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 June 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
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
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
Set forth below are the June 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
June 30, December 31,
1996 1995
------------ ------------
(Unaudited)
ASSETS
Current:
Cash and cash equivalents ................. $ 816,984 $ 8,128,625
Accounts receivable ....................... 326,829 163,134
Inventory ................................. 76,837 --
Prepaid insurance ......................... 70,054 306,488
Due from related entity ................... 86,343 43,190
Preopening costs, at cost less
accumulated amortization of
$480,897 and $93,122, respectively ....... 354,766 723,420
------------ ------------
Total current assets .............. 1,731,813 9,364,857
Property and equipment, at cost less
accumulated depreciation of
$639,294 and $380,287, respectively ....... 2,837,042 1,949,101
Prepaid rent ................................ 55,376,113 49,893,481
Financing costs, less accumulated
amortization of $946,300 and
$713,581, respectively .................... 3,772,719 4,005,438
Deferred rent ............................... 1,323,372 1,243,001
Other assets ................................ 209,850 213,850
------------ ------------
$ 65,250,909 $ 66,669,728
============ ============
LIABILITIES AND PARTNERS' EQUITY
Current:
Interest payable .......................... $ 295,152 --
Accounts payable and accrued expenses ..... 792,252 $ 860,916
Accrued construction costs-short term ..... 1,800,000 2,352,876
Deferred revenues ......................... 549,302 504,067
------------ ------------
Total current liabilities ......... 3,436,706 3,717,859
Accrued construction costs-long term ....... 1,200,000 --
Discount First Mortgage Notes payable ....... 57,040,000 53,986,925
Other liabilities ........................... 369,447 295,250
------------ ------------
Total liabilities ................. 62,046,153 58,000,034
------------ ------------
Partners' equity:
General partners .......................... (96,091) (31,803)
Limited partners .......................... 3,300,847 8,701,497
------------ ------------
Total partners' equity ............ 3,204,756 8,669,694
------------ ------------
$ 65,250,909 $ 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
<TABLE>
<CAPTION>
Three months ended June 30, Six months ended June 30,
1996 1995 1996 1995
--------------------------------- ---------------------------------
<S> <C> <C> <C> <C>
Revenues ....................................... $ 5,124,200 $ 1,264,201 $ 9,968,986 $ 2,925,538
------------ ------------ ------------ ------------
Expenses:
Operating expenses ........................... 3,101,863 1,038,980 5,905,200 1,903,110
Rent ......................................... 2,168,689 1,762,853 3,935,054 3,510,348
General and administrative ................... 1,509,007 830,303 3,052,385 1,633,729
------------ ------------ ------------ ------------
Total operating expenses ................. 6,779,559 3,632,136 12,892,639 7,047,187
------------ ------------ ------------ ------------
Operating loss ........................... (1,655,359) (2,367,935) (2,923,653) (4,121,649)
Other income (expense):
Interest income ............................... 16,717 527,614 79,772 1,153,064
Interest expense .............................. (1,684,731) (1,478,035) (3,352,227) (2,956,070)
Financing costs ............................... (116,360) (117,563) (232,719) (233,922)
------------ ------------ ------------ ------------
Net loss ...................................... $ (3,439,733) $ (3,435,919) $ (6,428,827) $ (6,158,577)
============ ============ ============ ============
</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 - six months 1996 ........ (64,288) (6,364,539) (6,428,827)
----------- ----------- -----------
Balance, June 30, 1996 ............ $ (96,091) $ 3,300,847 $ 3,204,756
=========== =========== ===========
See accompanying note to consolidated financial statements.
5
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CHELSEA PIERS L.P.
AND SUBSIDIARY
------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
Six months ended June 30,
1996 1995
---------------- ----------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ................................ ($ 6,527,772) ($ 6,158,577)
Adjustments to reconcile net loss
to net cash provided by (used in)
operating activities:
Depreciation and amortization ............ 7,208,946 5,685,157
Decrease (increase) in:
Accounts receivable .................... (163,695) (210,310)
Inventory .............................. (76,837) --
Due from related entity ................ (43,153) (4,158)
Prepaid insurance ...................... 236,434 71,636
Preopening costs ....................... (18,713) --
Other current assets ................... -- (454,693)
Deferred rent .......................... (80,371) (381,638)
Other assets ........................... 4,000 218,999
Increase (decrease) in:
Interest payable ......................... 295,152 --
Accounts payable and accrued expenses .... (68,664) 266,969
Accrued construction costs-short term .... (552,876) --
Deferred revenues ........................ 45,235 370,781
Accrued construction costs-long term ..... 1,200,000 --
Other liabilities ........................ 74,197 220,450
TOTAL ADJUSTMENTS ..................... 8,059,655 5,783,193
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES ............. 1,531,883 (375,384)
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of equipment ................. (1,146,948) (316,225)
Increase in prepaid rent ................. (8,660,465) (17,483,346)
Reduction of restricted cash ............. -- 18,878,716
NET CASH PROVIDED BY (USED IN) INVESTING
ACTIVITIES ........................... (9,807,413) 1,079,145
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 .......................... (7,311,641) 703,761
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD ....................... 8,128,625 381,085
CASH AND CASH EQUIVALENTS,
END OF PERIOD ............................. $ 816,984 $ 1,084,846
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 June 30,
1996 and the results of its operations for the three months and six months ended
June 30, 1996 and 1995 and statements of cash flows for the six months ended
June 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 six months and quarter ended June 30, 1996 were
approximately $9,969,000 and $5,124,000, respectively, as compared to
approximately $2,926,000 and $1,264,000 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 six months and quarter ended June 30, 1996 were
approximately $5,905,000 and $3,102,000, respectively, as compared to
approximately $1,903,000 and $1,039,000 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 six months and quarter ended June 30, 1996 was
approximately $3,935,000 and $2,169,000, respectively, as compared with
approximately $3,510,000 and $1,763,000 for the comparable periods in 1995. The
increase of 12% for the six months in rent expense is due to the higher
amortization of prepaid rent due to increased capital expenditures.
General and administrative expenses for the six months and quarter ended
June 30, 1996 were approximately $3,052,000 and $1,509,000, respectively, as
compared with approximately $1,634,000 and $830,000 for the comparable periods
in 1995. The increase of 87% for the six 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 six months and quarter ended June 30, 1996 was
approximately $80,000 and $17,000, respectively, compared to approximately
$1,153,000 and $528,000 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 six months and quarter ended June 30, 1996 was
approximately $3,352,000 and $1,685,000, respectively, as compared to
approximately $2,956,000 and $1,478,000 for the comparable periods in 1995. The
increase is due to compounding amortization of bond discount.
During the six months and quarter ended June 30, 1996, the Company incurred
an operating loss of $2,924,000 and $1,655,000, respectively, as compared to an
operating loss of $4,122,000 and $2,368,000 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 six
months and quarter ended June 30, 1996, was approximately $6,429,000 and
$3,440,000 as compared to $6,159,000 and $3,436,000 for the same periods in
1995. The six 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.
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
<PAGE>
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 space initially planned for
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, and that ultimately, the Company will need
to refinance the Notes with lower-cost indebtedness. The Company is continuing
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, will be
sufficient to permit the Company to remain in compliance with the terms of the
Notes until they are refinanced, and that these leases changes, once finalized,
will permit the Company to refinance the Notes with lower-cost indebtedness.
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 six months 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 June 30, 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: August ___, 1996 By: /s/ Tom A. Bernstein
-------------------------------
Tom A. Bernstein, President
12
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
UNAUDITED BALANCE SHEET AS OF JUNE 30, 1996, AND THE STATEMENT OF OPERATIONS FOR
THE PERIOD ENDED JUNE 30, 1996, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 817
<SECURITIES> 0
<RECEIVABLES> 327
<ALLOWANCES> 0
<INVENTORY> 77
<CURRENT-ASSETS> 1,732
<PP&E> 3,476
<DEPRECIATION> 639
<TOTAL-ASSETS> 65,251
<CURRENT-LIABILITIES> 3,437
<BONDS> 57,040
<COMMON> 0
0
0
<OTHER-SE> 3,205
<TOTAL-LIABILITY-AND-EQUITY> 65,251
<SALES> 9,969
<TOTAL-REVENUES> 9,969
<CGS> 0
<TOTAL-COSTS> 12,893
<OTHER-EXPENSES> 233
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,352
<INCOME-PRETAX> (6,429)
<INCOME-TAX> 0
<INCOME-CONTINUING> (6,429)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (6,429)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
