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, 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 March 31, 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 March 31, 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
March 31, December 31,
1997 1996
------------ ------------
(Unaudited)
ASSETS
Current:
Cash and cash equivalents .................. $ 492,946 $ 308,971
Accounts receivable ........................ 622,634 317,853
Inventory .................................. 130,133 101,531
Prepaid insurance .......................... 496,455 640,317
------------ ------------
Total current assets ................ 1,742,168 1,368,672
Property and equipment, at cost less
accumulated depreciation of
$1,420,194 and $1,214,776 respectively ..... 2,314,802 2,482,708
Prepaid rent ................................. 50,339,833 52,185,238
Financing costs, less accumulated
amortization of $1,301,842 and
$1,185,483 respectively .................... 3,417,177 3,533,536
Deferred rent ................................ 1,753,441 1,708,743
Other assets ................................. 209,850 209,850
------------ ------------
$ 59,777,271 $ 61,488,747
============ ============
LIABILITIES AND PARTNERS' EQUITY
Current:
Notes payable - partners ................... 1,241,825 3,541,825
Notes payable - bank ....................... 900,000 --
Accounts payable and accrued expenses ...... 936,171 1,255,790
Construction costs payable - current ....... 1,248,888 1,248,888
Deferred revenues .......................... 1,062,239 541,879
Interest payable ........................... 2,066,065 295,152
Due to related parties ..................... 16,184 137,031
------------ ------------
Total current liabilities .......... 7,471,372 7,020,565
Construction costs payable - long-term ....... 1,339,545 1,339,545
Discount First Mortgage Notes payable ........ 57,040,000 57,040,000
Other liabilities ............................ 225,193 231,901
------------ ------------
Total liabilities .................. 66,076,110 65,632,011
------------ ------------
Partners' equity (deficit):
General partners ........................... (191,127) (169,571)
Limited partners ........................... (6,107,712) (3,973,693)
------------ ------------
Total partners' equity ............. (6,298,839) (4,143,264)
------------ ------------
$ 59,777,271 $ 61,488,747
============ ============
See accompanying note to consolidated financial statements.
3
<PAGE>
Chelsea Piers L.P.
and Subsidiary
------------------
CONSOLIDATED STATEMENT OF OPERATIONS
Three months ended Three months ended
March 31, 1997 March 31, 1996
----------- -----------
Revenues ................................. $ 7,138,649 $ 4,844,786
----------- -----------
Expenses:
Operating expenses ..................... 3,489,981 2,803,337
Rent ................................... 2,464,907 1,766,365
General and administrative ............. 1,379,131 1,543,378
----------- -----------
Total operating expenses ............ 7,334,019 6,113,080
----------- -----------
Operating loss ...................... (195,370) (1,268,294)
Other income (expense):
Interest income ........................ 3,297 63,055
Interest expense ....................... (1,847,143) (1,667,496)
Financing costs ........................ (116,359) (116,359)
----------- -----------
Net loss ................................. $(2,155,575) ($2,989,094)
=========== ===========
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, 1997 .......... $ (169,571) (3,973,693) $(4,143,264)
Net loss - three months 1997 ...... (21,556) (2,134,019) (2,155,575)
----------- ----------- -----------
Balance, March 31, 1997 ........... $ (191,127) $(6,107,712) $(6,298,839)
=========== =========== ===========
See accompanying note to consolidated financial statements.
5
<PAGE>
Chelsea Piers L.P.
and Subsidiary
------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three months ended Three months ended
March 31, 1997 March 31, 1996
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss .................................. $(2,155,575) $(2,989,094)
----------- -----------
Adjustments to reconcile net loss
to net cash provided by (used in)
operating activities:
Depreciation .............................. 205,417 108,060
Amortization .............................. 1,890,735 3,485,084
Decrease (increase) in:
Accounts receivable ..................... (304,781) (56,138)
Due from related entity ................. -- (42,163)
Inventory ............................... (28,602) --
Prepaid insurance ....................... 143,862 131,352
Preopening costs ........................ -- (12,047)
Deferred rent ........................... (44,698) (40,186)
Other assets ............................ -- 4,000
Increase (decrease) in:
Accounts payable and accrued expenses ..... (319,619) (61,158)
Deferred revenues ......................... 520,360 (4,510)
Interest payable .......................... 1,770,913 --
Due to related parties .................... (120,847) --
Other liabilities ......................... (6,708) 98,077
----------- -----------
TOTAL ADJUSTMENTS ...................... 3,706,032 3,610,371
----------- -----------
NET CASH PROVIDED BY
OPERATING ACTIVITIES .............. 1,550,457 621,277
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of equipment .................. (37,511) (881,637)
Decrease (increase) in prepaid rent ....... 71,029 (3,430,968)
Accrued construction costs-current ........ -- (2,352,876)
----------- -----------
NET CASH PROVIDED BY (USED IN)
INVESTING ACTIVITIES .................. 33,518 (6,665,481)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Notes payable-partners ................... (2,300,000) --
Notes payable-bank ....................... 900,000 --
Capital contributions from partners ....... -- 963,889
----------- -----------
NET CASH (USED IN) PROVIDED BY
FINANCING ACTIVITIES .................. (1,400,000) 963,889
----------- -----------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS ........................... 183,975 (5,080,315)
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD ........................ 308,971 8,128,625
----------- -----------
CASH AND CASH EQUIVALENTS,
END OF PERIOD .............................. $ 492,946 $ 3,048,310
=========== ===========
See accompanying note to consolidated financial statements.
6
<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 March 31,
1997 and the results of its operations for the three months ended March 31, 1997
and 1996 and statements of cash flows for three months ended March 31, 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.
7
<PAGE>
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, 1997 were approximately
$7,139,000 as compared to approximately $4,845,000 for the comparable period 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 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 47%.
Operating expenses for the three months ended March 31, 1997 were
approximately $3,490,000 as compared to approximately $2,804,000 for the
comparable period in 1996. The 24% increase is also due to the overall increase
in operating costs attributable to the expansion of the business.
Rent expense for the three months ended March 31, 1997 was approximately
$2,465,000 as compared with approximately $1,766,000 for the comparable period
in 1996. The primary reason for the 40% overall rent increase is due to higher
amortization of prepaid rent due to additional capital expenditures.
General and administrative expenses for the three months ended March 31,
1997 were approximately $1,379,000 as compared with approximately $1,543,000 for
the comparable period in 1996. The decrease of 11% in general and administrative
expenses is attributable to a decrease in expenses in general.
Interest income for the three months ended March 31, 1997 was approximately
$3,000 compared to approximately $63,000 for the comparable period in 1996. The
decrease in interest income is due to a decline in the cash balance for 1997.
Interest expense for the three months ended March 31, 1997 was
approximately $1,847,000 compared to approximately $1,667,000 for the comparable
period in 1996. The increase is due to compounding amortization of bond
discount.
During the three months ended March 31, 1997, the Company incurred an
operating loss of $195,000, as compared to an operating loss of $1,268,000 for
the first calendar quarter of 1996. After giving effect to interest expense on
the Company's senior indebtedness and other items of income and expense, the
Company's net loss for the period ended March 31, 1997, was $2,156,000 as
compared to $2,989,000 for the first quarter of 1996. The first quarters 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 because of the significant cost of the indebtedness
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.
8
<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 $1,200,000 in 1997 and $700,000 in 1998 relating primarily
to construction services previously rendered by such contractor at the Chelsea
Piers. The Company has temporarily suspended payments to such contractor, due to
the cash constraints described below. 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 $962,000 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 $300,000 - $500,000.
9
<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 January, 1997, the Company
borrowed $900,000 under the terms of such grid note and applied the proceeds to
make permitted prepayments under the Promissory Notes (as hereinafter defined).
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 is seeking to refinance its long term indebtedness to
reduce the interest costs that the Company is currently incurring, but there can
be no assurance that the Company will be successful in that effort. 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
December 16, 1996, in a timely manner using the proceeds of additional
indebtedness permitted under the Indentures and advanced by Roland W. Betts and
Tom A. Bernstein. Such financing is described below. The Company expects that in
the absence of the availability of additional financing or the reduction of the
interest costs associated with its long term debt, the Company will not have the
resources to make its interest payments due June 15, 1997, in respect of the
Notes. There is no assurance that any such additional financing will be
available at that time.
In December, 1996, Roland W. Betts and Tom A. Bernstein (collectively, the
"Holder"), principals of Management, the general partner of the Company,
advanced to the Company the following amounts evidenced by two promissory notes.
The Company executed (i) a promissory note (the "Capital Expenditures Promissory
Note"), in favor of the Holder, dated as of December 16, 1996, in the principal
amount of $1,951,623.17; and (ii) a promissory note (the "Equipment Financing
Promissory Note"; and together with the Capital Expenditures Promissory Note,
the "Promissory Notes"), in favor of the Holder, dated as of December 16, 1996,
in the principal amount of $1,590,201.83. The Company used the proceeds of the
Promissory Notes to make its December, 1996 interest payment under the Notes.
As permitted by the terms of the Indentures, the Capital Expenditures
Promissory Note represents an amount loaned to the Company in respect of certain
capital expenditures undertaken by the Company. Pursuant to the terms of the
Indentures, to secure the obligations of the Company to the Holder under the
Capital Expenditures Promissory Note, the Company has granted a second priority
lien and security interest in certain non-real estate collateral of the Company,
subject and subordinate in all respects to the security interest granted to the
Trustee under the Collateral Documents (as each such term is defined in the
Indentures).
10
<PAGE>
As permitted by the terms of the Indentures, the Equipment Financing
Promissory Note represents an amount loaned to the Company in respect of the
cost of equipment described on a schedule attached to such promissory note
("Equipment"), acquired by the Company within the twelve month period prior to
December 16, 1996. Pursuant to the terms of the Indentures, to secure the
obligations of the Company to the Holder under the Equipment Financing
Promissory Note, the Company has granted a first priority lien and security
interest in all rights, title and interest of the Company in and to the
Equipment, subject and subordinate in all respects to the security interest
granted to the Trustee under the Collateral Documents (as each such term is
defined in the Indentures).
The Company may prepay the principal amount of each Promissory Note, in
whole or part, at any time without penalty. As of March 31, 1997, the Company
made an aggregate payment of $2,300,000 under the Promissory Notes. As funds
become available in the future, the Company intends to repay the outstanding
balance due on the Promissory Notes. The balance of $900,000 due under the terms
of the grid note mentioned above remains outstanding.
Each Promissory Note matures on the fifth anniversary of the date of such
promissory note (the "Maturity Date") and each Promissory Note accrues interest
at a rate per annum equal to 12.5%, compounded quarterly ("Interest Rate"). All
accrued and unpaid interest will be due and payable commencing on April 1, 1997
and on each January 1, April 1, July 1 and October 1 thereafter. The Company has
the right under each Promissory Note to defer its interest payment obligations
for any calendar quarter until the Maturity Date without penalty; provided that
interest on such Promissory Note continues to accrue at the Interest Rate.
Pursuant to the terms of the Capital Expenditures Promissory Note, the Company
will not be required to make a principal payment in respect of such promissory
note in an amount in excess of two million dollars in any calendar year if at
the time of such payment the Indentures remain in full force and effect.
The terms of each Promissory Note require that they be construed and
applied so as to be consistent with, and not to result in a default by the
Company under, the terms and conditions of the Indentures.
A copy of the Capital Expenditure Note and the Equipment Note were attached
as Exhibit 10.25 and Exhibit 10.26 respectively 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.
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).
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) The Company did not file any reports on Form 8-K during the
quarter ended March 31, 1997
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: May 14, 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 MARCH 31, 1997, AND THE STATEMENT OF OPERATIONS
FOR THE PERIOD ENDED MARCH 31, 1997, AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
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<PERIOD-END> MAR-31-1997
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<RECEIVABLES> 623
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<INVENTORY> 130
<CURRENT-ASSETS> 1,742
<PP&E> 3,735
<DEPRECIATION> 1,420
<TOTAL-ASSETS> 59,777
<CURRENT-LIABILITIES> 7,471
<BONDS> 57,040
<COMMON> 0
0
0
<OTHER-SE> (6,299)
<TOTAL-LIABILITY-AND-EQUITY> 59,777
<SALES> 7,139
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