===============================================================================
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: SEPTEMBER 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)
NOT APPLICABLE
----------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
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)
NOT APPLICABLE
----------------------------------------------------
(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
--- ---
AS OF NOVEMBER 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
Condensed Consolidated Balance Sheets of Trump's Castle
Associates, L.P. and Subsidiary as of September 30, 1997
(unaudited) and December 31, 1996 ................................. 1
Condensed Consolidated Statements of Operations of Trump's Castle
Associates, L.P. and Subsidiary for the Three Months and
Nine Months Ended September 30, 1997 and 1996 (unaudited).......... 2
Condensed Consolidated Statement of Partners' Capital of Trump's
Castle Associates, L.P. and Subsidiary for the Nine Months
Ended September 30, 1997 (unaudited)............................... 3
Condensed Consolidated Statements of Cash Flows of Trump's Castle
Associates, L.P. and Subsidiary for the Nine Months Ended
September 30, 1997 and 1996 (unaudited)............................ 4
Notes to Condensed 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......................... 8-12
ITEM 3 -- Quantitative and Qualitative Disclosures About Market Risk.. 12
PART II -- OTHER INFORMATION
ITEM 1 -- Legal Proceedings........................................... 13-14
ITEM 2 -- Changes in Securities and Use of Proceeds................... 14
ITEM 3 -- Defaults Upon Senior Securities............................. 14
ITEM 4 -- Submission of Matters to Vote of Security Holders........... 14
ITEM 5 -- Other Information........................................... 14
ITEM 6 -- Exhibits and Reports on Form 8-K............................ 15
SIGNATURES
SIGNATURE -- Trump's Castle Funding, Inc............................. 16
SIGNATURE -- Trump's Castle Associates, L.P.......................... 17
i
<PAGE>
PART I -- FINANCIAL INFORMATION
ITEM 1 -- FINANCIAL STATEMENTS
TRUMP'S CASTLE ASSOCIATES, L.P. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
ASSETS
September 30, December 31,
1997 1996
------------- ------------
(unaudited)
CURRENT ASSETS:
Cash and cash equivalents ..................... $ 20,454 $ 15,380
Receivables, net .............................. 10,820 7,696
Due from affiliates ........................... 1,250 1,970
Inventories ................................... 2,625 1,298
Other current assets .......................... 2,115 1,560
-------- --------
Total current assets .................... 37,264 27,904
PROPERTY AND EQUIPMENT, NET ...................... 503,149 509,876
OTHER ASSETS ..................................... 13,326 10,231
-------- --------
Total assets ............................ $553,739 $548,011
======== ========
LIABILITIES AND PARTNERS' CAPITAL
CURRENT LIABILITIES:
Current maturities-other borrowings ........... $ 7,932 $ 3,714
Accounts payable and accrued expenses ......... 36,961 32,735
Due to affiliates ............................. 8,348 1,712
Accrued interest payable ...................... 11,935 4,020
-------- --------
Total current liabilities ............... 65,176 42,181
MORTGAGE NOTES
(Net of unamortized discount of $30,936
and $33,071, respectively) .................. 211,205 209,070
PIK NOTES
(Net of unamortized discount of $7,283
and $7,509, respectively) ................... 68,365 63,231
OTHER BORROWINGS ................................. 56,622 63,283
OTHER LONG TERM LIABILITIES ...................... 6,122 3,654
-------- --------
Total liabilities ....................... 407,490 381,419
COMMITMENTS AND CONTINGENCIES
PARTNERS' CAPITAL .............................. 146,249 166,592
-------- --------
Total liabilities and capital ........... $553,739 $548,011
======== ========
The accompanying notes are an integral part of
these condensed consolidated statements.
1
<PAGE>
<TABLE>
TRUMP'S CASTLE ASSOCIATES, L.P. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS AND NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
(unaudited)
(in thousands)
<CAPTION>
Three Months Nine Months
Ended September 30, Ended September 30,
-------------------------- --------------------------
1997 || 1996 1997 || 1996
--------- || ----------- --------- || -----------
Successor || Predecessor Successor || Predecessor
--------- || ----------- --------- || -----------
<S> <C> <C> <C> <C>
REVENUES: || ||
Gaming ........................ $ 72,609 || $ 66,068 $205,128 || $191,494
Rooms ......................... 5,663 || 5,624 14,442 || 14,629
Food and beverage ............. 10,647 || 10,236 28,656 || 27,083
Other ......................... 3,229 || 3,019 8,597 || 6,936
-------- || -------- -------- || --------
Gross revenues ............. 92,148 || 84,947 256,823 || 240,142
Less-promotional allowances ...... 12,451 || 12,040 33,663 || 32,240
-------- || -------- -------- || --------
Net revenues .................. 79,697 || 72,907 223,160 || 207,902
-------- || -------- -------- || --------
COST AND EXPENSES: || ||
Gaming ........................ 44,605 || 42,962 130,088 || 125,433
Rooms ......................... 690 || 747 1,989 || 2,181
Food and beverage ............. 3,041 || 3,389 7,661 || 8,174
General and administrative .... 16,610 || 18,291 48,832 || 52,513
Depreciation and amortization . 4,171 || 4,102 12,896 || 11,779
-------- || -------- -------- || --------
Total costs and expenses ...... 69,117 || 69,491 201,466 || 200,080
-------- || -------- -------- || --------
Income from operations ..... 10,580 || 3,416 21,694 || 7,822
INTEREST INCOME .................. 112 || 208 272 || 466
OTHER INCOME ..................... -- || 3,000 -- || 3,000
INTEREST EXPENSE ................. (12,781) || (12,561) (37,309) || (36,157)
-------- || -------- -------- || --------
Net loss ...................... $ (2,089) || $ (5,937) $(15,343) || $(24,869)
======== || ======== ======== || ========
The accompanying notes are an integral part of
these condensed consolidated statements.
</TABLE>
2
<PAGE>
TRUMP'S CASTLE ASSOCIATES, L.P. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENT OF PARTNERS' CAPITAL
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
(unaudited)
(in thousands)
Partners' Partners'
Capital Deficit Total
-------- --------- --------
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 .................................. -- (15,343) (15,343)
-------- -------- --------
Balance at September 30, 1997 (Successor).. $175,395 $(29,146) $146,249
======== ======== ========
The accompanying notes are an integral part of
this condensed consolidated statement.
3
<PAGE>
TRUMP'S CASTLE ASSOCIATES, L.P. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
(unaudited)
(in thousands)
Nine Months
Ended September 30,
------------------------
1997 || 1996
--------- || -----------
Successor || Predecessor
--------- || -----------
CASH FLOWS PROVIDED BY OPERATING ACTIVITIES: ||
Net loss ........................................... $(15,343) || $(24,869)
Adjustments to reconcile net loss to net cash flows ||
provided by operating activities-- ||
Noncash charges-- ||
Depreciation and amortization ................ 12,896 || 11,779
Accretion of bond discount ................... 2,361 || 2,015
Provision for losses on receivables .......... 1,134 || 1,321
Valuation allowance-CRDA investments ......... 878 || 947
-------- || --------
1,926 || (8,807)
(Increase) decrease in receivables ........... (4,258) || 1,893
(Increase) decrease in inventories ........... (1,327) || 210
(Increase) decrease in other current assets .. (555) || 2,139
(Increase) decrease in other assets .......... (1,412) || 265
Increase in current liabilities .............. 12,141 || 4,735
Increase in amounts due to affiliates ........ 4,356 || --
Increase in other liabilities ................ 7,376 || 6,520
-------- || --------
Net cash flows provided by operating ||
activities .............................. 18,247 || 6,955
-------- || --------
CASH FLOWS USED IN INVESTING ACTIVITIES: ||
Purchases of property and equipment, net ..... (5,453) || (4,125)
Purchase of CRDA investments ................. (2,578) || (2,104)
-------- || --------
Net cash flows used in investing ||
activities .............................. (8,031) || (6,229)
-------- || --------
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 ................ (3,142) || (2,453)
-------- || --------
Net cash flows used in financing ||
activities .............................. (5,142) || (715)
-------- || --------
Net increase in cash and cash equivalents . 5,074 || 11
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD ..... 15,380 || 21,038
-------- || --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD ........... $ 20,454 || $ 21,049
======== || ========
SUPPLEMENTAL INFORMATION: ||
Cash paid for interest ............................ $ 19,297 || $ 19,595
======== || ========
SUPPLEMENTAL DISCLOSURE OF NON-CASH ACTIVITY:
1996 capital contributions of $5.0 million by
THCR Holdings was reclassified as due to
affiliates in 1997.
The accompanying notes are an integral part of
these condensed consolidated statements.
4
<PAGE>
TRUMP'S CASTLE ASSOCIATES, L.P. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
(1) ORGANIZATION AND OPERATIONS
The accompanying condensed 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 condensed 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 due to expansion by existing operators and new
entrants to the gaming industry becoming operational.
Prior to the acquisition of the Partnership by Trump Hotels & Casino
Resorts Holdings, L.P. ("THCR Holdings") (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, 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 condensed 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 condensed consolidated financial
statements.
The accompanying condensed 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 condensed consolidated 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 month and nine month periods ending
September 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 CONDENSED 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 subsequent to 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 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 months and nine
months ended September 30, 1997, the net effect of applying these new lives was
to decrease the net loss by $1,409,000 and $2,817,000 respectively.
(4) RELATED PARTY TRANSACTIONS
Effective November 1996 the Partnership entered into a $5,000,000 working
capital demand note payable to THCR Holdings. The note bears interest at 9 1/2%.
During June 1997 the Partnership repaid $2,000,000 plus accrued interest on this
note.
(5) LICENSE REVENUE
On September 27, 1996, the Partnership entered into a Thermal Energy
Service Agreement with Atlantic Jersey Thermal Systems, Inc. ("Atlantic
Thermal") pursuant to which Atlantic Thermal was granted an exclusive license
for a period of 20 years to use, operate and maintain certain steam and chilled
water production facilities at Trump Marina (the "Thermal Agreement"). In
consideration of the license, Atlantic Thermal paid the Partnership $3,000,000,
which amount has been included in other non-operating income during the three
month and nine month periods ended September 30, 1996.
6
<PAGE>
TRUMP'S CASTLE ASSOCIATES, L.P. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
(unaudited)
(6) FINANCIAL INFORMATION OF FUNDING
Financial information relating to Funding is as follows (in thousands):
September 30, December 31,
1997 1996
------------ ------------
Total Assets (including Mortgage Notes Receivable
of $242,141, net of unamortized discount of
$30,936 and $33,071 at September 30, 1997 and
December 31, 1996, PIK Notes Receivable of
$75,648, net of unamortized discount of $7,283
at September 30, 1997 and $70,740, net of
unamortized discount of $7,509 at December 31,
1996, and Senior Notes Receivable of $27,000 at
September 30, 1997 and December 31, 1996)......... $306,570 $299,301
======== ========
Total Liabilities and Capital (including Mortgage
Notes Payable of $242,141, net of unamortized
discount of $30,936 and $33,071 at September 30,
1997 and December 31, 1996, PIK Notes Payable of
$75,648, net of unamortized discount of $7,283
at September 30, 1997 and $70,740, net of
unamortized discount of $7,509 at December 31,
1996, and Senior Notes Payable of $27,000 at
September 30, 1997 and December 31, 1996)......... $306,570 $299,301
======== ========
Nine Months
Ended September 30,
-------------------------
1997 || 1996
--------- || -----------
Successor || Predecessor
--------- || -----------
||
Interest Income..................................... $33,541 || $32,242
Interest Expense.................................... 33,541 || 32,242
------- || -------
Net Income.......................................... $ -- || $ --
======= || =======
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 nine months ended September 30, 1997, the Partnership's
net cash flow provided by operating activities before cash interest payments on
debt obligations was $37,425,000.
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
$1,500,000 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 completed a $4,200,000
project to retheme the property with a nautical emphasis. Capital expenditures
of $5,453,000 were incurred during the nine months ended September 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 $33,408,000 at September
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 $27,000,000 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
$242,141,000, bear interest at the rate of 11 3/4% per annum and mature on
November 15, 2003.
The PIK Notes have an outstanding principal amount of approximately
$75,648,000 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 $4,908,000, and the Partnership
anticipates that additional interest due during the fourth quarter of 1997 of
approximately $5,248,000 will be paid through the issuance of additional PIK
Notes.
The Partnership's total cash debt service requirement was approximately
$24,550,000 during the nine months ended September 30, 1997 and the Partnership
anticipates that approximately $17,896,000 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 $10,000,000 (of which
approximately $3,000,000 is outstanding - see Note 4 to the Condensed
Consolidated Financial Statements), 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.
8
<PAGE>
COMPARISON OF RESULTS OF OPERATIONS FOR THE THREE MONTH PERIODS
ENDED SEPTEMBER 30, 1997 AND 1996.
Gaming revenues are the primary source of the Partnership's revenues and
primarily consist of slot machine and table games win. The following table
details activity for the major components of gaming revenue:
Three Months Ended
September 30,
------------------------
1997 1996
--------- ---------
(dollars in thousands)
Table Game Revenue ........................... $23,080 $17,239
Increase from Prior Period ................... $5,841
Table Game Drop .............................. $135,946 $140,810
Decrease from Prior Period ................... ($4,864)
Table Win Percentage ......................... 17.0% 12.3%
Increase from Prior Period ................... 4.7%
Number of Table Games ........................ 94 87
Increase from Prior Period ................... 7
Slot Revenue ................................. $48,603 $48,305
Increase from Prior Period ................... $298
Slot Handle .................................. $606,858 $601,147
Increase from Prior Period ................... $5,711
Slot Win Percentage .......................... 8.0% 8.0%
Increase from Prior Period ................... --
Number of Slot Machines ...................... 2,142 2,303
Decrease from Prior Period ................... (161)
Poker Revenue ................................ $137 $192
Decrease from Prior Period ................... ($55)
Number of Poker Tables ....................... 4 6
Decrease from Prior Period ................... (2)
Other Gaming Revenue ......................... $789 $332
Increase from Prior Period ................... $457
Total Gaming Revenue ......................... $72,609 $66,068
Increase from Prior Period ................... $6,541
9
<PAGE>
Non gaming revenues, in the aggregate, increased by approximately $660,000
or 3.5% to $19,539,000 for the three months ended September 30, 1997 from
$18,879,000 for the three months ended September 30, 1996, primarily as a result
of an increase in food and beverage revenue activity.
Promotional allowances increased by approximately $411,000 or 3.4% to
$12,451,000 for the three months ended September 30, 1997 from $12,040,000 for
the three months ended September 30, 1996, primarily as a result of an increase
in complimentary food and beverage related to marketing activities.
Gaming costs increased approximately $1,643,000 or 3.8% to $44,605,000 for
the three months ended September 30, 1997 from $42,962,000 for the three months
ended September 30, 1996. This increase is primarily the result of an increase
in promotional spending and complimentary activity in an effort to stimulate
gaming revenues.
Food and beverage costs and expenses for the three months ended September
30, 1997 decreased approximately $348,000 or 10.3% from the comparable period in
1996. This decrease is primarily due to the increased level of complimentary
food and beverages provided to patrons. The cost of such complementaries has
been included in gaming costs and expenses.
General and administrative expenses decreased approximately $1,681,000 or
9.2% for the three months ended September 30, 1997 from the same period in 1996
primarily due to reduced salaries and employee benefits.
Depreciation and amortization expense increased approximately $69,000 or
1.7% for the three months ended September 30, 1997, from $4,102,000 for the
three months ended September 30, 1996. During the second quarter of 1997
management decided to reevaluate the lives of fixed assets which were acquired
in 1996. The net effect of this revaluation was to decrease depreciation expense
by $1,409,000 for the three months ended September 30, 1997. This decrease was
offset by the additional depreciation expenses incurred relating to the
acquisition of the Partnership by THCR Holdings.
Other non-operating income of $3,000,000 for the three months ended
September 30, 1996 represents the non-refundable licensing fee resulting from
the Thermal Agreement (see Note 5 to the Condensed Consolidated Financial
Statements).
Interest expense increased approximately $220,000 or 1.8% to $12,781,000
for the three months ended September 30, 1997 from $12,561,000 for the three
months ended September 30, 1996 primarily due to an increase in the outstanding
principal related to the PIK Notes and the THCR working capital demand note.
10
<PAGE>
COMPARISON OF RESULTS OF OPERATIONS FOR THE NINE MONTH PERIODS
ENDED SEPTEMBER 30, 1997 AND 1996.
Gaming revenues are the primary source of the Partnership's revenues and
primarily consist of slot machine and table games win. The following table
details activity for the major components of gaming revenue:
Nine Months Ended
September 30,
------------------------
1997 1996
--------- ---------
(dollars in thousands)
Table Game Revenue ........................ $60,423 $48,485
Increase from Prior Period ................ $11,938
Table Game Drop ........................... $380,850 $384,441
Decrease from Prior Period ................ ($3,591)
Table Win Percentage ...................... 15.9% 12.6%
Increase from Prior Period ................ 3.3%
Number of Table Games ..................... 90 87
Increase from Prior Period ................ 3
Slot Revenue .............................. $142,956 $141,447
Increase from Prior Period ................ $1,509
Slot Handle ............................... $1,744,751 $1,737,191
Increase from Prior Period ................ $7,560
Slot Win Percentage ....................... 8.2% 8.1%
Increase from Prior Period ................ 0.1%
Number of Slot Machines ................... 2,214 2,280
Decrease from Prior Period ................ (66)
Poker Revenue ............................. $393 $601
Decrease from Prior Period ................ ($208)
Number of Poker Tables .................... 5 6
Decrease from Prior Period ................ (1)
Other Gaming Revenue ...................... $1,356 $961
Increase from Prior Period ................ $395
Total Gaming Revenue ...................... $205,128 $191,494
Increase from Prior Period ................ $13,634
11
<PAGE>
Non gaming revenues, in the aggregate, increased by approximately
$3,047,000 or 6.3% to $51,695,000 for the nine months ended September 30, 1997
from $48,648,000 for the nine months ended September 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 $1,423,000 or 4.4% to
$33,663,000 for the nine months ended September 30, 1997 from $32,240,000 for
the nine months ended September 30, 1996, primarily as a result of an increase
in complimentary food and beverage related to marketing activities.
Gaming costs increased approximately $4,655,000 or 3.7% to $130,088,000 for
the nine months ended September 30, 1997 from the comparable period in 1996.
This increase is primarily the result of an increase in promotional spending,
complimentary activity and headliner entertainment, in an effort to stimulate
gaming revenues.
Food and beverage costs and expenses for the nine months ended September
30, 1997 decreased approximately $513,000 or 6.3% from the comparable period in
1996. This decrease is primarily due to the increased level of complimentary
food and beverages provided to patrons. The cost of such complementaries has
been included in gaming costs and expenses.
General and administrative expenses decreased approximately $3,681,000 or
7.0% for the nine months ended September 30, 1997 from the same period in 1996
primarily due to reduced salaries and employee benefits.
Depreciation and amortization expense increased approximately $1,117,000 or
9.5% for the nine months ended September 30, 1997, from $11,779,000 for the nine
months ended September 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 $2,817,000 decrease in depreciation expense resulting
from management's decision to reevaluate the lives of fixed assets which were
acquired in 1996.
Other non operating income of $3,000,000 for the nine months ended
September 30, 1996 represents the non-refundable licensing fee resulting from
the Thermal Agreement (see Note 5 to the Consolidated Financial Statements).
Interest expense increased approximately $1,152,000 or 3.2% to $37,309,000
for the nine months ended September 30, 1997 from $36,157,000 for the nine
months ended September 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 month and nine month periods ending
September 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.
12
<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 ("Mirage"),
the State of New Jersey (the "State"), the New Jersey Department of
Transportation ("NJDOT"), the South Jersey Transportation Authority ("SJTA"),
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. On May 14,
1997, the State Court entered a summary judgment in favor of the State and CRDA.
This decision is also being appealed.
On June 26, 1997, THCR filed an action against NJDOT, SJTA, Mirage and
others, in the Superior Court of New Jersey, Chancery Division, Atlantic County
(the "Chancery Division Action"). THCR is seeking to declare unlawful and enjoin
certain actions and omissions of the defendants arising out of and relating to a
certain Road Development Agreement dated as of January 10, 1997, by and among
NJDOT, SJTA and Mirage (the "Road Development Agreement") and the public funding
of a certain road and tunnel project to be constructed in Atlantic City, as
further described in the Road Development Agreement. THCR moved to consolidate
this action with other previously filed related actions. Defendants opposed
THCR's motion to consolidate the Chancery Division Action, initially moved to
dismiss this action on procedural grounds and subsequently moved to dismiss this
action on substantive grounds. On October 20, 1997, the Chancery Court denied
the defendants' motion to dismiss this action on procedural grounds, but granted
the motion to dismiss this action on substantive grounds. THCR intends to appeal
this decision.
On June 26, 1997, THCR also filed an action, in lieu of prerogative writs,
against the CRDA, in the Superior Court of New Jersey, Law Division, Atlantic
County, seeking review of the CRDA's April 15, 1997 approval of funding ($120
million principal amount plus interest) for the road and tunnel project
discussed above, a declaratory judgment that the said project is not eligible
for such CRDA funding, and an injunction prohibiting the CRDA from contributing
such funding to the said project. Defendants have moved to dismiss this action
on procedural grounds and have also sought to transfer this action to New
Jersey's Appellate Division. On October 3, 1997, the New Jersey Superior Court
transferred this action to the Appellate Division where it is currently pending.
On September 9, 1997, Mirage filed a complaint against Trump, THCR and
Hilton Hotels Corporation in the United States District Court for the Southern
District of New York. The complaint seeks damages for alleged violations of
antitrust laws, tortious interference with prospective economic advantage and
tortious inducement of a breach of fiduciary duties arising out of activities
purportedly engaged in by defendants in furtherance of an alleged conspiracy to
impede Mirage's efforts to build a casino resort in the Marina District of
Atlantic City, New Jersey. Among other things, Mirage contends that the
defendants filed several frivolous lawsuits and funded others that challenge the
proposed state funding mechanisms for the construction of a proposed roadway and
tunnel that would be paid for chiefly through government funds and which would
link the Atlantic City Expressway with the site of Mirage's proposed new casino
resort. THCR and Trump believe that Mirage's claims are without merit.
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
13
<PAGE>
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, Trump Casinos, Inc., 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 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 AND USE OF PROCEEDS
None.
ITEM 3 -- DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4 -- SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS None.
None.
ITEM 5 -- OTHER INFORMATION None.
None.
14
<PAGE>
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.
15
<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: November 14, 1997
By: /s/ DONALD J. TRUMP
----------------------------------
Donald J. Trump
President and Treasurer
(Duly Authorized Officer and
Principal Financial Officer)
16
<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: November 14, 1997
By: /s/ JOHN P. BURKE
----------------------------------
John P. Burke
Treasurer
(Duly Authorized Officer and
Chief Accounting Officer)
17
<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 month and nine month periods
ended September 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 9-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1997
<PERIOD-START> JUL-01-1997 JAN-01-1997
<PERIOD-END> SEP-30-1997 SEP-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> 306,570 306,570
<CURRENT-LIABILITIES> 0 0
<BONDS> 0 0
0 0
0 0
<COMMON> 200 200
<OTHER-SE> 0 0
<TOTAL-LIABILITY-AND-EQUITY> 306,570 306,570
<SALES> 0 0
<TOTAL-REVENUES> 11,298 33,541
<CGS> 0 0
<TOTAL-COSTS> 0 0
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 0 0
<INCOME-PRETAX> 11,298 33,541
<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 month and nine
month periods ended September 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 9-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1997
<PERIOD-START> JUL-01-1997 JAN-01-1997
<PERIOD-END> SEP-30-1997 SEP-30-1997
<CASH> 20,454 20,454
<SECURITIES> 0 0
<RECEIVABLES> 10,820 10,820
<ALLOWANCES> 0 0
<INVENTORY> 2,625 2,625
<CURRENT-ASSETS> 2,115 2,115
<PP&E> 520,863 520,863
<DEPRECIATION> 17,714 17,714
<TOTAL-ASSETS> 553,739 553,739
<CURRENT-LIABILITIES> 65,176 65,176
<BONDS> 279,570 279,570
0 0
0 0
<COMMON> 200 200
<OTHER-SE> 0 0
<TOTAL-LIABILITY-AND-EQUITY> 553,739 553,739
<SALES> 0 0
<TOTAL-REVENUES> 79,697 223,160
<CGS> 0 0
<TOTAL-COSTS> 64,946 188,570
<OTHER-EXPENSES> 4,171 12,896
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 12,781 37,309
<INCOME-PRETAX> 0 0
<INCOME-TAX> 0 0
<INCOME-CONTINUING> 0 0
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (2,089) (15,343)
<EPS-PRIMARY> 0 0
<EPS-DILUTED> 0 0
</TABLE>
