SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(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, 1993
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 __
Commission File No. 1-9029
TRUMP'S CASTLE FUNDING, INC.
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(Exact Name of Registrant as specified in its charter)
New Jersey 11-2739203
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(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) Number)
Huron Avenue and Brigantine Boulevard
Atlantic City, New Jersey 08401
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (609) 441-8640
Securities registered pursuant to Section 12(b) of the Act:
Name of each Exchange
Title of Each Class on which Registered
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11 3/4% Mortgage Notes due 2003 American Stock Exchange, Inc.
Increasing Rate Subordinated Pay-in-Kind American Stock Exchange, Inc.
Notes due 2005
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 Section 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
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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 registrants' knowledge, in definitive proxy or information
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statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. ( X )
The aggregate market value of the voting stock of Trump Castle Funding,
Inc. held by non-affiliates of the Registrant is $0.
Indicate by check mark whether the Registrants have filed all documents
and reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes X No _
As of March 25, 1993, there were 200 shares of the Registrant's Common
Stock outstanding.
Documents Incorporated by Reference -- Not applicable.
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FORM 10-K
TABLE OF CONTENTS
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Item Page
PART I
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Item 1 Business............................................................................................... 1
Item 2 Properties of the Partnership..........................................................................21
Item 3 Legal Proceedings......................................................................................23
Item 4 Submission of Matters to a Vote of Security Holders....................................................24
PART II
Item 5 Market for Funding's Common Equity and Related
Stockholder Matters...................................................................................25
Item 6 Selected Consolidated Financial Data...................................................................25
Item 7 Management's Discussion and Analysis of Financial
Condition and Results of Operations...................................................................28
Item 8 Financial Statements and Supplementary Data............................................................32
Item 9 Disagreements on Accounting and Financial
Disclosure............................................................................................32
PART III
Item 10 Directors and Executive Officers ......................................................................33
Item 11 Executive Compensation.................................................................................37
Item 12 Security Ownership of Certain Beneficial Owners
and Management........................................................................................40
Item 13 Certain Relationships and Related Transactions.........................................................41
PART IV
Item 14 Exhibits, Financial Statement Schedules and
Reports on Form 8-K...................................................................................44
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PART I
ITEM 1. BUSINESS.
(a) General Developments of Business
Trump's Castle Funding, Inc. ("Funding") was incorporated under the
laws of the State of New Jersey in May 1985 and is wholly-owned by Trump's
Castle Associates, a New Jersey general partnership (the "Partnership"). Funding
was formed to serve as a financing corporation to raise funds for the benefit of
the Partnership. Since Funding has no business operations, its ability to
service its indebtedness is completely dependent upon funds it receives from the
Partnership. Accordingly, the discussion herein concentrates upon the
Partnership and its operations.
The Partnership is owner and operator of Trump's Castle Casino Resort
("Trump's Castle"), a luxury casino hotel located in the Marina area of Atlantic
City, New Jersey. The partners in the Partnership are TC/GP, Inc. ("TC/GP"),
which has a 37.5% interest in the Partnership, Donald J. Trump ("Trump"), who
has a 61.5% interest in the Partnership, and Trump's Castle Hotel & Casino, Inc.
("TCHI"), which has a 1% interest in the Partnership. Trump, by virtue of his
ownership of TC/GP and TCHI, is the beneficial owner of 100% of the common
equity interest in the Partnership, subject to the right of the plaintiffs in
certain litigation to be issued warrants for the common stock of TCHI (the
"Litigation Warrants") representing the right to acquire an indirect beneficial
interest in 0.5% of the common equity interest in the Partnership. See "LEGAL
PROCEEDINGS" below.
In December 1993, the Partnership, Funding and certain affiliated
entities completed a recapitalization of their debt and equity capitalization
(the "Recapitalization"). The purpose of the Recapitalization was (i) to improve
the debt capitalization of the Partnership and, initially, to decrease its cash
charges, (ii) to provide the holders of the Units, each Unit comprised of $1,000
principal amount of Funding's 9.5% Mortgage Bonds due 1998 (the "Bonds") and one
share of TC/GP common stock, who participate in the Exchange Offer (as defined
below) with a cash payment of $6.19 and securities having a combined principal
amount of $905 for each Unit and (iii) to provide Trump with beneficial
ownership of 100% of the common equity interests in the Partnership (subject to
the Litigation Warrants).
The Recapitalization was also designed to take advantage of certain
provisions of the Units which were designed to provide Trump with incentives to
cause the Units to be repaid or redeemed prior to maturity. The Units were
issued in connection with a restructuring ("the Restructuring") of the
indebtedness of Funding, the Partnership and TCHI through a prepackaged plan of
reorganization (the "Plan") under chapter 11 of title 11 of the United States
Code, as amended, which was consummated on May 29, 1992. The Plan was designed
to alleviate a liquidity problem which the Partnership began to experience in
1990.
The Recapitalization
On December 28, 1993, the Partnership and Funding consummated the first
step in the Recapitalization, an exchange offer (the "Exchange Offer") pursuant
to which each $1,000 principal amount of Bonds accepted for exchange was
exchanged for $750 principal amount of Funding's 11-3/4% Mortgage Notes due 2003
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(the "Mortgage Notes"), $120 principal amount of Funding's Increasing Rate
Subordinated Pay-in-Kind Notes due 2005 (the "PIK Notes") and a cash payment of
$6.19, plus accrued interest to the date of exchange. The 3.8% of Bonds not
validly tendered in the Exchange Offer were defeased, and pursuant to their
terms, called for redemption at a price equal to 75% of the principal amount
thereof, plus accrued interest to the date of redemption.
On December 28, 1993, Funding issued, through a private placement, $27
million principal amount of its 11-1/2% Series A Senior Secured Notes due 2000
(the "Series A Notes"). The net proceeds from the sale of the Series A Notes
were used by the Partnership (i) to fund the redemption of the Bonds not
exchanged in the Exchange Offer and (ii) to repay a portion of the Partnership's
outstanding indebtedness. Pursuant to the terms of a Registration Rights
Agreement with the purchasers of the Series A Notes, Funding and the Partnership
have filed a registration statement with the Securities and Exchange Commission
(the "SEC") for the issuance of $27 million principal amount of Funding's
11-1/2% Series B Senior Secured Notes (the "Series B Notes") in exchange for the
$27 million outstanding principal amount of the Series A Notes. The Series B
Notes have terms which are virtually identical to those of the Series A Notes.
There can be no assurance that such offering will be consummated.
On December 30, 1993, the second step in the Recapitalization was
consummated, a merger (the "Merger") of Trump's Castle Holding, Inc.
("Holding"), a Delaware corporation wholly owned by the Partnership, with and
into TC/GP. Pursuant to the terms of the Merger, each holder of TC/GP Common
Stock, other than those who exercised their statutory appraisal rights, received
$35 principal amount of PIK Notes for each share of TC/GP Common Stock. The
Partnership, as the holder of all of the outstanding common stock of Holding
immediately prior to consummation of the Merger, acquired all of the outstanding
common stock of TC/GP as a result of the Merger. Upon consummation of the
Merger, the Partnership distributed all of the TC/GP common stock to Trump, and
the partnership agreement of the Partnership was amended and restated to alter
certain governance procedures and to otherwise reflect the Recapitalization.
As a result of the Recapitalization, TC/GP has a 37.5% interest in the
Partnership, Trump has a 61.5% interest in the Partnership, TCHI has a 1%
interest in the Partnership and Trump is the beneficial owner of 100% of the
common equity interests in the Partnership (subject to the Litigation Warrants).
Also as a consequence of the Recapitalization, the principal amount of the
Partnership's debt has been reduced, and, initially, the Partnership's cash
charges have been reduced.
Upon consummation of the Recapitalization, Funding's outstanding debt
consisted of the $27 million principal amount outstanding of its Senior Notes,
the approximately $242 million principal amount outstanding of its Mortgage
Notes (which are subordinated to the Senior Notes) and the approximately $50
million principal amount outstanding of its PIK Notes (which are subordinated to
both the Senior Notes and the Mortgage Notes). Funding has also guaranteed the
Midlantic Term Loan (as defined below).
In addition, upon consummation of the Recapitalization, the Partnership
had outstanding approximately $357 million principal amount of indebtedness,
including a term loan due to Midlantic National Bank, which had an aggregate
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principal amount outstanding of $38 million as of December 31, 1993 (the
"Midlantic Term Loan") and the intercompany notes securing the Senior Notes, the
Mortgage Notes, and the PIK Notes, which had an aggregate principal amount
outstanding of approximately $319 million as of December 31, 1993.
The Restructuring
In 1990, the Partnership began experiencing a liquidity problem. The
Partnership believes that its liquidity problem was attributable, in part, to an
overall deterioration in the Atlantic City gaming market, as indicated by
reduced rates of casino revenue growth for the industry for the two prior years,
aggravated by an economic recession in the Northeast and the Persian Gulf War.
Comparatively excessive casino gaming capacity in Atlantic City, due in part to
the opening of the Trump Taj Mahal Casino Resort, which at the time was
wholly-owned by Trump (the "Taj Mahal"), in April 1990, may also have
contributed to the Partnership's liquidity problem.
As a result of the Partnership's liquidity problem, Funding failed to
make interest and sinking fund payments on its public debt securities. In 1990,
the Partnership also failed to pay interest installments on certain indebtedness
due Midlantic, although the Partnership subsequently made payment to Midlantic
of all unpaid interest on such debt and met its debt service obligations to
Midlantic.
In order to alleviate its liquidity problem, on May 29, 1992, TCHI,
Funding and the Partnership (collectively, the "Debtors") restructured their
indebtedness through the Plan under chapter 11 of the Bankruptcy Code. The
purpose of the Restructuring was to improve the amortization schedule and extend
the maturity of the Partnership's indebtedness by reducing and deferring the
Debtor's annual debt service requirements by (1) lowering the interest rate on
the Partnership's and Funding's long term indebtedness to Midlantic and (2) by
issuing the Bonds with an overall lower rate of interest as compared with
Funding's then outstanding public debt securities.
Upon consummation of the Plan, each $1,000 principal amount, or
accreted amount, of Funding's public debt securities were exchanged for $1,000
in principal amount of Bonds, together with one share of the common stock of
TC/GP and certain other payments. By virtue of TC/GP's interest in the
Partnership, the holders of Funding's public debt securities prior to
consummation of the Plan became the beneficial owners of 50% of the Partnership
after consummation of the Plan.
The terms of the Bonds and the partnership agreement executed upon
consummation of the Restructuring were designed to provide Trump with incentives
to cause the Bonds to be repaid or redeemed prior to maturity. Under the terms
of the indenture pursuant to which the Bonds were issued, the Bonds were
initially redeemable at a redemption price equal to 70% of the outstanding
principal amount thereof, together with accrued and unpaid interest to the date
of redemption. Such redemption price, however, increased over time to par on or
after January 1, 1996. In addition, the partnership agreement provided that upon
a redemption of the Bonds, the interest of TC/GP in the Partnership would be
decreased, and the interest of Trump in the Partnership would be increased,
based upon the redemption date of the Bonds and the redemption price paid with
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respect thereto. The earlier the redemption and the greater the redemption price
paid with respect to the Bonds, the greater the adjustment to TC/GP's and
Trump's partnership interests.
As a result of the Exchange Offer, 96.2% of the Bonds were exchanged
for Mortgage Notes, PIK Notes, and a cash payment, and 3.8% of the Bonds were
redeemed for cash at 75% of their principal amount. In addition, upon
consummation of the Merger, each share of TC/GP common stock was converted into
the right to receive $35 principal amount of PIK Notes. See "The
Recapitalization" above.
(b) Financial Information About Industry Segments
The Partnership operates in only one industry segment. See "SELECTED
CONSOLIDATED FINANCIAL DATA" below.
(c) Narrative Description of the Business
Casino Hotel Operations. The Partnership owns and operates Trump's
Castle, a luxury casino hotel located in the Marina District of Atlantic City,
New Jersey, seven miles from New Jersey's Garden State Parkway. With its 70,000
square foot casino, first-class guest rooms and other luxury amenities, Trump's
Castle has been awarded a "Four Star" Mobil Travel Guide rating in each of the
last three years. Management believes that the "Four Star" rating reflects the
high quality amenities and services that Trump's Castle provides to its casino
patrons and hotel guests.
Trump's Castle's casino offers 94 table games (including 13
poker tables) and 2,098 slot machines. During 1993, Trump's Castle completed a
10,000 square foot expansion to its casino which has enabled Trump's Castle to
increase the number of slot machines on the casino floor by 300 units, to
provide more space between slot machines, and to place stools in front of
additional slot machines, all of which are designed to provide the gaming patron
with a more comfortable gaming experience. Presently, Trump's Castle is
undertaking a 3,000 square foot expansion to accommodate the addition of
simulcast race-track wagering. The expansion will also increase casino access
and casino visibility for hotel patrons. In addition, Trump's Castle recently
completed the construction of a Las Vegas style marquee and reader board, the
largest of its kind on the East Coast. See "PROPERTIES OF THE PARTNERSHIP"
below.
Trump's Castle has identified exceptional service as a means of
differentiating itself from and competing with other casinos in Atlantic City.
It has invested significant resources to the development of its 700 managers and
3,000 employees to insure that the corporate culture meets its service
strategies. In addition, Trump's Castle's annual capital expenditures are
designed to insure that room accommodations, restaurants, public areas, the
casino and all other areas of the hotel are maintained in first-class "Four
Star" condition.
Trump's Castle's primary marketing strategy focuses on
attracting and retaining middle and upper middle market "drive-in" patrons who
visit Atlantic City frequently and have proven to be the most profitable market
segment. Trump's Castle has also recently implemented an aggressive overseas
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marketing plan designed to broaden its patron base by seeking to attract "high
roller" table game patrons who tend to wager large sums of money. Recently,
Trump's Castle has recruited several senior level casino marketing executives
who have extensive experience in overseas marketing and a proven track record of
attracting profitable international "high rollers". This new strategy will also
include promotions and offer special events aimed at the overseas market and is
designed to offset the decline of table games play by the domestic market.
Trump's Castle also intends to capitalize on its first-class facilities,
particularly its luxury suite tower and on-site helipad to attract international
patrons.
Casino gaming in Atlantic City is strictly regulated under the New
Jersey Casino Control Act and the regulations promulgated thereunder (the
"Casino Control Act") and other applicable laws, which affect virtually all
aspects of the Partnership's operations. See "Gaming and Other Laws and
Regulations" below.
Marketing Strategy.
General
In 1990, the Atlantic City casino industry experienced a significant
increase in room capacity and in available casino floor space, due primarily to
opening of the Taj Mahal, which at the time was wholly-owned by Trump.
Management believes that the opening of the Taj Mahal had a disproportionately
adverse effect on Trump's Castle due to the common use of the "Trump" name, and
the fact that Trump's Castle is reached via the same access road as the Taj
Mahal. The Partnership believes that results in 1991 were also affected by the
weakness in the economy throughout the Northeast and the adverse impact on
tourism and consumer spending in 1991 of the war in the Middle East. See
"Competition" below.
In 1991, the Partnership retained the services of Nicholas L. Ribis, as
Chief Executive Officer, and Roger P. Wagner, as President and Chief Operating
Officer. At such time, Mr. Ribis was also retained as the chief executive
officer of the partnerships which operate the Taj Mahal and Trump Plaza Hotel
and Casino, which at the time was wholly owned by Trump ("Trump Plaza", and
together with the Taj Mahal, the "Other Trump Casinos"). Trump and this new
management team implemented a new business strategy designed to capitalize on
Trump's Castle's first-class facilities and improve operating results.
Key elements of the new business strategy consist of differentiating
Trump's Castle from other Atlantic City casinos based on its level of service,
gaming environment and location, redirecting marketing efforts and continually
monitoring operations to adapt to, and anticipate, industry trends. After
establishing the new marketing strategy in 1991, the Partnership in 1992
implemented an aggressive plan to regain the patrons it had lost in 1990 and
1991 and to attract new patrons by increasing its promotional activities and
complimentaries offered. Trump's Castle improved its market share by the end of
1992 and continues to improve operating margins by directing complimentaries and
promotional activities to attract the most profitable patrons in each market
segment. In addition, Trump's Castle has recently implemented an aggressive
overseas marketing plan designed to broaden its patron base by seeking to
attract high-end table game patrons. This new strategy will include promotions
and offer special events and is designed to offset the decline of table games
play by the domestic market.
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Service
The Partnership has identified service as a means of differentiating
itself from and competing with other Atlantic City casinos, and has adopted the
slogan "Trump's Castle Where Service Is King." In 1990, the Partnership created
a new service enhancement department designed to increase the quality of service
provided to casino patrons, and create a service oriented culture.
The Partnership believes that in the past most casino services were
directed at high rollers and middle market patrons who wagered at table games.
By providing a high level of service to all patrons, including middle market
slot patrons, the Partnership seeks to foster loyalty among its patrons and
repeat play.
Gaming Environment
In 1993, the Partnership completed a 10,000 square foot expansion of
its main casino floor space bringing the total casino floor space to 70,000
square feet. This expansion enabled the Partnership to introduce live poker
games and at the same time to increase the number of slot machines, to provide
more space between slot machines, and to place stools in front of additional
slot machines. These changes are designed to provide the gaming patron with a
more comfortable gaming experience. In addition, Trump's Castle has also
introduced a separate non-smoking area on its casino floor. See "PROPERTIES OF
THE PARTNERSHIP" below.
The Partnership continuously monitors the configuration of the casino
floor and the games it offers to patrons with a view towards making changes and
improvements. Trump's Castle's casino floor was the first in Atlantic City to
feature live poker.
In recent years, there has been an industry trend towards fewer table
games and more slot machines. For the Atlantic City casino industry, revenue
from slot machines increased from 54.6% of the industry gaming revenue in 1988
to 67.1% of the industry gaming revenue in 1993. Trump's Castle experienced a
similar increase, with slot revenue increasing from 52.5% of gaming revenue in
1988 to 70.2% of gaming revenue in 1993. In response to this trend, Trump's
Castle has devoted more of its casino floor space to slot machines and has
replaced 900 of its slot machines with newer machines. In the next six months
Trump's Castle intends to acquire an additional 100 slot machines to replace
less popular, older models. Moreover, as part of its program to attract middle
market slot patrons, the Partnership has created "Castle Square", a section of
the casino floor devoted to one dollar slot machines, and "Monte Carlo", a
section of the casino floor devoted to high denomination slot machines (most of
which provide for $5 or more per play). The Partnership is currently considering
introducing another high denomination slot machine area next to the "King of
Clubs" lounge and intends to introduce "keno" in the second quarter of 1994,
subject to approval by the CCC.
"Comping" Strategy
In order to compete effectively with other Atlantic City casino hotels,
the Partnership offers complimentary drinks, meals, room accommodations and/or
travel arrangements to its patrons ("complimentaries" or "comps"). In 1991 and
1992, Trump's Castle increased promotional activities and complimentaries to its
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targeted patrons in order to regain lost market share. Currently, the policy at
Trump's Castle is to focus promotional activities, including complimentaries, on
a middle and upper middle market "drive-in" patrons who visit Atlantic City
frequently and have proven to be the most profitable market segment.
Entertainment and Special Events
The Partnership pursues a coordinated program of headline entertainment
and special events. Trump's Castle offers headline entertainment approximately
twelve times a year which, in 1993, included performances by Joan Rivers, Johnny
Cash, Ann Margaret, Frankie Avalon, Bobby Rydell, and The Neville Brothers.
Headliners who are scheduled to appear at Trump's Castle in 1994 include Tom
Jones, Sheena Easton, The Everly Brothers, The Pointer Sisters and The Beach
Boys. During 1994, Trump's Castle will also produce a series of review-style
shows with up to 12 shows per week for 30 weeks over the year. The review-style
shows will focus on attracting mass market customers and will also be used to
reward loyal high frequency middle market customers.
As a part of its overseas marketing plan, Trump's Castle offers special
events aimed at the overseas market. In 1993, for example, Trump's Castle held
an Italian Christmas celebration targeted toward the European Market. In
addition, Trump's Castle hosts over 100 special events on an invitation only
basis in an effort to attract middle market gaming patrons and build loyalty
among patrons. These special events include boxing, golf tournaments, birthday
parties and theme parties. Headline entertainment is scheduled so as not to
overlap with any of these special events.
Player Development and Casino Hosts
The Partnership has contracts with approximately ten sales
representatives in New Jersey, New York and other states to promote Trump's
Castle. Trump's Castle has sought to attract more middle market slot machine
gaming patrons, as well as high rollers, through its "junket" marketing
operations, which involves attracting groups of patrons by providing airfare,
gifts and room accommodations. Trump's Castle has also recently undertaken a
marketing effort aimed at developing patronage from the high-end table gaming
markets in Europe, Asia, Canada and Latin America. The Partnership also has
contracts with two international sales representatives and has recruited several
senior level casino marketing executives who have extensive experience in
overseas marketing and a proven track record of attracting profitable high-end
table gaming patrons.
Trump's Castle's casino hosts assist table game patrons, and Trump's
Castle's slot sales representatives assist slot patrons on the casino floor,
make room and dinner reservations and provide general assistance. Slot sales
representatives also solicit Castle Card (the frequent player slot card)
sign-ups in order to increase the Partnership's marketing base.
Promotional Activities
The Castle Card (the frequent player identification slot card)
constitutes a key element in Trump's Castle's direct marketing program. Slot
machine players are encouraged to register for and utilize their personalized
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Castle Card to earn various complimentaries based upon their level of play. The
Castle Card is inserted during play into a card reader attached to the slot
machine for use in computerized rating systems. These computer systems record
data about the cardholder, including playing preferences, frequency and
denomination of play and the amount of gaming revenues produced. Slot sales and
management personnel are able to monitor the identity and location of the
cardholder and the frequency and denomination of his slot play. They also use
this information to provide attentive service to the cardholder while he is on
the casino floor.
Trump's Castle designs promotional offers, conveyed via direct mail and
telemarketing, to patrons expected to provide revenues based upon their
historical gaming patterns. Such information is gathered on slot wagering by the
Castle Card and on table wagering by the casino games supervisor. Trump's Castle
also utilizes a special events calendar (e.g., birthday parties, sweepstakes and
special competitions) to promote its gaming operations.
Credit Policy
Historically, Trump's Castle has extended credit to certain qualified
patrons. For the years ended December 31, 1991 and 1992, credit play at Trump's
Castle as a percentage of total dollars wagered was approximately 31% and 28%,
respectively. In recognition of the general economic conditions in the Northeast
and consistent with a more focused marketing strategy, Trump's Castle also
imposed stricter standards on applications for new or additional credit.
Although Trump's Castle has successfully attracted high-end table games patrons,
who in general tend to use a higher percentage of credit in their wagering,
through its "junket" marketing operations and has recently undertaken a
marketing effort aimed at high-end international table game patrons, who also
tend to use a higher percentage of credit in their wagering, credit play as a
percentage of total dollars wagered increased to only 29% for the year ended
December 31, 1993.
Bus Program
Trump's Castle has a bus program which transports approximately 2,100
gaming patrons per day during the week and 2,600 per day on the weekends. The
Partnership's bus program offers incentives and discounts to certain scheduled
and chartered bus customers. Based on historical surveys, the Partnership has
determined that gaming patrons who arrive by scheduled bus line as opposed to
special charter or who travel distances of 60 miles or more are more likely to
create higher gaming revenue for Trump's Castle. Accordingly, Trump's Castle's
marketing efforts are focused on such bus patrons.
Risks Inherent in an International Marketing Strategy
The potential benefit derived from the Partnership's recently
implemented overseas marketing plan designed to attract "high rollers", may not
outweigh the high costs associated with attracting such players. In addition,
the large sums of money wagered by "high rollers" may result in substantial
gains or losses by individual patrons, which could increase the volatility of
Trump's Castle's results of operations and thus increase the Partnership's need
for liquidity. There may also be difficulties presented in collecting from such
players.
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Atlantic City Market. Gaming in Atlantic City started in May 1978 when
the first casino hotel opened for business. Since 1978, gaming in Atlantic City
has grown from one casino to 12 casinos at the beginning of 1994, with
approximately $3.3 billion of casino industry revenue generated in 1993. Gaming
revenue for all Atlantic City casino hotels has increased approximately 2.6%,
5.2%, 1.3%, 7.5% and 2.6% during 1989, 1990, 1991, 1992 and 1993, respectively
(in each case as compared to the prior year). See "Competition" below.
Atlantic City is near many densely populated metropolitan areas. The
primary area served by Atlantic City casino hotels is the corridor that extends
from Washington, D.C. to Boston and includes New York City and Philadelphia.
Within this primary area, Atlantic City may be reached by automobile or bus.
Principal arteries lead into Atlantic City from the metropolitan New York area
and from the Baltimore/Washington, D.C. area, both of which are approximately
three hours away by automobile. Atlantic City can also be reached by air and
rail transportation, although most patrons arrive by automobile or bus.
Historically, Atlantic City has suffered from inadequate rail and air
transportation. As a result, a majority of Atlantic City gaming patrons travel
from the mid-atlantic and northeast regions of the United States by automobile
or bus. Rail service to Atlantic City has recently been improved with the
introduction of Amtrak express service to and from Philadelphia and New York
City. An expansion of the Atlantic City International Airport (located
approximately 12 miles from Atlantic City) to handle large airline carriers and
large passenger jets was recently completed. Despite the expansion of the
Atlantic City International Airport, however, access to Atlantic City by air is
still limited by a lack of regularly scheduled flights and by inadequate
terminal facilities. The lack of adequate transportation infrastructure has
limited the expansion of the Atlantic City gaming industry's geographic patron
base and the attractiveness of Atlantic City to major conventions.
Competition. Competition in the Atlantic City casino hotel market is
intense. Trump's Castle competes primarily with other casinos located in
Atlantic City, New Jersey, as well as gaming establishments located on Native
American reservations in New York and Connecticut and also would compete with
any other facilities in the northeastern and mid-Atlantic regions of the United
States at which casino gaming or other forms of wagering may be authorized in
the future. To a lesser extent, Trump's Castle faces competition from cruise
lines, riverboat gaming and casinos located in Mississippi, Nevada, New Orleans,
Puerto Rico, the Bahamas and other locations inside and outside the United
States, and from other forms of legalized gaming in New Jersey and in its
surrounding states such as lotteries, horse racing (including off-track
betting), jai alai and dog racing, and from illegal wagering of various types.
At present, there are 12 casino hotels located in Atlantic City,
including Trump's Castle, all of which compete for patrons. In addition, there
are several sites on The Boardwalk and in the Atlantic City Marina area on which
casino hotels could be built in the future, or on which existing casino hotels
could expand, including the property commonly known as the "Trump Regency Hotel"
on which Trump Plaza has an option.
Total Atlantic City gaming revenues have increased over the past three
years, although at varying rates. In 1991, six Atlantic City casino hotels
reported increases in gaming revenues as compared to 1990, and five reported
decreases in gaming revenues (including Trump's Castle). The Partnership
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believes that results in 1991 were affected by the weakness in the economy
throughout the Northeast and the adverse impact in 1991 on tourism and consumer
spending of the Persian Gulf War. Although all 12 Atlantic City casinos reported
increases in gaming revenues in 1992 as compared to 1991, the Partnership
believes that this was due, in part, to the depressed industry conditions in
1991. In 1993, nine casinos (including Trump's Castle) experienced increased
casino revenues, as compared to 1992, while three casinos reported decreases.
In 1990, the Atlantic City casino industry experienced a significant
increase in room capacity and in available casino floor space, including the
rooms and floor space made available by the opening of the Taj Mahal, which at
the time was wholly-owned by Trump. The effects of such expansion were to
increase competition and to contribute to a decline in 1990 in gaming revenues
per square foot. In 1990, the Atlantic City casino industry experienced a
decline in gaming revenues per square foot of 5.0%, which trend continued in
1991, although at the reduced rate of 2.9%. However, in 1992 and 1993, the
Atlantic City casino industry experienced an increase of 6.9% and 1.4%,
respectively in gaming revenues per square foot each as compared to the prior
year.
The profitability of Trump's Castle could be affected by its proximity
to Harrah's Marina Hotel Casino, which is owned and operated by a third party
not affiliated with the Partnership. Trump's Castle and Harrah's Marina Hotel
Casino are the only casino hotels located in the Marina area of Atlantic City.
The remaining Atlantic City casino hotels are located on The Boardwalk. The
Partnership believes that the concentration of casino hotels on The Boardwalk
has resulted in a significant number of patrons being attracted to that area and
away from the vicinity of Trump's Castle. The Partnership further believes that
the location of Trump's Castle has adversely affected its ability to attract
walk-in patrons, although the Partnership believes that its location away from
The Boardwalk area serves as an attractive feature to visitors seeking to avoid
the congested downtown area. The Partnership also believes that Trump's Castle
benefits, to some extent, from its relative geographic isolation by virtue of
the fact that patrons do not have the option of walking from one casino to
another once they arrive at Trump's Castle.
Casinos in Atlantic City must be located in approved hotel facilities
which offer dining, entertainment and other guest facilities. Competition among
casino hotels is based primarily upon promotional allowances, advertising, the
attractiveness of the casino area, service, quality and price of rooms, food and
beverages, restaurant, convention and parking facilities and entertainment. In
order to compete effectively with all other Atlantic City casino hotels, the
Partnership offers complimentary drinks, meals, room accommodations and/or
travel arrangements to patrons with a demonstrated propensity to wager at
Trump's Castle, as well as cash bonuses and other incentives pursuant to
approved coupon programs.
In 1988, Congress passed the Indian Gaming Regulatory Act ("IGRA"),
which requires any state in which casino-style gaming is permitted (even if only
for limited charity purposes) to negotiate compacts with federally recognized
Native American tribes at the request of such tribes. Under IGRA, Native
American tribes enjoy comparative freedom from regulation and taxation of gaming
operations, which provides such tribes with an advantage over their competitors,
including the Partnership. In 1991, the Mashantucket Pequot Nation opened a
casino facility in Ledyard, Connecticut, located in the far eastern portion of
such state, an approximately three-hour drive from New York City. In February
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1992, the Mashantucket Pequot Nation initiated 24 hour gaming. In January 1993,
slot machines were added at such facility, and the facility currently contains
over 3,100 slot machines. The Mashantucket Pequot Nation has announced various
expansion plans, including its intention to build another casino in Ledyard
together with hotels, restaurants and a theme park.
Trump, the Partnership and the Other Trump Casinos have recently filed
a lawsuit seeking, among other things, a declaration that IGRA is
unconstitutional and seeking an injunction against the enforcement of certain
provisions of IGRA. The complaint states, among other things, that the
Mashantucket Pequot Nation's casino has caused the Partnership substantial
economic injury. The complaint states further that any future expansions of
existing Native American gaming facilities or new ventures by such persons or
others in the northeastern or mid-Atlantic region of the United States would
have a further adverse impact on Atlantic City in general and could cause the
Partnership further substantial economic injury.
A group in New Jersey terming itself the "Ramapough Indians" has
applied to the U.S. Department of the Interior to be recognized formally as a
Native American tribe, which recognition would permit it to require the State of
New Jersey to negotiate a gaming compact under IGRA. On December 3, 1993,
however, the Interior Department proposed that such Federal recognition to the
Ramapough Indians be denied. Similarly, a group in Cumberland County, New Jersey
calling itself the "Nanticoke Lenni Lenape" tribe has filed a notice of intent
with the Federal Bureau of Indian Affairs seeking formal recognition as a Native
American tribe. Also, it has been reported that a Sussex County, New Jersey
businessman has offered to donate land he owns there to the Oklahoma-based
Lenape/Delaware Indian Nation which originated in New Jersey and already has
Federal tribal status but does not have a reservation in the state. In addition,
in July 1993, the Oneida Nation opened a casino featuring 24-hour table gaming,
but without slot machines, near Syracuse, New York. Representatives of the St.
Regis Mohawk Nation signed a gaming compact with New York State officials for
the opening of a casino, without slot machines, in the northern portion of the
state close to the Canadian border. The St. Regis Mohawk Nation has announced
that it intends to open their casino in the summer of 1994. The Narragansett
Nation of Rhode Island has recently won a Federal court case which will require
the Governor of Rhode Island to negotiate a casino gaming compact with the
Nation. The Mohegan Nation, which is located in Connecticut, received federal
recognition in March 1994. Other Native American Nations are seeking federal
recognition, land, and negotiation of gaming compacts in New York, Pennsylvania,
Connecticut and other nearby states.
Legislation permitting other forms of casino gaming has been proposed,
from time to time, in various states, including those bordering New Jersey.
Trump's Castle's operations would be adversely affected by such competition,
particularly if casino gaming were permitted in jurisdictions near or in New
Jersey or other states in the Northeast. In December 1993, the Rhode Island
Lottery Commission approved the addition of slot machine games on video
terminals at Lincoln Greyhound Park and Newport Jai Alai, where poker and
blackjack have been offered for over two years. The State of Louisiana recently
approved casino gaming in the city of New Orleans, and a developer has been
selected. Currently, casino gaming, other than Native American gaming, is not
allowed in other areas of New Jersey or in New York or Pennsylvania. However,
Trump's Castle expects that proposals may be introduced to legalize riverboat or
other forms of gaming in Philadelphia and one or more other locations in
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Pennsylvania. To the extent that legalized gaming becomes more prevalent in New
Jersey or other jurisdictions, competition would intensify.
In addition, legislation has from time to time been introduced in the
New Jersey State Legislature relating to types of statewide legalized gaming,
such as video games with small wagers. To date, no such legislation, which may
require a state constitutional amendment, has been enacted. The Partnership is
unable to predict whether any such legislation, if enacted, would have a
material adverse impact on the results of operations or financial condition of
the Partnership.
Seasonality. The gaming industry in Atlantic City traditionally has
been seasonal, with its strongest performance occurring from May through
September, and with December and January showing substantial decreases in
activity. Revenues have been significantly higher on Fridays, Saturdays, Sundays
and holidays than on other days. In addition, in the summer months, Trump's
Castle may be adversely affected by the desire of certain patrons to wager at a
location which is readily accessible to The Boardwalk.
The Conflicting Interests of Certain Officers and Directors of the
Partnership and its Affiliates. Trump is the beneficial owner of Trump Plaza and
a 50% beneficial owner of the Taj Mahal and is the sole owner of Trump Plaza
Management Corp. ("TPM"), an entity that provides management services to Trump
Plaza. In addition, Trump has a personal services agreement with the partnership
that owns the Taj Mahal ("TTMA") pursuant to which he receives substantial
compensation based, in part, on the financial results of the Taj Mahal. Under
certain circumstances, Trump could increase his beneficial interest in the Taj
Mahal to 100%. Trump could under certain circumstances have an incentive to
operate the Other Trump Casinos to the competitive detriment of the Partnership.
However, the Services Agreement entered into between the Partnership and TC/GP
provides that Trump and his affiliates will not engage in any activity,
transaction or action which would result in the Other Trump Casinos realizing a
competitive advantage over Trump's Castle. The Other Trump Casinos compete
directly with each other and with other Atlantic City casino hotels, including
Trump's Castle. Nicholas L. Ribis, the Chief Executive Officer of the
Partnership, is also the chief executive officer of the partnerships that own
the Other Trump Casinos, and Messrs. Ernest E. East and John P. Burke, officers
of the Partnership, are also executive officers of the partnerships that own the
Other Trump Casinos. In addition, Messrs. Trump, Ribis, East and Burke serve on
the governing bodies of the partnerships that own the Other Trump Casinos. As a
result of Trump's interests in three competing Atlantic City casinos, the common
chief executive officer, and other common officers, a conflict of interest may
be deemed to exist by reason of such persons' access to information and business
opportunities possibly useful to any or all of such casinos. Although no
specific procedures have been devised for resolving conflicts of interest
confronting, or which may confront, Trump, such persons and the Other Trump
Casinos, Messrs. Trump, Ribis, East and Burke do not engage in any activity
which they reasonably expect will harm Trump's Castle or is otherwise
inconsistent with their fiduciary obligations to the Partnership.
Employees and Labor Relations. As of December 31, 1993, the Partnership
employed approximately 3,700 full and part time employees for the operation of
Trump's Castle, of whom approximately 932 were subject to collective bargaining
agreements. The Partnership's collective bargaining agreement with Local No. 54
affiliated with the Hotel Employees and Restaurant Employees International Union
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AFL-CIO expires on September 14, 1994. Such agreement extends to approximately
820 employees. Preparation for negotiations for a new collective bargaining
agreement with Local No. 54 are currently underway. In addition, three other
collective bargaining agreements which expire in 1996 cover approximately 112
maintenance employees. The Partnership believes that its relationships with its
employees are satisfactory. Funding has no employees.
All of the Partnership's employees are required to be registered with
or licensed by the Casino Control Commission (the "CCC") pursuant to the Casino
Control Act. Casino employees are subject to more stringent licensing
requirements than non-casino employees, and must meet applicable standards
pertaining to such matters as financial responsibility, good character, ability,
casino training, experience and New Jersey residency. Such regulations have
resulted in significant competition for employees who meet these requirements.
Gaming and Other Laws and Regulations. The following is only a summary
of the applicable provisions of the Casino Control Act and certain other laws
and regulations. It does not purport to be a full description thereof and is
qualified in its entirety by reference to the Casino Control Act and such other
laws and regulations.
In general, the Casino Control Act contains detailed provisions
concerning, among other things: the granting of casino licenses; the suitability
of the approved hotel facility and the amount of authorized casino space and
gaming units permitted therein; the qualification of natural persons and
entities related to the casino licensee; the licensing and registration of
employees and vendors of casino licensees; rules of the games; the selling and
redeeming of gaming chips; the granting and duration of credit and the
enforceability of gaming debts; management control procedures, accounting and
cash control methods and reports to gaming agencies; security standards; the
manufacture and distribution of gaming equipment; equal employment opportunity
for employees of casino operators, contractors of casino facilities and others;
and advertising, entertainment and alcoholic beverages.
Casino Control Commission
The ownership and operation of casino hotel facilities in Atlantic City
are the subject of strict state regulation under the Casino Control Act. The CCC
is empowered to regulate a wide spectrum of gaming and non-gaming related
activities and to approve the form of ownership and financial structure of not
only a casino licensee, but also its entity qualifiers and intermediary and
holding companies.
Operating Licenses
The Partnership was issued its initial casino license in June 1985.
During April 1993, the CCC renewed the Partnership's casino license and approved
Trump as a natural person qualifier through May 1995. No assurance can be given
that the CCC will renew the Partnership's casino license or, if it does so, as
to the conditions it may impose, if any, with respect thereto.
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Casino License
No casino hotel facility may operate unless the appropriate license and
approvals are obtained from the CCC, which has broad discretion with regard to
the issuance, renewal, revocation and suspension of such licenses and approvals,
which are non-transferable. The qualification criteria with respect to the
holder of a casino license include its financial stability, integrity and
responsibility; the integrity and adequacy of its financial resources which bear
any relation to the casino project; its good character, honesty and integrity;
and the sufficiency of its business ability and casino experience to establish
the likelihood of a successful, efficient casino operation. The casino license
held by the Partnership is renewable for periods of up to two years. The CCC may
reopen licensing hearings at any time, and must reopen a licensing hearing at
the request of the Division of Gaming Enforcement (the "Division").
To be considered financially stable, a licensee must demonstrate the
following ability: to pay winning wagers when due, to achieve a gross operating
profit; to pay all local, state and federal taxes when due, to make necessary
capital and maintenance expenditures to insure that it has a superior
first-class facility, and to pay, exchange, refinance or extend debts which will
mature or become due and payable during the license term.
In the event a licensee fails to demonstrate financial stability, the
CCC may take such action as it deems necessary to fulfill the purposes of the
Casino Control Act and protect the public interest, including: issuing
conditional licenses, approvals or determinations; establishing an appropriate
cure period; imposing reporting requirements; placing restrictions on the
transfer of cash or the assumption of liability; requiring reasonable reserves
or trust accounts; denying licensure; or appointing a conservator. See
"Conservatorship" below.
The Partnership believes that it has adequate financial resources to
meet the financial stability requirements of the CCC for the foreseeable future.
Pursuant to the Casino Control Act, CCC Regulations and precedent, no
entity may hold a casino license unless each officer, director, principal
employee, person who directly or indirectly holds any beneficial interest or
ownership in the licensee, each person who in the opinion of the CCC has the
ability to control or elect a majority of the board of directors of the licensee
(other than a banking or other licensed lending institution which makes a loan
or holds a mortgage or other lien acquired in the ordinary course of business),
and any lender, underwriter, agent or employee of the licensee or other person
whom the CCC may consider appropriate, obtains and maintains qualification
approval from the CCC. Qualification approval means that such person must, but
for residence, individually meet the qualification requirements as a casino key
employee. See "Employees" below. Pursuant to conditions of the Partnership's
casino license, payments by the Partnership to or for the benefit of any related
entity or any partner are subject to prior CCC approval; and, if the
Partnership's cash position falls below $5 million for three consecutive
business days, the Partnership must present to the CCC and the Division evidence
as to why it should not obtain a working capital facility in an appropriate
amount.
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Control Persons
An entity qualifier or intermediary or holding company, such as TC/GP,
TCHI and Funding, is required to register with the CCC and meet the same basic
standards for approval as a casino licensee; provided, however, that the CCC,
with the concurrence of the Director of the Division, may waive compliance by a
publicly-traded corporate holding company with the requirement that each
officer, director, lender, underwriter, agent or employee thereof, or person
directly or indirectly holding a beneficial interest or ownership of the
securities thereof, individually qualify for approval under casino key employee
standards, so long as the CCC and the Director are, and remain, satisfied that
such officer, director, lender, underwriter, agent or employee is not
significantly involved in the activities of the casino licensee, or that such
security holder does not have the ability to control the publicly-traded
corporate holding company or elect one or more of its directors. Persons holding
five percent or more of the equity securities of such holding company are
presumed to have the ability to control the company or elect one or more of its
directors and will, unless this presumption is rebutted, be required to
individually qualify. Equity securities are defined as any voting stock or any
security similar to or convertible into or carrying a right to acquire any
security having a direct or indirect participation in the profits of the issuer.
Financial Sources
The CCC may require all financial backers, investors, mortgagees, bond
holders and holders of notes or other evidence of indebtedness, either in effect
or proposed, which bears any relation to the casino project, publicly-traded
securities of an entity which holds a casino license or is an entity qualifier,
subsidiary or holding company of a casino licensee (a "Regulated Company"), to
qualify as financial sources. In the past, the CCC has waived the qualification
requirement for holders of less than 15% of a series of publicly-traded mortgage
bonds so long as the bonds remained widely-distributed and freely-traded in the
public market and the holder had no ability to control the casino licensee. The
CCC may require holders of less than 15% of a series of debt to qualify as
financial sources even if not active in the management of the issuer or the
casino licensee.
Institutional Investors
An institutional investor ("Institutional Investor") is defined by the
Casino Control Act as any retirement fund administered by a public agency for
the exclusive benefit of federal, state or local public employees; investment
company registered under the Investment Company Act of 1940; collective
investment trust organized by banks under Part Nine of the Rules of the
Comptroller of the Currency; closed end investment trust; chartered or licensed
life insurance company or property and casualty insurance company; banking and
other chartered or licensed lending institution; investment advisor registered
under the Investment Advisers Act of 1940; and such other persons as the CCC may
determine for reasons consistent with the policies of the Casino Control Act.
An Institutional Investor may be granted a waiver by the CCC from
financial source or other qualification requirements applicable to a holder of
publicly-traded securities, in the absence of a prima facie showing by the
Division that there is any cause to believe that the holder may be found
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unqualified, on the basis of CCC findings that: (a) its holdings were purchased
for investment purposes only and, upon request by the CCC, it files a certified
statement to the effect that it has no intention of influencing or affecting the
affairs of the issuer, the casino licensee or its holding or intermediary
companies; provided, however, that the Institutional Investor will be permitted
to vote on matters put to the vote of the outstanding security holders; and (b)
if (i) the securities are debt securities of a casino licensee's holding or
intermediary companies or another subsidiary company of the casino licensee's
holding or intermediary companies which is related in any way to the financing
of the casino licensee and represent either (x) 20% or less of the total
outstanding debt of the company or (y) 50% or less of any issue of outstanding
debt of the company, (ii) the securities are equity securities and represent
less than 10% of the equity securities of a casino licensee's holding or
intermediary companies or (iii) if the securities so held exceed such
percentages, upon a showing of good cause. There can be no assurance, however,
that the CCC will make such findings or grant such waiver and, in any event, an
Institutional Investor may be required to produce for the CCC or Division upon
request, any document or information which bears any relation to such debt or
equity securities.
Generally, the CCC requires each institutional holder seeking waiver of
qualification to execute a certification to the effect that (i) the holder has
received the definition of Institutional Investor under the Casino Control Act
and believes that it meets the definition of Institutional Investor; (ii) the
holder purchased the securities for investment purposes only and holds them in
the ordinary course of business; (iii) the holder has no involvement in the
business activities of, and no intention of influencing or affecting the affairs
of, the issuer, the casino licensee or any affiliate; and (iv) if the holder
subsequently determines to influence or affect the affairs of the issuer, the
casino licensee or any affiliate, it shall provide not less than 30 days' prior
notice of such intent and shall file with the CCC an application for
qualification before taking any such action. If an Institutional Investor
changes its investment intent, or if the CCC finds reasonable cause to believe
that it may be found unqualified, the Institutional Investor may take no action
with respect to the security holdings, other than to divest itself of such
holdings, until it has applied for interim casino authorization (see "Interim
Casino Authorization" below) and has executed a trust agreement pursuant to such
an application.
Ownership and Transfer of Securities
The Casino Control Act imposes certain restrictions upon the issuance,
ownership and transfer of securities of a Regulated Company and defines the term
"security" to include instruments which evidence a direct or indirect beneficial
ownership or creditor interest in a Regulated Company including, but not limited
to, mortgages, debentures, security agreements, notes and warrants. Funding and
the Partnership are each deemed to be a Regulated Company, and instruments
evidencing a beneficial ownership or creditor interest therein, including
partnership interest, are deemed to be the securities of a Regulated Company.
If the CCC finds that a holder of such securities is not qualified
under the Casino Control Act, it has the right to take any remedial action it
may deem appropriate including the right to force divestiture by such
disqualified holder of such securities. In the event that certain disqualified
holders fail to divest themselves of such securities, the CCC has the power to
revoke or suspend the casino license affiliated with the Regulated Company which
issued the securities. If a holder is found unqualified, it is unlawful for the
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holder (i) to exercise, directly or through any trustee or nominee, any right
conferred by such securities, or (ii) to receive any dividends or interest upon
any such securities or any remuneration, in any form, from its affiliated casino
licensee for services rendered or otherwise.
With respect to non-publicly-traded securities, the Casino Control Act
and CCC Regulations require that the corporate charter or partnership agreement
of a Regulated Company establish a right in the CCC of prior approval with
regard to transfers of securities, shares and other interests and an absolute
right in the Regulated Company to repurchase at the market price or the purchase
price, whichever is the lesser, any such security, share or other interest in
the event that the CCC disapproves a transfer. With respect to publicly-traded
securities, such corporate charter or partnership agreement is required to
establish that any such securities of the entity are held subject to the
conditions that, if a holder thereof is found to be disqualified by the CCC,
such holder shall dispose of such securities.
Interim Casino Authorization
Interim casino authorization is a process which permits a person who
enters into a contract to obtain property relating to a casino operation or who
obtains publicly-traded securities relating to a casino licensee to close on the
contract or own the securities until plenary licensure or qualification. During
the period of interim authorization, the property relating to the casino
operation or the securities are held in trust.
Whenever any person enters into a contract to transfer any property
which relates to an ongoing casino operation, including a security of the casino
licensee or a holding or intermediary company or entity qualifier, under
circumstances which would require that the transferee obtain licensure or be
qualified under the Casino Control Act, and that person is not already licensed
or qualified, the transferee is required to apply for interim authorization.
Furthermore, the closing or settlement date in the contract may not be earlier
than the 121st day after the submission of a complete application for licensure
or qualification together with a fully executed trust agreement in a form
approved by the CCC. If, after the report of the Division and a hearing by the
CCC, the CCC grants interim authorization, the property will be subject to a
trust. If the CCC denies interim authorization, the contract may not close or
settle until the CCC makes a determination on the qualifications of the
applicant. If the CCC denies qualification, the contract will be terminated for
all purposes and there will be no liability on the part of the transferor.
If, as the result of a transfer of publicly-traded securities of a
licensee, a holding or intermediary company or entity qualifier of a licensee or
a financing entity of a licensee, any person is required to qualify under the
Casino Control Act, that person is required to file an application for licensure
or qualification within 30 days after the CCC determines that qualification is
required or declines to waive qualification. The application must include a
fully executed trust agreement in a form approved by the CCC or, in the
alternative, within 120 days after the CCC determines that qualification is
required, the person whose qualification is required must divest such securities
as the CCC may require in order to remove the need to qualify.
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The CCC may grant interim casino authorization where it finds by clear
and convincing evidence that: 1) statements of compliance have been issued
pursuant to the Casino Control Act; 2) the casino hotel is an approved hotel in
accordance with the Casino Control Act; 3) the trustee satisfies qualification
criteria applicable to key casino employees, except for residency and casino
experience; and 4) interim operation will best serve the interests of the
public.
When the CCC finds the applicant qualified, the trust will terminate.
If the CCC denies qualification to a person who has received interim casino
authorization, the trustee is required to endeavor, and is authorized, to sell,
assign, convey or otherwise dispose of the property subject to the trust to such
persons who are licensed or qualified or shall themselves obtain interim casino
authorization.
Where a holder of publicly-traded securities is required, in applying
for qualification as a financial source or qualifier, to transfer such
securities to a trust in application for interim casino authorization and the
CCC thereafter orders that the trust become operative: (a) during the time the
trust is operative, the holder may not participate in the earnings of the casino
hotel or receive any return on its investment or debt security holdings; and (b)
after disposition, if any, of the securities by the trustee, proceeds
distributed to the unqualified holder may not exceed the lower of their actual
cost to the unqualified holder or their value calculated as if the investment
had been made on the date the trust became operative.
Approved Hotel Facilities
The CCC may permit a licensee, such as the Partnership, to increase its
casino space if the licensee agrees to add a prescribed number of qualifying
sleeping units within two years after the commencement of gaming operations in
the additional casino space. However, if the casino licensee does not fulfill
such agreement due to conditions within its control, the licensee will be
required to close the additional casino space, or any portion thereof that the
CCC determines should be closed. Trump's Castle will not be required to add any
additional sleeping units in connection with its 3,000 square foot expansion for
simulcast race track wagering.
License Fees
The CCC is authorized to establish annual fees for the renewal of
casino licenses. The renewal fee is based upon the cost of maintaining control
and regulatory activities prescribed by the Casino Control Act, and may not be
less than $200,000 for a two-year casino license. Additionally, casino licensees
are subject to potential assessments to fund any annual operating deficits
incurred by the CCC or the Division. There is also an annual license fee of $500
for each slot machine maintained for use or in use in any casino.
Gross Revenue Tax
Each casino licensee is also required to pay an annual tax of 8% on its
gross casino revenues. For the years ended December 31, 1992 and 1993, the
Partnership's gross revenue tax was approximately $19 million and $19.7 million,
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respectively, and its license, investigations, and other fees and assessments
totalled approximately $3.2 million and $2.6 million, respectively.
Investment Alternative Tax Obligations
An investment alternative tax imposed on the gross casino revenues of
each licensee in the amount of 2.5% is due and payable on the last day of April
following the end of the calendar year. A licensee is obligated to pay the
investment alternative tax for a period of 25 years. Estimated payments of the
investment alternative tax obligation must be made quarterly in an amount equal
to 1.25% of estimated gross revenues for the preceding three-month period.
Investment tax credits may be obtained by making qualified investments or by the
purchase of bonds issued by the Casino Reinvestment Development Authority
("CRDA"). CRDA bonds may have terms as long as 50 years and bear interest at
below market rates, resulting in a value lower than the face value of such CRDA
bonds.
For the first 10 years of its obligation, the licensee is entitled to
an investment tax credit against the investment alternative tax in an amount
equal to twice the purchase price of bonds issued to the licensee by the CRDA.
Thereafter, the licensee is (i) entitled to an investment tax credit in an
amount equal to twice the purchase price of such bonds or twice the amount of
its investments authorized in lieu of such bond investments or made in projects
designated as eligible by the CRDA and (ii) has the option of entering into a
contract with the CRDA to have its tax credit comprised of direct investments in
approved eligible projects which may not comprise more than 50% of its eligible
tax credit in any one year.
From the moneys made available to the CRDA, the CRDA is required to set
aside $100,000,000 for investment in hotel development projects in Atlantic City
undertaken by a licensee which result in the construction or rehabilitation of
at least 200 hotel rooms by December 31, 1996. The CRDA is required to determine
the amount each casino licensee may be eligible to receive out of the moneys set
aside.
Minimum Casino Parking Charges
As of July 1, 1993, each casino licensee was required to impose on and
collect from patrons a standard minimum parking charge of at least $2.00 for the
use of parking, space for the purpose of parking, garaging or storing motor
vehicles in a parking facility owned or leased by a casino licensee or by any
person on behalf of a casino licensee. Of the amount collected by the casino
licensee, $1.50 is required to be paid to the New Jersey State Treasurer and
paid by the New Jersey State Treasurer into a special fund established and held
by the New Jersey State Treasurer for the exclusive use of the CRDA.
Amounts in the special fund will be expended by the CRDA for (i)
eligible projects in the corridor region of Atlantic City, which projects are
related to the improvement of roads, infrastructure, traffic regulation and
public safety and (ii) funding up to 35% of the cost to casino licensees of
expanding their hotel facilities to provide additional hotel rooms, which hotel
rooms are required to be available upon the opening of the Atlantic City
Convention Center and dedicated to convention events.
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Conservatorship
If, at any time, it is determined that TC/GP, TCHI, Funding or the
Partnership has violated the Casino Control Act or that any of such entities
cannot meet the qualification requirements of the Casino Control Act, such
entity could be subject to fines or the suspension or revocation of its license
or qualification. If the Partnership's license is suspended for a period in
excess of 120 days or revoked or if the CCC fails or refuses to renew such
casino license, the CCC could appoint a conservator to operate and dispose of
the Partnership's casino hotel facilities. A conservator would be vested with
title to all property of the Partnership relating to the casino and the approved
hotel subject to valid liens and/or encumbrances. The conservator would be
required to act under the direct supervision of the CCC and would be charged
with the duty of conserving, preserving and, if permitted, continuing the
operation of the casino hotel. During the period of the conservatorship, a
former or suspended casino licensee is entitled to a fair rate of return out of
net earnings, if any, on the property retained by the conservator. The CCC may
also discontinue any conservatorship action and direct the conservator to take
such steps as are necessary to effect an orderly transfer of the property of a
former or suspended casino licensee. Such events could result in an event of
default under the indentures pursuant to which the Senior Notes, Mortgage Notes
and PIK Notes were issued.
Employees
All employees of the Partnership must be licensed by or registered with
the CCC, depending on the nature of the position held. Casino employees are
subject to more stringent requirements than non-casino employees and must meet
applicable standards pertaining to financial stability, integrity and
responsibility, good character, honesty and integrity, business ability and
casino experience and New Jersey residency. These requirements have resulted in
significant competition among Atlantic City casino operators for the services of
qualified employees.
Gaming Credit
The Partnership's casino games are conducted on a credit as well as
cash basis. Gaming debts arising in Atlantic City in accordance with applicable
regulations are enforceable in the courts of the State of New Jersey. The
extension of gaming credit is subject to regulations that detail procedures
which casinos must follow when granting gaming credit and recording counter
checks which have been exchanged, redeemed or consolidated.
Control Procedures
Gaming at Trump's Castle is conducted by trained and supervised
personnel. The Partnership employs extensive security and internal controls.
Security checks are made to determine, among other matters, that job applicants
for key positions have had no criminal history or associations. Security
controls utilized by the surveillance department include closed circuit video
cameras to monitor the casino floor and money counting areas. The count of
moneys from gaming is also observed daily by representatives of the CCC.
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Other Laws and Regulations
The United States Department of the Treasury has adopted regulations
pursuant to which a casino is required to file a report of each deposit,
withdrawal, exchange of currency, gambling tokens or chips, or other payments or
transfers by, through, or to such casino which involves a transaction in
currency of more than $10,000 per patron, per gaming day. Such reports are
required to be made on forms prescribed by the Secretary of the Treasury and are
filed with the Commissioner of the Internal Revenue Service (the "Service"). In
addition, the Partnership is required to maintain detailed records (including
the names, addresses, social security numbers and other information with respect
to its gaming customers) dealing with, among other items, the deposit and
withdrawal of funds and the maintenance of a line of credit. The Department of
the Treasury has adopted further regulations, the effectiveness of which has
been suspended until December 1994, which will require the Partnership, among
other things, to keep records of the name, permanent address and taxpayer
identification number (or in the case of a nonresident alien, such person's
passport number) of any person engaging in a currency transaction in excess of
$3,000. The Partnership is unable to predict what effect, if any, these new
reporting obligations will have on the gaming practices of certain of its
patrons.
In the past, the Service had taken the position that gaming winnings
from table games by nonresident aliens were subject to a 30% withholding tax;
however, the Service subsequently adopted a practice of not collecting such tax.
Recently enacted legislation exempts from withholding tax table game winnings by
nonresident aliens, unless the Secretary of the Treasury determines by
regulation that such collections have become administratively feasible.
As the result of an audit conducted by the Office of Financial
Enforcement of the Department of the Treasury, the Partnership was alleged to
have failed to timely file the "Currency Transaction Report by Casino" in
connection with currency transactions in excess of $10,000 during the period
from May 7, 1985 to December 31, 1988. The Partnership entered into a settlement
agreement and without admitting to any wrongdoing agreed to pay a civil monetary
penalty of $175,500. The Partnership has revised its internal control procedures
to ensure continued compliance with these regulations.
The Partnership is subject to other federal, state and local
regulations and, on a periodic basis, must obtain various licenses and permits,
including those required to sell alcoholic beverages. The Partnership believes
that it has obtained all required licenses and permits to conduct its business.
(d) Financial Information About Foreign and Domestic Operations and
Export Sales
Not applicable.
ITEM 2. PROPERTIES OF THE PARTNERSHIP.
The Casino Parcel. Trump's Castle is located in the Marina area of
Atlantic City on an approximately 14.7 acre triangular-shaped parcel of land,
which is owned by the Partnership in fee, located at the intersection of Huron
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Avenue and Brigantine Boulevard directly across from the Marina, approximately
two miles from The Boardwalk.
Trump's Castle has 70,000 square feet of casino space, which
accommodates 94 table games (including 13 poker tables) and 2,098 slot machines.
In addition to the casino, Trump's Castle consists of a 27 story hotel with 725
guest rooms, including 185 suites, of which 99 are "Crystal Tower" luxury
suites. Renovation of 300 of the guest rooms was completed in 1993 and 250 more
guest rooms are scheduled to be renovated by April of 1994. The facility also
offers nine restaurants, a 460 seat cabaret theater, two cocktail lounges,
58,000 square feet of convention, ballroom and meeting space, a swimming pool,
tennis courts and a sports and health club facility. Trump's Castle has been
designed so that it can be enlarged in phases into a facility containing 2,000
rooms, a 1,600 seat cabaret theater and additional recreational amenities.
Trump's Castle also has a nine-story garage providing on-site parking for
approximately 3,000 vehicles, and a helipad which is located atop the parking
garage making Trump's Castle the only Atlantic City casino with access by land,
sea and air.
During 1993, Trump's Castle completed a 10,000 square foot expansion to
its casino which has enabled Trump's Castle to increase the number of slot
machines on the casino floor by 300 units, to provide more space between slot
machines and to place stools in front of additional slot machines, all of which
are designed to provide the gaming patron with a more comfortable gaming
experience. Presently, Trump's Castle is undertaking a 3,000 square foot
expansion to accommodate the addition of simulcast race track wagering. The
expansion will also increase casino access and casino visibility for hotel
patrons. In addition, Trump's Castle recently completed the construction of a
Las Vegas style marquee and reader board, the largest of its kind on the East
Coast.
The Marina. Pursuant to an agreement (the "Marina Agreement") with the
New Jersey Division of Parks and Forestry, the Partnership in 1987 began
operating and renovating the Marina, including docks containing approximately
600 slips. An elevated pedestrian walkway connecting Trump's Castle to a two
story building at the Marina was completed in 1989. The Partnership has
reconstructed the two-story building, which contains a 240 seat restaurant and
offices as well as a snack bar and a large nautical theme retail store. Any
improvements made to the Marina (which is owned by the State of New Jersey),
excluding the elevated pedestrian walkway, automatically become the property of
the State of New Jersey upon their completion. Pursuant to the Marina Agreement
and pursuant to a certain lease between the State of New Jersey, as landlord,
and the Partnership as tenant, dated as of September 1, 1990, the Partnership
commenced leasing the Marina and the improvements thereon for an initial term of
twenty-five years. The lease is a net lease pursuant to which the Partnership,
in addition to the payment of annual rent equal to the greater of (i) a certain
percentage of gross revenues and (ii) minimum base rent of $300,000 annually
(increasing every five years to $500,000 in 2011), is responsible for all costs
and expenses related to the premises, including but not limited to, all
maintenance and repair costs, insurance premiums, real estate taxes, assessments
and utility charges.
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Parking Parcel. The Partnership also owns an employee parking lot
located on Route 30, approximately two miles from Trump's Castle, which can
accommodate approximately 1,000 cars.
ITEM 3. LEGAL PROCEEDINGS.
The Partnership, its partners, certain members of the former Executive
Committee, Funding, and certain of their employees are involved in various legal
proceedings, some of which are described below. The Partnership and Funding have
agreed to indemnify such persons and entities against any and all losses,
claims, damages, expenses (including reasonable costs, disbursements and counsel
fees) and liabilities (including amounts paid or incurred in satisfaction of
settlements, judgments, fines and penalties) incurred by them in said legal
proceedings. Such persons and entities are vigorously defending the allegations
against them and intend to vigorously contest any future proceedings.
Bondholder Litigation. Since June 1990, various purported class actions
were commenced on behalf of the holders of Funding's Old Bonds which were
outstanding prior to the consummation of the prepackaged plan of reorganization
under chapter 11 of the Bankruptcy Code, and the publicly traded bonds of the
Other Trump Casinos.
By an order of the Judicial Panel on Multidistrict Litigation dated
December 4, 1990, the United States District Court for the District of New
Jersey (the "Court") was given jurisdiction over these class actions for
coordinated consolidated pretrial proceedings. Pursuant to an Order of the New
Jersey District Court, on or about March 1, 1991, plaintiffs in the class filed
an amended and consolidated complaint (the "Complaint") that superseded the
complaints originally filed in those actions.
On March 5, 1992, the parties executed a Stipulation and Agreement of
Compromise and Settlement (the "Stipulation of Settlement"), which embodied the
agreement contained in a Memorandum of Understanding, dated July 30, 1991. On
March 10, 1992, the Court preliminarily approved the terms and conditions of the
Settlement proposed in the Stipulation of Settlement (the "Settlement") and
certified a settlement class (the "Settlement Class"). On May 21, 1992 a
settlement hearing was held before the Court and the Court approved the
Settlement and determined that the Settlement was fair, reasonable, adequate,
and in the best interest of the Settlement Class.
Under the terms of the Settlement, the holders of Funding's publicly
traded bonds outstanding prior to the Restructuring will receive: (1) the
Litigation Warrants, giving holders thereof the right to purchase common stock
reflecting an indirect .50% of the equity of the Partnership on a fully diluted
basis, which Litigation Warrants contain an option, pursuant to which for a six
month period commencing March 2000 the holders thereof can require the issuer to
repurchase such Litigation Warrants at an aggregate exercise price of $4
million, subject to certain terms and conditions set out more fully in the
Memorandum of Understanding, but which include payment in full of the Bonds
(which condition has been satisfied), satisfaction of the mortgage securing the
Midlantic Term Loan, the Partnership earning net income of $20 million in the
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aggregate for the years 1997, 1998 and 1999, and holders of at least 60% of the
Litigation Warrants electing to exercise the option; and (2) a settlement in the
amount of $1,350,000 in cash, which will be used to satisfy the costs of notice
and administration as well as to compensate plaintiffs.
Other Litigation. Various legal proceedings are now pending against the
Partnership. The Partnership considers all such proceedings to be ordinary
litigation incident to the character of its business. The majority of such
claims are covered by liability insurance (subject to applicable deductibles),
and the Partnership believes that the resolution of these claims, to the extent
not covered by insurance, will not, individually or in the aggregate, have a
material adverse effect on the financial condition or results of operations of
the Partnership.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
On December 28, 1993, Funding obtained the consent of the holders of
$322,855,072 outstanding principal amount of Bonds (96.2%) to an amendment of
the indenture pursuant to which the Bonds were issued shortening the notice
period for the redemption of the Bonds. The holders of $173,000 principal amount
of Bonds (.05%) voted against such amendment and the holders of $12,698,321
principal amount of Bonds (3.8%) abstained.
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PART II
ITEM 5. MARKET FOR FUNDING'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
(a) There is no established public trading market for Funding's
outstanding Common Stock.
(b) As of December 31, 1993, there was one holder of record of the
outstanding Common Stock of Funding.
(c) Funding has paid no cash dividends on its Common Stock.
ITEM 6. SELECTED CONSOLIDATED FINANCIAL INFORMATION.
The following sets forth certain selected consolidated financial
information from Funding's and the Partnership's Consolidated Statements of
Operations for the years ended December 31, 1989, 1990, 1991, 1992 and 1993
respectively, and the Consolidated Balance Sheets as of December 31, 1989, 1990,
1991, 1992 and 1993 respectively:
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<TABLE>
<CAPTION>
Year Ended December 31,
1989 1990 1991 1992(1) 1993(2)
---- ---- ---- ------- -------
INCOME STATEMENT DATA:
<S> <C> <C> <C> <C> <C>
Gross Revenues $338,508,000 $302,223,000 $247,968,000 $299,306,000 $304,826,000
Less-Promotional Allowances 43,777,000 33,391,000 27,882,000 30,656,000 31,599,000
------------ ------------ ------------ ------------ ------------
Net Revenues 294,731,000 268,832,000 220,086,000 268,650,000 273,227,000
Total Costs and Expenses 260,307,000 267,583,000 222,446,000 260,623,000 245,361,000
------------ ------------ ------------ ------------ ------------
Income (Loss) from 34,424,000 1,249,000 (2,360,000) 8,027,000 27,866,000
Continuing Operations
Interest Income 1,712,000 893,000 505,000 499,000 675,000
Interest Expense (43,300,000) (48,759,000) (48,344,000) (45,360,000) (56,926,000)
Gain on Sinking Fund Payment - 3,136,000 - - -
Extraordinary Item(3) - - - 128,187,000 -
Benefit for State Income Tax 486,000 - - - _ -
------------ ------------ ------------ ------------ ------------
Net Income (Loss) ($6,678,000) ($43,481,000) ($50,199,000) $91,353,000 ($28,385,000)
============ ============ ============ ============ ============
BALANCE SHEET DATA:
Cash and cash equivalents $14,600,000 $8,046,000 $14,972,000 $23,610,000 $20,439,000
Total assets 439,775,000 408,276,000 391,303,000 379,641,000 375,935,000
Current Liabilities 74,357,000 421,483,000 454,709,000 39,397,000 34,463,000
Total long-term debt(4) 335,144,000 - - 279,445,000 309,794,000
Total capital (deficit) 30,274,000 (13,207,000) (63,406,000) 60,799,000 31,678,000
</TABLE>
Notes: (1) On May 29, 1992, Funding, the Partnership and TCHI consummated
the Plan, which materially affects the comparability of the
information set forth above.
(2) On December 28, 1993, the Partnership and its affiliated entities
consummated the Recapitalization, which materially affects the
comparability of the information set forth above.
(3) The extraordinary gain of $128,187,000, for year ended December 31,
1992 reflects a $96,896,000 accounting adjustment to carry the Bonds
at fair market value based on current rates of interest at the date
of issuance, an $18,000,000 forgiveness of bank borrowings,
$22,805,000 representing discharge of accrued interest and net of
the write-off of $9,514,000 of unamortized Bond issuance costs.
(4) Long-term debt of $337,649,000 and $340,553,000 as of December 31,
1990 and 1991 had been classified as a current liability.
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<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
<S> <C> <C> <C> <C>
SELECTED QUARTERLY FINANCIAL DATA:
1993:
Net Revenues $61,522,000 $67,866,000 $78,361,000 $65,478,000
Income (Loss) from Operations 2,350,000 5,204,000 14,445,000 5,867,000
Net Income (Loss) (8,746,000) (5,900,000) 1,864,000 (15,603,000)
1992:
Net Revenues $ 60,348,000 $ 65,258,000 $ 79,215,000 $ 63,829,000
Income (Loss) from Operations (268,000) (1,446,000) 10,218,000 873,000
Extraordinary Items -- 128,187,000 -- --
Net Income (Loss) (13,173,000) 115,238,000 (651,000) (10,061,000)
1991:
Net Revenues $ 50,633,000 $ 51,887,000 $ 63,573,000 $ 53,993,000
Income (Loss) from Operations (2,080,000) (2,177,000) 4,799,000 (2,902,000)
Net Income (Loss) (14,150,000) (14,102,000) (7,186,000) (14,761,000)
</TABLE>
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION.
General. In 1990, the Partnership began experiencing a liquidity
problem that culminated in the Restructuring, which was consummated on May 29,
1992. Results of operations of the Partnership through December 31, 1992 were
affected by the Restructuring, which resulted in an extraordinary gain of
approximately $128.2 million for the year ended December 31, 1992. The
Partnership's business is highly competitive, and any future expansions by the
Mashantucket Pequot Nation or new gaming ventures by other Native American
tribes or other persons in the Northeastern or mid-Atlantic regions of the
United States could have a material adverse effect on the Partnership's future
financial condition and results of operations. See "Competition" above.
The financial information presented below reflects the results of
operations of the Partnership. Since Funding has no business operations, its
results of operations are not discussed below.
Results of Operations for the Years Ended December 31, 1993 and 1992.
The Partnership's net revenues (gross revenues less promotional expenses) for
the years ended December 31, 1993 and 1992 totaled approximately $273.2 million
and $268.7 million, respectively, representing a $4.5 million (1.7%) increase.
Gaming revenues were approximately $246.4 million for the year ended December
31, 1993 and $242.0 million for the comparable period in 1992. Management
believes the $4.4 million (1.8%) increase in gaming revenues is attributable
primarily to a continuing emphasis on customer service and a repositioning by
Trump's Castle to expand profitable market segments.
Gaming revenue is comprised of table game win and slot machine win. For
the years ended December 31, 1993 and 1992, slot win at Trump's Castle
approximated $173.0 million and $164.3 million, respectively. Dollars wagered on
slot machines totaled approximately $1,851.4 million and $1,682.9 million for
the years ended December 31, 1993 and 1992, respectively, with a win percentage
of 9.3% in 1993 and 9.8% in 1992, respectively. The lower slot win percentage
(slot win as a percentage of dollars wagered on slot machines) of 9.3% was
largely intentional and designed by Trump's Castle in order to remain
competitive and stimulate patron play. Slot machine wagerings increased 10.0%
and slot win increased 5.3% for the year ended December 31, 1993 over the
comparable period in 1992. For the years ended December 31, 1993 and 1992, table
game win at Trump's Castle approximated $73.4 million and $77.7 million,
respectively. During these periods, dollars wagered on table games totaled
approximately $492.1 million with a win percentage of 14.9% in 1993 and $504.5
million with a win percentage of 15.4% in 1992.
For the years ended December 31, 1993 and 1992, gaming credit extended
to customers was approximately 28.9% and 28.1% of overall table play,
respectively. At December 31, 1993, gaming receivables amounted to approximately
$7.3 million, net of allowances for doubtful gaming receivables of approximately
$1.9 million, an increase of approximately $2.5 million over gaming receivables
of $4.8 million, net of allowances for doubtful gaming receivables of
approximately $2.7 million as of December 31, 1992.
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Nongaming revenues at Trump's Castle increased approximately $1.2
million from $57.3 million for the twelve months ended December 31, 1992, to
$58.5 million for the comparable period in 1993. This improvement was
attributable primarily to an increase in rooms revenue of $ 1.9 million (10.5%)
to approximately $19.6 million for the year ended December 31, 1993, of which
$12.2 million consisted of complimentary rooms. This increase was partially
offset by a decline in food and beverage revenues of $0.8 million (-2.4%), to
$30.6 million for the year ended December 31, 1993, of which approximately $15.9
million consisted of complimentary food and beverage. Room occupancy at Trump's
Castle was 88.0% and 85.8%, including occupancy of 55.3% and 50.7% of the
available rooms by patrons receiving complimentary rooms, and the average rate
was approximately $78 and $76 for the years ended December 31, 1993 and 1992,
respectively. The average rate showed modest growth primarily from pricing
casino room promotional allowances at competitive levels in the Atlantic City
market. While the number of customers served in the food and beverage outlets
increased in 1993, food and beverage revenues declined as a result of a decrease
in the average guest check. As a percentage of gaming revenues, promotional
allowances did not vary significantly from year to year.
General and administrative expenses decreased approximately $2.9
million (5.5%) for the year ended December 31, 1993 as compared to the prior
year. While gaming revenues improved in 1993, gaming costs and expenses
decreased for the year ended December 31, 1993 by $1.0 million (.6%) and all
other costs and expenses excluding Depreciation and Amortization and
Reorganization costs decreased $2.1 million (6.3%). The reduction in operating
expenses was due to previously established cost containment measures including
the discontinuance of certain marketing programs. Such measures were implemented
to improve overall operating efficiencies while remaining competitive and
focusing on long range marketing goals.
For the year ended December 31, 1993, depreciation and amortization
decreased $3.4 million (-17.1%) over the comparable period in 1992, primarily as
a result of the impact of fully depreciated assets as well as the discharge of
the outstanding deferred bond costs which were eliminated as a result of the
Plan of Reorganization.
Reorganization costs were not incurred in 1993, compared to costs of
$6.0 million for the same period in 1992 due to the Plan of Reorganization,
which was completed on May 29, 1992.
Income from Trump's Castle's operations improved $19.8 million (or
$13.8 million excluding restructuring costs) as a result of increased revenues,
previously implemented cost containment measures and a continued emphasis on
customer service for the year ended December 31, 1993 as compared to the same
period in 1992.
Interest expense increased for the twelve month period ended December
31, 1993 by approximately $11.6 million. The $11.6 million increase includes
nonrecurring recapitalization costs of approximately $9.0 million.
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The Partnership experienced a net loss of $28.4 million for the year
ended December 31, 1993 and a profit of $91.4 million, primarily as a result of
the Plan of Reorganization, during the comparable period in 1992.
Results of Operations for the Years Ended December 31, 1992 and 1991.
Net revenues (gross revenues, less promotional expenses) for the years ended
December 31, 1992 and 1991 totalled approximately $268.7 million and $220.1
million, respectively. Gaming revenues were approximately $242.0 million and
$194.8 million in 1992 and 1991, respectively. Management believes the increase
in gaming revenues in 1992 of 24.3% is attributable to improved customer service
and a refocusing of marketing efforts to reduce unprofitable market segments.
For the years ended December 31, 1992 and 1991, table game win
approximated $77.7 million and $67.6 million and slot win approximated $164.3
million and $127.2 million, respectively. During these periods, table game win
percentage was 15.4% in 1992 and 15.3% in 1991. Slot win percentage in 1992 was
9.8% and 9.9% in 1991. The lower slot win percentage in 1992 was largely
intentional and designed to remain competitive and stimulate patron play. Slot
machine wagerings increased 31.6% for the twelve months ended December 31, 1992
over the comparable period in 1991, while slot machine revenue increased 29.2%.
The Partnership elected to discontinue certain Progressive Slot Jackpot
Programs which positively impacted slot revenue by $1.8 million for the year
ended December 31, 1992.
During the year ended December 31, 1992, gaming credit extended to
customers was approximately 28.1% of overall table play. At December 31, 1992,
gaming receivables amounted to approximately $4.8 million, net of allowances for
doubtful gaming receivables of approximately $2.7 million.
Nongaming revenues increased approximately $4.1 million from $53.2
million in 1991 to $57.3 million in 1992. This improvement was attributable
primarily to an increase in food and beverage revenues of 10.8% in 1992 as
compared to 1991 and an increase in revenues from hotel rooms of 7.1% in 1992 as
compared to 1991. Revenues from food and beverage sales for this period amounted
to approximately $31.4 million, of which approximately $16.1 million consisted
of complimentary food and beverage. Revenues from hotel rooms during this period
amounted to approximately $17.8 million, of which $11.0 million consisted of
complimentary rooms. Trump's Castle's average hotel occupancy rate, based on
available rooms, was 85.8% in 1992, including occupancy of 50.7% of the
available rooms by patrons receiving complimentary rooms. The average rate
remained constant primarily from pricing casino room promotional allowances at
competitive levels in the Atlantic City market. Food and beverage revenues
improved as the marketing emphasis was shifted from attracting large numbers of
mass market gaming patrons to upscale patrons with higher gaming budgets.
Offsetting the nongaming revenue increase was an increase in promotional
allowances of $2.8 million. Promotional allowances as a percentage of gaming
revenues declined to 12.7% in 1992 from 14.3% in 1991.
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Gaming costs and expenses increased for the year ended December 31,
1992 by $29.6 million (or 24.8%) and all other operating expenses, excluding
depreciation and amortization and restructuring costs, increased $7.3 million
(or 9.5%). The comparatively lower percentage increase in other expenses (as
compared to the percentage increase in gaming expenses) was due to cost
containment measures, including payroll reductions and discontinuance of
unprofitable marketing programs. Such measures were implemented to improve
overall operating efficiencies while remaining competitive and dedicated to long
range marketing goals.
Depreciation and amortization declined $1.6 million (7.5%) due
primarily to the implementation of cost containment measures related to capital
expenditures.
Income from operations improved $11.7 million primarily as a result of
revenue improvements and the continuation of cost containment measures.
The Partnership generated a net income of $91.4 million for the year
ended December 31, 1992 and incurred a net loss of $50.2 million for the
comparable period in 1991. The net income of $91.4 million includes an
extraordinary gain, as a result of the Plan of Reorganization, of $128.2 million
offset by litigation expenses of $1.4 million.
Inflation. There was no significant impact on the Partnership's
operations as a result of inflation during 1993, 1992 and 1991.
Liquidity and Capital Resources. Cash flow from operating activities is
the Partnership's principal source of liquidity. For the year ended December 31,
1993, the Partnership's net cash flow provided by operating activities before
cash debt service obligations was $24.7 million and cash debt service was $33.8
million, resulting in net cash used by operating activities of $9.1 million.
Cash and cash equivalents of $20.4 million at December 31, 1993 reflects a
reduction of $3.0 million from $23.6 million at December 31, 1992. The $3.2
million reduction in cash was due to the $9.1 million used by operating
activities, $10.4 million used to acquire capital assets and $3.0 million used
to purchase CRDA investments ($22.3 million in the aggregate) offset by a net
$19.3 million provided by financing activities.
Upon consummation of the Recapitalization in December 1993, the
Partnership had a working capital surplus of $2.2 million which amount is
adequate to meet its needs for cash. The Partnership believes that this level of
working capital is adequate to sustain existing operations in the foreseeable
future.
The effect of the Recapitalization on the Partnership's capital
structure has been to increase the Partnership's weighted average cost of debt
from approximately 9.43% to approximately 11.74%. The increase in the weighted
average cost of debt capital will be offset, at least initially, by an
approximately $23 million decrease in the principal amount of the Partnership's
outstanding indebtedness and by a reduction in the cash required to meet the
Partnership's debt service obligations in the near future. As a result of the
Recapitalization, the Partnership's consolidated indebtedness has been reduced
from $381 million to $358 million. The pay-in-kind feature of the PIK Notes
could, however, result in an additional $130 million of indebtedness over the
next ten years, assuming all accrued interest on the PIK Notes is paid in
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additional PIK Notes. It is projected that the Partnership will require
approximately $31.4 million in 1994 and $36.1 million in 1995 in operating cash
flow to meet its debt service obligations. If necessary, the Partnership may
seek to obtain a credit facility of up to $10 million in principal amount to
fund any shortfall in cash available to meet debt service obligations.
Capital expenditures of $11.0 million for the year ended December 31,
1993 increased approximately $2.4 million due primarily to the expansion of the
casino floor and the construction of an electronic graphic sign affixed to the
front of the building. Capital expenditures were $8.6 million for the year ended
December 31, 1992 and included the Partnership's remaining obligation on the
Marina Roadway and the acquisition of new slot machines.
The lower level of capital expenditures for 1992 and 1991 of $8.6
million and $5.1 million, respectively, reflected the Partnership's liquidity
problems. Anticipated capital expenditures for 1994 are approximately $8 million
and include casino floor improvements, renovation of certain hotel rooms and the
purchase of additional slot machines for the casino expansion. Management
believes that currently planned future levels of capital expenditures would be
sufficient to maintain the attractiveness of Trump's Castle and the aesthetics
of its casino, hotel rooms and other public areas. The Partnership intends to
finance its capital expenditures in the future with existing cash on hand and
cash flow from operations.
Management also believes, based upon its current level of operations,
that although the Partnership is highly leveraged, it will continue to have the
ability to pay interest on its indebtedness and to pay other liabilities with
funds from operations for the foreseeable future. However, there can be no
assurance to that effect. In the event that circumstances change, the
Partnership may seek to obtain a working capital facility of up to $10 million,
although there can be no assurance that such financing will be available on
terms acceptable to the Partnership.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
An index to financial statements and required financial statement
schedules is set forth at Item 14.
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
None.
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PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS.
All decisions affecting the business and affairs of the Partnership,
including the operation of Trump's Castle, are decided by the general partners
acting by and through a Board of Partner Representatives, which includes a
minority of Representatives elected indirectly by the holders of the Mortgage
Notes and PIK Notes (the "Board of Partner Representatives"). As currently
constituted, the Board of Partner Representatives consists of Donald J. Trump,
Chairman, Nicholas L. Ribis, Roger P. Wagner, Ernest E. East, Asher O.
Pacholder, Thomas F. Leahy and Wallace B. Askins. Messrs. Trump, Ribis and East
also serve on the governing boards of Trump Taj Mahal Associates ("TTMA") and
Trump Plaza Associates ("TPA").
The Partnership also has an Audit Committee on which Mr. Ribis serves
with Mr. Leahy and Mr. Askins, who have been appointed thereto in accordance
with the requirements of the CCC. The Audit Committee reviews matters of policy,
purpose, responsibilities and authority and makes recommendations with respect
thereto on the basis of reports made directly to the Audit Committee. The
Surveillance Department is responsible for the surveillance, detection and
video-taping of unusual and illegal activities in the casino hotel. The Internal
Audit Department is responsible for the review of, reporting instances of
noncompliance with, and recommending procedures to eliminate weakness in
internal controls.
The sole director of Funding is Trump. Trump also serves as its
Chairman of the Board, President and Treasurer. Patricia M. Wild serves as its
Secretary, and Robert E. Schaffhauser serves as its Assistant Treasurer.
Set forth below are the names, ages, positions and offices held with
Funding and the Partnership and a brief account of the business experience
during the past five years of each member of the Board of Partner
Representatives, the executive officers of Funding and the Partnership, and the
director of Funding.
Donald J. Trump -- Trump, 47 years old, has been the managing general
partner of the Partnership and Chairman of the Board of Partner Representatives
since May 1992 and Chairman of the Board, President and sole director of Funding
since June 1985. Trump has been the President and sole director of TC/GP since
December 1993. Trump served as Chairman of the Executive Committee of the
Partnership from June 1985 to May 1992 and as President and sole director of
TC/GP from November 1991 to May 1992. Trump has been a director and Treasurer of
TCHI since April 17, 1985. Trump is the sole shareholder, Chairman of the Board
of Directors, President and Treasurer of Trump Plaza Funding, Inc. ("TPFI"), the
managing general partner of TPA. Trump was President and Chairman of the Board
of Directors and a 50% shareholder of TP/GP Corp. ("TP/GP"), the former managing
general partner of TPA, from May 1992 through June 1993; and Chairman of the
Executive Committee and President of TPA from May 1986 to May 1992. Trump has
been a director and President of Trump Plaza Holding, Inc. ("TPHI") and a
partner in Trump Plaza Holding Associates ("TPHA") since February 1993. Trump
was Chairman of the Executive Committee of TTMA, from
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June 1988 to October 1991; and has been Chairman of the Board of Directors of
the managing general partner of TTMA since October 1991; and President of the
Trump Organization, which has been in the business, through its affiliates and
subsidiaries, of acquiring, developing and managing real estate properties for
more than the past five years. Trump was a member of the Board of Directors of
Alexander's Inc. from 1987 to March 1992.
Nicholas L. Ribis -- Mr. Ribis, 49 years old, has been a
partner representative on the Board of Partner Representatives since May 1992
and Chief Executive Officer of the Partnership since March 1991. Mr. Ribis has
served as Vice President and Assistant Secretary of TCHI since December 1993 and
January 1991, respectively. Mr. Ribis served as a member of the Executive
Committee of the Partnership from April 1991 to May 1992 and as Secretary of
TC/GP from November 1991 to May 1992. Mr. Ribis has served as Vice President of
TC/GP since December 1993. Mr. Ribis has served as a director of TPHI since June
1993 and of TPFI since July 1993; as a director and Vice President of TP/GP from
May 1992 to June 1993; Chief Executive Officer of TPA since February 1991; and a
member of the Executive Committee of TPA from April 1991 to May 1992. He has
been Chief Executive Officer of TTMA since March 1991; a member of the Executive
Committee of TTMA from April 1991 to October 1991; and a member of the Board of
Directors of the managing general partner of TTMA since October 1991. From
January 1980 to January 1991, Mr. Ribis was Senior Partner in, and since
February 1991 is Counsel to, the law firm of Ribis, Graham & Curtin, which
serves as New Jersey legal counsel to all of the above-named companies, and
certain of their affiliated entities. Mr. Ribis serves as the Chairman of the
Atlantic City Casino Association and is a member of the Board of Trustees of the
CRDA.
Ernest E. East -- Mr. East, 51 years old, has been a partner
representative on the Board of Partner Representatives since May 1992 and has
been Senior Vice President -- Administrative and Corporate Affairs of the
Partnership since July 1991. Mr. East has served as Secretary of TC/GP since
December 1993. Mr. East has been a director of TPHI since June 1993; Secretary
of TPFI since July 1992; Senior Vice President -- Administrative and Corporate
Affairs of TPA since July 1991; Senior Vice President -- Administrative and
Corporate Affairs of TTMA since July 1991; and a member of the Board of
Directors of the managing general partner of TTMA since October 1991. Mr. East
was formerly the Vice President -- General Counsel of the Del Webb Corporation
from January 1984 through June 1991.
Roger P. Wagner -- Mr. Wagner, 46 years old, has been a partner
representative on the Board of Partner Representatives since May 1992 and
President and Chief Operating Officer of the Partnership since January 1991. Mr.
Wagner served as a member of the Executive Committee of the Partnership from
January 1991 to May 1992. Mr. Wagner has been a director and president of TCHI
since January 1991. Prior to joining the Partnership, Mr. Wagner served as
President of the Claridge Hotel Casino from June 1985 to January 1991.
Asher O. Pacholder -- Dr. Pacholder, 56 years old, has been a
partner representative of the Board of Partner Representatives since May 1992.
Dr. Pacholder served as a director and the President of TC/GP from May 1992 to
December 1993. Dr. Pacholder has served as Chairman of the Board and Managing
Director of Pacholder Associates, Inc., an investment advisory firm, since 1987.
In addition, Dr. Pacholder serves on the Board of Directors of The Southland
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Corporation, United Gas Holding Corp., ICO, Inc., an oil field services company,
UF&G Pacholder Fund, Inc., a publicly traded closed end mutual fund, U.S.
Trails, Inc., a recreational facility company, and Forum Group, Inc., a
retirement community managerial company.
Wallace B. Askins -- Mr. Askins, 63 years old, has been a
partner representative of the Board of Partner Representatives since May 1992.
Mr. Askins served as a director of TC/GP from May 1992 to December 1993. From
1987 to November 1992, Mr. Askins served as Executive Vice President, Chief
Financial Officer and as a director of Armco Inc. Mr. Askins also serves as a
director of EnviroSource, Inc.
Thomas F. Leahy -- Mr. Leahy, 56 years old, has been a Member
of the Board of Partner Representatives since June 1993. Mr. Leahy served as a
director and Treasurer of TC/GP from May 1992 to December 1993. From 1987 to
July 1992, Mr. Leahy served as Executive Vice President of CBS Broadcast Group,
a unit of CBS, Inc. Since November 1992, Mr. Leahy has served as President of
the Theater Development Fund, a service organization for the performing arts.
From July 1992 through November 1992, Mr. Leahy served as chairman of VT
Properties, Inc., a privately-held corporation which invests in literary, stage
and film properties.
Patrick R. Dennehy -- Mr. Dennehy, 45 years old, has been
Executive Vice President of Operations of the Partnership since November 1992.
Prior to joining the Partnership, Mr. Dennehy was with Harrah's Atlantic City
from 1980 until 1992 in the capacity of Director of Gaming Operations, Director
of Casino Marketing, Director of Casino Credit and Cashier Manager.
Patricia M. Wild -- Ms. Wild, 41 years old, has been Secretary
of Funding and Senior Vice President and General Counsel of the Partnership and
Secretary of TCHI since December 1993. Ms. Wild served as Assistant Secretary of
TPFI and Vice President, General Counsel of TPA from February 1991 to December
1993; Vice President and General Counsel of TPFI from July 1992 through December
1993; and Associate General Counsel of TPA from May 1989 through January 1991.
From December 1986 to April 1989, Ms. Wild served as Deputy Attorney General on
the Environmental Prosecutions Task Force of the New Jersey Department of Law
and Public Safety, Division of Criminal Justice. From April 1983 to December
1986, Ms. Wild served as Deputy Attorney General with the New Jersey Division of
Gaming Enforcement.
Thomas P. Venier -- Mr. Venier, 42 years old, has been Senior
Vice President of Strategic Development and Planning of the Partnership since
January 1994 and was Senior Vice President of Finance of the Partnership from
September 1991 to January 1994. Mr. Venier has been Chief Financial Officer of
TC/GP since May 1992. Mr. Venier has been Assistant Treasurer of TCHI since
March 1992. Previously, Mr. Venier served as Vice President of Finance of the
Partnership from May 1988 to September 1991 and Director of Financial Accounting
from July 1985 to April 1988.
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Nicholas J. Niglio -- Mr. Niglio joined the Partnership as
Executive Vice President-Marketing in October 1993. Mr Niglio previously served
as Senior Vice President of Eastern Operations of Caesars World Marketing
Corporation for three years. Prior to that he served as Vice President-Casino
Manager at Caesars Atlantic City for three years.
Robert E. Schaffhauser -- Mr. Schaffhauser, 47 years old,
joined the Partnership as Senior Vice President of Finance in January 1994 and
also became an Assistant Treasurer, Chief Financial Officer and Chief Accounting
Officer of Funding and an Assistant Treasurer of TCHI and TC/GP in January 1994.
He served as a consultant to Trump during the immediately preceding year. Mr.
Schaffhauser previously served as Senior Vice President of Finance and
Administration for the Sands Hotel & Casino in Atlantic City for four years. For
a period of 13 years prior thereto, he served as the Chief Financial Officer and
Secretary for Metex Corporation, a publicly held manufacturer of engineered
products. Mr. Schaffhauser also served as a member of Metex Corporation's Board
of Directors.
John P. Burke -- Mr. Burke, 46 years old, has been the
Corporate Treasurer of the Partnership and TPA since October 1991. Mr. Burke has
been Chief Accounting Officer of TC/GP since May 1992. Mr. Burke has been a Vice
President of TCHI, TC/GP, Funding and the Partnership since December 1993. Mr.
Burke has been Vice President of The Trump Organization since September 1990. He
is a member of the Board of Directors of the managing general partner of TTMA.
Mr. Burke was an Executive Vice President and Chief Administrative Officer of
Imperial Corporation of America ("Imperial") from April 1989 through September
1990. Previously he was Executive Vice President and Chief Financial Officer of
Tamco Enterprises, Inc. from May 1980 through April 1989.
Each member of the Board Partner of Representatives, of the Audit
Committee and all of the other persons listed above have been licensed or found
qualified by the CCC.
The employees of the Partnership serve at the pleasure of the Board of
Partner Representatives subject to any contractual rights contained in any
employment agreement. The officers of Funding serve at the pleasure of Donald J.
Trump, the sole director of Funding.
Donald J. Trump, Nicholas L. Ribis and Ernest E. East served as either
executive officers and/or directors of TTMA and its affiliated entities when
such parties filed their petition for reorganization under chapter 11 of the
Bankruptcy Code on July 17, 1991. The Second Amended Joint Plan of
Reorganization of such parties was confirmed on August 28, 1991, and was
declared effective on October 4, 1991. Donald J. Trump, Nicholas L. Ribis,
Ernest E. East and John P. Burke served as executive committee members,
officers, and/or directors of TPA and its affiliated entities, at the time such
parties filed a petition for reorganization under chapter 11 of the Bankruptcy
Code on March 9, 1992. The First Amended Joint Plan of Reorganization of such
parties was confirmed on April 30, 1992, and declared effective on May 29, 1992.
Donald J. Trump, Nicholas L. Ribis, Ernest E. East, Roger P. Wagner and John P.
Burke served as either executive officers and/or directors of the Partnership
and its affiliated entities when such parties filed their petition for
reorganization under chapter 11 of the Bankruptcy Code in March 1992. The First
Amended Joint Plan of Reorganization of such parties was confirmed on May 5,
1992, and was declared effective on May 29, 1992. Donald J. Trump was a partner
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of Plaza Operating Partners Ltd. when it filed a petition for reorganization
under chapter 11 of the Bankruptcy Code on November 2, 1992. The Plan of
Reorganization was confirmed on December 11, 1992 and declared effective in
January 1993. John P. Burke was Executive Vice President and Chief
Administrative Officer of Imperial, a thrift holding company whose major
subsidiary, Imperial Savings was seized by the Resolution Trust Corporation in
February 1990. Subsequently, in February 1990, Imperial filed a petition for
reorganization under chapter 11 of the Bankruptcy Code.
ITEM 11. EXECUTIVE COMPENSATION.
Executive officers of Funding do not receive any additional
compensation for serving in such capacity. In addition, Funding and the
Partnership do not offer their executive officers stock option or stock
appreciation right plans, long-term incentive plans or defined benefit pension
plans.
The following table sets forth compensation paid or accrued during the
years ended December 31, 1993, 1992 and 1991 to the Chief Executive Officer,
each of the four most highly compensated executive officers of the Partnership
whose cash compensation, including bonuses and deferred compensation, exceeded
$100,000 for the year ended December 31, 1993. Also included in the table is
information regarding Robert Pickus, who served as General Counsel of the
Partnership for eleven months of 1993. Compensation accrued during one year and
paid in another is recorded under the year of accrual. Information relating to
long-term compensation is inapplicable and has therefore been omitted from the
table.
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<TABLE>
<CAPTION>
COMPENSATION TABLE
Name and Other All Other
Principal Position Year Salary Bonus Compensation (1) Compensation (2)
<S> <C> <C> <C> <C> <C> <C>
Nicholas L. Ribis (3), 1993 $250,000 $250,000 $226,000 $ 1,150
Chief Executive 1992 150,000 300,000 168,500 --
Officer 1991 192,956 250,135 -- --
Roger P. Wagner, 1993 $402,070 $ 27,341 $ 65,000 $ 4,497
Chief Operating 1992 425,228 95,000 60,000 4,171
Officer 1991 357,973 658,742 -- 4,695
Patrick R. Dennehy 1993 $177,083 $ 12,042 -- $ 2,248
Executive Vice 1992 22,885 50,000 -- --
President of 1991 -- -- -- --
Operations
Thomas P. Venier, 1993 $145,002 $ 9,860 -- $ 3,821
Senior Vice President 1992 145,983 15,000 -- 3,560
of Strategic 1991 111,221 -- -- 2,213
Development and
Planning
Ernest E. East (3), 1993 $100,644 $ 50,000 $ 67,500 $ 750
Vice President-- 1992 85,481 66,667 60,000 727
Administrative Affairs 1991 25,866 33,333 -- --
Robert M. Pickus (4), 1993 $148,553 $ 21,300 -- $ 3,774
Senior Vice President-- 1992 144,875 12,500 -- 3,117
General Counsel 1991 134,310 -- -- 2,678
</TABLE>
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(1) Represents the dollar value of annual compensation not properly
categorized as salary or bonus, including amounts reimbursed for income
taxes and Director's Fees. Following SEC rules, perquisites and other
personal benefits are not included in this table if the aggregate
amount of that compensation is the lesser of either $50,000 or 10% of
the total salary and bonus for that officer.
(2) Represents vested and unvested contributions made by the Partnership
under the Trump's Castle Hotel & Casino Retirement Savings Plan. Funds
accumulated for an employee, which consist of a certain percentage of
the employee's compensation plus Partnership contributions equalling
50% of the participant's contributions, are retained until termination
of employment, attainment of age 59-1/2 or financial hardship, at which
time the employee may withdraw his or her vested funds.
(3) Messrs. Ribis and East devote approximately one-third of their
professional time to the affairs of the Partnership; the compensation
for their positions at Other Trump Casinos has not been included.
(4) Effective December 6, 1993, Mr. Pickus resigned as General Counsel of
the Partnership and from all other positions with the Partnership and
its affiliated entities to become General Counsel to TPA.
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Employment Agreements. In September 1993, the Partnership entered into
an employment agreement with Nicholas L. Ribis pursuant to which Mr. Ribis acts
as Chief Executive Officer of the Partnership. The agreement, which expires in
September 1996, provides for an annual salary of $550,000. The salary increases
by ten percent for each of the second and third years of the agreement. Upon
execution of the employment agreement, Mr. Ribis received a $250,000 signing
bonus. In the event the Partnership, or any entity which acquires substantially
all of the equity interests or assets of the Partnership, proposes to engage in
an offering of common shares to the public, the Partnership and Mr. Ribis have
agreed to negotiate new compensation arrangements which shall include equity
participation for Mr. Ribis. Mr. Ribis also acts as Chief Executive Officer of
TTMA and TPA, the Partnerships that own the Other Trump Casinos, and receives
additional compensation from such entities. Mr. Ribis devotes approximately
one-third of his professional time to the affairs of the Partnership. All other
executive officers of the Partnership, except Messrs. East and Burke, devote
substantially all of their time to the business of the Partnership.
The Partnership, on January 17, 1991, entered into an employment
agreement with Roger P. Wagner, with an amendment thereto dated January 17,
1991, and a second amendment thereto dated July 18, 1992, pursuant to which Mr.
Wagner serves as the Partnership's and TCHI's President and Chief Operating
Officer. Mr. Wagner's employment agreement, which terminates on January 16,
1997, provides for an annual salary beginning at a minimum of $400,000 until
January 16, 1994, thereafter $500,000 per year until January 16, 1995,
thereafter $600,000 per year until January 16, 1996, and thereafter $750,000 per
year from January 17, 1996 until January 16, 1997 and, subject to CCC approval,
1% of the Partnership's Income from Operations (as defined in such agreement) in
excess of $40.0 million.
The Partnership has an employment agreement with Ernest E. East, Esq.,
who is Senior Vice President -- Administration and Corporate Affairs of the
Partnership. The agreement, which expires in June 1995, provides for an annual
salary of $100,000 and a discretionary bonus. Mr. East also has similar
employment agreements with each of TTMA and TPA. Mr. East devotes approximately
one-third of his professional time to the affairs of the Partnership.
Pursuant to an employment agreement dated January 31, 1992, as amended
March 31, 1993 and December 30, 1993, Thomas P. Venier serves as Senior Vice
President of Strategic Development and Planning of the Partnership. The
agreement provides for an annual salary of $148,000, which is subject to review.
As of April 23, 1993, and on the last day of each week thereafter, the term of
the agreement has been automatically extended for one (1) week so that at all
times the term during the duration of the agreement is an unexpired period of
twelve (12) months. Notwithstanding such provision, Mr. Venier has the right to
terminate his employment by giving 30 days written notice to the Partnership of
his intent to do so.
Compensation of Directors. Each Partner Representative of the
Partnership (other than Trump) receives an annual fee of $50,000 and $2,500 per
meeting attended, plus reasonable out-of-pocket expenses incurred in attending
any meeting of the Board.
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Compensation Committee Interlocks and Insider Participation. In
general, the compensation of executive officers of the Partnership is determined
by the Board of Partner Representatives, which is composed of Donald J. Trump,
Nicholas L. Ribis, Roger P. Wagner, Ernest E. East, Asher O. Pacholder, Thomas
F. Leahy and Wallace B. Askins. The compensation of Nicholas L. Ribis and Roger
P. Wagner is set forth in their employment agreements with the Partnership. The
Partnership has delegated the responsibility over certain matters, such as the
bonus of Mr. Ribis, to Trump. Executive officers of Funding do not receive any
additional compensation for serving in such capacity.
The SEC requires issuers to disclose the existence of any other
corporation in which both (i) an executive officer of the registrant serves on
the board of directors and/or compensation committee, and (ii) a director of the
registrant serves as an executive officer. Messrs. Ribis, East, Wagner and
Burke, executive officers of the Partnership, serve on the Board of Directors of
other entities in which members of the Board of Partner Representatives (namely,
Messrs. Trump and Ribis) serve as executive officers. The Partnership believes
that such relationships have not affected the compensation decisions made by the
Board of Partner Representatives in the last fiscal year.
Mr. Wagner serves as a director of TCHI, of which Messrs. Trump and
Ribis serve as executive officers.
Messrs. Ribis, East and Burke serve on the Board of Directors of Taj
Mahal Holding Corp., which holds an indirect equity interest in TTMA, the
partnership that owns the Taj Mahal, of which Messrs. Trump and Ribis are
executive officers. Such persons also serve on the Board of Directors of TM/GP
Corporation (a subsidiary of Taj Mahal Holding Corp.), the managing general
partner of TTMA, of which Messrs. Trump and Ribis are executive officers. Mr.
Ribis is compensated by TTMA for his services as its chief executive officer.
Mr. Ribis also serves on the Board of Directors of Trump Taj Mahal
Realty Corp. ("Taj Realty Corp."), which leases certain real property to TTMA,
of which Trump is an executive officer. Trump, however, does not receive any
compensation for serving as an executive officer of Taj Realty Corp.
Messrs. Trump and Ribis serve on the Board of Directors of TPFI, the
managing general partner of TPA, of which Messrs. Trump, Ribis and East are
executive officers. Messrs. Trump, Ribis and East also serve on the Board of
Directors of TPHI, of which such persons are also executive officers. Mr. Ribis
is compensated by TPA for his services as chief executive officer.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT.
The following table sets forth information with respect to the amount
of Funding's Common Stock owned by beneficial owners of more than 5% of
Funding's Common Stock. Funding has no other class of equity securities
outstanding.
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Title or Class Name and address of Amount and Nature of Percent of
Beneficial Owners beneficial Ownership class
- -------------- ------------------- -------------------- ----------
Common Stock Trump's Castle 200 Shares 100%
Associates
Huron Avenue and
Brigantine Blvd.
Atlantic City,
New Jersey 08401
Currently, Trump, TC/GP and TCHI hold 61.5%, 37.5% and 1.0% interests,
respectively, in Trump's Castle Associates and therefore are the beneficial
owners of all of the outstanding shares of Common Stock of Funding.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Other Trump Casinos. The following table sets forth the amounts due to
the Partnership from Trump and his Affiliates as of December 31, 1993. For a
more detailed description of the Partnership's transactions with Trump and his
Affiliates, see "Other Transactions with Affiliates" below.
Amount Due and Outstanding
to the Partnership
as of December 31, 1993
--------------------------
Trump Plaza Associates .......................... $321,000
Trump Taj Mahal Associates ...................... 69,000
The Trump Organization .......................... 225,000
Total Due from Affiliates
as of December 31, 1993 .................... $615,000
Other Transactions With Affiliates. In December 1990, Fred Trump, the
father of Donald J. Trump, placed $3.5 million in cash on deposit with the
Partnership's casino cage, which was recorded by the Partnership as a gaming
patron deposit. Counter check(s) totalling $3.5 million were issued against the
deposit, for which Fred Trump received gaming chips valued at $3.5 million.
These gaming chips were included in the outstanding chip liability on the
Partnership's books at September 30, 1992. In each of October 1992 and December
1993, in accordance with the indenture pursuant to which the Bonds were issued,
Fred Trump redeemed $1.0 million in gaming chips for cash.
The Partnership has engaged in transactions with TPA, TTMA, Plaza
Operating Partners, Ltd. ("Plaza Hotel"), the partnership which operates The
Plaza Hotel in New York City, and The Trump Organization. TPA, Plaza Hotel, The
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Trump Organization and TTMA are affiliates of Donald J. Trump. These
transactions include certain shared payroll costs, fleet maintenance and
limousine services, as well as complimentary services offered to customers, for
which the Partnership makes the initial payment and is then reimbursed by the
Affiliates. During 1993, the Partnership incurred expenses of approximately $1.3
million in corporate salaries, and $1.0 million of other transactions on behalf
of these related entities. In addition, the Partnership received payments
totalling $2.0 million for services rendered and had $0.4 million of deductions
for similar services incurred by these related entities on behalf of the
Partnership.
In connection with the 1993 Recapitalization, the Partnership purchased
the Midlantic Grid Note. Payment of the Midlantic Grid Note was guaranteed by
Trump, which guaranty was secured by a pledge of his direct and indirect equity
interest in the Partnership. In addition, Winton Associates, Inc. ("Winton") was
retained by a holder of Units to negotiate the terms of the Recapitalization on
behalf of the Unitholders. The Partnership paid Winton a non-refundable fee of
$100,000 as well as its out-of-pocket expenses, and an additional fee of
$400,000 upon consummation of the Recapitalization. Winton, in turn, retained
Prudential Securities, Inc. to assist it in representing Putnam Investment
Management, and paid Prudential one-half of the fees described above and
reimbursed Prudential for its out-of-pocket expenses. Winton is a wholly owned
subsidiary of Pacholder Associates, Inc., of which Dr. Asher Pacholder, a member
of the Board of Partner Representatives, is the Chairman of the Board and
Managing Director.
Pursuant to the terms of the Partnership Agreement, the Partnership
paid a $1.5 million cash bonus to Trump on February 16, 1994.
Services Agreement. On December 28, 1993, the Partnership cancelled its
existing management agreement with a corporation wholly owned by Trump and
entered into a Services Agreement with TC/GP (the "Services Agreement"). In
general, the Services Agreement obligates TC/GP to provide to the Partnership,
from time-to-time when reasonably requested, consulting services on a
non-exclusive basis, relating to marketing, advertising, promotional and other
related services (the "Services") with respect to the business and operations of
the Partnership, in exchange for certain fees to be paid only in those years in
which EBITDA (EBITDA represents income from operations before depreciation,
amortization, restructuring costs and the non-cash write-down of CRDA
investments) exceeds prescribed amounts.
In consideration for the Services to be rendered by TC/GP, the
Partnership will pay an annual fee (which is identical to the fee which was
payable under the management agreement) to TC/GP in the amount of $1.5 million
for each year in which EBITDA exceeds the following amounts for the years
indicated: 1993-$40.5 million; 1994-$45.0 million; 1995 and thereafter-$50.0
million. If EBITDA in any fiscal year does not exceed the applicable amount, the
annual fee will be $0. In addition, TC/GP will be entitled to an incentive fee
beginning with the fiscal year ending December 31, 1994 in an amount equal to
10% of EBITDA in excess of $45.0 million for such fiscal year. The Partnership
will also be required to advance to TC/GP $125,000 a month which will be applied
toward the annual fee, provided, however, that no advances will be made during
any year if and for so long as the Managing Partner (defined in the Services
Agreement as Trump) determines, in his good faith reasonable judgment, that the
Partnership's budget and year-to-date performance indicate that the EBITDA
target for such year will not be met. If for any year during which annual fee
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advances have been made it is determined that the annual fee was not earned,
TC/GP will be obligated to promptly repay any amounts previously advanced. For
purposes of calculating EBITDA under the Services Agreement, any incentive fees
paid in respect of 1994 or thereafter shall not be deducted in determining net
income.
Unless sooner terminated pursuant to its terms, the Services Agreement
will expire on December 31, 2005.
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PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(A) Financial Statements. See the Index immediately following the
signature page.
(B) Reports on Form 8-K. Funding did not file any reports on form 8-K
during the last quarter of the year ended December 31, 1993.
(C) Exhibits. All exhibits listed below are filed with this Annual Report
on Form 10-K unless specifically stated to be incorporated by
reference to other documents previously filed with the Securities and
Exchange Commission.
Exhibit
3(15) -Amended and Restated Certificate of Incorporation of Funding.
3.1(15) -Bylaws of Funding.
3.2-3.6 -Intentionally omitted.
3.7(14) -Second Amended and Restated Partnership Agreement of the
Partnership.
4.1-4.10 -Intentionally omitted.
4.11(14) -Indenture, among Funding, as issuer, the Partnership, as
guarantor, and the Mortgage Note Trustee, as trustee.
4.12(14) -Indenture of Mortgage between the Partnership, as Mortgagor, and
Funding, as Mortgagee.
4.13(14) -Assignment Agreement between Funding and the Mortgage Note
Trustee.
4.14(14) -Partnership Note.
4.15 -Form of Mortgage Note (included in Exhibit 4.11).
4.16 -Form of Partnership Guarantee (included in Exhibit 4.11).
4.17(14) -Indenture between Funding, as issuer, the Partnership, as
guarantor, and the PIK Note Trustee, as trustee.
4.18(14) -Pledge Agreement between Funding and the PIK Note Trustee.
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4.19(14) -Subordinated Partnership Note.
4.20 -Form of PIK Note (included in Exhibit 4.17).
4.21 -Form of Subordinated Partnership Guarantee (included in exhibit
4.17).
4.22(15) -Letter Agreement between the Partnership and the Proposed Senior
Secured Note Purchasers regarding the Senior Secured Notes.
4.23(14) -Note Purchase Agreement for 11-1/2% Series A Senior Secured Notes
of the Partnership due 1999.
4.24(14) -Indenture, among Funding, as issuer, the Partnership, as
guarantor, and the Senior Secured Note Trustee, as trustee.
4.25(14) -Indenture of Mortgage and Security Agreement between the
Partnership, as mortgagor/debtor, and Funding as mortgagee/secured
party. (Senior Note Mortgage).
4.26(14) -Registration Rights Agreement by and among the Partnership and
certain purchasers.
4.27 -Intentionally omitted.
4.28(14) -Guarantee Mortgage.
4.29(14) -Senior Partnership Note.
4.30(14) -Indenture of Mortgage and Security Agreement between the
Partnership as mortgagor/debtor and the Senior Note Trustee as
mortgagee/secured party. (Senior Guarantee Mortgage).
4.31(14) -Assignment Agreement between Funding, as assignor, and the Senior
Note Trustee, as assignee. (Senior Assignment Agreement).
4.32(14) -Amended and Restated Nominee Agreement.
10.1-10.2 -Intentionally omitted.
10.3(7) -Employment Agreement dated January 17, 1991, between the
Partnership and Roger P. Wagner.
10.4(2) -Second Amendment to Employment Agreement dated January 17, 1991
between the Partnership, TCHI, and Roger P. Wagner.
10.5(3) -Form of License Agreement between the Partnership and Donald J.
Trump.
-45-
<PAGE>
10.6 -Intentionally Omitted.
10.7(5) -Lease, dated June 25, 1986, between the Partnership and Trump
Plaza, as the nominee of the Trump Organization.
10.8-10.10 -Intentionally omitted.
10.11(14) -Employment Agreement, between the Partnership and Nicholas Ribis.
10.12(5) -Trump's Castle Hotel & Casino Retirement Savings Plan, effective
as of September 1, 1986.
10.13-10.16 -Intentionally omitted.
10.17(9) -Agreement, dated June 1, 1987, between Marina Associates, GNAC
Corp., and the Partnership, individually and as assignee of Hilton
New Jersey Corporation and the New Jersey Department of
Transportation and the New Jersey Department of Environmental
Protection.
10.18(9) -Agreement, dated June 1, 1987, between Marina Associates, the
Partnership, individually and as assignee and successor of Hilton
New Jersey Corporation and Golden Nugget, Inc., individually and
on behalf of all of its past, present and future subsidiaries.
10.19(7) -Lease Agreement by and between State of New Jersey acting through
its Department of Environmental Protection, Division of Parks and
Forests, as Landlord, and the Partnership, as tenant, dated
September 1, 1990.
10.20-10.21 -Intentionally omitted.
10.22(1) -Memorandum of Understanding, dated July 30, 1991, between Willkie
Farr & Gallagher, Clapp & Eisenberg and Goodkind Labaton & Rudoff.
10.23(2) -Form of Employment Agreement between the Partnership and Ernest
E. East.
10.24A(3) -Employment Agreement, dated January 31, 1992 between Thomas P.
Venier and the Partnership.
10.24B(13) -Amendment to Employment Agreement, dated March 19, 1993, between
Thomas P. Venier and the Partnership.
10.25(3) -Stipulation and Agreement of Compromise and Settlement, between
Willkie Farr & Gallagher, Clapp & Eisenberg and Goodkind, Labaton,
Rudoff & Sucharow.
-46-
<PAGE>
10.26A(10) -Employment Agreement, dated November 2, 1992, between Patrick
Dennehy and the Partnership.
10.26B(15) -Amendment of Employment Agreement, dated May 13, 1993, between
Patrick Dennehy and the Partnership.
10.27(15) -Services Agreement.
10.28-10.29 -Intentionally omitted.
10.30(15) -Employment Agreement, dated October 4, 1993, between Nicholas
Niglio and the Partnership.
10.31(11) -Employment Agreement, dated January 3, 1994, between Robert E.
Schaffhauser and the Partnership.
10.32(11) -Employment Agreement dated December 20, 1993, between Patricia M.
Wild and the Partnership
10.33(11) -Amendment of Employment Agreement, dated December 30, 1993,
between Thomas Venier and the Partnership.
10.34(11) -Amended and Restated Credit Agreement, dated as of December 28,
1993, among Midlantic, the Partnership and Funding.
10.35(11) -Amendment No. 1 to Amended and Restated Indenture of Mortgage,
between the Partnership, as Mortgagor and Midlantic, as Mortgagee.
10.36(11) -Amended and Restated Indenture of Mortgage, between the
Partnership, as Mortgagor and Midlantic, as Mortgagee, dated as of
May 29, 1992.
10.37(11) -Amendment No. 1 to Amended and Restated Assignment of Leases and
Rents, between the Partnership, as assignor, and Midlantic, as
assignee.
10.38(11) -Amended and Restated Assignment of Leases and Rents, between the
Partnership, as assignor, and Midlantic, as assignee, dated as of
May 29, 1992.
10.39(11) -Amendment No. 1 to Amended and Restated Assignment of Operating
Assets, between the Partnership, as assignor and Midlantic, as
assignee.
10.40(11) -Amended and Restated Assignment of Operating Assets, between the
Partnership, as assignor, and Midlantic, as assignee, dated as of
May 29, 1992.
-47-
<PAGE>
10.41(11) -Intercreditor Agreement, by and among Midlantic, the Senior Note
Trustee, the Mortgage Note Trustee, the PIK Note Trustee, Funding
and the Partnership.
- --------------
(1) Incorporated herein by reference to the identically numbered Exhibit to
Funding's Registration Statement on Form S-4, Registration No.
33-41759, declared effective on January 23, 1992.
(2) Incorporated herein by reference to the Exhibit to Funding's Quarterly
Report on Form 10-Q for the quarter ended June 30, 1992.
(3) Incorporated herein by reference to the Exhibit to Funding's Annual
Report on Form 10-K for the year ended December 31, 1991.
(4) Incorporated herein by reference to the Exhibit to Funding's Annual
Report on Form 10-K for the year ended December 31, 1987.
(5) Incorporated herein by reference to the Exhibit to Funding's Annual
Report on Form 10-K for the year ended December 31, 1986.
(6) Incorporated herein by reference to Exhibit 10.12 to Funding's Annual
Report on Form 10-K for the year ended December 31, 1989.
(7) Incorporated herein by reference to the Exhibit to Funding's Annual
Report on Form 10-K for the year ended December 31, 1990.
(8) Incorporated herein by reference to Exhibit 10.2 to Funding's
Registration Statement on Form S-1, Registration No. 2-99088, declared
effective on September 20, 1985.
(9) Incorporated herein by reference to the Exhibit to Funding's
Registration Statement on Form S-1, Registration No. 33-14907, declared
effective on July 21, 1987.
(10) Incorporated herein by reference to the Exhibit to Funding's Annual
Report on Form 10-K for the year ended December 31, 1992.
(11) Incorporated herein by reference to the identically numbered Exhibit to
Funding's Registration Statement on Form S-4, Registration Number
33-52309 filed with the SEC on February 17, 1994.
(12) Incorporated herein by reference to the Exhibit to TC/GP's Quarterly
Report on Form 10-Q for the quarter ended June 30, 1992.
(13) Incorporated herein by reference to the Exhibit to Funding's Quarterly
Report on Form 10-Q for the quarter ended March 31, 1993.
-48-
<PAGE>
(14) Incorporated herein by reference to the Exhibit to Amendment No. 5 to
the Schedule 13E-3 of TC/GP and the Partnership, File No. 5-36825,
filed with the SEC on January 11, 1994.
(15) Incorporated herein by reference to the Exhibit to Funding's and the
Partnership's Registration Statement on Form S-4, Registration No.
33-68038.
-49-
<PAGE>
INDEX TO FINANCIAL STATEMENTS
Report of Independent Public Accountants F-1
Consolidated Balance Sheets of Trump's Castle
Associates and Subsidiary as of December 31,
1993 and 1992 F-2
Consolidated Statements of Operations of Trump's
Castle Associates and Subsidiary for the years
ended December 31, 1993, 1992 and 1991 F-3
Consolidated Statements of Capital (Deficit) of
Trump's Castle Associates for the years ended
December 31, 1993, 1992 and 1991 F-4
Consolidated Statements of Cash Flows of Trump's
Castle Associates and Subsidiary for the years
ended December 31, 1993, 1992 and 1991 F-5
Notes to Consolidated Financial Statements of
Trump's Castle Associates and Subsidiary F-6
<TABLE>
<CAPTION>
Schedule
<S> <C> <C>
II Amounts Receivable from Related Parties,
Underwriters, Promoters, and Employees
Other Than Related Parties for the years
ended December 31, 1993, 1992 and 1991 F-19
V Property and Equipment for the years ended
December 31, 1993, 1992 and 1991 F-20
VI Accumulated Depreciation of Property and Equipment for
the years ended December 31, 1993, 1992 and 1991 F-21
VIII Valuation and Qualifying Accounts for the
years ended December 31, 1993, 1992 and
1991 F-22
IX Short-Term Borrowings for the years ended
December 31, 1993, 1992 and 1991 F-23
-50-
<PAGE>
X Supplementary Income Statement Information for the
years ended December 31, 1993,
1992 and 1991 F-24
</TABLE>
Other Schedules are omitted for the reason that they are not
required or are not applicable, or the required information is included in the
combined financial statements or notes thereto.
-51-
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Trump's Castle Associates
and Subsidiary:
We have audited the accompanying consolidated balance sheets of Trump's Castle
Associates (a New Jersey general partnership) and Subsidiary as of December 31,
1993 and 1992, and the related consolidated statements of operations, partners'
capital (deficit) and cash flows for each of the three years in the period ended
December 31, 1993. These consolidated financial statements and the schedules
referred to below are the responsibility of the Partnership's management. Our
responsibility is to express an opinion on these consolidated financial
statements and schedules 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 Trump's Castle Associates and
Subsidiary as of December 31, 1993 and 1992, and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 1993, in conformity with generally accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedules listed in the index to the
financial statements are presented for purposes of complying with the Securities
and Exchange Commission's rules and are not part of the basic financial
statements. These schedules have been subjected to the auditing procedures
applied in our audits of the basic financial statements and, in our opinion,
fairly state in all material respects the financial data required to be set
forth therein in relation to the basic financial statements taken as a whole.
Arthur Andersen & Co.
Roseland, New Jersey
February 11, 1994
-52-
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the Registrant has duly caused this Annual Report to be signed on its
behalf by the undersigned, thereunto duly authorized, on the 30th day of March,
1994.
TRUMP'S CASTLE FUNDING, INC.
By: /s/Donald J. Trump
----------------------------
By: Donald J. Trump
Title: President
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this Annual Report has been signed below by the following persons on
behalf of the Registrant and in the capacities and on the date indicated.
Signature Title Date
TRUMP'S CASTLE FUNDING, INC.
By:/s/Donald J. Trump Chairman of the Board, President, March 30, 1994
- --------------------- Chief Executive Officer (Principal
Donald J. Trump Executive Officer), Treasurer
(Principal Financial Officer) and
sole Director of the Registrant.
By:/s/Robert E. Schaffhauser Assistant Treasurer of the March 30, 1994
- ---------------------------- Registrant (Principal Accounting
Robert E. Schaffhauser Officer)
<PAGE>
TRUMP'S CASTLE ASSOCIATES AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS -- DECEMBER 31, 1993 AND 1992
<TABLE>
<CAPTION>
ASSETS 1993 1992
------ ---- ----
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents (Note 3) $ 20,439,000 $ 23,610,000
Trade receivable, less allowance for
doubtful accounts of $1,928,000 and
$2,721,000 respectively 7,316,000 4,841,000
Accounts receivable, other 2,338,000 1,980,000
Due from affiliates, net (Note 6) 615,000 742,000
Inventories (Note 3) 2,315,000 2,160,000
Prepaid expenses and other current assets 3,515,000 2,929,000
------------- -------------
Total current assets 36,538,000 36,262,000
------------- -------------
PROPERTY AND EQUIPMENT (Notes 3,4, and 5):
Land and land improvements 62,177,000 62,117,000
Buildings and building improvements 324,636,000 321,345,000
Furniture, fixtures and equipment 103,446,000 97,194,000
Construction in progress 3,194,000 2,401,000
------------- -------------
493,453,000 483,057,000
Less - Accumulated depreciation 159,099,000 142,674,000
------------- -------------
334,354,000 340,383,000
------------- -------------
OTHER ASSETS 5,043,000 2,996,000
------------- -------------
Total assets $375,935,000 $379,641,000
============ ============
LIABILITIES AND CAPITAL (DEFICIT) 1993 1992
--------------------------------- ---- ----
CURRENT LIABILITIES:
Trade accounts payable 2,354,000 4,484,000
Accrued payroll 8,842,000 7,598,000
Accrued interest payable (Note 2) 234,000 11,713,000
Unredeemed chip liability (Note 6) 4,448,000 3,765,000
Patron deposits (Note 6) 3,099,000 67,000
Other 15,486,000 11,770,000
------------- -------------
Total current liabilities 34,463,000 39,397,000
MORTGAGE NOTES, due 2003 (Notes 4 and 10) 202,552,000 -
PIK NOTES, due 2005 (Notes 4 and 10) 42,242,000 -
MORTGAGE BONDS, due 1998 (Notes 4 and 10) - 234,445,000
OTHER BORROWINGS (Note 5) 65,000,000 45,000,000
------------- -------------
Total liabilities 344,257,000 318,842,000
------------- -------------
COMMITMENTS AND CONTINGENCIES (Note 7)
PARTNERS' CAPITAL (Notes 2 and 6):
Contributed Capital 73,395,000 73,395,000
Accumulated Deficit (41,717,000) (12,596,000)
------------- -------------
Total patners' capital 31,678,000 60,799,000
------------- -------------
Total liabilities and capital $375,935,000 $379,641,000
============= =============
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these consolidated balance sheets.
F-2
<PAGE>
TRUMP'S CASTLE ASSOCIATES AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
<TABLE>
<CAPTION>
1993 1992 1991
---- ---- ----
<S> <C> <C> <C>
REVENUES:
Gaming (Note 3) $246,370,000 $242,008,000 $194,760,000
Rooms 19,647,000 17,785,000 16,599,000
Food and beverage 30,608,000 31,361,000 28,307,000
Other 8,201,000 8,152,000 8,302,000
------------ ------------ ------------
Gross Revenues 304,826,000 299,306,000 247,968,000
Less- Promotional allowances (Note 3) 31,599,000 30,656,000 27,882,000
------------ ------------ ------------
Net Revenues 273,227,000 268,650,000 220,086,000
------------ ------------ ------------
COSTS AND EXPENSES (Notes 2, 6 and 7)
Gaming 148,415,000 149,376,000 119,719,000
Rooms 3,421,000 3,306,000 3,253,000
Food and beverage 15,970,000 16,502,000 13,236,000
General and administrative 50,044,000 52,939,000 46,337,000
Depreciation and amortization 16,425,000 19,802,000 21,414,000
Reorganization costs - 5,983,000 4,499,000
Other 11,086,000 12,715,000 13,988,000
------------ ------------ ------------
245,361,000 260,623,000 222,446,000
------------ ------------ ------------
Income (loss) from operations 27,866,000 8,027,000 (2,360,000)
INTEREST INCOME 675,000 499,000 505,000
INTEREST EXPENSE, including approximately $9,000,000
in transaction costs related to the Recapitalization Plan
in 1993 (Note 2). (56,926,000) (45,360,000) (48,344,000)
------------ ------------ ------------
Loss before extraordinary gain (28,385,000) (36,834,000) (50,199,000)
EXTRAORDINARY GAIN ON PLAN
OF REORGANIZATION (Note 2) - 128,187,000 -
------------ ------------ ------------
Net Income (Loss) ($28,385,000) $91,353,000 ($50,199,000)
============ ============ ============
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these consolidated statements.
F-3
<PAGE>
TRUMP'S CASTLE ASSOCIATES AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF PARTNERS' CAPITAL (DEFICIT)
FOR THE YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
<TABLE>
<CAPTION>
Contributed Accumulated
Capital Deficit Total
----------- ----------- -----------
<S> <C> <C> <C>
Balance at December 31, 1990 $40,070,000 ($53,277,000) ($13,207,000)
Net loss - (50,199,000) (50,199,000)
----------- ----------- -----------
Balance at December 31, 1991 40,070,000 (103,476,000) (63,406,000)
Capital Contribution 33,325,000 - 33,325,000
Net income - 91,353,000 91,353,000
Partnership Distribution - (473,000) (473,000)
----------- ----------- -----------
Balance at December 31, 1992 73,395,000 (12,596,000) 60,799,000
Net loss - (28,385,000) (28,385,000)
Partnership Distribution (Note 6) - (736,000) (736,000)
----------- ----------- -----------
Balance at December 31, 1993 $73,395,000 ($41,717,000) $31,678,000
=========== =========== ===========
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these consolidated statements.
F-4
<PAGE>
TRUMP'S CASTLE ASSOCIATES AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
<TABLE>
<CAPTION>
1993 1992 1991
---- ---- ----
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss)income ($28,385,000) $91,353,000 ($50,199,000)
Adjustments to reconcile net (loss)income
to net cash flows (used in) provided by
operating activities-
Noncash charges-
Extraordinary Gain - (128,187,000) -
Depreciation and amortization 16,425,000 19,802,000 21,414,000
Accretion of bond discount 10,395,000 6,617,000 2,904,000
Provision for losses on receivables 755,000 2,290,000 3,387,000
Amortization of CRDA tax credits 115,000 679,000 1,959,000
Valuation allowance - CRDA investments 953,000 656,000 137,000
----------- ------------ ------------
258,000 (6,790,000) (20,398,000)
(Increase) decrease in receivables (3,461,000) (2,057,000) 3,303,000
(Increase) decrease in inventories (155,000) (309,000) 922,000
(Increase) decrease in other current assets (701,000) 141,000 (1,596,000)
(Increase) decrease in other assets (42,000) 9,368,000 (99,000)
(Decrease) increase in current liabilities (4,980,000) 19,028,000 30,322,000
----------- ------------ ------------
Net cash flows (used in) provided by
operating activities (9,081,000) 19,381,000 12,454,000
----------- ------------ ------------
CASH FLOWS USED BY INVESTING ACTIVITIES:
Purchases of property and equipment, net (10,396,000) (8,574,000) (5,117,000)
Purchase of CRDA investments (2,958,000) (1,696,000) (411,000)
----------- ------------ ------------
Net cash flows used in investing activities (13,354,000) (10,270,000) (5,528,000)
----------- ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of Senior Notes 27,000,000 - -
Repayment of Bank Borrowings (7,000,000) - -
Distributions to TC\GP,INC. (736,000) (473,000) -
----------- ------------ ------------
Net cash flows provided by (used in)
financing activites 19,264,000 (473,000) -
----------- ------------ ------------
Net (decrease) increase in
cash and cash equivalents (3,171,000) 8,638,000 6,926,000
CASH AND CASH EQUIVALENTS
AT BEGINNING OF YEAR 23,610,000 14,972,000 8,046,000
----------- ------------ ------------
CASH AND CASH EQUIVALENTS
AT END OF YEAR $20,439,000 $23,610,000 $14,972,000
=========== ============ ============
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these consolidated statements.
F-5
<PAGE>
TRUMP'S CASTLE ASSOCIATES AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) Organization and Operations:
The accompanying consolidated financial statements include those of Trump's
Castle Associates, a New Jersey general partnership (the "Partnership") and its
wholly-owned subsidiary, Trump's Castle Funding, Inc., a New Jersey corporation
(the "Company"). All significant intercompany balances and transactions have
been eliminated in the consolidated financial statements.
The Partnership was formed as a limited partnership in 1985 for the sole
purpose of acquiring and operating Trump's Castle Casino Resort ("Trump's
Castle"). The Partnership converted to a general partnership in February 1992.
As a result of a recapitalization involving the Partnership, the Company and
TC/GP, Inc. ("TC/GP") in December, 1993 (Note 2), the Partnership is wholly
owned by Donald J. Trump, and his wholly owned companies, TC/GP and Trump's
Castle Hotel & Casino Inc. ("TCHC"). Donald J. Trump has pledged his direct and
indirect ownership interest in the Partnership as collateral under various
personal debt agreements.
The Company was incorporated on May 28, 1985 solely to serve as a financing
company to raise funds through the issuance of bonds to the public (Note 4).
Since the Company has no business operations, its ability to repay the principal
and interest on 11-3/4% Mortgage Notes due 2003 (the "Mortgage Notes") and its
Increasing Rate Subordinated Pay-in-Kind Notes due 2005 (the "PIK Notes") is
completely dependent upon the operations of the Partnership.
(2) Plan of Reorganization and Subsequent Recapitalization:
Plan of Reorganization
On March 9, 1992, the Partnership, the Company, and TCHC filed a voluntary
petition for relief under chapter 11, title 11 of the United States Bankruptcy
Code (the "Bankruptcy Code") and filed a Plan of Reorganization (the "Plan").
The Plan was confirmed by the Bankruptcy Court on May 5, 1992 and the Plan was
consummated on May 29, 1992 (the "Effective Date"). Pursuant to the terms of the
Plan, the Company's then outstanding bonds (the "Old Bonds") were exchanged for
new bonds and common stock of TC/GP (Note 4) and certain modifications were made
to the terms of bank borrowings (Note 5) and amounts owed to Donald J. Trump
(Note 6). The issuance of the common stock of TC/GP resulted in approximately
50% of the beneficial ownership interest in the Partnership being transferred to
the holders of the bonds.
F-6
<PAGE>
In accordance with AICPA Statement of Position 90-7, "Financial Reporting
by Entities in Reorganization Under the Bankruptcy Code," the Bonds issued at
the time of the reorganization were stated at the present value of amounts to be
paid, determined at current interest rates (effective rate of approximately
17.4%). The effective interest rate of these bonds was determined based on the
trading price of these bonds for a specific period. Stating the debt at its
approximate present value resulted in a reduction in the $322,987,000 initial
face amount of these bonds of approximately $96,896,000. This gain will be
offset by increased interest costs over the period of the bonds to accrete such
bonds to their face value at maturity.
On the Effective Date, TC/GP received a 49.995% Partnership interest in the
Partnership and was admitted as a partner. TC/GP also received a 50% beneficial
interest in TCHC, a partner in the Partnership, which held a .01% partnership
interest, thereby giving TC/GP a 50% beneficial interest in the Partnership. On
the Effective Date the partners executed the Amended and Restated Partnership
Agreement (the "Partnership Agreement"), which provided for, among other things,
a Board of Partner Representatives (the "Board") to oversee the business and
operations of the Partnership. Pursuant to the terms of the Partnership
Agreement, Donald J. Trump was appointed the Managing General Partner of the
Partnership responsible for its day-to-day operations and appointed four of the
seven members of the Board. The remaining members of the Board were appointed by
TC/GP through the holders of its Common Stock.
The Plan resulted in an extraordinary gain totaling approximately
$128,187,000, including the $96,896,000 discussed above, $18,000,000
representing the forgiveness of bank debt (Note 5), and $22,805,000 representing
a discharge of accrued interest and accretion on indebtedness less the write-off
of unamortized loan issuance costs of $9,514,000. On the Effective date, 35,447
of additional units were issued in lieu of the Bond Carryforward Amount, as
defined and the Effective Date Amount, as defined. Additionally, the Plan
resulted in a discharge of related party indebtedness in the approximate amount
of $33,325,000 which has been accounted for as a contribution to capital (Note
6).
Recapitalization
On December 28, 1993, the Partnership, the Company and TC/GP consummated a
Recapitalization Plan whereby each $1,000 of principal of the 9.5% Mortgage
Bonds issued as part of the Plan was exchanged for $750 principal amount of the
Company's 11-3/4% Mortgage Notes due 2003 (the "Mortgage Notes"), $120 principal
amount of the Company's Increasing Rate Subordinated Pay-in-Kind Notes due 2005
(the "PIK Notes") and a cash payment of $6.19 plus all accrued and unpaid
interest. Those bondholders who did not elect to exchange their bonds received a
cash payment of $750 for each $1,000 of principal amount of bonds plus accrued
and unpaid interest. In addition, each share of TC/GP common stock was exchanged
for $35 principal amount of PIK Notes.
F-7
<PAGE>
As a result of the Recapitalization Plan, approximately 96% of the
principal amount of the previously issued bonds were exchanged for Mortgage and
PIK Notes and the TC/GP common stock was redeemed. Those bonds that were
redeemed for cash were purchased at an amount which approximated their net book
value at the date of purchase. The net book value of the exchanged bonds has
been carried forward and allocated to the Mortgage and PIK Notes in proportion
to the principal amount of Notes issued. The difference between the principal
amount and net book value of these Notes will be accreted as a charge to
interest expense over the life of the Notes using the effective interest method.
In addition to the Mortgage and PIK Notes, the Company issued $27 million
of 11-1/2% Senior Secured Notes, due 2000 (the "Senior Notes"). A portion of the
proceeds from the Senior Notes were used to repay the $7 million Grid Note (Note
5).
Transaction costs related to the Recapitalization Plan of approximately
$9,000,000 are included in interest expense. Included in these costs is a
$1,500,000 bonus to Donald J. Trump for the services he provided in connection
with the recapitalization.
(3) Accounting Policies:
Gaming Revenues
The Partnership records as gross gaming revenues the differences between
amounts wagered and amounts won by casino patrons.
During 1992, certain Progressive Slot Jackpot Programs were discontinued
which resulted in $1,767,000 of related accruals being taken into income.
Promotional Allowances
Gross revenues include the retail value of the complimentary food, beverage
and hotel services furnished to patrons. The retail value of these promotional
allowances is deducted from gross revenues to arrive at net revenues. The cost
of such complimentaries have been included as casino expenses in the
accompanying consolidated statements of operations. The cost of complimentaries
allocated from rooms, food and beverage departments to the casino department
during the years ended December 31, 1993, 1992 and 1991 are as follows:
1993 1992 1991
----------- ----------- -----------
Rooms $ 5,834,000 $ 5,390,000 $ 4,304,000
Food and Beverage 17,332,000 17,351,000 13,694,000
Other 2,073,000 1,954,000 1,360,000
----------- ----------- -----------
$25,239,000 $24,695,000 $19,358,000
=========== =========== ===========
F-8
<PAGE>
Income taxes
The accompanying consolidated financial statements do not include a
provision for Federal income taxes of the Partnership, since any income or
losses allocated to the partners are reportable for Federal income tax purposes
by the Partners.
Under the Casino Control Act (the "Act") and the regulations promulgated
thereunder, the Partnership and the Company are required to file a consolidated
New Jersey corporation business tax return. However, no provision for State
income taxes has been reflected in the accompanying consolidated financial
statements, since the Partnership has experienced cumulative net operating
losses.
As of December 31, 1993, the Partnership had New Jersey State net operating
losses of approximately $144,000,000, which are available to offset taxable
income through 2000.
Inventories
Inventories of provisions and supplies are carried at the lower of cost
(first-in, first-out basis) or market.
Property and equipment
Property and equipment is recorded at cost and is depreciated on the
straight-line method over the estimated useful lives of the assets. Estimated
useful lives for furniture, fixtures and equipment and buildings are from three
to eight years and forty years, respectively.
Statements of cash flows
For purposes of the statements of cash flows, the Company and the
Partnership consider all highly liquid debt instruments purchased with a
maturity of three months or less to be cash equivalents.
The following supplemental disclosures are made to the statements of cash
flows:
1993 1992 1991
----------- ----------- -----------
Cash paid during the
year for interest
(net of amounts
capitalized) $44,857,000 $8,172,000 $7,902,000
=========== ========== ==========
(4) Mortgage Bonds and Notes:
Upon consummation of the Plan on May 29, 1992, each $1,000 principal amount
of the Company's then outstanding Series A-1 Bonds or $1,000 accreted amount as
F-9
<PAGE>
of December 15, 1990 of Series A-2 Bonds were exchanged for $1,000 in principal
amount of the Company's 9.50% Bonds (the "Bonds"), together with one share of
the Common Stock of TC/GP and certain other payments. The New Bonds and Common
Stock traded together as a unit (the "Unit") and could not be transferred
separately, except upon the occurrence of certain events.
The Bonds had a scheduled maturity of August 15, 1998 and bore interest at
9.50% per annum from the date of issuance, payable semi-annually on each
February 15 and August 15, commencing August 15, 1992. The Company was required
to pay interest in cash to the holders of the Bonds outstanding on the
immediately preceding August 1 or February 1 at varying rates per annum (the
"Mandatory Cash Amounts") as follows:
Mandatory
Cash Rate
Interest Payment Date (Per Annum)
- --------------------- -----------
August 15, 1992 5.00%
February 15, 1993 6.00%
August 15, 1993 7.00%
February 15, 1994 8.00%
August 15, 1994 and thereafter 9.50%
For interest payment dates on or before February 15, 1994, the difference
between interest calculated at the rate of 9.50% per annum and the Mandatory
Cash Amount (the "Additional Amount") was required to be payable to holders of
the Bonds in cash to the extent that Excess Available Cash, as defined, of the
Partnership was available for such purpose and in additional Units to the extent
that Excess Available Cash was less than the Additional Amount, as defined.
Through August 15, 1993, interest was paid to the bondholders at the mandatory
cash rate, with the balance paid in additional units.
As discussed in Note 2, On December 28, 1993 all of the outstanding
Mortgage Bonds and TC/GP Common stock were either redeemed or exchanged for
Mortgage and PIK Notes. The Mortgage Notes bear interest, payable in cash,
semi-annually, commencing May 15, 1994 at 11-3/4% and mature on November 15,
2003. As discussed in Note 2, Recapitalization, the net book value of the
exchanged bonds has been carried forward and allocated to the Mortgage and PIK
Notes in proportion to the principal amount of Notes issued. Accordingly, as of
December 31, 1993, the Mortgage and PIK Notes outstanding are reflected on the
balance sheet net of unamortized discount of $39,589,000 and $8,257,000
respectively. In the event the PIK Notes are redeemed prior to November 15,
1998, the interest rate on the Mortgage Notes will be reduced to 11-1/2%. The
Mortgage Notes may be redeemed at the Company's option at a specified percentage
of the principal amount commencing in 1998.
F-10
<PAGE>
The PIK Notes bear interest, payable at the Company's option in whole or in
part in cash and through the issuance of additional PIK Notes, semi-annually
commencing May 15, 1994 at the rate of 7% through September 30, 1994 and 13-7/8%
through November 15, 2003. Thereafter interest on these Notes is payable in
cash, semi-annually at the rate of 13-7/8%. The PIK Notes mature on November 15,
2005. The PIK Notes may be redeemed at the Company's option at 100% of the
principal amount under certain conditions, as defined in the PIK Note Indenture,
and are required to be redeemed from a specified percentage of any equity
offering which includes the Partnership.
The terms of both the Mortgage Notes and PIK Notes include limitations on
the amount of additional indebtedness the Partnership may incur, distributions
of Partnership capital, investments and other business activities.
The Mortgage Notes are secured by a promissory note of the Partnership to
the Company (the "Partnership Note") in an amount and with payment terms
necessary to service the Mortgage Notes. The Partnership Note is secured by a
mortgage on Trump's Castle and substantially all of the other assets of the
Partnership. The Partnership Note has been assigned by the Company to the
Trustee to secure the repayment of the Mortgage Notes. In addition, the
Partnership has guaranteed (the "Guaranty") the payment of the Mortgage Notes,
which Guaranty is secured by a mortgage on Trump's Castle. The Partnership Note
and the Guaranty are expressly subordinated to the indebtedness described in
Note 5 (the "Senior Indebtedness") and the liens of the mortgages securing the
Partnership Note and the Guaranty are subordinate to the liens securing the
Senior Indebtedness.
The PIK Notes are secured by a subordinated promissory note of the
Partnership to the Company (the "Subordinated Partnership Note"), which has been
assigned to the Trustee for the PIK Notes, and the Partnership has issued a
subordinated guaranty (the "Subordinated Guaranty") of the PIK Notes. The
Subordinated Partnership Note and the Subordinated Guaranty are expressly
subordinated to the Senior Indebtedness, the Partnership Note and the Guaranty.
(5) Other Borrowings:
Bank Borrowings
In February 1988, the Company and the Partnership entered into a
$50,000,000 revolving credit facility with Midlantic National Bank ("Midlantic")
which was later converted to a term loan in August 1990 ("Term Loan"). In
addition, in June 1990, the Partnership borrowed $13,000,000 from Midlantic
under an unsecured line of credit pursuant to a grid note ("Grid Note").
Pursuant to the Plan, the terms of both of these loans were modified.
The principal amount of the amended Term Loan (the "Amended Term Loan") was
reduced to $38,000,000. The Amended Term Loan has an initial maturity of three
F-11
<PAGE>
years from the Effective Date and bears interest at 9% per annum over such
period. In accordance with its terms, the Partnership has the option, subject to
certain conditions, to extend the Amended Term Loan an additional five years.
Upon such an extension, the interest rate on such loan will adjust to a market
rate, but not less than a minimum rate of 9%. The Amended Term Loan is secured
by a mortgage lien on Trump's Castle that is prior to the lien securing the
Mortgage Notes (Note 4) and the Senior Notes described below.
The amended Grid Note (the "Amended Grid Note") bore interest at 8.5% and
the outstanding principal amount was reduced to $7,000,000 payable on demand. On
December 28, 1993, the Amended Grid Note was paid in full.
Senior Notes
On December 28, 1993, the Company issued 11-1/2% Senior Secured Notes, due
2000. Similar to the Mortgage Notes, the Senior Notes are secured by an
assignment of a promissory note of the Partnership (the "Senior Partnership
Note") which is in turn secured by a mortgage on Trump's Castle and
substantially all of the other assets of the Partnership. In addition, the
Partnership has guaranteed (the "Senior Guaranty") the payment of the Senior
Notes, which Senior Guaranty is secured by a mortgage on Trump's Castle. The
Senior Partnership Note is subordinated to the Amended Term Loan described
above.
Interest on the Senior Notes is payable semiannually commencing May 15,
1994 at the rate of 11-1/2%; however in the event that the PIK Notes are
redeemed prior to November 15, 1998, the interest rate will be reduced to
11-1/4%. The Senior Notes are subject to a required partial redemption
commencing on June 1, 1998 at 100% of the principal amount.
(6) Related Party Transactions:
Trump Priority Interest
During 1990, the Partnership borrowed $28,265,000 from Donald J. Trump, one
of its general partners, which included $9,889,000 of Series A-1 Bonds (face
value $12,480,000), the proceeds of which were used to partially satisfy the
June 1990 interest and sinking fund requirements of the Old Bonds. Pursuant to
the Plan, the above obligations and related accrued interest of $5,060,000 were
canceled and contributed to capital and Donald J. Trump received in exchange
therefor a priority interest in the Partnership (the "Trump Priority Interest").
The Trump Priority Interest was initially $15,000,000 and pursuant to the terms
of the Partnership Agreement, the Partnership was required to pay a priority
return thereon semi-annually at a rate per annum of up to 9.50%. Pursuant to the
terms of the Recapitalization Plan, the Partnership Agreement was amended to
provide, among other things, that Trump will be entitled to receive a priority
F-12
<PAGE>
distribution equal to the Trump Priority Interest upon liquidation and to
eliminate the priority return. For the year ended December 31, 1993 and 1992, no
amounts were paid as priority return on capital.
Trump Management Fee
The Partnership had a management agreement with Trump's Castle Management
Corp. ("TCMC"), a corporation wholly owned by Donald J. Trump (the "Management
Agreement"). The Management Agreement provided that the day-to-day operation of
Trump's Castle and all ancillary properties and businesses of the Partnership
was to be under the exclusive management and supervision of TCMC.
Pursuant to the Management Agreement, the Partnership was required to pay
an annual fee in the amount of $1,500,000 to TCMC for each year in which
Earnings Before Interest, Taxes, Depreciation and Amortization ("EBITDA"), as
defined, exceeds certain levels. In addition, TCMC, beginning with the fiscal
year ended December 31, 1994, was to receive an incentive fee equal to 10% of
the excess EBITDA over $45,000,000 for such fiscal year. During the years ended
1993 and 1992, the Partnership incurred fees and expenses of $1,647,000 and
888,000 respectively, under the Management Agreement.
As a result of the Recapitalization Plan described in Note 2, on December
28, 1993, the Partnership terminated the Management Agreement with TCMC and
entered into a Services Agreement with TC/GP. Pursuant to the terms of the
services agreement, TC/GP is obligated to provide the Partnership, from time to
time, when reasonably requested, consulting services on a non-exclusive basis,
relating to marketing, advertising, promotional and other similar and related
services with respect to the business and operations of the Partnership,
including such other services as the Managing Partner may reasonably request.
In consideration for the services to be rendered, the Partnership will pay
TC/GP an annual fee on the same basis as that of the previous Management
Agreement, discussed above. The Services Agreement expires on December 31, 2005.
Fred Trump Gaming Chip Liability
In December 1990, Fred Trump, the father of Donald J. Trump, placed
$3,500,000 in cash on deposit with the Partnership's casino cage, which was
recorded by the Partnership as a gaming patron deposit. Counter checks totaling
$3,500,000 were issued against the deposit, for which Fred Trump received gaming
chips valued at $3,500,000. On October 8, 1992, in accordance with the
indenture, Fred Trump redeemed $1,000,000 in gaming chips for cash. In December
1993, Fred Trump redeemed $1,000,000 in gaming chips and placed the same amount
on deposit in the casino cage. This amount was included in Patrons Deposits as
of December 31, 1993 and was subsequently redeemed on January 6, 1994. The
remaining liability may be redeemed at any time provided there shall exist no
Event of Default, the Partnership shall have achieved EBITDA for any period of
F-13
<PAGE>
four consecutive fiscal quarters in an amount not less than $45,000,000 and or
if approved by a unanimous vote of the Board of Partner Representatives with the
unanimous consent of the Noteholder Representatives. The remaining gaming chip
liability to Fred Trump of $1,500,000 is included in unredeemed chip liability
as of December 31, 1993.
Due from Affiliates
Amounts due from affiliates were $615,000 and $742,000 as of December 31,
1993 and 1992, respectively. The Partnership has engaged in some limited
intercompany transactions with Trump's Plaza Associates (TPA), Trump Taj Mahal
Associates, (TTMA), Plaza Operating Partners, Ltd. (Plaza Hotel --the
partnership which operates The Plaza Hotel in New York City) and the Trump
Organization (TO). TPA, TTMA, Plaza Hotel and TO are affiliates of Donald J.
Trump. These transactions include certain shared payroll costs as well as
complimentary services offered to customers, for which the Partnership makes
initial payments and is then reimbursed by the affiliates.
During 1993, the Partnership incurred expenses of approximately $1,332,000
in corporate salaries and $952,000 of other transactions on behalf of these
related entities. In addition, the Partnership received payments totaling
$2,004,000 for services rendered and had $407,000 of deductions for similar
costs incurred by these related entities on behalf of the Partnership.
During 1992, the Partnership incurred expenses of approximately $1,240,000
in corporate salaries and $513,000 of other transactions on behalf of these
related entities. In addition, the Partnership received payments totaling
$1,372,000 for services rendered and had $202,000 of deductions for similar
costs incurred by these related entities on behalf of the Partnership.
During 1991, the Partnership incurred expenses of approximately $898,000 in
corporate salaries, $1,294,000 in fleet maintenance/limousine services and
$623,000 of other transactions on behalf of these related entities. In addition,
the Partnership received payments totaling $2,721,000 for services rendered and
had $642,000 of deductions for similar costs incurred by these related entities
on behalf of the Partnership.
Partnership Distribution
Under the terms of the Partnership Agreement, the Partnership was required
to pay all costs incurred by TC/GP. For the year ended December 31, 1993 and for
the period from May 29, 1992 through December 31, 1992, the Partnership paid
$736,000 and $473,000, respectively of expenses on behalf of TC/GP, which has
been reflected as a partnership distribution.
F-14
<PAGE>
(7) Commitments and Contingencies:
Casino License Renewal
The Partnership is subject to regulation and licensing by the New Jersey
Casino Control Commission (the "CCC"). The Partnership's casino license must be
renewed periodically, is not transferable, is dependent upon the financial
stability of the Partnership and can be revoked at any time. Due to the
uncertainty of any license renewal application, there can be no assurance that
the license will be renewed. Upon revocation, suspension for more than 120 days,
or failure to renew the casino license due to the Partnership's financial
condition or for any other reason, the Casino Control Act ("the Act") provides
that the CCC may appoint a conservator to take possession of and title to the
hotel and casino's business and property, subject to all valid liens, claims and
encumbrances.
The CCC renewed the casino license of the Partnership through May 31, 1995
subject to certain continuing reporting and compliance conditions.
Employment Agreements
The Partnership has entered into employment agreements with certain key
employees which expire at various dates through January 16, 1997. Total minimum
commitments on these agreements at December 31, 1993 were approximately
$6,507,000.
Legal Proceedings
The Partnership is involved in legal proceedings incurred in the normal
course of business. In the opinion of management and its counsel, if adversely
decided, none of these proceedings would have a material effect on the
consolidated financial position of the Partnership.
Casino Reinvestment Development Authority Obligations
Pursuant to the provisions of the Act, the Partnership, commencing twelve
months after the date of opening of Trump's Castle in June 1985 and continuing
for a period of twenty-five years thereafter, must either obtain investment tax
credits (as defined in the Act), in an amount equivalent to 1.25% of its gross
casino revenues (as defined in the Act) or pay an alternative tax of 2.5% of its
gross casino revenues. Investment tax credits may be obtained by making
qualified investments, as defined, or by the purchase of bonds at below market
interest rates from the Casino Reinvestment Development Authority ("CRDA"). The
Partnership is required to make quarterly deposits with the CRDA to satisfy its
investment obligations.
In April 1990, the Partnership modified its agreement with the CRDA under
which it was required to purchase CRDA bonds to satisfy the investment
alternative tax. Under the terms of the agreement, the Partnership donated
F-15
<PAGE>
$9,589,000 in deposits previously made to the CRDA for the purchase of CRDA
bonds through December 31, 1989 in exchange for satisfaction of an equivalent
amount of its prior bond purchase commitments, as well as receiving future tax
credits to be used to satisfy substantial portions of the Partnership's future
investment alternative tax obligations over the following four to six quarters.
As a result of this agreement, the Partnership charged $1,588,000 to operations
in 1990 to reduce deposits previously made to the amount of the future tax
credits received.
For the years ended December 31, 1993, 1992, and 1991, the Partnership
charged to operations, $115,000, $679,000 and $1,959,000, respectively, which
represents amortization of a portion of the tax credits discussed above. In
addition, for the years ended December 31, 1993, 1992, and 1991, the Partnership
charged to operations $953,000, $656,000 and $137,000, respectively, to give
effect to the below market interest rates associated with purchased CRDA bonds.
(8) Employee Benefits Plans:
The Partnership has a retirement savings plan for its nonunion employees
under Section 401(k) of the Internal Revenue Code. Employees are eligible to
contribute up to 15% of their earnings to the plan up to the maximum amount
permitted by law, and the Partnership will match 50% of an eligible employee's
contributions up to a maximum of 4% of the employee's earnings. The Partnership
recorded charges of approximately $846,000, $764,000 and $343,000 for matching
contributions for the years ended December 31, 1993, 1992 and 1991,
respectively.
The Partnership makes payments to various trusteed pension plans under
industry-wide union agreements. The payments are based on the hours worked by or
gross wages paid to covered employees. It is not practical to determine the
amount of payments ultimately used to fund pension benefit plans or the current
financial condition of the plans. Under the Employee Retirement Income Security
Act, the Partnership may be liable for its share of the plans' unfunded
liabilities, if any, if the plans are terminated. Pension expense for the years
ended December 31, 1993, 1992 and 1991 were $407,000, $397,000 and $308,000,
respectively.
The Partnership provides no other material post employment benefits.
(9) Financial Information of the Company:
Financial information relating to the Company as of and for the years ended
December 31, 1993 and 1992 is as follows:
F-16
<PAGE>
1993 1992
---- ----
Total Assets (including $319,876,000 $337,771,000
Mortgage Notes Receivable ============ ============
Of $242,141,000, PIK
Notes Receivable of
$50,499,000 and Senior
Notes Receivable of
$27,000,000 in 1993 and
Mortgage Bonds Receivable
of $326,056,000 in 1992.)
Total Liabilities and $319,876,000 $337,771,000
Capital (including ============ ============
Mortgage Notes payable of
$242,141,000, PIK Notes
payable of $50,499,000
and Senior Notes Payable
of $27,000,000 in 1993 and
Mortgage Bonds Payable of
$326,056,000 in 1992
Interest Income $ 42,008,000 $ 34,866,000
Interest Expense $ 42,008,000 $ 34,866,000
------------ ------------
Net Income $ - $ -
============ ============
(10) Fair Value of Financial Instruments
The carrying amount of the following financial instruments of the
Partnership and the Company approximate fair value, as follows: (a) cash and
cash equivalents and accrued interest receivables and payables based on the
short term nature of the financial instruments, (b) CRDA bonds and deposits
based on the allowances to give effect to the below market interest rates (c)
the Senior Notes based on the recently negotiated terms as of December 28, 1993.
The fair values of the Mortgage Notes and PIK Notes are based on quoted
market prices. The fair value of the Mortgage Bonds was based on quoted market
prices obtained by the Partnership from its investment advisor.
The estimated fair values of other financial instruments are as follows:
December 31, 1993
-----------------------------
Carrying Amount Fair Value
--------------- -------------
11-3/4% Mortgage Notes............ $ 202,552,000 $ 232,456,000
Increasing Rate PIK Notes.......... $ 42,242,000 $ 42,419,000
F-17
<PAGE>
December 31, 1992
-----------------------------
Carrying Amount Fair Value
--------------- -------------
9-1/2% Mortgage Bonds............. $ 234,445,000 $ 233,945,000
There are no quoted market prices for the Partnership Amended Term Loan and
a reasonable estimate of its value could not be made without incurring excessive
costs.
F-18
<PAGE>
SCHEDULE II
TRUMP'S CASTLE ASSOCIATES AND SUBSIDIARY
SCHEDULE II -- AMOUNTS RECEIVABLE FROM RELATED PARTIES,
UNDERWRITERS, PROMOTERS AND EMPLOYEES OTHER THAN RELATED PARTIES
FOR THE YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
<TABLE>
<CAPTION>
Balance at
Beginning Balance at
Name of Debtor of Period Additions Deductions End of Period
-------------- ---------- --------- ---------- -------------
<S> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1993:
The Trump Organization $200,000 $51,000 ($26,000) $225,000
Trump Plaza Associates 336,000 1,168,000 (1,183,000) 321,000
Trump Taj Mahal Associates
Partnership 206,000 1,065,000 (1,202,000) 69,000
---------- ---------- ---------- --------
$742,000 $2,284,000 ($2,411,000) $615,000
========== ========== ========== ========
YEAR ENDED DECEMBER 31, 1992:
The Trump Organization $120,000 $93,000 ($13,000) $200,000
Trump Plaza Associates 349,000 1,009,000 (1,022,000) 336,000
New York Plaza Hotel 24,000 - (24,000) -
Trump Taj Mahal Associates
Partnership 70,000 651,000 (515,000) 206,000
---------- ---------- ---------- --------
$563,000 $1,753,000 ($1,574,000) $742,000
========== ========== ========== ========
YEAR ENDED DECEMBER 31, 1991:
The Trump Organization $3,000 $120,000 ($3,000) $120,000
Trump Plaza Associates 481,000 1,121,000 (1,253,000) 349,000
New York Plaza Hotel 89,000 - (65,000) 24,000
Trump Taj Mahal Associates
Partnership 538,000 1,574,000 (2,042,000) 70,000
---------- ---------- ---------- --------
$1,111,000 $2,815,000 ($3,363,000) $563,000
========== ========== ========== ========
</TABLE>
All of the above amounts are noninterest bearing and are due on demand.
F-19
