================================================================================
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, 1998
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 HOTEL & CASINO INC.
(Exact name of registrant as specified in its charter)
NEW JERSEY 11-2735914
(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 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 13, 1998, there were 100 shares of Trump's Castle Hotel &
Casino, Inc.'s Common Stock, no par value, outstanding.
Trump's Castle Hotel & Casino, 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 November 13, 1998, 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 Form 10-Q and is therefore filing this form with
the reduced disclosure format.
================================================================================
<PAGE>
<TABLE>
<CAPTION>
TRUMP'S CASTLE ASSOCIATES, L.P. AND SUBSIDIARY
INDEX TO FORM 10-Q
PAGE NO.
--------
PART I - FINANCIAL INFORMATION
ITEM 1 - Financial Statements
<S> <C> <C>
Condensed Consolidated Balance Sheets of Trump's Castle Associates, L.P. and Subsidiary as of
September 30, 1998 (unaudited) and December 31, 1997......................................... 1
Condensed Consolidated Statements of Operations of Trump's Castle Associates, L.P. and Subsidiary
for the Three and Nine Months Ended September 30, 1998 and 1997 (unaudited)................. 2
Condensed Consolidated Statement of Partners' Capital of Trump's Castle Associates, L.P. and
Subsidiary for the Nine Months Ended September 30, 1998 (unaudited)......................... 3
Condensed Consolidated Statements of Cash Flows of Trump's Castle Associates, L.P. and Subsidiary
for the Nine Months Ended September 30, 1998 and 1997 (unaudited)........................... 4
Notes to Condensed Consolidated Financial Statements of Trump's Castle Associates, L.P.
and Subsidiary (unaudited) ................................................................. 5
ITEM 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations....... 9
ITEM 3 - Quantitative and Qualitative Disclosures About Market Risk.................................. 15
PART II - OTHER INFORMATION
ITEM 1 - Legal Proceedings........................................................................... 16
ITEM 2 - Changes in Securities and Use of Proceeds................................................... 16
ITEM 3 - Defaults Upon Senior Securities............................................................. 16
ITEM 4 - Submission of Matters to a Vote of Security Holders......................................... 16
ITEM 5 - Other Information........................................................................... 16
ITEM 6 - Exhibits and Reports on Form 8-K............................................................ 16
SIGNATURES
SIGNATURE - Trump's Castle Hotel & Casino, Inc.................................................... 17
SIGNATURE - Trump's Castle Funding, Inc........................................................... 18
SIGNATURE - Trump's Castle Associates, L.P........................................................ 19
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
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,
1998 1997
------------- ------------
(unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents................................................ $30,120 $14,472
Receivables, net......................................................... 10,356 8,028
Inventories.............................................................. 2,780 3,090
Other current assets..................................................... 2,526 1,713
-------- --------
Total current assets............................................... 45,782 27,303
PROPERTY AND EQUIPMENT, NET................................................. 491,564 499,513
OTHER ASSETS................................................................ 15,618 14,590
-------- --------
Total assets....................................................... $552,964 $541,406
======== ========
LIABILITIES AND PARTNERS' CAPITAL
CURRENT LIABILITIES:
Current maturities-other borrowings...................................... $1,669 $7,954
Accounts payable and accrued expenses.................................... 29,334 25,742
Due to affiliates........................................................ 21,141 23,949
Accrued interest payable................................................. 13,873 4,020
-------- --------
Total current liabilities.......................................... 66,017 61,665
MORTGAGE NOTES
(Net of unamortized discount of $27,695 and $30,170, respectively)....... 214,446 211,971
PIK NOTES
(Net of unamortized discount of $6,911 and $7,197, respectively)......... 79,597 73,699
OTHER BORROWINGS............................................................ 67,596 55,673
OTHER LONG TERM LIABILITIES................................................. 6,493 4,730
-------- --------
Total liabilities.................................................. 434,149 407,738
COMMITMENTS AND CONTINGENCIES
PARTNERS' CAPITAL........................................................... 118,815 133,668
-------- --------
Total liabilities and capital...................................... $552,964 $541,406
======== ========
The accompanying notes are an integral part of these condensed consolidated
balance sheets.
</TABLE>
1
<PAGE>
<TABLE>
<CAPTION>
TRUMP'S CASTLE ASSOCIATES, L.P. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
(unaudited)
(in thousands)
Three Months Nine Months
Ended September 30, Ended September 30,
------------------------ ------------------------
1998 1997 1998 1997
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
REVENUES:
Gaming........................................... $ 74,236 $ 72,609 $ 198,012 $ 205,128
Rooms............................................ 4,990 5,663 12,451 14,442
Food and beverage................................ 10,459 9,814 26,000 26,346
Other............................................ 3,716 3,229 8,314 8,597
--------- --------- --------- ---------
Gross revenues................................ 93,401 91,315 244,777 254,513
Less-promotional allowances......................... 11,740 11,618 29,672 31,353
--------- --------- --------- ---------
Net revenues..................................... 81,661 79,697 215,105 223,160
--------- --------- --------- ---------
COSTS AND EXPENSES:
Gaming........................................... 46,941 44,605 125,545 130,088
Rooms............................................ 687 690 2,286 1,989
Food and beverage................................ 2,862 3,041 7,216 7,661
General and administrative....................... 16,153 16,610 44,844 48,832
Depreciation and amortization.................... 4,160 4,171 12,358 12,896
--------- --------- --------- ---------
Total costs and expenses......................... 70,803 69,117 192,249 201,466
--------- --------- --------- ---------
Income from operations........................ 10,858 10,580 22,856 21,694
INTEREST INCOME..................................... 173 112 554 272
INTEREST EXPENSE.................................... (12,886) (12,781) (38,263) (37,309)
--------- --------- --------- ---------
Net loss......................................... $ (1,855) $ (2,089) $ (14,853) $ (15,343)
========= ========= ========= =========
The accompanying notes are an integral part of these condensed
consolidated statements.
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
TRUMP'S CASTLE ASSOCIATES, L.P. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENT OF PARTNERS' CAPITAL
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998
(unaudited)
(in thousands)
Partners' Partners'
Capital Deficit Total
-------- -------- --------
<S> <C> <C> <C>
Balance at December 31, 1997.................................. $175,395 $(41,727) $133,668
Net loss...................................................... -- (14,853) (14,853)
-------- -------- --------
Balance at September 30, 1998................................. $175,395 $(56,580) $118,815
======== ======== ========
</TABLE>
The accompanying notes are an integral part of this condensed
consolidated statement.
3
<PAGE>
<TABLE>
<CAPTION>
TRUMP'S CASTLE ASSOCIATES, L.P. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
(unaudited)
(in thousands)
Nine Months
Ended September 30,
-------------------------
1998 1997
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss................................................................... $(14,853) $(15,343)
Adjustments to reconcile net loss to net cash flows provided
by operating activities-
Depreciation and amortization....................................... 12,358 12,896
Accretion of bond discount.......................................... 2,761 2,361
Provision for losses on receivables................................. 943 1,134
Valuation allowance-CRDA investments................................ 854 878
Increase in receivables............................................. (3,271) (4,258)
Decrease (increase) in inventories.................................. 310 (1,327)
Increase in other current assets.................................... (773) (555)
Increase in other assets............................................ (1,862) (1,412)
Increase in current liabilities..................................... 13,445 12,141
(Decrease) increase in amounts due to affiliates.................... (295) 4,356
Increase in other liabilities....................................... 7,375 7,376
-------- --------
Net cash flows provided by operating activities................ 16,992 18,247
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment, net............................ (1,950) (5,453)
Purchase of CRDA investments........................................ (2,464) (2,578)
-------- --------
Net cash flows used in investing activities.................... (4,414) (8,031)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of note payable to affiliate.............................. (2,550) (2,000)
Repayment of other borrowings....................................... (61,380) (3,142)
Proceeds of other borrowings........................................ 67,000 --
-------- --------
Net cash flows provided by (used in) financing activities...... 3,070 (5,142)
-------- --------
Net increase in cash and cash equivalents...................... 15,648 5,074
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD.............................. 14,472 15,380
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD.................................... $ 30,120 $ 20,454
======== ========
SUPPLEMENTAL INFORMATION:
Cash paid for interest..................................................... $ 16,963 $ 19,297
======== ========
The accompanying notes are an integral part of these condensed
consolidated statements.
</TABLE>
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"). The Partnership is 99% owned by Trump Hotels
& Casino Resorts Holdings, L.P., a Delaware limited partnership ("THCR
Holdings") and 1% by Trump's Castle Hotel & Casino, Inc., a New Jersey
corporation ("TCHI"). TCHI is wholly owned by THCR Holdings, and THCR Holdings
is currently a 63.4% owned subsidiary of Trump Hotels & Casino Resorts, Inc., a
Delaware corporation ("THCR").
All significant intercompany balances and transactions have been eliminated
in the condensed consolidated financial statements.
The Partnership operates the Trump Marina Hotel Casino ("Trump Marina"), a
luxury casino hotel located in the Marina District of Atlantic City, New Jersey.
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 to intensify due to
expansion by existing operators and new entrants to the gaming industry becoming
operational.
Funding was incorporated 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 $62,000,000
10 1/4% Senior Secured Notes due 2003 (the "New 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. (See Note 3 regarding
refinancing of the 11 1/2% Senior Secured Notes due 2000 (the "Old Senior
Notes".)
TCHI was incorporated to engage in casino gaming activities pursuant to the
New Jersey Casino Control Act. Since TCHI has no operations, its ability to
repay the principal and interest on the $5,000,000 10 1/4% Senior Secured Notes
due 2003 (the "Working Capital Loan") is completely dependant on the operations
of the Partnership. (See Note 3 regarding refinancing of the Old Senior Notes.)
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.
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, 1997
filed with the SEC by the Partnership and Funding.
Certain reclassifications have been made to conform prior year financial
information to the current year presentation.
The casino industry in Atlantic City is seasonal in nature; accordingly,
the results of operations for the three and nine month periods ending September
30, 1998 are not necessarily indicative of the operating results for a full
year.
(2) 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.
5
<PAGE>
TRUMP'S CASTLE ASSOCIATES, L.P. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(unaudited)
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 nine months ended September 30, 1998, the net effect of
applying these new lives was to decrease the net loss by $1,409,000. There was
no effect on net loss as a result of applying these new estimates of useful
lives for the three months ended September 30, 1998.
(3) LONG TERM DEBT
On April 17, 1998, Funding refinanced its Old Senior Notes and its term
loan with a bank (the "Term Loan") by issuing the New Senior Notes. The New
Senior Notes have a priority mortgage lien ahead of the Partnership's Mortgage
Notes and are further secured by virtually all of the Partnership's assets. The
proceeds from the issuance of the New Senior Notes were used to redeem all of
the issued and outstanding Old Senior Notes at 100% of their principal amount
and to repay the Term Loan in full. In conjunction with this refinancing, TCHI
obtained the Working Capital Loan. Both the New Senior Notes and the Working
Capital Loan are guaranteed by the Partnership.
The New Senior Notes have an outstanding principal amount of $62,000,000
and bear interest at the rate of 10 1/4% per annum, payable semi-annually each
April and October. The New Senior Notes mature on April 17, 2003 and are
included in Other Borrowings in the Partnership's condensed consolidated balance
sheet.
The Working Capital Loan has an outstanding principal amount of $5,000,000
and bears interest at the rate of 10 1/4% per annum, payable semi-annually each
April and October. The entire principal balance of the Working Capital Loan,
which matures on April 17, 2003, is payable to TCHI and is included in Other
Borrowings on the Partnership's condensed consolidated balance sheet.
A tender offer was made to the existing Partnership Mortgage Note holders
on July 9, 1998, offering $940 per $1,000 of principal amount, plus accrued
interest. On August 19, 1998, the tender offer was amended to increase the
consideration to be paid to tendering Mortgage Note holders to $975 per $1,000
of principal amount, plus accrued interest. Consummation of the tender offer was
conditioned upon, among other things, a minimum tender of 98% of the principal
amount of the Mortgage Notes. Since the minimum tender requirement of 98% was
not satisfied, the tender offer expired at 5:00 p.m. on September 17, 1998, in
accordance with its terms.
6
<PAGE>
<TABLE>
<CAPTION>
TRUMP'S CASTLE ASSOCIATES, L.P. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(unaudited)
<S> <C> <C>
(4) FINANCIAL INFORMATION OF FUNDING September 30, December 31,
Financial information relating to Funding is as follows (in thousands): 1998 1997
-------------- ------------
Total Assets (including Mortgage Notes Receivable of $242,141, net of
unamortized discount of $27,695 and $30,170 at September 30, 1998 and
December 31, 1997, PIK Notes Receivable of $86,508, net of unaortized
discount of $6,911 at September 30, 1998 and $80,896, net of unamortized
discount of $7,197 at December 31, 1997, New Senior Notes Receivable of
$62,000 at September 30, 1998 and Old Senior Notes Receivable of $27,000 at
December 31, 1997) .......................................................... $356,043 $312,670
======== ========
Total Liabilities and Capital (including Mortgage Notes Payable of $242,141, net
of unamortized discount of $27,695 and $30,170 at September 30, 1998 and
December 31, 1997, PIK Notes Payable of $86,508, net of unamortized
discount of $6,911 at September 30, 1998 and $80,896, net of unamortized
discount of $7,197 at December 31, 1997, New Senior Notes Payable of
$62,000 at September 30, 1998 and Old Senior Notes Payable of $27,000 at
December 31, 1997) .......................................................... $356,043 $312,670
======== ========
</TABLE>
<TABLE>
<CAPTION>
Nine Months
Ended September 30,
-------------------------
1998 1997
------- -------
<S> <C> <C>
Interest Income................................................................. $36,611 $33,541
Interest Expense................................................................ 36,611 33,541
------- -------
Net Income...................................................................... $ -- $ --
======= =======
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
TRUMP'S CASTLE ASSOCIATES, L.P. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(unaudited)
(5) FINANCIAL INFORMATION OF TCHI
Financial information relating to TCHI is as follows (in thousands):
September 30, December 31,
1998 1997
------------- ------------
<S> <C> <C>
Total Assets (including Working Capital Loan Receivable of
$5,000 at September 30, 1998)............................................ $5,000 $ --
====== =======
Total Liabilities and Capital (including Working Capital Loan
Payable of $5,000 at September 30, 1998)................................. $5,000 $ --
====== =======
<CAPTION>
Nine Months
Ended September 30,
-----------------------
1998 1997
------ -----
<S> <C> <C>
Interest Income............................................................ $ 233 $ --
Interest Expense........................................................... 233 --
------ ------
Net Income................................................................. $ -- $ --
====== ======
</TABLE>
8
<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, 1998, the Partnership's
net cash flow provided by operating activities was $16,992,000.
In addition to funding operations, the Partnership's principal uses of cash
are capital expenditures and debt service.
Capital expenditures for 1998 are anticipated to be approximately
$4,000,000 and principally consist of hotel room renovations, as well as ongoing
casino floor improvements.
At September 30, 1998, the Partnership's debt consisted primarily of (i)
the Mortgage Notes, (ii) the PIK Notes, (iii) the New Senior Notes and (iv) the
Working Capital Loan.
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
$86,508,000 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 1998 interest in the amount of approximately
$5,612,000 was paid through the issuance of additional PIK Notes and the
Partnership anticipates that additional interest due during the fourth quarter
of approximately $6,002,000 will be paid through the issuance of additional PIK
Notes.
On April 17, 1998, Funding refinanced its Old Senior Notes and its Term
Loan by issuing the New Senior Notes. The proceeds from the issuance of the New
Senior Notes were used to redeem all of the issued and outstanding Old Senior
Notes at 100% of their principal amount and to repay the Term Loan in full. In
conjunction with this refinancing, TCHI obtained the Working Capital Loan and
loaned the proceeds to the Partnership.
The New Senior Notes have an outstanding principal amount of $62,000,000
and bear interest at the rate of 10 1/4% per annum, payable semi-annually each
April and October. The New Senior Notes mature on April 17, 2003.
The Working Capital Loan has an outstanding principal amount of $5,000,000
and bears interest at the rate of 10 1/4% per annum, payable semi-annually each
April and October. The entire principal balance of the Working Capital Loan
matures on April 17, 2003.
A tender offer was made to existing Partnership Mortgage Note holders on
July 9, 1998, offering $940 per $1,000 of principal amount, plus accrued
interest. On August 19, 1998, the tender offer was amended to increase the
consideration to be paid to tendering Mortgage Note holders to $975 per $1,000
of principal amount, plus accrued interest. Consummation of the tender offer was
conditioned upon, among other things, a minimum tender of 98% of the principal
amount of the Mortgage Notes. Since the minimum tender requirement of 98% was
not satisfied, the tender offer expired at 5:00 p.m. on September 17, 1998, in
accordance with its terms.
The Partnership's total cash debt service requirement was approximately
$21,480,000 during the nine months ended September 30, 1998 and the Partnership
anticipates that approximately $18,531,000 in cash will be required during the
remainder of 1998 to meet its debt service obligations. The Partnership has the
authority to obtain a working capital facility of up to $10,000,000 (of which
approximately $5,440,000 is outstanding), although there can be no assurance
that such financing will be available or on terms acceptable to the Partnership.
The Partnership has assessed the year 2000 issue and has begun implementing
a plan to insure its systems are year 2000 compliant. Analysis has been made of
the Partnership's various customer support and internal administration systems
with appropriate modifications having been made or underway. Testing the
modifications will be ongoing during 1998 and is expected to be completed during
early 1999. The Partnership is approximately 50% complete in its modifications.
The Partnership believes that the issues of concern are predominantly
software related versus hardware related. Further, the Partnership relies upon
third party suppliers for support of their individual systems provided to the
Partnership. These are primarily support of property, plant and equipment, such
as telephones, elevators and fire safety systems. Contact has been made with all
significant system suppliers and the Partnership is at various stages of
9
<PAGE>
ITEM 2 -- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - (Continued)
assessment, negotiation and implementation. When necessary, contracts have been
issued to update these systems so as to insure year 2000 compliance. The cost of
addressing the year 2000 issue is not expected to be material, and will be
funded out of operations.
If the Partnership did not assess the year 2000 issue and provide for its
compliance, it would be forced to convert to manual systems to carry on its
business. Since the Partnership expects to be fully year 2000 compliant, it does
not feel that a contingency plan is necessary at this time.
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.
10
<PAGE>
ITEM 2 -- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - (Continued)
Comparison of Results of Operations for the Three Month Periods Ended September
30, 1998 and 1997.
Gaming revenues are the primary source of the Partnership's revenues and
primarily consist of slot machine and table game win. The following chart
details activity for the major components of gaming revenues:
<TABLE>
<CAPTION>
Three Months Ended
September 30,
-------------------
1998 1997
-------- ---------
(dollars in thousands)
<S> <C> <C>
Table Game Revenue...................................................... $20,837 $23,080
Decrease from Prior Period.............................................. ($2,243)
Table Game Drop......................................................... $132,698 $135,946
Decrease from Prior Period.............................................. ($3,248)
Table Game Win Percentage............................................... 15.7% 17.0%
Decrease from Prior Period.............................................. (1.3 pts.)
Number of Table Games................................................... 91 94
Decrease from Prior Period.............................................. (3)
Slot Revenue............................................................ $52,408 $48,603
Increase from Prior Period.............................................. $3,805
Slot Handle............................................................. $649,979 $606,858
Increase from Prior Period.............................................. $43,121
Slot Win Percentage..................................................... 8.1% 8.0%
Increase from Prior Period.............................................. 0.1 pts.
Number of Slot Machines................................................. 2,170 2,142
Increase from Prior Period.............................................. 28
Poker Revenue........................................................... $ -- $137
Decrease from Prior Period.............................................. ($137)
Number of Poker Tables.................................................. -- 4
Decrease from Prior Period.............................................. (4)
Other Gaming Revenue.................................................... $991 $789
Increase from Prior Period.............................................. $202
Total Gaming Revenues................................................... $74,236 $72,609
Increase from Prior Period.............................................. $1,627
</TABLE>
11
<PAGE>
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - (Continued)
Table game revenues decreased by $2,243,000 for the three months ended
September 30, 1998 compared to the prior year. This decrease is a result of the
increased gaming capacity in the Atlantic City market as well as a lower table
game win percentage than the previous year. Table game revenues represent the
amount retained by the Partnership from amounts wagered at table games. The
table game win percentage tends to be fairly constant over the long term, but
may vary significantly in the short term, due to large wagers by "high rollers."
The Atlantic City industry table game win percentages were 15.5% and 14.6% for
the three months ended September 30, 1998 and 1997, respectively.
Non gaming revenues, in the aggregate, increased by approximately $459,000
or 2.5% to $19,165,000 for the three months ended September 30, 1998 from
$18,706,000 for the three months ended September 30, 1997, primarily as a result
of an increase in food and beverage revenues and entertainment revenues which
were partially offset by a decrease in rooms revenue due to a reduction in
complimentary room rates. The complimentary room rates were reduced by
management to more closely conform to current industry practice. Industry-wide
room rates have recently decreased as a result of increased room inventory in
the Atlantic City market.
Gaming costs increased approximately $2,336,000 or 5.2% to $46,941,000 for
the three months ended September 30, 1998 from $44,605,000 for the three months
ended September 30, 1997. This increase is primarily the result of an increase
in promotional and complimentary expenses as well as increased entertainment
expenses.
12
<PAGE>
ITEM 2 -- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - (Continued)
Comparison of Results of Operations for the Nine Month Periods Ended September
30, 1998 and 1997.
Gaming revenues are the primary source of the Partnership's revenues and
primarily consist of slot machine and table game win. The following chart
details activity for the major components of gaming revenues:
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
-----------------
1998 1997
-------- ---------
(dollars in thousands)
<S> <C> <C>
Table Game Revenue...................................................... $53,646 $60,423
Decrease from Prior Period.............................................. ($6,777)
Table Game Drop......................................................... $345,318 $380,850
Decrease from Prior Period.............................................. ($35,532)
Table Game Win Percentage............................................... 15.5% 15.9%
Decrease from Prior Period.............................................. (0.4 pts.)
Number of Table Games................................................... 92 90
Increase from Prior Period.............................................. 2
Slot Revenue............................................................ $142,563 $142,956
Decrease from Prior Period.............................................. ($393)
Slot Handle............................................................. $1,763,532 $1,744,751
Increase from Prior Period.............................................. $18,781
Slot Win Percentage..................................................... 8.1% 8.2%
Decrease from Prior Period.............................................. (0.1 pts.)
Number of Slot Machines................................................. 2,163 2,214
Decrease from Prior Period.............................................. (51)
Poker Revenue........................................................... $ -- $393
Decrease from Prior Period.............................................. ($393)
Number of Poker Tables.................................................. -- 5
Decrease from Prior Period.............................................. (5)
Other Gaming Revenue.................................................... $1,803 $1,356
Increase from Prior Period.............................................. $447
Total Gaming Revenues................................................... $198,012 $205,128
Decrease from Prior Period.............................................. ($7,116)
</TABLE>
13
<PAGE>
ITEM 2 -- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - (Continued)
Table game revenues decreased by approximately $6,777,000 for the nine
months ended September 30, 1998 as compared to the prior year, primarily due to
reduced table game drop and a lower table game win percentage. The reduction in
table game drop is a result of the increased gaming capacity in the Atlantic
City market as well as managements' decision to reduce promotional gaming costs
in an effort to eliminate less profitable programs. Table game revenues
represent the amount retained by the Partnership from amounts wagered at table
games. The table game win percentage tends to be fairly constant over the long
term, but may vary significantly in the short term, due to large wagers by "high
rollers." The Atlantic City industry table game win percentages were 15.3% and
14.9% for the nine month periods ended September 30, 1998 and 1997,
respectively.
Non gaming revenues, in the aggregate, decreased by approximately
$2,620,000 or 5.3% to $46,765,000 for the nine months ended September 30, 1998
from $49,385,000 for the nine months ended September 30, 1997, primarily as a
result of a decrease in rooms revenue due to a reduction in complimentary room
rates.
The majority of the decrease in non gaming revenues was offset by a
corresponding decrease in promotional allowances. Promotional allowances
decreased by approximately $1,681,000 or 5.4% to $29,672,000 for the nine months
ended September 30, 1998 from $31,353,000 for the nine months ended September
30, 1997, primarily as a result of a decrease in complimentary rooms related to
marketing activities. These savings are primarily due to the decrease in
complimentary room rates.
Gaming costs decreased approximately $4,543,000 or 3.5% to $125,545,000 for
the nine months ended September 30, 1998 from $130,088,000 for the nine months
ended September 30, 1997. This decrease is primarily the result of a decrease in
promotional and complimentary expenses achieved by eliminating less profitable
programs.
General and administrative expenses decreased approximately $3,988,000 or
8.2% to $44,844,000 for the nine months ended September 30, 1998 from
$48,832,000 for the nine months ended September 30, 1997 primarily due to
reduced advertising expenses and also as a result of reduced payroll and other
benefits related to Trump Casino Services, L.L.C., a wholly owned subsidiary of
THCR Holdings, which provides administrative support services to all of the
Trump Atlantic City Properties. In addition, insurance reserves were reduced by
approximately $620,000 as a result of an internal risk management review.
SEASONALITY
The casino industry in Atlantic City is seasonal in nature; accordingly,
the results of operations for the three and nine month periods ending September
30, 1998 are not necessarily indicative of the operating results for a full
year.
IMPORTANT FACTORS RELATING TO FORWARD LOOKING STATEMENTS
The Private Securities Litigation Reform Act of 1995 provides a "safe
harbor" for forward-looking statements so long as those statements are
identified as forward-looking and are accompanied by meaningful cautionary
statements identifying important factors that could cause actual results to
differ materially from those projected in such statements. In connection with
certain forward-looking statements contained in this Quarterly Report on Form
10-Q and those that may be made in the future by or on behalf of the
Registrants, the Registrants note that there are various factors that could
cause actual results to differ materially from those set forth in any such
forward-looking statements. The forward-looking statements contained in the
Quarterly Report were prepared by management and are qualified by, and subject
to, significant business, economic, competitive, regulatory and other
uncertainties and contingencies, all of which are difficult or impossible to
predict and many of which are beyond the control of the Registrants.
Accordingly, there can be no assurance that the forward-looking statements
contained in this Quarterly Report will be realized or that actual results will
not be significantly higher or lower. The statements have not been audited by,
examined by, compiled by or subjected to agreed-upon procedures by independent
accountants, and no third-party has independently verified or reviewed such
statements. Readers of this Quarterly Report should consider these facts in
evaluating the information contained herein. In addition, the business and
operations of the Registrants are subject to substantial risks which increase
the uncertainty inherent in the forward-looking statements contained in this
Quarterly Report. The
14
<PAGE>
ITEM 2 -- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - (Continued)
inclusion of the forward-looking statements contained in this Quarterly Report
should not be regarded as a representation by the Registrants or any other
person that the forward-looking statements contained in this Quarterly Report
will be achieved. In light of the foregoing, readers of this Quarterly Report
are cautioned not to place undue reliance on the forward-looking statements
contained herein.
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.
15
<PAGE>
PART II - OTHER INFORMATION
ITEM 1 -- LEGAL PROCEEDINGS
The Partnership, its partners, certain members of the former Executive
Committee of the Partnership, Funding and certain of their employees are
involved in various legal proceedings. Such persons and entities are vigorously
defending the allegations against them and intend to contest vigorously any
future proceedings. The Partnership and Funding have agreed to indemnify such
persons 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.
Various legal proceedings are now pending against the Partnership. The
Partnership considers all such proceedings to be ordinary litigation incident to
the character of its business. Management believes that the resolution of these
claims will not, individually or in the aggregate, have a material adverse
effect on the financial condition or results of operations of the Partnership.
From time to time, the Partnership may be involved in routine
administrative proceedings involving alleged violations of certain provisions of
the New Jersey Casino Control Act. However, the Partnership believes that the
final outcome of these proceedings will not, either individually or in the
aggregate, have a material adverse effect on the Partnership or on its ability
to otherwise retain or renew any casino or other licenses required under the New
Jersey Casino Control Act for the operation of Trump Marina.
ITEM 2 -- CHANGES IN SECURITIES AND USE OF PROCEEDS
None.
ITEM 3 -- DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4 -- SUBMISSION OF MATTERS TO A 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 Hotel & Casino, Inc.
27.2 Financial Data Schedule of Trump's Castle Funding, Inc.
27.3 Financial Data Schedule of Trump's Castle Associates, L.P.
b. Current Reports on Form 8-K:
None.
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 HOTEL & CASINO, INC.
(Registrant)
Date: November 13, 1998
By: /s/ NICHOLAS L. RIBIS
-----------------------------------
Nicholas L. Ribis
President and Chief Executive Officer
(Duly Authorized Officer and
Principal Financial Officer)
17
<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 13, 1998
By: /s/ NICHOLAS L. RIBIS
-------------------------------------
Nicholas L. Ribis
President and Chief Executive Officer
(Duly Authorized Officer and
Principal Financial Officer)
18
<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)
By: Trump's Castle Hotel & Casino, Inc.
its general partner
Date: November 13, 1998
By: /s/ NICHOLAS L. RIBIS
--------------------------------------
Nicholas L. Ribis
President and Chief Executive Officer
(Duly Authorized Officer and
Principal Financial Officer)
19
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information from Trump's Castle Hotel &
Casino, Inc. This data has been extracted from the Consolidated Balance sheets
and Consolidated Statement of Operations for the three and nine month periods
ended September 30, 1998 and is qualified in its entirety by reference to such
Financial Statements.
</LEGEND>
<CIK> 0001063882
<NAME> TRUMP'S CASTLE HOTEL & CASINO, INC.
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1998
<PERIOD-START> JUL-01-1998 JAN-01-1998
<PERIOD-END> SEP-30-1998 SEP-30-1998
<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> 5,000 5,000
<CURRENT-LIABILITIES> 0 0
<BONDS> 0 0
0 0
0 0
<COMMON> 0 0
<OTHER-SE> 0 0
<TOTAL-LIABILITY-AND-EQUITY> 5,000 5,000
<SALES> 0 0
<TOTAL-REVENUES> 128 233
<CGS> 0 0
<TOTAL-COSTS> 0 0
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 128 233
<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>
This schedule contains summary financial information from Trump's Castle
Funding, Inc. This data has been extracted from the Consolidated Balance sheets
and Consolidated Statement of Operations for the three and nine month periods
ended September 30, 1998 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-31-1998 DEC-31-1998
<PERIOD-START> JUL-01-1998 JAN-01-1998
<PERIOD-END> SEP-30-1998 SEP-30-1998
<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> 356,043 356,043
<CURRENT-LIABILITIES> 0 0
<BONDS> 0 0
0 0
0 0
<COMMON> 0 0
<OTHER-SE> 0 0
<TOTAL-LIABILITY-AND-EQUITY> 356,043 356,043
<SALES> 0 0
<TOTAL-REVENUES> 12,694 36,611
<CGS> 0 0
<TOTAL-COSTS> 0 0
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 12,694 36,611
<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>
This schedule contains summary financial information from Trump's Castle
Associates, L.P. This data has been extracted from the Consolidated Balance
sheets and Consolidated Statement of Operations for the three and nine month
periods ended September 30, 1998 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-31-1998 DEC-31-1998
<PERIOD-START> JUL-01-1998 JAN-01-1998
<PERIOD-END> SEP-30-1998 SEP-30-1998
<CASH> 30,120 30,120
<SECURITIES> 0 0
<RECEIVABLES> 10,356<F1> 10,356<F1>
<ALLOWANCES> 0 0
<INVENTORY> 2,780 2,780
<CURRENT-ASSETS> 2,526 2,526
<PP&E> 525,667 525,667
<DEPRECIATION> 34,103 34,103
<TOTAL-ASSETS> 552,964 552,964
<CURRENT-LIABILITIES> 66,017 66,017
<BONDS> 294,043 294,043
0 0
0 0
<COMMON> 0 0
<OTHER-SE> 0 0
<TOTAL-LIABILITY-AND-EQUITY> 552,964 552,964
<SALES> 0 0
<TOTAL-REVENUES> 81,661 215,105
<CGS> 0 0
<TOTAL-COSTS> 66,643 179,891
<OTHER-EXPENSES> 4,160<F2> 12,358<F2>
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 12,886 38,263
<INCOME-PRETAX> 0 0
<INCOME-TAX> 0 0
<INCOME-CONTINUING> 0 0
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (1,855) (14,853)
<EPS-PRIMARY> 0 0
<EPS-DILUTED> 0 0
<FN>
<F1>Asset values represent net amounts.
<F2>Represents depreciatioin and amortization expenses.
</FN>
</TABLE>
