,121 19,504,466 FULLY DILUTED: INCOME APPLICABLE TO COMMON SHARES $0.87 $0.74 $0.60 EXTRAORDINARY ITEMS: LOSS ON EARLY EXTINGUISHMENT OF DEBT, NET OF INCOME TAX BENEFIT - - - - - - ($0.01) CUMULATIVE EFFECT OF A CHANGE IN ACCOUNTING PRINCIPLE: ADOPTION OF SFAS 109 - - - - - - ($0.04) NET INCOME $0.87 $0.74 $0.55 WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING 21,592,769 21,720,381 19,537,515 SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
33
RIO HOTEL & CASINO, INC. and SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY COMMON STOCK NUMBER ADDITIONAL OF PAID-IN SHARES AMOUNT CAPITAL Balance, December 31, 1992 18,600,796 $186,008 $82,891,073 Tax benefit of stock options granted 1,120,823 Issuance of common stock 2,547,000 25,470 32,480,730 Common stock offering costs (541,066) Net income for the year Implementation of SFAS No. 109 (823,152) Compensation expense for stock options granted 54,133 Balance, December 31, 1993 21,147,796 211,478 115,182,541 Tax benefit of stock options granted 886,132 Exercise of common stock options 223,550 2,236 1,003,934 Net income for the year Compensation expense for stock options granted in 1993 141,975 Balance, December 31, 1994 21,371,346 213,714 117,214,582 Tax benefit of stock options granted 632,601 Exercise of common stock options 198,300 1,983 965,467 Repurchase of common stock (430,500) (4,305) (5,381,920) Common stock offering costs 1,801 Net income for the year Compensation expense for stock options granted in 1993 87,627 Balance, December 31, 1995 21,139,146 $211,392 $113,520,158 See Accompanying Notes to Consolidated Financial Statements
RIO HOTEL & CASINO, INC. and SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY TOTAL RETAINED STOCKHOLDERS' EARNINGS EQUITY Balance, December 31, 1992 $3,795,070 $86,872,151 Tax benefit of stock options granted 1,120,823 Issuance of common stock 32,506,200 Common stock offering costs (541,066) Net income for the year 10,649,392 10,649,392 Implementation of SFAS No. 109 (823,152) Compensation expense for stock options granted 54,133 Balance, December 31, 1993 14,444,462 129,838,481 Tax benefit of stock options granted 886,132 Exercise of common stock options 1,006,170 Net income for the year 15,966,409 15,966,409 Compensation expense for stock options granted in 1993 141,975 Balance, December 31, 1994 30,410,871 147,839,167 Tax benefit of stock options granted 632,601 Exercise of common stock options 967,450 Repurchase of common stock (5,386,225) Common stock offering costs 1,801 Net income for the year 18,745,479 18,745,479 Compensation expense for stock options granted in 1993 87,627 Balance, December 31, 1995 $49,156,350 $162,887,900 See Accompanying Notes to Consolidated Financial Statements
34
RIO HOTEL & CASINO, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOW For the Year Ended December 31, 1995 1994 Cash flows from operating activities: Net income $ 18,745,479 $ 15,966,409 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Loss on early extinguishment of debt, net of income tax benefit - - - - - - Compensation expense recognized from stock option grant 87,627 141,975 Depreciation and amortization 14,231,307 10,863,844 Provision for uncollectible accounts 1,002,463 512,999 Net loss on sale of assets - - - - - - Cumulative effect of change in accounting principle - Adoption of SFAS 109 - - - - - - Deferred income taxes 3,122,621 1,693,101 (Increase) decrease in assets: Accounts receivable (2,026,109) (790,677) Inventories (416,252) (510,231) Prepaid expenses and other current assets 659,627 (827,476) Other, net (843,335) (2,881,750) Increase (decrease) in liabilities: Accounts payable 2,136,487 (522,443) Accrued federal income tax payable - - - 546,142 Accrued expenses 1,305,520 1,306,086 Accrued interest 4,375,051 297,896 Net cash provided by operating activities 42,380,486 25,795,875 Cash flows from investing activities: Purchase of equipment, furniture and improvements (63,326,652) (66,053,542) Purchase of land and improvements (12,781,239) - - - Net cash (used in) investing activities (76,107,891) (66,053,542) Cash flows from financing activities: Proceeds from borrowings 10,000,000 60,014,175 Net proceeds from common stock issuance 969,251 1,022,700 Net proceeds from issuance of senior subordianted notes 96,750,244 - - - Repurchase of common stock (5,386,225) - - - Costs paid in connection with prior common stock offering and stock exchange rights - - - (119,529) Loan acquisition costs - - - - - - Payments on notes and loans payable (125,039,428) (18,358) Net cash (used in) provided by financing activities (22,706,158) 60,898,988 Net increase (decrease) in cash and cash equivalents (56,433,563) 20,641,321 Cash and cash equivalents, beginning of period 76,426,258 55,784,937 Cash and cash equivalents, end of period $ 19,992,695 $ 76,426,258 See Accompanying Notes to Consolidated Financial Statements
RIO HOTEL & CASINO, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOW For the Year Ended December 31, 1993 Cash flows from operating activities: $ 10,649,392 Net income Adjustments to reconcile net income to net cash provided by (used in) operating activities: Loss on early extinguishment of debt, 253,711 net of income tax benefit Compensation expense recognized 54,133 from stock option grant 7,544,326 Depreciation and amortization 523,491 Provision for uncollectible accounts 10,885 Net loss on sale of assets Cumulative effect of change in accounting 776,888 principle - Adoption of SFAS 109 2,265,571 Deferred income taxes (Increase) decrease in assets: (1,891,439) Accounts receivable (223,051) Inventories Prepaid expenses and other current (856,554) assets (662,965) Other, net Increase (decrease) in liabilities: 304,585 Accounts payable 91,401 Accrued federal income tax payable 1,628,387 Accrued expenses (92,009) Accrued interest 20,376,752 Net cash provided by operating activities Cash flows from investing activities: Purchase of equipment, furniture and (49,967,458) improvements 22,499 Purchase of land and improvements (49,944,959) Net cash (used in) investing activities Cash flows from financing activities: 65,000,000 Proceeds from borrowings 32,506,200 Net proceeds from common stock issuance Net proceeds from issuance of senior - - - subordianted notes - - - Repurchase of common stock Costs paid in connection with prior common (456,821) stock offering and stock exchange rights (1,107,647) Loan acquisition costs (53,212,000) Payments on notes and loans payable 42,729,732 Net cash (used in) provided by financing activities Net increase (decrease) in cash 13,161,525 and cash equivalents 42,623,412 Cash and cash equivalents, beginning of period $ 55,784,937 Cash and cash equivalents, end of period See Accompanying Notes to Consolidated Financial Statement
35 RIO HOTEL & CASINO, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. SIGNIFICANT ACCOUNTING POLICIES AND RELATED MATTERS PRINCIPLES OF CONSOLIDATION AND BASIS OF PRESENTATION The consolidated financial statements include the accounts of Rio Hotel & Casino, Inc. and its wholly owned subsidiaries Rio Properties, Inc. ("Rio Properties," which owns and operates the Rio Suite Hotel & Casino (the "Rio") in Las Vegas, Nevada); Rio Development Company, Inc. (formerly MarCor Development Company, Inc.); Rio Resort Properties, Inc. (formerly MarCor Resort Properties, Inc.); and Rio Properties' wholly owned subsidiary, Cinderlane, 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, 1995, 1994, and 1993 was $949,423, $619,887 and $467,798, respectively. PROPERTY AND EQUIPMENT Land and improvements, building and improvements, and equipment, furniture and improvements are stated at cost. Depreciation and amortization of property and equipment is computed using the straight-line method predominantly over the following estimated useful lives: 36 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. IMPAIRMENT Management reviews existing information and analyses of the Company and its operations as well as indicators of impairment (such as dramatic changes in the manner in which an asset is used or forecasts showing lack of long-term profitability) to determine whether an impairment may exist. The Company considers relevant cash flow and profitability information, including estimated future operating results, trends and other available information, in assessing whether the carrying value of its fixed assets can be recovered. Upon a determination that the carrying value of an asset will not be recovered from its future undiscounted cash flows, the carrying value of that asset would be considered impaired and will be reduced by a charge to operations in the amount of the impairment. Impairment is measured as any deficiency in estimated undiscounted future cash flows of the fixed assets to recover the carrying value related to those assets. INVENTORIES Inventories are stated at the lower of cost or market. Cost is determined by using the first-in, first-out method. REVENUE AND PROMOTIONAL ALLOWANCES Casino revenues represent the net win from gaming wins and losses. The retail value of rooms, food, beverage and other services provided to customers without charge is included in gross revenue and deducted as promotional allowances. The estimated departmental costs of providing such promotional allowances are included in casino costs and expenses as follows:
For the Year Ended December 31, 1995 1994 1993 Room $ 1,940,936 $1,273,154 $ 889,448 Food and Beverage 9,020,152 7,823,819 5,969,683 Other operating expenses 104,921 44,888 36,940 $11,066,009 $9,141,861 $6,896,071
37 EARNINGS PER SHARE Earnings per common share are computed on the basis of the weighted average number of common shares and common stock equivalents outstanding during the period. HEDGING TRANSACTION The Company is a party to an interest rate swap agreement and has purchased an interest rate cap (Note 6). Any net payments made or received by the Company in connection with this interest rate swap agreement or interest rate cap, or any other hedging transaction that the Company may enter into, will be classified as cash flows from operating activities. Premiums paid for the interest rate cap agreements are amortized to interest expense over the shorter of the original life of the debt or the term of the cap. Unamortized premiums are included in other assets in the statement of financial position. Accounts receivable under the agreements are accrued as a reduction of interest expense. Amounts payable under the interest rate swap agreements are included in interest expense. INCOME TAXES Effective January 1, 1993, the Company implemented the provisions of SFAS 109. SFAS 109 utilizes the liability method and deferred taxes are determined based on the estimated future tax effects of differences between the financial statement and tax bases of assets and liabilities given the provisions of the enacted tax laws. 2. CASH AND CASH EQUIVALENTS Cash and cash equivalents at December 31, 1995 and 1994 include $10 million and $68 million, respectively, in overnight repurchase agreements with a bank. These items are recorded at cost which approximates market value and are considered cash equivalents for purposes of the Consolidated Statements of Cash Flows. 3. CONSOLIDATED STATEMENTS OF CASH FLOWS The following supplemental disclosures are provided as part of the Consolidated Statements of Cash Flows:
For the Year Ended December 31, 1995 1994 1993 Cash payments made for interest (net of amounts capitalized) $3,904,540 $1,919,556 $1,728,693 Cash payments made for income taxes $7,100,000 $6,240,000 $4,428,335
38 Non-cash financing and investing activities: DECEMBER 31, 1995 Purchase of property and equipment financed through payables totaled $6,556,126. Purchase of land financed through long-term debt totaled $62,042. Accounts receivable increased by $85,380. This was financed through payables and will be reimbursed to the Company. Tax benefit arising from the exercise of stock options granted under the Company's Non-Statutory Stock Option Plan ("NSOP") totaled $632,601. DECEMBER 31, 1994 Purchase of property and equipment financed through payables totaled $10,026,210. Tax benefit arising from the exercise of stock options granted under NSOP totaled $886,132. DECEMBER 31, 1993 Purchase of property and equipment financed through payables totaled $8,442,660. Purchase of property and equipment financed through long- term debt totaled $183,586. Additional costs of issuing Common Stock totaled $12,194. Costs of issuing Common Stock financed through payables totaled $163,801. Tax benefit arising from the exercise of stock options granted under the NSOP totaled $1,120,823. Reduction in paid-in capital as a result of the implementation of SFAS 109 totaled $823,152. This amount was charged directly against equity because it reflects the tax effect of SFAS 109 as it related to the gain on sale of assets to affiliates of the Company's largest stockholder in December 1991, which was also recorded directly to equity. 39 4. ACCOUNTS RECEIVABLE Components of receivables are as follows:
December 31, 1995 1994 Casino $3,267,244 $2,082,871 Hotel 1,757,640 1,534,107 Other 113,250 66,573 5,138,134 3,683,551 Less allowance for doubtful accounts (824,692) (479,135) $4,313,442 $3,204,416
5. ACCRUED EXPENSES Components of accrued expenses are as follows:
December 31, 1995 1994 Accrued salaries, wages and related benefits $4,065,736 $4,004,080 Progressive slot machines and other gaming accruals 2,532,964 2,033,406 Accrued gaming taxes 1,714,232 1,123,036 Other accrued liabilities 823,294 670,184 $9,136,226 $7,830,706
40 6. LONG-TERM DEBT Long-term debt consists of the following:
December 31, 1995 1994 Rio Bank Loan, originally a $65 million revolving credit facility, which was amended to be a $175 million revolving credit facility with interest equal to the Eurodollar Rate or the Base Rate, plus a margin. The loan matures on June 30, 2001 and is collateralized by a first deed of trust on the Rio's real property, equipment and improvements. $ 10,000,000 $125,000,000 10 5/8% Senior Subordinated Notes, interest only payable semi- annually; principal due July 15, 2005. 100,000,000 - - - Special Improvement District assessment bonds, payable over 10 years in twenty substantially equal semi-annual installments of principal, plus 6.1% interest. 202,017 165,228 Other short-term financing of certain insurance premiums - - - 14,175 110,202,017 125,179,403 Less current maturities (25,252) (15,032,534) $110,176,765 $110,146,869
The prime interest rate quoted by the Company's primary lenders at December 31, 1995 and 1994 was 8.50%. At December 31, 1995, the three month Eurodollar Rate was 5.625%. The margin on the Company's Eurodollar Rate borrowings at December 31, 1995 was 2.00%. The Rio Bank Loan was originally entered into on July 15, 1993 in the amount of $65 million with a syndicate of banks consisting of Bank of America National Trust Savings and Association, Bank of America Nevada, Societe Generale, NBD Bank, N.A., First Security Bank of Idaho, N.A., First Interstate Bank of Nevada, N.A. and U. S. Bank of Nevada. As a result of certain amendments, in December 1994, the Rio Bank Loan was increased to $125 million and in September 1995, the Rio Bank Loan was increased to $175 million. As amended, the Rio Bank Loan is a secured reducing revolving credit facility to be used (a) to refinance the pre- amendment Rio Bank Loan, (b) to finance the 41 Phase V Expansion, (c) to finance acquisition of land adjacent to the Rio for up to $30 million, and (d) for general corporate purposes. The Rio Bank Loan matures on June 30, 2001 and will bear interest based upon a "LIBOR Spread" of from 1% to 3%, or a "Base Rate Spread" of from 0% to 2.0% based upon a schedule determined with reference to Rio Properties' "Funded Debt to EBITDA Ratio". The "LIBOR Spread" is the amount in excess of the applicable LIBOR rate which is the London interbank offer rate established in the London interbank market. The "Base Rate Spread" is the amount in excess of the applicable base rate, which is the rate per annum equal to the higher of the reference rate as it is publicly announced from time to time by Bank of America in San Francisco or 0.50% per annum above the latest Federal Funds rate. The Rio Bank Loan provides for an unused facility fee ranging from 31.25 basis points to 50.0 basis points depending upon the same Funded Debt to EBITDA ratio schedule utilized for the interest rate. (A basis point is one one-hundredth of one percent.) The Rio Bank Loan requires monthly payments of interest and will require scheduled reductions of the maximum amount available under the Rio Bank Loan commencing with a $10 million reduction at December 31, 1997, a $7.5 million reduction at the end of each quarter during 1998 and 1999, a $10.0 million reduction at the end of each quarter during 2000, a $32.5 million reduction at March 31, 2001 and maturity at June 30, 2001. To reduce the risks from interest rate fluctuations, the Company entered into interest rate swap agreements in the amount of $20 million from September 30, 1994 through December 29, 1995 and $15 million from December 29, 1995 through 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 provides for quarterly payments to the Company in the event that three-month LIBOR exceeds 7% on any quarterly reset date. The Company is exposed to credit risks in the event of non- performance by the counterparty. At December 31, 1995, the potential maximum credit risk amounted to $464,333, which is the carrying value of the unamortized premium. However, the Company does not anticipate non-performance by the counterparty. The counterparty under these agreements is Bank of America National Trust and Savings Association ("B of A"), the lead bank in the syndicate participating in the Rio Bank Loan. Management believes that the financial resources of B of A and its competitive position within the national banking industry significantly reduce the chances of non-performance under the interest rate swap and cap agreements. The following table discloses (i) the aggregate amount of interest rate swaps categorized by annual maturity and (ii) the related weighted average interest rate paid and received assuming current market conditions: 42
Maturity: 1996 1997 1998 1999 2000 Total Company pays Fixed Weighted Average $15,000,000 $--- $--- $--- $--- $15,000,000 Interest Rate: Received by Company 5.875% Paid by Company 4.950% The Company receives 3-month LIBOR, which was reset at 5.6875% for the three-month period beginning December 29, 1995.
At December 31, 1995 the interest rate swap and interest rate cap agreements had fair market values of $39,774 and $28,356, respectively (carrying values of $0 and $464,333, respectively). Management is of the opinion that the fair values of all other financial instruments are not materially different from their carrying values. As a result of entering into interest rate swap agreements and cap agreements, the Company has recognized interest expense of $18,638, $83,833, and $187,875 for the years ended December 31, 1995, 1994 and 1993, respectively. The impact of these hedging activities on the Company's weighted average borrowing rate was an increase of approximately 0.03%, 0.26% and 0.44% for the years ended December 31, 1995, 1994 and 1993, respectively. As of the years ended December 31, 1995 and 1994, there were no deferred gains and losses relating to terminated interest rate swap and interest rate cap agreements. The revolving credit feature of the Rio Bank Loan allows the Company to pay down and reborrow principal under the line of credit as the Company deems appropriate. The Company utilized this ability by reborrowing $69 million on December 30, 1994 and repaying $69 million on January 3, 1995. The Company also reborrowed $10 million on December 29, 1995 and repaid $9 million on January 2, 1996 under the terms of the Rio Bank Loan. During the third quarter of 1995, the Company used the net proceeds from the Subordinated Notes (defined below) to reduce amounts outstanding under the Rio Bank Loan. The Company had $165 million available under the Rio Bank Loan at December 31, 1995, while the Company's borrowing capacity under the Rio Bank Loan was fully utilized at December 31, 1994. 43 As of December 31, 1995, annual maturities of total notes and loans payable are as follows:
Year Ending December 31, 1996 $25,252 December 31, 1997 25,252 December 31, 1998 25,252 December 31, 1999 25,252 December 31, 2000 25,252 Thereafter 110,075,757 $110,202,017
Based upon the present operations of the Rio, internal projections of revenues and expenses, and other anticipated cash requirements of Rio Properties during 1996, the Company anticipates meeting required principal and interest payments under the Rio Bank Loan during 1996. The carrying values of assets included in the consolidated financial statements, which collateralize bank loans payable, are as follows: December 31, 1995 1994 Building and improvements $192,818,896 $137,005,432 Equipment, furniture and improvements 68,500,267 43,108,873 Land and improvements 37,509,960 24,666,679 Construction in progress 17,173,483 38,521,773 $316,002,606 $243,302,757 On July 18, 1995, the Company entered into an agreement with Salomon Brothers Inc. and Montgomery Securities (the "Initial Purchasers") for the sale by the Company of $100 million in principal amount of the Company's 10 5/8% Senior Subordinated Notes Due 2005 (the "Old Notes"). The Old Notes were purchased by the Initial Purchasers for resale to qualified institutional investors. The net proceeds from the sale of the Old Notes (approximately $96.7 million after the deduction of a 2.75% discount to the Initial Purchasers and offering expenses of approximately $0.5 million), borrowings under the Rio Bank Loan, cash on hand and cash from operations will be used to finance the Company's approximately $185 million Phase V Expansion. Pending such use, the net proceeds were used to reduce amounts outstanding under the Rio Bank Loan. Pursuant to a registration agreement between the Company and the Initial Purchasers, the Company registered on Form S-4 under the Securities Act of 1933 $100 million principal amount of 10 5/8% Senior Subordinated Notes Due 2005 (the "New Notes") which were exchanged for the Old Notes (the Old Notes and the New Notes are collectively referred to as the "Subordinated Notes"). 44 The Subordinated Notes were issued under an indenture (the "Indenture") dated July 21, 1995 among the Company, Rio Properties and IBJ Schroder Bank & Trust Company, as trustee. The following summary of certain provisions of the Indenture does not purport to be complete and is subject to the provisions of the Indenture and the Subordinated Notes. Capitalized terms not otherwise defined have the same meanings assigned to them in the Indenture. The Subordinated Notes mature on July 15, 2005. Interest payment dates under the Subordinated Notes are January 15 and July 15, commencing January 15, 1996. The Subordinated Notes are unconditionally guaranteed (the "Rio Guarantee") on a senior subordinated basis by Rio Properties. The Subordinated Notes are subordinated in right of payment to all existing and future Senior Indebtedness (as defined in the Indenture) of the Company and are structurally subordinated to all existing and future indebtedness and other liabilities (including trade payables) of the Company's subsidiaries. The Rio Guarantee is subordinated in right of payment to all existing and future Senior Indebtedness (as defined in the Indenture) of Rio Properties and is structurally subordinated to all existing and future indebtedness and other liabilities (including trade payables) of Rio Properties' subsidiaries. The Subordinated 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, plus accrued and unpaid interest, if any, through the redemption date. The Subordinated Notes will be redeemed from any holder or beneficial owner of the Subordinated Notes which is required to be found suitable and is not found suitable by the Nevada Commission. Upon a Change of Control of the Company (as defined in the Indenture), each holder of Subordinated Notes will have the right to require the Company to repurchase all or part of such holder's Subordinated Notes at a price equal to 101% of the aggregate principal amount thereof, plus accrued and unpaid interest, if any, to the date of repurchase. The Company's obligation to repurchase the Subordinated Notes is guaranteed on a senior subordinated basis by Rio Properties. The Indenture contains certain covenants that, among other things, limit the ability of the Company and its Restricted Subsidiaries (as defined in the Indenture) to incur additional indebtedness, pay dividends or make other distributions, make investments, repurchase subordinated obligations or capital stock, create certain liens (except, among others, liens securing Senior Indebtedness), enter into certain transactions with affiliates, sell assets of the Company or its subsidiaries, issue or sell subsidiary stock, create or permit to exist restrictions on distributions from subsidiaries, or enter into certain mergers and consolidations. 45 7. INCOME TAXES In February 1992, the Financial Accounting Standards Board issued SFAS 109 which supersedes previous pronouncements on accounting for income taxes and is effective for fiscal years commencing after December 15, 1992. The Company adopted SFAS 109 in the first quarter of 1993 by reporting the effect of SFAS 109 as a cumulative effect of a change in accounting principle and not restating prior periods. The effect of SFAS 109 recorded in January 1993 decreased net income as a non-cash, non-recurring cumulative effect of a change in accounting principle by an amount totaling $776,888. It also reduced paid-in capital by an amount totaling $823,152. This amount was charged directly against equity because it reflects the tax effect of SFAS 109 as it related to the gain on sale of assets to affiliates of the Company's largest stockholder in December 1991, which was also recorded directly to equity. The federal income tax provisions for the years ended December 31, 1995, 1994 and 1993 consist of the following:
1995 1994 1993 Provision before tax rate change and extraordinary items $10,707,135 $9,178,023 $6,671,872 Additional provision due to tax rate change (see below) --- --- 113,433 Provision before extraordinary item 10,707,135 9,178,023 6,785,305 Income tax benefit from extraordinary loss on early retirement of debt --- --- (130,700) Total Income Tax Provision $10,707,135 $9,178,023 $6,654,605
The Revenue Reconciliation Act of 1993 raised the corporate income tax rate from 34% to 35%, retroactively to January 1, 1993. In accordance with the requirements of SFAS 109, the deferred income tax assets and liabilities were adjusted accordingly, resulting in a charge against income in the amount of $113,433. 46 The following schedule reconciles the Company's effective tax rate to the statutory rate:
1995 1994 1993 Statutory rate 35.0% 35.0% 35.0% Depreciation on premium allocated in Rio Partnership exchange 0.4% 0.5% 0.7% Disallowance for tax purposes of certain meals, travel and 1.5% 1.2% 0.4% entertainment expenses Other (0.5)% (0.2)% --- Effective rate 36.4% 36.5% 36.1%
During 1994, the Company utilized all remaining alternative minimum tax credit carryforwards. The Company's deferred tax assets (liabilities) at December 31, 1995 consisted of the following:
Current Non-Current Depreciation & amortization $(11,399,852) Deferred employee benefits $370,122 --- Bad debt expense 288,642 --- Other deferred tax assets, net --- 764,954 $658,764 $(10,634,898)
The Company's deferred tax assets (liabilities) at December 31, 1994 consisted of the following:
Current Non-Current Depreciation & amortization $(7,613,359) Deferred employee benefits $ 391,927 --- Bad debt expense 136,105 --- Other deferred tax assets, 34,231 101,082 net $ 562,263 $(7,512,277)
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. 47 8. COMMITMENTS AND CONTINGENCIES In connection with the bank loan agreements, the Company has entered into agreements with certain key stockholders, directors and executive officers to facilitate borrowings by the Company. These individuals personally guaranteed the previous bank loan made to Rio Properties in exchange for compensation of $1,250,000 upon the satisfaction of certain terms and conditions. The first potential payment obligation of the Company of $250,000 commenced with the fiscal year ended December 31, 1990 and continued to December 31, 1994, with a two-year extension provision. No amounts were due or paid arising out of the years ended December 31, 1990 or 1991. The Company made $250,000 payments in each of the four years ended December 31, 1995, 1994, 1993, and 1992. The Company anticipates paying the entire balance on or before December 31, 1996. Effective January 1, 1991, Rio Properties maintains an employee profit sharing plan for all employees who have accredited service. Contributions to the plan are discretionary and cannot exceed amounts permitted under the Internal Revenue Code. Contributions of $278,835, $215,039, and $109,701 have been authorized and charged to income for the years ended December 31, 1995, 1994, and 1993, respectively. In the normal course of business, the Company is involved with various negotiations and legal matters. In addition, Rio Properties is a potential defendant in various personal injury allegations. Management is of the opinion that the effect of these matters is not material to the consolidated financial statements. 9. STOCKHOLDERS' EQUITY COMMON STOCK During 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 Company's Non-Statutory Stock Option Plan ("NSOP"). During 1995, the Company repurchased 430,500 shares of Common Stock from time to time in the open market at a total cost of $5.4 million. The repurchased shares of Common Stock were retired. During 1994, the Company issued 223,550 shares of Common Stock at exercise prices ranging from $3.00 per share to $15.625 per share pursuant to options previously granted under the Company's NSOP. On November 24, 1993, the Company sold in a public offering 2,300,000 shares of Common Stock at a net price per share of $13.60. The proceeds from the sale were received in November 1993. 48 During 1993, the Company issued 247,000 shares of Common Stock at exercise prices ranging from $3.00 per share to $6.00 per share pursuant to options previously granted under the Company's NSOP. STOCK OPTIONS Key officers and employees are eligible to participate in the Company's NSOP. The Company has granted 2,856,500 options at exercise prices ranging from $3.00 to $15.625 per share. As of December 31, 1995, 704,250 options had been exercised and 364,400 option had been forfeited, resulting in 1,787,850 options outstanding and 145,400 options available to be granted under the NSOP. The NSOP will terminate July 8, 1997, subject to the right of the Board of Directors to terminate the NSOP prior thereto. On September 5, 1991, the Company's Board of Directors adopted the 1991 Directors' Stock Option Plan, which was ratified by the Company's stockholders on May 16, 1992. On March 28, 1995, the Company's Board of Directors amended the 1991 Directors' Stock Option Plan, which was ratified by the Company's Stockholders on May 16, 1995, under which 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, 1995, 108,000 options had been granted at exercise prices ranging from $3.00 per share to $16.625 per share. As of December 31, 1995, 20,000 options had been exercised and 22,000 options had been forfeited, resulting in 66,000 options outstanding and 114,000 options available to be granted under the Directors' Stock Option Plan. 10. RELATED PARTY TRANSACTIONS The Company contracted with two affiliates of the Company's largest stockholder for the design and construction of a 41- story hotel tower containing approximately 1,000 suites (the "Phase V Expansion") for a total of $177,109,805. As of December 31, 1995, the Company had capitalized $6,256,458 in connection with these contracts. As of December 31, 1995, $4,151,712 has been accrued in connection with these construction and design contracts. The Company contracted with two affiliates of the Company's largest stockholder for the design and construction of an addition to an existing 21-story hotel tower of 141 additional suites (the "Phase IV Expansion") for a total of $18,848,258. As of December 31, 1995, the Company had capitalized $16,565,576 in connection with these contracts. As of December 31, 1995, $1,663,182 had been accrued in connection with these construction and design contracts. The Company contracted with two affiliates of the Company's largest stockholder for the design and construction of a 21- story hotel tower containing 549 suites (the "Phase III 49 Expansion") for a total of $64,166,368. As of December 31, 1995 and 1994, the Company had capitalized $62,026,368 and $37,241,468 in connection with these contracts. As of December 31, 1995 and 1994, $372,370 and $10,026,210 had been accrued in connection with these contracts. In 1993, the Company contracted with two affiliates of the Company's largest stockholder for the design and construction of a 21-story hotel tower containing 437 suites (the "Tower Expansion") and an expansion of the Rio's public area (the "Eastside Expansion"). The two contracts were in amounts not to exceed $57,557,093. As of December 31, 1994, all amounts due in connection with these contracts had been capitalized and paid. In December 1991, the Company sold non-Rio real estate to an affiliate of the Company's largest stockholder. In April 1994, the affiliated entity sold the real estate to a non- related party. Pursuant to the terms of the sales agreement, the Company was entitled to a portion of the sales proceeds which equaled $966,510, net of expenses. The Company reimbursed an affiliate of the Company's largest stockholder for certain expenses advanced on behalf of or supplied to the Company during the years ended December 31, 1995 and December 31, 1993 of approximately $878,428 and $162,425, respectively. Nominal amounts were paid by the Company to the affiliate for similar purposes during 1994. Such amounts were generally billed to the Company at the affiliate's cost. Two director/officers of the Company are associated with affiliated entities which render various architectural and construction services for the Company. The Company paid these entities, in the aggregate, approximately $51,018,430, $50,416,348, and $44,567,088 during the years ended December 31, 1995, 1994, and 1993, respectively, for their services. Entities in which a director of the Company is the principal stockholder and the executive officer received commissions from the Company totaling approximately $158,789, $124,912 and $90,325 for the years ended December 31, 1995, 1994, and 1993, respectively, arising out of the acquisition of various insurance coverages by the Company. 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 Company's $100,000,000 10 5/8% Senior Subordinated Notes Due 2005. The Subordinated Notes 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. 50 Summarized financial statements of Rio Properties have been prepared since the assets, pre-tax income and parents' net investment in the non-guarantor subsidiaries on an individual and combined basis are inconsequential. In addition, the Company's operations or 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.
For the Year Ended December 31, 1995 1994 1993 Current Assets $29,995,415 85,120,465 62,303,414 Non-Current Assets 262,320,009 199,788,372 138,644,090 Current Liabilities 33,216,257 44,662,313 29,292,301 Non-Current Liabilities 110,176,765 110,146,869 56,875,753 Revenues 192,537,954 146,299,304 109,981,585 Operating Profit 37,138,205 25,726,349 20,265,334 Income before income taxes 29,451,596 23,925,361 18,107,197 Net Income 18,733,318 15,174,014 10,745,469
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None PART III 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 23, 1996. 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 23, 1996. 51 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 23, 1996. 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 23, 1996. 52 PART IV 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, 1995 and December 31, 1994. Consolidated Statements of Income for the Years Ended December 31, 1995, 1994 and 1993. Consolidated Statements of Stockholders' Equity for the Years Ended December 31, 1995, 1994 and 1993. Consolidated Statements of Cash Flows for the Years Ended December 31, 1995, 1994 and 1993. 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. 3. 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 3, 1993, are incorporated herein by reference from the Company's (SEC File No. 0-13760) Report on Form 10-K for the Year Ended December 31, 1992, Part IV, Item 14, Exhibit 4.02. 53 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 Agreement and Plan of Exchange by and between Rio Hotel & Casino, Inc., a Nevada corporation, and Rio Properties, Inc., a Nevada corporation, dated August 14, 1992, is incorporated herein by reference from the Company's (SEC File No. 33-51092) Registration Statement on Form S-3 filed on August 24, 1992, Part II, Item 16, Exhibit 2.01. 4.03 Form of Subscription and Exchange Agreement between Rio Properties, Inc., MarCor Resorts, Inc., and subscriber is incorporated herein by reference from the Company's (SEC File No. 33-51092) Registration Statement on Form S-3 filed on August 24, 1992, Part II, Item 16, Exhibit 2.02. 4.04 Rio Hotel & Casino, Inc. Non-Statutory Stock Option Plan, as amended September 5, 1991, as amended February 28, 1992 (to reflect change in Company name) and as amended June 22, 1993, is incorporated herein by reference from the Company's (SEC File No. 33-38752) Registration Statement on Form S-8 filed on October 5, 1993, Part II, Item 8, Exhibit 4.04. 4.05 Rio Hotel & Casino, Inc. Directors' Stock Option Plan As Amended February 28, 1992 (to reflect change in Company name only) is incorporated herein by reference from the Company's (SEC File No. 2-88147) Report on Form 10-K for the Year Ended December 31, 1991, Part IV, Item 14(c), Exhibit 4.07. 4.06 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 54 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; and 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) Report on Form 10-K for the Year Ended December 31, 1994, Part IV, Item 14(c), Exhibit 4.08. 4.07 Rio Hotel & Casino, Inc. 1995 Long-Term Incentive Plan, as adopted January 16, 1995 is incorporated herein by reference from the Company's (SEC File No. 0-13760) Report on Form 10-K for the Year Ended December 31, 1994, Part IV, Item 14(c), Exhibit 4.09. 4.08 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 55 $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; 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 56 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) 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; and 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) 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; and 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. Bank of Nevada, Bank of Scotland, Midlantic Bank, N.A., and Bank of Hawaii, as Banks. 4.09 Indenture dated as of July 21, 1995, among Rio Hotel & Casino, Inc., Rio Properties, 57 Inc. and IBJ Schroder Bank & Trust Company for the Company's 105/8% 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. 4.10 Registration Agreement dated July 18, 1995 by Rio Hotel & Casino, Inc. and accepted July 18, 1995 by Salomon Brothers Inc. and Montgomery Securities 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 4.2. 4.11 Form of Letter of Transmittal to IBJ Schroder Bank & Trust Company as Exchange Agent for exchange of 105/8% Senior Subordinated Notes Due 2005 is incorporated herein by reference from the Company's (SEC File No. 33- 62163) Registration Statement on Form S-4 filed August 28, 1995, Part II, Item 21(a), Exhibit 4.14. 10.01 Agreement by and among MarCor Resorts Inc., Marnell Corrao, Inc., Marnell Corrao Associates, Inc., MarCor Partnership, The Anthony A. Marnell II Revocable Living Trust dated June 16, 1982, Anthony A. Marnell II, Sandra J. Marnell, Barrett Family Revocable Living Trust dated December 18, 1981, James A. Barrett, Jr. and Maureen M. Barrett dated February 22, 1989, 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 10.01; First Amendment to Agreement dated October 25, 1993 by and among Rio Hotel & Casino, Inc., and Marnell Corrao, Inc., Marnell Corrao Associates, Inc., MarCor Partnership, Anthony A. Marnell II, Barrett Family Revocable Living Trust dated December 18, 1981, James A. Barrett, Jr. and Maureen M. Barrett incorporated herein by reference from the Company's (SEC File No. 0-13760) Report on Form 10-K for the Year Ended December 31, 1993, Part IV, Item 14(c), Exhibit 10.01. 10.02 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) Report on Form 10-K for the Year Ended December 31, 1993, Part IV, Item 14(c), Exhibit 10.11. 10.03 Architectural Agreement entered into as of February 25, 1994 between Rio Hotel & Casino, Inc., as Owner, and Anthony A. Marnell II, Chartered, as Architect, is incorporated herein by reference from the Company's (SEC File No. 0-13760), Report on Form 10-K for the Year Ended December 31, 1993, Part IV, Item 14(c), Exhibit 10.12. 10.04 Building Contract entered into as of February 25, 1994 between Marnell Corrao Associates, Inc., as General Contractor, and Rio Properties, Inc., as Owner, is 58 incorporated herein by reference from the Company's (SEC File No. 0-13760) Report on Form 10-K for the Year Ended December 31, 1993, Part IV, Item 14(c), Exhibit 10.13. 10.05 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. 10.06 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. 10.07 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. 10.08 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. 10.09 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. 10.10 Architectural Agreement entered into as of July 27, 1995 between Rio Hotel & Casino, Inc., as Owner, and Anthony A. Marnell II, Chtd., as Architect, 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 10.10. 10.11 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. 59 21.01 List of the Company's subsidiaries. 23.01 Consent of Arthur Andersen LLP. 27.01 Financial Data Schedule. (b) Reports on Form 8-K No reports on Form 8-K were filed by the Company during the quarter ended December 31, 1995. 60
RIO HOTEL & CASINO, INC. AND SUBSIDIARIES SCHEDULE III - CONDENSED FINANCIAL INFORMATION OF REGISTRANT RIO HOTEL & CASINO, INC. BALANCE SHEETS December 31, 1995 1994 ASSETS Current assets: Cash and cash equivalents $ 85,885 $ 35,635 Accounts receivable 537 887 Accounts receivable from affiliates - - - 3,213,417 Total current assets 86,422 3,249,939 Other assets: Investments in subsidiaries 172,308,025 153,227,263 Other, net 2,570,623 1,938,022 174,878,648 155,165,285 $ 174,965,070 $ 158,415,224 LIABILITIES AND STOCKHOLDERS' EQUITY Non-current liabilities due to subsidiaries $ 12,077,170 $ 10,576,057 Stockholders' equity Common Stock, $0.01 par value; 100,000,000 shares authorized; 21,139,146 (1995) and 21,371,346 (1994) shares issued and outstanding 211,392 213,714 Additional paid-in capital 113,520,158 117,214,582 Retained earnings 49,156,350 30,410,871 Total stockholders' equity 162,887,900 147,839,167 $ 174,965,070 $ 158,415,224 See Accompanying Notes to Consolidated Financial Statements
61
RIO HOTEL & CASINO, INC. AND SUBSIDIARIES SCHEDULE III - CONDENSED FINANCIAL INFORMATION OF REGISTRANT RIO HOTEL & CASINO, INC. STATEMENTS OF INCOME For the Year Ended December 31, 1995 1994 1993 Revenues Interest Income $ 1,144 $ 2,537 $ 6,724 Other revenues - - - 966,510 393,537 Subsidiary earnings 18,994,335 15,267,612 10,592,688 18,995,479 16,236,659 10,992,949 Costs and Expenses: General and administrative 250,000 270,250 343,577 250,000 270,250 343,577 Net income $ 18,745,479 $ 15,966,409 $ 10,649,372 See Accompanying Notes to Consolidated Financial Statements
62
RIO HOTEL & CASINO, INC. AND SUBSIDIARIES SCHEDULE III - CONDENSED FINANCIAL INFORMATION OF REGISTRANT RIO HOTEL & CASINO, INC. STATEMENTS OF CASH FLOW For the Year Ended December 31, 1995 1994 Cash flows from operating activities: Net income $ 18,745,479 $ 15,966,409 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Earnings from subsidiary investments (18,994,335) (15,267,612) (Increase) decrease in assets: Receivables 350 64,113 Prepaid expenses and other current assets - - - - - - Due from (to) subsidiaries 4,715,730 (1,820,498) Other, net - - - - - - Decrease in liabilities: Accounts payable-trade - - - (25,000) Net cash provided by (used in) operating activities 4,467,224 (1,082,588) Cash flows from investing activities: Investments in subisidiaries - - - (14,390) Net cash used in investing activities - - - (14,390) Cash flows from financing activities: Net proceeds from common stock issuance 969,251 1,022,700 Common stock offerings cost - - - (119,529) Repurchase of common stock (5,386,225) - - - Net cash used in (provided by) financing activities (4,416,974) 903,171 Net increase (decrease) in cash and cash equivalents 50,250 (193,807) Cash and cash equivalents, beginning of period 35,635 229,442 Cash and cash equivalents, end of period $ 85,885 $ 35,635 See Accompanying Notes to Consolidated Financial Statements
RIO HOTEL & CASINO, INC. AND SUBSIDIARIES SCHEDULE III - CONDENSED FINANCIAL INFORMATION OF REGISTRANT RIO HOTEL & CASINO, INC. STATEMENTS OF CASH FLOW For the Year Ended December 31, 1993 Cash flows from operating activities: Net income $ 10,649,392 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Earnings from subsidiary investments (10,592,688) (Increase) decrease in assets: Receivables (79,821) Prepaid expenses and other current assets 13,811 Due from (to) subsidiaries (1,077,493) Other, net 3,719 Decrease in liabilities: Accounts payable-trade (164,770) Net cash provided by (used in) operating activities (1,247,850) Cash flows from investing activities: Investments in subisidiaries (30,730,375) Net cash used in investing activities (30,730,375) Cash flows from financing activities: Net proceeds from common stock issuance 32,506,200 Common stock offerings cost (456,821) Repurchase of common stock - - - Net cash used in (provided by) financing activities 32,049,379 Net increase (decrease) in cash and cash equivalents 71,154 Cash and cash equivalents, beginning of period 158,288 Cash and cash equivalents, end of period $ 229,442 See Accompanying Notes to Consolidated Financial Statements
63
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION December 31, December 31, December 31, 1995 1994 1993 Cash payments made for interest (net of amounts capitalized) $ - - - $ - - - $ - - - Supplemental Schedule of Non-Cash Investing and Financing Activities
DECEMBER 31, 1995 Tax benefit arising from the exercise of stock options granted under the NSOP totaled $632,601. DECEMBER 31, 1994 Tax benefit arising from the exercise of stock options granted under the NSOP totaled $886,132. DECEMBER 31, 1993 Additional costs of issuing Common Stock financed through payables totaled $12,194. Costs of issuing Common Stock financed through payables totaled $163,801. Tax benefit arising from the exercise of stock options granted under the Company's NSOP totaled $1,120,823. Reduction of paid-in capital as a result of the implementation of SFAS 109 totaled $832,152. This amount was charged directly against equity because it reflects the tax effect of SFAS 109 as it related to the gain on sale of assets to affiliates of the Company's largest stockholder in December 1991, which was also recorded directly to equity (Note 10). 64
RIO HOTEL & CASINO, INC. AND SUBSIDIARIES SCHEDULE VIII - VALUATION AND QUALIFYING ACCOUNTS For the Three Years Ended December 31, 1995 Balance, December 31, 1992 $ 263,232 Additions charged to income 523,491 Accounts written off, less recoveries (407,360) Balance, December 31, 1993 379,363 Additions charged to income 512,999 Accounts written off, less recoveries (413,227) Balance, December 31, 1994 479,135 Additions charged to income 1,002,463 Accounts written off, less recoveries (656,906) Balance, December 31, 1995 $ 824,692
65 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 15, 1996 By: /S/ ROGER M. SZEPELAK Roger M. Szepelak, 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.
SIGNATURE TITLE DATE /S/ ANTHONY A. MARNELL II Chairman of the Board of March 15, 1996 Anthony A. Marnell II Directors and Chief Executive Officer (Principal Executive Officer) /S/ JAMES A. BARRETT, JR. President, Chief Operating March 15, 1996 James A. Barrett, Jr. Officer and Director /S/ ROGER M. SZEPELAK Treasurer and Chief Financial March 15, 1996 Roger M. Szepelak Officer (Principal Financial and Accounting Officer) /S/ JOHN A. STUART Director March 15, 1996 John A. Stuart /S/ THOMAS Y. HARTLEY Director March 15, 1996 Thomas Y. Hartley /S/ PETER M. THOMAS Director March 15, 1996 Peter M. Thomas
66
EXHIBIT INDEX NUMBER EXHIBIT DESCRIPTION PAGE 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 3, 1993, are incorporated herein by reference from the Company's (SEC File No. 0-13760) Report on Form 10-K for the Year Ended December 31, 1992, Part IV, Item 14, Exhibit 4.02. 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 Agreement and Plan of Exchange by and between Rio Hotel & Casino, Inc., a Nevada corporation, and Rio Properties, Inc., a Nevada corporation, dated August 14, 1992, is incorporated herein by reference from the Company's (SEC File No. 33-51092) Registration Statement on Form S-3 filed on August 24, 1992, Part II, Item 16, Exhibit 2.01. 4.03 Form of Subscription and Exchange Agreement between Rio Properties, Inc., MarCor Resorts, Inc., and subscriber is incorporated herein by reference from the Company's (SEC File No. 33-51092) Registration Statement on Form S-3 filed on August 24, 1992, Part II, Item 16, Exhibit 2.02. 4.04 Rio Hotel & Casino, Inc. Non-Statutory Stock Option Plan, as amended September 5, 1991, as amended February 28, 1992 (to reflect change in Company name) and as amended June 22, 1993, is incorporated herein by reference from the Company's (SEC File No. 33-38752) Registration Statement on Form S-8 filed on October 5, 1993, Part II, Item 8, Exhibit 4.04. 4.05 Rio Hotel & Casino, Inc. Directors' Stock Option Plan As Amended February 28, 1992 (to reflect change in Company name only) is incorporated herein by reference from the Company's (SEC File No. 2-88147) Report on Form 10-K for the Year Ended December 31, 1991, Part IV, Item 14(c), Exhibit 4.07. 4.06 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 67 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; and 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) Report on Form 10-K for the Year Ended December 31, 1994, Part IV, Item 14(c), Exhibit 4.08. 4.07 Rio Hotel & Casino, Inc. 1995 Long-Term Incentive Plan, as adopted January 16, 1995 is incorporated herein by reference from the Company's (SEC File No. 0-13760) Report on Form 10-K for the Year Ended December 31, 1994, Part IV, Item 14(c), Exhibit 4.09. 4.08 Credit Agreement among Bank of America National Trust 74 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,. 68 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; 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 69 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) 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; and 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) 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; and Seventh 70 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. Bank of Nevada, Bank of Scotland, Midlantic Bank, N.A., and Bank of Hawaii, as Banks 4.09 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 105/8% 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. 4.10 Registration Agreement dated July 18, 1995 by Rio Hotel & Casino, Inc. and accepted July 18, 1995 by Salomon Brothers Inc. and Montgomery Securities 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 4.2. 4.11 Form of Letter of Transmittal to IBJ Schroder Bank & Trust Company as Exchange Agent for exchange of 105/8% Senior Subordinated Notes Due 2005 is incorporated herein by reference from the Company's (SEC File No. 33- 62163) Registration Statement on Form S-4 filed August 28, 1995, Part II, Item 21(a), Exhibit 4.14. 10.01 Agreement by and among MarCor Resorts Inc., Marnell Corrao, Inc., Marnell Corrao Associates, Inc., MarCor Partnership, The Anthony A. Marnell II Revocable Living Trust dated June 16, 1982, Anthony A. Marnell II, Sandra J. Marnell, Barrett Family Revocable Living Trust dated December 18, 1981, James A. Barrett, Jr. and Maureen M. Barrett dated February 22, 1989, 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 10.01; First Amendment to Agreement dated October 25, 1993 by and among Rio Hotel & Casino, Inc., and Marnell Corrao, Inc., Marnell Corrao Associates, Inc., MarCor Partnership, Anthony A. Marnell II, Barrett Family Revocable Living Trust dated December 18, 1981, James A. Barrett, Jr. and Maureen M. Barrett incorporated herein by reference from the Company's (SEC File No. 0-13760) Report on Form 10-K for the Year Ended December 31, 1993, Part IV, Item 14(c), Exhibit 10.01. 10.02 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) Report on Form 10-K for the Year Ended December 31, 1993, Part IV, Item 14(c), Exhibit 10.11. 10.03 Architectural Agreement entered into as of February 25, 1994 between Rio Hotel & Casino, Inc., as Owner, and Anthony A. Marnell II, Chartered, as Architect, is 71 incorporated herein by reference from the Company's (SEC File No. 0-13760), Report on Form 10-K for the Year Ended December 31, 1993, Part IV, Item 14(c), Exhibit 10.12. 10.04 Building Contract entered into as of February 25, 1994 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) Report on Form 10-K for the Year Ended December 31, 1993, Part IV, Item 14(c), Exhibit 10.13. 10.05 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. 10.06 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. 10.07 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. 10.08 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. 10.09 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. 10.10 Architectural Agreement entered into as of July 27, 1995 between Rio Hotel & Casino, Inc., as Owner, and Anthony A. Marnell II, Chtd., as Architect, 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 10.10. 72 10.11 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. 21.01 List of the Company's subsidiaries. 91 23.01 Consent of Arthur Andersen LLP. 93 27.01 Financial Data Schedule 95
73 EX-4.08 2 EXHIBIT 4.08 74 SEVENTH AMENDMENT TO CREDIT AGREEMENT This Seventh Amendment to Credit Agreement (this "Seventh Amendment") is made and dated as of January 17, 1996 among Rio Properties, Inc., a Nevada corporation (the "Company"), the several financial institutions party hereto ("Banks"), and Bank of America National Trust and Savings Association, as agent for the Banks (the "Agent") and amends that Credit Agreement dated as of July 15, 1993 among the Company, the Banks and the Agent, as amended by a First Amendment to Credit Agreement dated as of October 25, 1993, a Second Amendment to Credit Agreement dated as of November 8, 1993, a Third Amendment to Credit Agreement dated as of April 15, 1994, a Fourth Amendment to Credit Agreement dated as of December 16, 1994, a Fifth Amendment to Credit Agreement dated as of March 20, 1995 and a Sixth Amendment to Credit Agreement dated as of July 31, 1995 (as so amended, the "Agreement"). RECITAL The Company has requested the Agent and the Banks to increase the basket for repurchases of shares of the Parent Guarantor form $5,000,000 to $10,000,000 and to clarify that such permitted repurchases are net of issuances of such shares, and the Agent and Banks are willing to do so on the terms and conditions set forth herein. Now, Therefore, for good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the parties hereby agree as follows: 1. TERMS. All terms used herein shall have the same meanings as in the Agreement unless otherwise defined herein. All references to the Agreement herein shall mean the Agreement as hereby amended. 2. AMENDMENTS TO AGREEMENT. The Banks and the Agent hereby agree that the Agreement is amended as follows: 2.1 Section 7.12(b) of the Agreement is amended and restated in its entirety as follows: "(b) Repurchases of shares of the Parent Guarantor not exceeding $10,000,000 (net of issuances of such shares since the Closing Date) in the aggregate; and" -1- 3. REPRESENTATIONS AND WARRANTIES. The Company represents and warrants to the banks and Agent: 3.1 AUTHORITY. The Company has all necessary power and has taken all corporate action necessary to make this Seventh Amendment, the Agreement, and all other agreements and instruments executed in connection herewith and therewith, the valid and enforceable obligations they purport to be. 3.2 NO LEGAL OBSTACLE TO AGREEMENT. Neither the execution of this Seventh Amendment, the making by the Company of any borrowings under the Agreement, nor the performance of the Agreement has constituted or resulted in or will constitute or result in a breach of the provisions of any contract to which the Company is a party, or the violation of any law, judgment, decree or governmental order, rule or regulation applicable to the Company, or result in the creation under any agreement or instrument of any security interest, lien, charge, or encumbrance upon any of the assets of the Company. No approval or authorization of any governmental authority is required to permit the execution, delivery or performance by the Company of this Seventh Amendment, the Agreement, or the transactions contemplated hereby or thereby, or the making of any borrowing by the Company under the Agreement. 3.3 INCORPORATION OF CERTAIN REPRESENTATIONS. The representations and warranties set forth in Article V of the Agreement are true and correct in all respects on and as of the date hereof as though made on and as of the date hereof. 3.4 DEFAULT. No event of Default under the Agreement has occurred and is continuing. 4. CONDITIONS, EFFECTIVENESS. The effectiveness of this Seventh Amendment shall be subject to the compliance by the Company with its agreements herein contained, and to the delivery of the following to the Agent in form and substance satisfactory to the Agent. 4.1 CORPORATE RESOLUTIONS. A copy of a resolution or resolutions passed by the Board of Directors of the Company, certified by the Secretary or an Assistant Secretary of the Company as being in full force and effect on the date hereof, authorizing the amendments to the Agreement herein provided for and the execution, delivery and performance of this Seventh Amendment and any note or other instrument or agreement required hereunder. -2- 4.2 AUTHORIZED SIGNATORIES. A certificate, signed by the Secretary or an Assistant Secretary of the Company dated the date hereof, as to the incumbency of the person or persons authorized to execute and deliver this Seventh Amendment and any instrument or agreement required hereunder on behalf of the Company. 4.3 OTHER EVIDENCE. Such other evidence with respect to the Company or any other person as the Agent or any Bank may reasonably request to establish the consummation of the transactions contemplated hereby, the taking of all corporate action in connection with this Seventh Amendment and the Agreement and the compliance with the conditions set forth herein. 5. MISCELLANEOUS. 5.1 EFFECTIVENESS OF THE AGREEMENT. Except as hereby expressly amended, the Agreement shall remain in full force and effect, and is hereby ratified and confirmed in all respects. 5.2 WAIVERS. This Seventh Amendment is specific in time and in intent and does not constitute, nor should it be construed as, a waiver of any other right, power or privilege under the Loan Documents, or under any agreement, contract, indenture, document or instrument mentioned in the Loan Documents; nor does it preclude any exercise thereof or the exercise of any other right, power or privilege, nor shall any future waiver of any right, power, privilege or default hereunder, or under any agreement, contract, indenture, document or instrument mentioned in the Loan Documents, constitute a waiver of any other default of the same or of any other term or provision. 5.3 COUNTERPARTS. This Seventh Amendment may be executed in any number of counterparts and all of such counterparts taken together shall be deemed to constitute one and the same instrument. This Seventh Amendment shall not become effective until the Parent Guarantor, the Company, the Majority Banks and the Agent shall have signed a copy hereof, whether the same or counterparts, and the same shall have been delivered to the Agent. 5.4 JURISDICTION. This Seventh Amendment, and any instrument or agreement required hereunder, shall be governed by -3- and construed under the laws of the State of Nevada. IN WITNESS WHEREOF, the parties hereto have caused this Seventh Amendment to be duly executed and delivered as of the date first written above. RIO PROPERTIES, INC. By: /s/ James A. Barrett, Jr. Title: President BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, as Agent By: /s/ L. Chenevert, Jr. L. Chenevert, Jr. Vice President BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, as a Bank By: /s/ Jon Varnell Jon Varnell Managing Director FIRST INTERSTATE BANK OF NEVADA By: /s/ Title: Vice President FIRST SECURITY BANK OF IDAHO, N.A. By: /s/ David P. Williams Title: Vice President -4- NBD BANK By: /s/ Title: SOCIETE GENERALE By: /s/ Maureen Kelly Title: Vice President BANK OF AMERICA NEVADA By: /s/ Alan F. Gordon Title: Vice President U.S. BANK OF NEVADA By: /s/ Terry Gurty Title: Officer BANK OF SCOTLAND By: /s/ Catherine M. Oniffrey Title: Vice President MIDLANTIC BANK, N.A. By: /s/ Denise D. Killen Title: Vice President BANK OF HAWAII By: /s/ Joseph T. Donalson Title: Vice President -5- CONSENT OF GUARANTOR The undersigned hereby consents to the foregoing Seventh Amendment to Credit Agreement dated as of January 17, 1996 and confirms that its Parent Guaranty dated as of July 15, 1993 remains in full force and effect before and after giving effect to this Seventh Amendment. RIO HOTEL & CASINO, INC. By: /s/ James A. Barrett, Jr. Title: President -6- EX-21.01 3 EXHIBIT 21.01 91
SUBSIDIARIES OF RIO HOTEL & CASINO, INC. STATE OF NAME INCORPORATION PARENT COMPANY Rio Properties, Inc. Nevada Rio Hotel & Casino, Inc. Rio Development Company, Inc. Nevada Rio Hotel & Casino, Inc. (formerly MarCor Development Company, Inc.) Rio Resort Properties, Inc. Nevada Rio Hotel & Casino, Inc. (formerly MarCor Resort Properties, Inc.) Cinderlane, Inc. Nevada Rio Properties, Inc.
92 EX-23.01 4 EXHIBIT 23.01 93 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation of our reports dated January 26, 1996 (1995 Annual Report on Form 10-K and Supplemental Schedules), included in this Form 10-K, into Rio Hotel & Casino, Inc.'s previously filed registration statements on Form S-8 (File No. 33-38752), Form S-8 (File No. 33-68130), Form S-8 (File No. 33-56860), Form S-3 (File No. 33-70192), Form S-3 (File No. 33-51092), Form S-3 (File No. 33-36598) and Form S-3 (File No. 333-869). ARTHUR ANDERSEN LLP Las Vegas, Nevada March 15, 1996 94 EX-27.01 5
5 0000734380 FDS95 1000 YEAR DEC-31-1995 DEC-31-1995 19,993 0 5,138 825 1,795 30,930 298,829 46,708 308,792 25,092 110,177 0 0 211 162,888 308,792 192,538 192,958 0 155,400 0 0 8,106 29,453 10,707 18,745 0 0 0 18,745 .87 .87
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