Attached files

file filename
EX-32.1 - EXHIBIT 32.1 - Tropicana Las Vegas Hotel & Casino, Inc.ex32-1.htm
EX-32.2 - EXHIBIT 32.2 - Tropicana Las Vegas Hotel & Casino, Inc.ex32-2.htm
EX-31.1 - EXHIBIT 31.1 - Tropicana Las Vegas Hotel & Casino, Inc.ex31-1.htm
EX-31.2 - EXHIBIT 31.2 - Tropicana Las Vegas Hotel & Casino, Inc.ex31-2.htm

b



 UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

 

FORM 10-Q

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended June 30, 2015

 

or

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from           to         

 

Commission File Number: 000-53894

 

TROPICANA LAS VEGAS HOTEL AND CASINO, INC.

(Exact name of registrant as specified in its charter)

 

Delaware

 

27-0455607

(State or other jurisdiction of
incorporation or organization)

 

(I.R.S. Employer
Identification No.)

 

3801 Las Vegas Boulevard South

Las Vegas, Nevada 89109

(Address of principal executive offices and zip code)

 

(702) 739-3530

(Registrant’s telephone number, including area code)

 

n/a

(Former name, former address and former fiscal year, if changed since last report)

 

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer ☐

 

Accelerated filer ☐

     

Non-accelerated filer ☒

 

Smaller reporting company ☐

(Do not check if a smaller reporting company)

   

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

 

As of July 30, 2015, there were 4,669,151 shares outstanding of the registrant’s Class A Common Stock, $0.01 par value and no shares outstanding of the registrant’s Class B Common Stock, $0.01 par value. The issued and outstanding equity securities of the registrant are not publicly traded.

 



 

 
 

 

 

 

TROPICANA LAS VEGAS HOTEL AND CASINO, INC.

FORM 10-Q

INDEX

 

 

 

PART I FINANCIAL INFORMATION

     

Item 1.

Financial Statements

1

 

Condensed Consolidated Balance Sheets as of June 30, 2015 (Unaudited) and December 31, 2014

1
 

Condensed Consolidated Statements of Operations and Comprehensive Loss for the three and six months ended June 30, 2015 and 2014 (Unaudited)

2
 

Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2015 and 2014 (Unaudited)

  3
 

Notes to Unaudited Condensed Consolidated Financial Statements

  4

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

18

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

24

Item 4.

Controls and Procedures

25

 

PART II OTHER INFORMATION

     

Item 1.

Legal Proceedings

25

Item 1A.

Risk Factors

25

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

26

Item 3.

Defaults Upon Senior Securities

26

Item 4.

Mine Safety Disclosures

26

Item 5.

Other Information

26

Item 6.

Exhibits

27

     
 

Signatures

30

 

 
 

 

 

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

 

TROPICANA LAS VEGAS HOTEL AND CASINO, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(amounts in thousands, except share data)

 

 

   

June 30,

         
   

2015

   

December 31,

 
   

(Unaudited)

   

2014

 
                 

ASSETS

               

CURRENT ASSETS:

               

Cash and cash equivalents

  $ 8,161     $ 10,315  

Restricted cash

    5,329       5,021  

Receivables, net

    4,167       4,053  

Inventories

    650       587  

Prepaid expenses and other current assets

    2,224       2,968  

Total current assets

    20,531       22,944  

Property and equipment, net

    313,804       318,711  

Other assets, net

    3,316       3,590  

TOTAL ASSETS

  $ 337,651     $ 345,245  
                 

LIABILITIES AND STOCKHOLDERS’ EQUITY

               
                 

CURRENT LIABILITIES:

               

Current portion of long-term debt

  $ 1,560     $ 1,251  

Financing insurance payable

    278       483  

Accounts payable

    8,685       8,368  

Construction payable

          164  

Accrued payroll and related

    6,192       4,345  

Accrued gaming and related

    1,363       1,585  

Other accrued expenses and current liabilities

    3,679       3,818  

Total current liabilities

    21,757       20,014  

Long-term debt, less current portion

    61,888       63,234  

Accrued management fees

    10,653       9,380  

Other long-term liabilities

    332       389  

TOTAL LIABILITIES

    94,630       93,017  
                 

COMMITMENTS AND CONTINGENCIES (Note 7)

               
                 

STOCKHOLDERS’ EQUITY:

               

Class A convertible participating preferred stock, $0.01 par value, 750,000 shares authorized, issued and outstanding

    8       8  

Class A series 2 convertible participating preferred stock, $0.01 par value, 545,702 shares authorized, 545,585 shares issued and outstanding

    5       5  

Class A series 3 convertible participating preferred stock, $0.01 par value, 350,000 shares authorized, issued and outstanding

    3       3  

Class A series 4 convertible participating preferred stock, $0.01 par value, 416,500 shares authorized, issued and outstanding

    4       4  

Class A common stock, $0.01 par value, 16,500,000 shares authorized, 4,668,151 shares issued and outstanding

    47       47  

Class B common stock, $0.01 par value, 16,500,000 shares authorized, no shares issued or outstanding

           

Additional paid-in capital

    436,209       436,208  

Accumulated deficit

    (193,255

)

    (184,047

)

Total stockholders’ equity

    243,021       252,228  

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY

  $ 337,651     $ 345,245  

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

 
1

 

  

TROPICANA LAS VEGAS HOTEL AND CASINO, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(amounts in thousands, except per share data)

(Unaudited)

 

   

Three Months Ended

   

Six Months Ended

 
   

June 30,

   

June 30,

 
   

2015

   

2014

   

2015

   

2014

 
                                 

REVENUES:

                               

Casino

  $ 11,276     $ 10,276     $ 21,149     $ 20,283  

Room

    12,958       12,683       25,575       24,824  

Food and beverage

    7,719       7,116       14,616       13,413  

Other

    1,574       1,524       2,951       2,721  

Gross revenues

    33,527       31,599       64,291       61,241  

Less promotional allowances

    (2,710

)

    (2,591

)

    (5,321

)

    (5,084

)

Net revenues

    30,817       29,008       58,970       56,157  
                                 

OPERATING EXPENSES:

                               

Casino

    6,972       6,744       13,424       13,282  

Room

    6,063       5,898       11,556       10,836  

Food and beverage

    5,983       5,961       11,337       11,171  

Other

    1,431       1,401       2,817       2,723  

Selling, general and administrative

    6,049       4,914       11,161       9,604  

Maintenance and utilities

    3,773       3,148       7,197       6,007  

Depreciation and amortization

    4,119       4,478       8,406       8,980  

Loss on asset disposals, net

    15       870       40       871  

Gain on lease termination

          (1,528

)

          (1,528

)

Total operating expenses

    34,405       31,886       65,938       61,946  
                                 

OPERATING LOSS

    (3,588

)

    (2,878

)

    (6,968

)

    (5,789

)

                                 

OTHER (EXPENSES) INCOME:

                               

Interest income

    1       1       1       2  

Interest expense

    (1,122

)

    (797

)

    (2,241

)

    (1,608

)

Total other (expenses) income

    (1,121

)

    (796

)

    (2,240

)

    (1,606

)

                                 

NET LOSS

    (4,709

)

    (3,674

)

    (9,208

)

    (7,395

)

                                 

Other comprehensive income (loss)

                       
                                 

COMPREHENSIVE LOSS

  $ (4,709

)

  $ (3,674

)

  $ (9,208

)

  $ (7,395

)

 

 

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

 
2

 

 

TROPICANA LAS VEGAS HOTEL AND CASINO, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands, unaudited)

 

 

 

   

Six Months Ended

 
   

June 30,

 
   

2015

   

2014

 
                 

CASH FLOWS FROM OPERATING ACTIVITIES:

               

Net loss

  $ (9,208

)

  $ (7,395

)

Adjustments to reconcile net loss to net cash provided by operating activities:

               

Depreciation and amortization

    8,406       8,980  

Share-based compensation

    1       4  

Amortization of debt issuance costs

    351       351  

Loss on disposition of assets

    40       871  

Gain on lease termination

          (1,528

)

Changes in operating assets and liabilities:

               

Restricted cash

    (308

)

    1,239  

Receivables, net

    (114

)

    (11

)

Inventories, prepaid expenses and other current assets

    681       (219

)

Other assets

    (36

)

    8  

Accounts payable, accrued expenses and other liabilities

    1,746       247  

Accrued management fees

    1,273       1,256  

Net cash provided by operating activities

    2,832       3,803  
                 

CASH FLOWS FROM INVESTING ACTIVITIES:

               

Capital expenditures

    (1,308

)

    (1,681

)

Change in construction payable

    (164

)

    (228

)

Proceeds from settlement for replacement property and equipment

          50  

Proceeds from sale of property and equipment

          43  

Net cash used in investing activities

    (1,472

)

    (1,816

)

                 

CASH FLOWS FROM FINANCING ACTIVITES:

               

Borrowings under loan agreement

    426        

Borrowings under financing insurance payable

    251       276  

Payments under loan agreement

    (3,000

)

    (2,000

)

Payments under financing insurance payable

    (456

)

     

Principal payments on capital leases

    (685

)

    (417

)

Debt issuance costs

    (50

)

     

Net cash used in financing activities

    (3,514

)

    (2,141

)

                 

Net decrease in cash and cash equivalents

    (2,154

)

    (154

)

Cash and cash equivalents, beginning of period

    10,315       9,363  

Cash and cash equivalents, end of period

  $ 8,161     $ 9,209  
                 

SUPPLEMENTAL CASH FLOW INFORMATION:

               

Interest paid

  $ 1,866     $ 1,255  

Property and equipment financed by debt

    2,222       58  

Property and equipment received in a settlement

          1,478  

 

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

 
3

 

 

TROPICANA LAS VEGAS HOTEL AND CASINO, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

1. Organization and Nature of Business

 

Tropicana Las Vegas Hotel and Casino, Inc., (“Tropicana Las Vegas”) is a Delaware corporation formed in June 2009 that acts largely as a holding company and, through its wholly owned subsidiaries owns the Tropicana Las Vegas casino resort. Tropicana Las Vegas offers casino gaming, hotel accommodations, dining, entertainment, retail shopping and other resort amenities. Tropicana Las Vegas is conveniently located on 35 acres at the corner of Tropicana Avenue and Las Vegas Boulevard on the Las Vegas Strip. Our property currently offers 1,467 remodeled hotel rooms and suites, a 50,000 square foot casino floor, three restaurants, two casual dining venues, two entertainment venues, beach club and special event venue, and approximately 100,000 square feet of flexible convention and meeting space. We also offer a state of the art spa and fitness facility, race and sports book, and retail space, all leased to various third parties.

 

On April 28, 2015, the Tropicana Las Vegas entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Penn National Gaming, Inc., a Pennsylvania corporation (“Parent”), LV Merger Sub, Inc., a Delaware corporation and a wholly-owned subsidiary of Parent (“Merger Sub”) and Trilliant Gaming Nevada, Inc. (as stockholder representative), providing for the acquisition of the Company by Parent. In accordance with the Merger Agreement, Merger Sub will merge with and into the Company (the “Merger”), with the Company continuing as the surviving entity and a wholly-owned subsidiary of Parent. For further discussion, see “Note 10 – Entry Into Merger Agreement.”

 

As a casino-based company, our operating results are highly dependent on a number of factors including the state of the United States economy, the amount of discretionary consumer and corporate spending in Las Vegas, and the level of competition in the Las Vegas casino/hotel market. We have been operating at a loss since we commenced operations on July 1, 2009 and generated negative cash flows prior to 2014. Our primary sources of liquidity have been comprised of a revolving line of credit and four rights offerings totaling $200 million.

 

We believe that our existing cash balance, cash flows from operations and revolving line of credit will be more than adequate to meet our financial, operating and debt obligations over the next twelve months. However, we will continue to closely monitor and manage our cash position given the current economic environment. If our sources of capital are inadequate to fund our long-term liquidity requirements including our need to service our existing debt obligations as they come due, we will attempt to procure additional debt or equity financing to fund our operations, capital expenditures and debt service requirements. We can provide no assurance that our business will generate sufficient cash flow from operations or that future borrowings will be available in amounts sufficient to enable us to pay our indebtedness or to fund our other liquidity needs including capital improvements.

 

References herein to “we,” “us,” “our,” “management” or “Company” refer to Tropicana Las Vegas Hotel and Casino, Inc. and/or its consolidated subsidiaries, unless the context specifically requires otherwise.

 

2. Basis of Presentation

 

The accompanying unaudited condensed consolidated financial statements were prepared in accordance with generally accepted accounting principles (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnote disclosures required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for fair presentation of the results for the interim periods were included. The results of operations for the interim periods are not necessarily indicative of the results that may be expected for the entire year.

 

The condensed consolidated balance sheet as of December 31, 2014 was derived from our audited consolidated financial statements at that date but does not include all of the information and footnotes required by GAAP for complete financial statements.

 

These condensed consolidated financial statements should be read in conjunction with the audited financial statements and notes included in our Annual Report on Form 10-K for the year ended December 31, 2014.

 

 
4

 

 

TROPICANA LAS VEGAS HOTEL AND CASINO, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

Use of Estimates

 

The preparation of condensed consolidated financial statements in conformity with GAAP 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 condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Significant estimates used by the Company include estimated useful lives for depreciable and amortizable assets, certain accrued liabilities and the estimated allowances for receivables, customer loyalty program liability, and self-insurance reserves. Actual results may differ from those estimates.

 

Fair Value Measurement

 

The fair values of cash and cash equivalents, restricted cash, accounts receivable and accounts payable approximate carrying values due to the short maturity of these items. It was not practicable to determine the fair market value of the revolving credit facility due to the lack of comparable credit facilities and the involvement of our majority shareholder in negotiating the terms and conditions directly with the lender. It is unlikely the Company could obtain similar financing on the same terms with another lender without the involvement and resources of our majority shareholder given our financial condition and history of operating losses. The fair value of other long-term obligations approximates carrying value.

 

Fair value is defined in the authoritative guidance as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The guidance also establishes a framework for measuring fair value and expands disclosures about fair value measurements. The fair value framework requires the categorization of assets and liabilities into three levels based upon assumptions (inputs) used to price the assets and liabilities. Level 1 provides the most reliable measure of fair value, whereas, Level 3 generally requires significant management judgment. The three levels are defined as follows: Level 1: quoted market prices in active markets for identical assets or liabilities; Level 2: observable market-based inputs or unobservable inputs that are corroborated by market data and Level 3: unobservable inputs that are not corroborated by market data. As of June 30, 2015, the Company had no assets or liabilities measured at fair value on a recurring basis.

 

Promotional Allowances

 

The retail value of rooms, food and beverage, and other services provided to customers on a complimentary basis are included in gross revenues with a corresponding offsetting amount included in promotional allowances. The estimated costs of providing these promotional allowances are included in casino operating expenses. The amounts in promotional allowances and the cost of providing such promotional allowances are as follows for the periods indicated ($ in thousands):

 

   

Three Months Ended

June 30,

   

Six Months Ended

June 30,

 
    2015     2014     2015     2014  
Retail Value of Promotional Allowances                                

Room

  $ 1,331     $ 1,325     $ 2,579     $ 2,612  

Food and beverage

    1,284       1,165       2,590       2,328  

Other

    95       101       152       144  

Total

  $ 2,710     $ 2,591     $ 5,321     $ 5,084  
                                 

Cost of Promotional Allowances

                               

Room

  $ 693     $ 688     $ 1,296     $ 1,274  

Food and beverage

    1,191       1,167       2,442       2,346  

Other

    186       180       290       275  

Total

  $ 2,070     $ 2,035     $ 4,028     $ 3,895  

 

 
5

 

 

TROPICANA LAS VEGAS HOTEL AND CASINO, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

3. Recent Accounting Pronouncements

 

In May 2014, the Financial Accounting Standards Board ("FASB") issued accounting guidance, "Revenue from Contracts with Customers." The core principle of the new standard is for companies to recognize revenue to depict the transfer of goods or services to customers in amounts that reflect the consideration (that is, payment) to which the company expects to be entitled in exchange for those goods or services. The new standard also will result in enhanced disclosures about revenue, provide guidance for transactions that were not previously addressed comprehensively (for example, service revenue and contract modifications) and clarify guidance for multiple-element arrangements. This standard was effective for fiscal years and interim periods within those years beginning after December 15, 2016, with early adoption prohibited; however on July 9, 2015, FASB decided to defer by one year the effective dates. As a result, the standard will be effective for fiscal years and interim periods within those years beginning after December 15, 2017. Accordingly, we will adopt this standard in the first quarter of fiscal year 2018. The Company is currently evaluating the impact this guidance will have on the condensed consolidated financial statements. Included in this evaluation, management plans on reviewing existing contracts, evaluating our current processes and systems, determining whether management will have to make additional judgments or estimates, reviewing disclosures required by the standard, determining how changes to revenue accounting might impact other areas of operations, considering the legal structure of our contracts, and considering various other areas that might be impacted by the new standard.

 

In August 2014, FASB issued accounting guidance, "Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern." The core principle of the new standard requires management to evaluate whether there are conditions and events that raise substantial doubt about an entity’s ability to continue as a going concern within one year after the financial statements are issued (or available to be issued when applicable) and if so, disclose that fact. Management will be required to evaluate and disclose whether its plans alleviate that doubt. The assessment will be similar to the one auditors historically have performed under auditing standards. This standard is effective for fiscal years and interim periods within those years beginning after December 15, 2016. Accordingly, we anticipate adopting this standard in the first quarter of fiscal year 2017, even though early adoption is permitted. The Company does not expect this guidance to have a material impact on the condensed consolidated financial statements.

 

In April 2015, the FASB issued final accounting guidance, “Simplifying the Presentation of Debt Issuance Costs”. This guidance was issued to simplify the presentation of debt issuance costs by requiring debt issuance costs related to a recognized debt liability to be presented in the balance sheet as a deduction from the corresponding debt liability, rather than as an asset. Guidance on the recognition and measurement of debt issuance costs is not affected. The new guidance is effective for fiscal years and interim periods within those years beginning after December 15, 2015, with early adoption permitted but requiring the guidance to be applied retrospectively for all prior periods presented in the financial statements. Accordingly, we will adopt this standard in the first quarter of fiscal year 2016. Based on evaluation of the new guidance, management has determined that there will be no significant impact on the condensed consolidated financial statements.

 

With the exception of the new accounting standards discussed above, there have been no other recent accounting pronouncements or changes in accounting pronouncements during 2015 or 2014 that have had or are expected to have a material impact on the Company’s financial position or results of operations. A variety of proposed or otherwise potential accounting standards are currently under consideration by standard-setting organizations and certain regulatory agencies. Because of the tentative and preliminary nature of such proposed standards, we have not yet determined the effect, if any, that the implementation of such proposed standards would have on our financial statements.

 

 
6

 

 

TROPICANA LAS VEGAS HOTEL AND CASINO, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

4. Property and Equipment

 

Property and equipment consists of the following for the periods indicated ($ in thousands):

 

   

June 30,
2015

(Unaudited)

   

December 31,
2014

 
                 

Land and improvements

  $ 203,980     $ 203,980  

Building and improvements

    128,457       128,158  

Furniture, fixtures and equipment

    61,625       60,320  

Capital leases

    5,526       2,463  

Construction in progress

    2,328       3,616  
      401,916       398,537  

Less: accumulated depreciation and amortization

    (88,112

)

    (79,826

)

Property and equipment, net

  $ 313,804     $ 318,711  

 

5. Debt

 

Long-term debt consists of the following for the periods indicated ($ in thousands):

 

   

June 30,

2015

(Unaudited)

   

December 31,

2014

 
                 

Revolver A, $50 million limit

  $ 49,691     $ 49,765  

Revolver B, $5 million limit

    5,000       5,000  

Revolver C, $10 million limit

    5,000       7,500  

Other long-term debt

    3,757       2,220  
      63,448       64,485  

Less current portion

    (1,560

)

    (1,251

)

Total long-term debt, net

  $ 61,888     $ 63,234  

 

 

Loan Agreement

 

Effective December 21, 2012, we amended and restated our $65.0 million loan agreement (the “Amended and Restated Loan”). The Amended and Restated Loan is comprised of a $50.0 million revolving credit facility (the “Revolver A”), a $5.0 million revolving credit facility (the “Revolver B”), and a $10.0 million revolving credit facility (the “Revolver C”). The Revolver A bears interest at 4% per annum, Revolver B bears interest at 5% per annum and Revolver C bears interest at 6% per annum. The fee for any unfunded portion of the Revolver A, Revolver B or Revolver C is 0.50%. Each revolving credit facility has a stated maturity date of April 2, 2018.

 

The Amended and Restated Loan contains customary affirmative, negative and financial covenants. The covenants, among other things, restrict, subject to certain exceptions, our ability to: incur additional indebtedness; create liens on property or assets; make certain investments; engage in mergers or consolidations; sell assets; pay dividends or make distributions; engage in certain transactions with affiliates; enter into sale-leaseback transactions; and pay management fees. In addition, the Amended and Restated Loan requires us to maintain a $2.0 million cash balance and meet certain EBITDA minimums on a quarterly basis for the periods from March 31, 2015 through March 31, 2018 with a standard cure provision if the EBITDA minimums are not met. Substantially all of the assets of Tropicana Las Vegas are pledged as collateral under the Amended and Restated Loan and priority of liens and security interest were granted to our lenders. The lenders have agreed to release their security interest in a one acre (approximately) parcel for future development. Pursuant to the terms of the Amended and Restated Loan and a letter agreement, we were required to maintain an interest reserve account for payments of quarterly interest.

 

 
7

 

 

TROPICANA LAS VEGAS HOTEL AND CASINO, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

Effective December 30, 2014, we executed a letter agreement with lenders that: i) established the required minimum EBITDA financial covenant for each fiscal quarter in 2015; ii) required the Company to deposit an additional $1.6 million into the interest reserve account in January 2015; and iii) eliminated the Lender obligation to disburse all amounts in the interest reserve account as of December 31, 2014 if certain conditions were met. As of June 30, 2015, we are in compliance with all of our covenants and expect to remain compliant with our covenants throughout the remainder of 2015.

 

As of June 30, 2015 and December 31, 2014, the interest reserve account had a balance of $1.5 million and $1.2 million, respectively. The following table provides interest incurred on the Amended and Restated Loan for the periods indicated ($ in thousands).

 

   

Three Months Ended

June 30,

   

Six Months Ended

June 30,

 
   

2015

   

2014

   

2015

   

2014

 

Interest incurred

  $ 639     $ 613     $ 1,290     $ 1,240  

 

Debt issuance costs incurred in connection with the issuance of long-term debt are deferred and amortized to interest expense over the expected terms of the related debt agreements and are included in other assets, net on our condensed consolidated balance sheets. The following table provides amortization incurred in association with the Amended and Restated Loan for the periods indicated ($ in thousands).

 

 

   

Three Months Ended

June 30,

   

Six Months Ended

June 30,

 
   

2015

   

2014

   

2015

   

2014

 

Amortization of debt issuance cost

  $ 175     $ 175     $ 351     $ 351  

 

Other Long-Term Debt

 

We enter into capital leases for marquee signs, cash kiosk stations, slot machines and other equipment. These agreements are capitalized at the present value of the future minimum lease payments at inception and are included in property and equipment. The assets are depreciated on straight line method over their estimated useful lives or over the term of lease. Under the terms, certain lease agreements are non-interest bearing; however, we have imputed interest on certain leases due to materiality. The following table provides principal payments made under the capital leases for the periods indicated ($ in thousands).

 

   

Three Months Ended

June 30,

   

Six Months Ended

June 30,

 
   

2015

   

2014

   

2015

   

2014

 

Principal payments under capital leases

  $ 514     $ 209     $ 685     $ 417  

 

Financing Insurance Payables

 

Effective May 1, 2014, the Company entered into a financing agreement with AFCO Premium Credit LLC to finance the insurance premium related to property insurance coverage in the amount of $0.3 million. This obligation covers an eleven month period with an initial down payment and a finance charge of $4,810 or a 3.196% interest rate.

 

Effective July 1, 2014, the Company entered into a financing agreement with AFCO Premium Credit LLC to finance the insurance premiums related to general liability, workers compensation, umbrella, errors and omissions, and auto insurance coverage in the amount of $0.5 million. This obligation covers an eleven month period with an initial down payment and a finance charge of $7,612 or a 3.196% interest rate.

 

Effective December 1, 2014, the Company entered into a financing agreement with AFCO Premium Credit LLC to finance the insurance premiums related to Directors and Officers liability and crime insurance coverage in the amount of $0.1 million. This obligation covers an eleven month period with an initial down payment and a finance charge of $1,725 or a 3.196% interest rate. These financing agreements have been recorded as a liability in financing insurance payables on the accompanying condensed consolidated balance sheets.

 

 
8

 

 

TROPICANA LAS VEGAS HOTEL AND CASINO, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

Effective May 1, 2015, the Company entered into a financing agreement with AFCO Premium Credit LLC to finance the insurance premium related to property insurance coverage in the amount of $0.3 million. This obligation will cover an eleven month period with an initial down payment and a finance charge of $4,035 or a 3.250% interest rate.

 

6. Related Party Transactions

 

Trilliant Gaming Nevada, Inc.

 

Trilliant Gaming Nevada Inc. (“Trilliant Gaming”) is the general partner of the Onex Armenco Gaming Entities. The Onex Armenco Gaming Entities, in the aggregate, own, and Trilliant Gaming has voting and investment control over approximately 82.65% of our outstanding voting securities. Each of Mr. Alex Yemenidjian, our Chairman of the Board, Chief Executive Officer and President, Mr. Timothy Duncanson, one of our directors, and Mr. Gerald Schwartz, the chairman and controlling stockholder of Onex Corporation, owns one-third of the outstanding voting securities of Trilliant Gaming, and together Messrs. Yemenidjian, Duncanson and Schwartz own 100% of the outstanding voting securities of Trilliant Gaming. A stockholder agreement between Messrs. Yemenidjian, Duncanson and Schwartz sets forth the rights of each of them with respect to control of Trilliant Gaming and, in turn, our securities owned by the Onex Armenco Gaming Entities. The Onex Armenco Gaming Entities were formed by entities affiliated with Onex Corporation.

 

As a result of Trilliant Gaming’s voting and investment control over our securities held by the Onex Armenco Gaming Entities, Trilliant Gaming may, among other things, exercise a controlling influence over our affairs, the election of directors and the approval of significant corporate transactions, including a merger or the sale of all or substantially all of our assets. Trilliant Gaming may have the ability to prevent any transaction that requires approval of our stockholders regardless of whether or not other stockholders believe that any such transaction is in our best interests and the interests of such other stockholders. Trilliant Gaming’s ability to exercise a controlling influence over our affairs is, to a certain extent, set forth in the Stockholders’ Agreement. Trilliant Gaming also controls the voting of greater than two-thirds of the outstanding shares of our Preferred Stock, giving it the power to amend or waive certain provisions thereof, including the power to waive the anti-dilution protections.

 

Currently, we are a party to a management agreement with Trilliant Management,  L.P. (“Trilliant Management LP”), a limited partnership that is controlled by its general partner, Trilliant Gaming, for the management and operation of the Tropicana Las Vegas, Inc. (See “Management Agreement” below).

 

Armenco Lease

 

On June 22, 2009, we entered into the Armenco Lease (“Armenco”) in which we leased the real and non-gaming personal property of our hotel and casino, including the restaurants, lounges, retail shops and other related support facilities, and the operation thereof to Armenco until such time as we were able to obtain all governmental registrations, findings of suitability, licenses, qualifications, permits and approvals pursuant to the gaming laws and regulations of the State of Nevada and Clark County liquor and gaming codes necessary for us to own and operate our gaming facility directly. Effective December 1, 2010, we received all approvals necessary for us to own and operate our gaming property directly. We incurred and accrued approximately $1.7 million in management fees related to the Armenco Lease which was terminated on November 30, 2010. These fees have not been paid due to certain restrictions under the Amended and Restated Loan.

 

Management Agreement

 

Effective December 1, 2010, we received the necessary approvals and licenses for us to own and operate our gaming facility directly and as a result, the Armenco Lease was terminated and the operation of our hotel and casino was thereafter managed by Trilliant Management LP, pursuant to the terms of the management agreement entered into in May 2010 (the “Management Agreement”).

 

 
9

 

 

TROPICANA LAS VEGAS HOTEL AND CASINO, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 

 

The Management Agreement provides for Trilliant Management LP to assist us in the management and operation of Tropicana Las Vegas beginning December 1, 2010 and terminating on November 30, 2020. For each fiscal year or portion thereof during the term of the Management Agreement, we will pay Trilliant Management LP a fee equal to the sum of 2% of all revenue from the operation of Tropicana Las Vegas (the “Revenue Fee”) and 5% of EBITDA after reduction of the Revenue Fee (each as defined). The following table provides management fees recorded for the periods indicated and is included in selling, general and administrative expenses on the accompanying condensed consolidated statements of operations and comprehensive loss ($ in thousands).

 

   

Three Months Ended

June 30,

   

Six Months Ended

June 30,

 
   

2015

   

2014

   

2015

   

2014

 

Management fee expense

  $ 709     $ 630     $ 1,364     $ 1,257  

 

For both Armenco and Trilliant Management LP, the Amended and Restated Loan restricts our payments of management fees until the earlier of a) the date on which the outstanding principal has been repaid in full or b) the date on which EBITDA for the prior 12 month period is equal to or greater than $20.0 million, and upon the condition that no default or event of default is continuing under the Amended and Restated Loan. However, the Amended and Restated Loan does permit the Company to pay a portion of the management fees for reimbursement of tax liabilities actually incurred and paid. In March 2015, we paid Trilliant Management LP $91,507 for management fees associated with income tax reimbursement for 2014. As of June 30, 2015 and December 31, 2014, we have $10.7 million and $9.4 million, respectively, recorded as accrued management fees due Armenco and Trilliant Management LP.

 

Interest on Unpaid Management Fees

 

In accordance with the provisions of the Trilliant Management LP agreement, interest compounding at the rate of 4% annually is due on any unpaid balances incurred after the Renovation Period, as defined in the agreement. However, under the Amended and Restated Loan agreement, no management fees can be paid nor can any interest accrue on the management fees until certain financial thresholds are met by the Company as stated above. Given the fact that the Company has not met the financial thresholds under the Amended and Restated Loan agreement, and it was not likely that the Company would meet the thresholds in the near future, no interest has been accrued on the management fees to date. Upon closing of the Merger, the Amended and Restated Loan outstanding balance will be paid in full and therefore the debt agreement will no longer be in effect. Therefore, the Trilliant Management LP agreement will require accrual and payment of accrued interest on the management fees upon closing of the Merger transaction. Interest on the unpaid Trilliant Management LP fees is estimated to be approximately $0.8 million through August 31, 2015 covering accrued management fees through July 31, 2015. Given the fact that the Amended and Restated Loan agreement is still in place at June 30, 2015 and that it does not allow the Company to either accrue or pay interest on the Trilliant Management LP fees, no accrual for the management fee interest was recorded as of June 30, 2015.

 

Trilliant Management LP Agreement Termination Fee

 

The Merger Agreement provides that the accrued Trilliant Management LP and Armenco management fees are treated as indebtedness of the Company and will be paid in connection with the consummation of the Merger. In addition, the Merger Agreement contemplates that the Trilliant Management LP agreement will be terminated in connection with the Merger, and that the Trilliant Management LP agreement termination fee will be treated as indebtedness of the Company and paid to Trilliant Management LP in connection with such termination. The amount of the Trilliant Management LP agreement termination fee is determined based on the amount of the Trilliant Management LP fee paid or payable in respect of the twelve (12) months immediately preceding such termination, and accordingly, the amount of such fee payable in connection with the Merger cannot be determined at this time. By way of example only, if the Merger had occurred on June 30, 2015, the Trilliant Management LP agreement termination fee would have been $2.4 million, an amount equal to the Trilliant Management LP fee accrued by the Company in respect of the twelve (12) months ended June 30, 2015. Given that the payment is solely contingent upon the consummation of the Merger, no accrual for the Trilliant Management LP agreement termination fee was recorded as of June 30, 2015.

 

 
10

 

 

TROPICANA LAS VEGAS HOTEL AND CASINO, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

7. Commitments and Contingencies

 

Letters of Credit

 

We maintain two irrevocable standby letters of credit. The first irrevocable standby letter of credit is with the State of Nevada, Division of Insurance which acts as a security deposit providing coverage for workers compensation claims/liabilities since the Company is self-insured. This is reviewed annually by the State of Nevada and can be adjusted based on the Company’s prior workers compensation claims experience. The outstanding balance is currently $274,000 and automatically renews on an annual basis. The second irrevocable standby letter of credit is with Starbucks Coffee Company for $35,000. This is to ensure performance of the Company’s obligations to Starbucks for the term of the ten year licensing agreement which commenced on December 14, 2010.

 

Self-Insurance Reserves

 

We are self-insured up to certain stop-loss amounts for employee health coverage for non-union employees as well as workers compensation and general liability cost. Insurance claims and reserves include accruals of estimated settlements for known claims as provided by a third party. In estimating these accruals, we consider historical loss experience and make judgments about the expected levels of costs per claim. We believe our estimates of future liability are reasonable based upon our methodology; however, changes in health care costs, accident frequency and severity and other factors could materially affect the estimate for these liabilities. We continually monitor changes in claim type and incident and evaluate the insurance accrual making necessary adjustments based on the evaluation of these qualitative data points. As of June 30, 2015 and December 31, 2014, the estimated liabilities for unpaid and incurred but not reported claims totaled $0.7 million and $0.7 million, respectively.

 

Customer Loyalty Program

 

We provide a customer loyalty program (the “Program”) at our casino, which allows customers to redeem points earned from their gaming activity for slot play, food, beverage, rooms or merchandise. Under the Program, customers are able to accumulate points which may be redeemed in the future, subject to certain limitations and the terms of the Program. We accrue a liability for the estimated cost of the outstanding points that we believe will ultimately be redeemed which is calculated based on the total number of points earned, converted to a redemption value based on the average number of points needed to convert to rewards. The offset to this liability is recorded in contra casino revenue or casino expense depending on the nature of the redemption.

 

We also have a promotion for new members, Even the Odds Program (“Even the Odds”), which allows first-time customers to be reimbursed for their losses up to $200. Under the current promotion rules, a customer’s actual rated slot loss up to $200 is reimbursed in free slot play with 50% reimbursement on the first day of sign up and the remaining 50% is reimbursed thirty days after their loss up to one year from initial play. We record a liability for the estimated cost of the reimbursements under Even the Odds based on our estimate of redemption. As of June 30, 2015 and December 31, 2014, the estimated accrual for the costs of the Program and Even the Odds redemption totaled $0.3 million and $0.4 million, respectively.

 

Termination of a Property Lease

 

Effective July 29, 2013, the BBCLV, LLC and The One Group (collectively, the “Tenant”) relinquished the operation of the nightclub and beach club to us. We are operating the upscale venues for private events and have renamed the venues Havana Room and Beach Club. Effective May 1, 2014, we reached a settlement agreement with the Tenant whereby: i) we retained their $0.2 million security deposit which was used to offset previous billings to the Tenant; ii) the Tenant made a payment for previously incurred Live Entertainment Taxes and provided an escrow account for potential additional Live Entertainment Taxes incurred during their period of occupancy, iii) the Tenant made a payment for certain missing equipment; and, iv) the Tenant transferred certain personal property and leasehold improvements to us in lieu of us enforcing the 10 year lease guaranty of $0.5 million. The Company conducted an extensive review of the assets that were delivered to the Tenant as well as the bill of sale provided in the settlement agreement. Based upon estimated fair market value, we recognized $1.5 million in personal property and leasehold improvements with a corresponding gain on lease termination derived from the settlement and have written off $0.9 million of our existing assets due to replacements by the Tenant during the quarter ended June 30, 2014.

 

 
11

 

 

TROPICANA LAS VEGAS HOTEL AND CASINO, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

General Litigation

 

We are occasionally party to routine lawsuits arising from the normal operations of a hotel and casino. As with all ligation, no assurance can be provided as to the outcome of such matters. Other than the items discussed below under “Bankruptcy Litigation” and “Contingencies”, there are no other pending legal proceedings to which we are party to and that are material in relation to our condensed consolidated financial statements.

 

Bankruptcy Litigation

 

The Company was formed in June 2009 for the purpose of owning and operating Tropicana Las Vegas Holdings, LLC and its subsidiaries (the “Predecessor”), including the operations of Tropicana Las Vegas Hotel and Casino, LLC (“Tropicana Las Vegas”) in connection with the reorganization of Tropicana Entertainment Holdings, LLC (“TEH”) and certain of its subsidiaries, under Chapter 11 of Title 11 of the United States Code or Bankruptcy Code.

 

On May 5, 2008 (the “Petition Date”), TEH together with certain of its subsidiaries, including the Predecessor, filed voluntary petitions in the United States Bankruptcy Court for the District of Delaware (the “Bankruptcy Court”) for relief, seeking to reorganize their businesses under the provisions of the Bankruptcy Code (the “Chapter 11 Cases”). As TEH and certain of its subsidiaries progressed towards an exit from the Chapter 11 Cases, it was determined that given their capital structures and the claims arising thereunder, as well as the nature of the business operations, two separate plans were warranted. Accordingly, TEH proposed two separate plans of reorganization, one for the Predecessor (“the Bankruptcy Plan”) and one for TEH’s other gaming properties. The Bankruptcy Plan was confirmed by the Bankruptcy Court on May 5, 2009 and became effective on July 1, 2009 (the “Effective Date”).

 

Pursuant to the Bankruptcy Plan, among other things, we assumed certain obligations and liabilities of the Predecessor. The following represents the current status of such obligations as well as remaining litigation matters. We agreed to pay $0.4 million in satisfaction of the Predecessor’s unsecured claims. To date, we have paid, or have been deemed by order of the Bankruptcy Court to have satisfied $0.3 million of those unsecured claims and have a remaining $0.1 million recorded as a liability in accounts payable. With regard to allowed priority and cure claims and non-professional fee administrative expenses, we have paid approximately $2.9 million. Other disputed administrative/priority claims (“Disputed Claims”) are discussed below.

 

One set of Disputed Claims consists of claims for professional fees. The professionals employed at the expense of the bankruptcy estates of the Predecessor and other debtors filed applications for allowance of approximately $13.5 million in professional fees and expenses against the Predecessor. We dispute and have objected to many of those applications in advance of hearings before the Bankruptcy Court, the first of which occurred on May 11, 2011, and addressed issues of allocation of fees and expenses between the Predecessor and TEH. Following the May 11, 2011 hearing, the Bankruptcy Court requested post-hearing submissions from the parties, which were filed on June 30, 2011. Thereafter, on December 30, 2014, the Bankruptcy Court issued the Memorandum Regarding Fee Allocation Dispute and entered the Order Regarding Fee Allocation Dispute (the “Allocation Order”), which held that “Professional Fees [with one exception] should be allocated 75% to the OpCo Debtors [TEH] and 25% to the LandCo Debtors [Predecessor].” During a status conference held on February 3, 2015, the Bankruptcy Court directed the Company and TEH to attempt to resolve the Disputed Claims either informally or, if necessary, through a formal mediation process. On March 31, 2015, the Bankruptcy Court entered the Agreed Order Appointing Mediator, pursuant to which The Hon. Joseph J. Farnan, Jr. (Ret.) of Farnan LLP was appointed as a mediator to help the Company and TEH resolve the Disputed Claims. On May 29, 2015, the mediator filed the Mediator’s Notice Of Termination Of Mediation, which confirmed the termination of the mediation without resolution of the issues presented for mediation. During a status conference held on June 9, 2015, the Bankruptcy Court directed the Company and TEH to file letter submissions concerning the scope and sequencing of litigation concerning, among other things, all other issues subject to the objections. Subsequent hearings will occur, if necessary, when scheduled by the Bankruptcy Court. As described below, we believe that our potential liability in respect of such claimed professional fees and expenses should be limited to the current balance of a professional fee escrow account the Predecessor funded and accrued in the amount of $5.0 million pursuant to the Bankruptcy Plan. Approximately $3.8 million remains in that account, which is restricted to the sole purpose of satisfying liabilities related to professional services incurred as part of the Chapter 11 Cases. Notwithstanding the foregoing, management cannot predict the outcome of these Disputed Claims and no assurance can be provided regarding our liability in this regard.

 

 
12

 

 

TROPICANA LAS VEGAS HOTEL AND CASINO, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

Another set of Disputed Claims were asserted by Wimar Tahoe Corporation and Columbia Sussex Corporation, which are companies related by common ownership to the Predecessor that provided management services to and incurred expenses through September 2008 that were charged to the Predecessor. Both companies seek allowance and payment by the Predecessor of administrative expense and/or priority claims in the Chapter 11 Cases in the aggregate amount of $0.8 million. Oral arguments on dispositive cross motions for summary judgment were conducted on September 27, 2011, and we are awaiting the Bankruptcy Court ruling. We currently have recorded a liability in the amount of $0.8 million in accounts payable for these claims.

 

Finally, TEH has asserted two additional Disputed Claims against the Predecessor in the Chapter 11 Cases. The first claim has been asserted as an administrative/priority claim in the amount of approximately $0.5 million and relates to management fees for services allegedly rendered by TEH in May and June 2009 and an unliquidated contingent claim relating to alleged workers’ compensation liabilities. We dispute the workers’ compensation liabilities claim in its entirety and a portion of the claimed management fees. Given our position, we have not recorded any liability associated with this Disputed Claim, which has yet to be adjudicated.

 

In the second claim, TEH has asserted that the Predecessor should be responsible for payment of the entire amount of fees and expenses allocated to the Predecessor pursuant to the Allocation Order, which the Company calculates to be approximately $12.7 million, less approximately $2.3 million already paid on account of such fees and expenses and less the $3.8 million remaining in the professional fee escrow account. The Company, on the other hand, has taken the position that, pursuant to the Bankruptcy Plan, it is responsible only for the Predecessor’s appropriate allocation of professional fees and expenses that were unpaid at the time of confirmation of the Bankruptcy Plan, which would be an amount no more than the remaining balance of the professional fee escrow account. Given our position, we have not recorded any liability associated with this claim in excess of the remaining balance of the professional fee escrow account. Management cannot predict the outcome and no assurance can be given that the claims asserted will ultimately be disallowed or will not have a material adverse impact on the Company.

 

Contingencies

 

In the ordinary course of business, we enter into numerous agreements that contain standard guarantees and indemnities whereby we indemnify another party for breaches of representations and warranties. Many of these parties are also indemnified against any third party claim resulting from the transaction that is contemplated in the underlying agreement such as a lease agreement. While some of these guarantees extend only for the duration of the underlying agreement, many survive the expiration of the term of the agreement. There are no explicit limitations on the maximum potential amount of future payments that we could be required to make under some of these guarantees. We are unable to develop an estimate of the maximum potential amount of future payments to be made under these guarantees as the triggering events are not predictable. We maintain insurance coverage that mitigates some potential payments to be made.

 

The Company and the Company’s Third Party Administrator for medical benefits are parties to a health plan related lawsuit (“Lawsuit”) arising from treatment of a former employee of the Company by Plaintiff (a hospital). Based on discussions with our legal counsel and based on the preliminary investigations to date, at this time management believes there is a reasonable possibility that the claims asserted against the Company in the Lawsuit could have a negative result to the Company. However, the Company believes that any exposure related to the Lawsuit would be immaterial to the operations of the Company. Given the preliminary nature of the Lawsuit (and the Company’s investigations of the allegations asserted therein), the Company believes the Lawsuit meets the “reasonably possible” criteria and therefore has not accrued any expense as of June 30, 2015 related to this matter.

 

Environmental Matters

 

Portions of Tropicana Las Vegas are known to contain asbestos as well as other environmental conditions, which may include the presence of mold. The environmental conditions may require remediation in isolated areas. The extent of such potential conditions cannot be determined definitively, and may result in additional expense in the event that additional or currently unknown conditions are detected.

 

 
13

 

 

TROPICANA LAS VEGAS HOTEL AND CASINO, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

8. Stockholders’ Equity

 

Changes in Stockholders’ Equity

 

Changes in stockholders’ equity for the six months ended June 30, 2015 were as follows ($ in thousands):

 

Balance, December 31, 2014

  $ 252,228  

Share-based compensation

    1  

Net loss

    (9,208

)

Accumulated other comprehensive income (loss)

     

Balance, June 30, 2015

  $ 243,021  

 

Preferred Stock

 

Dividends on the Company’s Preferred Stock are calculated at a rate of 12.5% per annum and are payable semi-annually in arrears, commencing in February 2010 for the Series 1 Preferred, August 2010 for the Series 2 Preferred, August 2011 for the Series 3 Preferred and February 2012 for the Series 4 Preferred. Dividends payable for each dividend period are computed on the basis of a 360-day year consisting of twelve 30-day months. Dividends on the Preferred Stock are cumulative. If for any reason our board of directors does not declare a dividend on the Preferred Stock for a particular dividend period, or if our board of directors declares less than a full dividend, we will remain obligated to pay the unpaid portion of the dividend for that period and the unpaid dividend will compound on each subsequent dividend date (meaning that dividends for future dividend periods will be calculated on any unpaid dividend amounts for prior dividend periods).

 

There have been no cash dividends declared on our preferred stock since we issued each preferred stock series. We do not intend to pay cash dividends on our preferred stock for the foreseeable future. Our Amended and Restated Loan prohibits us from declaring dividends as long as there is outstanding debt. As of June 30, 2015, we had approximately $164.5 million in unrecorded dividend liability.

 

9. Employee Benefit Plans

 

Collective Bargaining Agreements

 

A significant portion of our labor force is covered by collective bargaining agreements. Although unions have been active in Las Vegas, we believe that we have a good working relationship with our union employees. As of June 30, 2015, 927 of our 1,544 employees, or 60%, were covered by collective bargaining agreements.

 

Withdrawal from Collective Bargaining Unit

 

Effective April 15, 2015, the International Union of Operating Engineers and Participating Employers disclaimed the Operating Engineers unit of approximately 20 employees working at the hotel. Although the bargaining agreement between the Company and the union expired on May 31, 2011, it continued operating on a month to month basis and the Company continued to make monthly contributions to their multi-employer defined benefit pension plan. The Company did not have a withdrawal liability from the Operating Engineers pension fund.

 

Multi-Employer Pension Plans

 

We contribute to multi-employer defined benefit pension plans (collectively, “the Plans”) for certain of our union employees under the terms of the applicable bargaining agreements. Risks of participating in a multi-employer plan differs from single-employer plans for the following reasons: (1) assets contributed to a multi-employer plan by one employer may be used to provide benefits to employees of other participating employers; (2) if a participating employer stops contributing to the plan, the unfunded obligations of the plan may be borne by the remaining participating employers; and (3) if a participating employer stops participating, it may be required to pay those plans an amount based on the underfunded status of the plan, referred to as a withdrawal liability. The contributions made by us were not individually significant to any of the respective Plans.

 

 
14

 

 

TROPICANA LAS VEGAS HOTEL AND CASINO, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

The following table includes information on each of our multi-employer defined pension plans and the employer contributions made for the periods indicated.

 

                     

Contributions for

   

Contributions for

 
                     

Three Months Ended

June 30,

   

Six Months Ended

June 30,

 

Pension Plan Legal Name

 

Plan No.

   

Employer
Identification No.

 

Expiration
Date

 

2015

   

2014

   

2015

   

2014

 

Southern Nevada Culinary Workers and Bartenders Pension Plan Trust

    001       88-6016617  

5/31/18

  $ 281,055     $ 266,842     $ 567,805     $ 541,950  

Nevada Resort Association I.A.T.S.E. Local 720 Pension Trust

    001       51-0144767  

12/31/18

    23,580       58,825       54,339       65,450  

Western Conference of Teamsters Pension Trust

    001       91-0681009  

3/31/18

    94,078       92,052       202,889       198,085  

Central Pension Fund of the International Union of Operating Engineers and Participating Employers

    001       36-6052390  

4/15/15

    17,624       64,387       92,054       136,258  

Southwest Carpenters Joint Trust Fund

    001       95-6042875  

7/31/19

    20,541       14,882       44,070       29,148  

National Electrical Benefit Fund

    001       88-6023284  

2/28/17

    4,945       4,257       10,602       9,152  

International Painters and Allied Trades Industry Pension Fund

    001       52-6073909  

6/30/18

    10,204       5,812       21,379       12,442  

Total Contributions

                    $ 452,027     $ 507,057     $ 993,138     $ 992,485  

 

 

Employment Agreements

 

We have entered into employment agreements with our executive officers and other members of management. These agreements generally have one to three year terms, typically indicate a base salary and often contain provisions for bonuses. Certain of the executives are also entitled to a separation payment if terminated without “cause” or upon voluntary termination of employment for “good reason” (as these terms are defined in the employment contracts).

 

Termination Benefits of Executive Officers

 

Mr. Alex Yemenidjian, our President and Chief Executive Officer, intends to terminate his employment with the Company in connection with the closing of the Merger. Other than payment in respect of his accrued vacation pay, estimated to be approximately $0.4 million as of June 30, 2015, Mr. Yemenidjian will not be entitled to any other payments or benefits pursuant to his employment agreement with the Company, dated July 1, 2009, or any other agreement with the Company in connection with the Merger, and has executed a waiver and release agreement to that effect.

 

Ms. Joanne Beckett, our Vice President, General Counsel and Corporate Secretary’s employment agreement provides for a three-year term through September 30, 2017, subject to extension of the term for a one-year period at the Company’s election. Mr. Jason Goudie, our Vice President and Chief Financial Officer’s employment agreement provides for an initial term through July 7, 2016, subject to extension of the term for a one-year period at the Company’s election. If there is a “Qualifying Termination” that occurs in connection with or following the closing of the Merger, each executive is eligible to receive the maximum severance benefits which include six months’ salary and benefits continuation for Ms. Beckett, estimated to total approximately $0.2 million and six months’ salary and three months’ benefits continuation for Mr. Goudie, estimated to total approximately $0.1 million. Based on the fact that these severance benefits payments are solely contingent on the termination of employment of Ms. Beckett or Mr. Goudie, no liability was recorded as of June 30, 2015.

 

 
15

 

 

TROPICANA LAS VEGAS HOTEL AND CASINO, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

10. Entry Into Merger Agreement

 

On April 28, 2015, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Penn National Gaming, Inc., a Pennsylvania corporation (“Parent”), LV Merger Sub, Inc., a Delaware corporation and a wholly-owned subsidiary of Parent (“Merger Sub”) and Trilliant Gaming Nevada, Inc. (as stockholder representative), providing for the acquisition of the Company by Parent. In accordance with the Merger Agreement, Merger Sub will merge with and into the Company (the “Merger”), with the Company continuing as the surviving entity and a wholly-owned subsidiary of Parent.

 

According to the conditions set forth in the Merger Agreement, each share of issued and outstanding (i) class A common stock, par value $0.01 per share (“Class A Common Stock”) and (ii) preferred stock, par value $0.01 per share (“Preferred Stock”), of the Company, other than shares held by the Company in treasury or held by any Company subsidiary, owned by Parent or Merger Sub or with respect to which appraisal rights under Delaware law are properly exercised and not withdrawn, will be converted into the right to receive a pro rata portion (for such purpose, calculated as if each share of Preferred Stock had been converted to Class A Common Stock in accordance with its terms immediately prior to the effective time of the Merger) of aggregate merger consideration equal to $360,000,000, adjusted upward or downward pursuant to the terms of the Merger Agreement for certain items, including the amounts of the Company’s cash, indebtedness and working capital as of the Closing of the Merger, all as set forth in the Merger Agreement. The transaction is currently expected to be completed in the third quarter of 2015.

 

The Merger Agreement contains representations, warranties and covenants of the parties customary for a transaction of this type. Completion of the Merger is subject to customary closing conditions, including, among others, (i) approval of the majority of the voting power of the outstanding shares of Class A Common Stock and Preferred Stock, voting together as a single class, entitled to vote, and two-thirds all votes cast (which approval was obtained following the execution and delivery of the Merger Agreement as described below), (ii) expiration or termination of the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, (iii) obtaining certain approvals from gaming authorities with regulatory jurisdiction over the Company and Parent, (iv) at least twenty calendar days having elapsed since the mailing to the Company’s stockholders of the definitive information statement with respect to the adoption of the Merger Agreement, and (v) absence of a Company Material Adverse Effect (as defined in the Merger Agreement) occurring after the date of the Merger Agreement. The receipt of financing by Parent or Merger Sub is not a condition to any of the parties’ obligations under the Merger Agreement.

 

The Merger Agreement contains certain termination rights for Parent and the Company. In connection with the termination of the Merger Agreement under specified circumstances, Parent will be required to pay the Company a termination fee of up to $25,000,000 as set forth in the Merger Agreement.

 

On April 29, 2015, following the execution and delivery of the Merger Agreement, stockholders of the Company holding, in the aggregate, shares of Class A Common Stock and shares of Preferred Stock, constituting approximately 83.4% of the voting power of the outstanding shares of the Class A Common Stock and Preferred Stock, together as a single class as of April 28, 2015, executed a written consent adopting the Merger Agreement and approving the transactions and agreements contemplated thereby. No further approval of the stockholders of the Company is required to approve and adopt the Merger Agreement and the transactions contemplated thereby.

 

There can be no assurance that the Merger will be completed as contemplated. Furthermore, there are a number of risks and uncertainties to the Company’s business related to the pending Merger, including provisions in the Merger Agreement that place restrictions on the conduct of the Company’s business prior to the completion of the Merger.  For additional information, please see Part II Item 1A Risk Factors.

 

Merger Related Costs

 

In connection with the Merger, the Company has incurred professional fees and other expenses totaling approximately $0.8 million and $1.1 million during the three and six months periods ended June 30, 2015, respectively. The most significant Merger related costs are legal fees, which are reflected in selling, general and administrative expenses in the accompanying condensed consolidated statements of operations and comprehensive loss. Approximately $0.8 million of merger related legal fees were accrued as of June 30, 2015.

 

 
16

 

 

TROPICANA LAS VEGAS HOTEL AND CASINO, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

Merger Transaction Bonus

 

The Compensation Committee of our Board of Directors adopted and approved an equity bonus pool of up to $2.0 million in the aggregate (the “Bonus Pool”) pursuant to which the Company may pay Merger transaction bonuses to employees of the Company that have the title of Vice President or above including the Chief Executive Officer. The allocation of the Bonus Pool has yet to be determined. Our President and Chief Executive Officer will make a recommendation to the Board of Directors, which is subject to approval by the Board prior to the closing of the Merger transaction. A portion of the Bonus Pool may be allocated to Ms. Beckett, Mr. Goudie and Mr. Yemenidjian. Given that the Bonus Pool is only to be paid in connection with the closing of the Merger, no liability was recorded as of June 30, 2015.

 

Indemnification of Directors and Executive Officers; Directors’ and Officers’ Insurance

 

Under the Merger Agreement, each current and former director and officer of the Company and its subsidiaries are entitled to continuing indemnification from and after the effective date by the surviving corporation against losses arising out of or related to such persons’ service as a director or officer of the Company or its subsidiaries, and services performed by them at the request of the Company or its subsidiaries at or prior to the effective date, whether asserted or claimed prior to or after the effective date of the merger, including the transactions contemplated by the Merger Agreement. In addition, the Company has agreed to obtain and fully pay the premium for the extension of the directors’ and officers’ liability coverage of the Company’s existing directors’ and officers’ insurance policies for a claims reporting or discovery period of six (6) years after the effective date of the merger. We expect this policy to cost approximately $0.1 million at the closing of the Merger.

 

11. Subsequent Events

 

We have evaluated all activity through the issuance date of the condensed consolidated financial statements, and concluded that no material subsequent events have occurred that require recognition in the condensed consolidated financial statements or disclosure in the notes to the condensed consolidated financial statements.

 

 
17

 

 

Item 2.     Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

You should read the following discussion in conjunction with management’s discussion and analysis contained in our 2014 Annual Report on Form 10-K, and subsequent reports on Form 10-Q and Form 8-K, as well as the condensed consolidated financial statements and the notes hereto included in this Quarterly Report on Form 10-Q. This discussion contains certain “forward-looking statements,” including information relating to future events, future financial performance, strategies, expectations, competitive environment, regulation and availability of resources. Words such as “may,” “should,” “could,” “would,” “predicts,” “potential,” “continue,” “expects,” “anticipates,” “future,” “intends,” “plans,” “believes,” “estimates” and similar expressions, as well as statements in future tense, identify forward-looking statements. Forward-looking statements should not be read as a guarantee of future performance or results and will not necessarily be accurate indications of the times at, or by, which such performance or results will be achieved. Forward-looking statements speak only as of the date the statements are made. You should not put undue reliance on any forward-looking statements. Our actual results may differ materially from those discussed in these forward-looking statements because of the risks and uncertainties inherent in future events.

 

Overview and Recent Events

 

Business Overview. Our primary business is the ownership and operation of Tropicana Las Vegas which offers casino gaming, hotel accommodations, dining, entertainment, retail shopping and other resort amenities. Tropicana Las Vegas is conveniently located on 35 acres at the corner of Tropicana Avenue and Las Vegas Boulevard on the Las Vegas Strip. Our property currently offers 1,467 remodeled hotel rooms and suites, a 50,000 square foot casino floor, three restaurants, two casual dining venues, two entertainment venues, beach club and special event venue, and up to 100,000 square feet of flexible convention and meeting space. We also offer a state of the art spa and fitness facility, race and sports book, and retail space, all leased to various third parties.

 

Entry Into Merger Agreement. On April 28, 2015, the Company entered into a Merger Agreement with Penn National Gaming, Inc., providing for the acquisition of the Company from its shareholders for approximately $360 million. The transaction is currently expected to be completed in the third quarter of 2015.

 

Financial Results. Our financial results are dependent upon the number of patrons that we attract to our property and the amounts those guests spend per visit. Additionally, our operating results may be affected by, among other things, overall economic conditions impacting the disposable income of our guests, achieving and maintaining cost efficiencies, competition on the Las Vegas Strip, gaming tax increases and other regulatory changes, the commencement of new gaming operations, construction improvements at our facilities and general public sentiment regarding travel. We may experience significant fluctuations in our quarterly operating results due to seasonality, variations in gaming hold percentages and other factors. Consequently, our operating results for any quarter or year are not necessarily comparable and may not be indicative of future periods’ results.

 

Current Economic Conditions. Las Vegas is the largest gaming market in the United States. During the first five months of 2015, the economic environment in the gaming and hotel markets in Las Vegas continued to improve with increased gaming revenues and hotel room demand. Las Vegas Strip gaming revenues increased 1.6% or $43.1 million, to $2.72 billion for the five months ended May 31, 2015, from $2.67 billion for the same period in 2014. The average daily room rate increased 1.9%, from $132.11 for the five months ended May 31, 2014 to $134.58 for the five months ended May 31, 2015. Volume and gaming statistics noted above are released by the Las Vegas Convention and Visitors Authority.

 

Competition. We face significant competition in the Las Vegas market, as well as from adjacent states. Such competition may intensify as new gaming operations open in our market or existing competitors expand their operations. Over the past several years, a number of competitors announced investments in new hotel/casino offerings, restaurants and clubs in Las Vegas. As these developments open, they may target the same customers as we do. We also compete for customers with other casino operators in other markets, including casinos located on Native American reservations, and other forms of gaming, such as lotteries and internet gaming. Many of our competitors are larger and have substantially greater name recognition and marketing and financial resources. We believe that increased legalized gaming in other areas, the development or expansion of Native American gaming, the expansion or additional developments in Las Vegas, and the legalization of internet gaming, could create additional competition for us and could adversely affect our operations.

 

 
18

 

 

Seasonality. The Las Vegas hotel, resort and casino industry is seasonal in nature. A variety of factors contribute to the seasonality of the Las Vegas market, including the timing of major Las Vegas conventions, major holidays such as New Year’s and Chinese New Year and major sporting events, particularly the Super Bowl. These factors can drive additional business to the Las Vegas market. Visitor volumes typically are lower during off-peak times, such as mid-week or during traditional slower leisure periods between Thanksgiving and New Year’s.

 

Property Updates Expanding Meeting and Convention Facilities. In April 2015, we completed an expansion of the Tropicana Pavilion, which increases our property-wide meeting and convention facilities to approximately 100,000 square feet.  The new Tropicana Pavilion space offers 11 separate breakout rooms featuring new private restrooms. The new space is able to handle larger corporate meetings and events in an entirely self-contained remodeled space of 55,000 square feet.

 

Key Financial Metrics

 

Casino Revenue. Casino revenue is derived primarily from customers wagering on slot machines, table games and other gaming activities. Table games generally include blackjack or twenty one, craps, mini-baccarat, roulette and other specialty games. Other gaming activities include poker. Casino revenue is defined as the net win from gaming activities, computed as the difference between gaming wins and losses, not the total amounts wagered. “Table game drop” and “slot handle” are casino industry specific terms that are used to identify the amount wagered by customers at tables and slot machines, respectively. “Table game hold” and “slot hold” represent the percentage of the total amount wagered by customers that the casino has won. Hold is derived by dividing the amount won by the casino by the amount wagered by customers. Casino revenue is recognized at the end of each gaming day. Casino revenue varies from time to time due to table game hold, slot hold and the amount of gaming activity.

 

Room Revenue. Room revenue is derived from hotel rooms and suites rented to guests. “Average daily rate” is an industry specific term used to define the average amount of revenue per room per rented room day. “Occupancy percentage” defines the total percentage of rooms occupied and is computed by dividing the number of rooms occupied by the total number of rooms available. “Revenue per available room” (“RevPAR”) is an industry specific term used to define the average amount of revenue per room per available room day and is computed by dividing total room revenue by total rooms available. Room revenue is recognized at the time the rooms are provided to guests. Hotel room revenue varies depending upon the occupancy level of the hotel and the rates that can be charged.

 

Food and Beverage Revenue. Food and beverage revenue is derived from food and beverage sales in the food outlets of the hotel and casino, including restaurants, room service and banquets. Food and beverage revenue is recognized at the time the relevant food or beverage service is provided to guests.

 

Operating Costs and Expenses. Operating costs and expenses include the direct costs associated with, among other things, operating the casino, hotel, food and beverage outlets and other casino and hotel operations (including retail amenities, concessions, entertainment offerings and certain other ancillary services conducted at the casino). These direct costs primarily relate to payroll, supplies, costs of goods sold and gaming taxes and licenses. Gaming taxes and license fees are based upon such factors as a percentage of the gross revenues or net gaming proceeds received and the number of gaming devices and table games operated. Gaming license fees and taxes may also vary with changes in applicable legislation. Operating costs and expenses also include the costs of marketing, advertising and promotions, general and administrative costs and the costs of maintenance and utilities in addition to depreciation and amortization expense.

 

 
19

 

 

Results of Operations

 

The Company’s operations are conducted entirely at Tropicana Las Vegas hotel-casino resort, which includes hotel, casino, food and beverage, entertainment, retail and other related operations. Given the integrated nature of these operations, the Company is considered to have one operating segment.

 

The following table highlights our results of operations for the periods indicated ($ in thousands):

 

   

Three Months Ended

           

Six Months Ended

         
   

June 30,

   

Percent

   

June 30,

   

Percent

 
   

2015

   

2014

   

Change

   

2015

   

2014

   

Change

 

Net revenues

  $ 30,817     $ 29,008       6

%

  $ 58,970     $ 56,157       5

%

Operating expenses

    34,405       31,886       8

%

    65,938       61,946       6

%

Operating loss

    (3,588

)

    (2,878

)

    25

%

    (6,968

)

    (5,789

)

    20

%

                                                 

Interest expense, net

    (1,121

)

    (796

)

    41

%

    (2,240

)

    (1,606

)

    39

%

Net loss

  $ (4,709

)

  $ (3,674

)

    28

%

  $ (9,208

)

  $ (7,395

)

    25

%

 

 

The following table highlights our various sources of revenues and related expenses for the periods indicated ($ in thousands):

 

   

Three Months Ended

           

Six Months Ended

         
   

June 30,

   

Percent

   

June 30,

   

Percent

 
   

2015

   

2014

   

Change

   

2015

   

2014

   

Change

 
Casino revenues   $ 11,276     $ 10,276       10 %   $ 21,149     $ 20,283       4 %

Casino expenses

    6,972       6,744       3

%

    13,424       13,282       1

%

Margin

    38

%

    34

%

            37

%

    35

%

       
                                                 
Room revenue   $ 12,958     $ 12,683       2 %   $ 25,575     $ 24,824       3 %

Room expense

    6,063       5,898       3

%

    11,556       10,836       7

%

Margin

    53

%

    53

%

            55

%

    56

%

       
                                                 
Food and beverage revenues   $ 7,719     $ 7,116       8 %   $ 14,616     $ 13,413       9 %

Food and beverage expenses

    5,983       5,961       0

%

    11,337       11,171       1

%

Margin

    22

%

    16

%

            22

%

    17

%

       
                                                 
Other revenues   $ 1,574     $ 1,524       3 %   $ 2,951     $ 2,721       8 %

Other expenses

    1,431       1,401       2

%

    2,817       2,723       3

%

 

 

Three months ended June 30, 2015 (“Current Quarter”) compared to the three months ended June 30, 2014 (“Prior Year Quarter”)

 

Net Revenue. Net revenues increased by $1.8 million or 6% for the Current Quarter as compared to the Prior Year Quarter due to higher revenue across all revenue categories.

 

Operating Loss. The operating loss increased by $0.7 million or 25% for the Current Quarter as compared to the Prior Year Quarter primarily as a result of higher operating expenses.

 

Casino. Casino revenues increased $1.0 million or 10% for the Current Quarter as compared to the Prior Year Quarter. Table game revenues accounted for the $1.0 million increase in casino revenues as a result of a higher hold percentage and an increase in the table game drop. Casino expenses increased $0.2 million or 3% for the Current Quarter as compared to the Prior Year Quarter due to higher gaming taxes commensurate with higher gaming revenues and higher special events expenses associated with the fight weekend in May 2015. As a result of the increases in table game revenues and slightly higher casino expenses, the casino operating margin increased to 38% for the Current Quarter from 34% in the Prior Year Quarter.

 

 
20

 

 

Room. Room revenue increased $0.3 million or 2% for the Current Quarter as compared to the Prior Year Quarter, which was attributable to an increase in the average daily rate. While the occupancy rate decreased to 91.8% in the Current Quarter from 94.0% in the Prior Year Quarter, the average daily rate increased 2% from $90.69 in the Prior Year Quarter to $92.46 in the Current Quarter. Room expenses increased by $0.2 million or 3% for the Current Quarter as compared to the Prior Year Quarter due to increases in payroll, guest room supplies and outside services, offset by a decrease in Hilton royalty fees. The hotel operating margin remained flat at 53% in both the Current Quarter and the Prior Year Quarter.

 

Food and Beverage. Food and beverage revenues increased $0.6 million or 8% for the Current Quarter as compared to the Prior Year Quarter. The increase was primarily due to the new special events business in the Havana Room and the two new shows in the Tropicana Theater. Food and beverage expenses remained flat for the Current Quarter as compared to the Prior Year Quarter. As the result of the increase in food and beverage revenues and continued cost reduction efforts, the food and beverage operating margin increased 6 percentage points in the Current Quarter as compared to the Prior Year Quarter.

 

Other. Other revenues primarily include income from convention services, entertainment and leased outlets. Other revenues were $1.6 million for the Current Quarter as compared to $1.5 million for the Prior Year Quarter. Other expenses were flat at $1.4 million for both the Current Quarter and the Prior Year Quarter.

 

Selling, General and Administrative. Selling, general and administrative expenses increased $1.1 million or 23% for the Current Quarter as compared to the Prior Year Quarter. The increase in selling, general and administrative expenses is due to legal fees primarily in connection with the proposed Merger.

 

Maintenance and Utilities. Maintenance and utilities expense increased $0.6 million or 20% for the Current Quarter as compared to the Prior Year Quarter primarily due to repairs and higher payroll, utilities and outside services.

 

Depreciation and Amortization. Depreciation and amortization expense decreased $0.4 million or 8% for the Current Quarter as compared to the Prior Year Quarter primarily due to certain assets becoming fully depreciated during the Current Quarter.

 

Loss on Assets Disposals. We wrote off $0.9 million of property and equipment in the Prior Year Quarter based upon a tenant lease settlement whereby our existing assets were replaced by the tenant.

 

Gain on Lease Terminations. We recognized a $1.5 million gain in the Prior Year Quarter resulting from a tenant lease settlement whereby we received $1.5 million in personal property and leasehold improvements.

 

Interest Expense. Interest expense increased $0.3 million or 41% for the Current Quarter as compared to the Prior Year Quarter due to higher outstanding borrowings under capital leases.

 

Six months ended June 30, 2015 (“Current Period”) compared to the six months ended June 30, 2014 (“Prior Year Period”)

 

Net Revenue. Net revenues increased $2.8 million or 5% for the Current Period as compared to the Prior Year Period due to higher revenue across all revenue categories.

 

Operating Loss. The operating loss increased by $1.2 million or 20% for the Current Period as compared to the Prior Year Period primarily as result of the higher revenues noted above, offset by a 6% increase in operating expenses.

 

Casino. Casino revenues increased $0.9 million or 4% for the Current Period as compared to the Prior Year Period. Table game revenues accounted for $0.8 million of the increase in casino revenues as a result of a higher drop than in the Prior Year Period. Casino expenses increased $0.1 million or 1% for the Current Period as compared to the Prior Year Period. As a result of the higher revenues, the casino operating margin increased 2 percentage points in the Current Period as compared to the Prior Year Period.

 

 
21

 

 

Room. Room revenue increased $0.8 million or 3% for the Current Period as compared to the Prior Year Period, which was attributable to an increase in average daily rate to $96 from $94, with occupancy remaining fairly flat. Room expense increased $0.7 million or 7% for the Current Period as compared to the Prior Year Period, due to increases in payroll, laundry services, outside services, commissions, and dues and subscriptions, offset by a decrease in Hilton royalty fees. The hotel operating margin decreased 1 percentage point in the Current Period as compared to the Prior Year Period.

 

Food and Beverage. Food and beverage revenues increased $1.2 million or 9% for the Current Period as compared to the Prior Year Period. The increase was primarily due to the new special events business in the Havana Room and the two new shows in the Tropicana Theater. Food and beverage expenses increased $0.2 million or 1% for the Current Period as compared to the Prior Year Period due an increase in cost of goods sold commensurate with the increase in revenues. As the result of the increase in food and beverage revenues and continued cost reduction efforts, the food and beverage operating margin increased 5 percentage points in the Current Period as compared to the Prior Year Period.

 

Other. Other revenues primarily include income from convention services, entertainment, and leased outlets. Other revenues increased $.02 million or 8% for the Current Period over the Prior Year Period due to an increase in entertainment revenue from the two new shows opening in November 2014 at the Tropicana Theater and an increase in leased outlet revenues, offset by a decrease in convention services revenue. Other expenses increased $0.1 million or 3% for the Current Period over the Prior Year Period due to higher payroll costs, offset by a decrease in operating expenses.

 

Selling, General and Administrative. Selling, general and administrative expenses increased $1.6 million or 16% for the Current Period as compared to the Prior Year Period. The increase in selling, general and administrative expenses is primarily due to legal fees primarily in connection with the proposed Merger.

 

Maintenance and Utilities. Maintenance and utilities expense increased $1.2 million or 20% for the Current Period as compared to the Prior Year Period due to repairs and higher payroll, utilities and outside services.

 

Depreciation and Amortization. Depreciation and amortization expense decreased $0.6 million or 6% for the Current Period as compared to the Prior Year Period primarily due to certain assets becoming fully depreciated during the Current Period.

 

Loss on Assets Disposals. We wrote off $0.9 million of property and equipment in the Prior Period based upon a tenant lease settlement whereby our existing assets were replaced by the tenant.

 

Gain on Lease Terminations. We recognized a $1.5 million gain in the Prior Year Period resulting from a tenant lease settlement whereby we received $1.5 million in personal property and leasehold improvements.

 

Interest Expense. Interest expense increased $0.6 million or 39% for the Current Period as compared to the Prior Year Period due to higher outstanding borrowings under capital leases.

 

Liquidity and Capital Resources

 

Amended and Restated Loan Agreement

 

Effective December 21, 2012, we agreed to amend and restate our $65.0 million loan agreement. The Amended and Restated Loan is comprised of a $50.0 million Revolver A facility, a $5.0 million Revolver B facility, and a $10.0 million Revolver C facility. The Revolver A bears interest at 4% per annum, Revolver B bears interest at 5% per annum and Revolver C bears interest at 6% per annum. The fee for any unfunded portion of the Revolver A, Revolver B or Revolver C is 0.50%. Each revolving credit facility has a stated maturity date of April 2, 2018.

 

The Amended and Restated Loan contains customary affirmative, negative and financial covenants. The covenants, among other things, restrict, subject to certain exceptions, our ability to: incur additional indebtedness; create liens on property or assets; make certain investments; engage in mergers or consolidations; sell assets; pay dividends or make distributions; engage in certain transactions with affiliates; enter into sale-leaseback transactions; and pay management fees. In addition, the Amended and Restated Loan requires us to maintain a $2.0 million cash balance and meet certain EBITDA minimums on a quarterly basis for the periods from March 31, 2015 through March 31, 2018 with a standard cure provision if the EBITDA minimums are not met. Substantially all of the assets of Tropicana Las Vegas are pledged as collateral under the Amended and Restated Loan and priority of liens and security interest were granted to our lenders. The lenders have agreed to release their security interest in a one acre (approximately) parcel for future development. Pursuant to the terms of the Amended and Restated Loan and letter agreement, we were required to maintain an interest reserve account for payments of quarterly interest.

 

 
22

 

 

Effective December 30, 2014 we executed a letter agreement with lenders that: i) established the required minimum EBITDA financial covenant for each fiscal quarter in 2015; ii) required the Company to deposit an additional $1.6 million into the interest reserve account in January 2015; and iii) eliminated the Lender obligation to disburse all amounts in the interest reserve account as of December 31, 2014 if certain conditions were met. As of June 30, 2015, we are in compliance with all of our covenants and expect to remain compliant with our covenants throughout the remainder of 2015. As of June 30, 2015, the interest reserve account has a balance of $1.5 million to cover future interest payments.

 

Liquidity Outlook

 

We have been operating at a loss since we commenced operations on July 1, 2009 and generated negative cash flows prior to 2014. Our ability to generate cash from operations in the future depends, in significant part, upon the state of the hotel and gaming industry in Las Vegas, which in turn depends upon a number of factors including the state of the United States economy, the amount of discretionary consumer and corporate spending in Las Vegas and the level of competition in the Las Vegas hotel and casino market.

 

Our primary sources of liquidity are comprised of cash flows from operations, a revolving line of credit totaling $65 million and four rights offerings which raised $200 million. We believe that our existing cash balance, cash flows from operations, and existing revolver line ($5 million available as of June 30, 2015) will be more than adequate to meet our financial and operating obligations over the next twelve months. However, we will continue to closely monitor and manage our cash position given the current economic environment. If our sources of capital are inadequate to fund our long-term liquidity requirements, including our need to service our existing debt obligations as they come due, we will attempt to procure additional debt or equity financing, to fund our operations, capital expenditures and debt service requirements.

 

We can provide no assurance that our business will generate sufficient cash flow from operations or that future borrowings will be available in amounts sufficient to enable us to pay our indebtedness or to fund our other liquidity needs. Moreover, we may need to refinance all or a portion of our indebtedness on or before maturity. We cannot make assurances that we will be able to refinance any of our indebtedness on commercially reasonable terms or at all.

 

Cash Flow Data

 

Our ongoing liquidity will depend on a number of factors, including available cash resources, cash flow from operations, funding of our capital projects and our revolving credit requirements.

 

The following table highlights our cash flow data for the periods indicated (in thousands):

 

   

Six Months Ended

June 30,

 
    2015     2014  
Net provided by operating activities   $ 2,832     $ 3,803  

Net cash used in investing activities

    (1,472 )     (1,816 )

Net cash used in financing activities

    (3,514 )     (2,141 )

Net decrease in cash and cash equivalents

  $ (2,154 )   $ (154 )

 

Cash Flows from Operating Activities

 

During the Current Period, cash flows provided by operating activities were $2.8 million as compared to $3.8 million in the Prior Year Period, primarily due to an increase in professional fees and other related expenses totaling approximately $1.1 million incurred in connection with the Merger.

 

 
23

 

 

Cash Flows Used in Investing Activities

 

During the Current Period, cash used for capital expenditures was approximately $1.5 million as compared to $1.8 million in the Prior Year Period, reflective of $0.3 million reduction in capital expenditures and $0.1 million reduction in construction payable.

 

Cash Flows Provided by Financing Activities

 

During the Current Period, we paid down $0.5 million on our Revolver A loan, $2.5 million on our Revolver C loan, $0.7 million in principal payments under capital leases and $0.5 million in payments under a financing arrangement for insurance coverage. We also borrowed $0.4 million on our Revolver A loan and $0.3 million under a financing arrangement for insurance coverage. For the Prior Year Period, we paid $2.0 million on our Revolver C loan and $0.4 million in principal payments under capital leases and borrowed $0.3 million under a financing arrangement for insurance coverage. As of June 30, 2015, we had remaining borrowing capacity of $5.0 million under the Amended and Restated Loan.

 

Off-Balance Sheet Arrangements

 

We have no special purpose entities, financing partnerships, guarantees or off-balance sheet arrangements other than $0.3 million of outstanding letter of credits discussed in Note 7 “Commitments and Contingencies” to the condensed consolidated financial statements.

 

Contractual Obligations

 

Material changes during the three months ended June 30, 2015 to our contractual obligations as disclosed in Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Annual Report on Form 10-K for the year ended December 31, 2014 include payments made in relationship to our capital leases as described in Note 5 to the condensed consolidated financial statements in this Form 10-Q and our entry into a Merger Agreement with Penn National Gaming, Inc. on April 28, 2015 as described in Note 10 to the condensed consolidated financial statements in this Form 10-Q.

 

Critical Accounting Policies

 

A description of our critical accounting policies can be found in the audited consolidated financial statements and notes included in our Annual Report on Form 10-K for the year ended December 31, 2014. For a further discussion of our accounting policies, see Note 2 to the condensed consolidated financial statements in this Form 10-Q. There were no material changes to our critical accounting policies during the three months ended June 30, 2015.

 

Recent Accounting Pronouncements

 

For a further discussion of certain recent accounting pronouncements, see Note 3 to the condensed consolidated financial statements in this Form 10-Q.

 

Item 3.     Quantitative and Qualitative Disclosures About Market Risk

 

Market risk is the risk of loss arising from adverse changes in market rates and prices, such as interest rates, foreign currency exchange rates and commodity prices. Our use of debt exposes us to interest rate risk. As of June 30, 2015, all of our long-term debt and capital leases had fixed interest rates which eliminated our exposure to fluctuation of interest rates. However, as our fixed rate debt matures, and if additional debt is acquired to fund the debt payment, future earnings and cash flows may be affected by changes in interest rates.

 

 
24

 

 

The following table sets forth our long-term debt obligations and the related interest rates as of June 30, 2015 ($ in thousands):

 

Type

 

 

Expected Maturity

 

Interest Rate

   

Principal

Outstanding

 

Obligations under capital leases

 

August 2015 – July 2019

    0.0% to 8.5%     $ 3,757  

Revolver A, $5 million limit

 

April 2018

 

Fixed at 4.0%

      49,691  

Revolver B, $5 million limit

 

April 2018

 

Fixed at 5.0%

      5,000  

Revolver C, $10 million limit

 

April 2018

 

Fixed at 6.0%

      5,000  

Total debt

          $ 63,448  

 

Item 4.      Controls and Procedures.

 

Disclosure Controls and Procedures

 

Our Chief Executive Officer (principal executive officer) and Chief Financial Officer (principal financial officer) have concluded that the design and operation of our disclosure controls and procedures are effective as of the end of the period covered by this report. This conclusion is based on an evaluation as required by Rule 13a-15(e) under the Exchange Act conducted under the supervision and participation of the principal executive officer and principal financial officer along with the Company’s management. Disclosure controls and procedures are those controls and procedures which ensure that information required to be disclosed in this filing is accumulated and communicated to management and is recorded, processed, summarized and reported in a timely manner and in accordance with Securities and Exchange Commission (“SEC”) rules and regulations.

 

It should be noted that any system of controls, however well designed and operated, can provide only reasonable, and not absolute assurance that the objectives of the system are met. In addition, the design of any control system is based in part upon certain assumptions about the likelihood of future events. Because of these and other inherent limitations of control systems, there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions, regardless of how remote.

 

Internal Control Over Financial Reporting

 

There were no changes in our internal control over financial reporting that occurred during the quarter to which this report relates that materially affected, or that are reasonably likely to materially affect, our internal control over financial reporting.

 

 

PART II. OTHER INFORMATION

 

Item 1.      Legal Proceedings

 

Reference is made to the legal proceedings reported under Note 7 “Commitments and Contingencies” of the condensed consolidated financial statements included in this Form 10-Q.

 

Item 1A.   Risk Factors

 

Our business has many risks. Factors that could materially adversely affect our business, financial condition, operating results or liquidity are described under “Risk Factors” in Item I of our Annual Report on Form 10-K for the year ended December 31, 2014. Additional risk factors that may affect future results are listed below. This information should be considered carefully, together with other information in this report and other reports and materials we file with the Securities and Exchange Commission.

 

 
25

 

 

Factors That May Affect Future Results

 

The proposed merger with Penn may disrupt our business.

 

As previously announced, on April 28, 2015 we entered into a merger agreement with Penn National Gaming, Inc. (“Penn”), LV Merger Sub, Inc. (“Merger Sub”) and Trilliant Gaming Nevada Inc., as the stockholder representative, pursuant to which Merger Sub will be merged with and into the Company (the "Merger") for a base consideration to shareholders of $360,000,000 in cash, subject to certain adjustments. The Merger, whether or not consummated, may result in a loss of key personnel and may disrupt our sales and marketing or other key business activities, including our relationships with third parties, including customers, which may have an adverse impact on our financial performance. The merger agreement in general requires us to operate our business in the ordinary course pending consummation of the Merger, but includes certain contractual restrictions on the conduct of our business that may affect our ability to execute on our business strategies and attain our financial goals.

 

If the merger with Penn does not occur, we will have incurred significant expenses.

 

The obligation of Penn to complete the Merger is subject to several conditions, including the receipt of certain regulatory approvals, including the approval of certain other governmental entities that hold regulatory, licensing or permit authority over us and Penn. The obligation of each party to consummate the Merger is also conditioned upon the accuracy of the other party’s representations and warranties, the absence of a material adverse effect involving the other party, and the other party having performed in all material respects its obligation under the Merger Agreement. These conditions are described in more detail in the merger agreement, which was filed as an exhibit to the Company's Current Report on Form 8-K filed with the SEC on April 29, 2015. There is no assurance that each of the conditions set forth in the merger agreement will be satisfied or that the Merger will occur when or as expected. Additionally, we have incurred and will continue to incur substantial legal and other professional fees and expenses in connection with the Merger, which must be paid even if the Merger is not completed.

 

 

Item 2.     Unregistered Sales of Equity Securities and Use of Proceeds

 

There were no unregistered sales of equity securities.

 

Item 3.     Defaults Upon Senior Securities

 

None.

 

Item 4.     Mine Safety Disclosures

 

Not applicable.

 

Item 5.     Other Information

 

None.

 

 
26

 

  

Item 6. Exhibits

 

Exhibit
Number

 

Exhibit Description

2.1

 

First Amended Joint Plan of Reorganization of Tropicana Las Vegas Holdings, LLC and Certain of its Debtor Affiliates pursuant to Title 11 of the United States Code, 11 U.S.C. Section 101 et seq. (Incorporated herein by reference to the Company’s Form 10-12G dated February 16, 2010).

     

2.2

 

Agreement and Plan of Merger, dated as of April 28, 2015, by and among Tropicana Las Vegas Hotel and Casino, Inc., Penn National Gaming, Inc., a Pennsylvania corporation, LV Merger Sub, Inc., a Delaware corporation and a wholly owned subsidiary of Penn National Gaming Inc. and Trilliant Gaming Nevada, Inc., as stockholder Representative. (Incorporated herein by reference to the Company’s Form 8-K dated April 29, 2015). 

     

3.1

 

Certificate of Incorporation of Tropicana Las Vegas Hotel and Casino, Inc. (Incorporated herein by reference to the Company’s Form 10-12G dated February 16, 2010).

     

3.2

 

Bylaws of Tropicana Las Vegas Hotel and Casino, Inc. (Incorporated herein by reference to the Company’s Form 10-12G dated February 16, 2010).

     

3.3

 

Certificate of Designations of Class A Convertible Participating Preferred Stock of Tropicana Las Vegas Hotel and Casino, Inc. dated as of August 12, 2009. (Incorporated herein by reference to the Company’s Form 10-12G dated February 16, 2010).

     

3.4

 

Amendment to Certificate of Incorporation of Tropicana Las Vegas Hotel and Casino, Inc. dated as of August 12, 2009. (Incorporated herein by reference to the Company’s Form 10-12G/A dated April 13, 2010).

     

3.5

 

Amendment to Certificate of Incorporation of Tropicana Las Vegas Hotel and Casino, Inc. dated as of March 17, 2010. (Incorporated herein by reference to the Company’s Form 10-12G/A dated April 13, 2010).

     

3.6

 

Certificate of Designations of Class A Series 2 Convertible Participating Preferred Stock of Tropicana Las Vegas Hotel and Casino, Inc. dated as of March 17, 2010. (Incorporated herein by reference to the Company’s Form 10-12G/A dated April 13, 2010).

     

3.7

 

Amendment to Certificate of Incorporation of Tropicana Las Vegas Hotel and Casino, Inc. dated as of April 28, 2011 (Included as exhibit 3.7 to the Registrant’s Form 8-K filed on May 3, 2011 and incorporated herein by reference).

     

3.8

 

Certificate of Designations of Class A Series 3 Convertible Participating Preferred Stock of Tropicana Las Vegas Hotel and Casino, Inc. dated as of April 28, 2011 (Included as exhibit 3.8 to Form 8-K filed on May 3, 2011 and incorporated herein by reference).

     

3.9

 

Amendment to Certificate of Incorporation of Tropicana Las Vegas Hotel and Casino, Inc., dated November 1, 2012. (Incorporated herein by reference to the Company’s Form 8-K filed on November 8, 2012).

     

3.10

 

Certificate of Designations of Class A Series 4 Convertible Participating Preferred Stock of Tropicana Las Vegas Hotel and Casino, Inc. dated November 1, 2012. (Incorporated herein by reference to the Company’s Form 8-K filed on November 8, 2012).

     

3.11

 

Amendment to Certificate of Incorporation of Tropicana Las Vegas Hotel and Casino, Inc., dated January 31, 2013. (Incorporated herein by reference to the Company’s Form 8-K filed on January 30, 2013).

     

3.12

 

Amended Certificate of Designations of Class A Series 4 Convertible Participating Preferred Stock of Tropicana Las Vegas Hotel and Casino, Inc. dated November 1, 2012. (Incorporated herein by reference to the Company’s Form 8-K filed on January 30, 2013).

     

4.1

 

Form of Tropicana Las Vegas, Inc. Common Share Certificate (Incorporated herein by reference to the Company’s Form 10-12G dated February 16, 2010).

     

4.2

 

Warrant Agreement, dated July 1, 2009, for Warrant Issued to Tropicana Entertainment, LLC (Incorporated herein by reference to the Company’s Form 10-12G/A dated April 13, 2010).

 

 
27

 

 

Exhibit
Number

 

Exhibit Description

10.3

 

Employment Agreement dated October 1, 2010 by and between Tropicana Las Vegas, Inc. and Joanne M. Beckett. (Incorporated herein by reference to the Company’s Form 8-K dated December 8, 2010 when originally filed as Exhibit 10.4).

     

10.4

 

Management Agreement, dated May 17, 2010, by and between Tropicana Las Vegas, Inc. and Trilliant Management, L.P. (Incorporated herein by reference to the Company’s Form 8-K dated May 21, 2010 when originally filed as Exhibit 10.8).

     

10.5

 

2010 Non-Employee Director Restricted Stock Plan (effective September 16, 2010), Form of Restricted Stock Grant Notice and Form of Restricted Stock Agreement. (Incorporated herein by reference to the Company’s Form 8-K dated September 17, 2010 when originally filed as Exhibit 10.9).

     

10.6

 

2011 Non-Employee Director Restricted Stock Plan (effective September 15, 2011), Form of Restricted Stock Grant Notice and Form of Restricted Stock Agreement (Incorporated herein by reference to the Company’s Form 8-K dated September 16, 2011 when originally filed as Exhibit 10.12).

     

10.7

 

Consulting Service Agreement, dated March 21, 2012 between Tropicana Las Vegas, Inc. and Mr. Michael A. Ribero (Incorporated herein by reference to the Company’s Form 8-K dated March 21, 2012 when originally filed as Exhibit 10.18). 

     

10.8

 

Amendment and Restated Loan Agreement, dated December 21, 2012, between Tropicana Las Vegas, Inc., as the Borrower, and Wells Fargo Principal Investments, LLC as a Lender and Wells Fargo National Association, as the Administrative Agent for the Lender (Incorporated herein by reference to the Company’s Form 8-K dated on December 26, 2012 when originally filed as Exhibit 10.20).

     

10.9

 

Employment Agreement dated July 8, 2013 by and between Tropicana Las Vegas, Inc. and Jason A. Goudie. (Incorporated herein by reference to the Company’s Form 8-K dated July 8, 2013 when originally filed as Exhibit 10.21).

     

10.10

 

2013 Non-Employee Director Restricted Stock Plan (effective July 1, 2013), Form of Restricted Stock Grant Notice and Form of Restricted Stock Agreement (Incorporated herein by reference to the Company’s Form 8-K dated August 12, 2013 when originally filed as Exhibit 10.22).

     

10.11

 

Employment Agreement dated August 4, 2014 by and between Tropicana Las Vegas, Inc. and Joanne M. Beckett. (Incorporated herein by reference to the Company’s Form 8-K dated August 7, 2014).

     

10.12

 

Master Lease Agreement dated November 21, 2014 by and between Tropicana Las Vegas, Inc. and Onset Financial, Inc. (Incorporated herein by reference to the Company’s Form 8-K dated November 21, 2014).

     

10.13

 

Letter Agreement dated December 30, 2014 by and between Tropicana Las Vegas, Inc., as the Borrower, and Wells Fargo Principal Investments, LLC as a Lender and Wells Fargo National Association, as the Administrative Agent for the Lender. (Incorporated herein by reference to the Company’s Form 8-K dated December 30, 2014).

     

10.14

 

Amendment No. 1 to Master Lease Agreement dated February 10, 2015 by and between Tropicana Las Vegas, Inc. and Onset Financial, Inc. (Incorporated herein by reference to the Company’s Form 10-K dated February 13, 2015).

     

31.1*

 

Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

     

31.2*

 

Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

     

32.1*

 

Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

     

32.2*

 

Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 

 
28

 

 

101.INS

 

XBRL Instance Document**

     

101.SCH

 

XBRL Taxonomy Extension Schema Document**

     

101.CAL

 

XBRL Taxonomy Extension Calculation Linkbase Document**

     

101.DEF

 

XBRL Taxonomy Extension Definition Linkbase Document**

     

101.LAB

 

XBRL Taxonomy Extension Label Linkbase Document**

     

101.PRE

 

XBRL Taxonomy Extension Presentation Linkbase Document**

 


 

*   Filed herewith.
   

**

Pursuant to Rule 406T of Regulation S-T, the Interactive Data Files on Exhibit 101 hereto are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, are deemed not filed for purposes of Section 18 of Securities and Exchange Act of 1934, as amended, and otherwise are not subject to liability under those sections.

 

 
29

 

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

 

TROPICANA LAS VEGAS HOTEL AND CASINO, INC.

   

Date: July 30, 2015

By:

/s/ Alex Yemenidjian

   

Alex Yemenidjian

   

Chief Executive Officer and President

   

(Principal Executive Officer)

     
     

Date: July 30, 2015

By:

/s/ Jason Goudie

   

Jason Goudie

   

Vice President and Chief Financial Officer

   

(Principal Financial and Accounting Officer)

 

 30