United States
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended June 30, 1996
Commission File No. 1-9029
TRUMP'S CASTLE FUNDING, INC.
(Exact Name of Registrant as Specified in its Charter)
NEW JERSEY 11-2739203
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
One
Castle Boulevard
Atlantic City, New Jersey 08401
(609) 340-5191
(Address, Including Zip Code and Telephone Number, Including Area Code,
of Registrant's Principal Executive Offices)
TRUMP'S CASTLE ASSOCIATES
(Exact Name of Registrant as Specified in its Charter)
NEW JERSEY 22-2608426
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
One
Castle Boulevard
Atlantic City, New Jersey 08401
(609) 340-5191
(Address, Including Zip Code and Telephone Number, including Area Code,
of Registrant's Principal Executive Offices)
(continued on next page)
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(continued from previous page)
Indicate by check mark whether the Registrants (1) have 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) have been subject to such filing
requirements for the past 90 days.
Yes X No
Indicate by check mark whether the Registrants have filed all
documents and reports required to be filed by Sections 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
Trump's Castle Funding, Inc. meets the conditions set forth in
General Instructions H(1)(a) and (b) of Form 10-Q and is
therefore filing this form with the reduced disclosure format.
As of August 9, 1996, there were 200 shares of Trump's Castle
Funding, Inc.'s common stock outstanding.
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TRUMP'S CASTLE ASSOCIATES AND SUBSIDIARY
INDEX TO FORM 10-Q
Page
Number
Part I -- FINANCIAL INFORMATION
Item 1 -- Financial Statements
Consolidated Balance Sheets of Trump's Castle
Associates and Subsidiary as of June 30, 1996
(unaudited) and December 31, 1995 4
Consolidated Statements of Operations of Trump's
Castle Associates and Subsidiary for the three
and six month periods ended June 30, 1996 and
1995 (unaudited) 5
Consolidated Statement of Partners' Capital/Deficit
of Trump's Castle Associates and Subsidiary for
the six months ended June 30, 1996 (unaudited) 6
Consolidated Statements of Cash Flows for Trump's
Castle Associates and Subsidiary for the six months
ended June 30, 1996 and 1995 (unaudited) 7
Notes to Consolidated Financial Statements (unaudited) 8
Item 2 -- Management's Discussion and Analysis of Financial Condition
Condition and Results of Operations 12
PART II -- OTHER INFORMATION
Item 1 -- Legal Proceedings 18
Item 2 -- Changes in Securities 18
Item 3 -- Defaults Upon Senior Securities 18
Item 4 -- Submission of Matters to Vote of Security Holders 18
Item 5 -- Other Information 18
Item 6 -- Exhibits and Reports on Form 8-K 18-19
Signatures 20
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TRUMP'S CASTLE ASSOCIATES AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(In Thousands)
(Unaudited)
June 30, December 31,
ASSETS 1996 1995
______ ________ ___________
CURRENT ASSETS:
Cash and cash equivalents $17,767 $21,038
Receivables, net 8,535 10,259
Due from affiliates, net 197 1,146
Inventories 1,458 1,567
Other current assets 2,424 4,961
________ ________
Total current assets 30,381 38,971
________ ________
PROPERTY AND EQUIPMENT 319,280 322,115
________ ________
OTHER ASSETS 9,509 9,495
________ ________
Total assets $359,170 $370,581
======== ========
LIABILITIES AND PARTNERS' CAPITAL/DEFICIT
CURRENT LIABILITIES:
Current maturities-other borrowings $3,271 $2,903
Accounts payable and accrued expenses 32,180 31,108
Accrued interest payable 4,413 4,391
________ ________
Total current liabilities 39,864 38,402
MORTGAGE NOTES, due 2003 207,773 206,569
(Net of unamortized discount of
$34,368 and $35,572, respectively)
PIK NOTES, due 2005 58,514 54,110
(Net of unamortized discount of
$7,637 and $7,750, respectively)
OTHER BORROWINGS 62,410 62,336
OTHER LONG TERM LIABILITIES 3,728 3,351
________ ________
Total liabilities 372,289 364,768
________ ________
COMMITMENTS AND CONTINGENCIES
PARTNERS' CAPITAL/DEFICIT (13,119) 5,813
________ ________
Total liabilities and capital $359,170 $370,581
======== ========
The accompanying notes to consolidated financial statements
are an integral part of these consolidated balance sheets.
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TRUMP'S CASTLE ASSOCIATES AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
(In Thousands)
For the Three Months For the Six Months
Ended June 30, Ended June 30,
____________________ __________________
1996 1995 1996 1995
REVENUES: ____ ____ ____ ____
Gaming $62,984 $64,291 $127,173 $124,511
Rooms 4,839 5,196 9,005 9,194
Food and beverage 8,310 6,924 15,590 12,980
Other 2,565 2,234 3,917 3,834
_______ _______ ________ ________
Gross Revenues 78,698 78,645 155,685 150,519
Less-Promotional allowances 9,847 7,930 18,943 14,363
_______ _______ ________ ________
Net Revenues 68,851 70,715 136,742 136,156
COSTS AND EXPENSES:
Gaming 39,811 37,850 80,198 73,677
Rooms 433 693 755 1,327
Food and beverage 3,535 3,190 5,566 5,973
General and administrative 19,684 17,637 38,140 35,536
Depreciation and amortization 3,839 3,577 7,677 7,113
_______ _______ ________ ________
Total costs and expenses 67,302 62,947 132,336 123,626
_______ _______ ________ ________
Income From Operations 1,549 7,768 4,406 12,530
INTEREST INCOME 165 70 258 224
INTEREST EXPENSE (11,836) (11,422) (23,596) (22,589)
________ _______ ________ ________
Net Loss ($10,122) ($3,584) ($18,932) ($9,835)
======== ======= ======== ========
The accompanying notes to consolidated financial statements
are an integral part of these consolidated statements.
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TRUMP'S CASTLE ASSOCIATES AND SUBSIDIARY
CONSOLIDATED STATEMENT OF PARTNERS' CAPITAL/DEFICIT
FOR THE SIX MONTHS ENDED JUNE 30, 1996
(unaudited)
(In Thousands)
Partners' Partners'
Capital Deficit Total
________ _________ ________
Balance at December 31, 1995 $73,395 ($67,582) $5,813
Net Loss -- (18,932) (18,932)
________ _________ _________
Balance at June 30, 1996 $73,395 ($86,514) ($13,119)
======== ========= =========
The accompanying notes to consolidated financial statements
are an integral part of these consolidated statements.
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TRUMP'S CASTLE ASSOCIATES AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(In Thousands)
For the Six Months
Ended June 30,
____________________
1996 1995
____ ____
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ($18,932) ($9,835)
Adjustments to reconcile net loss to net cash
flows provided by operating activities
Noncash charges-
Depreciation and amortization 7,677 7,113
Accretion of bond discount 1,318 1,151
Provision for losses on receivables 640 516
Valuation allowance - CRDA investments 650 714
_________ _________
(8,647) (341)
Decrease in receivables 2,033 1,168
Decrease in inventories 109 211
Decrease(increase) in other current assets 2,427 (3,632)
Decrease(increase) in other assets 934 (155)
Increase in current liabilities 924 1,442
Increase in other liabilities 4,300 3,739
________ ________
Net cash flows provided by operating activities 2,080 2,432
________ ________
CASH FLOWS USED IN INVESTING ACTIVITIES:
Purchases of property and equipment, net (4,305) (5,215)
Purchase of CRDA investments (1,365) (1,241)
_________ ________
Net cash flows used in investing activities (5,670) (6,456)
_________ ________
CASH FLOWS PROVIDED BY FINANCING ACTIVITIES:
Proceeds from issuance of debt 1,738 875
Repayment of other borrowings (1,419) (349)
_________ ________
Net cash flows provided by investing 319 526
_________ ________
Net decrease in cash and cash equivalents (3,271) (3,498)
CASH AND CASH EQUIVALENTS
AT BEGINNING OF PERIOD 21,038 19,122
CASH AND CASH EQUIVALENTS ________ ________
AT JUNE 30 $17,767 $15,624
======== ========
SUPPLEMENTAL INFORMATION:
Cash paid for interest $17,974 $17,676
======== ========
The accompanying notes to consolidated financial statements
are an integral part of these consolidated statements.
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TRUMP'S CASTLE ASSOCIATES AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
(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 ("Funding").
The Partnership owns and operates Trump's Castle Casino Resort
("Trump's Castle"), a luxury casino hotel located in the Marina District
of Atlantic City, New Jersey.
The accompanying consolidated financial statements have been prepared
by the Partnership without audit. In the opinion of the Partnership, all
adjustments, consisting of only normal recurring adjustments necessary to
present fairly the financial position, results of operations and cash flows
for the periods presented have been made. All significant intercompany
balances and transactions have been eliminated in the consolidated
financial statements.
The accompanying consolidated financial statements have been prepared
by the Partnership pursuant to the rules and regulations of the Securities
and Exchange Commission. Accordingly, certain information and note
disclosures normally included in the financial statements prepared in
conformity with generally accepted accounting principles have been omitted.
These financial statements should be read in conjunction with the
consolidated financial statements and notes thereto included in the annual
report on Form 10-K for the year ended December 31, 1995 filed with the
Securities and Exchange Commission by the Partnership and Funding. Certain
reclassifications have been made to conform prior year financial information
with the current year presentation.
The results of operations for the three and six month periods ending
June 30, 1996 are not necessarily indicative of the operating results to
be attained for any other period.
(2) PIK NOTES
On June 23, 1995, the Partnership entered into an Option Agreement
with Hamilton Partners, L.P. ("Hamilton") which granted the Partnership an
option (the "Option") to acquire the Increasing Rate Subordinated Pay-in
- -Kind Notes due 2005 (the "PIK Notes") owned by Hamilton. The Option was
granted to the Partnership in consideration of $1.9 million of aggregate
payments to Hamilton. The Option was exercisable at a price equal to 60% of
the aggregate principal amount of the PIK Notes delivered by Hamilton, with
accrued but unpaid interest, plus 100% of the PIK Notes issued to Hamilton as
interest subsequent to June 23, 1995. Pursuant to the terms of the Option
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Agreement, upon the occurrence of certain events within 18 months of the
time the Option is exercised, the Partnership is required to make an
additional payment to Hamilton of up to 40% of the principal amount of the
PIK Notes. On May 21, 1996, the Partnership assigned the Option to Trump
Hotels & Casino Resorts Holdings, L.P. ("THCR Holdings") a Delaware limited
partnership and a subsidiary of Trump Hotels & Casino Resorts, Inc.
("THCR"), which, on that same date, exercised the Option and acquired
approximately 90% of the PIK Notes for approximately $38.7 million (the
"Purchase Price"), in exchange for which THCR Holdings received an aggregate
of approximately $59.3 million of PIK Notes. Concurrently with the
exercise of the Option, THCR Holdings entered into an agreement with the
Partnership and Donald J. Trump ("Trump"), which grants THCR Holdings a
six-month exclusive right to negotiate with Trump and the Partnership with
respect to the acquisition of the Partnership (the "Transaction") (see
Note 3). If an agreement with respect to the Transaction does not occur
within six months, the Partnership has the right to repurchase from THCR
Holdings, for a period of 90 days (the "Castle Repurchase Date"), the
acquired PIK Notes for an amount in cash equal to the Purchase Price plus
16% interest thereon (the "Repurchase Price"). In the event that the
Partnership does not repurchase the acquired PIK Notes, Trump has the right
to purchase from THCR Holdings, for a period of 90 days following the Castle
Repurchase Date, the acquired PIK Notes for an amount in cash equal to the
Repurchase Price calculated to the date of such purchase.
On May 15, 1996, the semi-annual interest payment of $4,292,000 was
paid by issuance of additional PIK Notes.
(3) ACQUISITION OF THE PARTNERSHIP
In consideration for the Partnership's assignment of the PIK Note
Option to THCR Holdings, an agreement was reached which gives THCR
Holdings exclusive rights to negotiate the acquisition of the Partnership
(See Note 2).
Pursuant to an Agreement (the "Agreement"), dated as of June 24, 1996,
by and among THCR, THCR Holdings, TC/GP, Inc. ("TC/GP"), a Delaware
corporation wholly owned by Trump, Trump's Castle Hotel & Casino, Inc.
("TCHI"), a New Jersey corporation wholly owned by Trump, and Trump, THCR
Holdings agreed to acquire all of the outstanding equity interests of the
Partnership for an aggregate consideration of $176.9 million. The Agreement
contemplates the following transactions will take place at the closing date:
Trump will contribute to THCR Holdings his 61.5% equity interest in the
Partnership, in consideration of which he will receive a 9.52854% limited
partnership interest in THCR Holdings, exchangeable into 3,626,450 shares of
THCR common stock valuing each share at $30.00 (the "THCR Stock Contribution
Value").
TC/GP will contribute to THCR Holdings its 37.5% equity interest in the
Partnership, in consideration of which it will receive a 5.81009% limited
partnership in THCR Holdings, exchangeable into 2,211,250 shares of THCR
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common stock valuing each share at the THCR Stock Contribution Value.
THCR-TCHI Merger Corp., a Delaware corporation and wholly owned
subsidiary of THCR Holdings ("Merger Sub"), will merge (the "TCHI Merger")
with and into TCHI (holder of a 1.0% equity interest in the Partnership),
whereupon each share of common stock of TCHI ("TCHI Common Stock"),
outstanding immediately prior to the TCHI Merger will be converted into the
right to receive one share of common stock of the surviving corporation
of the TCHI Merger and each holder of the outstanding warrants ("Castle
Warrants") issued under the Warrant Agreement, dated as of December 30,
1993, will be entitled to receive for each former share of TCHI Common Stock
for which each Castle Warrant was exercisable an amount in cash equal to the
TCHI Consideration.
The acquisition will be accounted for as a purchase.
The acquisition is subject to satisfaction of a number of conditions,
including the affirmative vote of a majority of the outstanding shares of
THCR common stock (excluding the shares held by Trump and the other officers
and directors of THCR and their affiliates) and the receipt of various third
party approvals and consents.
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(4) FINANCIAL INFORMATION OF FUNDING
Financial information relating to Funding is as follows (in thousands):
JUNE 30, DECEMBER 31,
1996 1995
________ ____________
Total Assets (including Mortgage Notes $293,287 $287,679
Receivable $242,141, net of unamortized ======== ========
discount of $34,368 and $35,572 at June
30, 1996 and December 31, 1995, PIK
Notes Receivable of $66,151, net of
unamortized discount of $7,637 at June
30, 1996 and $61,860, net unamortized
discount of $7,750 at December 31, 1995,
and Senior Notes Receivable of $27,000
at June 30, 1996 and December 31, 1995.)
Total Liabilities and Capital (including $293,287 $287,679
Mortgage Notes Payable of $242,141, net ======== ========
of unamortized discount of $34,368 and
$35,572 at June 30, 1996 and December
31, 1995, PIK Notes Payable of $66,151,
net of unamortized discount of $7,637,
at June 30, 1996 and $61,860, net of
unamortized discount of $7,750 at
December 31, 1995 and Senior Notes
Payable of $27,000 at June 30, 1996
and December 31, 1995.)
FOR THE SIX MONTHS
ENDED JUNE 30,
_______________________
1996 1995
______ _______
Interest Income $21,395 $20,692
Interest Expense 21,395 20,692
_______ _______
Net Income $ -- $ --
======= =======
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULT OF OPERATIONS.
The financial information presented below reflects the financial
condition and results of operations of Trump's Castle Associates (the
"Partnership"). Trump's Castle Funding, Inc. ("Funding") is a wholly-owned
subsidiary of the Partnership and conducts no business other than collecting
amounts due under certain intercompany notes from the Partnership for the
purpose of paying principal of, premium, if any, and interest on its
indebtedness, which Funding issued as a nominee for the Partnership.
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED JUNE 30, 1996
AND 1995. The Partnership's net revenues (gross revenues less promotional
allowances) for the three months ended June 30, 1996 and 1995 were
approximately $68.9 million and $70.7 million, respectively. The $1.8
million (2.5%) decrease is the result of the unusually low table game win
percentage as described below.
Gaming revenues provide the majority of the Partnership's revenues
and primarily consist of slot machine and table games win.
Slot win was approximately $48.7 million and $46.6 million (an
increase of approximately $2.1 million or 4.5%) for the three months
ended June 30, 1996 and 1995, respectively. The total dollar amount
wagered by customers on slot machines increased by approximately $50.1
million (9.4%) to $584.5 million for the three months ended June 30, 1996.
This increase in slot volume was partially offset by a decrease in the
slot win percentage (slot win as a percentage of dollars wagered on slot
machines) to 8.3% for the three months ended June 30, 1996 from 8.7% for
the three months ended June 30, 1995. This slot win percentage decrease
was primarily due to an increased volume of customer play on higher
denomination slot machines, which traditionally have a lower slot win
percentage.
Table game win was approximately $14.3 million and $17.7 million
(a decrease of $3.4 million or 19.2%) for the three months ended June
30, 1996 and 1995, respectively. The total dollar amount wagered by
customers on table games increased by approximately $17.0 million (15.4%)
to $127.4 million for the three months ended June 30, 1996 from $110.4
for the three months ended 1995. These increases were offset by a
decrease in the table game win percentage (table game win as a percentage
of dollars wagered on table games) to 10.8% for the three months ended
June 30, 1996 from 15.5% for the three months ended June 30, 1995. The
table game win percentage is outside the control of the Partnership, and
although it is fairly constant over the long-term, it can vary significantly
from period to period, due in part to the play of certain premium patrons
who tend to wager substantial dollar amounts on table games.
For the three months ended June 30, 1996 and 1995, credit extended
to the table games customers was approximately 32.7% and 28.3% of overall
table play, respectively. This relatively high level of credit play
continues a trend which started in the last fiscal year and is the result of
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an increased level of play by individuals who wager relatively large sums.
These premium patrons tend to use a higher percentage of credit when they
wager.
Nongaming revenues, in the aggregate, increased by approximately $1.3
million (9.0%) to $15.7 million for the three months ended June 30, 1996
from $14.4 million for the three months ended June 30, 1995, primarily as
the result of food and beverage revenue (an approximate $1.4 million increase)
offset by rooms revenue activity (an approximate $400,000 decrease).
Although occupancy rates remained constant when compared with the same period
in 1995, average revenues per room declined, resulting in a year-to-year
decrease in room revenue. During the current year, marketing programs
designed to increase gaming revenues caused an increase in complimentary
rooms and food and beverage revenues (an approximate $2.1 million increase)
as compared to the prior year.
Promotional allowances increased by approximately $1.9 million (24.1%)
to $9.8 million for the three months ended June 30, 1996 from $7.9 million
for the three months ended June 30, 1995. As discussed above, marketing
programs which were introduced during the latter part of the prior fiscal
year, designed to increase gaming revenues, caused an increase in complimentary
rooms and food and beverage activity as compared to the prior year.
Gaming costs and expenses increased by approximately $2.0 million (5.3%)
to $39.8 million for the three months ended June 30, 1996 from $37.8 million
for the three months ended June 30, 1995. This increase is primarily the
result of an increase in promotional coupon costs as well as increased direct
marketing and advertising costs associated with the new marketing programs
and special events introduced to stimulate gaming revenues.
For the three months ended June 30, 1996, general and administrative
costs increased approximately $2.0 million (11.3%) primarily due to higher
facilities costs as well as overall increases in other administrative costs.
Interest expense increased approximately $400,000 (3.5%) to $11.8
million for the three months ended June 30, 1996 from $11.4 million
primarily due to an increase in the outstanding principal related to the
PIK Notes (as described below).
RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 1996 AND 1995.
The Partnership's net revenues (gross revenues less promotional allowances)
for the six months ended June 30, 1996 and 1995 were approximately $136.7
million and $136.2 million, respectively.
Slot win was approximately $94.9 million and $90.4 million (an
increase of approximately $4.5 million or 5.0%) for the six months ended
June 30, 1996 and 1995, respectively. The total dollar amount wagered by
customers on slot machines increased by approximately $113.7 million
(11.1%) to $1,136.0 million for the six months ended June 30, 1995. This
slot volume increase is the result of marketing programs and special events
implemented by Management to stimulate slot play. This increase in slot
volume was partially offset by a decrease in the slot win percentage (slot
win as a percentage of dollars wagered on slot machines) to 8.4% for the six
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months ended June 30, 1996 from 8.8% for the six months ended June 30, 1995.
This slot win percentage decrease was primarily due to an increased volume
of customer play on higher denomination slot machines, which traditionally
have a lower slot win percentage.
Table game win was approximately $32.3 million and $34.1 million (a
decrease of $1.8 million or 5.3%) for the six months ended June 30, 1996
and 1995, respectively. The total dollar amount wagered by customers on
table games increased by approximately $32.1 million (15.2%) to $243.6
million for the six months ended June 30, 1996 from $211.5 for the six
months ended 1995. This increase, again, is the result of marketing
programs and special events implemented by Management as well as an
increased emphasis on providing superior customer service. These
increases were offset by a decrease in the table game win percentage
(table game win as a percentage of dollar wagered on table games) to 12.8%
for the six months ended June 30, 1996 from 15.5% for the six months ended
June 30, 1995. The table game win percentage is outside the control of the
Partnership, and although it is fairly constant over the long-term, it can
vary significantly from period to period, due in part to the play of certain
premium patrons who tend to wager substantial dollar amounts on table games.
For the six months ended June 30, 1996 and 1995, credit extended to
the table games customers was approximately 31.1% and 27.3% of overall table
play, respectively. This relatively high level of credit play continues a
trend which started in the last fiscal year and is the result of an increased
level of play by individuals who wager relatively large sums. These premium
patrons tend to use a higher percentage of credit when they wager.
Nongaming revenues, in the aggregate, increased by approximately $2.5
million (9.6%) to $28.5 million for the six months ended June 30, 1996 from
$26.0 million for the six months ended June 30, 1995, primarily as the result
of food and beverage revenue (an approximate $2.6 million increase). During
the current year, marketing programs designed to increase gaming revenues
caused an increase in complimentary rooms and food and beverage revenues (an
approximate $4.7 million increase) as compared to the prior year.
Promotional allowances increased by approximately $4.5 million (31.3 %)
to $18.9 million for the six months ended June 30, 1996 from $14.4 million
for the six months ended June 30, 1995. As discussed above, marketing
programs which were introduced during the latter part of the prior fiscal
year designed to increase gaming revenues caused an increase in complimentary
rooms and food and beverage activity as compared to the prior year.
Gaming costs and expenses increased by approximately $6.5 million
(8.8%) to $80.2 million for the six months ended June 30, 1996 from $73.7
million for the six months ended June 30, 1995. This increase is primarily
the result of an increase in promotional coupon costs as well as increased
direct marketing and advertising costs associated with the new marketing
programs and special events introduced to stimulate gaming revenues.
Room and food and beverage costs and expenses for the six months ended
June 30, 1996 and 1995 decreased approximately $1.0 million (13.7%). This
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decrease is primarily due to the increased level of complimentary food,
beverage and hotel services provided to patrons. The costs of such
complimentaries have been included in gaming costs and expenses.
For the six months ended June 30, 1996, general and administrative
costs increased approximately $2.5 million (7.0%) primarily due to higher
facilities costs, advertising costs and other administrative costs.
Interest expense increased approximately $1.0 million (4.4%) to $23.6
million for the six months ended June 30, 1996 from $22.6 million, primarily
resulting from an increase in the outstanding principal related to the PIK
Notes (as described below).
LIQUIDITY AND CAPITAL RESOURCES. Cash flow from operating activities
is the Partnership's principal source of liquidity. For the six months ended
June 30, 1996, the Partnership's net cash flow provided by operating
activities before cash debt service obligations was $21.0 million and cash
debt service was $18.9 million, resulting in net cash provided by operating
activities of $2.1 million.
In addition to cash needs to fund the day-to-day operations of Trump's
Castle, the Partnership's principal uses of cash are capital expenditures
and debt service.
Total capital expenditures for 1996 are anticipated to be $9.0 million
and principally consist of (i) the purchase of slot machines, (ii)
renovations to guest rooms and the hotel tower, and (iii) the construction
of two new player clubs. Management believes that these levels of capital
expenditures are sufficient to maintain the attractiveness of Trump's Castle
and the aesthetics of its hotel rooms and other public areas. Capital
expenditures of $4.3 million were incurred during the six months ended June
30, 1996 primarily for the previously mentioned projects.
The Partnership's debt consists primarily of (i) a loan with Midlantic
National Bank (the "Term Loan"), (ii) the 11-1/2% Senior Notes due 2000
(the "Senior Notes"), (iii) the 11-3/4% Mortgage Notes due 2003 (the
"Mortgage Notes"), and (iv) the Increasing Rate Subordinated Pay-in-Kind
Notes due 2005 (the "PIK Notes").
The Term Loan bears interest at the prime rate plus 3%, currently
11-1/4%, and requires amortized monthly principal payments of approximately
$158,000. The Term Loan matures on May 28, 2000.
The Senior Notes have an outstanding principal amount of $27 million,
and bear interest at the rate of 11-1/2% per annum (which may be reduced to
11-1/4% upon the occurrence of certain events). The Senior Notes mature on
November 15, 2000, and are subject to a sinking fund which requires the
retirement of 15% of the Senior Notes on each November 15, 1998 and 1999.
The Mortgage Notes have an outstanding principal amount of approximately
$242 million, bear interest at the rate of 11-3/4% per annum (which may be
reduced to 11-1/2% upon the occurrence of certain events), and mature on
November 15, 2003.
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The PIK Notes have an outstanding principal amount of approximately
$66.2 million and mature on November 15, 2005. Interest is currently
payable semi-annually at the rate of 13-7/8%. On or prior to November 15,
2003, interest on the PIK Notes may be paid in cash or through the issuance
of additional PIK Notes. During the second quarter, interest on the PIK
Notes was paid through the issuance of additional notes aggregating $4.3
million, and the Partnership anticipates that additional interest due in
1996 of approximately $4.6 million will be paid through the issuance of
additional PIK Notes.
On June 23, 1995, the Partnership entered into an Option Agreement
with Hamilton Partners, L.P. ("Hamilton") which granted the Partnership an
option (the "Option") to acquire the PIK Notes owned by Hamilton. The Option
was granted to the Partnership in consideration of $1.9 million of aggregate
payments to Hamilton. The Option was exercisable at a price equal to 60% of
the aggregate principal amount of the PIK Notes delivered by Hamilton, with
accrued but unpaid interest, plus 100% of the PIK Notes issued to Hamilton
as interest subsequent to June 23, 1995. Pursuant to the terms of the
Option Agreement, upon the occurrence of certain events within 18 months of
the time the Option is exercised, the Partnership is required to make an
additional payment to Hamilton of up to 40% of the principal amount of the
PIK Notes. On May 21, 1996, the Partnership assigned the Option to Trump
Hotels & Casino Resorts Holdings, L.P. ("THCR Holdings") a Delaware limited
partnership and a subsidiary of Trump Hotels & Casino Resorts, Inc. ("THCR"),
which, on that same date, exercised the Option and acquired approximately
90% of the PIK Notes for approximately $38.7 million (the "Purchase Price"),
in exchange for which THCR Holdings received an aggregate of approximately
$59.3 million of PIK Notes. Concurrently with the exercise of the Option,
THCR Holdings entered into an agreement with the Partnership and Donald J.
Trump ("Trump"), which grants THCR Holdings a six-month exclusive right to
negotiate with Trump and the Partnership with the respect to the acquisition
of Trump's Castle (the "Transaction"). If an agreement with respect to the
Transaction does not occur within six months, the Partnership has the right
to repurchase from THCR Holdings, for a period of 90 days (the "Castle
Repurchase Date"), the acquired PIK Notes for an amount in cash equal to the
Purchase Price plus 16% interest thereon (the "Repurchase Price"). In the
event that the Partnership does not repurchase the acquired PIK Notes, Trump
has the right to purchase from THCR Holdings, for a period of 90 days
following the Castle Repurchase Date, the acquired PIK Notes for an amount
in cash equal to the Repurchase Price calculated to the date of such purchase.
The Partnership's cash debt service requirement was approximately
$18.9 million during the six months ended June 30, 1996 and the Partnership
anticipates that approximately $20.1 million in cash will be required during
the remainder of 1996 to meet its debt service obligations.
Management 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, as the Partnership's operating results are
subject to numerous factors outside its control, including, without
limitation, competition from within the Atlantic City market, from other
gaming jurisdictions, and from other Trump Casinos; general economic
-16-
<PAGE>
conditions; weather and its effect on the ability of patrons to travel to
Atlantic City; and the slot machine and table game win percentages, which
can vary significantly over a short-term time period. 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.
The ability of Funding and the Partnership to pay their indebtedness
when due will depend on their ability to either generate cash from operations
sufficient for such purposes or to refinance such indebtedness on or before
the date on which it becomes due. The Partnership does not currently
anticipate being able to generate sufficient cash flow from operations to
repay a substantial portion of the principal amounts of the Mortgage Notes and
the PIK Notes. Thus, the repayment of the principal amount of this
indebtedness will likely depend primarily upon the ability of Funding and the
Partnership to refinance this debt when due. The future operating performance
of the Partnership and the ability to refinance this debt will be subject to
the then prevailing economic conditions, industry conditions, and numerous
other financial, business, and other factors, many of which are beyond the
control of Funding or the Partnership. There can be no assurance that the
future operating performance of the Partnership will be sufficient to meet
these repayment obligations or that the general state of the economy, the
status of the capital markets generally, or the receptiveness of the capital
markets to the gaming industry will be conducive to refinancing this debt or
other attempts to raise capital.
-17-
<PAGE>
PART II -- OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
The Partnership and certain affiliated entities are involved
in various legal proceedings. Reference is made to the
description contained in the Partnership's Annual Report on
Form 10-K for the year ended December 31, 1995.
ITEM 2. CHANGES IN SECURITIES.
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None
ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS.
None
ITEM 5. OTHER INFORMATION.
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
Reference is made to the Exhibit included in the
Registrant's Current Report on Form 8-K dated June
24, 1996 which is incorporated herein by reference
and which included the following:
2.1 Agreement, dated as of June 24, 1996, by and
among Trump Hotels & Casino Resorts, Inc.,
Trump Hotels & Casino Resorts Holdings, L.P.,
TC/GP, Inc., Trump's Castle Hotel & Casino,
Inc. and Donald J. Trump.
-18-
<PAGE>
Reference is made to the Exhibit included in the
Registrant's Current Report on Form 8-K dated May
21, 1996 which is incorporated herein by reference
and which included the following:
10.1 Agreement, dated as of May 21, 1996, between
Donald J. Trump, Trump's Castle Associates, and
Trump Hotels & Casino Resorts Holdings, L.P.
(b) The Registrant filed the following Current Report on
Form 8-K during the second quarter of 1996:
Report dated May 21, 1996, reporting that on May 21,
1996, Trump Hotels & Casino Resorts Holdings, L.P. had
exercised an option to purchase approximately 90% of
the Increasing Rate Subordinated Pay-in-Kind Notes due
2005 of Trump's Castle Funding, Inc. from an
unaffiliated third party.
Report dated June 24, 1996 reporting the June 24, 1996
agreement pursuant to which THCR Holdings agreed to
acquire from Donald J. Trump 100% of the equity of
Trump's Castle Associates, the owner and operator of
Trump's Castle Casino Resort.
-19-
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange
Act of 1934, the Registrants have duly caused this Report to be signed
on their behalf by the undersigned thereunto duly authorized.
TRUMP'S CASTLE FUNDING, INC.
By: /s/ Robert E. Schaffhauser
______________________
Robert E. Schaffhauser
Assistant Treasurer
(Duly Authorized Officer and
Chief Accounting Officer)
Date: August 9, 1996
TRUMP'S CASTLE ASSOCIATES
By: TC/GP, Inc.
Its: General Partner
By: /s/ Robert E. Schaffhauser
______________________
Robert E. Schaffhauser
Assistant Treasurer
(Duly Authorized Officer and
Chief Accounting Officer)
Date: August 9, 1996
-20-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION FROM TRUMP'S CASTLE
FUNDING, INC. AND TRUMP'S CASTLE ASSOCIATES. THIS DATA HAS BEEN EXTRACTED
FROM THE CONSOLIDATED BALANCE SHEETS AND CONSOLIDATED STATEMENTS OF
OPERATIONS FOR THE SIX MONTH PERIOD ENDED JUNE 30, 1996 AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000770618
<NAME> TRUMP'S CASTLE FUNDING, INC. AND TRUMP'S CASTLE ASSOCIATES
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 17767
<SECURITIES> 0
<RECEIVABLES> 8732<F1>
<ALLOWANCES> 0
<INVENTORY> 1458
<CURRENT-ASSETS> 2424
<PP&E> 513653
<DEPRECIATION> (194373)
<TOTAL-ASSETS> 359170
<CURRENT-LIABILITIES> 39864
<BONDS> 266287
0
0
<COMMON> 200
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 359170
<SALES> 0
<TOTAL-REVENUES> 136742
<CGS> 0
<TOTAL-COSTS> 124659
<OTHER-EXPENSES> 7677
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (23596)
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (18932)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<FN>
<F1>ASSET VALUES REPRESENT NET AMOUNTS
</FN>
</TABLE>
