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 September 30, 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 and Agreement of Limited Partnership)
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 September 30, 1996
100 Shares of Common Stock of CP Funding Corp.
$29,763,889 in Limited Partnership Interests in Chelsea Piers L.P
1
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
Set forth below are the September 30, 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
September 30, December 31,
1996 1995
------------ ------------
(Unaudited)
ASSETS
Current:
Cash and cash equivalents ................. $ 1,050,534 $ 8,128,625
Accounts receivable ....................... 447,422 163,134
Inventory ................................. 86,736 --
Prepaid insurance ......................... 784,178 306,488
Due from related entity ................... 40,644 43,190
Preopening costs, at cost less
accumulated amortization of
$694,937 and $93,122, respectively ....... 140,726 723,420
------------ ------------
Total current assets .............. 2,550,240 9,364,857
Property and equipment, at cost less
accumulated depreciation of
$831,663 and $380,287, respectively ....... 2,715,826 1,949,101
Prepaid rent ................................ 53,596,809 49,893,481
Financing costs, less accumulated
amortization of $1,066,538 and
$713,581, respectively .................... 3,652,481 4,005,438
Deferred rent ............................... 1,363,558 1,243,001
Other assets ................................ 209,850 213,850
------------ ------------
$ 64,088,764 $ 66,669,728
============ ============
LIABILITIES AND PARTNERS' EQUITY
Current:
Interest payable .......................... $ 2,066,064 --
Accounts payable and accrued expenses ..... 1,553,806 $ 860,916
Accrued construction costs-short term ..... 1,300,000 2,352,876
Deferred revenues ......................... 725,863 504,067
Loan payable - short term ................. 200,000 --
------------ ------------
Total current liabilities ......... 5,845,733 3,717,859
Accrued construction costs-long term ....... 1,200,000 --
Discount First Mortgage Notes payable ....... 57,040,000 53,986,925
Other liabilities ........................... 427,460 295,250
------------ ------------
Total liabilities ................. 64,513,193 58,000,034
------------ ------------
Partners' equity (deficit):
General partners .......................... (131,383) (31,803)
Limited partners .......................... (292,046) 8,701,497
------------ ------------
Total partners' (deficit) equity .. (424,429) 8,669,694
------------ ------------
$ 64,088,764 $ 66,669,728
============ ============
See accompanying note to consolidated financial statements.
3
<PAGE>
CHELSEA PIERS L.P.
AND SUBSIDIARY
------------------
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three months ended Sept. 30, Nine months ended Sept. 30,
1996 1995 1996 1995
--------------------------------- ---------------------------------
<S> <C> <C> <C> <C>
Revenues ..................... $ 5,840,095 $ 1,387,419 $ 15,809,081 $ 4,312,957
------------ ------------ ------------ ------------
Expenses:
Operating expenses ......... 3,432,195 1,187,795 9,337,395 3,090,905
Rent ....................... 2,329,102 1,709,754 6,264,156 5,220,102
General and administrative . 1,818,359 743,272 4,870,744 2,377,001
------------ ------------ ------------ ------------
Total operating expenses 7,579,656 3,640,821 20,472,295 10,688,008
------------ ------------ ------------ ------------
Operating loss ......... (1,739,561) (2,253,402) (4,663,214) (6,375,051)
Other income (expense):
Interest income ............. 1,527 265,205 81,299 1,418,269
Interest expense ............ (1,770,913) (1,584,948) (5,123,140) (4,541,018)
Financing costs ............. (120,239) (118,945) (352,957) (352,867)
------------ ------------ ------------ ------------
Net loss ..................... $ (3,629,186) $ (3,692,090) $(10,058,012) $ (9,850,667)
============ ============ ============ ============
</TABLE>
See accompanying note to consolidated financial statements.
4
<PAGE>
CHELSEA PIERS L.P.
AND SUBSIDIARY
------------------
CONSOLIDATED STATEMENT OF PARTNERS' EQUITY (DEFICIT)
General Limited
Partners Partners Total
----------- ----------- -----------
Balance, January 1, 1996 .......... ($31,803) $ 8,701,497 $ 8,669,694
Partners' capital contribution .... -- 963,889 963,889
Net loss - nine months 1996 ....... (100,580) (9,957,432) (10,058,012)
----------- ----------- -----------
Balance, September 30, 1996 ....... $ (132,383) $ (292,046) $ (424,429)
=========== =========== ===========
See accompanying note to consolidated financial statements.
5
<PAGE>
CHELSEA PIERS L.P.
AND SUBSIDIARY
------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine months ended Sept. 30,
1996 1995
---------------- ----------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ................................. $(10,058,012) $ (9,850,667)
------------ ------------
Adjustments to reconcile net loss
to net cash provided by (used in)
operating activities:
Depreciation and amortization ............ 9,352,129 8,672,706
Decrease (increase) in:
Accounts receivable .................... (284,288) (576,294)
Inventory .............................. (86,736) --
Due from related entity ................ 2,546 10,536
Prepaid insurance ...................... (477,690) (321,810)
Preopening costs ....................... (19,121) --
Other current assets ................... -- (548,434)
Deferred rent .......................... (120,557) (572,457)
Other assets ........................... 4,000 243,594
Increase (decrease) in:
Interest payable ......................... 2,066,064 --
Accounts payable and accrued expenses .... 692,890 500,796
Accrued construction costs-short term .... (1,052,876) --
Deferred revenues ........................ 221,796 805,372
Accrued construction costs-long term ..... 1,200,000 --
Other liabilities ........................ 132,210 34,481
------------ ------------
TOTAL ADJUSTMENTS ..................... 11,630,367 8,248,490
------------ ------------
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES ............. 1,572,355 (1,602,177)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of equipment ................. (1,218,101) (809,069)
Increase in prepaid rent ................. (8,596,234) (34,435,123)
Reduction of restricted cash ............. -- 36,903,105
------------ ------------
NET CASH PROVIDED BY (USED IN) INVESTING
ACTIVITIES ........................... (9,814,335) 1,658,913
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Loan payable - short term ................ 200,000 --
Capital contributions from partners ...... 963,889 --
------------ ------------
NET CASH PROVIDED BY
FINANCING ACTIVITIES .................. 1,163,889 --
------------ ------------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS .......................... (7,078,091) 56,736
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD ....................... 8,128,625 381,085
------------ ------------
CASH AND CASH EQUIVALENTS,
END OF PERIOD ............................. $ 1,050,534 $ 437,821
------------ ------------
See accompanying note to consolidated financial statements.
6
<PAGE>
CHELSEA PIERS L.P. AND SUBSIDIARY
NOTE TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
ITEM 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 September
30, 1996 and the results of its operations for the three months and nine months
ended September 30, 1996 and 1995 and statements of cash flows for the nine
months ended September 30, 1996 and 1995. 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
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
Results Of Operations
---------------------
Revenues for the nine months and quarter ended September 30, 1996 were
approximately $15,809,000 and $5,840,000, respectively, as compared to
approximately $4,313,000 and $1,387,000 for the comparable periods in 1995.
Construction has been substantially completed and the various facilities began
operating in 1995 and early 1996, in addition to the property management sector
which began operations 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. Revenues from these businesses and
existing operations contributed to the increase in revenues.
Operating expenses for the nine months and quarter ended September 30, 1996
were approximately $9,337,000 and $3,432,000, respectively, as compared to
approximately $3,091,000 and $1,188,000 for the comparable periods in 1995. The
increase is due to the commencement of operations of the various businesses at
the Chelsea Piers.
Rent expense for the nine months and quarter ended September 30, 1996 was
approximately $6,264,000 and $2,329,000, respectively, as compared with
approximately $5,220,000 and $1,710,000 for the comparable periods in 1995. The
increase of 20% for the nine months in rent expense is due to the higher
amortization of prepaid rent due to increased capital expenditures.
General and administrative expenses for the nine months and quarter ended
September 30, 1996 were approximately $4,871,000 and $1,818,000, respectively,
as compared with approximately $2,377,000 and $743,000 for the comparable
periods in 1995. The increase of 105% for the nine months in general and
administrative expenses is attributable to advertising and marketing expense and
other expenses due to the commencement of the businesses.
Interest income for the nine months and quarter ended September 30, 1996
was approximately $81,000 and $2,000, respectively, compared to approximately
$1,418,000 and $265,000 for the comparable periods in 1995. The decrease in
interest income is due to a declining average cash balance for 1996 compared to
1995.
Interest expense for the nine months and quarter ended September 30, 1996
was approximately $5,123,000 and $1,771,000, respectively, as compared to
approximately $4,541,000 and $1,585,000 for the comparable periods in 1995. The
increase is due to compounding amortization of bond discount.
During the nine months and quarter ended September 30, 1996, the Company
incurred an operating loss of approximately $4,663,000 and $1,740,000,
respectively, as compared to an operating loss of approximately $6,375,000 and
$2,253,000 for the same periods in 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 nine months and quarter ended
September 30, 1996, was approximately $10,058,000 and $3,629,000 as compared to
approximately $9,851,000 and $3,692,000 for the same periods in 1995. The nine
months 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.
8
<PAGE>
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
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 expects that
it will be unable to make the December 15, 1996 interest payment due on the
Notes and the B Notes (as hereinafter defined) out of operating revenues or
current reserves and will depend upon significant additional debt or equity
financing in order to make such payment. The Company is evaluating financing
options. However, there is no assurance that additional financing will become
available to the Company in the amounts or within the time required to make the
December 15, 1996 interest payment due on the Notes and the B Notes.
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 space initially planned for
soundstage facilities and construction of the Pier 60 restaurant facility is
likely to be deferred until after December 1996. The Company has recently
entered into a lease with AMF Bowling Centers, Inc. to construct and operate a
bowling center, consisting of not less than 36 bowling lanes, on a portion of
Pier 60. Construction of the bowling center is expected to commence by February,
1997, with a scheduled opening of the bowling center expected by September,
1997.
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.
9
<PAGE>
The Company will depend in the future for its liquid resources on the
results of operations of the Company's business and the availability of
additional financing. The Company expects that it will be unable to make the
December 15, 1996 payment of interest due on the Notes out of operating revenues
or current reserves without the infusion of significant additional debt or
equity to fund such payment on the Notes and the B Notes. The Company is
currently evaluating opportunities for refinancing its existing indebtedness and
expects to commence discussions with holders of the Notes and the B Notes in the
near future with a view to refinancing such Notes and B Notes.
Upon evaluation by Management of the Company's levels and trends of
revenues and expenses that Management considered most likely to occur over the
coming months, Management of the Company also concluded that the Company
required a change in the terms of its Lease ("Lease"), dated June 24, 1994,
between the Company and the Commissioner of the Department of Transportation
with respect to the lease of premises known as Piers 59, 60, 61 and 62, located
in the Borough of Manhattan, County of New York, City and State of New York, in
order to remain in compliance with the terms of its existing indebtedness, and
that ultimately, the Company will need to refinance the Notes with lower-cost
indebtedness. On October 22, 1996, the Company and the Commissioner of the
Department of Transportation executed an amendment ("Lease Amendment"), dated as
of June 30, 1996, to the Lease with respect to the lease of the above-referenced
premises. A copy of the Lease Amendment was filed as Exhibit 10.24 to the Form
8-K filed by the Company with the Securities and Exchange Commission on October
30, 1996.
The Lease Amendment provides, among other changes, for the following:
1. Term. Extension options that extend the maximum potential term of the
Lease to 48 years and 11 months, subject to renewal at ten year intervals based
upon satisfaction of the same kinds of requirements as are applicable at the
time of renewal of the Lease at year ten.
2. Rent. (a) 75% of the amount that would otherwise constitute base rent
payable for the period July 1, 1996 through June 30, 1998 and 50% of the amount
that would otherwise constitute base rent payable for the period July 1, 1998
through June 30, 1999 will be paid in either (x) a single lump sum on July 1,
2001 or (y) in monthly installments over 10 years with interest on the unpaid
amount accruing at a rate of 5% per annum.
(b) Beginning in year 21, the base rent for each year will be the greater
of (i) base rent for the 20th year adjusted every two years based on the
Consumer Price Index ("CPI") (provided no CPI adjustment will exceed 3.5% per
year), and (ii) the base rent for the 20th year plus (x) 3% of the Company's
gross revenues from the premises that exceed $60 million but are less than $90
million, plus (y) 3.5% of the Company's gross revenues from the premises that
exceed $90 million but are less than $100 million, plus (z) 4% of the Company's
gross revenues from the premises that exceed $100 million.
3. PILOT Payments. The Company would be responsible for payments in lieu of
taxes ("PILOT") to New York City starting in year 21. Years 21 through 26 would
constitute the PILOT phase-in period during which the Company would pay an
escalating percentage of the applicable PILOT payment, plus, during each such
year, an amount equal to 50% of the amount that would otherwise constitute
available cash of the Company as of the end of the applicable fiscal year of the
Company up to a maximum aggregate amount for all payments in such year of the
full applicable PILOT payment for such year. By year 27 the Company will pay
100% of the applicable PILOT due. Provision is made for payment by the Company
of the PILOT obligation that is not due in years 21-26 because of the phase-in.
10
<PAGE>
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 nine months of
1996. The Company expects that it will be unable to make the December 15, 1996
payment of interest due on the B Notes out of operating revenues or current
reserves without the infusion of significant additional debt or equity to fund
such payment on the B Notes.
11
<PAGE>
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 September 30, 1996. The
Company filed a report on Form 8-K on October 30,
1996 relating to the execution of the Lease
Amendment a copy of which was attached thereto as
Exhibit 10.24.
12
<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: November 13, 1996 By: /s/ Tom A. Bernstein
-------------------------------
Tom A. Bernstein, President
13
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
UNAUDITED BALANCE SHEET AS OF SEPTEMBER 30, 1996, AND THE STATEMENT OF
OPERATIONS FOR THE PERIOD ENDED SEPTEMBER 30, 1996, AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 1,051
<SECURITIES> 0
<RECEIVABLES> 447
<ALLOWANCES> 0
<INVENTORY> 87
<CURRENT-ASSETS> 2,550
<PP&E> 3,547
<DEPRECIATION> 832
<TOTAL-ASSETS> 64,089
<CURRENT-LIABILITIES> 5,846
<BONDS> 57,040
<COMMON> 0
0
0
<OTHER-SE> (424)
<TOTAL-LIABILITY-AND-EQUITY> 64,089
<SALES> 15,809
<TOTAL-REVENUES> 15,809
<CGS> 0
<TOTAL-COSTS> 20,472
<OTHER-EXPENSES> 352
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,123
<INCOME-PRETAX> (10,058)
<INCOME-TAX> 0
<INCOME-CONTINUING> (10,058)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (10,058)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
