Attached files
file | filename |
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EX-32.1 - EX-32.1 - OCM HoldCo, LLC | a14-14095_1ex32d1.htm |
EX-31.1 - EX-31.1 - OCM HoldCo, LLC | a14-14095_1ex31d1.htm |
EX-31.2 - EX-31.2 - OCM HoldCo, LLC | a14-14095_1ex31d2.htm |
EX-10.1 - EX-10.1 - OCM HoldCo, LLC | a14-14095_1ex10d1.htm |
EXCEL - IDEA: XBRL DOCUMENT - OCM HoldCo, LLC | Financial_Report.xls |
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, 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 |
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20-3673772 |
(State or other jurisdiction of incorporation or organization) |
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(I.R.S. Employer Identification No.) |
333 SOUTH GRAND AVENUE
28th FLOOR
LOS ANGELES, CALIFORNIA, 90071
(Address of principal executive offices)
(213) 830-6300
(Registrants 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 |
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Accelerated filer o |
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Non-accelerated filer o |
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Smaller reporting company x |
(Do not check if a smaller reporting company) |
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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
OCM HOLDCO, LLC
Form 10-Q
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Managements Discussion and Analysis of Financial Condition and Results of Operations |
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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).
OCM HoldCo, LLC and Subsidiaries
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June 30, |
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December 31, |
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2014 |
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2013 |
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(Unaudited) |
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ASSETS |
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Current assets |
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Cash |
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$ |
9,260,486 |
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$ |
9,363,650 |
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Deferred tax assets, current |
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229,972 |
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9,260,486 |
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9,593,622 |
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Other assets |
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Investment in Cannery Casino Resorts, LLC |
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83,521,304 |
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82,762,314 |
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Gaming and related licenses |
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805,698 |
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805,698 |
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Deferred tax assets, net of valuation allowance of $10,339,931 and $2,793,392 as of June 30, 2014 and December 31, 2013, respectively |
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104,028 |
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7,563,796 |
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$ |
93,691,516 |
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$ |
100,725,430 |
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LIABILITIES AND MEMBERS EQUITY |
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Current liabilities |
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Accounts payable and accrued expenses, including $192,394 and $167,394 to related parties as of June 30, 2014 and December 31, 2013, respectively |
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$ |
233,673 |
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$ |
179,745 |
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Deferred tax liabilities, current, net of valuation allowance of $318,463 and $0 as of June 30, 2014 and December 31, 2013, respectively |
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104,028 |
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337,701 |
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179,745 |
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Members equity |
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93,353,815 |
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100,545,685 |
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$ |
93,691,516 |
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$ |
100,725,430 |
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See notes to consolidated financial statements.
OCM HoldCo, LLC and Subsidiaries
Consolidated Statements of Comprehensive Income (Loss) (Unaudited)
For the Three and Six Months Ended June 30, 2014 and 2013
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Three Months Ended |
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Six Months Ended |
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2014 |
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2013 |
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2014 |
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2013 |
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Income (loss) |
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Interest income |
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$ |
2,226 |
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$ |
2,633 |
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$ |
4,530 |
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$ |
5,166 |
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Equity in income (loss) of unconsolidated investees |
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1,764,430 |
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46,657 |
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846,412 |
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(1,405,823 |
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1,766,656 |
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49,290 |
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850,942 |
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(1,400,657 |
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Costs and expenses |
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Professional fees |
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61,293 |
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79,503 |
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134,204 |
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150,350 |
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Administrative fees and other expenses |
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14,096 |
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13,602 |
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27,417 |
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27,106 |
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Interest expense, related parties |
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11,367 |
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22,464 |
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75,389 |
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104,472 |
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161,621 |
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199,920 |
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Income (loss) before income tax provision |
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1,691,267 |
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(55,182 |
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689,321 |
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(1,600,577 |
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Income tax provision |
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(13,346 |
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(1,367,403 |
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(7,824,366 |
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(881,808 |
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Net income (loss) |
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1,677,921 |
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(1,422,585 |
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(7,135,045 |
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(2,482,385 |
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Equity in other comprehensive income (loss) of unconsolidated investee, net of tax, unrealized (loss) gain on interest rate swap and investments |
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(24,414 |
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59,425 |
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(56,825 |
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156,897 |
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Comprehensive income (loss) |
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$ |
1,653,507 |
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$ |
(1,363,160 |
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$ |
(7,191,870 |
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$ |
(2,325,488 |
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See notes to consolidated financial statements.
OCM HoldCo, LLC and Subsidiaries
Consolidated Statements of Changes in Members Equity (Unaudited)
For the Six Months Ended June 30, 2014 and 2013
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Total members |
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Accumulated other |
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Invested capital and |
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2014 |
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Balances, beginning of period |
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$ |
100,545,685 |
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$ |
(125,216 |
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$ |
100,670,901 |
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Net loss |
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(7,135,045 |
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(7,135,045 |
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Equity in other comprehensive loss of unconsolidated investee, net of tax, unrealized loss on interest rate swap, and investments |
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(56,825 |
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(56,825 |
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Balances, end of period |
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$ |
93,353,815 |
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$ |
(182,041 |
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$ |
93,535,856 |
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2013 |
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Balances, beginning of period |
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$ |
107,929,154 |
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$ |
(205,774 |
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$ |
108,134,928 |
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Net loss |
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(2,482,385 |
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(2,482,385 |
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Equity in other comprehensive income of unconsolidated investee, net of tax, unrealized gain on interest rate swap |
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156,897 |
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156,897 |
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Balances, end of period |
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$ |
105,603,666 |
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$ |
(48,877 |
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$ |
105,652,543 |
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See notes to consolidated financial statements.
OCM HoldCo, LLC and Subsidiaries
Consolidated Statements of Cash Flows (Unaudited)
For the Six Months Ended June 30, 2014 and 2013
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2014 |
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2013 |
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Operating activities |
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Net loss |
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$ |
(7,135,045 |
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$ |
(2,482,385 |
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Adjustments to reconcile net loss to net cash used in operating activities: |
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Equity in (income) loss of unconsolidated investees |
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(846,412 |
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1,405,823 |
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Deferred income taxes |
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7,824,365 |
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885,741 |
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Increase in accounts payable and accrued expenses |
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53,928 |
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8,050 |
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Decrease in taxes payable |
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(3,931 |
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Net cash used in operating activities |
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(103,164 |
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(186,702 |
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Investing activities |
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Net cash provided by investing activities |
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Financing activities |
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Net cash provided by financing activities |
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Net decrease in cash |
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(103,164 |
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(186,702 |
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Cash, beginning of period |
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9,363,650 |
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10,638,837 |
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Cash, end of period |
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$ |
9,260,486 |
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$ |
10,452,135 |
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Supplemental cash flow information |
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Noncash financing and investing activity |
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Equity in other comprehensive (loss) income of unconsolidated investee |
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$ |
(56,825 |
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$ |
156,897 |
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See notes to consolidated financial statements.
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 June 30, 2014 and December 31, 2013, and for the three and six month periods ended June 30, 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 OCMs issued and outstanding Class A Units are held by OCM VoteCo, LLC, a Delaware limited liability company (VoteCo), and all of OCMs 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 Companys 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.
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 $5 million extension fee at each of the 13-month and 25-month anniversaries of executing the Consulting Agreement contingent upon the delivery of certain representations and the extension of the Consulting Agreement.
These consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Companys Annual Report on Form 10-K filed with the Commission on March 28, 2014, from which the balance sheet information as of December 31, 2013 was derived.
NOTE 2Selected condensed consolidated operating information for unconsolidated investees
Selected unaudited condensed consolidated operating information for Cannery Casino Resorts, LLC, and Subsidiaries is as follows:
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Three months ended |
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Six months ended |
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June 30, |
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June 30, |
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2014 |
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2013 |
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2014 |
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2013 |
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Revenues |
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$ |
116,998,838 |
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$ |
121,027,055 |
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$ |
218,425,815 |
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$ |
233,093,005 |
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Income from operations |
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$ |
15,963,833 |
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$ |
12,429,413 |
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$ |
20,309,232 |
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$ |
19,493,616 |
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Net income (loss) |
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$ |
5,564,265 |
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$ |
147,135 |
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$ |
2,669,227 |
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$ |
(4,433,374 |
) |
NOTE 3Income 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 Companys 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.
NOTE 4Related 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 30, 2013, the Company fully repaid these borrowings.
NOTE 5Contingencies
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 6Financial 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 7Subsequent Events
On July 14, 2014, AcquisitionCo distributed $0.5 million as a return of capital to Blocker. Blocker in turn paid the Company a total of $0.5 million as payment of accrued interest on intercompany loans to the Company. The Company then distributed $1.1 million to InvestCo as a return of capital.
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations.
The following management discussion and analysis of the Companys 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 Companys 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 Companys issued and outstanding Class A Units are held by VoteCo, and all of the Companys 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 Companys 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.
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 Companys 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.
On July 14, 2014, AcquisitionCo distributed $0.5 million as a return of capital to Blocker. Blocker in turn paid the Company a total of $0.5 million as payment of accrued interest on intercompany loans to the Company. The Company then distributed $1.1 million to InvestCo as a return of capital.
Operations Analysis
Results of Operations
Material variables and factors affecting the Companys income (loss) before income tax provision for the three months ended June 30, 2014 compared to the three months ended June 30, 2013, are as follows:
· CCRs net income increased approximately $5.4 million for the three months ended June 30, 2014, compared to the same period for the prior year, due to the operational highlights for CCR discussed below. This increase resulted in a $1.7 million increase in equity in income of unconsolidated investees.
Material variables and factors affecting the Companys loss before income taxes for the six months ended June 30, 2014 compared to the six months ended June 30, 2013, are as follows:
· CCRs net income increased approximately $7.1 million for the six months ended June 30, 2014, compared to the same period for the prior year, due to the operational highlights for CCR discussed below. This increase resulted in a $2.3 million increase in equity in income of unconsolidated investees.
Material tax attributes of the Companys 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.
During 2014 and 2013, the Companys 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 and six months ended June 30, 2014 and 2013 are as follows:
Three months ended June 30, 2014 and 2013:
Consolidated revenues (net) decreased $4.0 million for the three months ended June 30, 2014, as compared to the same corresponding period in the prior year. The declines in consolidated revenues (net) were primarily due to the following:
· Casino revenues
Casino revenues decreased $9.4 million as compared to the same corresponding period in the prior year. Casino revenue at The Meadows decreased $7.9 million primarily due to lower table games and slot revenues. Table games revenues and slot revenues declined $3.8 million and $4.1 million, respectively, primarily due to volatile high limit table games play, the opening of the Nemacolin Woodlands Resort in late June 2013, and a decline in patron visits to The Meadows by middle and lower tiered customers. Casino revenues at the Eastside Cannery Hotel and Casino (Eastside) declined $1.3 million primarily due to lower slot revenues as compared to the same corresponding period. The declines in slot revenues at the Eastside were primarily due to lower visits and spend per visit. Casino revenues at the Cannery Hotel and Casino (Cannery) for the three month period June 30, 2014 were relatively flat as compared to the same corresponding period in the prior year.
· Other revenues
Other revenues increased $5.5 million as compared to the same corresponding period in the prior year. As stated above, on May 13, 2014, CCR and its wholly-owned subsidiary, MezzCo, entered into a Membership Interest Purchase Agreement with Gaming and Leisure Properties, Inc. and a subsidiary to sell PA Meadows for approximately $465 million. In connection with entering into the Agreement, CCR simultaneously entered into a Consulting Agreement with the Buyers whereby CCR will provide general advisory services to the Buyers relating to the transaction contemplated under the Agreement. Upon executing the Consulting Agreement, CCR received a non-refundable consulting fee of $10 million, which was reported as other income for the three months ended June 30, 2014.
The increase in other revenues was offset by non-recurring prior-year revenue stemming from a litigation settlement of $6.0 million, of which $4.5 million was recognized as other income for the three months ended June 30, 2013. On May 31, 2013, CCR reached a settlement with Jackson Rancheria Band of Miwuk Indians of California (the Tribe). The settlement
resulted in the termination of the consulting fee agreement between both parties and CCR will not be obligated to perform any future services.
Income from operations increased $3.5 million for the three months ended June 30, 2014, as compared to the same corresponding period in the prior year. The decrease in revenues (net), as previously discussed, was offset by the following:
· Casino expenses
Casino expenses declined $1.8 million primarily due to lower casino tax expense at The Meadows related to the decline in casino revenues (as discussed previously).
· Management fees
Management fees decreased $2.2 million primarily due to the termination of the consulting agreement with the Tribe (as previously discussed).
· Market research and project promotion
Market research and project promotion decreased $0.6 million primarily due to lower corporate development cost.
· Depreciation and Amortization
Depreciation and amortization expense declined $2.6 million, primarily at the Eastside and to a lesser extent at The Meadows.
Net income increased $5.4 million for the three months ended June 30, 2014 as compared to the same corresponding period in the prior year. The gains in net income were primarily driven by the increase in income from operations (as previously discussed) and a $1.7 million decrease in income tax expense.
Six months ended June 30, 2014 and 2013:
Consolidated revenues (net) decreased $14.7 million for the six months ended June 30, 2014, as compared to the same corresponding period in the prior year. The declines in consolidated revenues (net) were primarily due to the following:
· Casino revenues
Casino revenues decreased $17.9 million as compared to the same corresponding period in the prior year. Casino revenue at The Meadows decreased $13.4 million primarily due to lower table games and slot revenues. Table games and slot revenues declined $4.5 million and $9.1 million, respectively, primarily due to adverse weather conditions during the first part of the year, volatile high limit table games play, the opening of the Nemacolin Woodlands Resort in late June 2013, and a decline in patron visits to The Meadows by middle and lower tiered customers. Casino revenues at Cannery and Eastside declined $1.1 million and $3.4 million, respectively, primarily due to lower slot revenues. The decreases in slot revenues were driven by lower visits and spend at our Nevada operations.
· Pari-Mutuel wagering
Pari-mutuel wagering revenues decreased $1.0 million as compared to the same corresponding period in the prior year. The declines in pari-mutuel wagering revenues were primarily due to the closure of two off track betting parlors in the prior year.
· Other revenues
Other revenues increased $4.3 million as compared to the same corresponding period in the prior year. As stated above, on May 13, 2014, CCR and its wholly-owned subsidiary, MezzCo, entered into a Membership Interest Purchase Agreement with Gaming and Leisure Properties, Inc. and a subsidiary to sell PA Meadows for approximately $465 million. In connection with entering into the Agreement, the CCR simultaneously entered into a Consulting Agreement with the Buyers whereby the CCR will provide general advisory services to the Buyers relating to the transaction contemplated under the Agreement. Upon executing the Consulting Agreement, CCR received a non-refundable consulting fee of $10 million which was reported as other income for the six months ended June 30, 2014.
The gains in other revenues were offset by non-recurring prior-year revenue stemming from a litigation settlement of $6.0 million related to the termination of a consulting fee agreement between CCR and the Tribe on May 31, 2013 (as previously discussed). The litigation settlement was reported as other income in the financial statements for the six months ended June 2013.
Income from operations increased $0.8 million for the six months ended June 30, 2014, as compared to the same corresponding period in the prior year. The decrease in revenues (net), as previously discussed, was offset by the following:
· Casino expenses
Casino expenses declined $5.6 million primarily due to lower casino tax expense at The Meadows of $5.0 million related to the declines in casino revenues (as discussed previously).
· Pari-mutuel wagering expense
Pari-mutuel wagering expense declined $0.9 million primarily due to the closure of two off track betting parlors in the prior year (as previously discussed).
· Management fees
Management fees decreased $2.3 million primarily due to the termination of the consulting agreement with Tribe (as previously discussed).
· Market research and project promotion
Market research and project promotion decreased $0.9 million primarily due to lower corporate development cost.
· Other selling, general and administrative (SG&A)
SG&A expense declined $1.1 million primarily due to: (i) lower payroll costs at the corporate level; (ii) lower casino marketing promotional expense at the Eastside; (iii) lower postage and casino events costs at The Meadows; and (iv) to a lesser extent, cost saving measures at our Nevada and Pennsylvania operations.
· Depreciation and Amortization
Depreciation and amortization expense declined $4.4 million, primarily at the Eastside and to a lesser extent at the Cannery and The Meadows.
Net income increased $7.1 million for the six months ended June 30, 2014 as compared to the same corresponding period in the prior year. The increase in net income was primarily driven by: (i) increases in income from operations (as previously discussed); (ii) decreased interest expense of $0.8 million related to lower outstanding debt as compared to the same corresponding period in the prior year; (iii) gain from the sale of land of $1.2 million at The Meadows in March 2014 to an unrelated third party for development of a retail center; and (iv) lower income tax expense of $4.2 million as compared to the same corresponding period in the prior year.
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 Companys 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. The Company has no current investment or other financing plans, and the Companys 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 Companys 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.
Critical Accounting Estimates and Policies.
Although the Companys 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 Companys unconsolidated investees also do not require the exercise of significant management judgment to apply.
The realization of substantially all of the Companys 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 Companys 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.
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 Companys management, including the Companys principal executive officer and principal financial officer, of the effectiveness of the design and operation of the Companys 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 June 30, 2014, the Companys 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 June 30, 2014, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
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.
None.
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The following exhibits are filed or furnished with this report: |
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10.1 |
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Membership Interest Purchase Agreement, dated as of May 13, 2014, by and among Gaming and Leisure Properties, Inc., GLP Capital, L.P., Cannery Casino Resorts, LLC, PA MezzCo, LLC, and PA Meadows, LLC |
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31.1 |
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Certification of Principal Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
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31.2 |
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Certification of Principal Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
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32.1 |
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Certification of Principal Executive Officer and Principal Financial Officer furnished as required by Section 906 of the Sarbanes-Oxley Act of 2002. |
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101.INS |
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XBRL Instance Document** |
101.SCH |
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XBRL Taxonomy Extension Schema Document** |
101.CAL |
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XBRL Taxonomy Extension Calculation Linkbase Document** |
101.DEF |
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XBRL Taxonomy Extension Definition Linkbase Document** |
101.LAB |
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XBRL Taxonomy Extension Label Linkbase Document** |
101.PRE |
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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
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.
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OCM HOLDCO, LLC | |
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Registrant | |
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Date: August 13, 2014 |
By: |
/s/ Stephen A. Kaplan |
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Stephen A. Kaplan |
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Manager (principal executive officer) |
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Date: August 13, 2014 |
By: |
/s/ Ronald N. Beck |
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Ronald N. Beck |
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Manager (principal financial and chief accounting officer) |