UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-K
(Mark One)
[ X ] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 [Fee Required]
For the fiscal year ended December 31, 1995
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or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 [No Fee Required]
For the transition period from to
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Commission file number 33-27399
ATLANTIC CITY BOARDWALK ASSOCIATES, L.P.
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(Exact name of registrant as specified in its charter)
New Jersey 22-2469174
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
Indiana Avenue & the Boardwalk, Atlantic City, New Jersey 08401
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (609) 340-3400
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Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Sections 13 and 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ X ]
All issued and outstanding partnership units of the Partnership have been
offered and sold in reliance on exemptions from the registration requirements of
the Securities Act of 1933 as amended. Therefore, there is no established
trading market for any class of partnership units of the Partnership. The
Partnership did, in 1989, jointly with the Claridge Hotel and Casino Corporation
("Corporation") and Del Webb Corporation ("Webb"), register certain Contingent
Payment Units. As stated in the Prospectus dated May 5, 1989, the Contingent
Payment Rights may or may not be securities. None of the Partnership, the
Corporation or Webb has admitted that the Contingent Payment Rights are
securities or that any of them is the issuer of any such securities.
Registrant's Partnership Units outstanding on December 31, 1995 was 450
units.
PART I
Item 1. Business.
General Development of the Business
Atlantic City Boardwalk Associates, L.P. ("Partnership") was formed on October
31, 1983 to acquire the buildings, parking facility and non-gaming depreciable,
tangible property ("Hotel Assets") of The Claridge Hotel and Casino ("Claridge")
located in Atlantic City, New Jersey; to hold a leasehold interest in the land
on which the Claridge is located; and to engage in activities related or
incidental thereto. On June 16, 1989, as part of a financial restructuring
("Restructuring Agreement"), the Partnership acquired all of the rights to the
land underlying the Hotel Assets, the air rights and related easement. The
Partnership's principal business is to lease the Hotel Assets, land and air
rights to The Claridge at Park Place, Incorporated ("New Claridge"), a
wholly-owned subsidiary of The Claridge Hotel and Casino Corporation
("Corporation"), under operating leases. All revenues of the Partnership, other
than immaterial investment income, are derived from those leases.
The Partnership maintains offices at The Claridge Hotel and Casino, Indiana
Avenue and the Boardwalk, Atlantic City, New Jersey 08401, telephone number
(609) 340-3400; and at 2880 West Meade Avenue, Suite 204, Las Vegas, Nevada
89102, telephone number (702) 253-7662.
New Claridge's Corporate Structure
In 1983, New Claridge acquired the Claridge's casino license and its gaming
equipment (collectively, "Casino Assets") from Del E. Webb New Jersey, Inc.
("DEWNJ"), a wholly-owned subsidiary of Del Webb Corporation ("Webb"); leased
the Hotel Assets and subleased the land on which the Claridge is located from
the Partnership; and assumed certain liabilities related to the acquired assets.
In connection with those transactions, the Partnership granted the Expandable
Wraparound Mortgage (defined below) to New Claridge. These transactions were
entered into in connection with the private placement of equity interests in the
Partnership and the Corporation. Following the 1983 transactions, Webb and its
affiliates retained significant interest in the Claridge. The common stock of
the Corporation and the limited partnership interests of the Partnership were
sold together in a private placement as units, and because there has been
relatively little trading in the stock or partnership interest, there is a
substantial similarity between the equity ownership of the Corporation and the
Partnership. Although the Partnership and the Corporation are independent
entities, approximately 93% of the Corporation's common stock is owned by
persons who also own limited partnership interests in the Partnership. The
Partnership does not currently engage in any significant business activities
other than those relating to the Claridge.
In October 1988, the Partnership, the Corporation and New Claridge entered into
the Restructuring Agreement. The restructuring, which was consummated in June
1989 (the "Closing"), resulted in (i) a reorganization of the ownership interest
in the Claridge; (ii) modifications of the rights and obligations of certain
lenders; (iii) satisfaction and termination of the obligations and commitments
of Webb and DEWNJ under the original structure; (iv) modifications of the lease
agreements between New Claridge and the Partnership; and (v) the forgiveness by
Webb of substantial indebtedness.
On January 31, 1994, the Corporation completed an offering of $85 million of
First Mortgage Notes ("Notes") due 2002, bearing interest at 11 3/4%. The Notes
are secured by (i) a non-recourse mortgage granted by the Partnership
representing a first lien on the Hotel Assets and the underlying land, (ii) a
pledge granted by the Corporation of all outstanding shares of capital stock of
New Claridge, and (iii) a guarantee by New Claridge. New Claridge's guarantee of
the Notes is secured by a collateral assignment of the second lien Expandable
Wraparound Mortgage (described below), and by a lien on the Claridge's gaming
and other assets, which lien will be subordinated to liens that may be placed on
those gaming and other assets to secure any future revolving credit line
arrangement. Interest on the Notes is payable semiannually on February 1 and
August 1 of each year, commencing August 1, 1994.
The net proceeds of the Notes, totaling $82.2 million net of fees and expenses,
were used or will be used as follows: (i) to repay in full on January 31, 1994,
the Corporation's outstanding debt under the Revolving Credit and Term Loan
Agreement ("Loan Agreement"), including the outstanding balance of the
Corporation's revolving credit line, which was secured by the First Mortgage;
(ii) to expand New Claridge's casino capacity by 12,000 square feet in 1994,
including the addition of approximately 500 slot machines and the relocation of
two restaurants and their related kitchens; (iii) to purchase property in 1995
and construct on that property a self-parking garage, which is expected to open
in mid-1996; (iv) the possible purchase of the Contingent Payment (described
below) granted in 1989 and now held in a trust for the Valley of the Sun United
Way; and (v) the potential expansion of the Corporation's activities into
emerging gaming markets.
The current relationships and agreements between the Partnership, the
Corporation and New Claridge are described below:
Property Ownership and Related Leases and Mortgage
The Casino Assets are owned by New Claridge. The Hotel Assets, land and air
rights are owned by the Partnership and leased by the Partnership to New
Claridge. The lease obligations are set forth in an operating lease
("Operating Lease"), originally entered into on October 31, 1983, and an
expansion operating lease ("Expansion Operating Lease"), covering additions
to the Claridge made in 1986.
Operating Lease
New Claridge leases from the Partnership the Hotel Assets and the land
on which the Claridge is located for an initial term of 15 years with
three 10-year renewal options. Basic annual rent during the initial
term of the Operating Lease in equal monthly installments was
$37,080,000 in 1993, $38,055,000 in 1994, $39,030,000 in 1995 and
escalates yearly thereafter up to $41,775,000 in 1997 and $32,531,000
for the nine month period ending September 30, 1998. If the terms of
the lease are extended, basic rent will be calculated pursuant to a
formula, with such rent not to be more than $29,500,000 nor less than
$24,000,000 in the lease year October 1, 1998 through September 30,
1999, and not to be greater than 10% more than the basic rent for the
preceding lease year in each lease year thereafter. Under the terms of
the Operating Lease, New Claridge has an option to purchase, on
September 30, 1998 and, if it renews the Operating Lease, on September
30, 2003, the Hotel Assets and the underlying land for their fair
market value at the time the option is exercised.
New Claridge is also required to pay, as additional rent, certain
taxes, insurance and other charges relating to the occupancy of the
land and Hotel Assets, certain expenses and debt service relating to
furniture, fixture and equipment replacements and building improvements
(collectively, "FF&E Replacements") and certain general and
administrative costs of the Partnership. The Partnership is required
during the entire term of the Operating Lease to provide New Claridge
with FF&E Replacements and, until September 30, 1998, is required to
provide facility maintenance and engineering services to New Claridge.
New Claridge is obligated to lend the Partnership any amounts necessary
to fund the cost of FF&E Replacements, and if the Partnership's cash
flow, after allowance for certain distributions, is insufficient to
provide the facility maintenance and engineering services required of
it, New Claridge is also required to lend the Partnership such
necessary funds (collectively, "FF&E Notes"). The FF&E Notes are
secured under the Expandable Wraparound Mortgage (see discussion
below), and are payable as follows. Generally, one half of the
principal is due in 48 months and the remainder is due 60 months from
the issue date of the individual notes, with the following exception.
As required by the offering of $85 million of Notes on January 31,
1994, $8 million was used to finance internal improvements at the
Claridge. In connection therewith, the Expandable Wraparound Mortgage
as well as the Operating Lease and the Expansion Operating Lease were
amended to provide that the $8 million principal on these additional
FF&E Notes will be payable on September 30, 2000, at final maturity of
the Expandable Wraparound Mortgage. All FF&E notes are secured under
the Wraparound Mortgage up to $25 million. New Claridge is obligated to
pay as additional rent to the Partnership the debt service on all FF&E
Notes.
The Operating Lease, together with the Expansion Operating Lease
(described below), was amended as part of the Restructuring Agreement
to provide for the deferral of $15,078,000 of rental payments during
the period July 1, 1988 through the beginning of 1992, and to provide
for the abatement of $38,820,000 of basic rent through 1998, thereby
reducing the Partnership's cash flow to an amount estimated to be
necessary only to meet the Partnership's cash requirements. During the
third quarter of 1991, the maximum deferral of rent was reached. On
August 1, 1991, the Operating Lease and the Expansion Operating Lease
were amended further to revise the abatement provisions so that,
commencing January 1, 1991, for each calendar year through 1998, the
lease abatements may not exceed $10 million in any one calendar year,
and $38,820,000 in the aggregate. Cumulative abated rents as of
December 31, 1995 total $28,759,000 leaving $10,061,000 still to be
abated in future years. Additional abatements of rent totaling $500,000
are available as a result of the acquisition of the option to purchase
the Contingent Payment, and further abatements will become available
upon exercising the Contingent Payment option (see Item 1. Business -
"Contingent Payment Rights").
Expansion Operating Lease
On March 17, 1986, New Claridge entered into a lease with the
Partnership whereby New Claridge leases from the Partnership the
Claridge expansion improvements for an initial term beginning March 17,
1986 and ending on September 30, 1998 with three 10-year renewal
options. Basic annual rent during the initial term of the Expansion
Operating Lease was $3,870,000 in 1986 (prorated based on the number of
days that the expansion improvements were open to the public) and was
based on the cost of the construction of the expansion improvements.
Annually thereafter the rental amount is adjusted based on the Consumer
Price Index with any increase not to exceed two percent per annum.
Basic annual rent for 1995, 1994 and 1993 amounted to $4,625,000,
$4,534,000, and $4,445,000, respectively. If the terms of the lease are
extended, basic rent will be calculated pursuant to a formula, with
such rent not to be more than $3 million nor less than $2.5 million in
the lease year October 1, 1998 through September 30, 1999, and not to
be greater than 10% more than the basic rent for the preceding lease
year in each lease year thereafter.
New Claridge is also required to pay as additional rent certain
expenses and debt service relating to furniture, fixture and equipment
replacements and building improvements (collectively, "Expansion FF&E
Replacements") for the expanded facility. The Partnership is required
during the entire term of the Expansion Operating Lease to provide New
Claridge with Expansion FF&E Replacements and, until September 30,
1998, is required to provide facility maintenance and engineering
services to New Claridge. New Claridge is obligated to lend to the
Partnership, in the form of FF&E Notes, any amounts necessary to fund
the Expansion FF&E Replacements. Any advances by New Claridge for the
foregoing will be secured under the Expandable Wraparound Mortgage (see
discussion below).
Expandable Wraparound Mortgage
On October 31, 1983, the Partnership executed and delivered to New
Claridge a mortgage on the Hotel Assets ("Expandable Wraparound
Mortgage") which was subordinate to an $80 million first mortgage
("First Mortgage") granted by the Partnership to a group of banks and a
$47 million purchase money second mortgage ("Purchase Money Second
Mortgage") granted by the Partnership to DEWNJ. The Purchase Money
Second Mortgage, which was due on September 30, 2000, was canceled upon
satisfaction of certain conditions set forth in an agreement entered
into at the time of the restructuring. In conjunction with the offering
of $85 million of Notes on January 31, 1994, the outstanding debt under
the Loan Agreement, which included the First Mortgage and a revolving
credit line, was satisfied in full.
By its terms, the Expandable Wraparound Mortgage may secure up to $25
million of additional borrowings by the Partnership from New Claridge
to finance FF&E Replacements and facility maintenance and engineering
shortfalls. The Expandable Wraparound Mortgage provides that, so long
as the Partnership is not in default on its obligations under the
Expandable Wraparound Mortgage, New Claridge is obligated to make
payments required under any senior mortgage indebtedness. The
indebtedness secured by the Expandable Wraparound Mortgage, which
matures on September 30, 2000, bears interest at an annual rate equal
to 14% with certain interest installments that accrued in 1983 through
1988 totaling $20 million being deferred until maturity. In addition,
the Partnership is required under the Expandable Wraparound Mortgage to
make payments of principal and interest in respect of any loans made to
finance FF&E Replacements or facility maintenance or engineering costs
as described above. To the extent those borrowings exceed $25 million
in the aggregate outstanding at any time, they will be secured under
separate security agreements and not by the lien of the Expandable
Wraparound Mortgage.
On March 17, 1986, the First Mortgage was amended and assumed by New
Claridge. The amount of the amended and assumed First Mortgage was
increased to secure up to $96.5 million to provide financing for the
Expansion Improvements. Indebtedness secured by the Expandable
Wraparound Mortgage was increased by an amount up to $17 million to
provide the Partnership with the necessary funding.
Effective August 28, 1986, the Partnership commenced making level
monthly payments of principal and interest so as to repay on September
30, 1998, in full, the principal balance of this $17 million increase
in the Expandable Wraparound Mortgage. The Expandable Wraparound
Mortgage was amended to require that the $127 million aggregate
principal amount secured by it would be repayable in installments
during the years 1988 through 1998 in escalating amounts totaling $80
million, with a balloon principal payment of $47 million and the $20
million of deferred interest due on September 30, 2000.
In connection with the offering of $85 million of the Notes on January
31, 1994, the Corporation agreed to use not less that $8 million from
the net proceeds of the offering to finance certain internal
improvements to the Claridge which were funded through additional FF&E
Notes. In connection therewith, the Expandable Wraparound Mortgage Loan
Agreement as well as the Operating Lease, and the Expansion Operating
Lease were amended to provide that the principal on these additional
FF&E Notes will be payable at final maturity of the Expandable
Wraparound Mortgage.
Note Receivable from New Claridge
Pursuant to the Restructuring Agreement the Partnership lent to New
Claridge $3.6 million representing, at the Closing, substantially all of
the Partnership's cash and cash equivalents in excess of amounts required
to pay Partnership expenses. The loan bears interest at 12% per annum and
is due and payable, along with the principal, upon (i) the sale or
refinancing of the Claridge; (ii) upon full or partial satisfaction of the
Expandable Wraparound Mortgage; and (iii) upon full satisfaction of any
first mortgage then in place.
Contingent Payment Rights
The Restructuring Agreement provided for Webb to retain an interest equal
to $20 million plus interest from December 1, 1988 accruing at the rate of
15% per annum compounded quarterly ("Contingent Payment") in any proceeds
ultimately recovered from the operations and/or the sale or refinancing of
the Claridge facility in excess of the First Mortgage loan and other
liabilities. To give effect to this Contingent Payment, the Corporation and
the Partnership agreed not to make any distributions to the holders of
their equity securities, whether derived from operations or from sale or
refinancing proceeds, until Webb had received the Contingent Payment.
In connection with the restructuring, Webb agreed to permit those
partners/investors in the Partnership and Corporation ("Releasing
Partners/Investors") from whom Webb had received written releases from all
liabilities, rights ("Contingent Payment Rights") to receive certain
amounts to the extent available for application to the Contingent Payment.
Approximately 84% in interest of the partners/investors provided releases
and became Releasing Partners/Investors. Payments to Releasing
Partners/Investors are to be made in accordance with a schedule of
priorities, as defined in the Restructuring Agreement.
On April 2, 1990, Webb transferred its interest in the Contingent Payment
to an irrevocable trust for the benefit of the Valley of the Sun United
Way, and upon such transfer Webb was no longer required to be qualified or
licensed by the Commission.
On February 23, 1996, the Corporation acquired an option to purchase, at a
discount from the carrying value, the Contingent Payment. The purchase
price of the option was $1 million, and the option may be exercised any
time prior to December 31, 1997. Upon exercise of the option, the purchase
price of the Contingent Payment would be $10 million, plus interest at 10%
per annum for the period from January 1, 1997 to the date of payment of the
purchase price if the purchase occurs after December 31, 1996. The purchase
price may also increase in an amount not to exceed $10 million if future
distributions to Releasing Partners/Investors exceed $20 million. It is
estimated that at December 31, 1995, the aggregate amount owing in respect
of the Contingent Payment was $56.8 million.
Upon exercise of the option, it is anticipated that the Contingent Payment
will be canceled so that neither the Corporation or the Partnership will
have any obligation to make any payment in respect of the Contingent
Payment before making a distribution to limited partners or shareholders.
Upon the purchase and cancellation, however, the Corporation and the
Partnership will remain obligated to make payments to the Releasing
Partners/Investors, in respect of the Contingent Payment Rights, before any
distribution may be made to limited partners or shareholders. These
payments would be required to be in the same amounts as if the Contingent
Payment had not been purchased and canceled. As a result, it is not likely
that limited partners or shareholders who are not Releasing
Partners/Investors will receive any distribution from the Partnership or
the Corporation. In the aggregate, Releasing Partners/Investors are
entitled to receive an amount equal to approximately 72% of the Contingent
Payment.
Under the terms of the option, upon purchase of the Contingent Payment, the
Partnership and/or the Corporation are required to make distributions in
excess of $7 million to the Releasing Partners/Investors. The Partnership
and the Corporation have agreed to cooperate in the purchase of the option
and the Contingent Payment, with each contributing one-half of the purchase
price of the option and each anticipated to contribute one-half of the
purchase price of the Contingent Payment. A portion of the Partnership's
contribution will be contributed through additional abatements of basic
rent payments due under the Operating Lease and the Expansion Operating
Lease.
Current Financial Condition of The Partnership
The ability of the Partnership to fulfill its obligations is dependent upon the
ability of New Claridge to pay rental payments when due. Accordingly, the
financial stability of the Partnership is dependent upon the financial condition
of New Claridge. The following discussion entitled "Current Financial Situation
of The Claridge Hotel and Casino Corporation" and the discussion concerning New
Claridge in Item 7, "Management's Discussion and Analysis of Financial Condition
and Results of Operations," are taken from the Annual Report on Form 10-K of the
Corporation, and the Partnership disclaims any responsibility for the content
thereof, except for the information also included in Item 8, "Financial
Statements and Supplementary Data."
Current Financial Situation of The Claridge Hotel and Casino Corporation
The Claridge
The Claridge, located in the Boardwalk casino section of Atlantic City, New
Jersey, is a 26-story building that contains the Corporation's casino and
hotel facilities. The Claridge's casino consists of approximately 56,000
square feet of casino space on three main levels with various adjacent
mezzanine levels. The casino currently contains approximately 1,875 slot
machines and sixty-four table games, including forty blackjack tables, ten
craps tables, five roulette tables, three Caribbean stud poker tables, one
baccarat table, one mini-baccarat table, and four other specialty games.
The hotel with related amenities consists of 501 guest rooms (including 66
two- and three-room suites, 26 specialty suites and four tower penthouse
suites), four restaurants, a buffet area, three lounges, a private player's
club, a 600-seat theater, limited meeting rooms, a gift shop, a beauty
salon and a health club with an indoor swimming pool. New Claridge is
currently constructing a self-parking garage facility connected to its
existing valet-parking garage. Construction of the garage is expected to be
completed in mid-1996. The combined garage facility will provide parking
for approximately 1,200 vehicles.
Built in 1929 as a hotel, the Claridge was remodeled at a cost of
approximately $138 million prior to its reopening as a casino hotel in
1981. The Claridge was further renovated and expanded in 1986 at a cost of
approximately $20 million, which provided approximately 10,000 square feet
of casino space together with a 3,600 square foot lounge ("Expansion
Improvements"). In 1994, approximately $12.7 million was expended to expand
the Claridge's casino square footage by approximately 12,000 feet.
New Claridge experiences a seasonal fluctuation in demand, which is typical
of casino-hotel operations in Atlantic City. Historically, peak demand has
occurred during the summer season. New Claridge's principal market is the
Mid-Atlantic area of the United States. Casino gaming in Atlantic City is
highly competitive and is strictly regulated under the New Jersey Casino
Control Act and regulations thereunder which affect virtually all aspects
of casino operations.
Results of Operations for the Year Ended December 31, 1995
as Compared to the Year Ended December 31, 1994
The Corporation had a net loss of $1,908,000 for the year ended December
31, 1995, as compared to a net loss of $6,901,000 for the year ended
December 31, 1994. Casino revenues were higher in 1995 than in 1994 because
of increased business volume due to better weather conditions and the
expanded casino facility (see the discussion below concerning the results
of operations in 1994). The net loss in 1995 was primarily due to decreased
hotel revenues and increased casino expenses. The average room rate
decreased to $55 in 1995 from $67 in 1994, in part as a result of a
reduction in the complimentary room rate recorded, resulting in decreased
hotel revenue. The increase in casino expenses was primarily due to the
increase in coin incentives to patrons arriving by bus. After three years
of decreases in the number of bus patrons visiting Atlantic City casinos,
in 1995 visitation increased by 10%, thereby intensifying the competition
for bus patrons. The increased competition took the form of higher coin
incentives, which New Claridge matched, thus increasing its per patron
average coin cost to $12.81 in 1995 from $10.99 in 1994.
The net loss in 1994 was primarily due to (i) the decline in business
volume in the first quarter of 1994 due to the severe snow and ice storms
throughout the Northeastern United States, (ii) a reduction in volume in
the second quarter of 1994 as a result of business disruption due to the
construction of New Claridge's expanded casino facility (which opened in
late June 1994, and resulted in the addition of approximately 500 slot
machines), (iii) increased marketing expenditures to promote the opening of
this expansion, and (iv) increased interest expense due to the completion
of the offering of $85 million of First Mortgage Notes on January 31, 1994.
Factors Which May Influence New Claridge's Future Operating Results
The continued expansion of casino gaming, lotteries, including video
lottery terminals ("VLT's"), and off-track betting in other nearby states,
particularly Pennsylvania, Delaware, Maryland, or New York, could have an
adverse effect on the Atlantic City market and on the Corporation's future
operating results. Prior to the November 1994 elections, it was believed
that the legalization of casino gaming in at least limited forms in
Philadelphia and other areas of Pennsylvania was a significant possibility.
However, Pennsylvania's governor, Tom Ridge, has indicated that he will
require a statewide vote on gaming, as well as local referendum; the
requirement for a statewide vote would make the legalization of casino
gaming in Pennsylvania a more difficult and expensive possibility than
previously anticipated. In the past year, legislation to put the issue
before Pennsylvania voters was introduced several times, but so far none
has succeeded. Management believes that, should casino gaming be legalized
in the future in Philadelphia, the effect on Atlantic City casinos and on
the Claridge would depend upon the form and scope of such gaming. In
December 1995, two racetracks in Delaware began offering slot machines at
their facilities, with a third racetrack in negotiations to build another
slot machine facility. The continued expansion of casino gaming, lotteries,
including VLT's, and off-track betting in other nearby states could also
have a negative effect on the Atlantic City market.
In addition to the expansion of casino gaming in other states, expansions
to existing casinos in Atlantic City, as well as the possible addition of
new casino properties, and the opening of the new convention center in 1997
could have an impact on the Atlantic City market and the Corporation's
future operations.
Current Licensing Status of the Partnership and New Claridge
The ownership and operation of casino-hotel facilities in Atlantic City are
subject to extensive state regulation under the Casino Control Act under the
direction of the New Jersey Casino Control Commission ("Commission"). The Casino
Control Act provides that various categories of entities must hold appropriate
casino licenses. The Partnership currently operates under a three-year casino
service industry license effective October 31, 1992, while New Claridge operates
under a four-year casino license effective September 30, 1995. The Partnership
has applied with the Commission for license renewal. The general partners do not
anticipate any problems renewing the Partnership's license.
Employees
The Partnership has one part-time employee who assists the General Partners with
investor-related matters. The General Partners are paid management fees pursuant
to the Partnership Agreement, as amended. See Items 10 and 11, "Directors and
Executive Officers of the Registrant" and "Executive Compensation."
Item 2. Properties.
The Claridge hotel was constructed in 1929 at the northeastern end of Absecon
Island, on which Atlantic City is located. After remodeling, modernization and
expansion at a cost of approximately $138 million, the Claridge opened as a
casino-hotel in July 1981. Located in the Boardwalk Casino section of Atlantic
City on Brighton Park, approximately 550 feet north of the Boardwalk, the
Claridge occupies three parcels of property. In October 1983 the Partnership
acquired the building, parking facility and non-gaming depreciable, tangible
property of the Claridge casino-hotel. On June 16, 1989, as part of the
Restructuring Agreement, the Partnership acquired all of the rights to the land
underlying the Hotel Assets, the air rights and related easement.
The casino-hotel, situated on the main parcel of land (41,408 square feet with
138 feet fronting the park and 300 feet deep), is a concrete steel frame
structure, 26 stories high at its highest point. The valet-parking garage,
situated on an adjacent parcel of land (21,840 square feet) west of the
casino-hotel site, is an eight-level reinforced concrete ramp structure, built
in 1981. Including the bus drive-through area, a bus patron waiting room and
electrical room, it totals an area of 197,100 square feet and provides parking
for approximately 475 automobiles. New Claridge is currently constructing a
self-parking garage, located on a parcel of land (29,120 square feet) connected
to its existing valet-parking garage. Construction of the garage is expected to
be completed in mid-1996. The combined garage facility will provide parking for
approximately 1,200 vehicles. The office building, situated on an adjacent
parcel of land (7,766 square feet), is a two-story reinforced concrete and brick
structure with a flat roof. Constructed over 50 years ago, its interior has been
modernized. The building is utilized as an administration facility, and totals
an area of 14,020 square feet. All of the existing facilities are owned by the
Partnership and are leased to New Claridge under the Operating Lease and the
Expansion Operating Lease. The self-parking garage and the property on which it
is located are owned by New Claridge.
Item 3. Legal Proceedings.
The Partnership is not involved in any material litigation.
Item 4. Submission of Matters to a Vote of Security Holders.
There were no matters submitted to a vote of security holders during the fourth
quarter of 1995.
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters.
No partnership interests in the Partnership have been registered under the
Securities Act of 1933, as amended ("Securities Act"). All outstanding
partnership interests have been offered and sold in reliance on exemptions from
the registration requirements of the Securities Act. Therefore, there is no
established trading market for any class of partnership interests of the
Partnership. Two partnership interests equal one partnership unit, and there are
approximately 480 holders of partnership interests.
The Contingent Payment Rights received by Releasing Partners/Investors may or
may not be securities. The Partnership, the Corporation and Webb filed a
registration statement under the Securities Act with respect to the Contingent
Payment Rights as if they were securities and each of the Corporation, the
Partnership and Webb were an issuer of such securities. However, by such
actions, none of the Partnership, the Corporation or Webb admitted that the
Contingent Payment Rights are securities or that any of them is the issuer of
any such securities. There is no market for the Contingent Payment Rights.
Item 6. Selected Financial Data.
Set forth below is selected financial data regarding the Partnership as of or
for each of the years in the five-year period ended December 31, 1995.
As of or for the year ended December 31,
-------------------------------------------------------
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
(not covered by Independent Auditors' Report) (a)
(in thousands)
Net income ...........................$ 2,723 1,782 309 512 2,370
Net income per limited
partnership unit (b)..................$ 5.95 3.90 0.68 1.12 5.18
Total assets ........................$ 135,175 140,309 138,524 143,410 148,252
Long term obligations,
net of current portion ...........$ 104,315 114,268 115,563 121,820 128,166
Partners' capital accounts (deficit) $ 14,135 11,412 9,630 9,321 8,809
(a) The above selected financial data should be read in conjunction with the
consolidated financial statements and the related notes appearing
elsewhere in this annual report.
(b) 450 limited partnership units were outstanding at the end of each period.
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations.
Results of Operations for the Year Ended December 31, 1995
as Compared to the Year Ended December 31, 1994
Rental income for the year ended December 31, 1995 increased $1,281,000 as
compared to the year ended December 31, 1994. New Claridge pays as additional
rent, certain expenses and debt service relating to furniture, fixture and
equipment replacements and building improvements ("FF&E"). During 1994 the
Claridge expanded its casino. The expansion (as well as the related debt) was
occurring throughout 1994 and had been completed prior to the beginning of 1995.
This caused the Partnership's debt service relating to FF&E to be higher in 1995
when compared to 1994, resulting in increased rents in 1995.
Investment income earned on repurchase agreements for the year ended December
31, 1995 increased $47,000 as compared to the year ended December 31, 1994. This
increase reflects the increase in the interest rate offered for these
investments during 1995 as compared to 1994.
The Partnership has an agreement with New Claridge whereby New Claridge provides
facility and maintenance and engineering services for the Claridge. The
agreement calls for the reimbursement of the actual facilities and maintenance
costs incurred on the Partnership's behalf. The cost of maintaining and
repairing Hotel Assets increased $399,000 for the year ended December 31, 1995
as compared to 1994 due primarily to an increase in New Claridge's maintenance
and engineering salaries and wages and payroll related expenses.
For the year ended December 31, 1995, interest expense decreased $490,000 from
the prior year due to principal payments made during 1994 and 1995 that reduced
the average outstanding balance of the wraparound and expansion mortgages and
FF&E notes.
General and administrative expenses decreased $54,000 during the year ended
December 31, 1995 as compared to 1994. Insurance and professional fees increased
approximately $67,000 due to an increase in insurance premium as well as
professional fees incurred with regard to the Contingent Payment. The decrease
is primarily due to a $46,000 loss on the disposal of assets that was recognized
in 1995 compared to a similar loss of $170,000 in 1994. Both of these losses
were classified as a general and administrative expense.
During 1994, in connection with the Claridge's casino expansion project, a
significant amount of Hotel Assets were placed into service. A full year's
depreciation was taken on these assets during 1995. As a result, depreciation
and amortization for the year ended December 31, 1995 increased $532,000 as
compared to 1994.
Refer to the "Liquidity and Capital Resources" section below for further
discussion on the Partnership's operations.
Results of Operations for the Year Ended December 31, 1994
as Compared to the Year Ended December 31, 1993
Rental income for the year ended December 31, 1994 increased $1,805,000 as
compared to the year ended December 31, 1993. New Claridge pays as additional
rent, certain expenses and debt service relating to FF&E. FF&E notes payable as
of December 31, 1994 are approximately $8.6 million higher than as of the end of
the prior year. This increase is due to the casino expansion at the Claridge.
This caused the Partnership's debt service relating to FF&E to be higher in 1994
as compared to 1993, resulting in increased rents in 1994.
General and administrative expenses increased $153,000 during the year ended
December 31, 1994 as compared to 1993. This increase is primarily due to a
$170,000 loss on the disposal of assets that was recognized in 1994 and was
classified as a general and administrative expense.
During 1994, in connection with the Claridge's casino expansion project, a
significant amount of Hotel Assets were placed into service. As a result,
depreciation and amortization for the year ended December 31, 1994 increased
$353,000 as compared to 1993.
Liquidity and Capital Resources
Current lease payments from New Claridge are sufficient to pay the Partnership's
debt service and operating expenses. As part of the Restructuring Agreement,
rental payments in excess of monthly cash flow requirements are deferred or
abated so that excess cash does not currently accumulate in the Partnership. At
the Closing of the restructuring the Partnership loaned New Claridge $3.6
million. The note, including interest, along with those rentals deferred under
the amendment to the operating leases, are to be repaid to the Partnership upon
(i) the sale or refinancing of the Claridge; (ii) upon full or partial
satisfaction of the Expandable Wraparound Mortgage; and (iii) upon full
satisfaction of any first mortgage then in place.
The Operating Lease, together with the Expansion Operating Lease, was amended as
part of the Restructuring Agreement to provide for the deferral of $15,078,000
of rental payments during the period July 1, 1988 through the beginning of 1992,
and to provide for the abatement of $38,820,000 of basic rent through 1998,
thereby reducing the Partnership's cash flow to an amount estimated to be
necessary only to meet the Partnership's cash requirements. During the third
quarter of 1991, the maximum deferral of rent was reached. On August 1, 1991,
the Operating Lease and the Expansion Operating Lease were amended further to
revise the abatement provisions so that, commencing January 1, 1991, for each
calendar year through 1998, the lease abatements may not exceed $10 million in
any one calendar year, and $38,820,000 in the aggregate. Rents abated during the
years ended December 31, 1995 and 1994 amounted to $7,858,000 and $6,634,000,
respectively. Cumulative abated rents as of December 31, 1995 total $28,759,000
leaving $10,061,000 still to be abated in future years. The amount which will be
abated in the individual years cannot be determined until the Partnership incurs
expenses and debt service in those years. However, it is anticipated by the
general partners as well as the management of New Claridge that the remaining
abatement of $10,061,000 will be fully utilized by the first quarter of 1997.
Because the initial term of the Operating Lease continues through September 30,
1998, rental payments after the $38,820,000 abatement is fully utilized will
increase substantially to approximately $39.5 million in 1997, as compared to
$31.7 million (net of projected abatement) in 1996. Additional abatements of
rent totaling $500,000 are available as a result of the acquisition of the
option to purchase the Contingent Payment, and further abatements will become
available upon exercising the Contingent Payment option (see Item 1. Business -
"Contingent Payment Rights").
Under the terms of the option to purchase the Contingent Payment, upon purchase
of the Contingent Payment, the Partnership and/or the Corporation are required
to make distributions in excess of $7 million to the Releasing
Partners/Investors. The Partnership and the Corporation have agreed to cooperate
in the purchase of the option and the Contingent Payment, with each contributing
one-half of the purchase price of the option and each anticipated to contribute
one-half of the purchase price of the Contingent Payment. A portion or the
Partnership's contribution will be contributed through additional abatements of
basic rent payments due under the Operating Lease and the Expansion Operating
Lease (see Item 1. Business - "Contingent Payment Rights").
The Partnership funds the purchase of additional Hotel Assets by borrowing
funds, at a 14% interest rate, from New Claridge. The ensuing notes are secured
under the Expandable Wraparound Mortgage up to $25 million. Principal and
interest on these notes are then reimbursed to the Partnership through
additional rentals from New Claridge. Under the Operating Lease, New Claridge is
required to reimburse the Partnership for all taxes, assessments, insurance and
general and administrative costs of the Partnership.
The ability of the Partnership to continue to fulfill its obligations is
dependent upon the ability of New Claridge to continue to make rental payments
when due. On January 31, 1994, the Corporation completed an offering of $85
million of First Mortgage Notes due in 2002, bearing interest at 11 3/4%. A
portion of the net proceeds of $82.2 million, after deducting fees and expenses,
was used to repay in full the Corporation's outstanding debt under the Loan
Agreement, including the outstanding balance of the Corporation's revolving
credit line. The Notes come due on February 1, 2002. Interest on the Notes is
payable semiannually on February 1 and August 1 of each year, commencing August
1, 1994. In conjunction with the full satisfaction of the Loan Agreement, the
Corporation's revolving credit line arrangement was terminated. The Corporation
is currently seeking to obtain a new line of credit arrangement.
The Partnership had a working capital deficiency of approximately $14,352,000 as
of December 31, 1995 and $12,315,000 as of December 31, 1994. The working
capital deficiency primarily results from the consummation of the Restructuring
Agreement. As part of the restructuring, the Partnership's cash flow was reduced
to an amount no greater than what the Partnership needs to pay Partnership
expenses, including debt service. Thus, so long as the Claridge is financially
viable and New Claridge continues to make all payments under the operating
leases, the Partnership expects to be able to pay its current liabilities.
In March 1995, the Financial Accounting Standards Board issued SFAS No. 121
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed of" ("SFAS No. 121"). SFAS No. 121 becomes effective for fiscal
years beginning after December 15, 1995. The Partnership is currently assessing
the impact of SFAS No. 121 on its financial statements.
In October 1995, the Financial Accounting Standards Board issued SFAS No. 123
"Accounting for Stock-Based Compensation" ("SFAS No. 123"). SFAS No. 123 is
effective for transactions entered into in fiscal years beginning after December
15, 1995. The Partnership will not be adopting the recognition and measurement
criteria of SFAS No. 123 and thus, the impact of SFAS No. 123 on the
Partnership's financial statements will not be material.
Item 8. Financial Statements and Supplementary Data.
The Financial Statements and Financial Statement Schedules are set forth at
pages F-1 to F-18 of this report.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
None.
PART III
Item 10. Directors and Executive Officers of the Registrant.
Name Position Age
Anthony C. Atchley General Partner 54
Gerald C. Heetland General Partner 55
Mr. Atchley has served as General Partner since June 16, 1989. He served as
President and Chief Executive Officer of Consolidated Casinos Corp., a
subsidiary of Webb, and of the Del Webb Hotel Group from November 1985 to
September 1989. He served as Executive Vice President of Sahara Nevada
Corporation, a subsidiary of Webb, from October 1982 to November 1985 and as
President and General Manager of the High Sierra Casino and Hotel from October
1983 to November 1985. Mr. Atchley served as President and General Manager of
the Claridge from April 1982 to November 1982, as well as Vice Chairman and a
member of the Board of Directors of the Corporation from November 1986 to July
1989.
Mr. Heetland has served as General Partner since June 16, 1989. He served as
Vice President General Counsel and Secretary of Fitzgeralds Casino & Hotel in
Las Vegas, Nevada and Fitzgeralds Casino & Hotel, Harolds Club and Nevada Club
in Reno, Nevada from September 1990 to November 1995. He served as Vice
President, Secretary and General Counsel of Del Webb Hotels and all affiliated
hotel group subsidiaries from March 1986 to June 1989. He served as Vice
President, General Counsel-Casino/Hotels and Assistant Secretary of Webb and
Vice President and Secretary of all Webb hotel group subsidiaries from April
1985 to March 1986, as Vice President, Associate General Counsel and Assistant
Secretary of Webb from November 1983 to March 1985, and as Associate General
Counsel and Assistant Secretary of Webb from July 1981 to November 1983. He
served in similar capacities in all Webb hotel group subsidiaries during the
1981 to 1985 periods noted. From June 1984 through March 1986, Mr. Heetland was
the Secretary of the Corporation, and from March 1986 through May 1987 he was
Assistant Secretary of the Corporation.
Item 11. Executive Compensation.
The following table shows the general partners' management fee which is all of
the compensation paid by the Partnership to all of its executive officers for
the years ended December 31, 1995, 1994 and 1993.
Other Annual
Individual Capacity Year Compensation
___________ ________ ____ _____________
Anthony C. Atchley General Partner 1995 $65,000
1994 $65,000
1993 $65,000
Gerald C. Heetland General Partner 1995 $65,000
1994 $65,000
1993 $65,000
Item 12. Security Ownership of Certain Beneficial Owners and
Management.
Security ownership of certain beneficial owners
Not applicable.
Security ownership of management
Per the terms of the Partnership agreement, the General Partners, as a group,
are entitled to a 1% general partnership interest in the Partnership as
described below:
Name and Address Amount and Nature
of Beneficial Owner of Beneficial Ownership
___________________ _______________________
Anthony C. Atchley
2880 W. Meade Avenue Suite 204
Las Vegas, NV 89102 0.5% Partnership Interest
Gerald C. Heetland
2880 W. Meade Avenue Suite 204
Las Vegas, NV 89102 0.5% Partnership Interest
Changes in Control
Not applicable.
Item 13. Certain Relationships and Related Transactions.
The Partnership does not currently engage in any significant business activities
other than those relating to the Claridge. New Claridge has a direct material
interest in the Expandable Wraparound Mortgage and Operating Leases. See Item 1.
Business - "Current Financial Condition of The Partnership."
The common stock of the Corporation and the limited partnership interests of the
Partnership were sold together in a private placement as units, and because
there has been relatively little trading in the stock or partnership interest,
there is a substantial similarity between the equity ownership of the
Corporation and the Partnership. Although the Partnership and the Corporation
are independent entities, approximately 93% of the Corporation's common stock is
owned by persons who also own limited partnership interests in the Partnership.
The Partnership has an agreement with New Claridge whereby New Claridge provides
facility and maintenance and engineering services for the Claridge. The
agreement calls for the reimbursement of the actual facilities and maintenance
costs incurred on the Partnership's behalf, as well as an annual fee equal to
10% of such facility and maintenance costs, but not to exceed $530,000 per
annum. The agreement expires on September 30, 1998.
Under the terms of the option to purchase the Contingent Payment, upon purchase
of the Contingent Payment, the Partnership and/or the Corporation are required
to make distributions in excess of $7 million to the Releasing
Partners/Investors. The Partnership and the Corporation have agreed to cooperate
in the purchase of the option and the Contingent Payment, with each contributing
one-half of the purchase price of the option and each anticipated to contribute
one-half of the purchase price of the Contingent Payment. A portion or the
Partnership's contribution will be contributed through additional abatements of
basic rent payments due under the Operating Lease and the Expansion Operating
Lease (see Item 1. Business - "Contingent Payment Rights").
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on
Form 8-K.
(a) (1) and (2): The response to this portion of Item 14 is submitted as a
separate section of this report beginning on page F-1. All other schedules have
been omitted as inapplicable or not required because the required information is
included in the financial statements or notes thereto.
(a) (3) Exhibits
3 (a) Agreement of Limited Partnership of the Partnership, as amended*
10 (a) Form of Amended and Restated Loan Agreement*
10 (b) Form of Amendment to Operating Lease and Expansion Operating
Lease*
10 (c) Form of Amendment to Wraparound Mortgage Loan and Wraparound
Mortgage*
10 (d) Form of Note from New Claridge to the Partnership*
10 (e) Form of Restructuring Agreement*
10 (f) Form of Second Amendment to Operating Lease and Expansion
Operating Lease**
10 (g) Form of Third Amendment to Operating Lease and Expansion Operating
Lease**
10 (h) Form of Fourth Amendment to Operating Lease and Expansion
Operating Lease***
10 (i) Form of Mortgage, Assignment of Leases and Rents, Security
Agreement and Financing Statement***
10 (j) Form of Option Agreement
10 (k) Form of Side Agreement
10 (l) Form of First Amendment to the Option Agreement
10 (m) Form of First Amendment to the Side Agreement
*Exhibits are incorporated by reference to the Exhibits filed with a
Registration Statement filed with the Securities and Exchange Commission on
March 13, 1989 (Registration #33-27399)
**Exhibits are incorporated by reference to the Exhibits filed with Form 10-K
for the fiscal year ended December 31, 1991 filed with the Securities and
Exchange Commission on March 26, 1992.
***Exhibits are incorporated by reference to the Exhibits filed with Form
10-K for the fiscal year ended December 31, 1993 filed with the Securities
and Exchange Commission on March 30, 1994.
(b) Reports on Form 8-K
The Partnership filed no reports on Form 8-K during the last
quarter of the period covered by this report.
Supplemental Information
No proxy materials are being or have been sent to the Limited Partners.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
Atlantic City Boardwalk Associates, L.P.
Registrant
Date: March 29, 1996 /s/ ANTHONY C. ATCHLEY
-------------- -----------------------------------------------------
by Anthony C. Atchley, General Partner
Date: March 29, 1996 /s/ GERALD C. HEETLAND
-------------- -----------------------------------------------------
by Gerald C. Heetland, General Partner
Date: March 29, 1996 /s/ ANTHONY C. ATCHLEY
-------------- -----------------------------------------------------
by AC Boardwalk Partners Corporation, General Partner
by Anthony C. Atchley, President
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
Date: March 29, 1996 /s/ GERALD C. HEETLAND
-------------- -----------------------------------------------------
by Gerald C. Heetland, General Partner and
Chief Financial Officer
Date: March 29, 1996 /s/ ANTHONY C. ATCHLEY
-------------- -----------------------------------------------------
by Anthony C. Atchley, General Partner
INDEX TO FINANCIAL STATEMENTS
AND FINANCIAL STATEMENT SCHEDULES
Page
Reference in
Report on
Form 10-K
Independent Auditors' Report.............................................F-2
Balance Sheets as of December 31, 1995 and 1994..........................F-3
Statements of Operations For the Years Ended
December 31, 1995, 1994 and 1993....................................F-4
Statements of Partners' Capital Accounts (Deficit)
For the Years Ended December 31, 1995, 1994 and 1993............... F-5
Statements of Cash Flows For the Years Ended
December 31, 1995, 1994 and 1993....................................F-6
Notes to Financial Statements For the Years Ended
December 31, 1995, 1994 and 1993....................................F-7
Financial Statement Schedule:
Schedule III - Real Estate and Accumulated Depreciation............F-18
All other schedules have been omitted as inapplicable or not required because
the required information is included in the financial statements or notes
thereto.
INDEPENDENT AUDITORS' REPORT
The General Partners
Atlantic City Boardwalk Associates, L.P.
We have audited the accompanying financial statements of Atlantic City
Boardwalk Associates, L.P. as listed in the accompanying index. In
connection with our audits of the financial statements, we also have
audited the financial statement schedule listed in the accompanying
index. These financial statements and the financial statement schedule
are the responsibility of the Partnership's management. Our
responsibility is to express an opinion on these financial statements
and the financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Atlantic
City Boardwalk Associates, L.P. as of December 31, 1995 and 1994, and
the results of its operations and its cash flows for each of the years
in the three-year period ended December 31, 1995, in conformity with
generally accepted accounting principles. Also in our opinion, the
related financial statement schedule, when considered in relation to
the basic financial statements taken as a whole, presents fairly, in
all material respects, the information set forth therein.
/s/ KPMG Peat Marwick LLP
Las Vegas, Nevada
March 19, 1996
ATLANTIC CITY BOARDWALK ASSOCIATES, L.P.
Balance Sheets
December 31, 1995 and 1994
1995 1994
--------------- -------------
Assets
Current assets:
Cash and cash equivalents $ 1,535,000 $ 1,664,000
Rent due from New Claridge 298,000 206,000
Interest receivable from partners 28,000 26,000
Prepaid expenses 313,000 248,000
Other assets 199,000 170,000
--------------- ---------------
Total current assets 2,373,000 2,314,000
--------------- ---------------
Hotel Assets (notes 4 and 5) 180,298,000 177,682,000
Less: Accumulated depreciation and amortization 94,057,000 87,541,000
--------------- ---------------
Net Hotel Assets 86,241,000 90,141,000
--------------- ---------------
Note receivable from New Claridge, including accrued interest of
$2,826,000 and $2,394,000 in 1995 and 1994, respectively 6,426,000 5,994,000
Deferred rent from New Claridge (notes 3 and 6) 39,856,000 41,454,000
Intangibles, net of accumulated amortization of
$3,526,000 and $3,399,000 in 1995 and 1994, respectively 279,000 406,000
--------------- ---------------
$ 135,175,000 140,309,000
=========== ===========
Liabilities and Partners' Capital Accounts
Current liabilities:
Accounts payable $ 1,400,000 1,190,000
Accrued interest due New Claridge 1,274,000 1,384,000
Current portion of long-term debt due principally to
New Claridge (note 5) 14,051,000 12,055,000
--------------- ---------------
Total current liabilities 16,725,000 14,629,000
--------------- ---------------
Long-term debt due principally to New Claridge, including
accrued interest of $20,000,000 in 1995 and 1994 (note 5) 104,315,000 114,268,000
Partners' capital accounts (deficit):
New general partners 57,000 30,000
Former general partners 144,000 127,000
Special limited partners (234,000) (261,000)
Investor limited partners 14,168,000 11,516,000
--------------- ---------------
Total partners' capital accounts (deficit) 14,135,000 11,412,000
Commitments and contingencies (notes 5, 6, 7 and 9)
___________ ___________
$ 135,175,000 140,309,000
=========== ===========
See accompanying notes to financial statements.
ATLANTIC CITY BOARDWALK ASSOCIATES, L.P.
Statements of Operations
For the Years Ended December 31, 1995, 1994, and 1993
1995 1994 1993
--------------- --------------- -------------
Revenues:
Rent from New Claridge for the
lease of Hotel Assets (notes 3 and 6) $ 38,517,000 37,236,000 35,431,000
Interest from New Claridge 432,000 432,000 432,000
Interest from Special Limited Partners 36,000 36,000 36,000
Investment 130,000 83,000 65,000
--------------- ---------------- ----------------
39,115,000 37,787,000 35,964,000
--------------- --------------- ----------------
Expenses:
Cost of maintaining and repairing
Hotel Assets paid to New Claridge 11,716,000 11,317,000 11,213,000
Interest, principally on mortgages to
New Claridge (note 5) 17,239,000 17,729,000 17,989,000
General and administrative 630,000 684,000 531,000
General Partners' management fee 130,000 130,000 130,000
Depreciation and amortization 6,677,000 6,145,000 5,792,000
--------------- --------------- ---------------
36,392,000 36,005,000 35,655,000
--------------- --------------- ---------------
Net income $ 2,723,000 1,782,000 309,000
=============== =============== ===============
Net income per limited partnership unit
(450 units outstanding at the end of each year) $ 5,953 3,896 676
=============== =============== ===============
See accompanying notes to financial statements.
ATLANTIC CITY BOARDWALK ASSOCIATES, L.P.
Statements of Partners' Capital Accounts (Deficit)
For the Years Ended December 31, 1995, 1994 and 1993
Class A Class B Class A Class B Total
New Former Special Special Investor Investor Partners'
General General Limited Limited Limited Limited Capital
Partners Partners Partners Partners Partners Partners Accounts
Partners' Capital
Accounts (Deficit),
December 31, 1992 $ 9,000 114,000 (18,000) (263,000) 2,306,000 7,173,000 9,321,000
Net income 3,000 2,000 - 3,000 74,000 227,000 309,000
------- --------- ----------- --------- ----------- ------------ ------------
Partners' Capital
Accounts (Deficit),
December 31, 1993 12,000 116,000 (18,000) (260,000) 2,380,000 7,400,000 9,630,000
Net income 18,000 11,000 1,000 16,000 426,000 1,310,000 1,782,000
------ -------- ------- -------- ---------- ----------- -----------
Partners' Capital
Accounts (Deficit),
December 31, 1994 30,000 127,000 (17,000) (244,000) 2,806,000 8,710,000 11,412,000
Net income 27,000 17,000 2,000 25,000 651,000 2,001,000 2,723,000
------ -------- ------- -------- ---------- ----------- -----------
Partners' Capital
Accounts (Deficit),
December 31, 1995 $ 57,000 144,000 (15,000) (219,000) 3,457,000 10,711,000 14,135,000
====== ======= ====== ======= ========= ========== ==========
See accompanying notes to financial statements.
ATLANTIC CITY BOARDWALK ASSOCIATES, L.P.
Statements of Cash Flows
For the Years Ended December 31, 1995, 1994, and 1993
1995 1994 1993
------------- ------------- -----------
Cash flows from operating activities:
Net income $ 2,723,000 1,782,000 309,000
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 6,677,000 6,145,000 5,792,000
Accretion of discount on mortgage note 1,327,000 1,153,000 1,004,000
Loss on disposal of assets 46,000 170,000 -
Deferred rent 1,598,000 2,164,000 2,602,000
Deferred interest on receivable from New Claridge (432,000) (432,000) (432,000)
Changes in current assets and liabilities:
Increase in rent due from New Claridge,
interest receivable from partners,
prepaid expenses and other assets (188,000) (41,000) (199,000)
Increase (decrease) in accounts payable and
accrued interest due New Claridge 100,000 (212,000) 29,000
-------------- ------------- -------------
Net cash provided by operating activities 11,851,000 10,729,000 9,105,000
---------- ---------- -------------
Cash flows from investing activities:
Purchase of Hotel Assets (2,160,000) (9,620,000) (3,193,000)
Proceeds from sale of Hotel Assets 21,000 12,000 -
------------- ------------- -------------
Net cash used in investing activities (2,139,000) (9,608,000) (3,193,000)
----------- ----------- -----------
Cash flows from financing activities:
Proceeds of borrowings from New Claridge 2,483,000 9,610,000 3,287,000
Principal payments of debt, principally to New Claridge (12,324,000) (10,548,000) (9,515,000)
----------- ----------- -----------
Net cash used in financing activities (9,841,000) (938,000) (6,228,000)
----------- ------------ -----------
Net (decrease) increase in cash and cash equivalents (129,000) 183,000 (316,000)
Cash and cash equivalents, beginning of period 1,664,000 1,481,000 1,797,000
----------- ----------- -----------
Cash and cash equivalents, end of period $ 1,535,000 1,664,000 1,481,000
=========== =========== ===========
Supplemental cash flow information:
Interest paid (net of amount capitalized) $ 16,022,000 16,570,000 17,062,000
========== ========== ==========
Supplemental noncash investing and financing activities:
Trade-in value on purchase of Hotel Assets $ 1,000 68,000 5,000
============== ============= ==============
Capital lease obligation incurred to acquire Hotel Assets $ 557,000 - -
============== ============= ==============
See accompanying notes to financial statements.
(1) The Partnership
(a) General
Atlantic City Boardwalk Associates, L.P. ("Partnership") was formed on
October 31, 1983 to acquire the buildings, parking facility and
non-gaming depreciable, tangible property (collectively, "Hotel
Assets") of The Claridge Hotel and Casino ("Claridge") located in
Atlantic City, New Jersey; to hold a leasehold interest in the land on
which the Claridge is located ("Land"), which Land was subsequently
acquired by the Partnership as part of a financial restructuring
("Restructuring Agreement"); and to engage in activities related or
incidental thereto. The Partnership leases the Land and Hotel Assets to
The Claridge at Park Place, Incorporated ("New Claridge"), a
wholly-owned subsidiary of The Claridge Hotel and Casino Corporation
("Corporation"), under operating leases.
(b) Current Licensing Status
The ownership and operation of casino-hotel facilities in Atlantic City
are subject to extensive state regulation under the Casino Control Act
under the direction of the New Jersey Casino Control Commission
("Commission"). The Casino Control Act provides that various categories
of entities must hold appropriate casino licenses. The Partnership
currently operates under a three-year casino service industry license
effective October 31, 1992, while New Claridge operates under a
four-year casino license effective September 30, 1995. The Partnership
has applied with the Commission for license renewal. The general
partners do not anticipate any problems renewing the Partnership's
license.
(c) General Partners
The General Partners of the Partnership are Anthony C. Atchley, Gerald
C. Heetland and AC Boardwalk Partners Corporation, a New Jersey
corporation formed on August 26, 1983, all of whose shares of capital
stock are owned by Messrs. Atchley and Heetland. The General Partners
receive, in the aggregate, an annual compensation of $130,000 from the
Partnership as well as a 1% interest in the Partnership's income,
gains, losses and deductions for periods subsequent to the
restructuring. The Partnership maintains insurance to protect the
General Partners against certain liabilities arising from their actions
as General Partners. Del Webb Corporation ("Webb"), formerly affiliated
with the Claridge, has agreed to indemnify the General Partners for
claims and liabilities resulting from acts or omissions occurring as a
result of or prior to the restructuring.
The general partners prior to the Restructuring Agreement executed on
June 16, 1989 were Robert K. Swanson, Everett L. Mangam and T. Edward
Plant ("Former General Partners"). The Former General Partners were
entitled to receive, in the aggregate, a 1% interest in the
Partnership's income, gains, losses and deductions for the periods
prior to the restructuring, and now are entitled to receive a 0.6%
interest for periods subsequent to the restructuring, as limited
partners. The Partnership and Del E. Webb New Jersey, Inc. ("DEWNJ"), a
wholly-owned subsidiary of Webb, have agreed to indemnify the Former
General Partners against certain liabilities arising from their actions
as general partners.
(d) Special Limited Partners
Oppenheimer Holdings, Inc. and officers and employees of affiliated
Oppenheimer & Co., Inc. ("Special Limited Partners") committed to
contribute $400,000 by issuing 9% notes maturing in 1998. This
contribution entitles them to an aggregate of 1% interest in the
Partnership's income, gains, losses and deductions until the Limited
Partners, as described below, receive aggregate cash distributions
equal to their capital contributions. Thereafter, the Special Limited
Partners are entitled to an aggregate of 10% of each item. Upon receipt
of the cash, the Partnership will reflect this contribution in its
financial statements.
Subsequent to the Restructuring Agreement, the Special Limited Partners
were classified into two categories, those not consenting to the
restructuring ("Class A Special Limited Partners") and those consenting
to the restructuring ("Class B Special Limited Partners"). Class A
Special Limited Partners' interest after the restructuring is .065%, in
the aggregate, representing their same proportionate share as before
the restructuring. Class B Special Limited Partners' interest
subsequent to the restructuring was reduced by a portion of the 0.6%
interest issued to the Former General Partners, thereby entitling the
Class B Special Limited Partners to a .927% interest, in the aggregate.
(e) Investor Limited Partners
Investor Limited Partners contributed $37,151,000 in cash to the
Partnership for a 98% interest in the Partnership's income, gains,
losses and deductions, to be reduced to 89% upon receipt of cash
distributions equal to their capital contributions. Subsequent to the
restructuring the Investor Limited Partners were classified into two
categories, those not consenting to the restructuring ("Class A
Investor Limited Partners") and those consenting to the restructuring
("Class B Investor Limited Partners"). Class A Investor Limited
Partners' interest after the restructuring is 23.912%, in the
aggregate, representing their same proportionate share as before the
restructuring. Class B Investor Limited Partners' interest subsequent
to the restructuring was reduced by a portion of the 0.6% interest
issued to the Former General Partners, thereby entitling the Class B
Investor Limited Partners to a 73.496% interest, in the aggregate.
(2) Basis of Presentation and Summary of Significant Accounting Policies
The Partnership's policy is to maintain its books of records and
prepare its income tax returns on the accrual basis of accounting.
Certain items are recorded on a basis resulting in advantageous income
tax treatment ("Tax Basis"). The accompanying financial statements are
prepared in accordance with generally accepted accounting principles
("GAAP") and differ from Tax Basis as follows:
o Certain property and equipment are depreciated on a different
basis and over different lives for GAAP than those used for Tax
Basis;
o In 1994 the Claridge facilities were remodeled and expanded.
During the construction period interest was incurred on the debt
related to this project. This interest was capitalized for GAAP
and is being amortized on a straight-line basis over 10 years,
while for Tax Basis the interest was expensed in full in 1994;
o The Expandable Wraparound Mortgage was discounted for GAAP
as a result of the effect on the obligation of $20 million of
deferred interest;
o Tax Basis rental income is recognized according to the terms of
the Operating Lease, whereas for GAAP rental payments are
leveled so that each period reflects the same basic rent.
The significant accounting policies used to prepare the accompanying
GAAP financial statements are as follows:
a. Hotel Assets are stated at cost and are depreciated or amortized
on a straight-line basis over the following estimated useful
lives:
Building 40 years
Building improvements 10 years
Furniture, fixtures and equipment 7 years
b. Provision is made for impairment loss if estimated future
operating cash flows (undiscounted and without interest charges)
over a long-term holding period plus estimated disposition
proceeds (undiscounted) are less than current book value. At
December 31, 1995, 1994 and 1993, no provision for impairment
has been reflected in the accompanying financial statements.
c. Deferred financing costs and capitalized interest are being
amortized on a straight-line basis over 5 to 17 years.
d. The Expandable Wraparound Mortgage Note has been discounted
utilizing a 14% interest rate. The resulting discount is
reflected in the basis of the Hotel Assets.
e. The accompanying financial statements do not reflect federal
income tax expense or benefit since such liability or benefit is
that of the individual partners.
f. Cash equivalents are composed of investments in interest-bearing
repurchase agreements with initial or remaining maturities of
less than three months at the time the investment is made.
g. Due to the nature of the relationships between the Partnership
and New Claridge and the Partnership and the partners,
estimation of the fair value of the financial instruments due
from and due to these related parties is not practical as there
is no trading market for these financial instruments. See Notes
3 and 5 for a description of the terms of these instruments. All
other financial instruments are stated at their carrying value
which approximates their fair value. The carrying amount of cash
equivalents, receivables and current liabilites approximates
fair value because of the short-term maturity of these
instruments.
h. Management of the Partnership has made estimates and assumptions
relating to the reporting of assets and liabilities and the
disclosure of contingent assets and liabilities to prepare these
financial statements in conformity with generally accepted
accounting principles. Actual results could differ from those
estimates.
Following are the Partnership's assets and liabilities as determined in
accordance with GAAP and for federal income tax reporting purposes at
December 31:
1995 1994
--------------------- --------------------------
GAAP Tax GAAP Tax
Basis Basis Basis Basis
(in thousands)
Total assets $ 135,175 69,741 $ 140,309 78,505
Total liabilities $ 121,040 125,300 $ 128,897 134,053
(3) Restructuring Agreement
On October 27, 1988, the Partnership, the Corporation, New Claridge,
Webb and the mortgage lenders entered into the Restructuring Agreement.
On June 13, 1989 the required majority of the partners approved the
Restructuring Agreement and on June 16, 1989 the restructuring was
concluded (the "Closing"). The following paragraphs are an overview of
the events that took place as a result of the restructuring.
o Webb transferred all of its rights to the land underlying the
Hotel Assets, the air rights and the related easement to the
Partnership. The Partnership's book value of the Hotel Assets was
not affected due to the uncertainty of the incremental value, if
any, of the land.
o The operating and expansion operating leases were amended to add
the land and air rights, defer portions of rent through 1992
totaling $15,078,000 otherwise payable to the Partnership by New
Claridge, and to abate approximately $39,820,000 of future rents
commencing in 1992. In addition, the Partnership lent to New
Claridge $3.6 million representing, at the Closing, substantially
all of the Partnership's cash and cash equivalents in excess of
amounts required to pay Partnership expenses. The loan bears
interest at 12% per annum that becomes payable at the time the
principal is paid. The deferred rent and the $3,600,000 loan
become due upon (i) the sale or refinancing of the Claridge; (ii)
upon full or partial satisfaction of the Expandable Wraparound
Mortgage; and (iii) upon full satisfaction of any first mortgage
then in place. The Restructuring Agreement requires that the
Partnership maintain cash flows in amounts necessary to pay
Partnership expenses, including debt service, only, and prohibits
the Partnership from making distributions to partners for an
indefinite period of time.
o The Partnership (as successor in interest to DEWNJ) and New
Claridge terminated the Land Option Agreement which gave New
Claridge the option to purchase from the Partnership certain
parcels and tracts of land in Atlantic City, New Jersey. This
termination resulted in payment of $100,000 by the Partnership to
New Claridge.
o New General Partners were admitted to the Partnership. The Former
General Partners became limited partners with an aggregate limited
partnership interest of 0.6%. This limited partnership interest
was made available by reducing proportionately the limited
partnership interests of those limited partners consenting to the
restructuring. In addition, for nominal consideration, the Former
General Partners transferred to the General Partners all of the
outstanding shares of the common stock of AC Boardwalk Partners
Corporation, the corporate general partner of the Partnership.
(4) Hotel Assets
A summary of Hotel Assets at December 31, 1995 and 1994 is as follows:
Accumulated
Depreciation and Net
December 31, 1995 Cost Amortization Hotel Assets
----------------- --------------- ------------ ------------
Building $ 101,353,000 $ 30,828,000 $ 70,525,000
Building improvements 25,911,000 18,223,000 7,688,000
Furniture, fixtures
and equipment 51,881,000 44,432,000 7,449,000
Capital lease asset 1,153,000 574,000 579,000
----------- ---------- ------------
$ 180,298,000 $ 94,057,000 $ 86,241,000
=========== ========== ==========
Accumulated
Depreciation and Net
December 31, 1994 Cost Amortization Hotel Assets
----------------- --------------- ------------ ------------
Building $ 101,353,000 $ 28,295,000 $ 73,058,000
Building improvements 25,651,000 15,902,000 9,749,000
Furniture, fixtures
and equipment 50,115,000 42,884,000 7,231,000
Capital lease asset 563,000 460,000 103,000
------------- ------------ ------------
$ 177,682,000 $ 87,541,000 $ 90,141,000
=========== ========== ==========
(5) Long-term Debt
At December 31, 1995 and 1994, long-term debt consisted of the
following:
1995 1994
---- ----
14% Wraparound mortgage, net of $ 93,185,000 $ 100,858,000
unaccreted discount of $9,815,000
and $11,142,000, respectively
14% Expansion mortgage 6,522,000 8,285,000
14% FF&E notes 18,346,000 17,114,000
Capital lease obligations 313,000 66,000
-------------- ---------------
118,366,000 126,323,000
Less: Current portion of long-term debt 14,051,000 12,055,000
------------ ------------
$ 104,315,000 $ 114,268,000
=========== ===========
The wraparound and expansion mortgages are non-recourse obligations as
neither the Partnership nor its partners are personally liable to New
Claridge for non-payment of any principal of, or interest on, the
notes. Various restrictions are placed upon the Partnership's ability
to sell assets and incur additional obligations. Included in the
wraparound mortgage is $20 million of accrued interest, discounted at
14%, which accrued from 1983 to 1988 and has been deferred without
interest until maturity. Monthly principal and interest payments
continue through 1998 with interest only payments from January 1999
until October 2000 at which time a balloon principal payment of $47
million and the $20 million of deferred interest is due. The expansion
mortgage has principal and interest payments of $234,000 due monthly
through September 30, 1998.
The Partnership funds the purchase of additional furniture, fixtures
and equipment ("FF&E") by borrowing from New Claridge at a 14% interest
rate. In addition, during the term of the Expansion Operating Lease,
the Partnership is required to provide New Claridge with expansion FF&E
replacements under the same borrowing arrangement. Generally, one half
of the principal is due in 48 months and the remainder is due 60 months
from the issue date of the individual notes, with the following
exception. As required by the terms of the Claridge's $85 million debt
offering, $8 million was used to finance internal improvements at the
Claridge. The $8 million principal on these notes will come due on
September 30, 2000. All FF&E notes are secured under the wraparound
mortgage up to $25 million.
During 1995 the Partnership financed the purchase of some computer
equipment through a 6.5% capital lease. This thirty-six month lease
required the final six month's payments be made at its inception and
that principal and interest payments of approximately $17,000 be made
monthly until its maturity in July 1997. During 1991 the Partnership
financed the purchase of a Hotel Asset through a 14% capital lease.
This five year lease requires monthly principal and interest payments
of approximately $4,000 until its maturity in June 1996.
Aggregate maturities of debt for each of the next five years are as
follows:
1996 $ 14,051,000
1997 17,227,000
1998 18,615,000
1999 2,046,000
2000 76,242,000
___________
128,181,000
Less: Discount 9,815,000
___________
$ 118,366,000
===========
(6) Leases
The Partnership leases the Land and the Hotel Assets, excluding the
FF&E, to New Claridge under an operating lease expiring during 1998,
with three 10-year renewal options. The Partnership also leases the
FF&E to New Claridge for an amount sufficient to fund payment of
principal and interest on the FF&E notes. The operating leases provide
that New Claridge will have the option to purchase the Hotel Assets and
the leasehold interest in the land and air rights at their fair market
value on September 30, 1998.
Minimum future rental payments due for each of the next five years
under leases to New Claridge are as follows:
1996 $ 48,884,000
1997 51,402,000
1998 40,269,000
1999 3,483,000
2000 9,888,000
____________
153,926,000
Less: Future rent abatements 10,061,000
___________
Minimum future rentals $ 143,865,000
===========
Future Partnership activities including anticipated purchases of Hotel
Assets and payments of related debt may cause actual future rentals to
differ from those presented above. Rents are used to fund debt service,
facilities and maintenance costs and fees, general partners' management
fees and general and administrative expenses of the Partnership. The
Restructuring Agreement requires that the Partnership maintain cash
flows in amounts necessary to pay Partnership expenses including debt
service, only, and is prohibited from making distributions to partners
for an indefinite period of time. Any rents not required for the cash
flow needs of the Partnership are to be deferred up to $15,078,000. As
of December 31, 1991, $15,078,000 in rents had been deferred, and
excess rents are now being abated, as described below. The deferred
rent becomes payable upon (i) the sale or refinancing of the Claridge;
(ii) upon full or partial satisfaction of the Expandable Wraparound
Mortgage; and (iii) upon full satisfaction of any first mortgage then
in place.
Per the terms of an amendment to the Operating Lease Agreement executed
as of August 1, 1991, during the years 1991 to 1998 contractual rents
in excess of debt service and Partnership expenses can be abated up to
$38,820,000 in the aggregate but not in excess of $10,000,000 in any
one calendar year. Prior to this amendment, scheduled rents totaling
$39,820,000 were to be abated beginning in 1992 through the end of
1999. Rents abated during the years ended December 31, 1995 and 1994
amounted to $7,858,000 and $6,634,000, respectively. Cumulative abated
rents as of December 31, 1995 total $28,759,000, leaving $10,061,000
still to be abated in future years. The amount which will be abated in
the individual years cannot be determined until the Partnership incurs
expenses and debt service in those years. However, it is anticipated by
the general partners as well as the management of New Claridge that the
remaining abatement of $10,061,000 will be fully utilized by the first
quarter of 1997. Additional abatements of rent totaling $500,000 are
available as a result of the acquisition of the option to purchase the
Contingent Payment, and further abatements will become available upon
exercising the Contingent Payment option (see Note 9, "Contingencies").
The Partnership accounts for leases in accordance with the Financial
Accounting Standards Board's Statement of Financial Accounting
Standards No. 13, Accounting for Leases, whereby rental income is
recognized on a straight-line basis over the life of the lease. As of
December 31, 1995 and December 31, 1994, deferred rent from New
Claridge included rental income of $24,778,000 and $26,376,000,
respectively, that was earned in excess of actual rent receipts.
(7) Financial Condition of New Claridge
The ability of the Partnership to fulfill its obligations is dependent
upon the ability of New Claridge to pay rental payments when due.
Accordingly, the financial stability of the Partnership is dependent
upon the financial condition of New Claridge.
The Corporation had a net loss of $1,908,000 for the year ended
December 31, 1995, as compared to a net loss of $6,901,000 for the year
ended December 31, 1994. Casino revenues were higher in 1995 than in
1994 because of increased business volume due to better weather
conditions and the expanded casino facility (see the discussion below
concerning the results of operations in 1994). The net loss in 1995 was
primarily due to decreased hotel revenues and increased casino
expenses. The average room rate decreased to $55 in 1995 from $67 in
1994, in part as a result of a reduction in the complimentary room rate
recorded, resulting in decreased hotel revenue. The increase in casino
expenses was primarily due to the increase in coin incentives to
patrons arriving by bus. After three years of decreases in the number
of bus patrons visiting Atlantic City casinos, in 1995 visitation
increased by 10%, thereby intensifying the competition for bus patrons.
The increased competition took the form of higher coin incentives,
which New Claridge matched, thus increasing its per patron average coin
cost to $12.81 in 1995 from $10.99 in 1994.
The net loss in 1994 was primarily due to (i) the decline in business
volume in the first quarter of 1994 due to the severe snow and ice
storms throughout the Northeastern United States, (ii) a reduction in
volume in the second quarter of 1994 as a result of business disruption
due to the construction of New Claridge's expanded casino facility
(which opened in late June 1994, and resulted in the addition of
approximately 500 slot machines), (iii) increased marketing
expenditures to promote the opening of this expansion, and (iv)
increased interest expense due to the completion of the offering of $85
million of First Mortgage Notes on January 31, 1994.
(8) Related Party Transactions
The common stock of the Corporation and the limited partnership
interests of the Partnership were sold together in a private placement
as units, and because there has been relatively little trading in the
stock or partnership interests, there is a substantial similarity
between the equity ownership of the Corporation and the Partnership.
Although the Partnership and the Corporation are independent entities,
approximately 93% of the Corporation's common stock is owned by persons
who also own limited partnership interests in the Partnership.
The Partnership has an agreement with New Claridge whereby New Claridge
provides facility and maintenance and engineering services for the
Claridge. The agreement calls for the reimbursement of the actual
facilities and maintenance costs incurred on the Partnership's behalf,
as well as an annual fee equal to 10% of such facility and maintenance
costs not to exceed $530,000 per annum. The agreement expires on
September 30, 1998.
Under the terms of the option to purchase the Contingent Payment, upon
purchase of the Contingent Payment, the Partnership and/or the
Corporation are required to make distributions in excess of $7 million
to the Releasing Partners/Investors. The Partnership and the
Corporation have agreed to cooperate in the purchase of the option and
the Contingent Payment, with each contributing one-half of the purchase
price of the option and each anticipated to contribute one-half of the
purchase price of the Contingent Payment. A portion or the
Partnership's contribution will be contributed through additional
abatements of basic rent payments due under the Operating Lease and the
Expansion Operating Lease (see Note 9, "Contingencies").
(9) Contingencies
The Restructuring Agreement provided for Webb to retain an interest
equal to $20 million plus interest from December 1, 1988 accruing at
the rate of 15% per annum compounded quarterly ("Contingent Payment")
in any proceeds ultimately recovered from the operations and/or the
sale or refinancing of the Claridge facility in excess of the First
Mortgage loan and other liabilities. To give effect to this Contingent
Payment, the Corporation and the Partnership agreed not to make any
distributions to the holders of their equity securities, whether
derived from operations or from sale or refinancing proceeds, until
Webb had received the Contingent Payment.
In connection with the restructuring, Webb agreed to permit those
partners/investors in the Partnership and Corporation ("Releasing
Partners/Investors") from whom Webb had received written releases from
all liabilities, rights ("Contingent Payment Rights") to receive
certain amounts to the extent available for application to the
Contingent Payment. Approximately 84% in interest of the
partners/investors provided releases and became Releasing
Partners/Investors. Payments to Releasing Partners/Investors are to be
made in accordance with a schedule of priorities, as defined in the
Restructuring Agreement.
On April 2, 1990, Webb transferred its interest in the Contingent
Payment to an irrevocable trust for the benefit of the Valley of the
Sun United Way, and upon such transfer Webb was no longer required to
be qualified or licensed by the Commission.
On February 23, 1996, the Corporation acquired an option to purchase,
at a discount from the carrying value, the Contingent Payment. The
purchase price of the option was $1 million, and the option may be
exercised any time prior to December 31, 1997. Upon exercise of the
option, the purchase price of the Contingent Payment would be $10
million, plus interest at 10% per annum for the period from January 1,
1997 to the date of payment of the purchase price if the purchase
occurs after December 31, 1996. The purchase price may also increase in
an amount not to exceed $10 million if future distributions to
Releasing Partners/Investors exceed $20 million. It is estimated that
at December 31, 1995, the aggregate amount owing in respect of the
Contingent Payment was $56.8 million.
Upon exercise of the option, it is anticipated that the Contingent
Payment will be canceled so that neither the Corporation or the
Partnership will have any obligation to make any payment in respect of
the Contingent Payment before making a distribution to limited partners
or shareholders. Upon the purchase and cancellation, however, the
Corporation and the Partnership will remain obligated to make payments
to the Releasing Partners/Investors, in respect of the Contingent
Payment Rights, before any distribution may be made to limited partners
or shareholders. These payments would be required to be in the same
amounts as if the Contingent Payment had not been purchased and
canceled. As a result, it is not likely that limited partners or
shareholders who are not Releasing Partners/Investors will receive any
distribution from the Partnership or the Corporation. In the aggregate,
Releasing Partners/Investors are entitled to receive an amount equal to
approximately 72% of the Contingent Payment.
Under the terms of the option, upon purchase of the Contingent Payment,
the Partnership and/or the Corporation are required to make
distributions in excess of $7 million to the Releasing
Partners/Investors. The Partnership and the Corporation have agreed to
cooperate in the purchase of the option and the Contingent Payment,
with each contributing one-half of the purchase price of the option and
each anticipated to contribute one-half of the purchase price of the
Contingent Payment. A portion of the Partnership's contribution will be
contributed through additional abatements of basic rent payments due
under the Operating Lease and the Expansion Operating Lease.
SCHEDULE III
ATLANTIC CITY BOARDWALK ASSOCIATES, L.P. Life
Real Estate and Accumulated Depreciation on
which
Years Ended December 31, 1995, 1994 and 1993 Deprec.
in
Date latest
Gross Amount of Statement of
Initial Cost Cost Capitalized at which Accumu- Con Operations
to Partnership Subsequent to Carried at Close lated struc- Date is
Description Encumbrances(A) Land(B) Building Acquisition of Period (C)(D) Deprec.(E) tion Acq. Computed
- -----------------------------------------------------------------------------------------------------------------------------------
Initial
112,500,000 Cost
Less:
Original Building 101,353,000 N/A 10/31/83 40 yrs
Discount Bldg. Bldg. 1983-
on Impr. 25,911,000 Impr. 25,911,000 1994 N/A 10 yrs
(11,147,000) Mortgage FF&E 53,034,000 FF&E 53,034,000 N/A 1983-1994 7 yrs
------------ ---------- -----------
Hotel &
Casino
Atlantic
City, NJ 118,366,000 - 101,353,000 78,945,000 180,298,000 94,057,000
----------- ------- ----------- ---------- ----------- ----------
NOTES:
(A) Encumbrances represents the amount owed at December 31, 1995
on the Wraparound Mortgage, Expansion Mortgage, FF&E Notes and
Capital lease obligations.
(B) The land under the building was acquired from DEWNJ, at no
cost to the Partnership, as part of the 1989 Restructuring.
(C) The aggregate cost of real estate owned at December 31, 1995
for Federal income tax purposes is $192,950,000.
(D) Reconciliation of Real Estate Carrying Costs:
1995 1994 1993
---- ---- ----
Balance at beginning of year 177,682,000 168,303,000 165,113,000
Building improvements 259,000 6,299,000 669,000
Furniture, fixtures and
equipment (FF&E) acquired 2,459,000 4,384,000 1,536,000
FF&E retired (102,000) (311,000) (8,000)
Construction in progress - - 993,000
Construction completed - (993,000) -
--------------- --------------- ----------------
Balance at end of year 180,298,000 177,682,000 168,303,000
=============== =============== ================
(E) Reconciliation of Accumulated Depreciation:
1995 1994 1993
---- ---- ----
Balance at beginning of year 87,541,000 81,583,000 76,031,000
Provision for depreciation 6,550,000 6,017,000 5,554,000
Accumulated depreciation
of FF&E retired (34,000) (59,000) (2,000)
--------------- --------------- ----------------
Balance at end of year 94,057,000 87,541,000 81,583,000
=============== =============== ================