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, 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)
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DELAWARE |
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20-3673772 |
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(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
(Registrant’s telephone number)
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
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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 |
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(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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Management’s 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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June 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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$ |
6,947,845 |
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$ |
8,083,625 |
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Net deferred tax asset, current, net of valuation allowance of $443,620 and $0 as of June 30, 2015 and December 31, 2014, respectively |
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37,853 |
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— |
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6,985,698 |
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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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77,712,359 |
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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 $0 and $12,011,132 as of June 30, 2015 and December 31, 2014, respectively |
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— |
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28,043 |
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$ |
85,503,755 |
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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 $242,394 and $217,394 to related parties as of June 30, 2015 and December 31, 2014, respectively |
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$ |
303,984 |
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$ |
236,375 |
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Net deferred tax liabilities, current, net of valuation allowance of $0 and $339,276 as of June 30, 2015 and December 31, 2014, respectively |
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— |
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28,043 |
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303,984 |
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264,418 |
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Long-term liabilities |
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Net deferred tax liabilities, net of valuation allowance of $13,002,915 and $0 as of June 30, 2015 and December 31, 2014, respectively |
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37,853 |
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— |
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Members’ equity |
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85,161,918 |
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88,347,008 |
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$ |
85,503,755 |
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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 Six Months Ended June 30, 2015 and 2014
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Three Months Ended |
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Six 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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$ |
1,177 |
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$ |
2,226 |
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$ |
1,270 |
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$ |
4,530 |
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Equity in (loss) income of unconsolidated investees |
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(1,164,248 |
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1,764,430 |
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(1,977,563 |
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846,412 |
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(1,163,071 |
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1,766,656 |
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(1,976,293 |
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850,942 |
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Costs and expenses |
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Professional fees |
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57,225 |
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61,293 |
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126,054 |
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134,204 |
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Administrative fees and other expenses |
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10,544 |
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14,096 |
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27,405 |
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27,417 |
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67,769 |
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75,389 |
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153,459 |
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161,621 |
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(Loss) income before income tax provision |
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(1,230,840 |
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1,691,267 |
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(2,129,752 |
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689,321 |
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Income tax provision |
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(190 |
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(13,346 |
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(1,448 |
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(7,824,366 |
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Net (loss) income |
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(1,231,030 |
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1,677,921 |
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(2,131,200 |
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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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(353 |
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(24,414 |
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(2,690 |
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(56,825 |
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Comprehensive (loss) income |
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$ |
(1,231,383 |
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$ |
1,653,507 |
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$ |
(2,133,890 |
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$ |
(7,191,870 |
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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 Six Months Ended June 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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(2,131,200 |
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— |
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(2,131,200 |
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Distribution to members |
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(1,051,200 |
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— |
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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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(2,690 |
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(2,690 |
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— |
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Balances, end of period |
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$ |
85,161,918 |
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$ |
(190,305 |
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$ |
85,352,223 |
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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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— |
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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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— |
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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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See notes to unaudited consolidated financial statements.
OCM HoldCo, LLC and Subsidiaries
Consolidated Statements of Cash Flows (Unaudited)
For the Six Months Ended June 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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$ |
(2,131,200 |
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$ |
(7,135,045 |
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Adjustments to reconcile net loss to net cash used in operating activities: |
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Equity in loss (income) of unconsolidated investees |
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1,977,563 |
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(846,412 |
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Deferred income taxes |
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1,448 |
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7,824,365 |
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Increase in accounts payable and accrued expenses |
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67,609 |
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53,928 |
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Net cash used in operating activities |
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(84,580 |
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(103,164 |
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Investing activities |
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Net cash provided by investing activities |
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— |
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— |
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Financing activities |
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Distribution to members |
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(1,051,200 |
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— |
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Net cash used in financing activities |
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(1,051,200 |
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— |
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Net decrease in cash |
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(1,135,780 |
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(103,164 |
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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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$ |
6,947,845 |
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$ |
9,260,486 |
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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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$ |
(2,690 |
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$ |
(56,825 |
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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 June 30, 2015 and December 31, 2014, and for the three and six month periods ended June 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 OCM’s issued and outstanding Class A Units are held by OCM VoteCo, LLC, a Delaware limited liability company (“VoteCo”), and all of OCM’s issued and outstanding non-voting Class B Units are held by OCM InvestCo, LLC, a Nevada limited liability company (“InvestCo”). The rights of the Class A Units and Class B Units are substantially identical with the exception that the Class B Units are not entitled to any management or voting rights with respect to 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 minimus 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 Company’s current business consists primarily of its ownership of these equity interests in CCR. CCR, through wholly-owned subsidiaries, owns and operates the Cannery Hotel and Casino (the “Cannery”), located in North Las Vegas, Nevada, and the Eastside Cannery Casino and Hotel (the “Eastside Cannery”), located in southeast Las Vegas. In addition, CCR, through a wholly owned subsidiary, PA Meadows, LLC, a Delaware limited liability company (“PA Meadows”), owns The Meadows Racetrack and Casino (the “Meadows”), an operating harness racetrack and casino located in North Strabane Township, Washington County, Pennsylvania.
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 $1.1 million to InvestCo as a return of capital.
These consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in OCM’s Annual Report on Form 10-K filed with the Commission on March 30, 2015, from which the balance sheet information as of December 31, 2014 was derived.
NOTE 2—Selected condensed consolidated operating information for unconsolidated investees
Selected unaudited condensed consolidated operating information for Cannery Casino Resorts, LLC, and its subsidiaries is as follows:
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Three months ended |
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Six months ended |
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June 30, |
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June 30, |
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2015 |
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2014 |
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2015 |
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2014 |
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Revenues |
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$ |
106,332,587 |
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$ |
116,998,838 |
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$ |
208,705,936 |
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$ |
218,425,815 |
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Income from operations |
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$ |
6,851,383 |
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$ |
15,963,833 |
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$ |
13,903,843 |
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$ |
20,309,232 |
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Net (loss) income |
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$ |
(3,671,549 |
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$ |
5,564,265 |
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$ |
(6,236,400 |
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$ |
2,669,227 |
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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.
On October 27, 2014, GLPI filed a lawsuit in the United States District Court for the Southern District of New York against CCR. The lawsuit was voluntarily dismissed by GLPI for jurisdictional reasons on December 29, 2014. On January 7, 2015, the GLPI Buyers filed a lawsuit against the CCR Sellers in the Supreme Court of the State of New York County of New York (the “GLPI Litigation”). The GLPI Buyers allege breach of contract and other misconduct on the part of CCR with respect to the MIPA and Consulting Agreement. The GLPI Buyers seek declaratory relief regarding the breach of contract claims, unspecified damages and a declaration that a material adverse effect has occurred that would excuse the GLPI Buyers from closing the transaction to purchase PA Meadows. The CCR Sellers filed a Motion to Dismiss the GLPI Litigation. That motion was heard by the court on July 22, 2015; a decision by the court is pending.
CCR’s management believes the lawsuit is without merit and intends to defend the suit vigorously 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 June 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 totaling $590 million: a $425 million first lien credit facility consisting of; (i) $385 million term loan borrowed at the closing cate; (ii) $40 million revolving loan unfunded at the closing date, but available until the fifth anniversary of the closing date and; (iii) $165 million second lien term loan facility (collectively the “2012 Credit Agreements”). As a result, CCR is currently in negotiations with its lender to amend the 2012 Credit Agreements.
NOTE 3—Income taxes
OCM is a limited liability company and, accordingly, is treated as a partnership for federal income tax purposes with the tax effect of its activities recognized in the income tax returns of its members.
OCM owns over 99.99% of the equity interest in Blocker, which has elected to be taxed as a corporation and which, in turn, owns 100% of AcquisitionCo. AcquisitionCo owns the investment in CCR, a Nevada limited liability company that is treated as a partnership for federal income tax purposes. Accordingly, equity in the earnings of CCR are generally taxable to Blocker along with other tax attributes (permanent differences) and business tax credits. The principal exception to this generalization is earnings from the corporate, taxpaying subsidiaries of CCR that own and operate the Meadows.
Blocker incurs interest expense on intercompany indebtedness that is deducted for income tax purposes but is eliminated (a permanent difference), along with the related debt, in this consolidation. OCM also incurs certain other costs, primarily associated with being a reporting company, including professional and other fees, which, for tax reporting purposes, flow through to its members. The Company has recorded a valuation allowance to reduce the related deferred tax assets to the amount that is more likely than not to be realized. Because of these circumstances, the Company’s estimated effective tax rate, for the periods presented, differs significantly from the federal statutory rate of 35%.
Management has made an analysis of its state and federal tax returns that remain subject to examination by major authorities (consisting of tax years 2011 and thereafter) and concluded that the Company has no recordable liability as a result of uncertain tax positions taken. In March 2015, the IRS opened an examination of the 2012 tax year of Blocker. In June 2015, the IRS cancelled the examination, and as of June 30, 2015, the Company has no open tax examinations.
NOTE 4—Contingencies
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 5—Financial Instruments
Except for cash, the fair value of which equals its carrying value, the only significant financial instrument the Company has is its investment in an unconsolidated investee accounted for using the equity method for which fair value disclosure is not required.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The following management discussion and analysis of the Company’s financial condition and results of operations should be read in conjunction with the unaudited interim financial statements and the notes thereto included in Part I, Item 1 of this Quarterly Report on Form 10-Q.
Overview
The Company’s activities consist solely of holding substantial, noncontrolling equity interests in gaming enterprises and related assets.
Background
Overview
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 OCM’s issued and outstanding Class A Units are held by VoteCo, and all of the Company’s issued and outstanding non-voting Class B Units are held by InvestCo. VoteCo and InvestCo are affiliates of Oaktree. VoteCo is responsible for the operations of the Company, including the appointment and removal of managers. VoteCo has a de minimus economic interest in 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 Company’s current business consists primarily of its ownership of this equity interest. CCR, through wholly owned subsidiaries, owns and operates the Cannery, located in North Las Vegas, Nevada, and the Eastside Cannery, located in Las Vegas, Nevada. Through its wholly owned subsidiary, PA Meadows, CCR also owns and operates a racetrack and a casino at The Meadows, located in North Strabane Township, Washington County, Pennsylvania.
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.
On April 14, 2015, AcquisitionCo distributed $1.1 million as a return of capital to Blocker. Blocker in turn paid the Company 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.
As of June 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 totaling $590 million: a $425 million first lien credit facility consisting of; (i) $385 million term loan borrowed at the closing cate; (ii) $40 million revolving loan unfunded at the closing date, but available until the fifth anniversary of the closing date and; (iii) $165 million second lien term loan facility (collectively the “2012 Credit Agreements”). As a result, CCR is currently in negotiations with its lender to amend the 2012 Credit Agreements.
Operations Analysis
Results of Operations
Material variables and factors affecting the Company’s loss before income tax provision for the three months ended June 30, 2015 compared to the three months ended June 30, 2014, are as follows:
· CCR’s net loss increased approximately $9.2 million for the three months ended June 30, 2015, compared to the same period in the prior year, due to the operational highlights for CCR discussed below. The increase resulted in a $2.9 million increase in equity in loss of unconsolidated investees.
· The Company’s loss before income tax provision increased $2.9 million for the three months ended June 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 CCR’s net loss and resulting impact to the Company’s equity in loss of unconsolidated investees as described above.
Material variables and factors affecting the Company’s loss before income taxes for the six months ended June 30, 2015 compared to the six months ended June 30, 2014, are as follows:
· CCR’s net loss increased approximately $8.9 million for the six months ended June 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 $2.8 million increase in equity in loss of unconsolidated investees.
· The Company’s loss before income tax provision increased $2.8 million for the six months ended June 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 CCR’s net loss and resulting impact to the Company’s equity in loss of unconsolidated investees as described above.
Material tax attributes of the Company’s 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 Company’s 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 six months ended June 30, 2015 and 2014 are as follows:
Three months ended June 30, 2015:
Consolidated revenues (net) decreased $10.7 million for the three months ended June 30, 2015, as compared to the same period in the prior year. The declines in consolidated revenues (net) were primarily due to the following:
· Casino revenues
Consolidated casino revenues decreased $0.4 million for the three months ended June 30, 2015 as compared to the same period in the prior year. The decrease primarily relates to a decline in the Meadows table games and slot revenues of $0.9 million due to a lower table hold percentage (despite increase in table games drop), regional competition, and fewer visits. The decline at the Meadows was offset by an increase in casino revenues of $0.6 million, primarily at the Cannery, due to a slight increase in spend per visit.
· Pari-Mutuel wagering
Pari-mutuel wagering revenues decreased $1.1 million for the year three months ended June 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 one off-track betting parlor in November 2014.
· Commission Revenue
Commission revenue increased $0.5 million for the three months ended June 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 $10.2 million for the three months ended June 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, the 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 June 30, 2014.
Income from operations decreased $9.1 million for three months ended June 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 expenses were relatively consistent for the three months ended June 30, 2015 as compared to the same period in the prior year.
· Pari-mutuel wagering expense
Pari-mutuel wagering expense declined $0.9 million for the three months ended June 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 $0.3 million for the three months ended June 30, 2015 as compared to the same period in the prior year due to assets nearing their salvage values.
Net loss increased $9.2 million for the three months ended June 30, 2015 as compared to the same period in the prior year. The increase in net loss was primarily driven by decreased income from operations (as previously discussed).
Six months ended June 30, 2015:
Consolidated revenues (net) decreased $9.7 million for the six months ended June 30, 2015, as compared to the same period in the prior year. The declines in consolidated revenues (net) were primarily due to the following:
· Casino revenues
Consolidated casino revenues increased $0.3 million for the six months ended June 30, 2015 as compared to the same period in the prior year. The increase primarily relates to an increase of the Meadows table games revenues of $1.4 million due to an increase in table games drop and a slightly higher hold percentage which was offset by a decrease of $2.4 million in slot revenues primarily due to regional competition, fewer visits, and to a lesser extent adverse weather conditions in February 2015. Additionally, casino revenues at CCR’s Nevada properties increased $1.6 million, primarily at the Cannery due to increase in spend per visit.
· Pari-Mutuel wagering
Pari-mutuel wagering revenues decreased $2.1 million for the six months ended June 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 one off-track betting parlor in November 2014.
· Commission Revenue
Commission revenue increased $0.9 million for the six months ended June 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 $9.9 million for the six months ended June 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, the 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 June 30, 2014.
Income from operations decreased $6.4 million for six months ended June 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 expenses decreased $0.7 million primarily due to lower casino gaming tax expense of $1.7 million related to declines in the Meadows casino revenues (as previously discussed). The decline in casino gaming tax expense was partially offset by increased value of retail complimentary cost, $0.9 million (collectively) at the Meadows and Cannery.
· Pari-mutuel wagering expense
Pari-mutuel wagering expense declined $1.7 million for the six months ended June 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, primarily at the Meadows, declined $1.5 million for the six months ended June 30, 2015 as compared to the same period in the prior year due to assets nearing their salvage values.
Net loss increased $8.9 million for the six months ended June 30, 2015 as compared to the same period in the prior year. The increase in net loss was primarily driven by decreased income from operations (as previously discussed), a 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 a decrease in income tax benefit of $1.6 compared to the corresponding period in the prior year. The decrease in income from operations was partially offset by lower interest expense of $0.4 million related to lower outstanding debt as compared to the same period in the prior 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 Company’s 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, including approximately $10.8 million in 2009, and approximately $46.6 million in 2010, in connection with AcquisitionCo’s purchase of the Series C Preferred Units of CCR (“Series C Units”). The Company has no current investment or other financing plans, and the Company’s recurring prospective need for liquidity and capital resources is principally associated with being a reporting company. To the extent the Company needs additional liquidity and capital resources to satisfy those needs, the Company’s members are the expected source of funding.
Inflation
The Company does not believe that inflation has had a material effect on its results of operations in recent years. However, there is no assurance that inflation will not adversely affect its business in the future.
Off Balance Sheet Arrangements
Credit Agreements
As disclosed in Note 2 (Select condensed consolidated operating information for unconsolidated investees) to the unaudited consolidated financial statements of the Company, as of June 30, 2015, CCR is not in compliance with certain debt covenants with respect to the 2012 Credit Agreements, and is currently in negotiations to amend the 2012 Credit Agreements.
Critical Accounting Estimates and Policies.
Although the Company’s consolidated financial statements necessarily make use of certain accounting estimates by management, at this time, we believe no matters are the subject of such estimates that are so highly uncertain or susceptible to change as to present a significant risk of a material impact on its financial condition or results of operations as more fully explained in the following paragraph. Moreover, except as discussed below, the Company does not 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 Company’s 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 Company’s unconsolidated investees also do not require the exercise of significant management judgment to apply.
The realization of substantially all of the Company’s assets will likely be dependent upon an eventual sale of its investment in the unconsolidated investees following an economic recovery believed to be probable at a price sufficient to realize the carrying value of the Company’s assets. The Company has recorded a valuation allowance to reduce the related deferred tax assets to the amount that is more likely than not to be realized. These estimates are subject to material variation over the next year.
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 OCM’s management, including OCM’s principal executive officer and principal financial officer, of the effectiveness of the design and operation of OCM’s disclosure controls and procedures, as such term is defined under Rule 13a-15(e) or Rule 15d-15(e) under the Securities Exchange of 1934, as amended (the “Exchange Act”). Based upon that evaluation, the principal executive officer and principal financial officer concluded that, as of June 30, 2015, OCM’s disclosure controls and procedures are effective.
Changes in internal control over financial reporting.
No change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) occurred during the fiscal quarter ended June 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 |
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101.SCH |
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XBRL Taxonomy Extension Schema Document |
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101.CAL |
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XBRL Taxonomy Extension Calculation Linkbase Document |
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101.DEF |
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XBRL Taxonomy Extension Definition Linkbase Document |
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101.LAB |
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XBRL Taxonomy Extension Label Linkbase Document |
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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: August 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: August 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) |
EXHIBIT 31.1
CERTIFICATION PURSUANT TO SECTION 302 OF
THE SARBANES-OXLEY ACT OF 2002
I, Stephen A. Kaplan, certify that:
1. I have reviewed this quarterly report on Form 10-Q for the quarter ended June 30, 2015 of OCM HoldCo, LLC;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on my most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
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Date: August 13, 2015 |
/s/ Stephen A. Kaplan |
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Stephen A. Kaplan |
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Manager |
EXHIBIT 31.2
CERTIFICATION PURSUANT TO SECTION 302 OF
THE SARBANES-OXLEY ACT OF 2002
I, Ronald N. Beck, certify that:
1. I have reviewed this quarterly report on Form 10-Q for the quarter ended June 30, 2015 of OCM HoldCo, LLC;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on my most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
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Date: August 13, 2015 |
/s/ Ronald N. Beck |
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Ronald N. Beck |
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Manager |
EXHIBIT 32.1
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Each of the undersigned managers of OCM HoldCo, LLC (the “Company”) hereby certifies that the Company’s quarterly report on Form 10-Q for the period ended June 30, 2015 (the “Report”), as filed with the Securities and Exchange Commission on the date hereof, fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934, as amended, and that the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
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Date: August 13, 2015 |
/s/ Stephen A. Kaplan |
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Stephen A. Kaplan |
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Manager |
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Date: August 13, 2015 |
/s/ Ronald N. Beck |
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Ronald N. Beck |
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Manager |