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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 March 31, 2014

 

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

 

For the transition period from              to             

 

Commission file number 0-52042

 

OCM HOLDCO, LLC

(Exact name of Registrant as specified in its charter)

 

DELAWARE

 

20-3673772

(State or other jurisdiction of incorporation

or organization)

 

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

 

333 SOUTH GRAND AVENUE

28th FLOOR

LOS ANGELES, CALIFORNIA, 90071

(Address of principal executive offices)

 

(213) 830-6300

(Registrant’s telephone number)

 

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 o

 

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 (Section 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 o

 

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

 

Large accelerated filer o

 

Accelerated filer o

 

 

 

Non-accelerated filer o

 

Smaller reporting company x

(Do not check if a smaller reporting company)

 

 

 

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

 

 

 



Table of Contents

 

OCM HOLDCO, LLC

Index

Form 10-Q

 

 

 

 

PAGE

 

Forward Looking Statements

 

3

 

 

 

 

Part I

Financial Information

 

4

 

 

 

 

Item 1.

Consolidated Financial Statements

 

4

 

Balance Sheets

 

4

 

Statements of Comprehensive Income (Loss)

 

5

 

Statements of Changes in Members’ Equity

 

6

 

Statements of Cash Flows

 

7

 

Notes to Consolidated Financial Statements

 

8

Item 2.

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

 

12

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

 

17

Item 4.

Controls and Procedures

 

17

 

 

 

 

Part II

Other Information

 

17

Item 1.

Legal Proceedings

 

17

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

 

17

Item 3.

Defaults Upon Senior Securities

 

17

Item 4.

Mine Safety Disclosures

 

17

Item 5.

Other Information

 

17

Item 6.

Exhibits

 

18

 

Signatures

 

19

 

2



Table of Contents

 

Forward Looking Statements.

 

In addition to historical information, this Form 10-Q contains forward-looking statements that involve risks and uncertainties that could cause our actual results to differ materially from those contained in the forward-looking statements. Factors that might cause or contribute to such differences include, but are not limited to, those discussed in the notes to the financial statements of OCM HoldCo, LLC set forth in the section entitled “Financial Statements.” When used in this report, the words “expects,” “intends,” “anticipates,” “should,” “believes,” “will,” “plans,” “estimates,” “may,” “seeks,” and similar expressions are generally intended to identify forward-looking statements. You should not place undue reliance on these forward-looking statements, which reflect our opinions only as of the date of this Form 10-Q. We undertake no obligation to publicly release any revisions to the forward-looking statements after the date of this document. You should carefully review the information described in this Form 10-Q. You should also carefully review the risk factors described in the previously filed Form 10-K for the year ended December 31, 2013, and those described from time to time in our future reports filed with the Securities and Exchange Commission (the “Commission”).

 

3



Table of Contents

 

PART I—FINANCIAL STATEMENTS

 

Item 1. Financial Statements.

 

OCM HoldCo, LLC and Subsidiaries

Consolidated Balance Sheets

 

 

 

March 31,

 

December 31,

 

 

 

2014

 

2013

 

 

 

(Unaudited)

 

 

 

ASSETS

 

 

 

 

 

Current assets

 

 

 

 

 

Cash

 

$

9,343,718

 

$

9,363,650

 

Deferred tax assets, current

 

 

229,972

 

 

 

9,343,718

 

9,593,622

 

 

 

 

 

 

 

Other assets

 

 

 

 

 

Investment in Cannery Casino Resorts, LLC

 

81,794,434

 

82,762,314

 

Gaming and related licenses

 

805,698

 

805,698

 

Deferred tax assets, net of valuation allowance of $10,783,749 and $2,793,392 as of March 31, 2014 and December 31, 2013, respectively

 

43,033

 

7,563,796

 

 

 

$

91,986,883

 

$

 100,725,430

 

 

 

 

 

 

 

LIABILITIES AND MEMBERS’ EQUITY

 

 

 

 

 

Current liabilities

 

 

 

 

 

Accounts payable and accrued expenses, including $179,894 and $167,394 to related parties as of March 31, 2014 and December 31, 2013, respectively

 

$

243,741

 

$

179,745

 

Deferred tax liabilities, current, net of valuation allowance of $336,072 and $0 as of March 31, 2014 and December 31, 2013, respectively

 

42,834

 

 

 

 

286,575

 

179,745

 

 

 

 

 

 

 

Members’ equity

 

91,700,308

 

100,545,685

 

 

 

$

91,986,883

 

$

100,725,430

 

 

See notes to consolidated financial statements.

 

4



Table of Contents

 

OCM HoldCo, LLC and Subsidiaries

Consolidated Statements of Comprehensive Income (Loss) (Unaudited)

For the Three Months Ended March 31, 2014 and 2013

 

 

 

Three Months Ended

 

 

 

2014

 

2013

 

 

 

 

 

 

 

Income (loss)

 

 

 

 

 

Interest income

 

$

 2,304

 

$

 2,533

 

Equity in loss of unconsolidated investees

 

(918,018

)

(1,452,480

)

 

 

(915,714

)

(1,449,947

)

 

 

 

 

 

 

Costs and expenses

 

 

 

 

 

Professional fees

 

72,911

 

70,847

 

Administrative fees and other expenses

 

13,321

 

13,504

 

Interest expense, related parties

 

 

11,097

 

 

 

86,232

 

95,448

 

 

 

 

 

 

 

Loss before income tax provision

 

(1,001,946

)

(1,545,395

)

 

 

 

 

 

 

Income tax (provision) benefit

 

(7,811,020

)

485,595

 

 

 

 

 

 

 

Net loss

 

(8,812,966

)

(1,059,800

)

Equity in other comprehensive income of unconsolidated investee, net of tax, unrealized (loss) gain on interest rate swap and investments

 

(32,411

)

97,472

 

Comprehensive loss

 

$

 (8,845,377

)

$

 (962,328

)

 

See notes to consolidated financial statements.

 

5



Table of Contents

 

OCM HoldCo, LLC and Subsidiaries

Consolidated Statements of Changes in Members’ Equity (Unaudited)

For the Three Months Ended March 31, 2014 and 2013

 

 

 

Total members’
equity

 

Accumulated other
comprehensive
income (loss)

 

Invested capital and
accumulated earnings

 

 

 

 

 

 

 

 

 

2014

 

 

 

 

 

 

 

Balances, beginning of period

 

$

100,545,685

 

$

(125,216

)

$

100,670,901

 

Net loss

 

(8,812,966

)

 

(8,812,966

)

Equity in other comprehensive income of unconsolidated investee, net of tax, unrealized loss on interest rate swap, and investments

 

(32,411

)

(32,411

)

 

 

 

 

 

 

 

 

 

Balances, end of period

 

$

91,700,308

 

$

(157,627

)

$

91,857,935

 

 

 

 

 

 

 

 

 

2013

 

 

 

 

 

 

 

Balances, beginning of period

 

$

107,929,154

 

$

(205,774

)

$

108,134,928

 

Net loss

 

(1,059,800

)

 

(1,059,800

)

Equity in other comprehensive income of unconsolidated investee, net of tax, unrealized gain on interest rate swap

 

97,472

 

97,472

 

 

 

 

 

 

 

 

 

 

Balances, end of period

 

$

106,966,826

 

$

(108,302

)

$

107,075,128

 

 

See notes to consolidated financial statements.

 

6



Table of Contents

 

OCM HoldCo, LLC and Subsidiaries

Consolidated Statements of Cash Flows (Unaudited)

For the Three Months Ended March 31, 2014 and 2013

 

 

 

2014

 

2013

 

 

 

 

 

 

 

Operating activities

 

 

 

 

 

Net loss

 

$

(8,812,966

)

$

(1,059,800

)

Adjustments to reconcile net loss to net cash used in operating activities:

 

 

 

 

 

Equity in loss of unconsolidated investees

 

918,018

 

1,452,480

 

Deferred income taxes

 

7,811,020

 

(481,664

)

Increase in accounts payable and accrued expenses

 

63,996

 

60,368

 

Decrease in taxes payable

 

 

(3,931

)

Net cash used in operating activities

 

(19,932

)

(32,547

)

 

 

 

 

 

 

Investing activities

 

 

 

 

 

Net cash provided by investing activities

 

 

 

 

 

 

 

 

 

Financing activities

 

 

 

 

 

Net cash provided by financing activities

 

 

 

 

 

 

 

 

 

Net decrease in cash

 

(19,932

)

(32,547

)

Cash, beginning of period

 

9,363,650

 

10,638,837

 

 

 

 

 

 

 

Cash, end of period

 

$

9,343,718

 

$

10,606,290

 

 

 

 

 

 

 

Supplemental cash flow information

 

 

 

 

 

Noncash financing and investing activity

 

 

 

 

 

Equity in other comprehensive income (loss) of unconsolidated investee

 

$

(32,411

)

$

97,472

 

 

See notes to consolidated financial statements.

 

7



Table of Contents

 

OCM HoldCo, LLC and Subsidiaries

 

Notes to Consolidated Financial Statements

 

NOTE 1— Basis of Presentation and Organization

 

The consolidated financial statements of OCM HoldCo, LLC (“OCM”), a Delaware limited liability company, as of March 31, 2014 and December 31, 2013, and for the three month periods ended March 31, 2014 and 2013, include the accounts of OCM and its wholly-owned subsidiaries (collectively, the “Company”). The interim financial statements presented herein have been prepared by the Company, without audit, pursuant to the rules and regulations of the United States Securities and Exchange Commission (the “Commission”) applicable to interim financial information.  Certain information and disclosures normally included in the annual financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed or omitted pursuant to such rules and regulations.  In the opinion of management, all adjustments necessary for a fair presentation of the results for the interim periods have been made (consisting of normal recurring adjustments).  Results of operations for the current interim periods are not necessarily indicative of results to be expected for the full fiscal year.  All significant intercompany accounts and transactions have been eliminated in consolidation.

 

All of OCM’s issued and outstanding Class A Units are held by OCM VoteCo, LLC, a Delaware limited liability company (“VoteCo”), and all of OCM’s issued and outstanding non-voting Class B Units are held by OCM InvestCo, LLC, a Nevada limited liability company (“InvestCo”).  The rights of the Class A Units and Class B Units are substantially identical with the exception that the Class B Units are not entitled to any management or voting rights with respect to the Company, except as provided by applicable law.  Neither class has dividend or liquidation preferences, atypical participation rights, or preferred, convertible, or redeemable features.  In general, any sale, assignment or transfer of such units is subject to the prior approval of the gaming regulators of Nevada and Pennsylvania.  VoteCo is responsible for the operations of the Company, including the appointment and removal of managers.  VoteCo has a de minimus economic interest in the Company, less than 0.00015%, and its total equity contributions are limited to $100.

 

The Company, through its subsidiary, OCM AcquisitionCo, LLC, a Delaware limited liability company (“AcquisitionCo”), owns 92,690 Series A1 Preferred Units (together with the Series A2 Preferred Units, the “Series A Units”) of Cannery Casino Resorts, LLC (“CCR”), which represent a 31.71% interest in the aggregate Series A Units of CCR.  The Company owns more than 99.99% of the capital interest in OCM Blocker, LLC, a Delaware limited liability company (“Blocker”), and Blocker owns all of the issued and outstanding units of AcquisitionCo.  The Company’s current business consists primarily of its ownership of these equity interests in CCR. CCR, through wholly-owned subsidiaries, owns and operates The Cannery Hotel and Casino (“The Cannery”), located in North Las Vegas, Nevada and the Eastside Cannery Casino and Hotel (the “Eastside Cannery”), located in southeast Las Vegas.  In addition, CCR, through a wholly owned subsidiary, PA Meadows, LLC, a Delaware limited liability company (“PA Meadows”), owns The Meadows Racetrack and Casino (“The Meadows”), an operating harness racetrack and casino located in North Strabane Township, Washington County, Pennsylvania.

 

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Table of Contents

 

These consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K filed with the Commission on March 28, 2014, from which the balance sheet information as of December 31, 2013 was derived.

 

NOTE 2—Selected condensed consolidated operating information for unconsolidated investees

 

Selected unaudited condensed consolidated operating information for Cannery Casino Resorts, LLC, and Subsidiaries is as follows:

 

 

 

Three months ended

 

 

 

March 31,

 

 

 

2014

 

2013

 

 

 

 

 

 

 

Revenues

 

$

101,426,977

 

$

112,065,950

 

 

 

 

 

 

 

Income from operations

 

$

4,345,398

 

$

7,064,203

 

 

 

 

 

 

 

Net loss

 

$

(2,895,040

)

$

(4,580,509

)

 

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Table of Contents

 

NOTE 3—Income taxes

 

OCM is a limited liability company and, accordingly, is treated as a partnership for federal income tax purposes with the tax effect of its activities recognized in the income tax returns of its members.

 

OCM owns over 99.99% of the equity interest in Blocker, which has elected to be taxed as a corporation and which, in turn, owns 100% of AcquisitionCo.  AcquisitionCo owns the investment in CCR, a Nevada limited liability company that is treated as a partnership for federal income tax purposes.  Accordingly, equity in the earnings of CCR are generally taxable to Blocker along with other tax attributes (permanent differences) and business tax credits. The principal exception to this generalization is earnings from the corporate, taxpaying subsidiaries of CCR that own and operate The Meadows, a racetrack and casino in Pennsylvania.

 

Blocker incurs interest expense on intercompany indebtedness that is deducted for income tax purposes but is eliminated (a permanent difference), along with the related debt, in this consolidation.  OCM also incurs certain other costs, primarily associated with being a reporting company, including professional and other fees, which, for tax reporting purposes, flow through to its members.  The Company has recorded a valuation allowance to reduce the related deferred tax assets to the amount that is more likely than not to be realized.  Because of these circumstances, the Company’s estimated effective tax rate, for the periods presented, differs significantly from the federal statutory rate of 35%.

 

Management has made an analysis of its state and federal tax returns that remain subject to examination by major authorities (consisting of tax years 2010 and thereafter) and concluded that the Company has no recordable liability as a result of uncertain tax positions taken.

 

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Table of Contents

 

NOTE 4—Related party loans

 

On July 15, 2010, the Company borrowed $750,000 from certain affiliates of the Company in order to cover existing and future expenses of the Company. Interest accrued at the prime rate plus 2% on the outstanding principal amount, and unpaid interest compounded monthly.  The notes evidencing this loan were due and payable on demand.  On October 2013, the Company fully repaid these borrowings.

 

NOTE 5—Contingencies

 

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 have improved of late, the recovery from this recession period is fragile and there can be no assurance that our business, which has been severely affected by the downturn, will fully recover to pre-recession levels.

 

The Company often carries cash on deposit with financial institutions substantially in excess of federally-insured limits, and the risk of losses related to such concentrations has been increasing as a result of recent economic developments and uncertainties discussed in the foregoing paragraph.  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 estimation at this time.

 

NOTE 6—Financial Instruments

 

Except for cash, the fair value of which equals its carrying value, the only significant financial instrument the Company has is its investment in an unconsolidated investee accounted for using the equity method for which fair value disclosure is not required.

 

NOTE 7 — Subsequent Events

 

On May 13, 2014, CCR and its wholly-owned subsidiary, PA MezzCo, LLC, a Delaware limited liability company (“MezzCo” and collectively with CCR, the “Sellers”), entered into a Membership Interest Purchase Agreement (“Agreement”) with Gaming and Leisure Properties, Inc. and a subsidiary (collectively, the “Buyers”) to sell PA Meadows for approximately $465 million.  The transaction requires approval from the Pennsylvania Gaming Control Board and the Pennsylvania Racing Commission and is expected to close in 2015.  In connection with entering into the Agreement, the Sellers simultaneously entered into a consulting agreement with the Buyers (“Consulting Agreement”) whereby the Sellers will provide general advisory services to the Buyers relating to the transaction contemplated under the Agreement.  The Consulting Agreement ends upon the earliest of (i) the closing of the sale of PA Meadows, (ii) 33 months from execution of the Consulting Agreement, or (iii) the failure of the Buyers and Sellers to deliver certain required representations to extend the Consulting Agreement upon the 13-month and 25-month anniversary of executing the Consulting Agreement.  Upon executing the Consulting Agreement, the Sellers received a non-refundable consulting fee of $10 million, and may earn a $5 million extension fee at each of the 13-month and 25-month anniversaries of executing the Consulting Agreement contingent upon the delivery of certain representations and the extension of the Consulting Agreement.

 

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Table of Contents

 

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

 

The following management discussion and analysis of the Company’s financial condition and results of operations should be read in conjunction with the unaudited interim financial statements and the notes thereto included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

 

Overview

 

The Company’s activities consist solely of holding substantial, noncontrolling equity interests in gaming enterprises and related assets.

 

Background

 

Overview

 

The Company and its consolidated subsidiaries were formed on July 22, 2005, at the direction of affiliates of Oaktree Capital Management, L.P., a Delaware limited partnership (“Oaktree”), for the purpose of participating in various activities relating to the gaming industry.

 

All of the Company’s issued and outstanding Class A Units are held by VoteCo, and all of the Company’s issued and outstanding non-voting Class B Units are held by InvestCo.  VoteCo and InvestCo are affiliates of Oaktree.  VoteCo is responsible for the operations of the Company, including the appointment and removal of managers.  VoteCo has a de minimus economic interest in the Company of less than 0.00015%, and its total equity contributions are limited to $100.

 

In 2006, the Company acquired a 42% equity interest in CCR through AcquisitionCo.  Through its subsidiaries AcquisitionCo and Blocker, the Company currently owns a 31.71% interest in the Series A Units of CCR.  The Company’s current business consists primarily of its ownership of this equity interest.  CCR, through wholly owned subsidiaries, owns and operates The Cannery, located in North Las Vegas, Nevada and the Eastside Cannery, located in Las Vegas, Nevada.  Through its wholly owned subsidiary, PA Meadows, CCR also owns and operates a racetrack and a casino at The Meadows, located in North Strabane Township, Washington County, Pennsylvania.

 

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Table of Contents

 

On October 30, 2013, AcquisitionCo distributed $1.9 million as a return of capital to Blocker.  Blocker in turn paid the Company a total of $1.9 million as payment of accrued interest on intercompany loans to the Company.  The Company then repaid $0.9 million in principal and interest for a related party loan (see Note 4) and distributed $0.1 million to InvestCo as a return of capital.

 

In December 2013, the Company’s subsidiaries, OCM Land Co, LLC and OCM AcquisitionCo II, LLC were dissolved.

 

Recent Developments

 

On May 13, 2014, CCR and its wholly-owned subsidiary, PA MezzCo, LLC, a Delaware limited liability company (“MezzCo” and collectively with CCR, the “Sellers”), entered into a Membership Interest Purchase Agreement (“Agreement”) with Gaming and Leisure Properties, Inc. and a subsidiary (collectively, the “Buyers”) to sell PA Meadows for approximately $465 million.  The transaction requires approval from the Pennsylvania Gaming Control Board and the Pennsylvania Racing Commission and is expected to close in 2015.  In connection with entering into the Agreement, the Sellers simultaneously entered into a consulting agreement with the Buyers (“Consulting Agreement”) whereby the Sellers will provide general advisory services to the Buyers relating to the transaction contemplated under the Agreement.  The Consulting Agreement ends upon the earliest of (i) the closing of the sale of PA Meadows, (ii) 33 months from execution of the Consulting Agreement, or (iii) the failure of the Buyers and Sellers to deliver certain required representations to extend the Consulting Agreement upon the 13-month and 25-month anniversary of executing the Consulting Agreement.  Upon executing the Consulting Agreement, the Sellers received a non-refundable consulting fee of $10 million, and may earn a $5 million extension fee at each of the 13-month and 25-month anniversaries of executing the Consulting Agreement contingent upon the delivery of certain representations and the extension of the Consulting Agreement.

 

Operations Analysis

 

Results of Operations

 

Material variables and factors affecting the Company’s loss before income tax provision for the three months ended March 31, 2014 compared to the three months ended March 31, 2013, are as follows:

 

·                  CCR’s net loss decreased approximately $1.7 million for the three months ended March 31, 2014, compared to the same period for the prior year, due to the operational highlights for CCR discussed below.  This decrease resulted in a $0.5 million decrease in equity in loss of unconsolidated investees.

 

Material tax attributes of the Company’s unconsolidated investees, primarily CCR, flow to the Company through Blocker, an entity in which the Company owns 99.99% of the equity interest, and are either nonrecurring or vary significantly.  Further, significant income of CCR is taxable to corporate subsidiaries of CCR.

 

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Table of Contents

 

During 2014 and 2013, the Company’s operations are related to its investments in CCR.  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 have improved of late, the recovery from this recession period is fragile and there can be no assurance that our business, which has been severely affected by the downturn, will fully recover to pre-recession levels.

 

Operational highlights for CCR for the three months ended March 31, 2014 and 2013 are as follows:

 

Consolidated revenues (net) decreased $10.6 million for the three months ended March 31, 2014, as compared to the corresponding period in the prior year. The decline in consolidated revenues (net) was primarily due to the following:

 

·                  Casino revenues

 

Casino revenues decreased $8.5 million as compared to the same period in the prior year.  Casino revenue at The Meadows decreased $5.6 million primarily due to lower slot revenues.  Slot revenues fell as a result of adverse weather conditions and the opening of the Nemacolin Woodlands Resort in late June 2013, which led to a decline in visits to The Meadows by middle and lower tiered customers.  Casino revenues at the Eastside Cannery and The Cannery decreased $2.1 million and $0.8 million, respectively, primarily due to decreased patron visits and spend as compared to the same period in the prior year.

 

·                  Other revenues

 

Other revenues decreased $1.2 million as compared to the same period in the prior year. The decrease in other revenue was primarily due to discontinuation of the quarterly incentive fee paid in the same period in the prior year, under CCR’s consulting agreement with the Jackson Rancheria Band of Miwuk Indians of California (the “Tribe”). On May 31, 2013, CCR reached a settlement with the Tribe, resulting in the termination of the consulting agreement between both parties.

 

Income from operations decreased $2.7 million for the three months ended March 31, 2014 as compared to the corresponding period in the prior year. The decrease in revenues (net), as previously discussed, was offset by the following:

 

·                  Casino expenses

 

Casino expenses declined $3.8 million primarily due to: (i) lower casino tax expense at The Meadows and Eastside Cannery(ii) and to a lesser extent lower payroll cost at the Eastside Cannery.

 

·                  Selling, general and administrative (“SG&A”)

 

SG&A declined $1.2 million primarily due to: (i) lower corporate payroll and development cost, (ii) decreased advertising and promotional expenses at the Eastside Cannery, (iii) and to a lesser extent cost saving measures across our Pennsylvania and Las Vegas operations.

 

·                  Depreciation and Amortization

 

Depreciation and amortization expense declined $1.9 million, primarily at the Eastside Cannery as compared to the same period in the prior year.

 

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Table of Contents

 

Net loss decreased $1.7 million for the three months ended March 31, 2014 as compared to the same corresponding period in the prior year. The decrease in net loss was primarily driven by lower income tax expense of $2.6 million and a gain from the sale of land of $1.2 million at The Meadows. On March 2014, approximately 13 acres of land was sold to an unrelated third party. The land is planned to be used by the buyer for the development of a retail center.

 

Liquidity and Capital Resources

 

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 have improved of late, the recovery from this recession period is fragile and, consequently, the Company’s liquidity and capital resources, cannot be estimated at this time but may likely be significant.

 

As disclosed above, the Company, from time to time, has made equity contributions to CCR in connection with CCR maintaining compliance with its debt covenants, including approximately $10.8 million in 2009 and approximately $46.6 million in 2010.  The Company has no current investment or other financing plans, and the Company’s recurring prospective need for liquidity and capital resources is principally associated with being a reporting company.  On July 15, 2010, the Company borrowed $750,000 from certain affiliates of the Company in order to cover existing and future expenses of the Company anticipated to arise during the next two years. Interest accrued at the prime rate plus 2% on the outstanding principal amount, and unpaid interest is compounded monthly.  On October 30, 2013, the Company fully repaid these borrowings, including accrued interest.  To the extent the Company needs additional liquidity and capital resources to satisfy those needs, the Company’s members are the expected source of funding.

 

Inflation

 

The Company does not believe that inflation has had a material effect on its results of operations in recent years.  However, there is no assurance that inflation will not adversely affect its business in the future.

 

Off Balance Sheet Arrangements

 

Credit Agreements

 

On October 2, 2012, CCR entered into two new syndicated credit facilities totaling $590 million: a $425 million First Lien Credit Facility consisting of; (i) $385 million term loan borrowed at Closing Date; (ii) $40 million revolving loan unfunded at Closing Date, but available until the fifth anniversary of the Closing Date and; (iii) $165 million Second Lien Credit Facility (see Overview above).  Portions of the proceeds were used to retire $443.5 million of debt that was outstanding under the previously existing credit agreements and $86.9 of the proceeds was distributed to certain owners of the Series C Preferred Units. The remaining value of the Series C Preferred Units was contributed to CCR, and there are no remaining Series C Preferred Units outstanding.

 

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Critical Accounting Estimates and Policies.

 

Although the Company’s consolidated financial statements necessarily make use of certain accounting estimates by management, at this time, we believe no matters are the subject of such estimates that are so highly uncertain or susceptible to change as to present a significant risk of a material impact on its financial condition or results of operations as more fully explained in the following paragraph. Moreover, except as discussed below, the Company does not employ any critical accounting policies that are selected from among available alternatives or require the exercise of significant management judgment to apply except for carrying its investments in unconsolidated investees on the equity method of accounting rather than the fair value option. Similarly, except for the selection of depreciable lives and depreciation methods and assumptions used to estimate the fair value of hedge agreements and investments, consisting of preferred auction rate securities, the accounting policies of the Company’s unconsolidated investees also do not require the exercise of significant management judgment to apply.

 

The realization of substantially all of the Company’s assets will likely be dependent upon an eventual sale of its investment in the unconsolidated investees following an economic recovery believed to be probable at a price sufficient to realize the carrying value of the Company’s assets.  The Company has recorded a valuation allowance to reduce the related deferred tax assets to the amount that is more likely than not to be realized.  These estimates are subject to material variation over the next year.

 

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Recently Issued Accounting Pronouncements.

 

No recently issued accounting pronouncements not yet adopted are expected to have a material impact on our financial position, results of operations, or cash flows.

 

Item 3.         Quantitative and Qualitative Disclosures About Market Risk.

 

Not applicable.

 

Item 4.   Controls and Procedures.

 

Disclosure Controls and Procedures.

 

As of the end of the period covered by this report, the Company carried out an evaluation, under the supervision and with the participation of the Company’s management, including the Company’s principal executive officer and principal financial officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures, as such term is defined under Rule 13a-15(e) or Rule 15d-15(e) under the Securities Exchange of 1934, as amended (the “Exchange Act”).  Based upon that evaluation, the principal executive officer and principal financial officer concluded that, as of March 31, 2014, the Company’s disclosure controls and procedures are effective.

 

Changes in internal control over financial reporting.

 

No change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) occurred during the fiscal quarter ended March 31, 2014, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

 

PART II—OTHER INFORMATION

 

Item 1.   Legal Proceedings.

 

None.

 

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

 

None.

 

Item 3.   Defaults Upon Senior Securities.

 

None.

 

Item 4.   Mine Safety Disclosures.

 

Not applicable.

 

Item 5.   Other Information.

 

On May 13, 2014, CCR and its wholly-owned subsidiary, PA MezzCo, LLC, a Delaware limited liability company (“MezzCo” and collectively with CCR, the “Sellers”), entered into a Membership Interest Purchase Agreement (“Agreement”) with Gaming and Leisure Properties, Inc. and a subsidiary (collectively, the “Buyers”) to sell PA Meadows for approximately $465 million.  The transaction requires approval from the Pennsylvania Gaming Control Board and the Pennsylvania Racing Commission and is expected to close in 2015.  In connection with entering into the Agreement, the Sellers simultaneously entered into a consulting agreement with the Buyers (“Consulting Agreement”) whereby the Sellers will provide general advisory services to the Buyers relating to the transaction contemplated under the Agreement.  The Consulting Agreement ends upon the earliest of (i) the closing of the sale of PA Meadows, (ii) 33 months from execution of the Consulting Agreement, or (iii) the failure of the Buyers and Sellers to deliver certain required representations to extend the Consulting Agreement upon the 13-month and 25-month anniversary of executing the Consulting Agreement.  Upon executing the Consulting Agreement, the Sellers received a non-refundable consulting fee of $10 million, and may earn a $5 million extension fee at each of the 13-month and 25-month anniversaries of executing the Consulting Agreement contingent upon the delivery of certain representations and the extension of the Consulting Agreement.

 

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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 and Principal Financial Officer furnished as required by Section 906 of the Sarbanes-Oxley Act of 2002.

 

 

 

101.INS

 

XBRL Instance Document**

101.SCH

 

XBRL Taxonomy Extension Schema Document**

101.CAL

 

XBRL Taxonomy Extension Calculation Linkbase Document**

101.DEF

 

XBRL Taxonomy Extension Definition Linkbase Document**

101.LAB

 

XBRL Taxonomy Extension Label Linkbase Document**

101.PRE

 

XBRL Taxonomy Extension Presentation Linkbase Document**

 


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

 

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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, hereunto duly authorized.

 

 

OCM HOLDCO, LLC

 

Registrant

 

 

 

Date: May 14, 2014

By:

/s/ Stephen A. Kaplan

 

 

Stephen A. Kaplan

 

 

Manager (principal executive officer)

 

 

 

Date: May 14, 2014

By:

/s/ Ronald N. Beck

 

 

Ronald N. Beck

 

 

Manager (principal financial and chief accounting officer)

 

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