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, 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: 33-83762
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 June 30, 1997
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, 1997 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,
1997 1996
------------ ------------
(Unaudited)
ASSETS
Current:
Cash and cash equivalents .................. $ 64,670 $ 308,971
Accounts receivable ........................ 530,734 317,853
Inventory .................................. 133,836 101,531
Prepaid insurance .......................... 352,594 640,317
------------ ------------
Total current assets ................ 1,081,834 1,368,672
Property and equipment, at cost less
accumulated depreciation of
$1,635,694 and $1,214,776 respectively ..... 2,099,302 2,482,708
Prepaid rent ................................. 50,658,604 52,185,238
Financing costs, less accumulated
amortization of $4,719,019 and
$1,185,483 respectively .................... 729,026 3,533,536
Deferred rent ................................ 1,796,472 1,708,743
Other assets ................................. 209,850 209,850
------------ ------------
$ 56,575,088 $ 61,488,747
============ ============
LIABILITIES AND PARTNERS' DEFICIT
Current:
Notes payable - partners ................... $ -- $ 3,541,825
Accounts payable and accrued expenses ...... 797,834 1,255,790
Construction costs payable - current ....... 2,155,635 1,248,888
Deferred revenues .......................... 1,082,018 541,879
Interest payable ........................... 124,768 295,152
Due to related parties ..................... 17,653 137,031
------------ ------------
Total current liabilities .......... 4,177,908 7,020,565
Construction costs payable - long-term ....... 2,000,575 1,339,545
Discount First Mortgage Notes payable ........ -- 57,040,000
Loan payable ................................. 45,000,000 --
Term loan payable ............................ 20,000,000 --
Other liabilities ............................ 370,859 231,901
------------ ------------
Total liabilities .................. 71,549,342 65,632,011
------------ ------------
Partners' deficit:
General partners ........................... (277,881) (169,571)
Limited partners ........................... (14,696,373) (3,973,693)
------------ ------------
Total partners' deficit ............ (14,974,254) (4,143,264)
------------ ------------
$ 56,575,088 $ 61,488,747
============ ============
See accompanying note to consolidated financial statements.
3
<PAGE>
Chelsea Piers L.P.
and Subsidiary
------------------
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three months ended June 30, Six months ended June 30,
1997 1996 1997 1996
--------------------------------- ---------------------------------
<S> <C> <C> <C> <C>
Revenues ....................................... $ 8,134,026 $ 5,124,200 $ 15,272,675 $ 9,968,986
------------ ------------ ------------ ------------
Expenses:
Operating expenses ........................... 4,158,498 3,101,863 7,648,479 5,905,200
Rent ......................................... 2,511,729 2,168,689 4,976,636 3,935,054
General and administrative ................... 1,612,156 1,509,007 2,991,287 3,052,385
------------ ------------ ------------ ------------
Total operating expenses ................. 8,282,383 6,779,559 15,616,402 12,892,639
------------ ------------ ------------ ------------
Operating loss ........................... (148,357) (1,655,359) (343,727) (2,923,653)
Other expense:
Interest expense - net......................... (1,868,600) (1,668,014) (3,712,446) (3,272,455)
Financing costs ............................... (3,417,177) (116,360) (3,533,536) (232,719)
------------ ------------ ------------ ------------
Loss before extraordinary item.................. $ (5,434,134) $ (3,439,733) $ (7,589,709) $ (6,428,827)
Extraordinary item:
Loss on early extinguishment of debt.......... (3,241,281) -- (3,241,281) --
------------ ------------ ------------ ------------
Net loss ....................................... $ (8,675,415) $ (3,439,733) $(10,830,990) $ (6,428,827)
============ ============ ============ ============
</TABLE>
See accompanying note to consolidated financial statements.
4
<PAGE>
Chelsea Piers L.P.
and Subsidiary
------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six months ended June 30,
1997 1996
---------------- ----------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ................................ ($10,830,990) ($ 6,527,772)
-------------- -------------
Adjustments to reconcile net loss
to net cash provided by (used in)
operating activities:
Depreciation ............................. 420,917 259,007
Amortization ............................. 7,143,837 6,949,939
Decrease (increase) in:
Accounts receivable .................... (212,881) (163,695)
Inventory .............................. (32,305) (76,837)
Due from related parties ............... -- (43,153)
Prepaid insurance ...................... 287,723 236,434
Preopening costs ....................... -- (18,713)
Deferred rent .......................... (87,729) (80,371)
Other assets ........................... -- 4,000
Increase (decrease) in:
Accounts payable and accrued expenses .... (457,956) (68,664)
Deferred revenues ........................ 540,139 45,235
Interest payable ......................... (170,384) 295,152
Due to related parties ................... (119,378) --
Other liabilities ........................ 138,958 74,197
-------------- -------------
TOTAL ADJUSTMENTS ..................... 7,450,941 7,412,531
-------------- -------------
NET CASH (USED IN) PROVIDED BY
OPERATING ACTIVITIES ............. (3,380,049) 884,759
-------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of equipment ................. (37,511) (1,146,948)
Increase in prepaid rent ................. (515,890) (8,660,465)
-------------- -------------
NET CASH USED IN INVESTING
ACTIVITIES ........................... (553,401) (9,807,413)
-------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment of notes payable-partners ......... (3,541,825) --
Payment of Discounted First
Mortgage Notes Payable .................. (57,040,000) --
Proceeds of loans payable ................. 65,000,000 --
Financing costs ........................... (729,026) --
Capital contributions from partners ...... -- 963,889
-------------- -------------
NET CASH PROVIDED BY
FINANCING ACTIVITIES .................. 3,689,149 963,889
-------------- -------------
NET DECREASE IN CASH AND
CASH EQUIVALENTS .......................... (244,301) (7,958,765)
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD ....................... 308,971 8,128,625
-------------- -------------
CASH AND CASH EQUIVALENTS,
END OF PERIOD ............................. $ 64,670 $ 169,860
============== =============
See accompanying note to consolidated financial statements.
5
<PAGE>
<PAGE>
CHELSEA PIERS, L.P. AND SUBSIDIARY
NOTES 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 included herein 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, 1996.
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,
1997 and the results of its operations for the three and six months ended June
30, 1997 and 1996 and statements of cash flows for six months ended June 30,
1997 and 1996. The foregoing interim results are not necessarily indicative of
the results of operations for a full year. The December 31, 1996 amounts have
been derived from audited financial statements.
2. DEBT REFINANCINGk
On June 23, 1997, the Partnership entered into a loan agreement with a
lender pursuant to which the Lender made a first mortgage loan of $45,000,000 to
the Partnership. Simultaneously with this loan agreement, the Partnership
entered into a loan agreement with another lender for $20,000,000. These
proceeds were primarily used to retire the Company's outstanding Discount First
Mortgage Notes payable. The loss on early extinguishment of debt of $3,241,000
is shown as an extraordinary item in the Company's consolidated statement of
operations.
6
<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, 1997 were
approximately $15,273,000 and $8,134,000, respectively, as compared to
approximately $9,969,000 and $5,124,000 for the comparable periods in 1996.
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. Start-up revenues from these businesses
and existing operations contributed to the increase in revenues of 53% and 59%,
respectively.
Operating expenses for the six months and quarter ended June 30, 1997 were
approximately $7,648,000 and $4,158,000, respectively, as compared to
approximately $5,905,000 and $3,102,000 for the comparable periods in 1996. The
30% and 34% increase is also due to the overall increase in operating costs
attributable to the expansion of the businesses at the Chelsea Piers.
Rent expense for the six months and quarter ended June 30, 1997 was
approximately $4,977,000 and $2,512,000, respectively, as compared with
approximately $3,935,000 and $2,169,000 for the comparable periods in 1996. The
primary reason for the 26% and 16% rent increase for the six months and the
quarter is due to higher amortization of prepaid rent due to increased capital
expenditures.
General and administrative expenses for the six months and quarter ended
June 30, 1997 were approximately $2,991,000 and $1,612,000, respectively, as
compared with approximately $3,052,000 and $1,509,000 for the comparable periods
in 1996. The general and administrative expenses remained relatively constant
for these periods.
Interest expense-net for the six months and quarter ended June 30, 1997 was
approximately $3,712,000 and $1,869,000, respectively, compared to approximately
$3,272,000 and $1,668,000 for the comparable periods in 1996. The increase in
interest expenses of 13% and 12%, respectively, is due to a compounding
amortization of bond discount.
Financing costs for the six months and quarter ended June 30, 1997 were
approximately $3,534,000 and $3,417,000, respectively, compared to $233,000 and
$116,000 for the comparable periods of 1996. The significant increase in
financing costs is due primarily to non-capitalizable loan restructuring costs
of approximately $3.2 million incurred by the Company in June 1997 (see below
under Capital Resources and Liquidity).
During the six months and quarter ended June 30, 1997, the Company incurred
an operating loss of $344,000 and $148,000, respectively, as compared to an
operating loss of approximately $2,924,000 and $1,655,000 for the same periods
in 1996. After giving effect to the interest expense on the Company's senior
indebtedness and financing costs, the Company's loss before extraordinary items
for the six months and quarter ended June 30, 1997, was approximately $7,590,000
and $5,434,000, respectively, as compared to approximately $6,429,000 and
$3,440,000 for the comparable periods in 1996. The net loss for the six months
of 1997 was approximately $10,831,000 as compared to $8,675,000 for the
comparable period in 1996. The first six months of 1997 and 1996 are not
comparable because in 1996 the Company had not fully opened all of its principal
sports venues at the Chelsea Piers. However, the Company generated an operating
loss in 1997 because of the significant cost of the indebtedness, the
restructuring of its loans and the various components of the Company's business,
including the Golf Club, the Sports Center, parking operations and subtenant
restaurants which are in the early stages of operation and were slower than
anticipated with business.
7
<PAGE>
Capital Resources and Liquidity
-------------------------------
The Company had significant capital requirements, principally related to
the renovation of the Chelsea Piers, the construction of improvements at the
Chelsea Piers to house the Company's operations, 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 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 approximately $11,850,000 in additional
partnership equity interests in October, 1995. In January, 1996, the Company
received additional partnership equity of $964,000.
In June 1994, the Company was capitalized at an aggregate amount 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
provided 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.
The Company began principal construction of the Chelsea Piers complex in
July, 1994. As of December 31, 1995, disbursements from the Note proceeds had
been expended in its entirety. In accordance with the terms of the Collateral
Trust Agreement, disbursements were made to cover placement fees, title
insurance, certain architectural and engineering fees and construction costs.
The Company utilized the proceeds from the partnership equity offerings to fund
additional expenditures. 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 principal construction of the Chelsea Piers has been completed.
However, the Company continues to incur significant expenditures for capital
improvements. The Company has an agreement with its general contractor, whereby
the Company is to pay $500,000 in 1997 and $1,200,000 in 1998 and $200,000 in
1999 relating primarily to construction services previously rendered by such
contractor at the Chelsea Piers. The Company has also contracted for $2 million
in new electrical service infrastructure at the Chelsea Piers to ensure
sufficient capacity for present and future needs. This work must be done in
1997. The Company has entered into a payment schedule with the electrical
contractor which obligates the Company to make payments of $437,000 in 1997,
$873,000 in 1998 and $218,000 in 1999. The Company has also undertaken a
substantial program of repair and maintenance of the pilings supporting its pier
structures with a budgeted cost of $500,000 - $600,000.
8
<PAGE>
As permitted by the Indentures, during 1996, the Company entered into a
demand working capital grid note with a bank, with maximum borrowings up to
$1,000,000. The note bears interest of 2.5% above LIBOR and is guaranteed by
Roland W. Betts, the Chairman of Management. In connection with the Refinancing
described below, all amounts due under the capital grid note were repaid and
such facility is no longer in place.
The Company has incurred significant recurring losses from operations since
inception. For the year ended December 31, 1996, the Company reported a net loss
of approximately $13.8 million, a working capital deficit of $5.7 million and
partners' deficit of $4.1 million. Management believes that the Company's poor
operating results are primarily attributable to the Project being in its early
stages of operation. The Company has also incurred higher than anticipated
capital expenditures in connection with the construction of the Project, which,
together with the recurring losses from operations, has placed a significant
cash burden on the Company. The proceeds of the issuance of the Notes and the
equity contributions of the partners of the Company have been expended, and the
Company will depend upon improved operations and the reduction of its costs of
capital to be able to generate the cash flow the Company needs to meet its
obligations. The Company's auditors have raised concern in their Report of
Independent Certified Public Accountants, a copy of which was included with the
Company's audited financial statements filed with the Company's Annual Report on
Form 10-K for the period ended December 31, 1996, regarding the ability of the
Company to continue as a going concern in light of recurring losses from
operations suffered by the Company (see Note 2 to the Company's 1996 financial
statements).
The Company was able to make the interest payment due on the Notes on June
15, 1997, in a timely manner.
On June 23, 1997, the Company entered into an agreement with the holders of
the Company's Notes whereby the Company retired all the outstanding Notes and
paid an aggregate sum of $60,458,175 to the Noteholders. A portion of such
indebtedness was assigned to the Lender (as hereinafter defined). CP Funding
Corp. was terminated effective as of June 26, 1997 by filing a Certificate of
Dissolution with the Secretary of State of the State of Delaware. The
Certificate of Dissolution has been filed as an exhibit to the Company's current
report on Form 8-K dated July 3, 1997 and the terms thereof are incorporated
herein by reference.
On June 23, 1997, Chelsea Piers L.P. entered into a loan agreement with
Starwood Opportunity Fund IV, L.L.P. (the "Lender") pursuant to which the Lender
made a first mortgage loan of $45,000,000 to Chelsea Piers L.P. Simultaneously
with such loan agreement, an affiliate of Chelsea Piers L.P. entered into a loan
agreement with Republic National Bank for the principal sum of $20,000,000, the
proceeds of which were used to repurchase all outstanding bonds. The
transactions contemplated by the two loan agreements and the agreement with the
Noteholders are collectively referred to herein as the "Refinancing."
In connection with the Refinancing, the Company satisfied the indebtedness
evidenced by the Capital Expenditure Promissory Note and the Equipment Financing
Promissory Note in favor of Roland W. Betts and Tom A. Bernstein. The Capital
Expenditure Promissory Note and the Equipment Financing Promissory Note were
filed as exhibits to the Company's annual report on Form 10-K for the year ended
December 31, 1996 and the terms thereof are incorporated herein by reference.
The Company filed Form 15 -- Certificate and Notification of Termination of
Registration under Section 12(g) of the Securities Exchange Act of 1934, as
amended, on July 3, 1997 with the Securities and Exchange Commission pursuant
to which the Company will cease filing periodic reports within 90 days after
such Form 15 filing.
9
<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).
Material contracts --
Incorporated by reference to Exhibit 10.24 of the
Registrant's Current Report on Form 8-K dated October 30,
1996.
Material contracts --
Incorporated by reference to Exhibits 10.25 and 10.26 of the
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1996.
(b) Form 8-K dated July 3, 1997
Form 15 dated July 3, 1997
10
<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 12, 1997 By: /s/ Tom A. Bernstein
-------------------------------
Tom A. Bernstein, President
11
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
UNAUDITED BALANCE SHEET AS OF JUNE 30, 1997, AND THE STATEMENT OF OPERATIONS FOR
THE PERIOD ENDED JUNE 30, 1997, 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-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 65
<SECURITIES> 0
<RECEIVABLES> 531
<ALLOWANCES> 0
<INVENTORY> 134
<CURRENT-ASSETS> 1,082
<PP&E> 3,735
<DEPRECIATION> 1,636
<TOTAL-ASSETS> 56,575
<CURRENT-LIABILITIES> 4,178
<BONDS> 65,000
<COMMON> 0
0
0
<OTHER-SE> (14,974)
<TOTAL-LIABILITY-AND-EQUITY> 56,575
<SALES> 15,273
<TOTAL-REVENUES> 15,273
<CGS> 0
<TOTAL-COSTS> 15,616
<OTHER-EXPENSES> 3,534
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,712
<INCOME-PRETAX> (7,590)
<INCOME-TAX> 0
<INCOME-CONTINUING> (7,590)
<DISCONTINUED> 0
<EXTRAORDINARY> 3,241
<CHANGES> 0
<NET-INCOME> (10,831)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
