===============================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED: JUNE 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ________ TO ________
-------------------
COMMISSION FILE NUMBER: 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
incorporation or organization) Identification No.)
HURON AVENUE AND BRIGANTINE BOULEVARD
ATLANTIC CITY, NEW JERSEY 08401
--------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
(609) 441-6060
----------------------------------------------------
(Registrant's telephone number, including area code)
COMMISSION FILE NUMBER: 1-9029
TRUMP'S CASTLE ASSOCIATES, L.P.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
NEW JERSEY 22-2608426
------------------------------- --------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
HURON AVENUE AND BRIGANTINE BOULEVARD
ATLANTIC CITY, NEW JERSEY 08401
--------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
(609) 441-6060
----------------------------------------------------
(Registrant's telephone number, including area code)
ONE CASTLE BOULEVARD
ATLANTIC CITY, NEW JERSEY 08401
----------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
-----------------------------
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
REGISTRANTS WERE 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
---- ----
AS OF AUGUST 14, 1997, THERE WERE 200 SHARES OF TRUMP'S CASTLE FUNDING,
INC.'S COMMON STOCK, PAR VALUE $.01 PER SHARE, OUTSTANDING.
TRUMP'S CASTLE FUNDING, INC. MEETS THE CONDITIONS SET FORTH IN GENERAL
INSTRUCTIONS H(1)(A) AND (B) OF FROM 10-Q AND IS THEREFORE FILING THIS FORM WITH
THE REDUCED DISCLOSURE FORMAT.
================================================================================
<PAGE>
TRUMP'S CASTLE ASSOCIATES, L.P. AND SUBSIDIARY
INDEX TO FORM 10-Q
PAGE NO.
--------
PART I - FINANCIAL INFORMATION
ITEM 1 - Financial Statements
Consolidated Balance Sheets of Trump's Castle Associates,
L.P. and Subsidiary as of
June 30, 1997 (unaudited) and December 31, 1996............. 1
Consolidated Statements of Operations of Trump's Castle
Associates, L.P. and Subsidiary
for the Three and Six Months Ended June 30, 1997 and
1996 (unaudited) .......................................... 2
Consolidated Statement of Partners' Capital of Trump's Castle
Associates, L.P. and Subsidiary for the Six Months Ended
June 30, 1997 (unaudited).................................. 3
Consolidated Statements of Cash Flows of Trump's Castle
Associates, L.P. and Subsidiary for the Six Months Ended
June 30, 1997 and 1996 (unaudited)......................... 4
Notes to Consolidated Financial Statements of Trump's Castle
Associates, L.P. and Subsidiary (unaudited) ............... 5-7
ITEM 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations................. 8-10
ITEM 3 - Quantitative and Qualitative Disclosures About
Market Risk ........................................... 10
PART II - OTHER INFORMATION
ITEM 1 - Legal Proceedings ...................................... 11-12
ITEM 2 - Changes in Securities .................................. 12
ITEM 3 - Defaults Upon Senior Securities ........................ 12
ITEM 4 - Submission of Matters to Vote of Security Holders ...... 12
ITEM 5 - Other Information ...................................... 12
ITEM 6 - Exhibits and Reports on Form 8-K ....................... 12
SIGNATURES
SIGNATURE - Trump's Castle Funding, Inc...................... 13
SIGNATURE - Trump's Castle Associates, L.P................... 14
i
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
TRUMP'S CASTLE ASSOCIATES, L.P. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
ASSETS
JUNE 30, DECEMBER 31,
1997 1996
--------- ------------
(UNAUDITED)
CURRENT ASSETS:
Cash and cash equivalents......................... $ 16,333 $ 15,380
Receivables, net.................................. 9,299 7,696
Due from affiliates............................... 1,250 1,970
Inventories....................................... 2,568 1,298
Other current assets.............................. 2,929 1,560
-------- --------
Total current assets........................ 32,379 27,904
PROPERTY AND EQUIPMENT, NET.......................... 502,641 509,876
OTHER ASSETS......................................... 14,739 10,231
-------- --------
Total assets................................ $549,759 $548,011
======== ========
LIABILITIES AND PARTNERS' CAPITAL
CURRENT LIABILITIES:
Current maturities-other borrowings............... $ 7,799 $ 3,714
Accounts payable and accrued expenses............. 35,899 32,735
Due to affiliates................................. 14,201 1,712
Accrued interest payable.......................... 4,020 4,020
-------- --------
Total current liabilities................... 61,919 42,181
MORTGAGE NOTES
(Net of unamortized discount of $31,674
and $ 33,071, respectively)..................... 210,467 209,070
PIK NOTES
(Net of unamortized discount of $ 7,363
and $ 7,509, respectively)...................... 68,285 63,231
OTHER BORROWINGS..................................... 57,171 63,283
OTHER LONG TERM LIABILITIES.......................... 3,579 3,654
-------- --------
Total liabilities........................... 401,421 381,419
COMMITMENTS AND CONTINGENCIES
PARTNERS' CAPITAL.................................... 148,338 166,592
-------- --------
Total liabilities and capital............... $549,759 $548,011
======== ========
The accompanying notes to consolidated financial statements are an
integral part of these consolidated statements.
1
<PAGE>
<TABLE>
TRUMP'S CASTLE ASSOCIATES, L.P. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 1997 AND 1996
(UNAUDITED)
(IN THOUSANDS)
<CAPTION>
THREE MONTHS SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
----------------------------- -----------------------------
1997 || 1996 1997 || 1996
---- || ----- ---- || ----
SUCCESSOR || PREDECESSOR SUCCESSOR || PREDECESSOR
--------- || ----------- --------- || -----------
<S> <C> <C> <C> <C>
REVENUES: || ||
Gaming......................... $ 68,545 || $ 62,184 $132,519 || $125,426
Rooms.......................... 4,842 || 4,839 8,779 || 9,005
Food and beverage.............. 8,718 || 8,310 16,671 || 15,590
Other.......................... 3,162 || 2,565 5,368 || 3,917
-------- || --------- -------- || ---------
Gross revenues.............. 85,267 || 77,898 163,337 || 153,938
Less-promotional allowances....... 10,228 || 9,847 19,874 || 18,943
-------- || --------- -------- || --------
Net revenues................... 75,039 || 68,051 143,463 || 134,995
-------- || --------- -------- || --------
COST AND EXPENSES: || ||
Gaming......................... 44,449 || 41,512 85,483 || 82,471
Rooms.......................... 691 || 845 1,299 || 1,434
Food and beverage.............. 2,497 || 2,754 4,620 || 4,785
General and administrative..... 16,049 || 17,552 32,222 || 34,222
Depreciation and amortization.. 3,684 || 3,839 8,725 || 7,677
-------- || --------- -------- || --------
Total costs and expenses....... 67,370 || 66,502 132,349 || 130,589
-------- || --------- -------- || --------
Income from operations...... 7,669 || 1,549 11,114 || 4,406
INTEREST INCOME................... 91 || 165 160 || 258
INTEREST EXPENSE.................. (12,330) || (11,836) (24,528) || (23,596)
-------- || ----------- -------- || ---------
Net loss....................... $ (4,570) || $(10,122) $(13,254) || $(18,932)
======== || ========== ======== || =========
</TABLE>
The accompanying notes to consolidated financial statements are
an integral part of these consolidated statements.
2
<PAGE>
TRUMP'S CASTLE ASSOCIATES, L.P. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF PARTNERS' CAPITAL
FOR THE SIX MONTHS ENDED JUNE 30, 1997
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
PARTNERS' PARTNERS'
CAPITAL DEFICIT TOTAL
---------- ---------- ----------
<S> <C> <C> <C>
Balance at December 31, 1996 (Successor).................... $180,395 $(13,803) $166,592
Reclassification of 1996 capital
contributed by THCR Holdings to debt.................... (5,000) -- (5,000)
Net loss.................................................... -- (13,254) (13,254)
-------- -------- --------
Balance at June 30, 1997 (Successor)........................ $175,395 $(27,057) $148,338
======== ======== ========
</TABLE>
The accompanying notes to consolidated financial statements are
an integral part of this consolidated statement.
3
<PAGE>
TRUMP'S CASTLE ASSOCIATES, L.P. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND 1996
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE 30,
-----------------------------
1997 || 1996
----------- || -----------
SUCCESSOR || PREDECESSOR
----------- || -----------
<S> <C> <C>
CASH FLOWS PROVIDED BY OPERATING ACTIVITIES: ||
Net loss.................................................................. $(13,254) || $(18,932)
Adjustments to reconcile net loss to net cash flows provided ||
by operating activities- ||
Noncash charges- ||
Depreciation and amortization...................................... 8,725 || 7,677
Accretion of bond discount......................................... 1,543 || 1,318
Provision for losses on receivables................................ 744 || 640
Valuation allowance-CRDA investments............................... 576 || 650
--------- || --------
(1,666) || (8,647)
(Increase) decrease in receivables................................. (2,347) || 2,033
(Increase) decrease in inventories................................. (1,270) || 109
(Increase) decrease in other current assets........................ (1,369) || 2,427
(Increase) decrease in other assets................................ (3,412) || 934
Increase in current liabilities.................................... 3,248 || 924
Increase in amounts due to affiliates.............................. 10,125 || --
Increase in other liabilities...................................... 4,833 || 4,300
--------- || --------
Net cash flows provided by operating activities............... 8,142 || 2,080
--------- || --------
CASH FLOWS USED IN INVESTING ACTIVITIES: ||
Purchases of property and equipment, net........................... (1,397) || (4,305)
Purchase of CRDA investments....................................... (1,672) || (1,365)
---------- || --------
Net cash flows used in investing activities................... (3,069) || (5,670)
---------- || --------
CASH FLOWS USED IN FINANCING ACTIVITIES: ||
Proceeds from issuance of debt..................................... -- || 1,738
Repayment of note payable to affiliate............................. (2,000) || --
Repayment of other borrowings...................................... (2,120) || (1,419)
---------- || --------
Net cash flows (used in) provided by financing activities..... (4,120) || 319
---------- || --------
Net increase (decrease) in cash and cash equivalents.......... 953 || (3,271)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............................. 15,380 || 21,038
--------- || --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD................................... $ 16,333 || $ 17,767
========= || ========
SUPPLEMENTAL INFORMATION: ||
Cash paid for interest.................................................... $ 18,025 || $ 17,974
========= || ========
SUPPLEMENTAL DISCLOSURE OF NON-CASH ACTIVITY:
1996 capital contributions of $5.0 million by THCR Holdings was
reclassified as due to affiliates
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these consolidated statements.
4
<PAGE>
TRUMP'S CASTLE ASSOCIATES, L.P. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(1) ORGANIZATION AND OPERATIONS
The accompanying consolidated financial statements include those of Trump's
Castle Associates, L.P., a New Jersey limited partnership (the "Partnership"),
and its wholly owned subsidiary, Trump's Castle Funding, Inc., a New Jersey
corporation ("Funding"). All significant intercompany balances and transactions
have been eliminated in the consolidated financial statements.
The Partnership was formed in 1985 for the sole purpose of acquiring and
operating Trump's Castle Casino Resort, a luxury casino hotel located in the
Marina District of Atlantic City, New Jersey. During the second quarter of 1997
the Partnership rethemed the property with a nautical emphasis and renamed it
Trump Marina Hotel Casino ("Trump Marina"). The primary portion of Trump
Marina's revenues are derived from its gaming operations. Competition in the
Atlantic City gaming market is intense and the Partnership believes that the
competition will continue as expansion by existing operators and new entrants to
the gaming industry become operational.
Prior to the acquisition of the Partnership (see Note 2), Donald J. Trump
("Trump") was the beneficial owner of 100% of the common equity interest in the
Partnership, subject to the right of holders of warrants for 50% of the common
stock of Trump's Castle Hotel & Casino, Inc. ("TCHI") (the "TCHI Warrants") to
acquire an indirect beneficial interest in 0.5% of the common equity interest in
the Partnership.
Funding was incorporated on May 28, 1985 solely to serve as a financing
company to raise funds through the issuance of bonds to the public. Since
Funding has no business operations, its ability to repay the principal and
interest on the 11 1/2% Senior Secured Notes due 2000 (the "Senior Notes"), the
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.
On October 7, 1996, Trump Hotels & Casino Resorts Holdings, L.P. ("THCR
Holdings") acquired from Trump all of the outstanding equity of the Partnership
(see Note 2). THCR Holdings is currently a 61.8% owned subsidiary of Trump
Hotels & Casino Resorts, Inc. ("THCR").
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 (the "SEC"). 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, 1996 filed with the SEC by
the Partnership and Funding. Certain reclassifications have been made to conform
prior year financial information with the current year presentation.
The casino industry in Atlantic City is seasonal in nature; accordingly,
the results of operations for the three and six month periods ending June 30,
1997 are not necessarily indicative of the operating results for a full year.
(2) ACQUISITION OF THE PARTNERSHIP AND BASIS OF PRESENTATION
Pursuant to the terms of the Agreement dated as of June 24, 1996, as
amended (the "Agreement"), between THCR Holdings and entities owned by Trump,
THCR Holdings acquired on October 7, 1996 all of the outstanding equity interest
of the Partnership (the "Acquisition"). The Acquisition has been accounted for
as a purchase. For his equity interest in the Partnership, Trump received a
15.33863% limited partnership interest in THCR Holdings valued at $168,126,000,
5
<PAGE>
TRUMP'S CASTLE ASSOCIATES, L.P. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(UNAUDITED)
which is exchangeable into 5,837,700 shares of Common Stock of THCR, par value
$.01 per share (the "THCR Common Stock") (valuing each share at $28.80 based on
the price of the THCR Common Stock several days before and after the date of the
Agreement). The excess of the purchase price over the fair value of the net
assets acquired of $196,109,000 (including transaction costs, the purchase of
the outstanding TCHI Warrants and the historical negative book value of the
Partnership of $20,714,000) has been recorded on the books of the Partnership
and has been allocated to property, plant and equipment based upon a recent
appraisal.
As a result of the Acquisition, a new basis of accounting was established
and financial statements prior to October 7, 1996 are presented as Predecessor
financial statements. The financial statements from October 7, 1996 are
presented as Successor financial statements.
(3) PROPERTY AND EQUIPMENT
During the second quarter of 1997, the Partnership revised its estimates of
the useful lives of buildings, building improvements and furniture and fixtures,
which were acquired in 1996. Buildings and building improvements were
reevaluated to have a new forty year life and furniture and fixtures were
determined to have a five to seven year life. The Partnership believes these
changes more appropriately reflect the timing of the economic benefits to be
received from these assets during their estimated useful lives. For the three
and six months ended June 30, 1997, the net effect of applying these new lives
was to decrease net loss by $1.4 million.
(4) RELATED PARTY TRANSACTIONS
Effective November 1996 the Partnership entered into a $5.0 million working
capital demand note payable to THCR Holdings. The note bears interest at 9 1/2%.
During June 1997 the Partnership repaid $2.0 million plus accrued interest on
this note.
6
<PAGE>
TRUMP'S CASTLE ASSOCIATES, L.P. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(UNAUDITED)
(5) FINANCIAL INFORMATION OF FUNDING
Financial information relating to Funding is as follows (in thousands):
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1997 1996
---------- ------------
<S> <C> <C>
Total Assets (including Mortgage Notes Receivable of $242,141, net of
unamortized discount of $31,674 and $33,071 at June 30, 1997 and December
31, 1996, PIK Notes Receivable of $75,648, net of unamortized discount of
$7,363 at June 30, 1997 and $70,740, net of unamortized discount of $7,509
at December 31, 1996, and Senior Notes Receivable of $27,000 at June 30,
1997 and December 31, 1996) .................................................. $305,752 $299,301
======== ========
Total Liabilities and Capital (including Mortgage Notes Payable of $242,141, net
of unamortized discount of $31,674 and $33,071 at June 30, 1997 and
December 31, 1996, PIK Notes Payable of $75,648, net of unamortized
discount of $7,363 at June 30, 1997 and $70,740, net of unamortized
discount of $7,509 at December 31, 1996, and Senior Notes Payable of
$27,000 at June 30, 1997 and December 31, 1996) ............................. $305,752 $299,301
======== ========
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE 30,
---------------------------
1997 || 1996
--------- || ---------
SUCCESSOR || PREDECESSOR
--------- || -----------
<S> <C> <C>
Interest Income.......................................................... $22,243 || $21,395
Interest Expense......................................................... 22,243 || 21,395
------- || -------
Net Income............................................................... $ -- || $ --
======= || =======
</TABLE>
7
<PAGE>
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
CAPITAL RESOURCES AND LIQUIDITY
Cash flow from operating activities is the Partnership's principal source
of liquidity. For the six months ended June 30, 1997, the Partnership's net cash
flow provided by operating activities before cash interest payments on debt
obligations was $26.2 million.
In addition to funding operations, the Partnership's principal uses of cash
are capital expenditures and debt service.
Capital expenditures for 1997 are anticipated to be approximately $2.5
million and principally consist of hotel room renovations, as well as ongoing
casino floor improvements, parking garage upgrades and Marina leasehold
improvements. In addition, during 1997, the Partnership commenced a $4.2 million
project to retheme the property with a nautical emphasis. Capital expenditures
of $1.4 million were incurred during the six months ended June 30, 1997
primarily for the previously mentioned projects.
The Partnership's debt consists primarily of (i) a term loan with a bank
with an outstanding principal balance of approximately $33.9 million at June 30,
1997 (the "Term Loan"), (ii) the Senior Notes, (iii) the Mortgage Notes and (iv)
the PIK Notes.
The Term Loan bears interest at the prime rate plus 3%, currently 11 1/2%,
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 $27.0 million, and
bear interest at the rate of 11 1/2% per annum. 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 of June 15, 1998 and 1999.
The Mortgage Notes have an outstanding principal amount of approximately
$242.1 million, bear interest at the rate of 11 3/4% per annum, and mature on
June 15, 2003.
The PIK Notes have an outstanding principal amount of approximately $75.6
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 of 1997, interest on the PIK Notes was paid
through the issuance of notes aggregating $4.9 million, and the Partnership
anticipates that additional interest due during the fourth quarter of 1997 of
approximately $5.3 million will be paid through the issuance of additional PIK
Notes.
The Partnership's total cash debt service requirement was approximately
$22.1 million during the six months ended June 30, 1997 and the Partnership
anticipates that approximately $20.0 million in cash will be required during the
remainder of 1997 to meet its debt service obligations. As a result of the
Acquisition and the Partnership's designation as an unrestricted subsidiary
under the indenture under which the 15 1/2% Senior Secured Notes of THCR
Holdings and Trump Hotels & Casino Resorts Funding, Inc. were issued, the
Partnership has the ability to receive certain advances for working capital,
debt service and other purposes. In addition, the Partnership has the authority
to obtain a working capital facility of up to $10.0 million, although there can
be no assurance that such financing will be available or on terms acceptable to
the Partnership.
RESULTS OF OPERATIONS: OPERATING REVENUES AND EXPENSES
The financial information presented below reflects the financial condition
and results of operations of the Partnership. 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.
Comparison of Results of Operations for the Three Months Periods Ended June
30, 1997 and 1996. The Partnership's net revenues (gross revenues less
promotional allowances) for the three months ended June 30, 1997 and 1996 were
approximately $75.0 million and $68.1 million, respectively. The $6.9 million or
10.1% increase is primarily the result of the increased table game win
percentage as described below.
8
<PAGE>
Gaming revenues are the primary source of the Partnership's revenues and
primarily consist of slot machine and table games win.
Slot win was approximately $49.2 million and $47.8 million (an increase of
approximately $1.4 million or 2.9%) for the three months ended June 30, 1997 and
1996, respectively. The total dollar amount wagered by customers on slot
machines increased by approximately $5.4 million or 0.9% to $590.0 million for
the three months ended June 30, 1997. The slot win percentage (slot win as a
percentage of dollars wagered on slot machines) increased to 8.3% for the three
months ended June 30, 1997 from 8.2% for the three months ended June 30, 1996.
Table game win was approximately $19.3 million and $14.4 million (an
increase of $4.9 million or 34.0%) for the three months ended June 30, 1997 and
1996, respectively. The total dollar amount wagered by customers on table games
increased by approximately $900,000 or 0.7% to $128.3 million for the three
months ended June 30, 1997 from $127.4 million for the three months ended June
30, 1996. The increase in table game win was primarily caused by an increase in
the table game win percentage (table game win as a percentage of dollars wagered
on table games) to 15.1% for the three months ended June 30, 1997 from 11.3% for
the three months ended June 30, 1996. 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, 1997 and 1996, credit extended to the
table games customers was approximately 34.6% and 32.7% of overall table play,
respectively. This relatively high level of credit play 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.
Non gaming revenues, in the aggregate, increased by approximately $1.0
million or 6.4% to $16.7 million for the three months ended June 30, 1997 from
$15.7 million for the three months ended June 30, 1996, primarily as a result of
an increase in other revenue activity (consisting primarily of admissions
revenues and food and beverage revenue activity).
Promotional allowances increased by approximately $400,000 or 4.1% to $10.2
million for the three months ended June 30, 1997 from $9.8 million for the three
months ended June 30, 1996, primarily as a result of an increase in
complimentary entertainment and food and beverage related to marketing
activities.
Gaming costs increased approximately $2.9 million or 7.0% to $44.4 million
for the three months ended June 30, 1997 from $41.5 million for the three months
ended June 30, 1996. This increase is primarily the result of an increase in
promotional spending and complimentary activity in an effort to stimulate gaming
revenues.
General and administrative expenses decreased approximately $1.5 million or
8.6% for the three months ended June 30, 1997 from the same period in 1996
primarily due to reduced salaries and employee benefits.
Depreciation and amortization expense decreased approximately $160,000 or
4.2% for the three months ended June 30, 1997, from $3.8 million for the three
months ended June 30, 1996. This was a result of management's decision to
reevaluate the lives of fixed assets which were acquired in 1996. The net effect
of this revaluation was to decrease depreciation expense by $1.4 million for the
three months ended June 30, 1997. This decrease was offset by the additional
depreciation expenses incurred relating to the acquisition of the Partnership by
THCR Holdings.
Interest expense increased approximately $500,000 or 4.2% to $12.3 million
for the three months ended June 30, 1997 from $11.8 million for the three months
ended June 30, 1996 primarily due to an increase in the outstanding principal
related to the PIK Notes.
Comparison of Results of Operations for the Six Months Periods Ended June
30, 1997 and 1996. The Partnership's net revenues (gross revenues less
promotional allowances) for the six months ended June 30, 1997 and 1996 were
approximately $143.5 million and $135.0 million, respectively. The $8.5 million
or 6.3% increase is primarily the result of the increased table game win
percentage as described below.
Gaming revenues are the primary source of the Partnership's revenues and
primarily consist of slot machine and table games win.
Slot win was approximately $94.4 million and $93.1 million (an increase of
approximately $1.3 million or 1.4%) for the six months ended June 30, 1997 and
1996, respectively. The total dollar amount wagered by customers on slot
machines increased by approximately $1.9 million or 0.2% to $1,137.9 million for
the six months ended June 30,
9
<PAGE>
1997. The slot win percentage (slot win as a percentage of dollars wagered on
slot machines) increased to 8.3% for the six months ended June 30, 1997 from
8.2% for the six months ended June 30, 1996.
Table game win was approximately $38.2 million and $32.3 million (an
increase of $5.9 million or 18.3%) for the six months ended June 30, 1997 and
1996, respectively. The total dollar amount wagered by customers on table games
increased by approximately $1.3 million or 0.5% to $244.9 million for the six
months ended June 30, 1997 from $243.6 million for the six months ended June 30,
1996. The increase in table game win was primarily caused by an increase in the
table game win percentage (table game win as a percentage of dollars wagered on
table games) to 15.6% for the six months ended June 30, 1997 from 13.3% for the
six months ended June 30, 1996. 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, 1997 and 1996, credit extended to the
table games customers was approximately 33.1% and 31.1% of overall table play,
respectively. This relatively high level of credit play 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.
Non gaming revenues, in the aggregate, increased by approximately $2.3
million or 8.1% to $30.8 million for the six months ended June 30, 1997 from
$28.5 million for the six months ended June 30, 1996, primarily as a result of
an increase in other revenue activity (consisting primarily of admissions
revenues and food and beverage revenue activity).
Promotional allowances increased by approximately $1.0 million or 5.3% to
$19.9 million for the six months ended June 30, 1997 from $18.9 million for the
six months ended June 30, 1996, primarily as a result of an increase in
complimentary entertainment and food and beverage related to marketing
activities.
Gaming costs increased approximately $3.0 million or 3.6% to $85.5 million
for the six months ended June 30, 1997. This increase is primarily the result of
an increase in promotional spending and complimentary activity in an effort to
stimulate gaming revenues.
General and administrative expenses decreased approximately $2.0 million or
5.8% for the six months ended June 30, 1997 from the same period in 1996
primarily due to reduced salaries and employee benefits.
Depreciation and amortization expense increased approximately $1.0 million
or 13.0% for the six months ended June 30, 1997, from $7.7 million for the six
months ended June 30, 1996, primarily due to the additional depreciation expense
related to the acquisition of the Partnership by THCR Holdings. This increase
was offset by a $1.4 million decrease in depreciation expense resulting from
management's decision to reevaluate the lives of fixed assets which were
acquired in 1996.
Interest expense increased approximately $900,000 or 3.8% to $24.5 million
for the six months ended June 30, 1997 from $23.6 million for the six months
ended June 30, 1996 primarily due to an increase in the outstanding principal
related to the PIK Notes.
SEASONALITY
The casino industry in Atlantic City is seasonal in nature; accordingly,
the results of operations for the three and six month periods ending June 30,
1997 are not necessarily indicative of the operating results for a full year.
ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Pursuant to the General Instructions to Rule 305 of Regulation S-K, the
quantitative and qualitative disclosures called for by this Item 3 and by Rule
305 of Regulation S-K are inapplicable to the Registrants at this time.
10
<PAGE>
PART II - OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS
The Partnership, its partners, its affiliates, Funding and certain of their
employees have been involved in various legal proceedings. In general, 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.
On March 13, 1997, THCR filed a lawsuit in the United States District
Court, District of New Jersey, against Mirage Resorts Incorporated, the State of
New Jersey (the "State"), the New Jersey Department of Transportation, the South
Jersey Transportation Authority, the New Jersey Casino Reinvestment Development
Authority (the "CRDA"), the New Jersey Transportation Trust Fund Authority and
others. THCR was seeking declaratory and injunctive relief to recognize and
prevent violations by the defendants of the casino clause of the New Jersey
State Constitution and various federal securities and environmental laws
relating to proposed infrastructure improvements in the Atlantic City marina.
While this action was pending, defendants State and CRDA then filed an action in
the New Jersey State Court seeking declaration of the claim relating to the
casino clause of the New Jersey State Constitution. On May 1, 1997, the United
States District Court dismissed the federal claims and ruled that the State
constitutional claims should be pursued in State Court. This decision is
currently being appealed and all briefs are scheduled to be filed by
mid-October. On May 14, 1997, the State Court entered a summary judgment in
favor of the State and CRDA. This decision is also being appealed and all briefs
are scheduled to be filed by mid-September.
On August 14, 1996, certain stockholders of THCR filed two derivative
actions in the Court of Chancery in Delaware (Civil Action Nos. 15148 and 15160)
(the "Delaware cases") against each of the members of the Board of Directors of
THCR, THCR, THCR Holdings, the Partnership and Trump Casinos II, Inc.
("TCI-II"). The plaintiffs claim that the directors of THCR breached their
fiduciary duties in connection with the Acquisition by purchasing those
interests at an excessive price in a self-dealing transaction. The complaint
sought to enjoin the transaction, and also sought damages and an accounting. The
injunction was never pursued.
On October 16, 1996, a stockholder of THCR filed a derivative action in the
United States District Court, Southern District of New York (96 Civ. 7820)
against each member of the Board of Directors of THCR, THCR, THCR Holdings, the
Partnership, TCI, TCI-II, TCHI and Salomon Brothers, Inc. ("Salomon"). The
plaintiff claims that certain of the defendants breached their fiduciary duties
and engaged in ultra vires acts in connection with the Acquisition and that
Salomon was negligent in the issuance of its fairness opinion with respect to
the Acquisition. The plaintiff also alleges violations of the federal securities
laws for alleged omissions and misrepresentations in THCR's proxies, and that
Trump, TCI-II and TCHI breached the acquisition agreement by supplying THCR with
untrue information for inclusion in the proxy statement delivered to THCR's
stockholders in connection with the Acquisition. The plaintiff seeks removal of
the directors of THCR, an injunction, rescission and damages.
The Delaware cases were recently dismissed in Delaware and amended and
refiled in the Southern District of New York. These cases have subsequently been
consolidated with the federal action for all purposes, including pretrial
proceedings and trial. On or about January 17, 1997, the plaintiffs filed their
Consolidated Amended Derivative Complaint (the "First Amended Complaint"),
reflecting the consolidation. On or about March 24, 1997, the plaintiffs filed
their Second Consolidated Amended Derivative Complaint (the "Second Amended
Complaint"). In addition to the allegations made in the First Amended Complaint,
the Second Amended Complaint claims that certain of the defendants breached
their fiduciary duties and wasted corporate assets in connection with the
previously contemplated transaction with Colony Capital, Inc. ("Colony
Capital"). The Second Amended Complaint also includes claims against Colony
Capital for aiding and abetting certain of those violations. In addition to the
relief sought in the First Amended Complaint, the Second Amended Complaint
sought to enjoin the previously contemplated transaction with Colony Capital or,
if it was effectuated, to rescind it. On March 27, 1997, THCR and Colony Capital
mutually agreed to end negotiations with respect to such transaction. On June
26, 1997, plaintiffs served their Third Consolidated Amended Derivative
Complaint (the "Third Amended Complaint"), which omitted the claims against
Colony Capital. THCR and the other defendants in the action moved to dismiss the
Third Amended Complaint on August 5, 1997.
THCR believes that the suits are without merit and intend to contest
vigorously the allegations against them. At
11
<PAGE>
this early stage, however, no opinion can be expressed as to the likely outcome
of these actions.
Various other legal proceedings are now pending against the Partnership.
Except as set forth in the Partnership's and Funding's Annual Report on Form
10-K for the year ended December 31, 1996, the Partnership considers all such
proceedings to be ordinary litigation incident to the character of its business
and not material to its business or financial condition. 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 its financial condition or results of operations of
the Partnership.
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:
EXHIBIT NO. DESCRIPTION OF EXHIBIT
---------- -----------------------
27.1 Financial Data Schedule of Trump's Castle Funding, Inc.
27.2 Financial Data Schedule of Trump's Castle Associates, L.P.
B. CURRENT REPORTS ON FORM 8-K:
None.
12
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
TRUMP'S CASTLE FUNDING, INC.
(Registrant)
Date: August 14, 1997
By: /s/ DONALD J. TRUMP
-------------------------------------
DONALD J. TRUMP
PRESIDENT AND TREASURER
(DULY AUTHORIZED OFFICER AND
PRINCIPAL FINANCIAL OFFICER)
13
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
TRUMP'S CASTLE ASSOCIATES, L.P.
(Registrant)
Date: August 14, 1997
By: /s/ JOHN P. BURKE
------------------------------------
JOHN P. BURKE
TREASURER
(DULY AUTHORIZED OFFICER AND
CHIEF ACCOUNTING OFFICER)
14
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The schedule contains summary financial information from Trump's Castle
Funding, Inc. This data has been extracted from the Consolidated Balance Sheets
and Consolidated Statements of Operations for the three and six month periods
ended June 30, 1997 and is qualified in its entirety by reference to such
Financial Statements.
</LEGEND>
<CIK> 0000770618
<NAME> TRUMP'S CASTLE FUNDING, INC.
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1997
<PERIOD-START> APR-01-1997 JAN-01-1997
<PERIOD-END> JUN-30-1997 JUN-30-1997
<CASH> 0 0
<SECURITIES> 0 0
<RECEIVABLES> 0 0
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 0 0
<PP&E> 0 0
<DEPRECIATION> 0 0
<TOTAL-ASSETS> 305,752 305,752
<CURRENT-LIABILITIES> 0 0
<BONDS> 0 0
0 0
0 0
<COMMON> 200 200
<OTHER-SE> 0 0
<TOTAL-LIABILITY-AND-EQUITY> 305,752 305,752
<SALES> 0 0
<TOTAL-REVENUES> 11,182 22,243
<CGS> 0 0
<TOTAL-COSTS> 0 0
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 11,182 22,243
<INCOME-PRETAX> 0 0
<INCOME-TAX> 0 0
<INCOME-CONTINUING> 0 0
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 0 0
<EPS-PRIMARY> 0 0
<EPS-DILUTED> 0 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The schedule contains summary financial information from Trump's Castle
Associates, L.P. This data has been extracted from the Consolidated Balance
Sheets and Consolidated Statements of Operations for the three and six month
periods ended June 30, 1997 and is qualified in its entirety by reference to
such Financial Statements.
</LEGEND>
<CIK> 0000911534
<NAME> TRUMP'S CASTLE ASSOCIATES, L.P.
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1997
<PERIOD-START> APR-01-1997 JAN-01-1997
<PERIOD-END> JUN-30-1997 JUN-30-1997
<CASH> 16,333 16,333
<SECURITIES> 0 0
<RECEIVABLES> 0 0
<ALLOWANCES> 9,299 9,299
<INVENTORY> 2,568 2,568
<CURRENT-ASSETS> 2,929 2,929
<PP&E> 516,185 516,185
<DEPRECIATION> 16,544 16,544
<TOTAL-ASSETS> 549,759 549,759
<CURRENT-LIABILITIES> 61,919 61,919
<BONDS> 278,752 278,752
0 0
0 0
<COMMON> 200 200
<OTHER-SE> 0 0
<TOTAL-LIABILITY-AND-EQUITY> 549,759 549,759
<SALES> 0 0
<TOTAL-REVENUES> 75,039 143,463
<CGS> 0 0
<TOTAL-COSTS> 63,686 123,624
<OTHER-EXPENSES> 3,684 8,725
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 12,330 24,528
<INCOME-PRETAX> 0 0
<INCOME-TAX> 0 0
<INCOME-CONTINUING> 0 0
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (4,570) (13,254)
<EPS-PRIMARY> 0 0
<EPS-DILUTED> 0 0
</TABLE>
