FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20548
(x) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1996
( ) 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: 33-83762
CP FUNDING CORP.
(A Delaware Corporation)
Exact name of registrant
as specified in its Certificate
Delaware 13-3777023
- ------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
AND
CHELSEA PIERS L.P.
(A New York Limited Partnership)
(Exact name of registrant as specified in its
Certificate and Agreement of Limited Partnership)
New York 13-3668842
- ------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Chelsea Piers - Pier 62, Suite 300
New York, New York 10011
- ------------------------------- -------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (212) 336-6800
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
12 1/2% DISCOUNT EXCHANGE FIRST MORTGAGE NOTES
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, and (2) has been subject to such requirements for the
past 90 days.
YES X NO
----- -----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of March 31, 1996
100 Shares of Common Stock of CP Funding Corp.
$29,763,889 in Limited Partnership Interests in Chelsea Piers L.P
1
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
Set forth below are the March 31, 1996 unaudited financial statements for
Chelsea Piers L.P. (the "Partnership") and its wholly-owned subsidiary, CP
Funding Corp. (the "Issuer" and with the Partnership, collectively referred to
as the "Company").
2
<PAGE>
Chelsea Piers L.P.
and Subsidiary
------------------
CONSOLIDATED BALANCE SHEETS
March 31, December 31,
1996 1995
------------ ------------
(Unaudited)
ASSETS
Current:
Cash and cash equivalents ................. $ 3,048,310 $ 8,128,625
Accounts receivable ....................... 219,272 163,134
Prepaid insurance ......................... 175,136 306,488
Due from related entity ................... 85,353 43,190
Preopening costs, at cost less
accumulated amortization of
$266,856 and $93,122, respectively ....... 561,732 723,420
------------ ------------
Total current assets .............. 4,089,803 9,364,857
Property and equipment, at cost less
accumulated depreciation of
$488,347 and $380,287, respectively ....... 2,722,678 1,949,101
Prepaid rent ................................ 51,792,954 49,893,481
Financing costs, less accumulated
amortization of $829,940 and
$713,581, respectively .................... 3,889,079 4,005,438
Deferred rent ............................... 1,283,187 1,243,001
Other assets ................................ 209,850 213,850
------------ ------------
$ 63,987,551 $ 66,669,728
============ ============
LIABILITIES AND PARTNERS' EQUITY
Current:
Accounts payable and accrued expenses ..... $ 799,758 $ 860,916
Accrued construction costs ................ -- 2,352,876
Deferred revenues ......................... 499,557 504,067
------------ ------------
Total current liabilities ......... 1,299,315 3,717,859
Discount First Mortgage Notes payable, net of
discount of $16,978,562 and
$15,311,066, respectively ................. 55,650,420 53,986,925
Other liabilities ........................... 393,327 295,250
------------ ------------
Total liabilities ................. 57,343,062 58,000,034
------------ ------------
Partners' equity:
General partners .......................... (61,694) (31,803)
Limited partners .......................... 6,706,183 8,701,497
------------ ------------
Total partners' equity ............ 6,644,489 8,669,694
------------ ------------
$ 63,987,551 $ 66,669,728
============ ============
See accompanying note to consolidated financial statements.
3
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Chelsea Piers L.P.
and Subsidiary
------------------
CONSOLIDATED STATEMENT OF OPERATIONS
Three months ended Three months ended
March 31, 1996 March 31, 1995
----------- -----------
Revenues ............................... $ 4,844,786 $ 1,661,337
----------- -----------
Expenses:
Operating expenses ................... 2,803,337 864,140
Rent ................................. 1,766,365 1,747,485
General and administrative ........... 1,543,378 803,426
----------- -----------
Total operating expenses .......... 6,113,080 3,415,051
----------- -----------
Operating loss .................... (1,268,294) (1,753,714)
Other income (expense):
Interest income ...................... 63,055 625,450
Interest expense ..................... (1,667,496) (1,478,035)
Financing costs ...................... (116,359) (116,359)
----------- -----------
Net (loss) ............................. ($2,989,094) ($2,722,658)
=========== ===========
See accompanying note to consolidated financial statements.
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Chelsea Piers L.P.
and Subsidiary
------------------
CONSOLIDATED STATEMENT OF PARTNERS' EQUITY (DEFICIT)
General Limited
Partners Partners Total
----------- ----------- -----------
Balance, January 31, 1996 ......... (31,803) 8,701,497 8,669,694
Partners' capital contribution .... -- 963,889 963,889
Net loss - three months 1996 ...... (29,891) (2,959,203) (2,989,094)
----------- ----------- -----------
Balance, March 31, 1996 ........... $ (61,694) $ 6,706,183 $ 6,644,489
=========== =========== ===========
See accompanying note to consolidated financial statements.
5
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Chelsea Piers L.P.
and Subsidiary
------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three months ended Three months ended
March 31, 1996 March 31, 1995
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) ................................. ($2,989,094) ($2,722,658)
----------- -----------
Adjustments to reconcile net (loss)
to net cash (used in)
operating activities:
Depreciation and amortization .............. 3,593,144 2,831,954
Decrease (increase) in:
Accounts receivable ...................... (56,138) (5,084)
Due from related entity .................. (42,163) 16,519
Prepaid insurance ........................ 131,352 36,485
Preopening costs ......................... (12,047) --
Other current assets ..................... -- (25,000)
Deferred rent ............................ (40,186) (153,319)
Other assets ............................. 4,000 (106,904)
Increase (decrease) in:
Deferred revenues .......................... (4,510) --
Accounts payable and accrued expenses ...... (61,158) (346,000)
Other liabilities .......................... 98,077 210,010
----------- -----------
TOTAL ADJUSTMENTS ....................... 3,610,371 2,458,661
----------- -----------
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES ............... 621,277 (263,997)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of equipment ................... (881,637) (36,695)
Prepaid rent ............................... (3,430,968) (4,709,251)
Accrued construction costs ................. (2,352,876) --
Restricted cash ............................ -- 5,149,783
----------- -----------
NET CASH (USED IN) INVESTING
ACTIVITIES ............................. (6,665,481) 403,837
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Capital contributions from partners ........ 963,889 --
----------- -----------
NET CASH PROVIDED BY
FINANCING ACTIVITIES .................... 963,889 --
----------- -----------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS ............................ (5,080,315) 139,840
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD ......................... 8,128,625 381,085
----------- -----------
CASH AND CASH EQUIVALENTS,
END OF PERIOD ............................... $ 3,048,310 $ 520,925
=========== ===========
See accompanying note to consolidated financial statements.
6
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CHELSEA PIERS, L.P. AND SUBSIDIARY
NOTE TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. BASIS OF PRESENTATION
The consolidated financial statements include the accounts of Chelsea
Piers, L.P. (the "Partnership") and its wholly-owned subsidiary, CP Funding
Corp. (collectively referred to as the "Company"). All significant intercompany
balances and transactions have been eliminated.
The consolidated financial statements are presented in accordance with the
requirements of Form 10-Q and regulation 210 of S-X and consequently do not
include all of the disclosures normally made in an annual Form 10-K filing.
Accordingly, the consolidated financial statements should be reviewed in
conjunction with the consolidated financial statements and the footnotes therein
included within the Company's Annual Report on Form 10-K for the year ending
December 31, 1995.
In the opinion of management, the accompanying unaudited consolidated
financial statements contain all adjustments, consisting of normal recurring
adjustments, necessary to present fairly the financial position as of March 31,
1996 and the results of its operations and statements of cash flows for the
three months ended March 31, 1996 and 1995 and statements of cash flows for the
three months ended March 31, 1996. The foregoing interim results are not
necessarily indicative of the results of operations for a full year. The
December 31, 1995 amounts have been derived from audited financial statements.
7
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
Results Of Operations
---------------------
Revenues for the three months ended March 31, 1996 were approximately
$4,845,000 as compared to approximately $1,661,000 for the comparable period in
1995. Construction has been completed and the various facilities began operating
in 1995 and early 1996, in addition to the property management sector which
began in 1994. The Roller Rinks began operating on July 1, 1995; Sky Rink ceased
operations at its West 33rd Street location and opened September 1, 1995 at its
new location; operations at the Field House started September 15, 1995; the Golf
Club commenced operations in October 1995 and the Sports Center opened February
1, 1996. Start-up revenues from these businesses and existing operations
contributed to the increase in revenues.
Operating expenses for the three months ended March 31, 1996 were
approximately $2,803,000 as compared to approximately $864,000 for the
comparable period in 1995. The increase is due to the commencement of operations
of the various businesses at the Chelsea Piers.
Rent expense for the three months ended March 31, 1996 was approximately
$1,766,000 as compared with approximately $1,747,000 for the comparable period
in 1995.
General and administrative expenses for the three months ended March 31,
1996 were approximately $1,543,000 as compared with approximately $803,000 for
the comparable period in 1995. The increase of 92% in general and administrative
expenses is attributable to advertising and marketing expense and other expenses
due to the expansion of the business.
Interest income for the three months ended March 31, 1996 was approximately
$63,000 compared to approximately $625,000 for the comparable period in 1995.
The decrease in interest income is due to a declining average cash balance for
1996 compared to 1995.
Interest expense for the three months ended March 31, 1996 was
approximately $1,667,000 compared to approximately $1,478,000 for the comparable
period in 1995. The increase is due to compounding amortization of bond
discount.
During the three months ended March 31, 1996, the Company incurred an
operating loss of $1,268,294, as compared to an operating loss of $1,753,714 for
the first calendar quarter of 1995. After giving effect to the accrual of
interest on the Company's senior indebtedness and other items of income and
expense, the Company's net loss for the period ended March 31, 1996, was
$2,989,094 as compared to $2,722,658 for the first quarter of 1995. The first
quarters of 1996 and 1995 are not comparable because in 1995 the Company had not
opened any of its principal sports venues at the Chelsea Piers. However, the
operating loss in 1996 was greater than anticipated, principally because delays
in the opening of various components of the Company's business, including the
Golf Club, the Sports Center, parking operations and subtenant restaurants,
caused revenues to increase more slowly than anticipated.
Capital Resources and Liquidity
-------------------------------
In June 1994, the Company was capitalized at an aggregate level of
approximately $61,957,000, consisting of $16,950,000 of partners' capital and
approximately $45,007,000 of net proceeds of discount first mortgage notes
8
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payable (the "Notes"). The Company's agreements with the trustee for the Notes
provides for the release to the Company from time to time of the proceeds of the
Notes upon delivery to the trustee of certificates as to the application of such
proceeds to the payment of costs of improvements at the Chelsea Piers, and for
the release to the Company from time to time of the proceeds of the equity
contributions of the partners of the Company upon delivery to the trustee of
certificates as to the application of such proceeds to the payment of marketing
and opening expenses, development costs, overhead and operating expenses or
costs of issuance of the Notes. In October, 1995, the Company issued additional
limited partner interests resulting in proceeds to the Company of approximately
$12,814,000 (of which approximately $964,000 was received by the Company in
January, 1996).
The terms of the Notes provide that the Notes will accrete to their
principal amount at maturity over the period from the date of their issuance
until June 15, 1996, at which time interest will begin to accrue on a basis that
is payable semiannually commencing December 15, 1996.
The Company has had significant capital requirements, principally related
to the renovation of the Chelsea Piers and the costs to be incurred in operating
and marketing the Company's businesses. The Company budgeted approximately
$60,370,000 as its capital budget for the renovation and construction of
improvements at the Chelsea Piers and for marketing and financing costs related
thereto. As is common in large scale construction projects, certain elements of
the Chelsea Piers construction project have been more costly than had been
anticipated, while others have been as costly or less costly than anticipated,
and certain expenditures for furniture, fixtures and equipment have been deemed
appropriate that were not originally budgeted for. In addition, the Company's
plans for the Field House component of the facility and certain portions of the
Sports Center at Chelsea Piers have evolved in a way that the Company believes
will be advantageous to the overall performance of the Chelsea Piers business.
The cost of improvements and enhancements has resulted in an increase in the
overall construction cost of the facility, which the Company has funded through
the issuance of additional partnership equity interests in October, 1995.
Substantially all of the component parts of the Chelsea Piers facility have
been completed and the Sky Rink, Roller Rinks, Field House, and Golf Club at
Chelsea Piers are operational. Operations of the Sports Center at Chelsea Piers
began on February 1, 1996. Construction of certain soundstage facilities and
construction of the Pier 60 restaurant facility is likely to be deferred until
after December 1996.
The principal sources of liquidity for the Company have consisted of the
proceeds of the Notes and the equity contributions of the partners of the
Company. Substantially all of such proceeds have been expended or committed for
expenditure in connection with the renovation and construction of the Company's
facilities at the Chelsea Piers.
The Company will depend in the future for its liquid resources on the
results of operations of the Company's business and, if necessary, short term
borrowings that are permitted under the terms of the Notes. Management of the
Company has evaluated the levels and trends of revenues and expenses of the
Company that Management considers most likely to occur over the coming months,
and has concluded that the Company will require a change in the terms of its
lease and/or additional financing in order to remain in compliance with the
terms of its existing indebtedness. The Company has recently initiated
discussions with its landlord regarding changes that the Company believes should
be made in the terms of the Company's lease. The Company expects that the
results of these discussions, together with additional financing that the
Company is permitted to incur under the terms of the Notes, will be sufficient
to permit the Company to remain in compliance with the terms of the Notes.
9
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Since construction of substantially all of the components of the Chelsea
Piers facility has been completed, the Company plans to undertake only certain
specific capital expenditures in the future. The Company anticipates that the
cost of construction of these improvements will be financed through the
Company's operating cash flow or through leasehold improvement financing if
available. Other than the planned construction of these facilities, the Company
expects that its expenditures will for the foreseeable future be limited to
maintenance and repairs of existing facilities that will be financed from the
Company's operating cash flow.
In addition to the obligation of the Company to pay current interest on the
Notes, beginning in December, 1996, the Company is obligated to pay additional
interest to holders of a series of the Notes denominated "Series B" (the "B
Notes"). The amount of such additional interest is calculated as 36.34% of the
Company's distributable cash for each semiannual period beginning with the
semiannual period ending December 31, 1994. The Company was not required to pay
additional interest with respect to the B Notes for the first quarter of 1996.
10
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PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits:
Exhibit 4 -- Instruments defining the rights of
security-holders -- Incorporated by reference
to Exhibits 4.1, 4.2, 4.3, 4.4, 4.5, 4.6, 4.7
and 4.8 of the Registrants' registration
statement filed under the Securities Act of
1933, as amended (no. 33-83762).
Exhibit 10 -- Material contracts -- Incorporated by
reference to Exhibits 10.1 through 10.23 of
the Registrants' registration statement filed
under the Securities Act of 1933, as amended
(no. 33- 83762).
(b) The Company did not file any reports on Form 8-K during the quarter
ended March 31, 1996
11
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
CP FUNDING CORP.
By: /s/ Tom A. Bernstein
-------------------------------
Tom A. Bernstein, President
CHELSEA PIERS L.P.
A New York limited partnership
By: Chelsea Piers Management, Inc.,
Managing General Partner
Date: May ___, 1996 By: /s/ Tom A. Bernstein
-------------------------------
Tom A. Bernstein, President
12
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<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
UNAUDITED BALANCE SHEET AS OF MARCH 31, 1996, AND THE STATEMENT OF OPERATIONS
FOR THE PERIOD ENDED MARCH 31, 1996, AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
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<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 3,048
<SECURITIES> 0
<RECEIVABLES> 219
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 4,090
<PP&E> 3,211
<DEPRECIATION> 488
<TOTAL-ASSETS> 63,988
<CURRENT-LIABILITIES> 1,299
<BONDS> 55,650
<COMMON> 0
0
0
<OTHER-SE> 6,644
<TOTAL-LIABILITY-AND-EQUITY> 63,988
<SALES> 4,845
<TOTAL-REVENUES> 4,845
<CGS> 0
<TOTAL-COSTS> 6,113
<OTHER-EXPENSES> 116
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,667
<INCOME-PRETAX> (2,989)
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