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, 1997
-----------------------------------------
[ ] 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 33-27399
ATLANTIC CITY BOARDWALK ASSOCIATES, L.P.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
New Jersey 22-2469174
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
Indiana Avenue & the Boardwalk, Atlantic City, New Jersey 08401
(Address of principal executive offices) (Zip Code)
(609) 340-3400
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Sections 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 ______
<PAGE>
ATLANTIC CITY BOARDWALK ASSOCIATES, L.P.
INDEX
PART I FINANCIAL INFORMATION Page No.
Item 1. Financial Statements
Introductory Note to Financial Statements 2
Balance Sheets as of December 31, 1996
and September 30, 1997 3
Statements of Operations For the
Three-Month and Nine-Month Periods
Ended September 30, 1996 and 1997 4
Statements of Partners' Capital Accounts
(Deficit) For the Year Ended December 31,
1996 and the Nine Months Ended September 30,
1997 5
Statements of Cash Flows For the Nine
Months Ended September 30, 1996 and 1997 6
Notes to Financial Statements 7-9
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 10-12
PART II OTHER INFORMATION
Items 1-5 No information is provided as the answers
to Items 1 through 5 are inapplicable.
Item 6. Exhibits and reports on Form 8-K 12
<PAGE>
PART I
Item 1. Financial Statements
Introductory Note to Financial Statements
The accompanying financial statements have been prepared by Atlantic City
Boardwalk Associates, L.P. ("Partnership") without audit, pursuant to the rules
and regulations of the Securities and Exchange Commission. In the opinion of
management, these financial statements contain all adjustments necessary to
present fairly the financial position of the Partnership as of December 31, 1996
and September 30, 1997, and the results of operations for the three and nine
months ended September 30, 1996 and 1997, and cash flows for the nine months
ended September 30, 1996 and 1997.
Although management believes that the disclosures included herein are adequate
to make the information contained herein not misleading, certain information and
footnote disclosure normally included in financial statements prepared in
accordance with generally accepted accounting principles are omitted herein and
are incorporated by reference to the Partnership's Annual Report on Form 10-K
for the year ended December 31, 1996 filed with the Securities and Exchange
Commission. While the Partnership was formed to own, and to lease to the
Claridge Hotel and Casino Corporation ("CHCC") and its affiliates, certain real
estate and related assets, the Partnership is separate and distinct from CHCC.
Any person or entity seeking information regarding CHCC or its debt or equity
securities should review the reports, statements and other information filed by
CHCC with the Securities and Exchange Commission.
<PAGE>
ATLANTIC CITY BOARDWALK ASSOCIATES, L.P.
Balance Sheets
December 31, 1996 and September 30, 1997
(Unaudited)
Assets 1996 1997
------ ------------ ---------
Current assets:
Cash and cash equivalents $1,446,000 535,000
Rent due from New Claridge 408,000 740,000
Interest receivable from partners 35,000 61,000
Prepaid expenses 264,000 -
Other assets 172,000 204,000
--------- ---------
Total current assets 2,325,000 1,540,000
--------- ----------
Hotel Assets 183,529,000 183,583,000
Less: Accumulated depreciation
and amortization 100,281,000 104,345,000
----------- -----------
Net Hotel Assets 83,248,000 79,238,000
----------- -----------
Note receivable from New Claridge, including
accrued interest of $3,258,000 and
$3,582,000 in 1996 and 1997, respectively 6,858,000 7,182,000
Deferred rent from New Claridge 37,807,000 34,090,000
Intangibles, net of accumulated amortization
of $3,626,000 and $3,701,000 in 1996
and 1997, respectively 179,000 104,000
--------- -------
$130,417,000 122,154,000
============ ===========
Liabilities and Partners' Capital Accounts
Current liabilities:
Accounts payable $1,035,000 1,049,000
Accrued interest due New Claridge 1,147,000 996,000
Current portion of long-term debt due
principally to New Claridge 17,227,000 18,614,000
---------- ----------
Total current liabilities 19,409,000 20,659,000
Long-term debt due principally to New Claridge,
including accrued interest of $20,000,000
in 1996 and 1997 92,120,000 79,614,000
---------- ----------
Total liabilities 111,529,000 100,273,000
----------- -----------
Partners' capital accounts (deficit):
New general partners 105,000 135,000
Former general partners 173,000 191,000
Special limited partners (187,000) (157,000)
Investor limited partners 18,797,000 21,712,000
---------- ----------
Total partners' capital
accounts (deficit) 18,888,000 21,881,000
Commitments and contingencies ------------ ------------
$130,417,000 122,154,000
============ ============
See accompanying notes to financial statements.
<PAGE>
<TABLE>
ATLANTIC CITY BOARDWALK ASSOCIATES, L.P.
Statements of Operations
(Unaudited)
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------ -------------------
1996 1997 1996 1997
---- ---- ---- ----
Revenues:
<S> <C> <C> <C> <C>
Rent from New Claridge for
the lease of Hotel Assets $ 9,756,000 7,406,000 29,498,000 26,835,000
Interest from New Claridge 108,000 108,000 324,000 324,000
Interest from Special Limited Partners 9,000 9,000 27,000 27,000
Investment 23,000 7,000 78,000 25,000
Other - - - 2,000
--------------- -------------- ------------- --------------
9,896,000 7,530,000 29,927,000 27,213,000
--------- --------- ---------- ----------
Expenses:
Cost of maintaining and repairing
Hotel Assets, paid to New Claridge 3,071,000 2,960,000 9,219,000 8,609,000
Interest, principally on mortgages to
New Claridge 4,005,000 3,506,000 12,138,000 10,879,000
General and administrative 123,000 120,000 455,000 491,000
General Partners' management fee 33,000 33,000 98,000 98,000
Depreciation and amortization 1,518,000 1,361,000 4,929,000 4,143,000
--------- --------- ----------- -----------
8,750,000 7,980,000 26,839,000 24,220,000
--------- --------- ----------- -----------
Net income (loss) $ 1,146,000 (450,000) 3,088,000 2,993,000
========= =========== ========== ==========
Net income (loss) per limited partnership unit
(450 units outstanding at the end of each period) $ 2,506 (985) 6,753 6,544
============= ============- ============= =============
</TABLE>
See accompanying notes to financial statements.
<PAGE>
<TABLE>
ATLANTIC CITY BOARDWALK ASSOCIATES, L.P.
Statements of Partners' Capital Accounts (Deficit)
For the Year Ended December 31, 1996
and the Nine Months Ended September 30, 1997
<CAPTION>
Class A Class B Class A Class B Total
New Former Special Special Investor Investor Partners'
General General Limited Limited Limited Limited Capital
Partners Partners Partners Partners Partners Partners Accounts
-------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Partners' Capital
Accounts (Deficit),
December 31, 1995 $ 57,000 144,000 (15,000) (219,000) 3,457,000 10,711,000 14,135,000
Net income 48,000 29,000 3,000 44,000 1,136,000 3,493,000 4,753,000
-------- -------- --------- -------- --------- ----------- -----------
Partners' Capital
Accounts (Deficit),
December 31, 1996 105,000 173,000 (12,000) (175,000) 4,593,000 14,204,000 18,888,000
Net income
(unaudited) 30,000 18,000 2,000 28,000 715,000 2,200,000 2,993,000
-------- -------- --------- -------- ---------- ----------- -----------
Partners' Capital
Accounts (Deficit),
September 30, 1997
(unaudited) $ 135,000 191,000 (10,000) (147,000) 5,308,000 16,404,000 21,881,000
======= ======= ====== ======= ========= ========== ==========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
<TABLE>
<CAPTION>
ATLANTIC CITY BOARDWALK ASSOCIATES, L.P.
Statements of Cash Flows
(Unaudited)
For the Nine Months Ended September 30, 1996 and 1997
1996 1997
---- ----
Cash flows from operating activities:
<S> <C> <C>
Net income $3,088,000 2,993,000
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 4,929,000 4,143,000
Accretion of discount on mortgage note 1,123,000 1,291,000
Loss on disposal of assets - 2,000
Decrease in deferred rent from New Claridge 1,500,000 3,717,000
Deferred interest on receivable from New Claridge (324,000) (324,000)
Change in current assets and liabilities:
(Increase) in rent due from New Claridge,
interest receivable from partners,
prepaid expenses and other assets (39,000) (126,000)
(Decrease) in accounts payable and
accrued interest due New Claridge (34,000) (137,000)
-------- ---------
Net cash provided by operating activities 10,243,000 11,559,000
---------- ----------
Cash flows from investing activities:
Purchase of Hotel Assets (3,221,000) (60,000)
---------- -----------
Net cash used in investing activities (3,221,000) (60,000)
---------- -----------
Cash flows from financing activities:
Proceeds of borrowings from New Claridge 3,312,000 149,000
Principal payments of debt, principally to New Claridge (10,503,000) (12,559,000)
----------- ----------
Net cash used in financing activities (7,191,000) (12,410,000)
---------- -----------
Net decrease in cash and cash equivalents (169,000) (911,000)
Cash and cash equivalents, beginning of period 1,535,000 1,446,000
--------- ---------
Cash and cash equivalents, end of period $ 1,366,000 535,000
=========== =======
Supplemental cash flow information:
Interest paid $ 11,584,000 10,416,000
=========== ==========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
ATLANTIC CITY BOARDWALK ASSOCIATES, L.P.
Notes to Financial Statements
(Unaudited)
(1) The Partnership
Atlantic City Boardwalk Associates, L.P. ("Partnership") was formed on
October 31, 1983 to acquire the buildings, parking facility and
non-gaming depreciable, tangible property (collectively, "Hotel
Assets") of The Claridge Hotel and Casino ("Claridge") located in
Atlantic City, New Jersey; to hold a leasehold interest in the land on
which the Claridge is located ("Land"), which Land was subsequently
acquired by the Partnership as part of a financial restructuring
("Restructuring Agreement"); and to engage in activities related or
incidental thereto. The Partnership leases the Land and Hotel Assets to
The Claridge at Park Place, Incorporated ("New Claridge"), a
wholly-owned subsidiary of The Claridge Hotel and Casino Corporation
("Corporation"), under operating leases.
(2) Financial Condition of the Partnership and New Claridge
The ability of the Partnership to fulfill its obligations is dependent
upon the ability of New Claridge to pay rental payments when due.
Accordingly, the financial stability of the Partnership is dependent
upon the financial condition of New Claridge.
As discussed in the Claridge's Annual Report on Form 10-K for the year
ended December 31, 1996, the Corporation experienced recurring losses
and serious deterioration in its cash flow in 1996. Since the
Corporation does not have substantial cash reserves or access to a line
of credit, the Corporation will need to experience a significant
improvement in operating results in 1997 over 1996 levels in order to
meet its on-going obligations, including the interest due on the $85
million of First Mortgage Notes. Operating results in 1997 have
improved over 1996 levels, due primarily to the positive impact of the
availability of the self-parking garage, lower bus package pricing, and
other cost containment initiatives. Although management of the
Corporation believes that operating results will continue to improve
over prior year levels, no assurances as to the continuation of this
improvement can be given. Management of New Claridge will continue to
conserve cash through various cost containment measures, including
limiting capital expenditures in 1997 to approximately $1 million.
Given the various improvements made to the property in recent years,
including the casino expansion in 1994, the construction of the
self-parking garage, and other projects such as the refurbishment of
all of its guest rooms, the current condition of the property is such
that the above-mentioned level of capital expenditures is deemed
adequate. In January 1997 management of the Corporation was contacted,
through an agent, by Hilton Hotel Corporation ("Hilton"), regarding a
possible sale of the Corporation to Hilton, and shortly thereafter, the
Corporation began negotiations with Hilton. Negotiations with Hilton
regarding acquisition of the Corporation terminated in April 1997.
Management of New Claridge will continue to consider various
refinancing alternatives, including a sale of the Corporation. In
addition, New Claridge has retained the law firm of Zelle and Larson
LLP of Minneapolis, Minnesota to assist in evaluating the recovery of
certain expenses incurred in reopening the self-parking garage and in
evaluating potential lost profit claims as a result of the accident
which occurred in the self-parking garage on July 10, 1996. On July 22,
1997, New Claridge filed a Complaint and Demand for Arbitration in the
amount of $10 million against the general contractor and the architect
for the self-parking garage; recovery of these claims would have a
positive impact on New Claridge's financial results and liquidity.
However, there is no assurance that the Corporation will be successful
in realizing any recovery.
<PAGE>
The Corporation had net income of $1,348,000 for the three months ended
September 30, 1997 compared to a net loss of $2,653,000 for the same
period in 1996, and a net loss of $2,192,000 for the nine months ended
September 30, 1997 compared to a net loss of $8,967,000 for the nine
months ended September 30, 1996. During the first nine months of 1997
as compared to the same period in 1996, revenues net of promotional
allowances decreased $243,000 while expenses decreased $12,416,000 - a
decrease in loss before income taxes of $12,173,000. During the first
nine months of 1996, the Corporation recorded a $5,398,000 income tax
benefit as a result of the losses incurred in that period. The
Corporation recorded an income tax benefit of $511,000, offset by a
corresponding increase in the valuation allowance for the same period
in 1997.
The ownership and operation of casino-hotel facilities in Atlantic City
are subject to extensive state regulation under the Casino Control Act
under the direction of the New Jersey Casino Control Commission. The
Casino Control Act provides that various categories of entities must
hold appropriate casino licenses. The Partnership currently operates
under a four-year casino service industry license effective October 31,
1995, while New Claridge operates under a four-year casino operator's
license effective September 30, 1995.
(3) Contingencies
In connection with the 1989 restructuring, Webb agreed to permit those
partners/investors in the Partnership and Corporation ("Releasing
Partners/Investors") from whom Webb had received written releases from
all liabilities, rights ("Contingent Payment Rights") to receive
certain amounts to the extent available for application to the
Contingent Payment. Approximately 84% in interest of the
partners/investors provided releases and became Releasing
Partners/Investors. Payments to Releasing Partners/Investors are to be
made in accordance with a schedule of priorities, as defined in the
Restructuring Agreement.
On April 2, 1990, Webb transferred its interest in the Contingent
Payment to an irrevocable trust for the benefit of the Valley of the
Sun United Way, and upon such transfer Webb was no longer required to
be qualified or licensed by the Commission.
On February 23, 1996, the Corporation acquired an option to purchase,
at a discount from the carrying value, the Contingent Payment. The
price to acquire the option was $1 million, and the option may be
exercised any time prior to December 31, 1997. Upon exercise of the
option, the purchase price of the Contingent Payment would be $10
million, plus interest at 10% per annum for the period from January 1,
1997 to the date of payment of the purchase price. The purchase price
may also increase in an amount not to exceed $10 million if future
distributions to Releasing Partners/Investors exceed $20 million. It is
estimated that at September 30, 1997, the aggregate amount owing in
respect of the Contingent Payment was $73.5 million.
Given the recent operating results at New Claridge (see discussion
above), it is unlikely that the Corporation would be able to exercise
this Contingent Payment Option using available working capital, or
absent a refinancing or sale transaction.
<PAGE>
In the event that the option is exercised, it is anticipated that the
Contingent Payment would be canceled so that neither the Corporation
nor the Partnership would have any obligation to make any payment in
respect of the Contingent Payment before making a distribution to
limited partners or shareholders. Upon the purchase and cancellation,
however, the Corporation and the Partnership would remain obligated to
make payments to the Releasing Partners/Investors, in respect of the
Contingent Payment Rights, before any distribution may be made to
limited partners or shareholders. These payments would be required to
be in the same amounts as if the Contingent Payment had not been
purchased and canceled. As a result, it is not likely that limited
partners or shareholders who are not Releasing Partners/Investors will
receive any distribution from the Partnership or the Corporation. In
the aggregate, Releasing Partners/Investors are entitled to receive an
amount equal to approximately 72% of the Contingent Payment if the
option is exercised.
Under the terms of the option, upon purchase of the Contingent Payment,
the Partnership and/or the Corporation would be required to make
distributions in excess of $7 million to the Releasing
Partners/Investors. The Partnership and the Corporation have agreed to
cooperate in the purchase of the option and the Contingent Payment,
with each contributing one-half of the purchase price of the option and
each anticipated to contribute one-half of the purchase price of the
Contingent Payment. A portion of the Partnership's contribution would
be contributed through additional abatements of basic rent payments due
under the Operating Lease and the Expansion Operating Lease.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Results of Operations for the Three-Month and Nine-Month Periods Ended September
30, 1997 as Compared to the Three-Month and Nine-Month Periods Ended September
30, 1996
Rental income for the three months ended September 30, 1997 decreased $2,350,000
as compared to the three months ended September 30, 1996, and $2,663,000 for the
nine months ended September 30, 1997 as compared to the nine months ended
September 30, 1996. These decreases are primarily due to the abatements of rent
pursuant to the March 1, 1997 amendments to the Operating Lease and Expansion
Operating Lease (see "Liquidity and Capital Resources"). Prior to these
amendments, rental income (including the effect of the $38.8 million of rent
abatements provided in accordance with the 1989 Restructuring Agreement) was
recognized on a leveled basis over the initial lease term (ending September 30,
1998), in accordance with Statement of Financial Accounting Standards No. 13.
Since the amount of abatements permitted in accordance with the March 1997
amendments will vary depending on the Partnership's cash flow, leveling of these
abatements over the lease term is not possible; the actual amount abated on a
monthly basis is recorded as a reduction of rental income. For the three- and
nine-month periods ended September 30, 1997 the amount of rent abated in
accordance with the March 1997 amendments was $2,517,000 and $6,232,000,
respectively. In addition to the basic rent, New Claridge pays as additional
rent, certain expenses and debt service relating to furniture, fixture and
equipment replacements and building improvements ("FF&E"). During 1997, FF&E
note principal and interest payments were higher than in 1996 resulting in
increased additional rents in 1997. The overall decrease in rents is due to the
abatement of rents offset by the increase in additional rents.
Investment income decreased $16,000 and $53,000, respectively, for the three-
and nine-month periods ended September 30, 1997 as compared to the same periods
ended September 30, 1996. Investment income decreased due to a reduction in cash
available to invest. On March 1, 1997 the Partnership's cash flow was reduced
$1.3 million in the form of deferred rent from New Claridge which is being paid
to the Partnership on a monthly basis through October 1999.
The Partnership has an agreement with New Claridge whereby New Claridge provides
facility and maintenance and engineering services for the Claridge. The
agreement calls for the reimbursement of the actual facilities and maintenance
costs incurred on the Partnership's behalf. The cost of maintaining and
repairing Hotel Assets decreased $111,000 and $610,000, respectively, during the
three- and nine-month periods ended September 30, 1997 as compared to the same
periods in 1996. These decreases are due to an overall decrease in New
Claridge's repairs and maintenance expenditures in an effort to conserve cash.
For the three- and nine-month periods ended September 30, 1997, interest expense
decreased $499,000 and $1,259,000, respectively, as compared to the same periods
ended September 30, 1996. These decreases are due to principal payments made
during 1996 and 1997 that reduced the average outstanding balance of the
wraparound and expansion mortgages.
General and administrative expenses for the three months ended September 30,
1997 decreased $3,000 as compared to the three months ended September 30, 1996,
while increasing $36,000 for the nine months ended September 30, 1997 as
compared to the nine months ended September 30, 1996. The overall increase is
due to higher legal and accounting fees as a result of the Claridge refinancing
efforts and bankruptcy contingency planning.
Depreciation and amortization expense for the three- and nine-month periods
ended September 30, 1997 decreased $157,000 and $786,000, respectively as
compared to the same periods in 1996. Assets purchased during the 1986 expansion
became fully depreciated in mid-1996. Therefore, depreciation expense taken on
these assets during the first half of 1996 was not available during 1997,
resulting in decreased depreciation expense in 1997.
<PAGE>
Liquidity and Capital Resources
The ability of the Partnership to continue to fulfill its obligations is
dependent upon the ability of New Claridge to continue to make rental payments
when due. Current lease payments from New Claridge, as recently amended, are
sufficient to pay the Partnership's debt service and operating expenses. As part
of the 1989 Restructuring Agreement, rental payments in excess of monthly cash
flow requirements were deferred or abated so that excess cash would not
accumulate in the Partnership. The 1997 restructuring continued this deferral or
abatement of excess cash flow through 1998 and limit cash flow to the
Partnership from 1998 to 2003 as described below. At the closing of the 1989
restructuring the Partnership loaned New Claridge $3.6 million. The note,
including interest, along with those rentals deferred under the amendment to the
operating leases, are to be repaid to the Partnership upon (i) the sale or
refinancing of the Claridge; (ii) upon full or partial satisfaction of the
Expandable Wraparound Mortgage; and (iii) upon full satisfaction of any first
mortgage then in place. The deferral of $1.3 million of rental obligations as
part of the 1997 restructuring leaves the Partnership with minimal cash and
liquidity.
Effective March 1, 1997, the Corporation, New Claridge and the Partnership
entered into a restructuring agreement, pursuant to which New Claridge agreed to
use its best efforts to cause a modification of the Expandable Wraparound
Mortgage (the "Wraparound Modification") that is permitted by, or is in
compliance with, the terms of the indenture (the "Indenture") governing the
Corporation's $85 million of First Mortgage Notes (the "Notes"). The Wraparound
Modification, if so permitted, will provide for an extension of the maturity
date of the Expandable Wraparound Mortgage from September 30, 2000 to January 1,
2004. If the Wraparound Modification is not permitted by or in compliance with
the terms of the Indenture, New Claridge has agreed to effect the Wraparound
Modification at such time as the Notes are no longer outstanding. In addition to
the modification to the Expandable Wraparound Mortgage, the Corporation, New
Claridge, and the Partnership agreed to modify certain terms of the Operating
Lease and Expansion Operating Lease agreements, as discussed below.
The Operating Lease, together with the Expansion Operating Lease, was amended as
part of the 1989 Restructuring Agreement to provide for the deferral of
$15,078,000 of rental payments during the period July 1, 1988 through the
beginning of 1992, and to provide for the abatement of $38,820,000 of basic rent
through 1998, thereby reducing the Partnership's cash flow to an amount
estimated to be necessary only to meet the Partnership's cash requirements.
During the third quarter of 1991, the maximum deferral of rent was reached. On
August 1, 1991, the Operating Lease and the Expansion Operating Lease were
amended further to revise the abatement provisions so that, commencing January
1, 1991, for each calendar year through 1998, the lease abatements may not
exceed $10 million in any one calendar year, and $38,820,000 in the aggregate.
Additional abatements of rent totaling $500,000 were also available as a result
of the acquisition of the option to purchase the Contingent Payment. During the
first quarter of 1997, all of these abatements were fully utilized.
The Fifth Amendment to the Operating Lease and the Fourth Amendment to the
Expansion Operating Lease, which were effective on March 1, 1997, provided for
the abatement of $867,953 of basic rent and for the deferral of $1.3 million of
basic rent on March 1, 1997, and provided for additional abatements of basic
rent, commencing on April 1, 1997, as necessary to reduce the Partnership's cash
flow to an amount necessary to meet the Partnership's cash requirements through
December 31, 1998 (determined without regard to the repayment of the deferred
rent). The $1.3 million of basic rent deferred on March 1, 1997 is to be paid to
the Partnership as additional rent of $25,000 per month for the period April 1,
1997 through December 31, 1997, and of $50,000 per month for the year 1998 and
thereafter until paid in full (subject to acceleration under certain
circumstances). For the years 1999 through 2003, additional abatements of basic
rent will be reduced to provide the Partnership with amounts needed to meet the
Partnership's cash requirements plus an additional amount ($83,333 per month in
1999 and 2000, $125,000 per month in 2001, and $166,667 per month in 2002 and
2003). All abatements of rent in excess of the $38,820,000, which was allowed in
accordance with the 1989 restructuring, will be recognized as a reduction of
rental income as it is abated.
<PAGE>
In conjunction with the Fifth Amendment to the Operating Lease and the Fourth
Amendment to the Expansion Operating Lease, as discussed above, the Corporation,
New Claridge and the Partnership entered into a restructuring agreement,
effective March 1, 1997, to modify certain terms of the Expandable Wraparound
Mortgage. In addition, under the March 1, 1997 restructuring agreement, New
Claridge agreed to exercise the first of three ten-year renewal options
extending the term of the Operating Lease and Expansion Operating Lease through
September 30, 2008.
Under the terms of the Operating Lease, as amended effective March 1, 1997, New
Claridge has an option to purchase, on September 30, 1998, the Hotel Assets and
the underlying land for their fair market value at the time the option is
exercised. As amended effective March 1, 1997, such price may not be less than
an amount equal to the amount then outstanding under the Expandable Wraparound
Mortgage plus $2.5 million, plus any amount of the $1.3 million of rent deferred
on March 1, 1997 not then paid. If New Claridge does not exercise this option on
September 30, 1998, it may exercise an option, on September 30, 2003, to
purchase the Hotel Assets and the underlying land on January 1, 2004, for their
fair market value at the time the option is exercised.
Basic rent during the renewal term of the Operating Lease will be calculated
pursuant to a formula, with such rent not to be more than $29.5 million nor less
than $24 million in the lease year October 1, 1998 through September 30, 1999,
and subsequently, not to be greater than 10% more than the basic rent for the
preceding lease year in each lease year thereafter. Basic rent during the
renewal term of the Expansion Operating Lease will also be calculated pursuant
to a formula, with such rent not to be more than $3 million nor less than $2.5
million in the lease year October 1, 1998 through September 30, 1999, and
subsequently, not to be greater than 10% more than the basic rent for the
preceding lease year in each lease year thereafter.
The Partnership funds the purchase of additional Hotel Assets by borrowing
funds, at a 14% interest rate, from New Claridge. The ensuing notes are secured
under the Expandable Wraparound Mortgage up to $25 million. Principal and
interest on these notes are then reimbursed to the Partnership through
additional rentals from New Claridge. Under the Operating Lease, New Claridge is
required to reimburse the Partnership for all taxes, assessments, insurance and
general and administrative costs of the Partnership.
The Partnership had a working capital deficiency of approximately $19,119,000 as
of September 30, 1997 and $17,084,000 as of December 31, 1996. The working
capital deficiency primarily results from the consummation of the 1989
Restructuring Agreement as well as the 1997 restructuring. As part of the 1989
restructuring, the Partnership's cash flow was reduced to an amount no greater
than what the Partnership needs to pay Partnership expenses, including debt
service. Such concept was continued through 1998 in the 1997 restructuring.
Thus, so long as the Claridge is financially viable and continues to make all
payments under the operating leases, the Partnership expects to be able to pay
its current liabilities.
PART II
Item 6. Exhibits and reports on Form 8-K
(a) Not applicable.
(b) No reports on Form 8-K were filed during the quarter ended
September 30, 1997.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Atlantic City Boardwalk Associates, L.P.
Registrant
Date November 13, 1997 /s/ Anthony C. Atchley
-------------------- ----------------------------------------
by Anthony C. Atchley, General Partner
Date November 13, 1997 /s/ Gerald C. Heetland
-------------------- -----------------------------------------
by Gerald C. Heetland, General Partner
Date November 13, 1997 /s/ Anthony C. Atchley
-------------------- -----------------------------------------
by AC Boardwalk Partners Corporation,
General Partner
by Anthony C. Atchley, President
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from
Atlantic City Boardwalk Associates, L.P.'s form 10-Q for the quarter
ended September 30, 1997 and is qualified in it's entirety by reference
to such financial statements.
</LEGEND>
<MULTIPLIER> 1
<CURRENCY> US
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
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<RECEIVABLES> 801,000
<ASSETS-OTHER> 204,000
<OTHER-ITEMS-ASSETS> 121,149,000
<TOTAL-ASSETS> 122,154,000
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 79,614,000
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<SENIOR-EQUITY> 450
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<OTHER-INCOME> 26,837,000
<EXPENSES-NET> 23,631,000
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</TABLE>
