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Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 10-Q

 

 

(Mark One)

 

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

For the quarterly period ended June 30, 2011

OR

 

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

For the transition period                     to                    

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

(Registrant’s 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

 

 

 


Table of Contents

NGA HOLDCO, LLC

FORM 10-Q

INDEX

 

     Page No.  

PART I. FINANCIAL INFORMATION

  

        Item 1.

  Financial Statements (Unaudited):      1   
  Consolidated Balance Sheets as of June 30, 2011 and December 31, 2010      1   
  Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2011 and 2010      2   
  Consolidated Statement of Changes in Members’ Equity for the Six Months Ended June 30, 2011      3   
  Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2011 and 2010      4   
  Notes to Condensed Consolidated Financial Statements      5   

        Item 2.

  Management’s Discussion and Analysis of Financial Condition and Results of Operations      10   

        Item 3.

  Quantitative and Qualitative Disclosures About Market Risk      13   

        Item 4.

  Controls and Procedures      13   

PART II. OTHER INFORMATION

  

        Item 6.

  Exhibits      14   

        SIGNATURES

     15   

 

 

ii


Table of Contents

PART I

FINANCIAL INFORMATION

 

Item 1. Financial Statements (Unaudited).

NGA HOLDCO, LLC

CONSOLIDATED BALANCE SHEETS

June 30, 2011 and December 31, 2010 (unaudited)

 

     June 30, 2011     December 31, 2010  

ASSETS

    

Current Assets:

    

Cash and cash equivalents

   $ 498,353      $ 498,299   
  

 

 

   

 

 

 

Total current assets

     498,353        498,299   

Investment in Eldorado

     28,816,383        28,197,330   

Due from related party

     5,179,772        5,179,772   
  

 

 

   

 

 

 

Total Assets

   $ 34,494,508      $ 33,875,401   
  

 

 

   

 

 

 

LIABILITIES AND MEMBERS’ EQUITY

    

Current Liabilities:

    

Accounts payable and accrued liabilities

   $ 8,546      $ 30,064   
  

 

 

   

 

 

 

Total current liabilities

     8,546        30,064   

Due to related party

     2,756,195        2,568,903   
  

 

 

   

 

 

 

Total Liabilities

     2,764,741        2,598,967   
  

 

 

   

 

 

 

Members’ Equity:

    

Class A unit (1 Unit issued and outstanding)

     3,806        3,806   

Class B units (9,999 Units issued and outstanding)

     36,322,652        36,322,652   

Accumulated deficit

     (4,596,691     (5,050,024
  

 

 

   

 

 

 

Total Members’ equity

     31,729,767        31,276,434   
  

 

 

   

 

 

 

Total Liabilities & Members’ equity

   $ 34,494,508      $ 33,875,401   
  

 

 

   

 

 

 

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

 

1


Table of Contents

NGA HOLDCO, LLC

CONSOLIDATED STATEMENTS OF OPERATIONS

Three and Six Months Ended June 30, 2011 and 2010 (unaudited)

 

     Three Months
Ended June 30,
     Six Months
Ended June 30,
 
     2011      2010      2011      2010  

Income (Loss):

           

Equity income (loss) on Eldorado

   $ 744,624       $ 209,185       $ 619,053       $ (415,197
  

 

 

    

 

 

    

 

 

    

 

 

 

Total income (loss)

     744,624         209,185         619,053         (415,197

Expenses:

           

Legal, licensing, and other expenses

     51,690         73,771         165,720         206,418   
  

 

 

    

 

 

    

 

 

    

 

 

 

Net income (loss) before income taxes

     692,934         135,414         453,333         (621,615

Income tax expense

     —           —           —           —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Net income (loss)

   $ 692,934       $ 135,414       $ 453,333       $ (621,615
  

 

 

    

 

 

    

 

 

    

 

 

 

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

 

2


Table of Contents

NGA HOLDCO, LLC

CONSOLIDATED STATEMENT OF CHANGES IN MEMBERS’ EQUITY

Six Months Ended June 30, 2011 (unaudited)

 

     Class A
Unit
     Class B
Units
     Accumulated
Deficit
    Total
Members’
Equity
 

Balance, December 31, 2010

   $ 3,806       $ 36,322,652       $ (5,050,024   $ 31,276,434   

Net income

     —           —           453,333        453,333   
  

 

 

    

 

 

    

 

 

   

 

 

 

Balance, June 30, 2011

   $ 3,806       $ 36,322,652       $ (4,596,691   $ 31,729,767   
  

 

 

    

 

 

    

 

 

   

 

 

 

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

 

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Table of Contents

NGA HOLDCO, LLC

CONSOLIDATED STATEMENTS OF CASH FLOWS

Six Months Ended June 30, 2011 and 2010 (unaudited)

 

     Six Months Ended
June 30,
 
     2011     2010  

CASH FLOWS FROM OPERATING ACTIVITIES:

    

Net income (loss)

   $ 453,333      $ (621,615

Adjustments to reconcile net income (loss) to net cash provided by operating activities:

    

Equity (income) loss on Eldorado

     (619,053     415,197   

Decrease in accounts payable and accrued liabilities

     (21,518     (15,380

Increase in due to related parties

     187,292        221,899   
  

 

 

   

 

 

 

Net cash provided by operating activities:

   $ 54      $ 101   
  

 

 

   

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES:

    

Net cash provided (used) by investing activities:

   $ —        $ —     
  

 

 

   

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES:

    

Net cash provided (used) by financing activities:

   $ —        $ —     
  

 

 

   

 

 

 

Net increase in cash

   $ 54      $ 101   
  

 

 

   

 

 

 

Cash at beginning of the period

   $ 498,299      $ 473,093   
  

 

 

   

 

 

 

Cash at end of the period

   $ 498,353      $ 473,194   
  

 

 

   

 

 

 

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

 

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Table of Contents

NGA HoldCo, LLC

Notes to Condensed Consolidated Financial Statements (Unaudited)

1. Organization

NGA HoldCo, LLC, a Nevada limited liability company (the “Company”), was formed on January 8, 2007 at the direction of Newport Global Opportunities Fund LP (“Newport”), a Delaware limited partnership, for the purpose of holding equity, either directly or indirectly through affiliates, in one or more entities related to the gaming industry. The unaudited condensed consolidated financial statements represent the financial position and results of operations of the Company and its two wholly owned subsidiaries; NGA Blocker, LLC (“Blocker”) and NGA Acquisition Co. LLC (“Acquisition Co”).

On December 14, 2007, the date of the closing of its acquisition of a 17.0359% interest in Eldorado Resorts, LLC, a Nevada limited liability company (“Resorts”), the Company transferred in part to Resorts and in part to Donald L. Carano (“Carano”), respectively, free and clear of any liens, ownership of a total of $38,045,363 original principal amount of First Mortgage Bonds due 2012, 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”), together with 11,000 preferred shares issued by Shreveport Gaming Holdings, Inc. (“SGH”), then a partner of the Louisiana Partnership that is not affiliated with Resorts or the Company, in exchange for a 17.0359% interest in Resorts. In May 2007, Newport contributed 100% of the New Shreveport Notes held by Newport since August 2006 and 11% of the preferred shares held since August 2006 (collectively, the “Eldorado Shreveport Investments”) to the Company. The Eldorado Shreveport Investments were transferred to the Company at the fair value as of the transfer date.

Effective April 1, 2009, Resorts became a wholly-owned subsidiary of Eldorado HoldCo LLC, a Nevada limited liability company (“Eldorado”), when all of the members of Resorts, including Acquisition Co., the subsidiary of the Company through which the Company held its interest in Resorts, exchanged their interests in Resorts for identical interests in Eldorado. Eldorado, which was formed to be a holding company for Resorts, conducts no operations of its own and, other than its ownership of Resorts, has no assets or liabilities.

The Company has had no revenue generating business since inception. Its current business plan consists primarily of its holding of a 17.0359% equity interest in Eldorado and its 40% equity interest in Mesquite Gaming, LLC, a Nevada limited liability company (“Mesquite Gaming”), which was acquired on August 1, 2011. For more information concerning this acquisition, see Note 6 below. Eldorado, through Resorts, owns and operates the Eldorado Hotel and Casino (the “Eldorado-Reno”) located in Reno, Nevada. Through two wholly owned subsidiaries, Resorts owns all of the partnership interests of the Louisiana Partnership, and operates, pursuant to a management agreement, the Eldorado Shreveport Hotel and Casino in Shreveport, Louisiana (the “Eldorado-Shreveport”), which is owned by the Louisiana Partnership. Eldorado Limited Liability Company (“ELLC”), a Nevada limited liability company 96.1858% owned by Resorts, is a 50% joint venture partner in a general partnership that owns and operates the Silver Legacy Resort Casino (“Silver Legacy”), a hotel and casino property adjacent to Eldorado-Reno. Resorts also own a 21.25% interest in Tamarack Junction, a small casino in South Reno.

The Company’s 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 Company’s 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”). 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 Newport, a Delaware limited partnership formed primarily for the purpose of seeking long-term capital appreciation and current income by acquiring, holding and disposing of investments made in distressed debt securities and equities. Newport holds all of InvestCo’s issued and outstanding voting securities. At present, the Company has no plans to issue any additional Class A Units or Class B Units.

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. Messrs. Janszen, Langdon and May are the Company’s managers and Mr. Janszen is also the Company’s operating manager. 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 the holders of the Class A Units, they and their respective constituent equityholders would generally be required, in connection with the Company’s investment in Eldorado, to be licensed or found suitable under the gaming laws and regulations of the States of Nevada and Louisiana as well as various local regulations in those states.

VoteCo, InvestCo, the Company and each of the Company’s wholly owned subsidiaries are managed by Timothy T. Janszen, the operating manager of each entity. NGA Blocker, LLC, a Nevada limited liability company (“Blocker”), is a holding company that has elected to be taxed as a corporation. Because Blocker is a separately taxed, non-flow through entity, Blocker is taxed on its share of the income relating to the Company’s investment in Eldorado rather than the Company’s investors.

 

5


Table of Contents

The Company’s acquisition in December 2007 of a 17.0359% interest in Resorts was pursuant to the terms and conditions of a Purchase Agreement, dated July 20, 2007 (the “Purchase Agreement”). The parties to the Purchase Agreement were Resorts, AcquisitionCo, which is the subsidiary through which the Company acquired its interest in Resorts, 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, from whom a portion of the 17.0359% interest was acquired. The closing of this transaction occurred on December 14, 2007 (“Closing”) after necessary gaming licenses and approvals were obtained from Nevada and Louisiana, respectively. The Company owns indirectly through its subsidiaries 17.0359% of Eldorado, and Carano or members of his family own directly or indirectly approximately 51% of Eldorado. Carano continues in the roles in the management of Eldorado and Resorts in which he served Resorts prior to Closing.

The 17.0359% equity interest in Resorts acquired by the Company included a new 14.47% membership interest acquired directly from Resorts (the “14.47% Interest”) and a previously outstanding 3% membership interest (that, as a result of the issuance of the 14.47% Interest, was reduced to a 2.5659% interest) acquired from Carano (the “2.5659% Interest”). In consideration for its equity interest, AcquisitionCo:

 

   

transferred to Resorts, free and clear of any liens, ownership of $31,133,250 original principal amount of the New Shreveport Notes together with the right to all interest paid with respect thereto after the closing date, and

 

   

transferred to Carano, free and clear of any liens, $6,912,113 original principal amount of New Shreveport Notes together with the right to all interest paid with respect thereto after the closing date and a preferred stock equity interest representing a capital contribution amount of $286,889 issued by SGH.

At closing, Resorts and Carano paid Newport in cash the respective amounts owed to AcquisitionCo for interest on the respective amounts of New Shreveport Notes received at closing that was accrued and unpaid through the date of closing.

Under the terms of the Purchase Agreement, Resorts was entitled, prior to or immediately following the Company’s acquisition of its interest in Resorts, to make a distribution to the members of Resorts other than AcquisitionCo of up to $10 million. On July 25, 2007 Resorts made the $10 million distribution to its members which was funded through borrowings under Resorts’ credit facility as permitted by the Purchase Agreement.

2. Basis of Presentation and Summary of Significant Accounting Policies

Basis of Presentation and Principles of Consolidation

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 (U.S. GAAP).

The unaudited consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries, Blocker and AcquisitionCo. All intercompany transactions have been eliminated in consolidation.

In the opinion of Management, the accompanying unaudited consolidated financial statements contain all adjustments, all of which are normal and recurring, necessary to present fairly the financial position of the Company as of June 30, 2011 and December 31, 2010, and the results of its operations for the three and six months ended June 30, 2011 and 2010, and its cash flows for the six months ended June 30, 2011 and 2010. The results of operations for such periods are not necessarily indicative of the results to be expected for a full year.

Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted. These consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Form 10-K for the year ended December 31, 2010 filed with the Securities and Exchange Commission on April 13, 2011.

Cash and Cash Equivalents

Cash and cash equivalents include all highly liquid instruments purchased with an original maturity of three months or less at the time of purchase. Cash equivalents are stated at cost plus accrued interest, which approximates fair value.

 

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Table of Contents

Investment in Eldorado

The Company accounts for its 17.0359% investment in Eldorado using the equity method of accounting. The Company considers on a quarterly basis whether the fair value of its equity method investment has declined below its carrying value whenever adverse events or changes in circumstances indicate that the recorded value may not be recoverable. If the Company considers any such decline to be other than temporary, then a write-down would be recorded to estimated fair value. Evidence of a loss in value that may be other than temporary might include, but would not necessarily be limited to, absence of an ability to recover the carrying amount of the Company’s investment or the inability of Eldorado to sustain an earnings capacity that would justify the carrying amount of the investment. In evaluating whether the 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 Eldorado, including any specific events which may influence the operations of Eldorado; 3) the Company’s intent and ability to retain its investment in Eldorado 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) Eldorado’s financial performance and projections; 6) trends in the general market; and 7) Eldorado’s capital strength and liquidity.

In determining whether the fair value of the investment in Eldorado is less than its carrying value, the Company uses a discounted cash flow model as its principal technique. The Company’s model incorporates an estimated weighted-average cost of capital that a market participant would use in evaluating the investment in a purchase transaction. The estimated weighted-average cost of capital is based on the risk free interest rate and other factors such as current risk premiums. The Company uses the discounted cash flow model as it provides greater detail and opportunity to reflect specific facts, circumstances and economic conditions for its investment. Comparable business transactions are often limited in number, contain dated information, and require significant adjustments due to differences in the size of the business, markets served and other factors. The Company therefore believes that in its circumstance, this makes comparisons to business transactions less reliable than the discounted cash flows model. However, the Company does consider comparable business transactions as a reasonableness test of our principal technique.

In performing this impairment test, the Company takes steps to ensure that appropriate and reasonable cash flow projections and assumptions are used. The Company also performs sensitivity analyses on the key assumptions used, including the weighted-average cost of capital.

Fair Value of Financial Instruments

The fair value of cash and cash equivalents and accounts payable and accrued liabilities approximates their carrying value due to the immediate or short term maturity of these financial instruments.

3. Membership Units and Related Rights

The Company’s Operating Agreement has created two classes of membership units, the Class A Units and the Class B Units. VoteCo holds one Class A Unit of the Company, representing the Company’s only outstanding voting equity. InvestCo holds 9,999 Class B Units of the Company representing all of the Company’s outstanding non-voting equity. With the exception of voting rights, the rights of a Class A Unit and a Class B Unit are identical.

Each of the Company’s membership units, both Class A and Class B, represent a percentage interest in the Company equal to the quotient determined by dividing one by the aggregate number of units, both Class A and Class B, held by all members as of the date of the determination. The economic rights, risks and rewards are all shared by the members ratably according to their respective percentage interests.

Distributions

Subject to all applicable gaming approvals, distributions by the Company will be made to its members at such times and in such amounts as approved by the Operating Manager in good faith in accordance with the provisions of the Company’s operating agreement and, if and when made, will be distributed by the Company to its members in proportion to their respective percentage interests in the Company. There is no formal agreement between Newport and the Company regarding the settlement of the due to/from related parties; however, such amounts are expected to be settled upon sale of the Company’s investment in Eldorado.

Restrictions on Transfer

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. In addition, transfers or issuances of any membership units to any person who is required to be, and has not been, found suitable to be licensed or to hold such membership units by applicable gaming authorities, are prohibited and will be null and void and of no force or effect as of the inception of the attempted transfer or issuance.

 

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Table of Contents

As of the date the Company receives notice from any applicable gaming authority that a member of the Company or a transferee of any membership interest in the Company (1) is required to be licensed but is unsuitable to be licensed or (2) is unsuitable to hold a membership interest in the Company, then the unsuitable member or transferee may not, for so long as the unsuitability determination remains in force and effect,

 

   

receive any share of any cash distribution, or any other property or payments upon the dissolution of the Company,

 

   

exercise directly or through a trustee or nominee any voting rights conferred by any membership interest in the Company,

 

   

participate in the management of the business or affairs of the Company, or

 

   

receive any remuneration in any form from the Company for services rendered or otherwise.

Member and Company Manager Compensation

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. A manager of the Company is entitled to reimbursement from the first available funds of the Company for direct out-of-pocket costs and expenses incurred by the manager on behalf of the Company that directly related to the business and affairs of the Company.

4. Investment in Eldorado

The Company’s 17.0359% investment in Eldorado (which was acquired on April 1, 2009 in exchange for a 17.0359% interest originally acquired in Resorts, as described in Note 1) is accounted for under the equity method. The investment, which is reported as Equity income (loss) on Eldorado on the consolidated statement of operations, was originally recorded at fair value and is adjusted by the Company’s share of earnings, losses, distributions, and adjustments related to the amortization of definite-lived intangibles of the investment. The Company’s allocated income and loss related to Eldorado for the three and six months ended June 30, 2011 and 2010, respectively, are included as a component of net income (loss) on the consolidated statement of operations. As of June 30, 2011 and December 31, 2010, there was no indication that impairment may have existed in relation to the investment in Eldorado.

A roll forward of the Company’s equity investment in Eldorado is as follows:

 

     Total  

Beginning balance at January 1, 2011

   $ 28,197,330   

Equity income on Eldorado

     619,053   
  

 

 

 

Ending balance at June 30, 2011

   $ 28,816,383   
  

 

 

 

Summarized balance sheet information for Eldorado is as follows (in thousands):

 

     June 30,
2011
     December 31,
2010
 

Current assets

   $ 54,460       $ 57,747   

Investment in joint ventures

     41,362         42,994   

Property and equipment, net

     204,746         209,996   

Intangible assets, net

     20,720         20,720   

Other assets, net

     8,676         2,186   
  

 

 

    

 

 

 

Total assets

   $ 329,964       $ 333,643   
  

 

 

    

 

 

 

Current liabilities

   $ 37,927       $ 27,685   

Long-term liabilities

     191,747         190,764   

13% Preferred equity interest

     —           19,289   

Non-controlling interest

     4,746         4,807   

Partners’ equity

     95,544         91,098   
  

 

 

    

 

 

 

Total liabilities and partners’ equity

   $ 329,964       $ 333,643   
  

 

 

    

 

 

 

 

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Table of Contents

Summarized results of operations for Eldorado are as follows (in thousands):

 

     Three months
ended

June  30,
2011
    Six months
ended

June 30,
2011
 

Net operating revenues

   $ 65,644      $ 127,383   

Operating expenses

     (58,297     (113,894

Loss on sale/disposition of long-lived assets

     (25     (38

Equity income (loss) of unconsolidated affiliates

     584        (1,122
  

 

 

   

 

 

 

Operating income

     7,906        12,329   

Other expense, net

     (3,362     (8,438
  

 

 

   

 

 

 

Net income

     4,544        3,891   

Net (income) loss attributable to noncontrolling interest

     (14     61   
  

 

 

   

 

 

 

Net income attributable to the Company

   $ 4,530      $ 3,952   
  

 

 

   

 

 

 

Effective March 1, 1994, ELLC (96% owned by Resorts) and Galleon, Inc. (a Nevada corporation and now an indirect wholly owned subsidiary of MGM Resorts International (formerly MGM MIRAGE)), entered into a joint venture (the “Silver Legacy Joint Venture”) pursuant to a joint venture agreement to develop the Silver Legacy Resort Casino (the “Silver Legacy”). The Silver Legacy consists of a casino and hotel located in Reno, Nevada, which began operations on July 28, 1995. Each partner owns a 50% interest in the Silver Legacy Joint Venture.

Summarized balance sheet information for the Silver Legacy Joint Venture is as follows (in thousands):

 

     June 30,
2011
     December 31,
2010
 

Current assets

   $ 42,730       $ 38,817   

Property and equipment, net

     222,487         229,119   

Other assets, net

     7,299         7,315   
  

 

 

    

 

 

 

Total assets

   $ 272,516       $ 275,251   
  

 

 

    

 

 

 

Current liabilities

   $ 160,843       $ 18,510   

Long-term liabilities

     8,379         150,911   

Partners’ equity

     103,294         105,830   
  

 

 

    

 

 

 

Total liabilities and partners’ equity

   $ 272,516       $ 275,251   
  

 

 

    

 

 

 

Summarized results of operations for the Silver Legacy Joint Venture are as follows (in thousands):

 

     Three months
ended

June  30,
2011
    Six months
ended

June  30,
2011
 

Net revenues

   $ 33,595      $ 61,420   

Operating expenses

     (29,107     (57,080
  

 

 

   

 

 

 

Operating income

     4,488        4,340   

Other expense, net

     (3,762     (7,522
  

 

 

   

 

 

 

Net income (loss)

   $ 726      $ (3,182
  

 

 

   

 

 

 

5. Related Parties

InvestCo owns 99.99% of the Company which is a non-voting interest. The other .01% of the Company, which is the only voting interest of the Company, is owned by VoteCo. InvestCo is wholly owned by Newport. In May 2007, Newport contributed to the Company 100% of the New Shreveport Notes held by Newport since August 2006 and 11% of the SGH preferred shares held since August 2006 that comprised the Company’s Eldorado Shreveport investments (the “Eldorado Shreveport Investments”). The Eldorado Shreveport Investments were transferred to the Company at fair market value at the date of transfer. VoteCo is responsible for the operations of the Company and is wholly owned by the managers of Newport.

 

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At June 30, 2011 and December 31, 2010, the Company was owed $5,179,772 from Newport, representing $5,118,168 of interest earned and received on the Eldorado Shreveport Investments and $61,600 of preferred dividend earned and received on the 11,000 SGH preferred shares. At June 30, 2011 and December 31, 2010, the Company owed $2,756,195 and $2,568,903, respectively, to Newport for expenses paid by Newport on the Company’s behalf. There is no formal agreement outlining the settlement of the receivable and payable between Newport and the Company. Accordingly, the receivable and payable are reflected as a non-current asset and a non-current liability, respectively, at June 30, 2011 and December 31, 2010.

6. Subsequent Events

On August 1, 2011, the acquisition by NGA Holdco, LLC, a Nevada limited liability company (the “Company”), through its wholly owned subsidiary, NGA AcquisitionCo, a Nevada limited liability company, LLC (“AcquisitionCo”), of a 40% equity interest (the “40% Interest”) in Mesquite Gaming, LLC, a Nevada limited liability company (“Mesquite Gaming”), was completed upon the transfer to Mesquite Gaming of all of the assets of Black Gaming, LLC (“Black Gaming”), including its direct and indirect ownership interests in its subsidiaries, for $8,222,222 in cash. The assets acquired by Mesquite Gaming include the CasaBlanca Hotel & Casino and the Virgin River Hotel & Casino, each in Mesquite, Nevada, two golf courses, a bowling center, a gun club, restaurants, and banquet and conference facilities. The transfer of the Black Gaming assets to Mesquite Gaming and the acquisition by AcquisitionCo of the 40% 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 Purchase price paid for the 40% Interest was provided by Newport Global Opportunities Fund LP, a Delaware limited partnership (“Newport”), and Newport Global Credit Fund (Master) LP, a Delaware limited partnership (“Master”), in the respective amounts of $7,222,222 and $1,000,000. Prior to the acquisition by AcquisitionCo of the 40% Interest, Newport owned all of the equity interests in NGA No VoteCo, LLC, a Nevada limited liability company (“InvestCo”). In consideration for Master’s contribution of its portion of the funds used to purchase the 40% Interest, Master became a second member of InvestCo, which owns all of the Company’s outstanding Class B Units, representing all of its non-voting equity. As a result of the acquisition of the 40% Interest, the Company’s financial statements will, from August 1, 2011 (the date of consummation of the acquisition), reflect the Company’s allocable share of the net income (loss) of Mesquite Gaming, which was formed for the purpose of acquiring the assets of Black Gaming pursuant to the Plan.

 

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

Overview

The following management’s discussion and analysis relates to the Company’s unaudited condensed consolidated financial statements and notes thereto included in Part I, Item 1 of this report.

The Company and its subsidiaries were formed as legal entities in January 2007 for the primary purpose of holding equity, directly or indirectly through affiliates, 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. On December 14, 2007, our affiliate, NGA Acquisition Co. LLC (“AcquisitionCo”), acquired a 17.0359% interest in Eldorado Resorts, LLC, a Nevada limited liability company (“Resorts”). Effective April 1, 2009, Resorts became a wholly-owned subsidiary of Eldorado HoldCo LLC, a Nevada limited liability company (“Eldorado”), when all of the members of Resorts, including Acquisition Co., the subsidiary of the Company through which the Company held its interest in Resorts, exchanged their interests in Resorts for identical interests in Eldorado. Eldorado, which was formed to be a holding company for Resorts, conducts no operations of its own and, other than its ownership of Resorts, has no assets or liabilities (see note 1 of the notes to the Company’s unaudited condensed consolidated financial statements included in this report).

From the date the investments conveyed by the Company for its 17.0359% interest in a Resorts were first acquired by Newport Global Opportunities Fund LP (“Newport”) in August 2006 until the Company’s acquisition of the 17.0359% interest in Resorts, the unaudited condensed consolidated financial statements presented reflect the Company’s activity with respect to such investments, which consisted principally of bonds and preferred shares associated with Eldorado Shreveport (the “Eldorado Shreveport Investments”). The related statements of operations reflect the interest earned by Newport associated with the Eldorado Shreveport Investments from August 2006 and any direct expenses associated with the acquisition of the 17.0359% interest in Resorts.

The Company has had no revenue generating business since inception and its current business plan consists primarily of its holding of a 17.0359% equity interest in Eldorado. Its only operations through June 30, 2011 have consisted of interest income earned on the Eldorado Shreveport Investments and, since December 14, 2007, the pro-rata net income (loss) allocation (as the case may be) related to the Resorts/Eldorado investment and nominal administrative expenses.

Eldorado, through Resorts, owns and operates the Eldorado Hotel & Casino (the “Eldorado-Reno”), a premier hotel/casino and entertainment facility in Reno, Nevada. Through two wholly owned subsidiaries, Resorts indirectly owns and, pursuant to a management agreement, operates the Eldorado Casino Shreveport, an all-suite art deco-style hotel and a tri-level riverboat dockside casino complex situated on the Red River in Shreveport, Louisiana (the “Eldorado-Shreveport”). Resorts’ 96% owned subsidiary, Eldorado Limited Liability Company, a Nevada limited liability company (“ELLC”), owns a 50% interest in a general partnership (the “Silver Legacy Joint Venture”) which owns the Silver Legacy Resort Casino (the “Silver Legacy”), a major, themed hotel/casino located adjacent to Eldorado-Reno. In addition, Resorts owns a 21.25% interest in Tamarack, a small casino in south Reno.

 

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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. Also on June 30, 2014, Resorts entered into a new $30 million senior secured revolving credit facility (the “New Credit Facility”) available until June 20, 2014, 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 Senior Secured 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 three months ended June 30, 2011 included net operating revenues of approximately $65.6 million and operating expenses of approximately $58.3 million. Eldorado’s equity in net income of unconsolidated affiliates was approximately $0.6 million while interest expense and the gain on the early retirement of debt were approximately $5 million and $1.6 million, respectively, for the period. The net result for the quarter was net income of approximately $4.5 million, compared with net income of approximately $1.4 million for the corresponding quarter of 2010.

Three Months Ended June 30, 2011 Compared to the Three Months Ended June 30, 2010

The Company’s net income, which largely reflects the Company’s share of the net income (loss) of Eldorado, was $692,934 for the quarter ended June 30, 2011 compared to net income of $135,414 for the same period in 2010. The Company’s equity income on Eldorado increased by $535,439, primarily as a result of increased revenues, decreased operating expenses, and a $1.9 million decrease in other expenses for Eldorado when compared to the same period in 2010. The $1.9 million decrease in other expenses was largely attributable to a $1.64 million gain by Eldorado on the early retirement of a substantial portion of its debt. The increase in the Company’s net income was also positively affected by a $22,081 decrease to the Company’s legal and licensing expenses during the quarter when compared to the same period in 2010. This decrease was due to fewer expenses being incurred in connection with the acquisition on August 1, 2011 of a 40% interest in Mesquite Gaming (see Subsequent Events, below).

Six Months Ended June 30, 2011 Compared to the Six Months Ended June 30, 2010

The Company’s net income, which largely reflects the Company’s share of the net income (loss) of Eldorado, was $453,333 for the six months ended June 30, 2011 compared to a net loss of $621,615 for the same period in 2010. The Company’s equity income on Eldorado increased by approximately $1 million, primarily as a result of consistent revenues, a $4.1 million decrease to operating expenses, and a $2.1 million decrease in other expenses for Eldorado when compared to the same period in 2010. The $2.1 million decrease in other expenses was largely attributable to a $1.64 million gain by Eldorado on the early retirement of a substantial portion of its debt. The increase in the Company’s net income was also positively affected by a $40,698 decrease to the Company’s legal and licensing expenses during the first six months of 2011 when compared to the same period in 2010. This decrease was due to fewer expenses being incurred in connection with the acquisition on August 1, 2011 of a 40% interest in Mesquite Gaming (see Subsequent Events, below).

Eldorado Prior Period Adjustments

During the quarter, Eldorado determined that its consolidated statement of operations for the three and six months ended June 30, 2010 should be adjusted to reflect a reclassification in casino revenues and expenses associated with cash coupons at Eldorado Shreveport which were included in casino expenses in such periods rather than treated as a reduction in casino revenue.

Additionally, during the preparation of their financial statements for the three and six months ended June 30, 2011, Eldorado identified errors in the classification of certain casino expenses and selling, general and administrative expenses which were recorded within the food, beverage and entertainment, hotel and other operating expenses. Management determined that Eldorado Shreveport had not allocated the estimated cost of complimentary services to be charged to the casino department from the food, beverage and entertainment, hotel and other operations departments on a consistent basis with Eldorado Reno. These reclassifications resulted in the following adjustments for Eldorado in revenues and expenses in the prior year periods:

 

     As
Presented
     As
Corrected
     As
Presented
     As
Corrected
 
     Three months ended
June 30, 2010
     Six months ended
June 30, 2010
 
     (in thousands)  

Operating Revenues:

  

Casino

   $ 54,008       $ 52,003       $ 106,357       $ 102,242   

Operating Expenses:

           

Casino

     28,532         30,837         57,559         62,115   

Food, beverage and entertainment

     10,933         7,694         21,082         14,499   

Hotel

     2,563         2,087         4,878         3,953   

Other

     2,635         991         5,128         1,890   

Selling, general and administrative

     10,862         11,911         21,545         23,620   

The summarized results of operations for Eldorado for the three and six months ended June 30, 2011, which are included herein in note 4 of the notes to the Company’s unaudited condensed consolidated financial statements, reflect the properly allocated amounts. Management notes that though these adjustments delayed the completion of Eldorado’s financial statements, and the filing of the Company’s financial statements, for the three and six months ended June 30, 2011, they had no effect on Eldorado’s or the Company’s operating income and net income (loss) for either period.

Reclassifications

As discussed above, certain reclassifications, which have no effect on previously reported net income (loss) for Eldorado or the Company, have been made to Eldorado’s 2010 statements of operations to conform to the 2011 presentation. Pursuant to guidance in the American Institute of Certified Public Accountants’ recently issued “Audit and Accounting Guide – Gaming”, Eldorado reclassified amounts paid under its slot participation agreements from casino revenues to casino expenses. The total amount reclassified for both the three and six months ended June 30, 2010 was $0.2 million. Eldorado has reclassified the amount received for its resort fee from other revenues to hotel revenues. The total amount reclassified for the three and six months ended June 30, 2010 was $0.2 million and $0.4 million, respectively.

Liquidity and Capital Resources

The Company incurred approximately $0.2 million of costs associated with its investment in Eldorado and the Mesquite Gaming acquisition during the six month periods ended June 30, 2011 and June 30, 2010. Expenses incurred related to accounting and legal fees for the preparation of regulatory filings, along with travel and legal expenses related to the acquisition of a 40% interest in Mesquite Gaming (see Subsequent Events, below). For the remainder of 2011, the Company expects to incur additional costs of approximately $0.1 million. These costs will be financed by member contributions.

Subsequent Events

On August 1, 2011, the acquisition by NGA Holdco, LLC, a Nevada limited liability company (the “Company”), through its wholly owned subsidiary, NGA AcquisitionCo, a Nevada limited liability company, LLC (“AcquisitionCo”), of a 40% equity interest (the “40% Interest”) in Mesquite Gaming, LLC, a Nevada limited liability company (“Mesquite Gaming”), was completed upon the transfer to Mesquite Gaming of all of the assets of Black Gaming, LLC (“Black Gaming”), including its direct and indirect ownership interests in its subsidiaries, for $8,222,222 in cash. The assets acquired by Mesquite Gaming include the CasaBlanca Hotel & Casino and the Virgin River Hotel & Casino, each in Mesquite, Nevada, two golf courses, a bowling center, a gun club, restaurants, and banquet and conference facilities. The transfer of the Black Gaming assets to Mesquite Gaming and the acquisition by AcquisitionCo of the 40% 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 Purchase price paid for the 40% Interest was provided by Newport Global Opportunities Fund LP, a Delaware limited partnership (“Newport”), and Newport Global Credit Fund (Master) LP, a Delaware limited partnership (“Master”), in the respective amounts of $7,222,222 and $1,000,000. Prior to the acquisition by AcquisitionCo of the 40% Interest, Newport owned all of the equity interests in NGA No VoteCo, LLC, a Nevada limited liability company (“InvestCo”). In consideration for Master’s contribution of its portion of the funds used to purchase the 40% Interest, Master became a second member of InvestCo, which owns all of the Company’s outstanding Class B Units, representing all of its non-voting equity. As a result of the acquisition of the 40% Interest, the Company’s financial statements will, from August 1, 2011 (the date of consummation of the acquisition), reflect the Company’s allocable share of the net income (loss) of Mesquite Gaming, which was formed for the purpose of acquiring the assets of Black Gaming pursuant to the Plan.

 

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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, 2010. There have been no material changes to those policies during the three months ended June 30, 2011.

 

Item 3. Quantitative and Qualitative Disclosures 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”), our management, including our principal executive officer and principal financial officer, has evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report. Based on that evaluation, our principal executive officer and our principal financial officer have concluded that as of the end of the period covered by this report our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) were effective.

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 to determine whether any changes to our internal control over financial reporting occurred during the quarter ended June 30, 2011 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. Based on that evaluation, no such changes to our internal control over financial reporting occurred during the quarter ended June 30, 2011.

 

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PART II

OTHER INFORMATION

 

Item 6. Exhibits.

The following exhibits are filed or furnished with this report:

 

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 six months ended June 30, 2011, filed with the Securities and Exchange Commission on August 15, 2011, formatted in XBRL (eXtensible Business Reporting Language): (i) the Condensed Consolidated Balance Sheet; (ii) the Condensed Consolidated Statement of Income; (iii) the Condensed Consolidated Statement of Comprehensive Income; (iv) the Condensed Consolidated Statement of Cash Flows; (v) the Condensed Consolidated Statement of Changes in Equity and (vi) the Notes to Condensed Consolidated Financial Statements.

 

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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.

 

    NGA HOLDCO, LLC
Date: September 14, 2011     By:  

/S/    Timothy T. Janszen

      Timothy T. Janszen
      Operating Manager
      (Principal Executive Officer)
Date: September 14, 2011     By:  

/S/    ROGER A. MAY

      Roger A. May
      Manager
      (Principal Financial Officer)

 

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EXHIBIT INDEX

 

Exhibit
No.

  

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 six months ended June 30, 2011, filed with the Securities and Exchange Commission on August 15, 2011, formatted in XBRL (eXtensible Business Reporting Language): (i) the Condensed Consolidated Balance Sheet; (ii) the Condensed Consolidated Statement of Income; (iii) the Condensed Consolidated Statement of Comprehensive Income; (iv) the Condensed Consolidated Statement of Cash Flows; (v) the Condensed Consolidated Statement of Changes in Equity and (vi) the Notes to Condensed Consolidated Financial Statements.

 

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