UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
(Mark One)
[ X ] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended June 30, 1996
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from to
Commission file number 33-27399
ATLANTIC CITY BOARDWALK ASSOCIATES, L.P.
- --------------------------------------------------------------------------------
(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)
(609) 340-3400
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Sections 13 or 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 ______
ATLANTIC CITY BOARDWALK ASSOCIATES, L.P.
INDEX
PART I FINANCIAL INFORMATION Page No.
Item 1. Financial Statements
Introductory Note to Financial Statements 2
Balance Sheets As of June 30, 1996 and
December 31, 1995 3
Statements of Operations For the Three-
Month and Six-Month Periods Ended June 30,
1996 and 1995 4
Statements of Changes in Partners' Capital
Accounts (Deficit) For the Six Months
Ended June 30, 1996 and the Year Ended
December 31, 1995 5
Statements of Cash Flows For the Six Months
Ended June 30, 1996 and 1995 6
Notes to Financial Statements 7 - 9
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 10 -13
PART II OTHER INFORMATION
Items 1-5 No information is provided as the
answers to Items 1 through 5 are inapplicable.
Item 6. Exhibits and reports on Form 8-K 13
PART I
Item 1. Financial Statements
Introductory Note to Financial Statements
The accompanying financial statements have been prepared by Atlantic City
Boardwalk Associates, L.P. ("Partnership") without audit, pursuant to the rules
and regulations of the Securities and Exchange Commission. In the opinion of
management, these financial statements contain all adjustments necessary to
present fairly the financial position of the Partnership as of June 30, 1996 and
December 31, 1995, the results of operations for the three and six months ended
June 30, 1996 and 1995, and the cash flows for the six months ended June 30,
1996 and 1995.
Although management believes that the disclosures included herein are adequate
to make the information contained herein not misleading, certain information and
footnote disclosure normally included in financial statements prepared in
accordance with generally accepted accounting principles are omitted herein and
are incorporated by reference to the Partnership's Annual Report on Form 10-K
for the year ended December 31, 1995 filed with the Securities and Exchange
Commission.
ATLANTIC CITY BOARDWALK ASSOCIATES, L.P.
Balance Sheets
June 30, 1996 and December 31, 1995
(Unaudited)
Assets 1996 1995
----- ----
Current assets:
Cash and cash equivalents $ 1,426,000 1,535,000
Rent due from New Claridge 214,000 298,000
Interest receivable from partners 46,000 28,000
Prepaid expenses 96,000 313,000
Other assets 78,000 199,000
---------- -------
Total current assets 1,860,000 2,373,000
----------- -----------
Hotel Assets 181,203,000 180,298,000
Less: Accumulated depreciation and amortization 97,404,000 94,057,000
---------- -----------
Net Hotel Assets 83,799,000 86,241,000
---------- ----------
Note receivable from New Claridge, including
accrued interest of $3,042,000 and
$2,826,000 in 1996 and 1995, respectively 6,642,000 6,426,000
Deferred rent from New Claridge 39,024,000 39,856,000
Intangibles, net of accumulated amortization of
$3,590,000 and $3,526,000 in 1996
and 1995, respectively 215,000 279,000
-------- --------
$ 131,540,000 135,175,000
=========== ===========
Liabilities and Partners' Capital Accounts
Current liabilities:
Accounts payable $ 1,210,000 1,400,000
Accrued interest due New Claridge 1,198,000 1,274,000
Current portion of long-term debt
due principally to New Claridge 15,465,000 14,051,000
---------- ----------
Total current liabilities 17,873,000 16,725,000
---------- ----------
Long-term debt due principally to New
Claridge, including accrued interest 97,590,000 104,315,000
of $20,000,000 in 1996 and 1995 ---------- -----------
Partners' capital accounts (deficit):
New general partners 76,000 57,000
Former general partners 156,000 144,000
Special limited partners (215,000) (234,000)
Investor limited partners 16,060,000 14,168,000
---------- ----------
Total partners' capital accounts (deficit) 16,077,000 14,135,000
Commitments and contingencies
----------- -----------
$ 131,540,000 135,175,000
=========== ===========
See accompanying notes to financial statements.
ATLANTIC CITY BOARDWALK ASSOCIATES, L.P.
Statements of Operations
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
------------------- ----------------
1996 1995 1996 1995
---- ---- ---- ----
Revenues:
Rent from New Claridge for
the lease of Hotel Assets $ 9,894,000 9,617,000 19,742,000 19,286,000
Interest from New Claridge 108,000 108,000 216,000 216,000
Interest from Special Limited Partners 9,000 9,000 18,000 18,000
Investment 28,000 33,000 55,000 66,000
------------ ----------- ----------- ----------
10,039,000 9,767,000 20,031,000 19,586,000
------------ ----------- ---------- ----------
Expenses:
Cost of maintaining and repairing
Hotel Assets, paid to New Claridge 3,065,000 2,856,000 6,148,000 5,752,000
Interest, principally on mortgages to
New Claridge 4,025,000 4,343,000 8,133,000 8,751,000
General and administrative 165,000 198,000 332,000 358,000
General Partners' management fee 32,000 32,000 65,000 65,000
Depreciation and amortization 1,713,000 1,666,000 3,411,000 3,325,000
---------- --------- ----------- -----------
9,000,000 9,095,000 18,089,000 18,251,000
---------- --------- ---------- -----------
Net income $ 1,039,000 672,000 1,942,000 1,335,000
========== =========== ========== ===========
Net income per limited partnership unit
(450 units outstanding
at the end of each period) $ 2,271 1,471 4,247 2,920
========== ============ ========== ===========
See accompanying notes to financial statements.
ATLANTIC CITY BOARDWALK ASSOCIATES, L.P.
Statements of Partners' Capital Accounts (Deficit)
For the Six Months Ended June 30, 1996
and the Year Ended December 31, 1995
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, 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
Net income
(unaudited) 19,000 12,000 1,000 18,000 464,000 1,428,000 1,942,000
------ -------- --------- ------------ ---------- ----------- -----------
Partners' Capital
Accounts (Deficit),
June 30, 1996
(unaudited) $ 76,000 156,000 (14,000) (201,000) 3,921,000 12,139,000 16,077,000
====== ======= ====== ======= ========= ========== ==========
See accompanying notes to financial statements.
ATLANTIC CITY BOARDWALK ASSOCIATES, L.P.
Statements of Cash Flows
(Unaudited)
For the Six Months Ended June 30, 1996 and 1995
1996 1995
------------- -----------
Cash flows from operating activities:
Net income $ 1,942,000 1,335,000
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 3,411,000 3,325,000
Accretion of discount on mortgage note 736,000 640,000
Loss on disposal of assets - 47,000
Deferred rent 832,000 692,000
Deferred interest on receivable from New Claridge (216,000) (216,000)
Change in current assets and liabilities:
Decrease in rent due from New Claridge,
interest receivable from partners,
prepaid expenses and other assets 404,000 154,000
Decrease in accounts payable and
accrued interest due New Claridge (266,000) (105,000)
---------- ----------
Net cash provided by operating activities 6,843,000 5,872,000
--------- ---------
Cash flows from investing activities:
Purchase of Hotel Assets (905,000) (1,334,000)
Proceeds from sale of Hotel Assets - 22,000
------------- -----------
Net cash used in investing activities (905,000) (1,312,000)
------------- -----------
Cash flows from financing activities:
Proceeds of borrowings from New Claridge 1,073,000 1,566,000
Principal payments of debt, principally to New Claridge (7,120,000) (6,236,000)
---------- -----------
Net cash used in financing activities (6,047,000) (4,670,000)
---------- ----------
Net decrease in cash and cash equivalents (109,000) (110,000)
Cash and cash equivalents, beginning of period 1,535,000 1,664,000
--------- ---------
Cash and cash equivalents, end of period $ 1,426,000 1,554,000
========= =========
Supplemental cash flow information:
Interest paid $ 7,794,000 8,812,000
========= =========
Supplemental noncash investing and financing activities:
Capital lease obligation incurred to acquire Hotel Asset $ - 557,000
========== ==========
See accompanying notes to financial statements.
ATLANTIC CITY BOARDWALK ASSOCIATES, L.P.
Notes to Financial Statements
(Unaudited)
(1) The Partnership
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.
(2) Financial Condition of the Partnership and 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 $6,314,000 net of income tax benefit
of $3,931,000, for the six months ended June 30, 1996 compared to a net
loss of $1,848,000, net of income tax benefit of $807,000, for the same
period in 1995. Revenues during the first quarter of 1996 were
adversely affected by several winter storms, most notably the "Blizzard
of the Century" in January, which blanketed the Northeastern United
States with a record amount of snow. In addition, citywide casino
capacity has continued to increase over the first half of 1995,
reflected in a 5.9% increase in the average casino square footage, and
a 7.8% increase in the average number of slot machines, including the
opening of the Trump World's Fair Casino in May 1996. These expansions
have resulted in heightened efforts among the Atlantic City casinos to
compete for market share. Intense competition for attracting the bus
passenger market continued citywide during the six months ended 1996,
taking the form of increased coin incentives offered to passengers
arriving by bus. Due to the lack of a self-parking garage and its
dependency on the bus market, the Claridge has had to remain
competitive with the incentives offered by other Atlantic City casinos
in order to maintain its share of this market. During the first six
months of 1996, New Claridge issued $11,112,000 of coin incentives to
549,000 bus passengers arriving at the Claridge, compared to $5,345,000
issued to 438,000 bus passengers in the first quarter of 1995. Also
during the six months ended June 30, 1996, general and administrative
expenses increased $2,335,000 from the same period in 1995. This
increase is primarily the result of increased advertising expenditures.
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%. The Notes are secured by (i) a non-recourse mortgage granted by
the Partnership representing a first lien on the Hotel Assets, (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, 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, with the Notes coming due on February 1,
2002.
At June 30, 1996, the Corporation had a working capital deficit of
$555,000 as compared to working capital of $15,122,000 at December 31,
1995. This decrease in working capital is principally attributable to a
decrease in cash and cash equivalents of $17,262,000 (primarily due to
payments for the construction of the self-parking garage and interest
due on the First Mortgage Notes) and an increase in accounts payable of
$2,947,000 (primarily due to accruals related to the construction of
the self-parking garage), partially offset by a decrease in other
current liabilities of $2,423,000, and an increase in accounts
receivable of $1,168,000.
(3) Licensing
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. The
Casino Control Act provides that various categories of entities must
hold appropriate casino licenses. The Partnership currently operates
under a four-year casino service industry license effective October 31,
1995, while New Claridge operates under a four-year casino operator's
license effective September 30, 1995.
(4) Contingencies
The Restructuring Agreement provided for Del Webb Corporation ("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 June 30, 1996, the aggregate amount
owing in respect of the Contingent Payment was $61.1 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.
(5) Recently Adopted Accounting Pronouncements
During the first quarter of 1996, the Partnership adopted Statement of
Financial Accounting Standards No. 121 "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to be Disposed Of"
("SFAS 121"). SFAS 121 requires that a review for impairment be
performed whenever events or changes in circumstances indicate that the
carrying amount of long-lived assets may not be recoverable. In
performing the review for recoverability, the Partnership should
evaluate the future undiscounted cash flows expected to result from the
use of the asset and its eventual disposition. The adoption of SFAS 121
on January 1, 1996 did not require any impairment to be recognized
during the first half of 1996.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Results of Operations for the Three-Month and Six-Month Periods Ended
June 30, 1996 as Compared to the Three-Month and Six-Month Periods Ended
June 30, 1995
Rental income for the three months ended June 30, 1996 increased $277,000 as
compared to the three months ended June 30, 1995, and $456,000 for the six
months ended June 30, 1996 as compared to the six months ended June 30, 1995.
New Claridge pays as additional rent, certain expenses and debt service relating
to furniture, fixture and equipment replacements and building improvements
("FF&E"). The Partnership's debt service relating to FF&E was higher in 1996
than in 1995, resulting in increased rents in 1996.
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 $209,000 and $396,000, respectively, during the
three- and six-month periods ended June 30, 1996 as compared to the same periods
in 1995. These increases are due to an increase in New Claridge's maintenance
and engineering salaries and wages and payroll related expenses, along with a
general overall increase in the cost of maintaining the facilities.
For the three- and six-month periods ended June 30, 1996, interest expense
decreased $318,000 and $618,000, respectively, as compared to the same periods
ended June 30, 1995. These decreases are due to principal payments made during
1995 and 1996 that reduced the average outstanding balance of the wraparound and
expansion mortgages.
General and administrative expenses for the three months ended June 30, 1996
decreased $33,000 as compared to the three months ended June 30, 1995 and
$26,000 for the six months ended June 30, 1996 as compared to the six months
ended June 30, 1996. During the three months ended June 30, 1995 a $47,000 loss
on the disposal of assets was recorded and included in general and
administrative expenses. By removing the effect of this loss, general and
administrative expenses actually increased $14,000 for the three months ended
June 30, 1996 and $21,000 for the six months ended June 30, 1996. These
increases are due to higher insurance premiums being paid by the Partnership
during 1996 when compared to 1995.
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 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, will 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.
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. Cumulative
abated rents as of June 30, 1996 total approximately $33,055,000, leaving
$5,765,000 still to be abated in the future. The amount which will be abated in
future periods cannot be determined until the Partnership incurs expenses and
debt service in those periods. However, it is anticipated by the general
partners as well as the management of New Claridge that the remaining abatement
of $5,765,000 will be fully utilized by the first quarter of 1997.
Under the terms of the option to purchase the Contingent Payment (see
"Contingencies" - Note 4 to the financial statements), 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 as
follows. 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. These additional abatements will be utilized after the original rent
abatement of $38,820,000 (as discussed above) has been fully utilized.
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%. The
Notes are secured by (i) a non-recourse mortgage granted by the Partnership
representing a first lien on the Hotel Assets, (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, 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, with the Notes coming due on February 1, 2002.
A portion of the net proceeds of $82.2 million, after deducting fees and
expenses, was used as follows:
(i) to repay in full the Corporation's outstanding debt under the Revolving
Credit and Term Loan Agreement (the "Loan Agreement"), including the
outstanding balance of the Corporation's revolving credit line, which was
secured by the First Mortgage. In conjunction with the full satisfaction
of the Loan Agreement, the Corporation's $7.5 million revolving credit
line arrangement was terminated. The Corporation has been seeking to
obtain a new line of credit arrangement, however, to date such attempts
have been unsuccessful;
(ii) to fund the cost of a 12,000 square foot expansion of the Claridge's
casino capacity, the addition of approximately 500 slot machines, and the
relocation of two restaurants and their related kitchen areas. The total
cost of this expansion, which became fully operational on June 30, 1994,
was approximately $12.7 million; and
(iii) the acquisition of land, at a cost of $7.5 million, adjacent to New
Claridge's existing valet-parking facility, which was used for the
construction of a self-parking facility. The total cost of constructing
the self-parking facility, which was substantially completed by June 30,
1996, is expected to be approximately $20 million, excluding the cost of
interest capitalized during the construction period.
On June 28, 1996, the Corporation opened its new $27 million, 1,200-space
parking garage. On July 10, 1996, the facility was closed as a result of a fatal
accident which occurred in the garage. The self-parking garage will not be
reopened until certain structural enhancements are completed and all necessary
approvals of the enhancements are obtained, which is expected to be in
mid-September 1996.
At June 30, 1996, the Corporation had a working capital deficit of $555,000 as
compared to working capital of $15,122,000 at December 31, 1995. This decrease
in working capital is principally attributable to a decrease in cash and cash
equivalents of $17,262,000 (primarily due to payments for the construction of
the self-parking garage and interest due on the First Mortgage Notes) and an
increase in accounts payable of $2,947,000 (primarily due to accruals related to
the construction of the self-parking garage), partially offset by a decrease in
other current liabilities of $2,423,000, and an increase in accounts receivable
of $1,168,000.
During the first six months of 1996, the Corporation's working capital was
reduced substantially as a result of significant operating losses during that
period, as well as significant capital expenditures for construction of the
self-parking garage, with cash flows used in operating activities (i.e.,
negative cash flow) amounting to $8,292,000, and cash flows used in investment
activities during that period amounting to $8,970,000. During the same period,
the Corporation's Adjusted EBITDA (as defined below) was only $749,000 compared
to $9,264,000 for the first half of 1995. While expenditures for construction of
the self-parking garage have largely been completed, the factors that
contributed to the negative cash flow and substantially reduced Adjusted EBITDA
for the first six months of 1996, including increased and new competition in the
Atlantic City casino market, appear to be continuing. In addition, the
Corporation has essentially lost any potential positive impact during the third
quarter of 1996 from the opening of its new self-parking garage, since the
garage is now closed due to a fatal accident which occurred on July 10, 1996,
and is not expected to be reopened until mid-September 1996.
While it is possible that the Corporation's operating results could improve over
the remainder of the year with the reopening of the self-parking garage in
mid-September, and should the competitive pressures in the Atlantic City market
ease, the Corporation anticipates that it is more likely for there to be a
continuation of the current level of operating results for the foreseeable
future. As a result, the Corporation is attempting to conserve its cash by
taking various steps to reduce operating expenses. In addition, the Corporation
intends to explore other means of conserving cash resources and the possibility
of obtaining additional sources of financing. This may include approaching the
holders of the Corporation's Notes to request relief from certain provisions of
the Indenture governing the Notes. The Board of Directors of the Corporation has
authorized management of the Corporation to engage financial advisors to assist
management and the Board in evaluating various options, which could include a
sale or refinancing of the Claridge. In addition, the Corporation has been
seeking to obtain a new line of credit arrangement; however, to date such
attempts have been unsuccessful, and given the operating results for the first
half of 1996, without modifications of certain provisions of the Indenture
governing the Notes, it is unlikely that the Corporation will be able to secure
a line of credit. With the lower level of revenues that normally can be expected
by the Corporation during the upcoming winter months, it is likely that the
Corporation will need to implement a number of these steps in order to have
sufficient cash to meet its cash needs.
For the six months ended June 30, 1996, the Corporation's "Adjusted EBITDA" was
$749,000, compared to $9,264,000 for the same period of 1995. "EBITDA"
represents earnings before interest expense, income taxes, depreciation,
amortization, and other non-cash items. "Adjusted EBITDA" is equal to "EBITDA"
plus rent expense to the Partnership, less interest income from the Partnership,
less "Net Partnership Payments," which represent the Corporation's net cash
outflow to the Partnership. Adjusted EBITDA is used by the Corporation to
evaluate its financial performance in comparison to other gaming companies with
more traditional financial structures. Adjusted EBITDA may be used as one
measure of the Corporation's historical ability to service its debt, but should
not be considered as an alternative to operating income (as determined in
accordance with generally accepted accounting principles) as an indicator of
operating performance, or to cash flows from operating activities (as determined
in accordance with generally accepted accounting principles) as a measure of
liquidity, or to other consolidated income or cash flow statement data, as are
determined in accordance with generally accepted accounting principles.
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. The Casino Control Act
provides that various categories of entities must hold appropriate casino
licenses. The Partnership currently operates under a four-year casino service
industry license effective October 31, 1995, while New Claridge operates under a
four-year casino operator's license effective September 30, 1995.
The Partnership had a working capital deficiency of approximately $16,013,000 as
of June 30, 1996 and $14,352,000 as of December 31, 1995. 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 continues to make all payments under the operating leases, the
Partnership expects to be able to pay its current liabilities.
PART II
Item 6. Exhibits and reports on Form 8-K
(a) Not applicable.
(b) No reports on Form 8-K were filed during the quarter ended
June 30, 1996.
SIGNATURES
Pursuant to the requirements 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 August 13, 1996 /s/ Anthony C. Atchley
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by Anthony C. Atchley, General Partner
Date August 13, 1996 /s/ Gerald C. Heetland
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by Gerald C. Heetland, General Partner
Date August 13, 1996 /s/ Anthony C. Atchley
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by AC Boardwalk Partners Corporation,
General Partner
by Anthony C. Atchley, President