Attached files
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EX-31.1 - EX-31.1 - OCM HoldCo, LLC | a15-17979_1ex31d1.htm |
EX-31.2 - EX-31.2 - OCM HoldCo, LLC | a15-17979_1ex31d2.htm |
EX-32.1 - EX-32.1 - OCM HoldCo, LLC | a15-17979_1ex32d1.htm |
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 September 30, 2015
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 |
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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 and its subsidiaries 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, 2014, 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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September 30, |
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December 31, |
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2015 |
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2014 |
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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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$ |
6,885,159 |
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$ |
8,083,625 |
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Other assets |
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Investment in Cannery Casino Resorts, LLC |
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76,391,960 |
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79,694,060 |
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Gaming and related licenses |
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805,698 |
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805,698 |
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Net deferred tax assets, net of valuation allowance of $13,989,418 and $12,011,132 as of September 30, 2015 and December 31, 2014, respectively |
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29,121 |
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28,043 |
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$ |
84,111,938 |
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$ |
88,611,426 |
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LIABILITIES AND MEMBERS EQUITY |
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Current liabilities |
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Accounts payable and accrued expenses, including $268,732 and $217,394 to related parties as of September 30, 2015 and December 31, 2014, respectively |
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$ |
288,862 |
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$ |
236,375 |
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Net deferred tax liabilities, current, net of valuation allowance of $423,020 and $339,276 as of September 30, 2015 and December 31, 2014, respectively |
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29,121 |
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28,043 |
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317,983 |
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264,418 |
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Members equity |
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83,793,955 |
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88,347,008 |
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$ |
84,111,938 |
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$ |
88,611,426 |
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See notes to unaudited consolidated financial statements.
OCM HoldCo, LLC and Subsidiaries
Consolidated Statements of Comprehensive (Loss) Income (Unaudited)
For the Three and Nine Months Ended September 30, 2015 and 2014
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Three Months Ended |
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Nine Months Ended |
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2015 |
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2014 |
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2015 |
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2014 |
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Income (loss) |
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Interest income |
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$ |
1,392 |
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$ |
2,096 |
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$ |
2,662 |
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$ |
6,626 |
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Equity in loss of unconsolidated investees |
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(1,320,614 |
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(1,922,238 |
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(3,298,177 |
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(1,075,826 |
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(1,319,222 |
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(1,920,142 |
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(3,295,515 |
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(1,069,200 |
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Costs and expenses |
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Professional fees |
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35,648 |
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52,090 |
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161,702 |
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186,294 |
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Administrative fees and other expenses |
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13,308 |
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13,363 |
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40,713 |
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40,780 |
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48,956 |
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65,453 |
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202,415 |
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227,074 |
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Loss before income tax provision |
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(1,368,178 |
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(1,985,595 |
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(3,497,930 |
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(1,296,274 |
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Income tax benefit (provision) |
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75 |
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(350 |
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(1,373 |
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(7,824,716 |
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Net loss |
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(1,368,103 |
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(1,985,945 |
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(3,499,303 |
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(9,120,990 |
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Equity in other comprehensive income (loss) of unconsolidated investee, net of tax, unrealized income (loss) on interest rate swap and investments |
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140 |
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(650 |
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(2,550 |
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(57,475 |
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Comprehensive loss |
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$ |
(1,367,963 |
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$ |
(1,986,595 |
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$ |
(3,501,853 |
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$ |
(9,178,465 |
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See notes to unaudited consolidated financial statements.
OCM HoldCo, LLC and Subsidiaries
Consolidated Statements of Changes in Members Equity (Unaudited)
For the Nine Months Ended September 30, 2015 and 2014
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Total members |
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Accumulated other |
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Invested capital and |
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2015 |
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Balances, beginning of period |
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$ |
88,347,008 |
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$ |
(187,615 |
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$ |
88,534,623 |
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Net loss |
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(3,499,303 |
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(3,499,303 |
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Distribution to members |
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(1,051,200 |
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(1,051,200 |
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Equity in other comprehensive loss of unconsolidated investee, net of tax, unrealized loss on interest rate swap |
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(2,550 |
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(2,550 |
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Balances, end of period |
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$ |
83,793,955 |
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$ |
(190,165 |
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$ |
83,984,120 |
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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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(9,120,990 |
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(9,120,990 |
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Distribution to members |
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(1,051,200 |
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(1,051,200 |
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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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(57,475 |
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(57,475 |
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Balances, end of period |
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$ |
90,316,020 |
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$ |
(182,691 |
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$ |
90,498,711 |
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See notes to unaudited consolidated financial statements.
OCM HoldCo, LLC and Subsidiaries
Consolidated Statements of Cash Flows (Unaudited)
For the Nine Months Ended September 30, 2015 and 2014
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2015 |
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2014 |
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Operating activities |
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Net loss |
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$ |
(3,499,303 |
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$ |
(9,120,990 |
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Adjustments to reconcile net loss to net cash used in operating activities: |
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Equity in loss of unconsolidated investees |
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3,298,177 |
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1,075,826 |
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Deferred income taxes |
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1,373 |
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7,824,716 |
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Increase in accounts payable and accrued expenses |
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52,487 |
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36,942 |
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Net cash used in operating activities |
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(147,266 |
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(183,506 |
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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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Distribution to members |
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(1,051,200 |
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(1,051,200 |
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Net cash used in financing activities |
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(1,051,200 |
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(1,051,200 |
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Net decrease in cash |
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(1,198,466 |
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(1,234,706 |
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Cash, beginning of period |
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8,083,625 |
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9,363,650 |
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Cash, end of period |
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$ |
6,885,159 |
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$ |
8,128,944 |
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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 of unconsolidated investee |
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$ |
(2,550 |
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$ |
(57,475 |
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See notes to unaudited consolidated financial statements.
OCM HoldCo, LLC and Subsidiaries
Notes to Unaudited 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 September 30, 2015 and December 31, 2014, and for the three and nine month periods ended September 30, 2015 and 2014, 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 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 OCM, 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 OCM, including the appointment and removal of managers. VoteCo has a de minimis economic interest in OCM, less than 0.00015%, and its total equity contributions are limited to $100.
OCM, 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. OCM 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 April 14, 2015, AcquisitionCo distributed $1.1 million as a return of capital to Blocker. Blocker in turn paid OCM a total of $1.1 million as payment of accrued interest on intercompany loans owed to OCM. OCM then distributed $1.1 million to InvestCo as a return of capital.
These consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in OCMs Annual Report on Form 10-K filed with the Commission on March 30, 2015, from which the balance sheet information as of December 31, 2014 was derived.
NOTE 2Selected condensed consolidated operating information for unconsolidated investees
Selected unaudited condensed consolidated operating information for Cannery Casino Resorts, LLC, and its subsidiaries is as follows:
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Three months ended |
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Nine months ended |
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September 30, |
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September 30, |
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2015 |
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2014 |
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2015 |
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2014 |
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Revenues |
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$ |
106,199,083 |
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$ |
102,887,734 |
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$ |
314,905,019 |
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$ |
321,313,549 |
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Income from operations |
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$ |
7,150,401 |
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$ |
2,733,504 |
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$ |
21,054,243 |
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$ |
23,042,736 |
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Net loss |
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$ |
(4,164,662 |
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$ |
(6,061,931 |
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$ |
(10,401,063 |
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$ |
(3,392,704 |
) |
On May 13, 2014, CCR and its wholly-owned subsidiary, PA MezzCo, LLC, (MezzCo and collectively with CCR, the CCR Sellers), entered into a Membership Interest Purchase Agreement (the MIPA) with Gaming and Leisure Properties, Inc. (GLPI) and GLP Capital, L.P., a subsidiary of GLPI (GLP, and together with GLPI, the GLPI Buyers), to sell PA Meadows for approximately $465 million. To close, the transaction is subject to various customary closing conditions, including, but not limited to approval from the Pennsylvania Gaming Control Board and the Pennsylvania Racing Commission and performance and compliance in all material respects with the MIPA. In connection with entering into the MIPA, the CCR Sellers simultaneously also entered into a consulting agreement with the GLPI Buyers (Consulting Agreement) whereby the CCR Sellers have agreed to provide general advisory services to the GLPI Buyers relating to the transaction contemplated under the MIPA. The Consulting Agreement terminates 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 GLPI Buyers and CCR 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 CCR Sellers received a non-refundable consulting fee of $10 million. The Consulting Agreement terminated following the 13-month anniversary of its execution when the delivery of the required representations by the GLPI Buyers did not occur and the GLPI Buyers failed to pay the CCR Sellers a $5 million extension fee.
As reported in OCMs previously filed Form 10-Q for the quarter ended June 30, 2015, the GLPI Buyers filed a lawsuit against the CCR Sellers on January 7, 2015 in the Supreme Court of the State of New York County of New York (the GLPI Litigation). After the GLPI Buyers amended the complaint on August 28, 2015, the CCR Sellers filed a Motion to Dismiss the GLPI Litigation. A decision by the court is pending.
CCRs management believes the lawsuit is without merit and intends to defend the suit vigorously and will take steps to ensure that the GLPI Buyers comply with their contractual obligations, but the ultimate outcome of this litigation cannot be predicted at this time.
As of September 30, 2015, CCR determined that it was not in compliance with certain debt covenants related to the two syndicated credit facilities CCR entered into on October 2, 2012, and as a result, CCR and the lenders began negotiations to amend these credit facilities. On November 10, 2015 (the Effective Date), CCR and the lenders agreed to amend certain terms of the $425.0 million first lien credit facility, which, upon initial closing in 2012, consisted of a $385.0 million term loan and a five-year $40.0 million unfunded revolving loan (collectively the First Lien Credit Facility), and the seven-year $165.0 million second lien term loan facility (the Second Lien Credit Facility and collectively with the First Lien Credit Facility, the 2012 Credit Agreements). In connection with these amendments, the lenders agreed to waive existing debt covenant violations and to revise certain debt covenant requirements prospectively, and in exchange, CCR paid amendment fees and agreed to an increased interest rate for the Second Lien Credit Facility and additional principal repayment requirements. Additional details of these amendments to the 2012 Credit Agreements are as follows:
· The term loan component of the First Lien Credit Facility required an amendment fee of 1% of which half was paid in cash on the Effective Date and the remainder was paid in kind (PIK).
· The Second Lien Credit Facility required an amendment fee of 2.5% to be paid in kind and retroactively capitalized as principal payable under the Second Lien Credit Facility effective as of July 1, 2015.
· The interest rate for the Second Lien Credit Facility increased from LIBOR plus 8.75% to LIBOR plus 11.25%; this 2.50% interest rate increase can be paid in cash or paid in kind at CCRs election. Additionally, contingent upon the closing of the sale of PA Meadows and effective six months after such closing, the interest rate will increase from LIBOR plus 11.25% to LIBOR plus 13.75% and such increase will be payable in cash.
· The revolving loan component of the First Lien Credit Facility required an amendment fee of 0.50% of the total amount of commitments under the revolver. Additionally, contingent upon the closing of the PA Meadows sale, CCRs borrowing capacity associated with the revolving loan component of the First Lien Credit Facility will be reduced from $40.0 million to $20.0 million.
· The minimum interest coverage ratio (as defined in the credit agreements for the First Lien Credit Facility) will be reduced from 1.50x to 1.35x effective as of September 30, 2016 and thereafter. Additionally, the maximum total leverage ratio (as defined in the 2012 Credit Agreements) will be increased from 7.50x to 9.35x effective as of June 30, 2016 and increased to 9.25x effective as of September 30, 2016 and thereafter. There will be no covenant compliance testing for the quarters ending December 31, 2015 and March 31, 2016.
· Net proceeds received from certain assets sold by CCR or certain subsidiaries shall be used to repay outstanding principal under the 2012 Credit Agreements.
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.
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 2012 and thereafter) and concluded that the Company has no recordable liability as a result of uncertain tax positions taken. As of September 30, 2015, the Company has no open tax examinations.
NOTE 4Contingencies
The United States experienced a recession during the period from late 2007 to mid-2009, 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 5Financial 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.
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
OCM was 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 OCMs 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 minimis economic interest in OCM of less than 0.00015%, and its total equity contributions are limited to $100.
Through its subsidiaries AcquisitionCo and Blocker, OCM currently owns a 31.71% interest in the aggregate 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.
Business Developments
As disclosed in Note 2 (Select condensed consolidated operating information for unconsolidated investees) to the unaudited consolidated financial statements of the Company, the CCR Sellers are involved in litigation with the GLPI Buyers relating to the PA Meadows transaction.
As disclosed in Note 2 (Select condensed consolidated operating information for unconsolidated investees) to the unaudited consolidated financial statements of the Company, CCR has determined that as of September 30, 2015, it is not in compliance with certain debt covenants under the 2012 Credit Agreements and CCR and the lenders under the 2012 Credit Agreements have agreed to amend the 2012 Credit Agreements effective as of November 10, 2015.
Operations Analysis
Results of Operations
Material variables and factors affecting the Companys loss before income tax provision for the three months ended September 30, 2015 compared to the three months ended September 30, 2014, are as follows:
· CCRs net loss decreased approximately $1.9 million for the three months ended September 30, 2015, compared to the same period in the prior year, due to the operational highlights for CCR discussed below. The decrease resulted in a $0.6 million decrease in equity in loss of unconsolidated investees.
· The Companys loss before income tax provision decreased $0.6 million for the three months ended September 30, 2015, compared to the same period in the prior year. The year-over-year change in loss before income tax provision is also attributed to a decrease in CCRs net loss and resulting impact to the Companys equity in loss of unconsolidated investees as described above.
Material variables and factors affecting the Companys loss before income taxes for the nine months ended September 30, 2015 compared to the nine months ended September 30, 2014, are as follows:
· CCRs net loss increased approximately $7.0 million for the nine months ended September 30, 2015, compared to the same period in the prior year, due to the operational highlights for CCR discussed below. This increase resulted in a $2.2 million increase in equity in loss of unconsolidated investees.
· The Companys loss before income tax provision increased $2.2 million for the nine months ended September 30, 2015, compared to the same period in the prior year. The year-over-year change in loss before income tax provision is also attributed to an increase in CCRs net loss and resulting impact to the Companys equity in loss of unconsolidated investees as described above.
Material tax attributes of the Companys unconsolidated investees, primarily CCR, flow to the Company through Blocker, and are either nonrecurring or vary significantly. Further, significant income of CCR is taxable to corporate subsidiaries of CCR.
During 2015 and 2014, the Companys operations are related to its investments in CCR. The United States experienced a recession during the period from late 2007 to mid-2009, 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 and nine months ended September 30, 2015 and 2014 are as follows:
Three months ended September 30, 2015:
Consolidated revenues (net) increased $3.3 million for the three months ended September 30, 2015, as compared to the same period in the prior year. The increase in consolidated revenues (net) was primarily due to the following:
· Casino revenues
Consolidated casino revenues increased $3.6 million for the three months ended September 30, 2015 as compared to the same period in the prior year. At the Meadows, casino revenues increased $3.2 million for the three months ended September 30, 2015 as compared to the same period in the prior year primarily due to: (i) increased table games revenue of $1.4 million from higher drop and hold percentage; (ii) increased slot revenue of $1.2 million primarily due to lower gas prices and the opening of an on-site hotel on April 30, 2015. Casino revenues at the Eastside Hotel and Casino (Eastside) increased $0.4 million for the three months ended September 30, 2015 as compared to the same period in the prior year primarily due to increased slot revenues for the three months ended September 30, 2015 as compared to the same period in the prior year. The gains in slot revenue at the Eastside were primarily due to increased spend per visit. Casino revenues at the Cannery Hotel and Casino (Cannery) for the three months ended September 30, 2015 were materially consistent as compared to the same period in the prior year.
· Pari-mutuel wagering
Pari-mutuel wagering revenues decreased $1.1 million for the three months ended September 30, 2015 as compared to the same period in the prior year. The declines in pari-mutuel wagering revenues were primarily due to the closure of a one off-track betting parlor in November 2014.
· Food and beverage revenues
Food and beverage revenues increased $0.3 million for the three months ended September 30, 2015 as compared to the same period in the prior year. The increase in food and beverage revenues was primarily due to increased covers and menu pricing at the Meadows. For the three months ended September 30, 2015, the number of food covers increased at the Meadows 7.8% as compared to the same period in the prior year.
Income from operations increased $4.4 million for three months ended September 30, 2015 as compared to the same period in the prior year. The increase in income from operations was primarily due to the increase in consolidated revenues (net), as previously discussed and other decreases in operating expenses:
· Casino expenses
Despite the increase in gaming revenues, casino expenses were relatively flat for the three months ended September 30, 2015 as compared to the same period in the prior year primarily due to the $1.0 million tax credit received at the Meadows.
The Pennsylvania Department of Revenue (PADOR) revised its protocol concerning the deductibility of promotional items for purposes of calculating gross terminal revenue as well as gross table game revenue for gaming tax purposes as a result of the Pennsylvania Supreme Courts decision in Greenwood Gaming and Entertainment Incorporated v. Commonwealth of Pennsylvania, Department of Revenue. As a result, PA Meadows applied for a Promotional Item Return (which is in substance a tax credit for promotional expenses paid) for the first and second quarters of 2015 in the amount of $1.0 million. On October 1, 2015, PA Meadows received approval of the $1.0 million from PADOR and such amounts were recognized by PA Meadows during the three months ended September 30, 2015. As a result of the protocol changes, prospectively, PA Meadows expects to receive credits for promotional expenses each quarter upon approval of the Promotional Item Return by PADOR. Additionally, PA Meadows submitted a Promotional Item Return to PADOR pertaining to the period from October 2011 to December 2014 and is waiting for PADOR approval.
· Pari-mutuel wagering expense
Pari-mutuel wagering expense declined $0.8 million for the three months ended September 30, 2015 as compared to the same period in the prior year primarily due to the closure of one off-track betting parlor in November 2014.
· Depreciation and amortization
Depreciation and amortization expense declined $0.7 million for the three months ended September 30, 2015 as compared to the same period in the prior year due to assets nearing their salvage values.
Net loss decreased $1.9 million for the three months ended September 30, 2015 as compared to the same period in the prior year. The decrease in net loss was primarily driven by increase income from operations (as previously discussed), partially offset by increased income tax expense of $2.6 million.
Nine months ended September 30, 2015:
Consolidated revenues (net) decreased $6.4 million for the nine months ended September 30, 2015, as compared to the same period in the prior year. The decrease in consolidated revenues (net) was primarily due to the following:
· Casino revenues
Consolidated casino revenues increased $3.9 million for the nine months ended September 30, 2015 as compared to the same period in the prior year. At the Meadows, casino revenues increased $2.0 million primarily due to increased table games revenue of $2.8 million from higher drop and hold percentage as compared to the same period in the prior year. The increase in table games revenue was partially offset by a decrease in slot revenue of $1.1 million primarily due to regional competition, fewer visits, and to adverse weather conditions in February 2015. Casino revenues at the Eastside increased $0.8 million as compared to the same period in the prior year primarily due to higher slot revenues for the nine months ended September 30, 2015. The gains in slot revenue at the Eastside were primarily due to increased spend per visit. Casino revenues at the Cannery increased $1.1 million for the nine months ended September 30, 2015 as compared to the same period in the prior year. The increase in casino revenues at the Cannery was primarily due to higher table and slot revenue. The gains in table games revenue was primarily due to higher drop and slightly higher hold percentages. The increase in slot revenue was primarily due to increased spend per visit as compared to the same period in the prior year.
· Pari-mutuel wagering
Pari-mutuel wagering revenues decreased $3.2 million for the nine months ended September 30, 2015 as compared to the same period in the prior year. The declines in pari-mutuel wagering revenues were primarily due to the closure of a one off-track betting parlor in November 2014.
· Food and beverage revenues
Food and beverage revenues increased $0.8 million for the nine months ended September 30, 2015 as compared to the same period in the prior year. The increase in food and beverage revenues was primarily due to increased covers and menu pricing at the Meadows. For the nine months ended September 30, 2015, the number of food covers increased at the Meadows 14.8% as compared to the same period in the prior year.
· Hotel revenues
Hotel revenues increased $0.7 million for the year nine months ended September 30, 2015 as compared to the same period in the prior year. The increase in hotel revenues was primarily due to increased room revenue from a higher average daily rate and increased room occupancy of 9.2% and 11.5%, respectively, at the Cannery and Eastside for the nine months ended September 30, 2015 as compared to the same period in the prior year.
· Commission revenue
Commission revenue increased $1.1 million for the nine months ended September 30, 2015 as compared to the same period in the prior year. During 2014, CCR entered into a new ATM processing service agreement with an unrelated vendor. The new agreement assigned CCR a greater share of the ATM transaction fees as compared to the same period in the prior year. The new ATM agreements commenced at the end of May 2014 for the Cannery and the Eastside Cannery, while at the Meadows the same agreement began in August 2014.
· Other revenues
Other revenues decreased $9.8 million for the nine months ended September 30, 2015 as compared to the same period in the prior year. As disclosed in Note 2 (Select condensed consolidated operating information for unconsolidated investees) to the unaudited consolidated financial statements of the Company, CCR Sellers received a non-refundable consulting fee of $10 million in connection with the execution of the Consulting Agreement, which was reported as other income for the period ended September 30, 2014.
Income from operations decreased $2.0 million for nine months ended September 30, 2015 as compared to the same period in the prior year. The decrease in income from operations was primarily due to the decrease in consolidated revenues (net), as previously discussed and other decreases in operating expenses:
· Casino expenses
Casino expense decreased $0.8 million primarily due to lower slot taxes of $2.4 million related to lower slot revenues at the Meadows and a $1.0 million tax credit as compared to the same period in the prior year.
As discussed above, PA Meadows will be receiving a Promotional Item Return from PADOR in the amount of $1.0 million.
The decline in slot tax expense was partially offset by an increase in the value of retail complimentary cost of $1.2 million (collectively) at the Meadows and Cannery and an increase in table game taxes of $0.4 million at the Meadows for the nine months ended September as compared to the same period in the prior year.
· Pari-mutuel wagering expense
Pari-mutuel wagering expense declined $2.4 million for the nine months ended September 30, 2015 as compared to the same period in the prior year primarily due to the closure of one off-track betting parlor in November 2014.
· Other selling, general and administrative expense (SG&A)
SG&A expense increased $0.8 million for the nine months ended September 30, 2015 as compared to the same period in the prior year primarily due to ligation fees related to the lawsuit filed by the GLPI Buyers as disclosed in Note 2 (Select condensed consolidated operating information for unconsolidated investees) to the unaudited consolidated financial statements of the Company.
· Depreciation and amortization
Depreciation and amortization expense, primarily at the Meadows, declined $2.2 million for the nine months ended September 30, 2015 as compared to the same period in the prior year due to assets nearing their salvage values.
Net loss increased $7.0 million for the nine months ended September 30, 2015 as compared to the same period in the prior year. The increase in net loss was primarily driven by: (i) decreased income from operations (as previously discussed); (ii) in the current nine month period there was no gain from the sale of land of $1.2 million at the Meadows as recorded in March 2014 to an unrelated third party for development of a retail center; and (iii) higher income tax expense of $4.2 million as compared to the same period in the prior year. The decrease in net loss was partially offset by a lower interest expense of $0.4 million related to lower outstanding debt as compared to the same period last year.
Liquidity and Capital Resources
The United States experienced a recession during the period from late 2007 to mid-2009, 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.
The Company has made from time to time 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. 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
As disclosed in Note 2 (Select condensed consolidated operating information for unconsolidated investees) to the unaudited consolidated financial statements of the Company, CCR has determined that as of September 30, 2015, it is not in compliance with certain debt covenants under the 2012 Credit Agreements and CCR and the lenders under the 2012 Credit Agreements have agreed to amend the 2012 Credit Agreements effective as of November 10, 2015.
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 now employ any critical accounting policies that are selected from among available alternatives or require the exercise of significant management judgment to select or apply except for carrying its investments in unconsolidated investees on the equity method of accounting rather than the available fair value option. Similarly, in the opinion of the Companys management, except for the selection of depreciable lives and depreciation methods and assumptions used to estimate the fair value of rate swap 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.
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, OCM carried out an evaluation, under the supervision and with the participation of OCMs management, including OCMs principal executive officer and principal financial officer, of the effectiveness of the design and operation of OCMs 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 September 30, 2015, OCMs 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 September 30, 2015, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
As disclosed in Note 2 (Select condensed consolidated operating information for unconsolidated investees) to the unaudited consolidated financial statements of the Company, the CCR Sellers are involved in litigation with the GLPI Buyers relating to the PA Meadows transaction.
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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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 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: November 13, 2015 |
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: November 13, 2015 |
By: |
/s/ Ronald N. Beck |
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Ronald N. Beck |
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Manager (principal financial and chief accounting officer) |