UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
¨ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
OR
x | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period January 1, 2012 to February 29, 2012
Commission File No. 0-52734
NGA HOLDCO, LLC
(Exact name of registrant as specified in its charter)
Nevada | 20-8349236 | |
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
21 Waterway Avenue, Suite 150
The Woodlands, TX 77380
(Address of principal executive offices)
Telephone: (713) 559-7400
(Registrants telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨
Indicate by check mark 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 x 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. (Check one):
Large accelerated filer | ¨ | Accelerated filer | ¨ | |||
Non-accelerated filer | ¨ (Do not check if a smaller reporting company) | Smaller reporting company | x |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x
INDEX TO FINANCIAL STATEMENTS
ii
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors of
NGA Holdco LLC
The Woodlands, Texas
We have audited the accompanying consolidated balance sheets of NGA Holdco, LLC and subsidiaries (the Company) as of February 29, 2012 and December 31, 2011, and the related consolidated statements of operations and cash flow for the two months ended February 29, 2012. These consolidated financial statements are the responsibility of the Companys management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Companys internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of the Company as of February 29, 2012 and December 31, 2011, and the results of its operations and its cash flows for the two months ended February 29, 2012, in conformity with accounting principles generally accepted in the United States of America.
/s/ PIERCY BOWLER TAYLOR & KERN
Las Vegas, Nevada
June 5, 2012
1
PART I FINANCIAL INFORMATION
Item 1. | Financial Statements. |
CONSOLIDATED BALANCE SHEETS
Feb 29, 2012 | Dec 31, 2011 | |||||||
ASSETS |
||||||||
Current Assets: |
||||||||
Cash |
$ | 734,067 | $ | 734,049 | ||||
Other Assets: |
||||||||
Investment in Eldorado |
23,861,936 | 23,861,936 | ||||||
Investment in Mesquite |
5,602,222 | 5,602,222 | ||||||
Due from the Newport Funds |
5,179,772 | 5,179,772 | ||||||
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$ | 35,377,997 | $ | 35,377,979 | |||||
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LIABILITIES AND MEMBERS EQUITY |
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Liabilities: |
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Current liabilities consisting of accounts payable and accrued expenses |
$ | | $ | 59,405 | ||||
Long-term amounts due to the Newport Funds |
2,918,538 | 2,859,192 | ||||||
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2,918,538 | 2,918,597 | |||||||
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Members Equity: |
||||||||
Class A unit (1 Unit issued and outstanding) |
3,806 | 3,806 | ||||||
Class B units (9,999 Units issued and outstanding) |
44,544,874 | 44,544,874 | ||||||
Accumulated deficit |
(12,089,221 | ) | (12,089,298 | ) | ||||
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32,459,459 | 32,459,382 | |||||||
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$ | 35,377,997 | $ | 35,377,979 | |||||
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|
See the notes to these consolidated financial statements.
2
CONSOLIDATED STATEMENTS OF OPERATIONS
Two Months Ended: | ||||||||
Feb 29, 2012 | Feb 28, 2011 | |||||||
(unaudited) | ||||||||
Equity in net income of unconsolidated investees |
$ | | $ | | ||||
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Professional fees, licensing, and other expenses |
(77 | ) | 3,461 | |||||
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Income (loss) before income taxes |
77 | (3,461 | ) | |||||
Income tax expense |
| | ||||||
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Net income (loss) |
$ | 77 | $ | (3,461 | ) | |||
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|
|
See the notes to these consolidated financial statements.
3
CONSOLIDATED STATEMENTS OF CASH FLOWS
Two Months Ended: | ||||||||
Feb 29, 2012 | Feb 28, 2011 | |||||||
(unaudited) | ||||||||
Operating activities: |
||||||||
Net income (loss) |
$ | 77 | $ | (3,461 | ) | |||
Adjustments to reconcile net income (loss) to net cash provided by operating activities: |
||||||||
Decrease in accounts payable and accrued liabilities |
(59,405 | ) | (1,673 | ) | ||||
Increase in due to the Newport Funds |
59,346 | 5,157 | ||||||
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Net cash provided by operating activities and net increase in cash |
18 | 23 | ||||||
Cash, beginning of period |
734,049 | 498,299 | ||||||
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Cash, end of period |
$ | 734,067 | $ | 498,322 | ||||
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Supplemental cash flow information Non-cash financing activity |
||||||||
Company obligations paid by the Newport Funds |
$ | 59,346 | $ | 5,157 | ||||
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|
|
See the notes to these consolidated financial statements.
4
NGA HOLDCO, LLC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Organization
Business activities
NGA HoldCo, LLC, a Nevada limited liability company (NGA), was formed on January 8, 2007 at the direction of Newport Global Opportunities Fund LP, a Delaware limited partnership (NGOF) and an affiliate of Newport Global Advisors LP, a Delaware limited partnership (Newport). NGA was formed for the primary purpose of holding equity, directly or indirectly through its subsidiaries, in one or more entities related to the gaming industry. The Company has two wholly-owned subsidiaries, NGA Blocker, LLC, a Nevada limited liability company (Blocker), and AcquisitionCo, LLC, a Nevada limited liability company (AcquisitionCo), each of which was formed on January 8, 2007 (collectively with NGA, the Company) .
The Company has had no revenue generating business since inception. Its current business plan consists primarily of its holding, through AcquisitionCo, of a 17.0359% equity interest in Eldorado Holdco LLC (the Eldorado Interest), a Nevada limited liability company (Eldorado) and a 40% equity interest in Mesquite Gaming LLC (the Mesquite Interest), a Nevada limited liability company (Mesquite). The Eldorado Interest was effectively acquired December 14, 2007 (the Eldorado Acquisition), in exchange for certain first mortgage bonds and preferred equity interests (the Eldorado-Shreveport Investments) valued at $38,314,863. The Mesquite Interest was acquired August 1, 2011 (the Mesquite Acquisition), in exchange for $8,222,222 in cash, of which $7,222,222 and $1,000,000 were contributed to the Company by NGOF and Newport Global Credit Fund (NGCF), respectively (collectively, the Newport Funds).
Eldorado owns entities that own and operate the Eldorado Hotel & Casino and the Eldorado Resort Casino Shreveport. Eldorado also owns approximately 50% of a joint venture that owns and operates the Silver Legacy Resort Casino (which is seamlessly connected to the Eldorado Hotel & Casino) and approximately 21% of a joint venture that owns and operates Tamarack Junction Casino & Restaurant, a small casino also in Reno. Mesquite is engaged in the casino resort industry in Mesquite, Nevada through its wholly-owned subsidiaries that own and operate the CasaBlanca Resort/Golf/Spa, the Virgin River Hotel/Casino/Bingo, two championship golf courses, a full-service spa, a bowling center, a gun club, restaurants, and banquet and conference facilities. Mesquite also owns the Oasis Resort & Casino, which is currently closed.
Other than its equity interests in Eldorado and Mesquite, along with any indirect interest it may subsequently hold in another entity by virtue of its equity interests in Eldorado and Mesquite, the Company has no current plans to acquire any equity interest in another entity.
Formed in 2005, Newport is a Texas-based investment management firm with approximately $350 million in assets committed to pursuing alternative fixed income strategies. The firm concentrates primarily on the stressed and distressed opportunities within the high yield debt and bank loan markets but may also include the acquisition and disposition of other types of corporate securities and claims. Newport has 11 employees, with its primary office in The Woodlands, TX. Newports principals include Timothy T. Janszen, CEO, Ryan Langdon, Senior Managing Director, and Roger A. May, Senior Managing Director. Collectively, the principals have over 35 years of experience investing in the high yield and distressed debt markets. Newport is registered with the Securities and Exchange Commission as an investment adviser under the Investment Advisers Act of 1940, as amended. Newport is investment manager of the Newport Funds, private investment funds which seek attractive long-term risk adjusted returns by capitalizing on investments in the distressed debt markets and possibly control-oriented investments. The Newport Funds began investing in 2006.
Concentrations and economic uncertainties
NGA and its consolidated subsidiaries expect to be economically dependent upon relatively few investments in the gaming industry. The United States recently experienced a recession accompanied by, among other things, weakness in the commercial and investment banking systems resulting in reduced credit and capital financing availability, and highly curtailed gaming, other recreational, construction and real estate market activities and general discretionary consumer spending. Although capital market activity and liquidity are reported to have improved of late, the recovery from this recession period is fragile and there can be no assurance that the Companys business, which has been severely affected by the downturn, will fully recover to pre-recession levels. In addition, the Company carries cash on deposit with financial institutions substantially in excess of federally-insured limits. The extent of any loss that might be incurred as a result of uninsured deposits in the event of a future failure of a bank or other financial institutions, if any, is not subject to estimate at this time.
5
2. Basis of Presentation and Summary of Significant Accounting Policies
Basis of Accounting and Presentation
The Company prepares its financial statements on the accrual basis of accounting in conformity with accounting principles generally accepted in the United States of America (GAAP). The consolidated financial statements include the accounts of the NGA and its wholly-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation.
Investments in Eldorado and Mesquite (Notes four and five) are accounted for using the equity method of accounting. Accordingly, the Company measures all of its assets and liabilities on the historical cost basis of accounting except as required by GAAP. Such assets are evaluated at least annually (and more frequently when circumstances warrant) to determine if events or changes in circumstances indicate that the carrying value may not be recoverable. Examples of such events or changes in circumstances that might indicate impairment might include an adverse change in the legal, regulatory or business climate relative to gaming nationally or in the jurisdictions in which the Companys investees operate, or a significant long term decline in historical or forecasted earnings or cash flows of the investee or the fair value of its property or business, possibly as a result of competitive or other economic or political factors. In evaluating whether a loss in value is other than temporary, the Company considers: (1) the length of time and the extent to which the fair value has been less than cost; (2) the financial condition and near-term prospects of the investee, including any specific events which may influence the operations; (3) the Companys intent and ability to retain its investments in the investee for a period of time sufficient to allow for any anticipated recovery in fair value; (4) the condition and trend of the economic cycle; (5) the investees historical and forecasted financial performance; (6) trends in the general market; and (7) the investees capital strength and liquidity.
In determining whether the carrying value of the Companys investment in an investee is less than the estimated fair value of the investment, a discounted cash flow approach to value is used and is based on Level 3 inputs as defined by GAAP. The Companys valuation model incorporates an estimated weighted-average cost of capital (effectively, a discount rate) and terminal value multiples that are used by market participants. The estimated weighted-average cost of capital is based on the risk free interest rate at the time, adjusted for specific risk factors. The Company also considers the metrics of specific business transactions that may be comparable to varying degrees. The weight assigned to these approaches to value in the Companys impairment evaluation may vary from period to period depending upon evolving events. Forecasted prospective financial information used in the model is based on managements excepted course of action. Sensitivity analysis is performed related to key assumptions used, including possible variations in the weighted-average cost of capital and terminal value multiples, among others.
Change of Year-end
On June 4, 2012, the Companys Board of Managers approved managements recommendation to change the Companys year-end for financial reporting purposes from the last day of December to the last day of February. For the two months ended February 29, 2012 and February 28, 2011, the Company had no significant operations or change in accounting principles. Accordingly, the Company continues to recognize equity in the net income (loss) of its unconsolidated investees on a calendar year basis. For example, the Companys net income (loss) for the year ending February 28, 2013 will include equity in the net income (loss) of its investees for the their calendar year ending December 31, 2012.
Statement of cash flows
At the request and for the convenience of the Company, disbursements of the Company for operating expenses are made by the Newport Funds directly to vendors and investees, and certain distributions from the Companys investees may be received directly by InvestCo and/or its beneficial owners. These activities are treated as non-cash operating and financing transactions. If such transactions were treated as constructive cash inflows and outflows in the statements of cash flow, net cash provided by operating activities would be $59,346 and $5,157 lower for the two months ended February 29, 2012 and February 28, 2011, respectively, and net cash provided by financing activities would be higher by like amounts.
Use of estimates
Timely preparation of financial statements in accordance with GAAP requires management to make estimates that affect the reported amounts of assets and liabilities at the date of the financial statements, as well as the reported amounts of income and expenses during the reporting periods. Actual results could differ from those estimates. Management estimates that the Company will eventually sell its investments in unconsolidated investees following an expected economic recovery at a price sufficient to realize the carrying value of the Companys assets which estimates are subject to material variation over the next year.
Income Taxes
The Company records estimated penalties and interest, if any, related to income tax matters, including uncertain tax positions, if any, as a component of income tax expense. At least annually, management evaluates positions taken (or to be taken) on tax returns that remain subject to examination by federal and state authorities (i.e., tax years 2008 -2011) to determine if there are uncertain tax positions as defined by GAAP.
6
Members capital
Allocations of net income and distributions to the Members are determined in accordance with the Companys operating agreement.
3. Ownership and Management of the Company
Ownership
The Companys one issued and outstanding Class A Unit, representing all of its voting equity, is held by NGA VoteCo, LLC, a Nevada limited liability company (VoteCo). All of the Companys issued and outstanding Class B Units, representing all of its non-voting equity, are held by NGA No VoteCo, LLC, a Nevada limited liability company (InvestCo). At present, the Company has no plans to issue any additional Class A or Class B Units.
VoteCo is owned by Timothy T. Janszen and Ryan L. Langdon, each of whom owns a 42.85% interest, and Roger A. May, who owns a 14.3% interest. Messrs. Janszen, Langdon and May collectively are referred to as the VoteCo Equityholders. InvestCo is owned by the Newport Funds. Newport holds all of InvestCos issued and outstanding voting securities.
Management
The VoteCo Equityholders, through VoteCo, control all matters of the Company that are subject to the vote of members, including the appointment and removal of managers. Each of the VoteCo Equityholders is a member of the Companys board of managers, and Mr. Janszen is the Companys operating manager who has responsibility for the day-to-day management of the Company. The Class B Units issued to InvestCo allow it and its investors to invest in the Company without having any voting power or power to control the operations or affairs of the Company, except as otherwise required by law. If InvestCo and its investors had any of the power to control the operations or affairs of the Company afforded to holders of the Class A Units, they and their respective constituent equityholders would generally be required to be licensed or found suitable under the gaming laws and regulations of the States of Nevada and Louisiana.
Neither the Companys board of managers nor the Operating Manager may take, or cause the Company to take, the following actions without the approval of VoteCo as the holder of the Companys voting equity:
| Materially change in the business purpose of the Company or the nature of the business, |
| Act to render it impossible to carry on the ordinary business of the Company, |
| Remove or appoint any Company manager, |
| Allow any voluntary withdrawal of any member from the Company, |
| Make any assignment for the benefit of creditors, any voluntary bankruptcy of the Company, or any transaction to dissolve, wind up or liquidate the Company, or |
| Make any transaction between the Company and any member or manager of the Company, or any affiliate or direct family member of any member or manager of the Company, that is not made on an arms-length basis. |
Generally, in all other respects, VoteCo has no power or authority to participate in the management of the Company or to bind or act on behalf of the Company in any way or to render it liable for any purpose. Except as otherwise expressly required by applicable law, InvestCo has neither any right to vote on any matters to be voted on by the members of the Company, nor any power or authority to participate in the management of the Company or bind or act on behalf of the Company in any way or render it liable for any purpose.
Notwithstanding the foregoing provisions, the operating manager has the authority under the Companys operating agreement to take such actions as he, in his reasonable judgment, deems necessary for the protection and preservation of Company assets if, under the circumstances, in his good faith estimation, there is insufficient time to obtain the approval of the Companys board of managers and any delay would materially increase the risk to preservation of the Companys assets.
Unless approved in advance by the operating manager and by applicable gaming authorities, no member of the Company may transfer all or any portion of its membership units.
No member or manager of the Company is entitled to receive any compensation from the Company for any services rendered to or on behalf of the Company, or otherwise, in his, her or its capacity as a member or manager of the Company.
7
4. Investment in Eldorado
On December 14, 2007, the Company effectively acquired its Eldorado Interest by transferring the Eldorado-Shreveport Investments in part to Eldorado Resorts, LLC (Resorts) and the balance to Donald L. Carano (Carano), free and clear of any liens. The Eldorado-Shreveport Investments included first mortgage bonds due 2012 (the Mortgage Bonds) and 11,000 preferred shares of a partner of the co-issuer of the Mortgage Bonds. The Mortgage Bonds were co-issued by Eldorado Casino Shreveport Joint Venture (the Louisiana Partnership) and Shreveport Capital Corporation, a wholly-owned subsidiary of the Louisiana Partnership (the New Shreveport Notes). The original principal amount of the Mortgage Bonds was $38,045,363. The 11,000 preferred shares were issued by Shreveport Gaming Holdings, Inc. (SGH), then a partner of the Louisiana Partnership, that is not affiliated with Resorts or the Company. Previously in May 2007, NGOF had contributed the Eldorado-Shreveport Investments to the Company at the estimated fair value of such investments as of that date. Effective April 1, 2009, Resorts became a wholly-owned subsidiary of Eldorado when all of the members of Resorts, including AcquisitionCo, exchanged their interests in Resorts for identical interests in Eldorado. Approximately 85% of the Companys Eldorado Interest was acquired directly from Resorts and the balance from Carano, 14.47% and 2.5659%, respectively.
The Companys interest in Eldorado was recorded at estimated fair value based on the quoted market price of the Eldorado-Shreveport Investments ($38,314,863) on the acquisition date. Such value exceeded 17.0359% of the carrying (or book) value of Resorts equity by approximately $14.8 million. The Company attributed $16.1 million of its $38.3 million acquisition price to intangible assets, $15.4 million to indefinite-lived intangibles assets and $760,000 to definite-lived intangibles assets. Subsequently, the Company has adjusted its equity in the net income (loss) of Eldorado by amortization of the excess purchase price attributed to the definite-lived intangibles, approximately $108,000 annually using an estimated economic life of seven years.
The Company acquired its interest in Eldorado pursuant to the terms and conditions of a purchase agreement, dated July 20, 2007. The parties to the agreement were Resorts, AcquisitionCo, and Carano, now the presiding member of Eldorados board of managers and the chief executive officer of Eldorado who then held the same positions with Resorts. Carano or members of his family continue to own directly or indirectly approximately 51% of Eldorado.
Eldorados five member board of managers is composed of individuals designated by the parties to the purchase agreement, including one member to be designated by AcquisitionCo, currently Timothy T. Janszen. Members of the board of managers are required to be licensed or found suitable by the relevant Nevada and Louisiana gaming authorities.
As a limited liability company, Eldorado is generally not subject to federal income taxes and its members are required to include their respective shares of Eldorados taxable income in their respective income tax returns. Eldorados operating agreement provides that the board of managers will distribute each year to each member an amount equal to such members allocable share of taxable income multiplied by the highest marginal combined federal, state, and local income tax rate applicable to the members for that year.
Changes in the Companys investment in Eldorado during the two months ended February 29, 2012 and the year ended December 31, 2011 are as follows:
Feb 29, 2012 | Dec 31, 2011 | |||||||
Balance, beginning of period |
$ | 23,861,936 | $ | 28,197,330 | ||||
Equity in net loss of Eldorado |
| (4,233,314 | ) | |||||
Distributions received from Eldorado |
| (235,641 | ) | |||||
Eldorados adoption of ASU 2010-16 |
| 133,561 | ||||||
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Balance, end of period |
$ | 23,861,936 | $ | 23,861,936 | ||||
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We evaluated our investment in Eldorado for possible impairment as of December 31, 2011 and determined that no impairment existed.
The following tables present condensed financial information of Eldorado as of December 31, 2011 and 2010, and for the years then ended (in thousands). Certain reclassifications, which had no effect on the previously reported net income (loss) of Eldorado, have been made to Eldorados 2010 consolidated statements of operations to conform to its 2011 presentation:
2011 | 2010 | |||||||
Balance Sheets |
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Current assets |
$ | 39,533 | $ | 57,747 | ||||
Investment in unconsolidated affiliates |
5,213 | 42,994 | ||||||
Property and equipment, net |
198,728 | 209,996 | ||||||
Other assets, net |
28,795 | 22,906 | ||||||
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Total assets |
$ | 272,269 | $ | 333,643 | ||||
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Current liabilities |
$ | 27,153 | $ | 27,685 | ||||
Long-term liabilities |
179,093 | 210,053 | ||||||
Equity |
66,023 | 95,905 | ||||||
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Total liabilities and partners equity |
$ | 272,269 | $ | 333,643 | ||||
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8
2011 | 2010 | |||||||
Statements of Operations |
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Net revenues |
$ | 256,072 | $ | 254,858 | ||||
Operating expenses |
(232,265 | ) | (235,816 | ) | ||||
Loss on sale/disposition of long-lived assets |
(120 | ) | (266 | ) | ||||
Equity in losses of unconsolidated affiliates |
(3,695 | ) | (3,899 | ) | ||||
Impairment of investment in joint venture |
(33,066 | ) | | |||||
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Operating (loss) income |
(13,074 | ) | 14,877 | |||||
Other expense |
(15,946 | ) | (21,064 | ) | ||||
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Net loss |
(29,020 | ) | (6,187 | ) | ||||
Net loss attributable to non-controlling interest |
4,807 | 183 | ||||||
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Net loss attributable to Eldorado |
$ | (24,213 | ) | $ | (6,004 | ) | ||
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The following tables present condensed financial information of one of Eldorados unconsolidated investees, the Silver Legacy Joint Venture, as of December 31, 2011 and 2010, and for the years then ended (in thousands):
December 31, | ||||||||
2011 | 2010 | |||||||
Balance Sheets |
||||||||
Current assets |
$ | 42,504 | $ | 38,817 | ||||
Property and equipment, net |
217,038 | 229,119 | ||||||
Other assets, net |
6,979 | 7,315 | ||||||
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Total assets |
$ | 266,521 | $ | 275,251 | ||||
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Current liabilities |
$ | 160,598 | $ | 18,510 | ||||
Long-term liabilities |
10,081 | 150,911 | ||||||
Partners equity |
95,842 | 105,830 | ||||||
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Total liabilities and partners equity |
$ | 266,521 | $ | 275,251 | ||||
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2011 | 2010 | |||||||
Statements of Operations |
||||||||
Net revenues |
$ | 122,855 | $ | 121,531 | ||||
Operating expenses |
(117,072 | ) | (116,141 | ) | ||||
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Operating income |
5,783 | 5,390 | ||||||
Other expense |
(15,045 | ) | (14,984 | ) | ||||
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Net loss |
$ | (9,262 | ) | $ | (9,594 | ) | ||
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5. Investment in Mesquite
Mesquite is engaged in the hotel casino industry in Mesquite, Nevada through its wholly-owned subsidiaries C & HRV, LLC (doing business as Virgin River Hotel/Casino/Bingo) and VRCC, LLC and its wholly-owned subsidiaries 5.47 RBI, LLC and RBG, LLC (doing business as CasaBlanca Resort/Golf/Spa) and its wholly-owned subsidiary CasaBlanca Resorts, LLC (doing business as Oasis Resort and Casino which is currently closed) and its wholly-owned subsidiaries Oasis Interval Ownership, LLC, Oasis Interval Management, LLC and Oasis Recreational Properties, Inc.
9
On August 1, 2011, the Company acquired the 40% Mesquite Interest in exchange for $8,222,222 in cash that was contributed to the Company by the Newport Funds in July 2011. The acquisition was completed upon the transfer to Mesquite of all of the assets of Black Gaming, LLC (Black Gaming), including Black Gamings direct and indirect ownership interests in its subsidiaries. The transfer of the Black Gaming assets to Mesquite and the acquisition by AcquisitionCo of the Mesquite Interest were pursuant to a joint plan of reorganization (the Plan) filed by Black Gaming and its subsidiaries with the United States Bankruptcy Court for the District of Nevada (the Court) on March 1, 2010, and approved by the Court on June 28, 2010.
The change in the Companys initial investment in Mesquite of $8,222,222 subsequent to August 1, 2011, consists solely of the Companys equity in the net loss of Mesquite for the five months ended December 31, 2011 ($2,620,400) as there was no change in the Companys investment in Mesquite during the two months ended February 29, 2012.
The following tables present condensed financial information of Mesquite as of December 31, 2011 and 2010, and for the years then ended (in thousands):
2011 | 2010 | |||||||
(Successor) | (Predecessor) | |||||||
Balance Sheets |
||||||||
Current assets |
$ | 13,556 | $ | 13,737 | ||||
Property and equipment, net |
63,809 | 83,461 | ||||||
Other assets, net |
12,098 | 8,888 | ||||||
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Total assets |
$ | 89,463 | $ | 106,086 | ||||
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Current liabilities |
$ | 13,050 | $ | 25,941 | ||||
Gaming equipment financing, less current portion |
213 | | ||||||
Liabilities subject to compromise |
| 218,613 | ||||||
Long term debt, less current portion |
64,500 | | ||||||
Members equity (deficit) |
11,700 | (138,468 | ) | |||||
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Total liabilities and members equity (deficit) |
$ | 89,463 | $ | 106,086 | ||||
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Successor | Predecessor | |||||||||||||||
Five Months Ended Dec. 31, 2011 |
One Day Ended Aug. 1, 2011 |
Seven Months Ended July 31, 2011 |
Twelve Months Ended Dec. 31, 2010 |
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Statements of Operations |
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Net revenues |
$ | 37,431 | $ | | $ | 60,785 | $ | 98,414 | ||||||||
Operating expenses |
(41,493 | ) | | (57,749 | ) | $ | (99,400 | ) | ||||||||
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Operating income (loss) |
(4,062 | ) | | 3,036 | (986 | ) | ||||||||||
Other income (expense) |
(2,488 | ) | 91,255 | (1,598 | ) | (8,587 | ) | |||||||||
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Net income (loss) |
$ | (6,550 | ) | $ | 91,255 | $ | 1,438 | $ | (14,298 | ) | ||||||
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6. Transactions with the Newport Funds
In 2007, NGOF received $5,118,172 of interest on the Mortgage Bonds and $61,600 of preferred dividends on behalf of (but did not remit to) the Company which are reflected in the accompanying balance sheets as due from the Newport Funds. There is no formal agreement outlining the settlement of this receivable (and payable discussed in the following paragraph) and, accordingly, the receivable is reflected as a non-current asset.
At February 29, 2012 and December 31, 2011, the Company owed $2,918,538 and $2,859,192, respectively, to the Newport Funds for expenses paid on the Companys behalf since inception of the Company. There have been no repayments of such amounts advanced to the Company. The Newport Funds have agreed to waive demand of payment of the amounts advanced to the Company through March 1, 2013, and, accordingly, the liability is also reflected as long-term.
10
7. Income Taxes
Blocker, a wholly-owned subsidiary, has elected to be taxed as a corporation. Accordingly, equity in the flow-through earnings of Eldorado and Mesquite is taxed to Blocker. NGA incurs certain other costs, primarily associated with being a public company, including professional and other fees, which, for tax purposes, flow through to its members.
For the periods presented, the Companys effective and statutory tax rates did not vary materially and the only reconciling item was an immaterial change in valuation allowance to reduce income taxes (benefit) to zero.
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used to determine taxable income for income tax reporting purposes. The following table presents the significant components of the non-current deferred tax assets (liabilities) of the Company and its consolidated subsidiaries related to its investments in Eldorado and Mesquite.
Net operating loss carryforward |
$ | 1,562,703 | ||
Tax credit carryforward |
182,791 | |||
Basis difference for investment in Eldorado Resorts LLC |
3,887,377 | |||
Acquisition costs |
144,800 | |||
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Subtotal |
5,777,671 | |||
Less: valuation allowance |
(5,777,671 | ) | ||
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Net deferred tax asset |
$ | | ||
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The Company has a federal income tax net operating loss carryforward of approximately $4,465,000 and a federal income tax credit carry forward of $182,791, both of which will expire between 2028 and 2030.
8. Financial Instruments
Except for cash, the fair value of which equals its carrying value, the only significant financial instruments the Company has are its investments in unconsolidated investees accounted for on the equity method for which fair value disclosure is not required and amounts due to and from members. There is no formal agreement between the Company and its members related to the amounts due to and from the members, including no stated right of offset, repayment terms, and interest rate or method. Accordingly, it is not practical to estimate the fair value of such financial instruments.
9. Subsequent Events
In preparing these financial statements, the Company has evaluated events and transactions for potential recognition or disclosure through the date the financial statements were issued and has disclosed certain subsequent events in these consolidated financial statements, as appropriate.
11
Item 2. | Managements Discussion and Analysis of Financial Condition and Results of Operations. |
The following information should be read in conjunction with the accompanying consolidated financial statements of this Transition Report and our Annual Report on Form 10-K for the year ended December 31, 2011, as filed with the U.S. Securities and Exchange Commission (or SEC).
On June 1, 2012, the Companys Board of Managers approved managements recommendation to change the Companys year-end for financial reporting purposes from the December 31st to the last day of February. Going forward, the Companys fiscal quarters will end on the last day of May, August, November, and February. In the past, the Company has frequently requested extensions of time to file its periodic reports due to its investees not reporting early enough for the Company to complete its periodic reports, including accounting for its equity in its unconsolidated investees net earnings, prior to the respective deadlines. This change will alleviate the time constraints previously encountered. The Company will continue to recognize equity in the earnings of its unconsolidated investees on a calendar year basis. For example, the Companys net income (loss) for the year ending February 28, 2013 will include equity in the net earnings of its unconsolidated investees for the calendar year ending December 31, 2012.
THE COMPANY
Overview
The Company and its subsidiaries were formed as legal entities in January 2007 for the primary purpose of holding equity in one or more entities related to the gaming industry, and to exercise the rights, and manage the distributions received, in connection with those holdings. The Companys 17.0359% interest in Eldorado and 40% interest in Mesquite were effectively acquired on December 14, 2007 and August 1, 2011, respectively.
The Company has had no revenue generating business since inception. Its only operations have consisted of equity in the net income (losses) of Eldorado and Mesquite, interest income earned on the Eldorado-Shreveport Investments, and nominal administrative expenses. The Company had no significant operations during the two month periods ended February 29, 2012 and February 28, 2011.
Eldorado
Eldorado, through Resorts, owns and operates the Eldorado-Reno, a premier hotel/casino and entertainment facility in Reno, Nevada and the Eldorado-Shreveport, an all-suite art deco-style hotel and a tri-level riverboat dockside casino complex situated on the Red River in Shreveport, Louisiana. Eldorado also owns, through Resorts, a 21.25% interest in Tamarack Junction, a small casino in south Reno. An approximately 96% owned subsidiary of Resorts owns a 50% interest in a joint venture that owns the Silver Legacy Resort Casino, a major, themed hotel/casino located adjacent to Eldorado-Reno.
On June 1, 2011, Resorts and Eldorado Capital Corp., a Nevada Corporation that is a wholly-owned subsidiary of Resorts, completed the issuance of $180 million of 8.625% Senior Secured Notes due June 15, 2019 (the Resorts Senior Notes). Also, on June 1, 2011, Resorts entered into a new $30 million senior secured revolving credit facility available until June 30, 2014 (the Resorts New Credit Facility), which consists of a $15 million term loan requiring principal payments of $1.25 million each quarter beginning September 30, 2011, and a $15 million revolving credit facility. Proceeds from the issuance of the Resorts Senior Notes, together with borrowings under the New Credit Facility, were used to redeem approximately $ 230 million of previously outstanding debt owed by Resorts and its subsidiaries, of which approximately $31 million was held by Resorts. The remaining previously outstanding debt was called and redeemed on August 1, 2011 utilizing $9.7 million of restricted cash which was set aside on June 1, 2011 for the purpose of redeeming the notes that were called. Interest on the Senior Secured Notes is payable semiannually each June 15 and December 15 (commencing on December 15, 2011) to holders of record on the preceding June 1 or December 1, respectively. Interest on the credit facility is payable on the last day of the Eurodollar Rate loan, provided, however, that if the period exceeds three months the interest will be payable on the respective dates that fall every three months after the beginning of the loan period. For each Base Rate loan, interest is payable as the end of the respective quarter. The interest period cannot exceed the maturity date of the credit facility for either a Eurodollar loan or Base Rate loan.
Operational highlights for Eldorado for the year ended December 31, 2011 included net operating revenues of approximately $256.1 million and operating expenses of approximately $232.3 million. Eldorados equity in net loss of unconsolidated affiliates was approximately $3.7 million and interest expense was approximately $18.5 million for the period. In addition, Eldorado recognized a non-cash impairment charge of $33.1 million during the year related to its investment in the Silver Legacy Joint Venture, which eliminated Eldorados remaining investment in the Silver Legacy Joint Venture. Circumstances leading to the impairment included the Silver Legacy Joint Ventures default on its debt obligations on March 1, 2012. The net loss for the year was approximately $24.2 million, compared with a net loss of approximately $6 million for the year ended December 31, 2010. The increase in net loss of approximately $18.2 million was due primarily to the aforementioned $33.1 million impairment charge, partially offset by a $3.5 million reduction to operating expenses, a $2.6 million reduction to interest expense and a $2.5 million gain on the early retirement of debt in 2011.
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Mesquite
Mesquite is engaged in the hotel casino industry in Mesquite, Nevada and owns and operates the Virgin River Hotel/Casino/Bingo, the CasaBlanca Resort/Golf/Spa, and the Oasis Resort and Casino. In addition to casino hotel activities, Mesquites operations also included vacation ownership interval sales, two golf courses, a bowling center, a gun club, and banquet and conference facilities.
On August 1, 2011, Mesquite completed the issuance of $62.5 million of Senior Secured Notes under Mesquites New Loan Facility with an annual interest rate of LIBOR (1.5% floor and 4.5% ceiling) plus 700 basis points due August 1, 2016 (the Mesquite Senior Notes), and entered into a new $10 million senior secured credit facility available until August 1, 2012 and renewable on a yearly basis with the consent of the lenders (the Mesquite Credit Facility). Interest and principal on the Mesquite Senior Notes and interest on the Mesquite Credit Facility are payable quarterly.
Operational highlights for Mesquite for the five months ended December 31, 2011, which is the period during 2011 that the Company owned its interest in Mesquite, included net operating revenues of approximately $37.4 million and operating expenses of approximately $41.5 million. Interest expense during the period was $2.5 million and the net loss was $6.6 million. The net loss was largely due to the seasonal nature of Mesquites operations (with the first half of the calendar year producing more positive results) and the ongoing economic slowdown in Nevada and its key feeder markets in the western United States.
Results of Operations, 2012 Versus 2011
For the two months ended February 29, 2012 and February 28, 2011, the Company had no significant operations or change in accounting principles.
Liquidity and Capital Resources
The Company expects to incur approximately $0.3 million during the remainder of 2012 in costs associated with the Companys ownership of its interests in Eldorado and Mesquite and approximately $0.1 million in costs associated with maintaining its gaming and related licenses in Nevada and Louisiana. These costs are expected to be funded by the Newport Funds. The Company has no current plans to make any additional investments. Thus, the Company has the resources to fund its operations and commitments in 2012.
Critical Accounting Estimates and Policies
A description of our critical accounting policies can be found in Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2011. There have been no material changes to those policies during the two months ended February 29, 2012.
Recently Issued Accounting Standards
No recently issued accounting pronouncements not yet adopted are expected to have a material impact on our future financial position, results of operations, or cash flows.
Off Balance Sheet Arrangements
The Company currently has no off-balance sheet arrangements.
Item 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK. |
Not Applicable.
Item 4. | CONTROLS AND PROCEDURES. |
Evaluation of Disclosure Controls and Procedures
As required by Rule 13a-15(b) under the Securities Exchange Act of 1934, as amended (the Exchange Act), an evaluation was performed by management, with the participation of our principal executive officer and principal financial officer, of the effectiveness of our disclosure controls and procedures. Based on this evaluation, our principal executive officer and principal financial officer have concluded that our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) are effective as of February 29, 2012.
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Changes in Internal Control Over Financial Reporting
As required by Rule 13a-15(d) under the Exchange Act, our management, including our principal executive officer and principal financial officer, has evaluated our internal control over financial reporting. Based on that evaluation, there have been no changes in our internal control over financial reporting during the two month period covered by this report that have materially affected, or are reasonably likely to materially affect, the Companys internal control over financial reporting.
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Item 6. | Exhibits. |
The exhibits listed in the accompanying Exhibit Index are incorporated by reference into this Item 6.
15
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.
NGA HOLDCO, LLC | ||||
Date: June 5, 2012 | By: | /S/ Timothy T. Janszen | ||
| ||||
Timothy T. Janszen | ||||
Operating Manager | ||||
(Principal Executive Officer) | ||||
Date: June 5, 2012 | By: | /S/ ROGER A. MAY | ||
| ||||
Roger A. May | ||||
Manager | ||||
(Principal Financial Officer) |
16
EXHIBIT INDEX
Exhibit |
Description | |
31.1 | Certification of Principal Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
31.2 | Certification of Principal Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
32.1 | Certification of Principal Executive Officer furnished as required by Section 906 of the Sarbanes-Oxley Act of 2002. | |
32.2 | Certification of Principal Financial Officer furnished as required by Section 906 of the Sarbanes-Oxley Act of 2002. | |
101 | The following financial statements from NGA Holdco, LLC Quarterly Report on Form 10-Q for the three and nine months ended September 30, 2011, filed with the Securities and Exchange Commission on June 1, 2012, formatted in XBRL (eXtensible Business Reporting Language): (i) the Consolidated Balance Sheets at February 29, 2012 and December 31, 2011; (ii) the Consolidated Statements of Operations for the two months ended February 29, 2012 and February 28, 2011; (iii) the Consolidated Statements of Cash Flows for the two months ended February 29, 2012 and February 28, 2011; and (iv) the Notes to Consolidated Financial Statements. |
17
Exhibit 31.1
CERTIFICATION
I, Timothy T. Janszen, certify that:
1. | I have reviewed this transition report on Form 10-Q of NGA HoldCo, LLC; |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. | The registrants other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
(a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
(b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
(c) | Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
(d) | Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and |
5. | The registrants other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of the registrants board of directors (or persons performing the equivalent functions): |
(a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and |
(b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting. |
June 5, 2012 | /s/ Timothy T. Janszen | |
Timothy T. Janszen | ||
Operating Manager | ||
(Principal Executive Officer) |
Exhibit 31.2
CERTIFICATION
I, Roger A. May, certify that:
1. | I have reviewed this transition report on Form 10-Q of NGA HoldCo, LLC; |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. | The registrants other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15(d)-15(f)) for the registrant and have: |
(a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
(b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
(c) | Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
(d) | Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and |
5. | The registrants other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of the registrants board of directors (or persons performing the equivalent functions): |
(a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and |
(b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting. |
June 5, 2012 | /s/ Roger A. May | |
Roger A. May | ||
Manager | ||
(Principal Financial Officer) |
Exhibit 32.1
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
The undersigned hereby certifies that, to the best of his knowledge, the Form 10-Q Quarterly Report of NGA HoldCo, LLC (the Company) for the two months ended February 29, 2012 filed with the Securities and Exchange Commission on the date hereof (the Report) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Date: June 5, 2012 | By: | /s/ Timothy T. Janszen | ||
Timothy T. Janszen | ||||
Operating Manager | ||||
(Principal Executive Officer) |
Exhibit 32.2
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
The undersigned hereby certifies that, to the best of his knowledge, the Form 10-Q Quarterly Report of NGA HoldCo, LLC (the Company) for the two months ended February 29, 2012 filed with the Securities and Exchange Commission on the date hereof (the Report) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Date: June 5, 2012 | By: | /s/ Roger A. May | ||
Roger A. May | ||||
Manager | ||||
(Principal Financial Officer) |
Investment (Eldorado [Member])
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Investment | 4. Investment in Eldorado On December 14, 2007, the Company effectively acquired its Eldorado Interest by transferring the Eldorado-Shreveport Investments in part to Eldorado Resorts, LLC ("Resorts") and the balance to Donald L. Carano ("Carano"), free and clear of any liens. The Eldorado-Shreveport Investments included first mortgage bonds due 2012 (the "Mortgage Bonds") and 11,000 preferred shares of a partner of the co-issuer of the Mortgage Bonds. The Mortgage Bonds were co-issued by Eldorado Casino Shreveport Joint Venture (the "Louisiana Partnership") and Shreveport Capital Corporation, a wholly-owned subsidiary of the Louisiana Partnership (the "New Shreveport Notes"). The original principal amount of the Mortgage Bonds was $38,045,363. The 11,000 preferred shares were issued by Shreveport Gaming Holdings, Inc. ("SGH"), then a partner of the Louisiana Partnership, that is not affiliated with Resorts or the Company. Previously in May 2007, NGOF had contributed the Eldorado-Shreveport Investments to the Company at the estimated fair value of such investments as of that date. Effective April 1, 2009, Resorts became a wholly-owned subsidiary of Eldorado when all of the members of Resorts, including AcquisitionCo, exchanged their interests in Resorts for identical interests in Eldorado. Approximately 85% of the Company's Eldorado Interest was acquired directly from Resorts and the balance from Carano, 14.47% and 2.5659%, respectively. The Company's interest in Eldorado was recorded at estimated fair value based on the quoted market price of the Eldorado-Shreveport Investments ($38,314,863) on the acquisition date. Such value exceeded 17.0359% of the carrying (or book) value of Resorts' equity by approximately $14.8 million. The Company attributed $16.1 million of its $38.3 million acquisition price to intangible assets, $15.4 million to indefinite-lived intangibles assets and $760,000 to definite-lived intangibles assets. Subsequently, the Company has adjusted its equity in the net income (loss) of Eldorado by amortization of the excess purchase price attributed to the definite-lived intangibles, approximately $108,000 annually using an estimated economic life of seven years. The Company acquired its interest in Eldorado pursuant to the terms and conditions of a purchase agreement, dated July 20, 2007. The parties to the agreement were Resorts, AcquisitionCo, and Carano, now the presiding member of Eldorado's board of managers and the chief executive officer of Eldorado who then held the same positions with Resorts. Carano or members of his family continue to own directly or indirectly approximately 51% of Eldorado. Eldorado's five member board of managers is composed of individuals designated by the parties to the purchase agreement, including one member to be designated by AcquisitionCo, currently Timothy T. Janszen. Members of the board of managers are required to be licensed or found suitable by the relevant Nevada and Louisiana gaming authorities. As a limited liability company, Eldorado is generally not subject to federal income taxes and its members are required to include their respective shares of Eldorado's taxable income in their respective income tax returns. Eldorado's operating agreement provides that the board of managers will distribute each year to each member an amount equal to such member's allocable share of taxable income multiplied by the highest marginal combined federal, state, and local income tax rate applicable to the members for that year. Changes in the Company's investment in Eldorado during the two months ended February 29, 2012 and the year ended December 31, 2011 are as follows:
We evaluated our investment in Eldorado for possible impairment as of December 31, 2011 and determined that no impairment existed. The following tables present condensed financial information of Eldorado as of December 31, 2011 and 2010, and for the years then ended (in thousands). Certain reclassifications, which had no effect on the previously reported net income (loss) of Eldorado, have been made to Eldorado's 2010 consolidated statements of operations to conform to its 2011 presentation:
The following tables present condensed financial information of one of Eldorado's unconsolidated investees, the Silver Legacy Joint Venture, as of December 31, 2011 and 2010, and for the years then ended (in thousands):
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