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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
____________________________________________________
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 1994
Commission File No. 1-9029
____________________________________________________
TRUMP'S CASTLE FUNDING, INC.
(Exact Name of Registrants as Specified in its Charter)
New Jersey 11-2739203
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
Huron Avenue and Brigantine Boulevard
Atlantic City, New Jersey 08401
(609) 340-5191
(Address, including zip code and telephone, including area
code of Registrant's Principal Executive Offices)
____________________________________________________
TRUMP'S CASTLE ASSOCIATES
(Exact Name of Registrants as Specified in its Charter)
New Jersey 22-2608486
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
Huron Avenue and Brigantine Boulevard
Atlantic City, New Jersey 08401
(609) 340-5191
(Address, including zip code and telephone, including area
code of Registrant's Principal Executive Offices)
____________________________________________________
Securities registered pursuant to Section 12(b) of the Act:
Name of each Exchange
Title of Each Class on which Registered
___________________ _____________________
11-3/4% Mortgage Notes due 2003 American Stock Exchange, Inc.
Increasing Rate Subordinated
Pay-in-Kind Notes due 2005 American Stock Exchange, Inc.
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the Registrant (1) has filed all
Reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the Registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90
days. Yes X No
________ ________
Indicate by check mark if disclosure of delinquent filers pursuant
to Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrants' knowledge, in definitive proxy
or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [ X ]
Trump's Castle Funding, Inc. meets the conditions set forth in
General Instruction (J) (1) (a) and (b) of Form 10-K and is therefore
filing this Form with the reduced disclosure format.
Indicate by check mark whether the Registrants have filed all
documents and reports required to be filed by Section 12, 13 or 15(d)
of the Securities Exchange Act of 1934 subsequent to the distribution
of securities under a plan confirmed by
a court. Yes X No
_______ _______
As of March 25, 1995, there were 200 shares of Trump's Castle
Funding, Inc. Common Stock outstanding. The aggregate market value of
the voting stock of Trump's Castle Funding, Inc. and Trump's Castle
Associates held by non-affiliates of the Registrants is $0.
FORM 10-K
TABLE OF CONTENTS
Item Page
PART I
Item 1 Business. . . . . . . . . . . . . . . . . . . . . . . . 1
Item 2 Properties. . . . . . . . . . . . . . . . . . . . . . . 25
Item 3 Legal Proceedings . . . . . . . . . . . . . . . . . . . 26
Item 4 Submission of Matters to a Vote of Security Holders . . 26
PART II
Item 5 Market for Funding's Common Equity and Related
Stockholder Matters. . . . . . . . . . . . . . . . . . 27
Item 6 Selected Consolidated Financial Data. . . . . . . . . . 28
Item 7 Management's Discussion and Analysis of Financial
Condition and Results of Operations. . . . . . . . . . 30
Item 8 Financial Statements and Supplementary Data . . . . . . 35
Item 9 Disagreements on Accounting and Financial
Disclosure . . . . . . . . . . . . . . . . . . . . . . 35
PART III
Item 10 Directors and Executive Officers. . . . . . . . . . . . 36
Item 11 Executive Compensation. . . . . . . . . . . . . . . . . 40
Item 12 Security Ownership of Certain Beneficial Owners
and Management . . . . . . . . . . . . . . . . . . . . 43
Item 13 Certain Relationships and Related Transactions. . . . . 44
PART IV
Item 14 Exhibits, Financial Statement Schedules and
Reports on Form 8-K . . . . . . . . . . . . . . . . . 47
1
PART I
ITEM 1. BUSINESS.
(a) General Developments of Business
Trump's Castle Funding, Inc. ("Funding") was incorporated
under the laws of the State of New Jersey in May 1985 and is
wholly-owned by Trump's Castle Associates, a New Jersey general
partnership (the "Partnership"). Funding was formed to serve as a
financing corporation to raise funds for the benefit of the
Partnership. Since Funding has no business operations, its
ability to service its indebtedness is completely dependent upon
funds it receives from the Partnership. Accordingly, the
discussion in this Report relates primarily to the Partnership and
its operations.
The Partnership is owner and operator of Trump's Castle
Casino Resort ("Trump's Castle"), a luxury casino hotel located in
the Marina area of Atlantic City, New Jersey. The partners in the
Partnership are TC/GP, Inc. ("TC/GP"), which has a 37.5% interest
in the Partnership, Donald J. Trump ("Trump"), who has a 61.5%
interest in the Partnership, and Trump's Castle Hotel & Casino,
Inc. ("TCHI"), which has a 1% interest in the Partnership. Trump,
by virtue of his ownership of TC/GP and TCHI, is the beneficial
owner of 100% of the common equity interest in the Partnership,
subject to the right of holders of warrants for 50% of the common
stock of TCHI (the "TCHI Warrants") to acquire an indirect
beneficial interest in 0.5% of the common equity interest in the
Partnership.
In December 1993, the Partnership, Funding and certain
affiliated entities completed a recapitalization of their debt and
equity capitalization (the "Recapitalization"). The purpose of
the Recapitalization was (i) to improve the debt capitalization of
the Partnership and, initially, to decrease its cash charges, (ii)
to provide the holders of the Units, each Unit comprised of $1,000
principal amount of Funding's 9.5% Mortgage Bonds due 1998 (the
"Bonds") and one share of TC/GP common stock, who participate in
the Exchange Offer (as defined below) with a cash payment of $6.19
and securities having a combined principal amount of $905 for each
Unit and (iii) to provide Trump with beneficial ownership of 100%
of the common equity interests in the Partnership (subject to the
TCHI Warrants).
The Recapitalization was also designed to take advantage of
certain provisions of the Units which were designed to provide
Trump with incentives to cause the Units to be repaid or redeemed
prior to maturity. The Units were issued in connection with a
restructuring ("the Restructuring") of the indebtedness of
Funding, the Partnership and TCHI through a prepackaged plan of
reorganization (the "Plan") under chapter 11 of title 11 of the
United States Code, as amended, which was consummated on May 29,
1992. The Plan was designed to alleviate a liquidity problem
which the Partnership began to experience in 1990.
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The Recapitalization
On December 28, 1993, the Partnership and Funding consummated
the first step in the Recapitalization, an exchange offer (the
"Exchange Offer") pursuant to which each $1,000 principal amount
of Bonds accepted for exchange was exchanged for $750 principal
amount of Funding's 11-3/4% Mortgage Notes due 2003 (the "Mortgage
Notes"), $120 principal amount of Funding's Increasing Rate
Subordinated Pay-in-Kind Notes due 2005 (the "PIK Notes") and a
cash payment of $6.19, plus accrued interest to the date of
exchange. The 3.8% of Bonds not validly tendered in the Exchange
Offer were defeased, and pursuant to their terms, called for
redemption at a price equal to 75% of the principal amount
thereof, plus accrued interest to the date of redemption.
On December 28, 1993, Funding issued, through a private
placement, $27 million principal amount of its 11-1/2% Series A
Senior Secured Notes due 2000 (the "Series A Notes"). The net
proceeds from the sale of the Series A Notes were used by the
Partnership (i) to fund the redemption of the Bonds not exchanged
in the Exchange Offer and (ii) to repay a portion of the
Partnership's outstanding indebtedness. Funding and the
Partnership subsequently completed a registered exchange offer of
$27 million principal amount of Funding's 11-1/2% Series B Senior
Secured Notes (the "Senior Notes") in exchange for the $27 million
outstanding principal amount of the Series A Notes. The Senior
Notes have terms which are virtually identical to those of the
Series A Notes.
On December 30, 1993, the second step in the Recapitalization
was consummated, a merger (the "Merger") of Trump's Castle
Holding, Inc. ("Holding"), a Delaware corporation wholly owned by
the Partnership, with and into TC/GP. Pursuant to the terms of
the Merger, each holder of TC/GP Common Stock, other than one who
purported to exercise his statutory appraisal rights, received $35
principal amount of PIK Notes for each share of TC/GP Common
Stock. The Partnership, as the holder of all of the outstanding
common stock of Holding immediately prior to consummation of the
Merger, acquired all of the outstanding common stock of TC/GP as a
result of the Merger. Upon consummation of the Merger, the
Partnership distributed all of the TC/GP common stock to Trump,
and the partnership agreement of the Partnership was amended and
restated to alter certain governance procedures and to otherwise
reflect the Recapitalization.
As a result of the Recapitalization, TC/GP has a 37.5%
interest in the Partnership, Trump has a 61.5% interest in the
Partnership, TCHI has a 1% interest in the Partnership and Trump
is the beneficial owner of 100% of the common equity interests in
the Partnership (subject to the TCHI Warrants). Also as a
consequence of the Recapitalization, the principal amount of the
Partnership's debt was reduced, and, initially, the Partnership's
cash charges were reduced.
Upon consummation of the Recapitalization, Funding's
outstanding debt consisted of the $27 million principal amount
3
outstanding of its Senior Notes, the approximately $242 million
principal amount outstanding of its Mortgage Notes (which are
subordinated to the Senior Notes) and the approximately $50
million principal amount outstanding of its PIK Notes (which are
subordinated to both the Senior Notes and the Mortgage Notes).
Funding has also guaranteed the Midlantic Term Loan (as defined
below).
In addition, upon consummation of the Recapitalization, the
Partnership had outstanding approximately $357 million principal
amount of indebtedness, including a term loan due to Midlantic
National Bank, which had an aggregate principal amount outstanding
of $38 million as of December 31, 1993 (the "Midlantic Term Loan")
and the intercompany notes securing the Senior Notes, the Mortgage
Notes, and the PIK Notes, which had an aggregate principal amount
outstanding of approximately $319 million as of December 31, 1993.
The Restructuring
In 1990, the Partnership began experiencing a liquidity
problem. The Partnership believes that its liquidity problem was
attributable, in part, to an overall deterioration in the Atlantic
City gaming market, as indicated by reduced rates of casino
revenue growth for the industry for the two prior years,
aggravated by an economic recession in the Northeast and the
Persian Gulf War. Comparatively excessive casino gaming capacity
in Atlantic City, due in part to the opening of the Trump Taj
Mahal Casino Resort, which at the time was wholly-owned by Trump
(the "Taj Mahal"), in April 1990, may also have contributed to the
Partnership's liquidity problem.
As a result of the Partnership's liquidity problem, Funding
failed to make interest and sinking fund payments on its public
debt securities. In 1990, the Partnership also failed to pay
interest installments on certain indebtedness due Midlantic,
although the Partnership subsequently made payment to Midlantic
of all unpaid interest on such debt and met its debt service
obligations to Midlantic.
In order to alleviate its liquidity problem, on May 29, 1992,
TCHI, Funding and the Partnership (collectively, the "Debtors")
restructured their indebtedness through the Plan under chapter 11
of the Bankruptcy Code. The purpose of the Restructuring was to
improve the amortization schedule and extend the maturity of the
Partnership's indebtedness by reducing and deferring the Debtor's
annual debt service requirements by (1) lowering the interest rate
on the Partnership's and Funding's long term indebtedness to
Midlantic and (2) by issuing the Bonds with an overall lower rate
of interest as compared with Funding's then outstanding public
debt securities.
Upon consummation of the Plan, each $1,000 principal
amount, or accreted amount, of Funding's public debt securities
were exchanged for $1,000 in principal amount of Bonds, together
with one share of the common stock of TC/GP and certain other
payments. By virtue of TC/GP's interest in the Partnership, the
4
holders of Funding's public debt securities prior to consummation
of the Plan became the beneficial owners of 50% of the Partnership
after consummation of the Plan.
As a result of the Exchange Offer, 96.2% of the Bonds were
exchanged for Mortgage Notes, PIK Notes, and a cash payment, and
3.8% of the Bonds were redeemed for cash at 75% of their principal
amount. In addition, upon consummation of the Merger, each share
of TC/GP common stock was converted into the right to receive $35
principal amount of PIK Notes. See "The Recapitalization" above.
(b) Financial Information About Industry Segments
The Partnership operates in only one industry segment. See
"SELECTED CONSOLIDATED FINANCIAL DATA" below.
(c) Narrative Description of the Business
Casino Hotel Operations. The Partnership owns and operates
Trump's Castle, a luxury casino hotel located in the Marina
District of Atlantic City, New Jersey, seven miles from New
Jersey's Garden State Parkway. With its 73,000 square foot
casino, first-class guest rooms and other luxury amenities,
Trump's Castle has been awarded a "Four Star" Mobile Travel Guide
rating in each of the last four years. In addition, Trump's
Castle recently received the AAA Motor Club's "Four Diamond"
rating. Management believes that the "Four Star" and "Four
Diamond" ratings reflect the high quality amenities and services
that Trump's Castle provides to its casino patrons and hotel
guests.
Trump's Castle's casino offers 93 table games (including 10
poker tables) and 2,122 slot machines. During 1994, Trump's
Castle completed a 3,000 square foot expansion to its casino to
accommodate the addition of simulcast racetrack wagering and keno
games. The expansion also improved casino access and casino
visibility for hotel patrons. 414 new slot machines with bill
validators were installed and the computerized slot tracking and
marketing system was upgraded. See "PROPERTIES OF THE
PARTNERSHIP" below.
Trump's Castle will continue to measure service performance
against established standards and utilize a variety of training
programs to teach new service strategies and reinforce old ones.
Trump's Castle has invested significant resources to the
development of its managers and employees to insure that the
corporate culture meets its service strategies. In addition,
Trump's Castle's annual capital expenditures are designed to
insure that room accommodations, restaurants, public areas, the
casino and all other areas of the hotel are maintained in first-
class "Four Star/Four Diamond"" condition.
Trump's Castle's primary marketing strategy focuses on
attracting and retaining middle and upper middle market "drive-in"
patrons who visit Atlantic City frequently and have proven to be
the most profitable market segment. To increase market share in
5
the face of changing market dynamics and intensified competition,
Trump's Castle will augment tactics that have previously been
successful with cost effective programs that reward its loyal
customers, increase the amount of play from repeat customers,
attract new drive-in customers, and reactivate customers who have
not visited recently. This strategy will also include promotions
and offer special events aimed at each of the target market
segments. Trump's Castle also intends to capitalize on its first-
class facilities, particularly its luxury suite tower and on-site
helipad to attract select high-limit table game patrons.
Casino gaming in Atlantic City is strictly regulated under
the New Jersey Casino Control Act and the regulations promulgated
thereunder (the "Casino Control Act") and other applicable laws,
which affect virtually all aspects of the Partnership's
operations. See "Gaming and Other Laws and Regulations" below.
Marketing Strategy.
General
In 1990, the Atlantic City casino industry experienced a
significant increase in room capacity and in available casino
floor space, due primarily to opening of the Taj Mahal, which at
the time was wholly-owned by Trump. Management believes that the
opening of the Taj Mahal had a disproportionately adverse effect
on Trump's Castle due to the common use of the "Trump" name, and
the fact that Trump's Castle is reached via the same access road
as the Taj Mahal. See "Competition" below. The Partnership
believes that results in 1991 were also affected by the weakness
in the economy throughout the Northeast and the adverse impact on
tourism and consumer spending in 1991 of the war in the Middle
East.
In 1991, the Partnership retained the services of Nicholas L.
Ribis, as Chief Executive Officer, and Roger P. Wagner, as
President and Chief Operating Officer. At such time, Mr. Ribis
was also retained as the chief executive officer of the
partnerships which operate the Taj Mahal and Trump Plaza Hotel and
Casino, which at the time was wholly owned by Trump ("Trump
Plaza", and together with the Taj Mahal, the "Other Trump
Casinos"). Trump and this management team have implemented a
business strategy designed to capitalize on Trump's Castle's
first-class facilities and improve operating results.
Key elements of the business strategy consist of
differentiating Trump's Castle from other Atlantic City casinos
based on its level of service, gaming environment and location,
redirecting marketing efforts and continually monitoring
operations to adapt to, and anticipate, industry trends. After
establishing the new marketing strategy in 1991, the Partnership
in 1992 implemented an aggressive plan to regain the patrons it
had lost in 1991 and to attract new patrons by increasing its
promotional activities and complimentaries offered. Trump's
Castle successfully improved its market share during 1993 and 1994
and continues to improve operating margins by directing
6
complimentaries and promotional activities to attract the most
profitable patrons in each market segment. This strategy will
include promotions and offer special events which are designed to
offset the decline of table games play.
Service
The Partnership has identified service as a means of
differentiating itself from and competing with other Atlantic City
casinos, and has adopted the slogan "Trump's Castle Where Service
Is King." In 1990, the Partnership created a new service
enhancement department designed to increase the quality of service
provided to casino patrons, and create a service oriented culture.
The Partnership believes that in the past most casino
services were directed at high rollers and middle market patrons
who wagered at table games. By providing a high level of service
to all patrons, including middle market slot patrons, the
Partnership seeks to foster loyalty among its patrons and repeat
play.
Gaming Environment
In 1994, the Partnership completed a 3,000 square foot
expansion of its main casino floor space bringing the total casino
floor space to 73,000 square feet. This expansion enabled the
Partnership to introduce simulcast racetrack wagering and keno
games and at the same time to increase the number of slot
machines. These changes are designed to provide the gaming patron
with a more complete gaming experience. In addition, Trump's
Castle has also introduced a separate non-smoking area on its
casino floor. See "PROPERTIES OF THE PARTNERSHIP" below.
The Partnership continuously monitors the configuration of
the casino floor and the games it offers to patrons with a view
towards making changes and improvements. Trump's Castle's casino
floor was the first in Atlantic City to feature live poker.
In recent years, there has been an industry trend towards
fewer table games and more slot machines. For the Atlantic City
casino industry, revenue from slot machines increased from 54.6%
of the industry gaming revenue in 1988 to 66.9% of the industry
gaming revenue in 1994. Trump's Castle experienced a similar
increase, with slot revenue increasing from 52.5% of gaming
revenue in 1988 to 68.6% of gaming revenue in 1994. In response
to this trend, Trump's Castle has devoted more of its casino floor
space to slot machines and has replaced 414 of its slot machines
with newer machines. It is anticipated that another 200 slot
machines with bill acceptors will be added in 1995 to replace
obsolete equipment. Under Trump's Castle present plans the
computerized slot tracking and marketing system will continue to
be upgraded and a variety of improvements will be made to the
casino floor to enhance customer service. In response to
increasing customer demand, Trump's Castle intends to double the
amount of "no smoking" space on the casino floor.
7
"Comping" Strategy
In order to compete effectively with other Atlantic City
casino hotels, the Partnership offers complimentary drinks, meals,
room accommodations and/or travel arrangements to its patrons
("complimentaries" or "comps"). In 1992 and 1993, Trump 's Castle
increased promotional activities and complimentaries to its
targeted patrons in order to regain lost market share. During
1994 and at present, the policy at Trump's Castle is to focus
promotional activities, including complimentaries, on a middle and
upper middle market "drive-in" patrons who visit Atlantic City
frequently and have proven to be the most profitable market
segment.
Entertainment and Special Events
The Partnership pursues a coordinated program of headline
entertainment and special events. Trump's Castle offers headline
entertainment approximately ten to twelve times a year which, in
1994, included performances by Tom Jones, the Everly Brothers, the
Golden Boys, Sheena Easton, the Beach Boys, the Pointer Sisters,
Al Martino, Pat Cooper and Clint Holmes. Headliners who are
scheduled to appear at Trump's Castle in 1995 include the Pointer
Sisters, Tom Jones, the Four Tops, Jackie Mason, the Beach Boys,
the Neville Brothers featuring Aaron Neville and Al Martino.
During 1995, Trump's Castle plans to produce a series of review-
style shows which will run from six to eight weeks at various
dates throughout the year.
As a part of its marketing plan, Trump's Castle offers
special events aimed at its core, middle and premium market
segments. Trump's Castle hosts special events on an invitation
only basis in an effort to attract targeted gaming patrons and
build loyalty among existing patrons. These special events
include boxing, golf tournaments, birthday parties and theme
parties. Headline entertainment is scheduled so as not to
overlap with any of these special events.
Player Development and Casino Hosts
The Partnership has contracts with sales representatives in
New Jersey, New York and other states to promote Trump's Castle.
Trump's Castle has sought to attract more middle market slot
patrons, as well as premium players, through its "junket"
marketing operations, which involve attracting groups of patrons
by providing airfare, gifts and room accommodations. Trump's
Castle has also recently undertaken a marketing effort aimed at
developing patronage from the premium table gaming markets in
Brazil, Argentina, and Mexico.
Trump's Castle's casino hosts assist table game patrons, and
Trump's Castle's slot sales representatives assist slot patrons on
the casino floor, make room and dinner reservations and provide
general assistance. Slot sales representatives also solicit
Castle Card (the frequent player identification slot card) sign-
ups in order to increase the Partnership's marketing base.
8
Promotional Activities
The Castle Card (the frequent player identification slot
card) constitutes a key element in Trump's Castle's direct
marketing program. Slot machine players are encouraged to
register for and utilize their personalized Castle Card to earn
various complimentaries based upon their level of play. The
Castle Card is inserted during play into a card reader attached to
the slot machine for use in computerized rating systems. These
computer systems record data about the cardholder, including
playing preferences, frequency and denomination of play and the
amount of gaming revenues produced. Slot sales and management
personnel are able to monitor the identity and location of the
cardholder and the frequency and denomination of slot play. They
also use this information to provide attentive service to the
cardholder on the casino floor.
Trump's Castle designs promotional offers, conveyed via
direct mail and telemarketing, to patrons expected to provide
revenues based upon their historical gaming patterns. Such
information is gathered on slot wagering by the Castle Card and on
table wagering by the casino games supervisor. Trump's Castle
also utilizes a special events calendar (e.g., birthday parties,
sweepstakes and special competitions) to promote its gaming
operations. See "Entertainment and Special Events" above.
Credit Policy
Historically, Trump's Castle has extended credit on a
discretionary basis to certain qualified patrons. For the years
ended December 31, 1992 and 1993, credit play at Trump's Castle as
a percentage of total dollars wagered was approximately 28% and
29%, respectively. Consistent with a more focused marketing
strategy, Trump's Castle has imposed stricter standards on
applications for new or additional credit. Trump's Castle has,
however, successfully attracted premium table games patrons, who
in general tend to use a higher percentage of credit in their
wagering, through its national and international marketing
operations. As a result of the gaming patron mix, credit play, as
a percentage of total dollars wagered, increased to 31.4% for the
year ended December 31, 1994.
Bus Program
Trump's Castle has a bus program which transports
approximately 1,700 gaming patrons per day during the week and
1,500 per day on the weekends. The Partnership's bus program
offers incentives and discounts to certain scheduled and chartered
bus customers. Based on historical surveys, the Partnership has
determined that gaming patrons who arrive by scheduled bus line as
opposed to special charter or who travel distances of 60 miles or
more are more likely to create higher gaming revenue for Trump's
Castle. Accordingly, Trump's Castle's marketing efforts are
focused on such bus patrons.
9
Atlantic City Market. Gaming in Atlantic City started in May
1978 when the first casino hotel opened for business. Since 1978,
gaming in Atlantic City has grown from one casino to 12 casinos at
the beginning of 1995, with approximately $3.4 billion of casino
industry revenue generated in 1994. Gaming revenue for all
Atlantic City casino hotels has increased approximately 5.2%,
1.3%, 7.5%, 2.6% and 4.0% during 1990, 1991, 1992, 1993 and 1994,
respectively (in each case as compared to the prior year). See
"Competition" below.
Atlantic City is near many densely populated metropolitan
areas. The primary area served by Atlantic City casino hotels is
the corridor that extends from Washington, D.C. to Boston and
includes New York City and Philadelphia. Within this primary
area, Atlantic City may be reached by automobile or bus.
Principal arteries lead into Atlantic City from the metropolitan
New York area and from the Baltimore/Washington, D.C. area, both
of which are approximately three hours away by automobile.
Atlantic City can also be reached by air and rail transportation,
although most patrons arrive by automobile or bus.
Historically, Atlantic City has suffered from inadequate rail
and air transportation. As a result, a majority of Atlantic City
gaming patrons travel from the mid-atlantic and northeast regions
of the United States by automobile or bus. Rail service to
Atlantic City has recently been improved with the introduction of
Amtrak express service to and from Philadelphia and New York City.
An expansion of the Atlantic City International Airport (located
approximately 12 miles from Atlantic City) to handle large airline
carriers and large passenger jets was completed in 1993. Despite
the expansion of the Atlantic City International Airport, access
to Atlantic City by air is still limited by a lack of regularly
scheduled flights and by inadequate terminal facilities. The lack
of adequate transportation infrastructure has limited the
expansion of the Atlantic City gaming industry's geographic patron
base and the attractiveness of Atlantic City to major conventions.
In February of 1993, the State of New Jersey commenced
construction of a new $250 million convention center (the
"Convention Center") on a 30.5 acre site adjacent to the Atlantic
City Expressway. Targeted for completion in 1996, the new
Convention Center, which is approximately 2 miles from Trump's
Castle will house approximately 500,000 square feet of exhibit
space along with 45 meeting rooms totaling nearly 110,000 square
feet. The building will include a 1,600 car underground garage
and an indoor street linking the Convention Center to the
existing Atlantic City Rail Terminal.
The new Convention Center has been designed to serve as the
centerpiece of Atlantic City's renaissance as a favorite meeting
destination for both in-and out-of-state conventions.
Competition. Competition in the Atlantic City casino hotel
market is intense. Trump's Castle competes primarily with other
casinos located in Atlantic City, New Jersey, as well as gaming
establishments located on Native American reservations in New York
10
and Connecticut and also would compete with any other facilities
in the northeastern and mid-Atlantic regions of the United States
at which casino gaming or other forms of wagering may be
authorized in the future. To a lesser extent, Trump's Castle
faces competition from cruise lines, riverboat gaming and casinos
located in Mississippi, Nevada, New Orleans, Puerto Rico, the
Bahamas and other locations inside and outside the United States,
and from other forms of legalized gaming in New Jersey and in its
surrounding states such as lotteries, horse racing (including off-
track betting), jai alai and dog racing, and from illegal wagering
of various types.
At present, there are 12 casino hotels located in Atlantic
City, including Trump's Castle, all of which compete for patrons.
In addition, there are several sites on The Boardwalk and in the
Atlantic City Marina area on which casino hotels could be built in
the future, or on which existing casino hotels could expand,
including the property commonly known as the "Trump Regency Hotel"
on which Trump Plaza has an option.
Total Atlantic City gaming revenues have increased over the
past three years, although at varying rates. Although all 12
Atlantic City casinos reported increases in gaming revenues in
1992 as compared to 1991, the Partnership believes that this was
due, in part, to the depressed industry conditions in 1991. Nine
casinos (including Trump's Castle) experienced increased casino
revenues in 1993, when compared to the previous year, while three
casinos reported decreases. In 1994, ten casinos (including
Trump's Castle) experienced an increase in casino revenues with
only two casinos reporting declines.
In 1990, the Atlantic City casino industry experienced a
significant increase in room capacity and in available casino
floor space, including the rooms and floor space made available by
the opening of the Taj Mahal, which at the time was wholly-owned
by Trump. The effects of such expansion were to increase
competition and to contribute to a decline in 1990 in gaming
revenues per square foot. In 1990, the Atlantic City casino
industry experienced a decline in gaming revenues per square foot
of 5.0%, which trend continued in 1991, although at the reduced
rate of 2.9%. However, in 1992 and 1993, the Atlantic City casino
industry experienced an increase of 6.9% and 1.4%, respectively in
gaming revenues per square foot each as compared to the prior
year. In 1994, the Atlantic City casino industry experienced a
significant increase in gaming capacity. The growth in casino
floor space outpaced the increase in gaming revenues resulting in
a (0.6%) decline in gaming revenues per square foot when compared
to the previous year.
The profitability of Trump's Castle could be affected by its
proximity to Harrah's Marina Hotel Casino, which is owned and
operated by a third party not affiliated with the Partnership.
Trump's Castle and Harrah's Marina Hotel Casino are the only
casino hotels located in the Marina area of Atlantic City. The
remaining Atlantic City casino hotels are located on The
Boardwalk. The Partnership believes that the concentration of
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casino hotels on The Boardwalk has resulted in a significant
number of patrons being attracted to that area and away from the
vicinity of Trump's Castle. The Partnership further believes that
the location of Trump's Castle has adversely affected its ability
to attract walk-in patrons, although the Partnership believes that
its location away from The Boardwalk area serves as an attractive
feature to visitors seeking to avoid the congested downtown area.
The Partnership also believes that Trump's Castle benefits, to
some extent, from its relative geographic isolation by virtue of
the fact that patrons do not have the option of walking from one
casino to another once they arrive at Trump's Castle.
Casinos in Atlantic City must be located in approved hotel
facilities which offer dining, entertainment and other guest
facilities. Competition among casino hotels is based primarily
upon promotional allowances, advertising, the attractiveness of
the casino area, service, quality and price of rooms, food and
beverages, restaurant, convention and parking facilities and
entertainment. In order to compete effectively with all other
Atlantic City casino hotels, the Partnership offers complimentary
drinks, meals, room accommodations and/or travel arrangements to
patrons with a demonstrated propensity to wager at Trump's Castle,
as well as cash bonuses and other incentives pursuant to approved
coupon programs.
In 1988, Congress passed the Indian Gaming Regulatory Act
("IGRA"), which requires any state in which casino-style gaming is
permitted (even if only for limited charity purposes) to negotiate
compacts with federally recognized Native American tribes at the
request of such tribes. Under IGRA, Native American tribes enjoy
comparative freedom from regulation and taxation of gaming
operations, which provides such tribes with an advantage over
their competitors, including the Partnership. In 1991, the
Mashantucket Pequot Nation opened a casino facility in Ledyard,
Connecticut, located in the far eastern portion of such state, an
approximately three-hour drive from New York City. In February
1992, the Mashantucket Pequot Nation initiated 24 hour gaming. In
January 1993, slot machines were added at the facility. The
Mashantucket Pequot Nation has completed various expansion plans,
including the construction of a second hotel complex, addition of
2,000 slot machines, expansion of the parking garage, completion
of a food court and the addition of a 5,000 seat showroom which
also serves as a 3,500 seat high stakes Bingo Parlor.
A group in Cumberland County, New Jersey calling itself the
"Nanticoke Lenni Lenape" tribe has filed a notice of intent with
the Federal Bureau of Indian Affairs seeking formal recognition as
a Native American tribe. Also, it has been reported that a Sussex
County, New Jersey businessman has offered to donate land he owns
there to the Oklahoma-based Lenape/Delaware Indian Nation which
originated in New Jersey and already has Federal tribal status but
does not have a reservation in the state. In addition, in July
1993, the Oneida Nation opened a casino featuring 24-hour table
gaming and electronic gaming system, but without slot machines,
near Syracuse, New York. Representatives of the St. Regis Mohawk
Nation signed a gaming compact with New York State officials for
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the opening of a casino, without slot machines, in the northern
portion of the state close to the Canadian border. The St. Regis
Mohawk Nation has announced that it intends to open their casino
in August of 1995. The Narragansett Nation of Rhode Island has
recently won a Federal court case which will require the Governor
of Rhode Island to negotiate a casino gaming compact with the
Nation. The Mohegan Nation, which is located in Connecticut,
received federal recognition in March 1994. Other Native American
Nations are seeking federal recognition, land, and negotiation of
gaming compacts in New York, Pennsylvania, Connecticut and other
nearby states.
Legislation permitting other forms of casino gaming has been
proposed, from time to time, in various states, including those
bordering New Jersey. Trump's Castle's operations would be
adversely affected by such competition, particularly if casino
gaming were permitted in jurisdictions near or in New Jersey or
other states in the Northeast. In December 1993, the Rhode Island
Lottery Commission approved the addition of slot machine games on
video terminals at Lincoln Greyhound Park and Newport Jai Alai,
where poker and blackjack have been offered for over two years.
The State of Louisiana approved casino gaming in the city of New
Orleans, and a developer has been selected. Currently, casino
gaming, other than Native American gaming, is not allowed in other
areas of New Jersey or in New York or Pennsylvania. However,
Trump's Castle expects that proposals may be introduced to
legalize riverboat or other forms of gaming in Philadelphia and
one or more other locations in Pennsylvania. To the extent that
legalized gaming becomes more prevalent in New Jersey or other
jurisdictions, competition would intensify.
In addition, legislation has from time to time been
introduced in the New Jersey State Legislature relating to types
of statewide legalized gaming, such as video games with small
wagers. To date, no such legislation, which may require a state
constitutional amendment, has been enacted. The Partnership is
unable to predict whether any such legislation, if enacted, would
have a material adverse impact on the results of operations or
financial condition of the Partnership.
Seasonality. The gaming industry in Atlantic City
traditionally has been seasonal, with its strongest performance
occurring from May through September, with December and January
showing substantial decreases in activity. Revenues have been
significantly higher on Fridays, Saturdays, Sundays and holidays
than on other days. In addition, in the summer months, Trump's
Castle may be adversely affected by the desire of certain patrons
to wager at a location which is readily accessible to The
Boardwalk.
The Conflicting Interests of Certain Officers and Directors
of the Partnership and its Affiliates. Trump is the beneficial
owner of Trump Plaza and a 50% beneficial owner of the Taj Mahal
and is the sole owner of Trump Plaza Management Corp. ("TPM"), an
entity that provides management services to Trump Plaza. Trump
has a personal services agreement with the partnership that owns
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the Taj Mahal ("TTMA") pursuant to which he receives substantial
compensation based, in part, on the financial results of the Taj
Mahal. Under certain circumstances, Trump could increase his
beneficial interest in the Taj Mahal to 80%. In addition, Trump
has a personal services agreement with the Trump Plaza ("TPA")
pursuant to which he receives an annual fee in equal monthly
installments. Trump could under certain circumstances have an
incentive to operate the Other Trump Casinos to the competitive
detriment of the Partnership. However, the Services Agreement
entered into between the Partnership and TC/GP provides that Trump
and his affiliates will not engage in any activity, transaction or
action which would result in the Other Trump Casinos realizing a
competitive advantage over Trump's Castle. The Other Trump
Casinos compete directly with each other and with other Atlantic
City casino hotels, including Trump's Castle. Nicholas L. Ribis,
the Chief Executive Officer of the Partnership, is also the
chief executive officer of the partnerships that own the Other
Trump Casinos, and John P. Burke, an officer of the Partnership,
is also an executive officer of the partnerships that own the
Other Trump Casinos. In addition, Messrs. Trump, Ribis, and Burke
serve on the governing bodies of the partnerships that own the
Other Trump Casinos. As a result of Trump's interests in three
competing Atlantic City casinos, the common chief executive
officer and one other common officer, a conflict of interest may
be deemed to exist by reason of such persons' access to
information and business opportunities possibly useful to any or
all of such casinos. Although no specific procedures have been
devised for resolving conflicts of interest confronting, or which
may confront, Trump, such persons and the Other Trump Casinos,
Messrs. Trump, Ribis, and Burke have informed the Partnership
that they will not engage in any activity which they reasonably
expect will harm Trump's Castle or is otherwise inconsistent with
their fiduciary obligations to the Partnership.
Employees and Labor Relations. As of December 31, 1994,
the Partnership employed approximately 3,400 full and part time
employees for the operation of Trump's Castle, of whom
approximately 1,170 were subject to collective bargaining
agreements. The Partnership's collective bargaining agreement
with Local No. 54 affiliated with the Hotel Employees and
Restaurant Employees International Union AFL-CIO expires on
September 15, 1999. Such agreement extends to approximately 1,047
employees. In addition, four other collective bargaining
agreements which expire in 1996 cover approximately 123
maintenance and entertainment employees. The Partnership believes
that its relationships with its employees are satisfactory.
Funding has no employees.
All of the Partnership's employees are required to be
registered with or licensed by the Casino Control Commission (the
"CCC") pursuant to the Casino Control Act. Casino employees are
subject to more stringent licensing requirements than non-casino
employees, and must meet applicable standards pertaining to such
matters as financial responsibility, good character, ability,
casino training, experience and New Jersey residency. Such
regulations have resulted in significant competition for employees
who meet these requirements.
14
Gaming and Other Laws and Regulations. The following is only
a summary of the applicable provisions of the Casino Control Act
and certain other laws and regulations. It does not purport to be
a full description thereof and is qualified in its entirety by
reference to the Casino Control Act and such other laws and
regulations.
In general, the Casino Control Act contains detailed
provisions concerning, among other things: the granting of casino
licenses; the suitability of the approved hotel facility and the
amount of authorized casino space and gaming units permitted
therein; the qualification of natural persons and entities related
to the casino licensee; the licensing and registration of
employees and vendors of casino licensees; rules of the games; the
selling and redeeming of gaming chips; the granting and duration
of credit and the enforceability of gaming debts; management
control procedures, accounting and cash control methods and
reports to gaming agencies; security standards; the manufacture
and distribution of gaming equipment; equal employment opportunity
for employees of casino operators, contractors of casino
facilities and others; and advertising, entertainment and
alcoholic beverages.
Casino Control Commission
The ownership and operation of casino hotel facilities in
Atlantic City are the subject of strict state regulation under the
Casino Control Act. The CCC is empowered to regulate a wide
spectrum of gaming and non-gaming related activities and to
approve the form of ownership and financial structure of not only
a casino licensee, but also its entity qualifiers and intermediary
and holding companies.
Operating Licenses
The Partnership was issued its initial casino license in June
1985. During April 1993, the CCC renewed the Partnership's casino
license and approved Trump as a natural person qualifier through
May 1995. No assurance can be given that the CCC will renew the
Partnership's casino license or, if it does so, as to the
conditions it may impose, if any, with respect thereto.
Casino License
No casino hotel facility may operate unless the appropriate
license and approvals are obtained from the CCC, which has broad
discretion with regard to the issuance, renewal, revocation and
suspension of such licenses and approvals, which are non-
transferable. The qualification criteria with respect to the
holder of a casino license include its financial stability,
integrity and responsibility; the integrity and adequacy of its
financial resources which bear any relation to the casino project;
its good character, honesty and integrity; and the sufficiency of
its business ability and casino experience to establish the
likelihood of a successful, efficient casino operation. The
casino license held by the Partnership is renewable for periods of
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up to four years. The CCC may reopen licensing hearings at any
time, and must reopen a licensing hearing at the request of the
Division of Gaming Enforcement (the "Division").
To be considered financially stable, a licensee must
demonstrate the following ability: to pay winning wagers when
due, to achieve a gross operating profit; to pay all local, state
and federal taxes when due, to make necessary capital and
maintenance expenditures to insure that it has a superior first-
class facility, and to pay, exchange, refinance or extend debts
which will mature or become due and payable during the license
term.
In the event a licensee fails to demonstrate financial
stability, the CCC may take such action as it deems necessary to
fulfill the purposes of the Casino Control Act and protect the
public interest, including: issuing conditional licenses,
approvals or determinations; establishing an appropriate cure
period; imposing reporting requirements; placing restrictions on
the transfer of cash or the assumption of liability; requiring
reasonable reserves or trust accounts; denying licensure; or
appointing a conservator. See "Conservatorship" below.
The Partnership believes that it has adequate financial
resources to meet the financial stability requirements of the CCC
for the foreseeable future.
Pursuant to the Casino Control Act, CCC Regulations and
precedent, no entity may hold a casino license unless each
officer, director, principal employee, person who directly or
indirectly holds any beneficial interest or ownership in the
licensee, each person who in the opinion of the CCC has the
ability to control or elect a majority of the board of directors
of the licensee (other than a banking or other licensed lending
institution which makes a loan or holds a mortgage or other lien
acquired in the ordinary course of business), and any lender,
underwriter, agent or employee of the licensee or other person
whom the CCC may consider appropriate, obtains and maintains
qualification approval from the CCC. Qualification approval means
that such person must, but for residence, individually meet the
qualification requirements as a casino key employee. See
"Employees" below. Pursuant to conditions of the Partnership's
casino license, payments by the Partnership to or for the benefit
of any related entity or any partner are subject to prior CCC
approval; and, if the Partnership's cash position falls below $5
million for three consecutive business days, the Partnership must
present to the CCC and the Division evidence as to why it should
not obtain a working capital facility in an appropriate amount.
Control Persons
An entity qualifier or intermediary or holding company, such
as TC/GP, TCHI and Funding, is required to register with the CCC
and meet the same basic standards for approval as a casino
licensee; provided, however, that the CCC, with the concurrence of
the Director of the Division, may waive compliance by a publicly-
16
traded corporate holding company with the requirement that each
officer, director, lender, underwriter, agent or employee thereof,
or person directly or indirectly holding a beneficial interest or
ownership of the securities thereof, individually qualify for
approval under casino key employee standards, so long as the CCC
and the Director are, and remain, satisfied that such officer,
director, lender, underwriter, agent or employee is not
significantly involved in the activities of the casino licensee,
or that such security holder does not have the ability to control
the publicly-traded corporate holding company or elect one or more
of its directors. Persons holding five percent or more of the
equity securities of such holding company are presumed to have the
ability to control the company or elect one or more of its
directors and will, unless this presumption is rebutted, be
required to individually qualify. Equity securities are defined
as any voting stock or any security similar to or convertible into
or carrying a right to acquire any security having a direct or
indirect participation in the profits of the issuer.
Financial Sources
The CCC may require all financial backers, investors,
mortgagees, bond holders and holders of notes or other evidence of
indebtedness, either in effect or proposed, which bears any
relation to the casino project, publicly-traded securities of an
entity which holds a casino license or is an entity qualifier,
subsidiary or holding company of a casino licensee (a "Regulated
Company"), to qualify as financial sources. In the past, the CCC
has waived the qualification requirement for holders of less than
15% of the Partnership's publicly-traded Mortgage Notes and PIK
Notes so long as the bonds remained widely-distributed and
freely-traded in the public market and the holder had no ability
to control the casino licensee. The CCC has, in the past, ruled
that the publicly-traded Mortgage Notes and PIK Notes are
widely-distributed and freely-traded in the public market. The
CCC may require holders of less than 15% of a series of debt to
qualify as financial sources even if not active in the management
of the issuer or the casino licensee.
Institutional Investors
An institutional investor ("Institutional Investor") is
defined by the Casino Control Act as any retirement fund
administered by a public agency for the exclusive benefit of
federal, state or local public employees; investment company
registered under the Investment Company Act of 1940; collective
investment trust organized by banks under Part Nine of the Rules
of the Comptroller of the Currency; closed end investment trust;
chartered or licensed life insurance company or property and
casualty insurance company; banking and other chartered or
licensed lending institution; investment advisor registered under
the Investment Advisers Act of 1940; and such other persons as the
CCC may determine for reasons consistent with the policies of the
Casino Control Act.
An Institutional Investor may be granted a waiver by the CCC
17
from financial source or other qualification requirements
applicable to a holder of publicly-traded securities, in the
absence of a prima facie showing by the Division that there is any
cause to believe that the holder may be found unqualified, on the
basis of CCC findings that: (a) its holdings were purchased for
investment purposes only and, upon request by the CCC, it files a
certified statement to the effect that it has no intention of
influencing or affecting the affairs of the issuer, the casino
licensee or its holding or intermediary companies; provided,
however, that the Institutional Investor will be permitted to vote
on matters put to the vote of the outstanding security holders;
and (b) if (i) the securities are debt securities of a casino
licensee's holding or intermediary companies or another subsidiary
company of the casino licensee's holding or intermediary companies
which is related in any way to the financing of the casino
licensee and represent either (x) 20% or less of the total
outstanding debt of the company or (y) 50% or less of any issue of
outstanding debt of the company, (ii) the securities are equity
securities and represent less than 10% of the equity securities of
a casino licensee's holding or intermediary companies or (iii) if
the securities so held exceed such percentages, upon a showing of
good cause. There can be no assurance, however, that the CCC will
make such findings or grant such waiver and, in any event, an
Institutional Investor may be required to produce for the CCC or
Division upon request, any document or information which bears any
relation to such debt or equity securities.
Generally, the CCC requires each institutional holder seeking
waiver of qualification to execute a certification to the effect
that (i) the holder has received the definition of Institutional
Investor under the Casino Control Act and believes that it meets
the definition of Institutional Investor; (ii) the holder
purchased the securities for investment purposes only and holds
them in the ordinary course of business; (iii) the holder has no
involvement in the business activities of, and no intention of
influencing or affecting the affairs of, the issuer, the casino
licensee or any affiliate; and (iv) if the holder subsequently
determines to influence or affect the affairs of the issuer, the
casino licensee or any affiliate, it shall provide not less than
30 days' prior notice of such intent and shall file with the CCC
an application for qualification before taking any such action.
If an Institutional Investor changes its investment intent, or if
the CCC finds reasonable cause to believe that it may be found
unqualified, the Institutional Investor may take no action with
respect to the security holdings, other than to divest itself of
such holdings, until it has applied for interim casino
authorization (see "Interim Casino Authorization" below) and has
executed a trust agreement pursuant to such an application.
Ownership and Transfer of Securities
The Casino Control Act imposes certain restrictions upon the
issuance, ownership and transfer of securities of a Regulated
Company and defines the term "security" to include instruments
which evidence a direct or indirect beneficial ownership or
creditor interest in a Regulated Company including, but not
18
limited to, mortgages, debentures, security agreements, notes and
warrants. Funding and the Partnership are each deemed to be a
Regulated Company, and instruments evidencing a beneficial
ownership or creditor interest therein, including partnership
interest, are deemed to be the securities of a Regulated Company.
If the CCC finds that a holder of such securities is not
qualified under the Casino Control Act, it has the right to take
any remedial action it may deem appropriate including the right to
force divestiture by such disqualified holder of such securities.
In the event that certain disqualified holders fail to divest
themselves of such securities, the CCC has the power to revoke or
suspend the casino license affiliated with the Regulated Company
which issued the securities. If a holder is found unqualified, it
is unlawful for the holder (i) to exercise, directly or through
any trustee or nominee, any right conferred by such securities, or
(ii) to receive any dividends or interest upon any such securities
or any remuneration, in any form, from its affiliated casino
licensee for services rendered or otherwise.
Under the terms of the indentures pursuant to which the
Senior Notes, Mortgage Notes and PIK were issued, if a holder of
such securities does not qualify under the Casino Control Act when
required to do so, such holder must dispose of its interest in
such securities within thirty days, and the Partnership may redeem
such securities at the lesser of the Outstanding Amount or Fair
Market Value (as defined).
With respect to non-publicly-traded securities, the Casino
Control Act and CCC Regulations require that the corporate charter
or partnership agreement of a Regulated Company establish a right
in the CCC of prior approval with regard to transfers of
securities, shares and other interests and an absolute right in
the Regulated Company to repurchase at the market price or the
purchase price, whichever is the lesser, any such security, share
or other interest in the event that the CCC disapproves a
transfer. With respect to publicly-traded securities, such
corporate charter or partnership agreement is required to
establish that any such securities of the entity are held subject
to the conditions that, if a holder thereof is found to be
disqualified by the CCC, such holder shall dispose of such
securities.
Whenever any person enters into a contract to transfer any
property which relates to an ongoing casino operation, including a
security of the casino licensee or a holding or intermediary
company or entity qualifier, under circumstances which would
require that the transferee obtain licensure or be qualified under
the Casino Control Act, and that person is not already licensed or
qualified, the transferee is required to apply for interim
authorization. Furthermore, the closing or settlement date in the
contract may not be earlier than the 121st day after the
submission of a complete application for licensure or
qualification together with a fully executed trust agreement in a
form approved by the CCC. If, after the report of the Division
and a hearing by the CCC, the CCC grants interim authorization,
19
the property will be subject to a trust. If the CCC denies
interim authorization, the contract may not close or settle until
the CCC makes a determination on the qualifications of the
applicant. If the CCC denies qualification, the contract will be
terminated for all purposes and there will be no liability on the
part of the transferor.
If, as the result of a transfer of publicly-traded securities
of a Regulated Company or a financing entity of a Regulated
Company, any person is required to qualify under the Casino
Control Act, that person is required to file an application for
licensure or qualification within 30 days after the CCC determines
that qualification is required or declines to waive qualification.
The application must include a fully executed trust agreement in a
form approved by the CCC or, in the alternative, within 120 days
after the CCC determines that qualification is required, the
person whose qualification is required must divest such securities
as the CCC may require in order to remove the need to qualify.
The CCC may grant interim casino authorization where it finds
by clear and convincing evidence that: 1) statements of compliance
have been issued pursuant to the Casino Control Act; 2) the casino
hotel is an approved hotel in accordance with the Casino Control
Act; 3) the trustee satisfies qualification criteria applicable to
key casino employees, except for residency and casino experience;
and 4) interim operation will best serve the interests of the
public.
When the CCC finds the applicant qualified, the trust will
terminate. If the CCC denies qualification to a person who has
received interim casino authorization, the trustee is required to
endeavor, and is authorized, to sell, assign, convey or otherwise
dispose of the property subject to the trust to such persons who
are licensed or qualified or shall themselves obtain interim
casino authorization.
Where a holder of publicly-traded securities is required, in
applying for qualification as a financial source or qualifier, to
transfer such securities to a trust in application for interim
casino authorization and the CCC thereafter orders that the trust
become operative: (a) during the time the trust is operative, the
holder may not participate in the earnings of the casino hotel or
receive any return on its investment or debt security holdings;
and (b) after disposition, if any, of the securities by the
trustee, proceeds distributed to the unqualified holder may not
exceed the lower of their actual cost to the unqualified holder or
their value calculated as if the investment had been made on the
date the trust became operative.
Approved Hotel Facilities
The CCC may permit a licensee, such as the Partnership, to
increase its casino space if the licensee agrees to add a
prescribed number of qualifying sleeping units within two years
after the commencement of gaming operations in the additional
casino space. However, if the casino licensee does not fulfill
20
such agreement due to conditions within its control, the licensee
will be required to close the additional casino space, or any
portion thereof that the CCC determines should be closed. Trump's
Castle was not required to add any additional sleeping units in
connection with its 3,000 square foot expansion for keno and
simulcast race track wagering.
License Fees
The CCC is authorized to establish annual fees for the
renewal of casino licenses. The renewal fee is based upon the
cost of maintaining control and regulatory activities prescribed
by the Casino Control Act, and may not be less than $200,000 for a
four-year casino license. Additionally, casino licensees are
subject to potential assessments to fund any annual operating
deficits incurred by the CCC or the Division. There is also an
annual license fee of $500 for each slot machine maintained for
use or in use in any casino. For the years ended December 31,
1992, 1993 and 1994 the Partnership recorded license,
investigation and other fees totaling approximately $3.9 million,
$3.4 million and $3.3 million respectively.
Gross Revenue Tax
Each casino licensee is also required to pay an annual tax of
8% on its gross casino revenues. For the years ended December 31,
1992, 1993 and 1994, the Partnership's gross revenue tax was
approximately $19 million, $19.7 million and $20.9 million,
respectively.
Investment Alternative Tax Obligations
An investment alternative tax imposed on the gross casino
revenues of each licensee in the amount of 2.5% is due and payable
on the last day of April following the end of the calendar year.
A licensee is obligated to pay the investment alternative tax for
a period of 30 years. Estimated payments of the investment
alternative tax obligation must be made quarterly in an amount
equal to 1.25% of estimated gross revenues for the preceding
three-month period. Investment tax credits may be obtained by
making qualified investments or by the purchase of bonds issued by
the Casino Reinvestment Development Authority ("CRDA"). CRDA
bonds may have terms as long as 50 years and bear interest at
below market rates, resulting in a value lower than the face value
of such CRDA bonds.
For the first 10 years of its obligation, the licensee is
entitled to an investment tax credit against the investment
alternative tax in an amount equal to twice the purchase price of
bonds issued to the licensee by the CRDA. Thereafter, the
licensee is (i) entitled to an investment tax credit in an amount
equal to twice the purchase price of such bonds or twice the
amount of its investments authorized in lieu of such bond
investments or made in projects designated as eligible by the CRDA
and (ii) has the option of entering into a contract with the CRDA
to have its tax credit comprised of direct investments in approved
20
eligible projects which may not comprise more than 50% of its
eligible tax credit in any one year.
From the moneys made available to the CRDA, the CRDA is
required to set aside $100,000,000 for investment in hotel
development projects in Atlantic City undertaken by a licensee
which result in the construction or rehabilitation of at least
200 hotel rooms by December 31, 1996. The CRDA is required to
determine the amount each casino licensee may be eligible to
receive out of the moneys set aside.
Reform of New Jersey Casino Legislation
In January of 1995, the Governor of the State of New Jersey
signed into law a casino deregulation bill that amends a
substantial portion of the New Jersey Casino Control Act.
The bill refines the New Jersey regulatory process and
further delineates the role and function of the regulators and the
role and function of the casinos as privately-owned business
enterprises in New Jersey entitled to make business decisions as
free as possible from governmental intervention. Underlying this
streamlining and delineation is the principle of maintaining the
integrity of casino operations in New Jersey so as to ensure
public confidence and trust in the industry.
Among the substantive provisions of the bill are the
following:
1) remove the involvement of the CCC and the Division from
those matters which already fall under the jurisdiction
of some other agency (for example, the Department of
Community Affairs and local fire officials presently must
approve all floor plan changes; therefore, no role is
necessary for the commission);
2) eliminate the responsibility of the CCC to determine the
business ability and experience of casino key employees
and casino employees, so that its focus is on the
integrity of the person;
3) eliminate pre-approval by the CCC of marketing programs
of the casinos and of internal controls concerning job
descriptions of casino employees;
4) eliminate prior approval by the CCC of the setting of
denominations of slot machines;
5) make junket representatives casino employees rather than
casino key employees, and eliminate from the definition
of junket representative a person who accompanies a
junket in order to monitor or evaluate its participants;
22
6) provide for temporary licensure for all casino employees,
not just those in positions not directly related to
gaming activity;
7) standardize all renewal periods, including casino
licenses, at four years for each period, except for
casino licenses, which shall be up to four years;
8) exempt lending institutions and insurance companies from
the joint and several liability provisions of the Casino
Control Act;
9) make certain changes to facilitate the handling and
collection of patron's checks;
10) eliminates the registration requirement for casino hotel
employees;
11) eliminate the limit of three casino licenses per person
and permit a number, to be determined by the CCC, which
will not create an undue economic concentration in
Atlantic City casino operations by that person;
12) permit a casino hotel to have 60,000 square feet for its
first 500 hotel rooms, rather than 50,000 square feet
(the maximum casino space remains at 200,000 square
feet);
13) establish in the Casino Redevelopment Development
Authority the "Atlantic City Fund" which shall be used
for economic development projects of a revenue-producing
nature which foster the redevelopment of Atlantic City;
14) require that any regulatory savings realized in the four
fiscal years beginning the Fiscal Year 1995-1996 and
during the following three fiscal years be paid into the
fund and that the average amount of the savings in those
four years be paid into the fund for each of the four
fiscal years beginning with Fiscal Year 1999-2000 (the
amount of the regulatory savings will be the difference
between $57,300,000 and the amount expended by the CCC
and Division operating expenses);
15) extend the present 25-year obligation of a casino license
to pay the investment alternative tax to 30 years; divert
for the next five years the moneys allocated to North
Jersey into the Atlantic City Fund; provided that North
Jersey receive 35% of all proceeds in years 26-30 of a
licensee's obligation; and provide that the remaining
amount in years 26-30 go into the fund.
An additional feature of this amendment to the New Jersey
Casino Control Act is the removal, insofar as possible, of the
involvement of the CCC and Division in purely business decisions
of the casinos and the elimination, insofar as possible, of the
duplication of efforts by the CCC and the Division. Any savings
that result from the reduction of regulatory costs will go into a
fund for financing projects in Atlantic City to improve its
appearance and safety and thus make it a more attractive, and
therefore a more competitive, destination resort.
23
Minimum Casino Parking Charges
As of July 1, 1993, each casino licensee was required to
impose on and collect from patrons a standard minimum parking
charge of at least $2.00 for the use of parking, space for the
purpose of parking, garaging or storing motor vehicles in a
parking facility owned or leased by a casino licensee or by any
person on behalf of a casino licensee. Of the amount collected by
the casino licensee, $1.50 is required to be paid to the New
Jersey State Treasurer and paid by the New Jersey State Treasurer
into a special fund established and held by the New Jersey State
Treasurer for the exclusive use of the CRDA.
Amounts in the special fund will be expended by the CRDA for
(i) eligible projects in the corridor region of Atlantic City,
which projects are related to the improvement of roads,
infrastructure, traffic regulation and public safety and (ii)
funding up to 35% of the cost to casino licensees of expanding
their hotel facilities to provide additional hotel rooms, which
hotel rooms are required to be available upon the opening of the
Atlantic City Convention Center and dedicated to convention
events.
Conservatorship
If, at any time, it is determined that TC/GP, TCHI, Funding
or the Partnership has violated the Casino Control Act or that any
of such entities cannot meet the qualification requirements of the
Casino Control Act, such entity could be subject to fines or the
suspension or revocation of its license or qualification. If the
Partnership's license is suspended for a period in excess of 120
days or revoked or if the CCC fails or refuses to renew such
casino license, the CCC could appoint a conservator to operate and
dispose of the Partnership's casino hotel facilities. A
conservator would be vested with title to all property of the
Partnership relating to the casino and the approved hotel subject
to valid liens and/or encumbrances. The conservator would be
required to act under the direct supervision of the CCC and would
be charged with the duty of conserving, preserving and, if
permitted, continuing the operation of the casino hotel. During
the period of the conservatorship, a former or suspended casino
licensee is entitled to a fair rate of return out of net earnings,
if any, on the property retained by the conservator. The CCC may
also discontinue any conservatorship action and direct the
conservator to take such steps as are necessary to effect an
orderly transfer of the property of a former or suspended casino
licensee. Such events could result in an event of default under
the indentures pursuant to which the Senior Notes, Mortgage Notes
and PIK Notes were issued.
Employees
Casino employees are subject to more stringent requirements
than non-casino employees and must meet applicable standards
pertaining to financial stability, integrity and responsibility,
good character, honesty and integrity, business ability and casino
24
experience and New Jersey residency. These requirements have
resulted in significant competition among Atlantic City casino
operators for the services of qualified employees.
Gaming Credit
The Partnership's casino games are conducted on a credit as
well as a cash basis. Gaming debts arising in Atlantic City in
accordance with applicable regulations are enforceable in the
courts of the State of New Jersey. The extension of gaming credit
is subject to regulations that detail procedures which casinos
must follow when granting gaming credit and recording counter
checks which have been exchanged, redeemed or consolidated.
Control Procedures
Gaming at Trump's Castle is conducted by trained and
supervised personnel. The Partnership employs extensive security
and internal controls. Security checks are made to determine,
among other matters, that job applicants for key positions have
had no criminal history or associations. Security controls
utilized by the surveillance department include closed circuit
video cameras to monitor the casino floor and money counting
areas. The count of moneys from gaming is also observed daily by
representatives of the CCC.
Other Laws and Regulations
The United States Department of the Treasury has adopted
regulations pursuant to which a casino is required to file a
report of each deposit, withdrawal, exchange of currency, gambling
tokens or chips, or other payments or transfers by, through, or to
such casino which involves a transaction in currency of more than
$10,000 per patron, per gaming day. Such reports are required to
be made on forms prescribed by the Secretary of the Treasury and
are filed with the Commissioner of the Internal Revenue Service
(the "Service"). In addition, the Partnership is required to
maintain detailed records (including the names, addresses, social
security numbers and other information with respect to its gaming
customers) dealing with, among other items, the deposit and
withdrawal of funds and the maintenance of a line of credit.
In the past, the Service had taken the position that gaming
winnings from table games by nonresident aliens were subject to a
30% withholding tax; however, the Service subsequently adopted a
practice of not collecting such tax. Recently enacted legislation
exempts from withholding tax table game winnings by nonresident
aliens, unless the Secretary of the Treasury determines by
regulation that such collections have become administratively
feasible.
As the result of an audit conducted by the Office of
Financial Enforcement of the Department of the Treasury, the
Partnership was alleged to have failed to timely file the
"Currency Transaction Report by Casino" in connection with certain
currency transactions in excess of $10,000 during the period from
25
May 7, 1985 to December 31, 1988. The Partnership entered into a
settlement agreement and without admitting to any wrongdoing
agreed to pay a civil monetary penalty of $175,500. This penalty
was paid during the year ended December 31, 1993. The Partnership
has revised its internal control procedures to ensure continued
compliance with these regulations.
The Partnership is subject to other federal, state and local
regulations and, on a periodic basis, must obtain various licenses
and permits, including those required to sell alcoholic beverages.
The Partnership believes that it has obtained all required
licenses and permits to conduct its business.
(d) Financial Information About Foreign and Domestic Operations
and Export Sales
Not applicable.
ITEM 2. PROPERTIES OF THE PARTNERSHIP.
The Casino Parcel. Trump's Castle is located in the Marina
area of Atlantic City on an approximately 14.7 acre triangular-
shaped parcel of land, which is owned by the Partnership in fee,
located at the intersection of Huron Avenue and Brigantine
Boulevard directly across from the Marina, approximately two miles
from The Boardwalk.
Trump's Castle has a total of 73,000 square feet of casino
space, which accommodates 93 table games (including 10 poker
tables), 2,122 slot machines, keno parlor and simulcasting
facilities. In addition to the casino, Trump's Castle consists of
a 27 story hotel with 728 guest rooms, including 185 suites, of
which 99 are "Crystal Tower" luxury suites. Renovation of 300 of
the guest rooms was completed in 1993 and 250 more guest rooms
were renovated in 1994. The facility also offers eight
restaurants, a 460 seat cabaret theater, one cocktail lounge,
58,000 square feet of convention, ballroom and meeting space, a
swimming pool, tennis courts and a sports and health club
facility. Trump's Castle has been designed so that it can be
enlarged in phases into a facility containing 2,000 rooms, a 1,600
seat cabaret theater and additional recreational amenities.
Trump's Castle also has a nine-story garage providing on-site
parking for approximately 3,000 vehicles, and a helipad which is
located atop the parking garage, making Trump's Castle the only
Atlantic City casino with access by land, sea and air.
During 1994, Trump's Castle completed a 3,000 square foot
expansion to its casino which enabled Trump's Castle to
accommodate the addition of Keno and simulcast race track
wagering. The expansion also increased casino access and casino
visibility for hotel patrons. In 1993, Trump's Castle completed
the construction of a Las Vegas style marquee and reader board,
the largest of its kind on the East Coast.
The Marina. Pursuant to an agreement (the "Marina
26
Agreement") with the New Jersey Division of Parks and Forestry,
the Partnership in 1987 began operating and renovating the Marina,
including docks containing approximately 600 slips. An elevated
pedestrian walkway connecting Trump's Castle to a two story
building at the Marina was completed in 1989. The Partnership has
reconstructed the two-story building, which contains a 240 seat
restaurant and offices as well as a snack bar and a large nautical
theme retail store. Any improvements made to the Marina (which is
owned by the State of New Jersey), excluding the elevated
pedestrian walkway, automatically become the property of the State
of New Jersey upon their completion. Pursuant to the Marina
Agreement and pursuant to a certain lease between the State of New
Jersey, as landlord, and the Partnership as tenant, dated as of
September 1, 1990, the Partnership commenced leasing the Marina
and the improvements thereon for an initial term of twenty-five
years. The lease is a net lease pursuant to which the
Partnership, in addition to the payment of annual rent equal to
the greater of (i) a certain percentage of gross revenues and (ii)
minimum base rent of $300,000 annually (increasing every five
years to $500,000 in 2011), is responsible for all costs and
expenses related to the premises, including but not limited to,
all maintenance and repair costs, insurance premiums, real estate
taxes, assessments and utility charges.
Parking Parcel. The Partnership also owns an employee
parking lot located on Route 30, approximately two miles from
Trump's Castle, which can accommodate approximately 1,000 cars.
ITEM 3. LEGAL PROCEEDINGS.
The Partnership, its partners, certain members of the former
Executive Committee, Funding, and certain of their employees are
involved in various legal proceedings. 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.
Various legal proceedings are now pending against the
Partnership. The Partnership considers all such proceedings to be
ordinary litigation incident to the character of its business.
The majority of such claims are covered by liability insurance
(subject to applicable deductibles), and the Partnership believes
that the resolution of these claims, to the extent not covered by
insurance, will not, individually or in the aggregate, have a
material adverse effect on the financial condition or results of
operations of the Partnership.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
27
PART II
ITEM 5. MARKET FOR REGISTRANTS' COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS.
(a) There is no established public trading market for
Funding's outstanding common stock or for the
Partnership's partnership interests.
(b) As of December 31, 1994, there was one holder of
record of the outstanding common stock of Funding and
three partners in the Partnership.
(c) Funding has paid no cash dividends on its common
stock, and except as set forth under "Business -- The
Recapitalization", the Partnership has made no
general distributions with respect to its equity
interests.
28
ITEM 6. SELECTED CONSOLIDATED FINANCIAL INFORMATION.
The following sets forth certain selected consolidated financial
information from Funding's and the Partnership's Consolidated Statements
of Operations for the years ended December 31, 1990, 1991, 1992, 1993 and
1994 respectively, and the Consolidated Balance Sheets as of December 31,
1990, 1991, 1992, 1993 and 1994 respectively:
Year Ended December 31,
1990 1991 1992 1993 1994
(in thousands of dollars)
INCOME STATEMENT DATA:
Gross Revenues $302,223 $247,968 $299,306 $304,826 $315,385
Less-Promotional Allowances 33,391 27,882 30,656 31,599 31,572
Net Revenues 268,832 220,086 268,650 273,227 283,813
Total Costs and Expenses 267,583 222,446 260,623 245,361 254,989
Income (Loss) from
Continuing Operations 1,249 (2,360) 8,027 27,866 28,824
Interest Income 893 505 499 675 636
Interest Expense (48,759) (48,344) (45,360) (56,926) (44,173)
Gain on Sinking Fund Payment 3,136 -- -- -- --
Extraordinary Item -- -- 128,187 -- --
Net Income (Loss) ($43,481) ($50,199) $91,353 ($28,385) ($14,713)
BALANCE SHEET DATA:
Cash and Cash Equivalents $8,046 $14,972 $23,610 $20,439 $19,384
Total Assets $408,276 $391,303 $379,641 $375,935 $369,301
Current Liabilities $421,483 $454,709 $39,397 $34,463 $36,769
Total Long-Term Debt -- -- $279,445 $309,794 $315,567
Total Capital (Deficit) ($13,207) ($63,406) $60,799 $31,678 $16,965
Notes:
On May 29, 1992, Funding, the Partnership and TCHI consummated the Plan,
which materially affects the comparability of the information set forth
above.
On December 28, 1993, the Partnership and its affiliated entities
consummated the Recapitalization, which materially affects the
comparability of the information set forth above.
The extraordinary gain of $128,187,000 for year ended December 31, 1992
reflects a $96,896,000 accounting adjustment to carry the Bonds at fair
market value based on current rates of interest at the date of issuance,
$18,000,000 forgiveness of bank borrowings, $22,805,000 represents
discharge of accrued interest and net of the write-off of $9,514,000 of
unamortized Bond issuance costs.
Long-term debt of $337,649,000 and $340,553,000 as of December 31, 1990
and 1991 had been classified as a current liability.
29
SELECTED QUARTERLY FINANCIAL DATA:
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
1994:
Net Revenues $66,329,000 $72,745,000 $80,599,000 $64,140,000
Income from
Operations $3,315,000 $7,045,000 $13,533,000 $4,931,000
Net Income (Loss) ($7,484,000) ($3,809,000) $2,562,000 ($5,982,000)
1993:
Net Revenues $61,522,000 $67,866,000 $78,361,000 ($15,603,000)
Income from
Operations $2,350,000 $5,204,000 $14,445,000 $5,867,000
Net Income (Loss) ($8,746,000) ($5,900,000) $1,864,000 ($15,603,000)
1992:
Net Revenues $60,348,000 $65,258,000 $79,215,000 $63,829,000
Income (Loss) from
Operations ($268,000) ($1,446,000) $10,218,000 ($477,000)
Extraordinary Items -- $128,187,000 -- --
Net Income (Loss) ($13,173,000) $115,238,000 ($651,000) ($10,061,000)
30
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATION.
The financial information presented below reflects the
financial condition and results of operations of Trump's Castle
Associates (the "Partnership"). Trump's Castle Funding, Inc.
("Funding) is a wholly-owned subsidiary of the Partnership and
conducts no business other than collecting amounts due under
certain intercompany notes from the Partnership for the purpose of
paying principal of, premium, if any, and interest on its
indebtedness, which Funding issued as a nominee for the
Partnership.
Results of Operations for the Years Ended December 31, 1994
and 1993. The Partnership's net revenues (gross revenues less
promotional expenses) for the years ended December 31, 1994 and
1993 totaled approximately $283.8 million and $273.2 million,
respectively, representing a $10.6 million (3.9%) increase.
Gaming revenues were approximately $258.5 million for the year
ended December 31, 1994 and $246.4 million for the comparable
period in 1993. Management believes the $12.1 million (4.9%)
increase in gaming revenues is attributable primarily to a
continuing emphasis on customer service and a repositioning by
Trump's Castle to expand its profitable core, middle and premium
market segments.
Gaming revenue is comprised of table game win and slot
machine win. For the years ended December 31, 1994 and 1993, slot
win at Trump's Castle approximated $177.5 million and
$173.0 million, respectively. Dollars wagered on slot machines
totaled approximately $1,965.3 million and $1,851.4 million for
the years ended December 31, 1994 and 1993, respectively, with a
win percentage of 9.0% in 1994 and 9.3% in 1993, respectively.
The lower slot win percentage (slot win as a percentage of dollars
wagered on slot machines) of 9.0% was largely intentional and
designed by Trump's Castle in order to remain competitive and
stimulate patron play. Slot machine wagerings increased 6.2% and
slot win increased 2.6% for the year ended December 31, 1994 over
the comparable period in 1993. For the years ended December 31,
1994 and 1993, table game win at Trump's Castle approximated
$81.0 million and $73.4 million, respectively. During these
periods, dollars wagered on table games totaled approximately
$477.5 million with a win percentage of 17.0% in 1994 and
$492.1 million with a win percentage of 14.9% in 1993. The table
game win percentage is outside the control of the Partnership, and
although it is fairly constant over the long term, it can vary
significantly from quarter to quarter, due in part to the play of
certain patrons who tend to wager substantial dollar amounts on
table games.
For the years ended December 31, 1994 and 1993, gaming credit
extended to customers was approximately 31.4% and 28.9% of overall
table play, respectively. The increase in credit play reflects,
in part, a shift in the gaming patron mix as a result of increased
play by individuals who wager relatively large sums. These
patrons tend to use a higher percentage of credit when they wager.
31
In the aggregate, nongaming revenues at Trump's Castle
decreased approximately $1.5 million from $58.5 million for the
twelve months ended December 31, 1993, to $57.0 million for the
comparable period in 1994. This decline was primarily
attributable to a decrease in food and beverage revenues of ($2.1)
million (-7.1%), to $28.4 million for the year ended December 31,
1994, of which approximately $15.9 million consisted of
complimentary food and beverage. This decline was due to the
discontinuance of certain unprofitable marketing programs which
resulted in fewer customers served. Such measures were
implemented to improve overall operating efficiencies. Offsetting
the nongaming revenues decrease was an increase in entertainment
revenue of $100,000 (1.4%) and an increase in other income of
$600,000 (8%).
Gaming costs and expenses for the twelve months ended
December 31, 1994 and December 31, 1993 increased $5.5 million, or
3.7%. The increase in gaming costs and expenses corresponds to
the increase in gaming activity for the year.
The decrease in rooms and food and beverage operating
expenses is primarily attributable to a variety of cost reduction
measures and improvements in operational efficiency.
General and administrative expenses increased approximately
$7.0 million (14.1%) for the year ended December 31, 1994 as
compared to the prior year. The increase was primarily
attributable to:
(1) The contribution of $2.5 million to a joint project with
Harrah's for the beautification of the marina district
of Atlantic City in which both casinos operate.
(2) The contributions of approximately $3.3 million in
Casino Reinvestment Development Authority deposits to
certain public improvement projects.
(3) Increased spending in connection with new business
development and facilities maintenance.
For the year ended December 31, 1994, depreciation and
amortization decreased $2.0 million (12.1%) over the comparable
period in 1993, primarily as a result of the impact of fully
depreciated assets.
Other costs and expenses increased by $1.5 million (13.8%)
due to significantly lower real estate tax expense incurred in the
first quarter of 1993 because of a $1.8 million real estate tax
credit.
Income from Trump's Castle's operations improved $1.0 million
as a result of increased revenues, operating efficiencies and the
other factors described above.
Interest expense decreased for the twelve month period ended
December 31, 1994 over the comparable period in 1993 by
approximately 12.8 million as a result of the Recapitalization on
December 28, 1993.
32
The Partnership experienced a net loss of $14.7 million for
the year ended December 31, 1994 as compared to a net loss of 28.4
million in 1993.
Results of Operations for the Years Ended December 31, 1993
and 1992. The Partnership's net revenues (gross revenues less
promotional expenses) for the years ended December 31, 1993 and
1992 totaled approximately $273.2 million and $268.7 million,
respectively, representing a $4.5 million (1.7%) increase. Gaming
revenues were approximately $246.4 million for the year ended
December 31, 1993 and $242.0 million for the comparable period in
1992. Management believes the $4.4 million (1.8%) increase in
gaming revenues is attributable primarily to a continuing emphasis
on customer service and a repositioning by Trump's Castle to
expand profitable market segments.
Gaming revenue is comprised of table game win and slot
machine win. For the years ended December 31, 1993 and 1992, slot
win at Trump's Castle approximated $173.0 million and $164.3
million, respectively. Dollars wagered on slot machines totaled
approximately $1,851.4 million and $1,682.9 million for the years
ended December 31, 1993 and 1992, respectively, with a win
percentage of 9.3% in 1993 and 9.8% in 1992, respectively. The
lower slot win percentage (slot win as a percentage of dollars
wagered on slot machines) of 9.3% was largely intentional and
designed by Trump's Castle in order to remain competitive and
stimulate patron play. Slot machine wagerings increased 10.0% and
slot win increased 5.3% for the year ended December 31, 1993 over
the comparable period in 1992. For the years ended December 31,
1993 and 1992, table game win at Trump's Castle approximated $73.4
million and $77.7 million, respectively. During these periods,
dollars wagered on table games totaled approximately $492.1
million with a win percentage of 14.9% in 1993 and $504.5 million
with a win percentage of 15.4% in 1992.
For the years ended December 31, 1993 and 1992, gaming credit
extended to customers was approximately 28.9% and 28.1% of overall
table play, respectively.
Nongaming revenues at Trump's Castle increased approximately
$1.2 million from $57.3 million for the twelve months ended
December 31, 1992, to $58.5 million for the comparable period in
1993. This improvement was attributable primarily to an increase
in rooms revenue of $ 1.9 million (10.5%) to approximately $19.6
million for the year ended December 31, 1993, of which $12.2
million consisted of complimentary rooms. This increase was
partially offset by a decline in food and beverage revenues of
$0.8 million (-2.4%), to $30.6 million for the year ended December
31, 1993, of which approximately $15.9 million consisted of
complimentary food and beverage. Room occupancy at Trump's Castle
was 88.0% and 85.8%, including occupancy of 55.3% and 50.7% of the
available rooms by patrons receiving complimentary rooms, and the
average rate was approximately $78 and $76 for the years ended
December 31, 1993 and 1992, respectively. The average rate showed
modest growth primarily from pricing casino room promotional
allowances at competitive levels in the Atlantic City market.
33
While the number of customers served in the food and beverage
outlets increased in 1993, food and beverage revenues declined as
a result of a decrease in the average guest check. As a
percentage of gaming revenues, promotional allowances did not vary
significantly from year to year.
General and administrative expenses decreased approximately
$2.9 million (5.5%) for the year ended December 31, 1993 as
compared to the prior year. While gaming revenues improved in
1993, gaming costs and expenses decreased for the year ended
December 31, 1993 by $1.0 million (.6%) and all other costs and
expenses excluding Depreciation and Amortization and
Reorganization costs decreased $2.1 million (6.3%). The reduction
in operating expenses was due to previously established cost
containment measures including the discontinuance of certain
marketing programs. Such measures were implemented to improve
overall operating efficiencies while remaining competitive and
focusing on long range marketing goals.
For the year ended December 31, 1993, depreciation and
amortization decreased $3.4 million (-17.1%) over the comparable
period in 1992, primarily as a result of the impact of fully
depreciated assets as well as the discharge of the outstanding
deferred bond costs which were eliminated as a result of the Plan
of Reorganization.
Reorganization costs were not incurred in 1993, compared to
costs of $6.0 million for the same period in 1992 due to the Plan
of Reorganization, which was completed on May 29, 1992.
Income from Trump's Castle's operations improved $19.8
million (or $13.8 million excluding restructuring costs) as a
result of increased revenues, operating efficiencies and a $3.4
million decrease in depreciation and amortization expense and a
continued emphasis on customer service for the year ended December
31, 1993 as compared to the same period in 1992.
Interest expense increased for the twelve month period ended
December 31, 1993 by approximately $11.6 million. The $11.6
million increase includes nonrecurring recapitalization costs of
approximately $9.0 million.
The Partnership experienced a net loss of $28.4 million for
the year ended December 31, 1993 and a profit of $91.4 million,
primarily as a result of the Plan of Reorganization, during the
comparable period in 1992.
Inflation. There was no significant impact on the
Partnership's operations as a result of inflation during 1994,
1993 and 1992.
Liquidity and Capital Resources. Cash flow from operating
activities is the Partnership's principal source of liquidity.
For the year ended December 31, 1994, the Partnership's net cash
flow provided by operating activities before cash debt service
obligations was $40.9 million and cash debt service was $31.3
34
million, resulting in net cash provided by operating activities of
$9.3 million. Cash and cash equivalents of $19.1 million at
December 31, 1994 reflects a reduction of $1.3 million from $20.4
million at December 31, 1993. The $1.3 million reduction in cash
was the result of an additional $9.3 million provided by operating
activities, offset by $8.3 million used to acquire capital assets
and $2.3 million used to purchase CRDA investments.
Upon consummation of the Recapitalization in December 1993
and as of December 1994, the Partnership had a working capital
surplus of more than $2.0 million which amount is adequate to meet
its needs for cash. The Partnership believes that this level of
working capital is adequate to sustain existing operations in the
foreseeable future.
Capital expenditures of $8.3 million for the year ended
December 31, 1994 included an expansion of the casino floor,
construction of keno and simulcasting facilities and various hotel
renovations, and represented a decline of approximately $2.7
million from the prior year. Capital expenditures were $11.0
million for the year ended December 31, 1993 and included
expansion of the casino floor, the construction of an electronic
graphic sign affixed to the front of the building, the acquisition
of operating equipment and certain hotel renovations.
Anticipated capital expenditures for 1995 are approximately
$8 million and include casino floor improvements, renovation of
hotel rooms and the purchase of additional slot machines.
Management believes that this level of capital expenditure will
be sufficient to maintain the competitiveness of the casino, the
attractiveness of Trump's Castle and the aesthetics of its hotel
rooms and other public areas. The Partnership intends to finance
its capital expenditures in the future with existing cash on hand
and cash flow from operations.
Upon consummation of the Recapitalization, the Partnership's
debt consisted primarily of (i) a term loan with Midlantic
National Bank (the "Midlantic Term Loan"), (ii) the Senior Notes,
(iii) the Mortgage Notes, and (iv) the PIK Notes. The $38 million
Midlantic Term Loan bears interest at the rate of 9% per annum,
and matures on May 29, 1995. Subject to the satisfaction of
certain conditions, the Partnership has the option to extend the
Midlantic Term Loan for an additional five year term; provided,
however, that in connection with any such extension, the interest
rate on the Midlantic Term Loan will be adjusted, as provided
therein, and the Partnership will be required to amortize the
principal amount of the Midlantic Term Loan. The Partnership
intends to extend the term of the Midlantic Loan for an additional
five years pursuant to its terms.
The Senior Notes have an outstanding principal amount of $27
million, and bear interest at the rate of 11-1/2 % per annum
(which may be reduced to 11-1/4% upon the occurrence of certain
events). The Senior Notes mature on November 15, 2000, and are
subject to a sinking fund which requires the retirement of 15% of
the Senior Notes on each on November 15, 1998 and 1999. The
35
Mortgage Notes have an outstanding principal amount of
approximately $243 million, bear interest at the rate of 11-3/4%
per annum (which may be reduced to 11-1/2% upon the occurrence of
certain events), and mature on November 15, 2003. The PIK Notes
have an outstanding principal amount of approximately $54.1
million and mature on November 15, 2005. The PIK Notes bore
interest at the rate of 7% through September 30, 1994, when,
pursuant to their terms, the interest rate increased to 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 1994, the Partnership and Funding issued an additional $3.6
million principal amount of PIK Notes in payment of interest on
the PIK Notes. The Partnership anticipates that during 1995
interest on the PIK Notes will be paid through the issuance of
additional PIK Notes.
The Partnership required approximately $31.3 million in 1994
and anticipates that $36.1 million will be needed in 1995 in
operating cash flow to meet its debt service obligations.
For the years ended December 31, 1994 and 1993, the
Partnership had a working capital surplus of $1.0 million and $2.1
million respectively. The Partnership believes that this kind of
working capital is adequate to sustain existing operations in the
foreseeable future.
Management believes, based upon its current level of
operations, that although the Partnership is highly leveraged, it
will continue to have the ability to pay interest on its
indebtedness and to pay other liabilities with funds from
operations for the foreseeable future. However, there can be no
assurance to that effect. In the event that circumstances change,
the Partnership may seek to obtain a working capital facility of
up to $10 million, although there can be no assurance that such
financing will be available on terms acceptable to the
Partnership.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
An index to financial statements and required financial
statement schedules is set forth at Item 14.
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
None.
36
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS.
All decisions affecting the business and affairs of the
Partnership, including the operation of Trump's Castle, are
decided by the general partners acting by and through a Board of
Partner Representatives, which includes a minority of
Representatives elected indirectly by the holders of the Mortgage
Notes and PIK Notes (the "Board of Partner Representatives"). As
currently constituted, the Board of Partner Representatives
consists of Donald J. Trump, Chairman, Nicholas L. Ribis, Roger P.
Wagner, Asher O. Pacholder, Thomas F. Leahy and Wallace B. Askins.
Messrs. Trump and Ribis also serve on the governing boards of
Trump Taj Mahal Associates ("TTMA") and Trump Plaza Associates
("TPA"). Mr. Askins serves on the governing board of Trump Plaza
Holding, Inc. ("TPHI") and Trump Plaza Funding, Inc. ("TPFI").
The Partnership also has an Audit Committee on which Mr.
Ribis serves with Mr. Leahy and Mr. Askins, who have been
appointed thereto in accordance with the requirements of the CCC.
The Audit Committee reviews matters of policy, purpose,
responsibilities and authority and makes recommendations with
respect thereto on the basis of reports made directly to the Audit
Committee. The Surveillance Department is responsible for the
surveillance, detection and video-taping of unusual and illegal
activities in the casino hotel. The Internal Audit Department is
responsible for the review of, reporting instances of
noncompliance with, and recommending procedures to eliminate
weakness in internal controls.
The sole director of Funding is Trump. Trump also serves as
its Chairman of the Board, President and Treasurer. Patricia M.
Wild serves as its Secretary, and Robert E. Schaffhauser serves as
its Assistant Treasurer.
Set forth below are the names, ages, positions and offices
held with Funding and the Partnership and a brief account of the
business experience during the past five years of each member of
the Board of Partner Representatives, the executive officers of
Funding and the Partnership, and the director of Funding.
Donald J. Trump - Trump, 48 years old, has been the
managing general partner of the Partnership and Chairman of the
Board of Partner Representatives since May 1992 and Chairman of
the Board, President and sole director of Funding since June 1985.
Trump has been the President and sole director of TC/GP since
December 1993. Trump served as Chairman of the Executive
Committee of the Partnership from June 1985 to May 1992 and as
President and sole director of TC/GP from November 1991 to May
1992. Trump has been a director and Treasurer of TCHI since April
17, 1985. Trump is the sole shareholder, Chairman of the Board of
Directors, President and Treasurer of TPFI, and the managing
general partner of TPA. Trump was President and Chairman of the
Board of Directors and a 50% shareholder of TP/GP Corp. ("TP/GP"),
37
the former managing general partner of TPA, from May 1992 through
June 1993; and Chairman of the Executive Committee and President
of TPA from May 1986 to May 1992. Trump has been a director and
President of TPHI and a partner in Trump Plaza Holding Associates
("TPHA") since February 1993. Trump was Chairman of the Executive
Committee of TTMA, from June 1988 to October 1991; and has been
Chairman of the Board of Directors of the managing general partner
of TTMA since October 1991; and President of the Trump
Organization, which has been in the business, through its
affiliates and subsidiaries, of acquiring, developing and managing
real estate properties for more than the past five years. Trump
was a member of the Board of Directors of Alexander's Inc. from
1987 to March 1992.
Nicholas L. Ribis - Mr. Ribis, 50 years old, has been a
partner representative on the Board of Partner Representatives
since May 1992 and Chief Executive Officer of the Partnership
since March 1991. Mr. Ribis has served as Vice President and
Assistant Secretary of TCHI since December 1993 and January 1991,
respectively. Mr. Ribis served as a member of the Executive
Committee of the Partnership from April 1991 to May 1992 and as
Secretary of TC/GP from November 1991 to May 1992. Mr. Ribis has
served as Vice President of TC/GP since December 1993. Mr. Ribis
has served as a director of TPHI since June 1993 and of TPFI since
July 1993; as a director and Vice President of TP/GP from May 1992
to June 1993; Chief Executive Officer of TPA since February 1991;
and a member of the Executive Committee of TPA from April 1991 to
May 1992. He has been Chief Executive Officer of TTMA since March
1991; a member of the Executive Committee of TTMA from April 1991
to October 1991; and a member of the Board of Directors of the
managing general partner of TTMA since October 1991. From January
1980 to January 1991, Mr. Ribis was Senior Partner in, and since
February 1991 is Counsel to, the law firm of Ribis, Graham &
Curtin, which serves as New Jersey legal counsel to all of the
above-named companies, and certain of their affiliated entities.
Mr. Ribis serves as the Chairman of the Atlantic City Casino
Association and is a member of the Board of Trustees of the CRDA.
Ernest E. East - Mr. East, 52 years old, has been a
partner representative on the Board of Partner Representatives
since May 1992 and has been Senior Vice President - Administrative
and Corporate Affairs of the Partnership since July 1991. Mr.
East has served as Secretary of TC/GP since December 1993. Mr.
East has been a director of TPHI since June 1993; Secretary of
TPFI since July 1992; Senior Vice President - Administrative and
Corporate Affairs of TPA since July 1991; Senior Vice President
Administrative and Corporate Affairs of TTMA since July 1991; and
a member of the Board of Directors of the managing general partner
of TTMA since October 1991. Mr. East was formerly the Vice
President - General Counsel of the Del Webb Corporation from
January 1984 through June 1991. Effective August 5, 1994, Mr.
East resigned as Vice President of Administrative Affairs of the
Partnership and from all other positions with the Partnership and
its affiliated entities.
38
Roger P. Wagner - Mr. Wagner, 47 years old, has been a
partner representative on the Board of Partner Representatives
since May 1992 and President and Chief Operating Officer of the
Partnership since January 1991. Mr. Wagner served as a member of
the Executive Committee of the Partnership from January 1991 to
May 1992. Mr. Wagner has been a director and president of TCHI
since January 1991. Prior to joining the Partnership, Mr. Wagner
served as President of the Claridge Hotel Casino from June 1985 to
January 1991.
Asher O. Pacholder - Dr. Pacholder, 57 years old, has
been a partner representative of the Board of Partner
Representatives since May 1992. Dr. Pacholder served as a
director and the President of TC/GP from May 1992 to December
1993. Dr. Pacholder has served as Chairman of the Board and
Managing Director of Pacholder Associates, Inc., an investment
advisory firm, since 1987. In addition, Dr. Pacholder serves on
the Board of Directors of The Southland Corporation, United Gas
Holding Corp., ICO, Inc., an oil field services company, UF&G
Pacholder Fund, Inc., a publicly traded closed end mutual fund,
U.S. Trails, Inc., a recreational facility company, and Forum
Group, Inc., a retirement community managerial company.
Wallace B. Askins - Mr. Askins, 64 years old, has been a
partner representative of the Board of Partner Representatives
since May 1992. Mr. Askins served as a director of TC/GP from May
1992 to December 1993. In addition, Mr. Askins also serves as a
member of the Board of Directors of TPHI and TPFI. From 1987 to
November 1992, Mr. Askins served as Executive Vice President,
Chief Financial Officer and as a director of Armco Inc. Mr.
Askins also serves as a director of EnviroSource, Inc.
Thomas F. Leahy - Mr. Leahy, 57 years old, has been a
Member of the Board of Partner Representatives since June 1993.
Mr. Leahy served as a director and Treasurer of TC/GP from May
1992 to December 1993. From 1987 to July 1992, Mr. Leahy served
as Executive Vice President of CBS Broadcast Group, a unit of CBS,
Inc. Since November 1992, Mr. Leahy has served as President of
the Theater Development Fund, a service organization for the
performing arts. From July 1992 through November 1992, Mr. Leahy
served as chairman of VT Properties, Inc., a privately-held
corporation which invests in literary, stage and film properties.
Patrick R. Dennehy - Mr. Dennehy, 47 years old, has been
Executive Vice President of Operations of the Partnership since
November 1992. Prior to joining the Partnership, Mr. Dennehy was
with Harrah's Atlantic City from 1980 until 1992 in the capacity
of Director of Gaming Operations, Director of Casino Marketing,
Director of Casino Credit and Cashier Manager.
Patricia M. Wild - Ms. Wild, 42 years old, has been
Secretary of Funding and Senior Vice President and General Counsel
of the Partnership and Secretary of TCHI since December 1993. Ms.
Wild served as Assistant Secretary of TPFI and Vice President,
General Counsel of TPA from February 1991 to December 1993; Vice
President and General Counsel of TPFI from July 1992 through
39
December 1993; and Associate General Counsel of TPA from May 1989
through January 1991. From December 1986 to April 1989, Ms. Wild
served as Deputy Attorney General on the Environmental
Prosecutions Task Force of the New Jersey Department of Law and
Public Safety, Division of Criminal Justice. From April 1983 to
December 1986, Ms. Wild served as Deputy Attorney General with the
New Jersey Division of Gaming Enforcement.
Nicholas J. Niglio - Mr. Niglio joined the Partnership
as Executive Vice President of International Marketing/Player
Development in October 1993. Mr. Niglio previously served as
Senior Vice President of Eastern Operations of Caesars World
Marketing Corporation for three years. Prior to that he served as
Vice President-Casino Manager at Caesars Atlantic City for three
years. Effective February 5, 1995, Mr. Niglio resigned his
position as Executive Vice President of International
Marketing/Player Development with Trump's Castle Associates.
Robert E. Schaffhauser - Mr. Schaffhauser, 48 years old,
joined the Partnership as Senior Vice President of Finance in
January 1994 and became Executive Vice President of Finance in
January of 1995. He also became an Assistant Treasurer, Chief
Financial Officer and Chief Accounting Officer of Funding and an
Assistant Treasurer of TCHI and TC/GP in January 1994. He served
as a consultant to Trump during 1993. Mr. Schaffhauser previously
served as Senior Vice President of Finance and Administration for
the Sands Hotel & Casino in Atlantic City for four years. For a
period of 13 years prior thereto, he served as the Chief Financial
Officer and Secretary for Metex Corporation, a publicly held
manufacturer of engineered products. Mr. Schaffhauser also served
as a member of Metex Corporation's Board of Directors.
John P. Burke - Mr. Burke, 47 years old, has been the
Corporate Treasurer of the Partnership and TPA since October 1991.
Mr. Burke has been Chief Accounting Officer of TC/GP since May
1992. Mr. Burke has been a Vice President of TCHI, TC/GP,
Funding and the Partnership since December 1993. Mr. Burke has
been Vice President of The Trump Organization since September
1990. He is a member of the Board of Directors of the managing
general partner of TTMA. Mr. Burke was an Executive Vice
President and Chief Administrative Officer of Imperial Corporation
of America ("Imperial") from April 1989 through September 1990.
Previously he was Executive Vice President and Chief Financial
Officer of Tamco Enterprises, Inc. from May 1980 through April
1989.
Each member of the Board Partner of Representatives, of the
Audit Committee and all of the other persons listed above have
been licensed or found qualified by the CCC.
The employees of the Partnership serve at the pleasure of the
Board of Partner Representatives subject to any contractual rights
contained in any employment agreement. The officers of Funding
serve at the pleasure of Donald J. Trump, the sole director of
Funding.
40
Donald J. Trump and Nicholas L. Ribis served as either
executive officers and/or directors of TTMA and its affiliated
entities when such parties filed their petition for reorganization
under chapter 11 of the Bankruptcy Code on July 17, 1991. The
Second Amended Joint Plan of Reorganization of such parties was
confirmed on August 28, 1991, and was declared effective on
October 4, 1991. Donald J. Trump, Nicholas L. Ribis and John P.
Burke served as executive committee members, officers, and/or
directors of TPA and its affiliated entities, at the time such
parties filed a petition for reorganization under chapter 11 of
the Bankruptcy Code on March 9, 1992. The First Amended Joint
Plan of Reorganization of such parties was confirmed on April 30,
1992, and declared effective on May 29, 1992. Donald J. Trump,
Nicholas L. Ribis, Roger P. Wagner and John P. Burke served as
either executive officers and/or directors of the Partnership and
its affiliated entities when such parties filed their petition for
reorganization under chapter 11 of the Bankruptcy Code in March
1992. The First Amended Joint Plan of Reorganization of such
parties was confirmed on May 5, 1992, and was declared effective
on May 29, 1992. Donald J. Trump was a partner of Plaza Operating
Partners Ltd. when it filed a petition for reorganization under
chapter 11 of the Bankruptcy Code on November 2, 1992. The Plan
of Reorganization was confirmed on December 11, 1992 and declared
effective in January 1993. John P. Burke was Executive Vice
President and Chief Administrative Officer of Imperial, a thrift
holding company whose major subsidiary, Imperial Savings was
seized by the Resolution Trust Corporation in February 1990.
Subsequently, in February 1990, Imperial filed a petition for
reorganization under chapter 11 of the Bankruptcy Code.
ITEM 11. EXECUTIVE COMPENSATION.
Executive officers of Funding do not receive any additional
compensation for serving in such capacity. In addition, Funding
and the Partnership do not offer their executive officers stock
option or stock appreciation right plans, long-term incentive
plans or defined benefit pension plans.
The following table sets forth compensation paid or accrued
during the years ended December 31, 1994, 1993 and 1992 to the
Chief Executive Officer, and each of the four most highly
compensated executive officers of the Partnership whose cash
compensation, including bonuses and deferred compensation,
exceeded $100,000 for the year ended December 31, 1994.
Compensation accrued during one year and paid in another is
recorded under the year of accrual. Information relating to long-
term compensation is inapplicable and has therefore been omitted
from the table.
41
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION
Name and Other Annual All Other
Principal Position Year Salary Bonus Compensation Compensation)
Nicholas L. Ribis 1994 $568,333 -- $69,000 $770
Chief Executive 1993 $250,000 $250,000 $226,000 $750
Officer 1992 $150,000 $300,000 $168,500 --
Roger P. Wagner 1994 $501,610 $114,670 $60,000 $4,620
Chief Operating 1993 $402,070 $76,393 $65,000 $4,497
Officer 1992 $425,228 $95,000 $60,000 $4,171
Patrick R. Dennehy 1994 $205,845 $36,452 -- $2,695
Executive Vice 1993 $177,083 $33,646 -- $2,248
President of 1992 $22,885 $50,000 -- --
Operations
Nicholas Niglio 1994 $251,275 $100,000 -- $4,620
Executive Vice 1993 $45,192 $100,000 -- --
President 1992 -- -- -- --
International
Marketing/Player
Development
Ernest E. East 1994 $138,279 -- $62,500 $770
Vice President- 1993 $100,644 $50,000 $67,500 $750
Administrative Affair 1992 $85,481 $66,667 $60,000 $727
Robert E. Schaffhauser 1994 $173,088 $31,156 -- --
Executive Vice 1993 -- -- -- --
President Finance 1992 -- -- -- --
Represents the dollar value of annual compensation not properly
categorized as salary or bonus, including amounts reimbursed for
income taxes and Director's Fees. Following SEC rules, perquisites
and other personal benefits are not included in this table if the
aggregate amount of that compensation is the lesser of either $50,000
or 10% of the total salary and bonus for that officer.
Represents vested and unvested contributions made by the Partnership
under the Trump's Castle Hotel & Casino Retirement Savings Plan. Funds
accumulated for an employee, which consist of a certain percentage of
the employee's compensation plus Partnership contributions equalling
50% of the participant's contributions, are retained until termination
of employment, attainment of age 59-1/2 or financial hardship, at which
time the employee may withdraw his or her vested funds.
Mr. Ribis devotes approximately one-third of his professional time to
the affairs of the Partnership; the compensation for his positions at
other Trump Casinos has not been included.
Effective February 5, 1995, Mr. Niglio resigned as Executive Vice
President of International Marketing/Player Development.
Mr. East devoted approximately one-third of his professional time to the
affairs of the Partnership; the compensation for his positions at other
Trump Casinos has not been included.
Effective August 5, 1994, Mr. East resigned as Vice President of
Administrative Affairs of the Partnership and from all other positions
with the Partnership and its affiliated entities.
42
Employment Agreements. In September 1993, the Partnership
entered into an employment agreement with Nicholas L. Ribis
pursuant to which Mr. Ribis acts as Chief Executive Officer of the
Partnership. The agreement, which expires in September 1996,
provides for an annual salary of $550,000. The salary increases
by ten percent for each of the second and third years of the
agreement. Upon execution of the employment agreement, Mr. Ribis
received a $250,000 signing bonus. In the event the Partnership,
or any entity which acquires substantially all of the equity
interests or assets of the Partnership, proposes to engage in an
offering of common shares to the public, the Partnership and Mr.
Ribis have agreed to negotiate new compensation arrangements which
shall include equity participation for Mr. Ribis. Mr. Ribis also
acts as Chief Executive Officer of TTMA and TPA, the Partnerships
that own the Other Trump Casinos, and receives additional
compensation from such entities. Mr. Ribis devotes approximately
one-third of his professional time to the affairs of the
Partnership. All other executive officers of the Partnership,
except Mr. Burke, devote substantially all of their time to the
business of the Partnership.
The Partnership, on January 17, 1991, entered into an
employment agreement with Roger P. Wagner, with an amendment
thereto dated January 17, 1991, and a second amendment thereto
dated July 18, 1992, pursuant to which Mr. Wagner serves as the
Partnership's and TCHI's President and Chief Operating Officer.
Mr. Wagner's employment agreement, which terminates on January 16,
1997, provides for an annual salary beginning at a minimum of
$400,000 until January 16, 1994, thereafter $500,000 per year
until January 16, 1995, thereafter $600,000 per year until January
16, 1996, and thereafter $750,000 per year from January 17, 1996
until January 16, 1997 and, subject to CCC approval, 1% of the
Partnership's Income from Operations (as defined in such
agreement) in excess of $40.0 million.
Pursuant to an employment agreement dated November 2, 1992
and amended on May 13, 1993, Patrick R. Dennehy serves as
Executive Vice President of Operations of the Partnership. The
agreement provides for an annual salary beginning at $170,000,
along with a discretionary annual bonus and annual salary
increases in accordance with regular policies.
Compensation of Directors. Each Partner Representative of
the Partnership (other than Messrs. Trump, Ribis and Wagner)
receives an annual fee of $50,000. In addition, each Partner
Representative of the Partnership (other than Messrs. Trump, Ribis
and Wagner) receives $2,500 per meeting attended, plus reasonable
out-of-pocket expenses incurred in attending any meeting of the
Board.
Compensation Committee Interlocks and Insider Participation.
In general, the compensation of executive officers of the
Partnership is determined by the Board of Partner Representatives,
which is composed of Donald J. Trump, Nicholas L. Ribis, Roger P.
Wagner, Asher O. Pacholder, Thomas F. Leahy and Wallace B. Askins.
The compensation of Nicholas L. Ribis and Roger P. Wagner is set
43
forth in their employment agreements with the Partnership. The
Partnership has delegated the responsibility over certain matters,
such as the bonus of Mr. Ribis, to Trump. Executive officers of
Funding do not receive any additional compensation for serving in
such capacity.
The SEC requires issuers to disclose the existence of any
other corporation in which both (i) an executive officer of the
registrant serves on the board of directors and/or compensation
committee, and (ii) a director of the registrant serves as an
executive officer. Messrs. Ribis, Wagner and Burke, executive
officers of the Partnership, serve on the Board of Directors of
other entities in which members of the Board of Partner
Representatives (namely, Messrs. Trump and Ribis) serve as
executive officers. The Partnership believes that such
relationships have not affected the compensation decisions made by
the Board of Partner Representatives in the last fiscal year.
Mr. Wagner serves as a director of TCHI, of which Messrs.
Trump and Ribis serve as executive officers.
Messrs. Ribis and Burke serve on the Board of Directors of
Taj Mahal Holding Corp., which holds an indirect equity interest
in TTMA, the partnership that owns the Taj Mahal, of which Messrs.
Trump and Ribis are executive officers. Such persons also serve
on the Board of Directors of TM/GP Corporation (a subsidiary of
Taj Mahal Holding Corp.), the managing general partner of TTMA, of
which Messrs. Trump and Ribis are executive officers. Mr. Ribis
is compensated by TTMA for his services as its chief executive
officer.
Mr. Ribis also serves on the Board of Directors of Trump Taj
Mahal Realty Corp. ("Taj Realty Corp."), which leases certain real
property to TTMA, of which Trump is an executive officer. Trump,
however, does not receive any compensation for serving as an
executive officer of Taj Realty Corp.
Messrs. Trump and Ribis serve on the Board of Directors of
TPFI, the managing general partner of TPA, of which Messrs. Trump
and Ribis are executive officers. Messrs. Trump and Ribis also
serve on the Board of Directors of TPHI, of which such persons are
also executive officers. Mr. Ribis is compensated by TPA for his
services as chief executive officer.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.
The following table sets forth information with respect to
the amount of Funding's Common Stock owned by beneficial owners of
more than 5% of Funding's Common Stock. Funding has no other
class of equity securities outstanding.
44
Amount and Nature
Name and address of of beneficial Percent
Title or Class Beneficial Owners Ownership of class
______________ ___________________ _________________ ________
Common Stock Trump's Castle 200 shares 100%
Associates
Huron Avenue and
Brigantine Blvd.
Atlantic City,
New Jersey 08401
Currently, Trump, TC/GP and TCHI hold 61.5%, 37.5% and 1.0%
interests, respectively, in Trump's Castle Associates and
therefore are the beneficial owners of all of the outstanding
shares of Common Stock of Funding.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Other Trump Casinos. The following table sets forth the
amounts due to the Partnership from Trump and his Affiliates as of
December 31, 1994. For a more detailed description of the
Partnership's transactions with Trump and his Affiliates, see
"Other Transactions with Affiliates" below.
Amount Due and Outstanding
to the Partnership
as of December 31, 1994
__________________________
Trump Plaza Associates. . . . . . . . . . . .$140,000
Trump Taj Mahal Associates. . . . . . . . . . .46,000
The Trump Organization. . . . . . . . . . . . 248,000
Total Due from Affiliates
as of December 31, 1994. . . . . . . . .$434,000
Other Transactions With Affiliates. In December 1990, Fred
Trump, the father of Donald J. Trump, placed $3,500,000 in cash on
deposit with the Partnership's casino cage, which was recorded by
the Partnership as a gaming patron deposit. Counter checks
totalling $3,500,000 were issued against the deposit, for which
Fred Trump received gaming chips valued at $3,500,000. On October
8, 1992, in accordance with the applicable indenture, Fred Trump
redeemed $1,000,000 in gaming chips for cash. In December 1993,
Fred Trump redeemed $1,000,000 in gaming chips and placed the same
amount on deposit in the casino cage. This amount was included in
Patrons Deposits as of December 31, 1993 and was subsequently
redeemed on January 6, 1994. On May 19, 1994 in accordance with
the applicable indentures, Fred Trump redeemed $1,475,000 in
gaming chips for cash. The remaining gaming chip liability to
Fred Trump of $25,000 is included in unredeemed chip liability as
of December 31, 1994.
45
The Partnership has engaged in transactions with TPA, TTMA,
Plaza Operating Partners, Ltd. ("Plaza Hotel"), the partnership
which operates The Plaza Hotel in New York City, and The Trump
Organization. TPA, Plaza Hotel, The Trump Organization and TTMA
are affiliates of Donald J. Trump. These transactions include
certain shared payroll costs, fleet maintenance and limousine
services, as well as complimentary services offered to customers,
for which the Partnership makes the initial payment and is then
reimbursed by the Affiliates. During 1994, the Partnership
incurred expenses of approximately $1.3 million in corporate
salaries, and $1.0 million of other transactions on behalf of
these related entities. In addition, the Partnership received
payments totalling $2.0 million for services rendered and had $0.4
million of deductions for similar services incurred by these
related entities on behalf of the Partnership.
Pursuant to the terms of the Partnership Agreement, the
Partnership paid a $1.5 million cash bonus to Trump on February
16, 1994. In December of 1994, the Board of Partner
Representatives authorized a $1,000,000 cash bonus to be paid in
equal parts in May and November of 1995 subject to certain
conditions.
Services Agreement. On December 28, 1993, the Partnership
cancelled its existing management agreement with a corporation
wholly owned by Trump and entered into a Services Agreement with
TC/GP (the "Services Agreement"). In general, the Services
Agreement obligates TC/GP to provide to the Partnership, from
time-to-time when reasonably requested, consulting services on a
non-exclusive basis, relating to marketing, advertising,
promotional and other related services (the "Services") with
respect to the business and operations of the Partnership, in
exchange for certain fees to be paid only in those years in which
EBITDA (EBITDA represents income from operations before
depreciation, amortization, restructuring costs and the non-cash
write-down of CRDA investments) exceeds prescribed amounts.
In consideration for the Services to be rendered by TC/GP,
the Partnership will pay an annual fee (which is identical to the
fee which was payable under the management agreement) to TC/GP in
the amount of $1.5 million for each year in which EBITDA exceeds
the following amounts for the years indicated: 1993 - $40.5
million; 1994 - $45.0 million; 1995 and thereafter - $50.0
million. If EBITDA in any fiscal year does not exceed the
applicable amount, the annual fee will be $0. In addition, TC/GP
will be entitled to an incentive fee beginning with the fiscal
year ending December 31, 1994 in an amount equal to 10% of EBITDA
in excess of $45.0 million for such fiscal year. The Partnership
will also be required to advance to TC/GP $125,000 a month which
will be applied toward the annual fee, provided, however, that no
advances will be made during any year if and for so long as the
Managing Partner (defined in the Services Agreement as Trump)
determines, in his good faith reasonable judgment, that the
Partnership's budget and year-to-date performance indicate that
the EBITDA target for such year will not be met. If for any year
during which annual fee advances have been made it is determined
46
that the annual fee was not earned, TC/GP will be obligated to
promptly repay any amounts previously advanced. For purposes of
calculating EBITDA under the Services Agreement, any incentive
fees paid in respect of 1994 or thereafter shall not be deducted
in determining net income.
During the year ended 1994, the Partnership recorded fees of
$2,111,000 under the Services Agreement.
Unless sooner terminated pursuant to its terms, the Services
Agreement will expire on December 31, 2005.
47
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND
REPORTS ON FORM 8-K
(A) Financial Statements. See the Index immediately
following the signature page.
(B) Reports on Form 8-K. Funding did not file any
reports on form 8-K during the last quarter of the
year ended December 31, 1994.
(C) Exhibits. All exhibits listed below are filed
with this Annual Report on Form 10-K unless
specifically stated to be incorporated by
reference to other documents previously filed with
the Securities and Exchange Commission.
Exhibit
3(15) -Amended and Restated Certificate of Incorporation
of Funding.
3.1(15) -Bylaws of Funding.
3.2-3.6 -Intentionally omitted.
3.7(14) -Second Amended and Restated Partnership Agreement
of the Partnership.
4.1-4.10 -Intentionally omitted.
4.11(14) -Indenture, among Funding, as issuer, the
Partnership, as guarantor, and the Mortgage Note
Trustee, as trustee.
4.12(14) -Indenture of Mortgage between the Partnership, as
Mortgagor, and Funding, as Mortgagee.
4.13(14) -Assignment Agreement between Funding and the
Mortgage Note Trustee.
4.14(14) -Partnership Note.
4.15 -Form of Mortgage Note (included in Exhibit 4.11).
4.16 -Form of Partnership Guarantee (included in Exhibit
4.11).
4.17(14) -Indenture between Funding, as issuer, the
Partnership, as guarantor, and the PIK Note
Trustee, as trustee.
4.18(14) -Pledge Agreement between Funding and the PIK Note
Trustee.
48
4.19(14) -Subordinated Partnership Note.
4.20 -Form of PIK Note (included in Exhibit 4.17).
4.21 -Form of Subordinated Partnership Guarantee
(included in exhibit 4.17).
4.22(15) -Letter Agreement between the Partnership and the
Proposed Senior Secured Note Purchasers regarding
the Senior Secured Notes.
4.23(14) -Note Purchase Agreement for 11-1/2% Series A
Senior Secured Notes of the Partnership due 1999.
4.24(14) -Indenture, among Funding, as issuer, the
Partnership, as guarantor, and the Senior Secured
Note Trustee, as trustee.
4.25(14) -Indenture of Mortgage and Security Agreement
between the Partnership, as mortgagor/debtor, and
Funding as mortgagee/secured party. (Senior Note
Mortgage).
4.26(14) -Registration Rights Agreement by and among the
Partnership and certain purchasers.
4.27 -Intentionally omitted.
4.28(14) -Guarantee Mortgage.
4.29(14) -Senior Partnership Note.
4.30(14) -Indenture of Mortgage and Security Agreement
between the Partnership as mortgagor/debtor and
the Senior Note Trustee as mortgagee/secured
party. (Senior Guarantee Mortgage).
4.31(14) -Assignment Agreement between Funding, as assignor,
and the Senior Note Trustee, as assignee.
(Senior Assignment Agreement).
4.32(14) -Amended and Restated Nominee Agreement.
10.1-10.2 -Intentionally omitted.
10.3(7) -Employment Agreement dated January 17, 1991,
between the Partnership and Roger P. Wagner.
10.4(2) -Second Amendment to Employment Agreement dated
January 17, 1991 between the Partnership, TCHI,
and Roger P. Wagner.
10.5(3) -Form of License Agreement between the Partnership
and Donald J. Trump.
10.6 -Intentionally Omitted.
49
10.8-10.10 -Intentionally omitted.
10.11(14) -Employment Agreement, between the Partnership and
Nicholas Ribis.
10.12(5) -Trump's Castle Hotel & Casino Retirement Savings
Plan, effective as of September 1, 1986.
10.13-10.16 -Intentionally omitted.
10.19(7) -Lease Agreement by and between State of New Jersey
acting through its Department of Environmental
Protection, Division of Parks and Forests, as
Landlord, and the Partnership, as tenant, dated
September 1, 1990.
10.20-10.21 -Intentionally omitted.
10.26A(10) -Employment Agreement, dated November 2, 1992,
between Patrick Dennehy and the Partnership.
10.26B(15) -Amendment of Employment Agreement, dated May 13,
1993, between Patrick Dennehy and the
Partnership.
10.27(15) -Services Agreement.
10.28-10.29 -Intentionally omitted.
10.32(11) -Employment Agreement dated December 20, 1993,
between Patricia M. Wild and the Partnership
10.33(11) -Intentionally Omitted.
10.34(11) -Amended and Restated Credit Agreement, dated as of
December 28, 1993, among Midlantic, the
Partnership and Funding.
10.35(11) -Amendment No. 1 to Amended and Restated Indenture
of Mortgage, between the Partnership, as
Mortgagor and Midlantic, as Mortgagee.
10.36(11) -Amended and Restated Indenture of Mortgage,
between the Partnership, as Mortgagor and
Midlantic, as Mortgagee, dated as of May 29,
1992.
10.37(11) -Amendment No. 1 to Amended and Restated Assignment
of Leases and Rents, between the Partnership, as
assignor, and Midlantic, as assignee.
10.38(11) -Amended and Restated Assignment of Leases and
Rents, between the Partnership, as assignor, and
Midlantic, as assignee, dated as of May 29, 1992.
50
10.39(11) -Amendment No. 1 to Amended and Restated Assignment
of Operating Assets, between the Partnership, as
assignor and Midlantic, as assignee.
10.40(11) -Amended and Restated Assignment of Operating
Assets, between the Partnership, as assignor, and
Midlantic, as assignee, dated as of May 29, 1992.
10.41(11) -Intercreditor Agreement, by and among Midlantic,
the Senior Note Trustee, the Mortgage Note
Trustee, the PIK Note Trustee, Funding and the
Partnership.
_________________
(1) Incorporated herein by reference to the identically
numbered Exhibit to Funding's Registration Statement on
Form S-4, Registration No. 33-41759, declared effective on
January 23, 1992.
(2) Incorporated herein by reference to the Exhibit to
Funding's Quarterly Report on Form 10-Q for the quarter
ended June 30, 1992.
(3) Incorporated herein by reference to the Exhibit to
Funding's Annual Report on Form 10-K for the year ended
December 31, 1991.
(4) Incorporated herein by reference to the Exhibit to
Funding's Annual Report on Form 10-K for the year ended
December 31, 1987.
(5) Incorporated herein by reference to the Exhibit to
Funding's Annual Report on Form 10-K for the year ended
December 31, 1986.
(6) Incorporated herein by reference to Exhibit 10.12 to
Funding's Annual Report on Form 10-K for the year ended
December 31, 1989.
(7) Incorporated herein by reference to the Exhibit to
Funding's Annual Report on Form 10-K for the year ended
December 31, 1990.
(8) Incorporated herein by reference to Exhibit 10.2 to
Funding's Registration Statement on Form S-1, Registration
No. 2-99088, declared effective on September 20, 1985.
(9) Incorporated herein by reference to the Exhibit to
Funding's Registration Statement on Form S-1, Registration
No. 33-14907, declared effective on July 21, 1987.
(10) Incorporated herein by reference to the Exhibit to
Funding's Annual Report on Form 10-K for the year ended
December 31, 1992.
51
(11) Incorporated herein by reference to the identically
numbered Exhibit to Funding's Registration Statement on
Form S-4, Registration Number 33-52309 filed with the SEC
on February 17, 1994.
(12) Incorporated herein by reference to the Exhibit to TC/GP's
Quarterly Report on Form 10-Q for the quarter ended June
30, 1992.
(13) Incorporated herein by reference to the Exhibit to
Funding's Quarterly Report on Form 10-Q for the quarter
ended March 31, 1993.
(14) Incorporated herein by reference to the Exhibit to
Amendment No. 5 to the Schedule 13E-3 of TC/GP and the
Partnership, File No. 5-36825, filed with the SEC on
January 11, 1994.
(15) Incorporated herein by reference to the Exhibit to
Funding's and the Partnership's Registration Statement on
Form S-4, Registration No. 33-68038.
52
INDEX TO FINANCIAL STATEMENTS
Report of Independent Public Accountants F-1
Consolidated Balance Sheets of Trump's Castle
Associates and Subsidiary as of December 31,
1994 and 1993 F-2
Consolidated Statements of Operations of Trump's
Castle Associates and Subsidiary for the years
ended December 31, 1994, 1993 and 1992 F-3
Consolidated Statements of Capital (Deficit) of
Trump's Castle Associates for the years ended
December 31, 1994, 1993 and 1992 F-4
Consolidated Statements of Cash Flows of Trump's
Castle Associates and Subsidiary for the years
ended December 31, 1994, 1993 and 1992 F-5
Notes to Consolidated Financial Statements of
Trump's Castle Associates and Subsidiary F-6
Schedule
II Valuation and Qualifying Accounts for the
years ended December 31, 1994, 1993 and
1992 F-19
Other Schedules are omitted for the reason that they
are not required or are not applicable, or the required
information is included in the combined financial statements
or notes thereto.
F-1
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Trump's Castle Associates
and Subsidiary:
We have audited the accompanying consolidated balance sheets of
Trump's Castle Associates (a New Jersey general partnership) and
Subsidiary as of December 31, 1994 and 1993, and the related
consolidated statements of operations, partners' capital (deficit) and
cash flows for each of the three years in the period ended December 31,
1994. These consolidated financial statements and the schedule
referred to below are the responsibility of the Partnership's
management. Our responsibility is to express an opinion on these
consolidated financial statements and schedules based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Trump's
Castle Associates and Subsidiary as of December 31, 1994 and 1993, and
the results of their operations and their cash flows for each of the
three years in the period ended December 31, 1994, in conformity with
generally accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the
basic financial statements taken as a whole. The schedule listed in
the index to the financial statements is presented for purposes of
complying with the Securities and Exchange Commission's rules and is
not part of the basic financial statements. This schedule has been
subjected to the auditing procedures applied in our audits of the basic
financial statements and, in our opinion, fairly state in all material
respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.
Arthur Andersen, LLP
Roseland, New Jersey
February 16, 1995
F-2A
TRUMP'S CASTLE ASSOCIATES AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS -- DECEMBER 31, 1994 AND 1993
ASSETS 1994 1993
CURRENT ASSETS:
Cash and cash equivalents (Note 3) $19,122,000 $20,439,000
Trade receivables, less allowance for
doubtful accounts of $3,704,000 and
$1,928,000 respectively 6,403,000 7,316,000
Accounts receivable, other 2,455,000 2,338,000
Due from affiliates, net (Note 6) 434,000 615,000
Inventories (Note 3) 1,790,000 2,315,000
Prepaid expenses and
other current assets (Note 3) 4,830,000 3,515,000
Total current assets $35,034,000 $36,538,000
PROPERTY AND EQUIPMENT (Notes 3, 4, and 5):
Land and land improvements 62,706,000 62,177,000
Buildings and building improvements 327,487,000 324,636,000
Furniture, fixtures and equipments 108,308,000 103,446,000
Construction in progress 3,196,000 3,194,000
501,697,000 493,453,000
Less - Accumulated depreciation 173,523,000 159,099,000
328,174,000 334,354,000
OTHER ASSETS 5,589,000 5,043,000
Total assets $368,797,000 $375,935,000
The accompanying notes to consolidated financial statements are an
integral part of these consolidated balance sheets.
F-2B
TRUMP'S CASTLE ASSOCIATES AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS -- DECEMBER 31, 1994 AND 1993
LIABILITIES AND CAPITAL (DEFICIT) 1994 1993
CURRENT LIABILITIES:
Current maturities-other borrowings (Note 5) $1,108,000 $0
Trade accounts payable 5,616,000 2,354,000
Accrued payroll 8,625,000 8,842,000
Accrued interest payable (Note 2) 3,994,000 234,000
Unredeemed chip liability (Note 6) 1,687,000 4,448,000
Patron deposits 227,000 3,099,000
Other 12,827,000 15,486,000
Total current liabilities 34,084,000 34,463,000
MORTGAGE NOTES, due 2003 (Notes 4 and 10) 204,412,000 202,552,000
(Net of discount of $ 37,729,000)
PIK NOTES, due 2005 (Notes 4 and 10) 46,129,000 42,242,000
(Net of discount of $ 7,965,000)
OTHER LONG TERM LIABILITIES 3,315,000 -
OTHER BORROWINGS (Note 5) 63,892,000 65,000,000
Total liabilities 351,832,000 344,257,000
COMMITMENTS AND CONTINGENCIES (Note 7)
PARTNERS' CAPITAL (Notes 2 and 6):
Contributed Capital 73,395,000 73,395,000
Accumulated Deficit (56,430,000) (41,717,000)
Total partners' capital 16,965,000 31,678,000
Total liabilities and capital $368,797,000 $375,935,000
The accompanying notes to consolidated financial statements are an
integral part of these consolidated balance sheets.
F-3
TRUMP'S CASTLE ASSOCIATES AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
1994 1993 1992
REVENUES:
Gaming (Note 3) $258,455,000 $246,370,000 $242,008,000
Rooms 19,514,000 19,647,000 17,785,000
Food and beverage 28,447,000 30,608,000 31,361,000
Other 8,969,000 8,201,000 8,152,000
Gross Revenues 315,385,000 304,826,000 299,306,000
Less-Promotional allowances (Note 3) 31,572,000 31,599,000 30,656,000
Net Revenues 283,813,000 273,227,000 268,650,000
COSTS AND EXPENSES (Notes 2, 6 and 7)
Gaming 153,908,000 148,415,000 149,376,000
Rooms 3,036,000 3,421,000 3,306,000
Food and beverage 13,887,000 15,970,000 16,502,000
General and administrative 57,108,000 50,044,000 52,939,000
Depreciation and amortization 14,437,000 16,425,000 19,802,000
Reorganization costs - - 5,983,000
Other 12,613,000 11,086,000 12,715,000
254,989,000 245,361,000 260,623,000
Income from operations 28,824,000 27,866,000 8,027,000
INTEREST INCOME 636,000 675,000 499,000
INTEREST EXPENSE, including
approximately $9,000,000
in transaction costs related
to the Recapitalization Plan
in 1993 (Note 2). (44,173,000) (56,926,000) (45,360,000)
Loss before extraordinary gain (14,713,000) (28,385,000) (36,834,000)
EXTRAORDINARY GAIN ON PLAN
OF REORGANIZATION (Note 2) - - 128,187,000
Net Income (Loss) ($14,713,000) ($28,385,000) $91,353,000
The accompanying notes to consolidated financial statements are
an integral part of these consolidated statements.
F-4
TRUMP'S CASTLE ASSOCIATES AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF PARTNERS' CAPITAL (DEFICIT)
FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
Contributed Accumulated
Capital Deficit Total
Balance at December 31, 1991 $40,070,000 ($103,476,000) ($63,406,000)
Capital Contribution 33,325,000 - 33,325,000
Net income - 91,353,000 91,353,000
Partnership Distribution - (473,000) (473,000)
Balance at December 31, 1992 73,395,000 (12,596,000) 60,799,000
Net loss - (28,385,000) (28,385,000)
Partnership Distribution (Note 6) - (736,000) (736,000)
Balance at December 31, 1993 73,395,000 (41,717,000) 31,678,000
Net loss
- (14,713,000) (14,713,000)
Balance at December 31, 1994 $73,395,000 ($56,430,000) $16,965,000
The accompanying notes to consolidated financial statements are
an integral part of these consolidated statements.
F-5
TRUMP'S CASTLE ASSOCIATES AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
1994 1993 1992
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss)income ($14,713,000) ($28,385,000) $91,353,000
Adjustments to reconcile net (loss)income
to net cash flows provided by (used in)
operating activities-
Noncash charges-
Extraordinary Gain - - (128,187,000)
Depreciation and amortization 14,437,000 16,425,000 19,802,000
Accretion of bond discount 2,148,000 10,395,000 6,617,000
Provision for losses on receivables 3,438,000 755,000 2,290,000
Amortization of CRDA tax credits 955,000 115,000 679,000
Valuation allowance - CRDA investments 735,000 953,000 656,000
7,000,000 258,000 (6,790,000)
Increase in receivables (2,461,000) (3,461,000) (2,057,000)
Decrease (increase) in inventories 525,000 (155,000) (309,000)
(Increase) decrease in other
current assets (2,461,000) (701,000) 141,000
Decrease (increase) in other assets 1,069,000 (42,000) 9,368,000
Increase (decrease) in current
liabilities 2,112,000 (4,980,000) 19,028,000
Increase (decrease) in other
liabilities 3,315,000 0 0
Net cash flows provided by
(used in) operating activities 9,290,000 (9,081,000) 19,381,000
CASH FLOWS USED BY INVESTING ACTIVITIES:
Purchases of property and equipment, net (8,257,000) (10,396,000) (8,574,000)
Purchase of CRDA investments (2,350,000) (2,958,000) (1,696,000)
Net cash flows used in
investing activities (10,607,000) (13,354,000) (10,270,000)
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of Senior Notes - 27,000,000 -
Repayment of Bank Borrowings - (7,000,000) -
Distributions to TC\GP,INC. - (736,000) (473,000)
Net cash flows provided by
(used in) financing activities - 19,264,000 (473,000)
Net (decrease) increase in
cash and cash equivalents (1,317,000) (3,171,000) 8,638,000
CASH AND CASH EQUIVALENTS
AT BEGINNING OF YEAR 20,439,000 23,610,000 14,972,000
CASH AND CASH EQUIVALENTS
AT END OF YEAR $19,122,000 $20,439,000 $23,610,000
The accompanying notes to consolidated financial statements are
an integral part of these consolidated statements.
F-6
TRUMP'S CASTLE ASSOCIATES AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) Organization and Operations:
The accompanying consolidated financial statements include
those of Trump's Castle Associates, a New Jersey general
partnership (the "Partnership") and its wholly-owned subsidiary,
Trump's Castle Funding, Inc., a New Jersey corporation (the
"Company"). All significant intercompany balances and
transactions have been eliminated in the consolidated financial
statements.
The Partnership was formed as a limited partnership in 1985
for the sole purpose of acquiring and operating Trump's Castle
Casino Resort ("Trump's Castle"). The Partnership converted to a
general partnership in February 1992. As a result of a
recapitalization involving the Partnership, the Company and TC/GP,
Inc. ("TC/GP") in December, 1993 (Note 2), the Partnership is
wholly-owned by Donald J. Trump, and his wholly-owned companies,
TC/GP and Trump's Castle Hotel & Casino Inc. ("TCHC"), subject to
outstanding warrants for 50% of TCHI (the "TCHI Warrants").
Donald J. Trump has pledged his direct and indirect ownership
interest in the Partnership as collateral under various personal
debt agreements.
The Company was incorporated on May 28, 1985 solely to serve
as a financing company to raise funds through the issuance of
bonds to the public (Note 4). Since the Company has no business
operations, its ability to repay the principal and interest on
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.
(2) Plan of Reorganization and Subsequent Recapitalization:
Plan of Reorganization
On March 9, 1992, the Partnership, the Company, and TCHC
filed a voluntary petition for relief under chapter 11, title 11
of the United States Bankruptcy Code (the "Bankruptcy Code") and
filed a Plan of Reorganization (the "Plan"). The Plan was
confirmed by the Bankruptcy Court on May 5, 1992 and the Plan was
consummated on May 29, 1992 (the "Effective Date"). Pursuant to
the terms of the Plan, the Company's then outstanding bonds (the
"Old Bonds") were exchanged for new bonds and common stock of
TC/GP (Note 4) and certain modifications were made to the terms of
bank borrowings (Note 5) and amounts owed to Donald J. Trump (Note
6). The issuance of the common stock of TC/GP resulted in
F-7
approximately 50% of the beneficial ownership interest in the
Partnership being transferred to the holders of the Old Bonds.
In accordance with AICPA Statement of Position 90-7,
"Financial Reporting by Entities in Reorganization Under the
Bankruptcy Code," the Bonds issued at the time of the
reorganization were stated at the present value of amounts to be
paid, determined at current interest rates (effective rate of
approximately 17.4%). The effective interest rate of these Bonds
was determined based on the trading price of these Bonds for a
specific period. Stating the debt at its approximate present
value resulted in a reduction in the $322,987,000 initial face
amount of these Bonds of approximately $96,896,000. This gain
was to be offset by increased interest costs over the period of
the bonds to accrete such bonds to their face value at maturity.
On the Effective Date, TC/GP received a 49.995% Partnership
interest in the Partnership and was admitted as a partner. TC/GP
also received a 50% beneficial interest in TCHC, a partner in the
Partnership, which held a .01% partnership interest, thereby
giving TC/GP a 50% beneficial interest in the Partnership. On the
Effective Date the partners executed the Amended and Restated
Partnership Agreement (the "Partnership Agreement"), which
provided for, among other things, a Board of Partner
Representatives (the "Board") to oversee the business and
operations of the Partnership. Pursuant to the terms of the
Partnership Agreement, Donald J. Trump was appointed the Managing
General Partner of the Partnership responsible for its day-to-day
operations and appointed four of the seven members of the Board.
The remaining members of the Board were appointed by TC/GP through
the holders of its Common Stock.
The Plan resulted in an extraordinary gain totaling
approximately $128,187,000, including the $96,896,000 discussed
above, $18,000,000 representing the forgiveness of bank debt (Note
5), and $22,805,000 representing a discharge of accrued interest
and accretion on indebtedness less the write-off of unamortized
loan issuance costs of $9,514,000. On the Effective date, 35,447
of additional units (Note 4) were issued in lieu of the Bond
Carryforward Amount, as defined and the Effective Date Amount, as
defined. Additionally, the Plan resulted in a discharge of
related party indebtedness in the approximate amount of
$33,325,000 which has been accounted for as a contribution to
capital (Note 6).
Recapitalization
On December 28, 1993, the Partnership, the Company and TC/GP
consummated a Recapitalization Plan whereby each $1,000 of
principal of the 9.5% Mortgage Bonds issued as part of the Plan
was exchanged for $750 principal amount of the Company's 11-3/4%
Mortgage Notes due 2003 (the "Mortgage Notes"), $120 principal
amount of the Company's Increasing Rate Subordinated Pay-in-Kind
Notes due 2005 (the "PIK Notes") and a cash payment of $6.19 plus
all accrued and unpaid interest. Those bondholders who did not
F-8
elect to exchange their Bonds received a cash payment in
redemption of their Bonds of $750 for each $1,000 of principal
amount of bonds plus accrued and unpaid interest. In addition,
each share of TC/GP common stock was exchanged for $35 principal
amount of PIK Notes.
As a result of the Recapitalization Plan, approximately 96%
of the principal amount of the previously issued Bonds were
exchanged for Mortgage Notes and PIK Notes and the TC/GP common
stock was redeemed. Those Bonds that were redeemed for cash were
purchased at an amount which approximated their net book value at
the date of purchase. The net book value of the exchanged Bonds
has been carried forward and allocated to the Mortgage Notes and
PIK Notes in proportion to the principal amount of Mortgage Notes
and PIK Notes issued. The difference between the principal amount
and net book value of these Mortgage Notes and PIK Notes will be
accreted as a charge to interest expense over the life of the
Mortgage Notes and PIK Notes using the effective interest method.
In addition to the Mortgage Notes and PIK Notes, the Company
issued $27,000,000 of 11-1/2% Senior Secured Notes, due 2000 (the
"Senior Notes"). A portion of the proceeds from the Senior Notes
were used to repay the $7,000,000 Grid Note (Note 5).
Transaction costs related to the Recapitalization of
approximately $9,000,000 were included in interest expense.
Included in these costs was a $1,500,000 bonus to Donald J. Trump
for the services he provided in connection with the
Recapitalization.
(3) Accounting Policies:
Gaming Revenues
The Partnership records as gross gaming revenues the
differences between amounts wagered and amounts won by casino
patrons.
During 1992, certain Progressive Slot Jackpot Programs were
discontinued which resulted in $1,767,000 of related accruals
being taken into income.
Promotional Allowances
Gross revenues include the retail value of the complimentary
food, beverage and hotel services furnished to patrons. The retail
value of these promotional allowances is deducted from gross
revenues to arrive at net revenues. The cost of such
complimentaries have been included as casino expenses in the
accompanying consolidated statements of operations. The cost of
complimentaries allocated from rooms, food and beverage
departments to the casino department during the years ended
F-9
December 31, 1994, 1993 and 1992 are as follows:
1994 1993 1992
___________ ___________ ___________
Rooms $ 6,554,000 $ 5,834,000 $ 5,390,000
Food and Beverage 17,342,000 17,332,000 17,351,000
Other 2,693,000 2,073,000 1,954,000
___________ ___________ ___________
$26,589,000 $25,239,000 $24,695,000
=========== =========== ===========
Income Taxes
The accompanying consolidated financial statements do not
include a provision for Federal income taxes of the Partnership,
since any income or losses allocated to the partners are
reportable for Federal income tax purposes by the Partners.
Under the Casino Control Act (the "Act") and the regulations
promulgated thereunder, the Partnership and the Company are
required to file a consolidated New Jersey corporation business
tax return. However, no provision for State income taxes has been
reflected in the accompanying consolidated financial statements,
since the Partnership has experienced cumulative net operating
losses.
As of December 31, 1994, the Partnership had New Jersey State
net operating losses of approximately $158,000,000, which are
available to offset taxable income through 2000.
Inventories
Inventories of provisions and supplies are carried at the
lower of cost (first-in, first-out basis) or market.
Property and Equipment
Property and equipment is recorded at cost and is depreciated
on the straight-line method over the estimated useful lives of the
assets. Estimated useful lives for furniture, fixtures and
equipment and buildings are from three to eight years and forty
years, respectively.
Statements of Cash Flows
For purposes of the statements of cash flows, the Company and
the Partnership consider all highly liquid debt instruments
purchased with a maturity of three months or less to be cash
equivalents.
F-10
The following supplemental disclosures are made to the
statements of cash flows:
1994 1993 1992
Cash paid during the ___________ ___________ __________
year for interest
(net of amounts
capitalized) $31,255,000 $44,857,000 $8,172,000
=========== =========== ==========
Issuance of debt in
exchange for accrued $ 3,559,000 $ -0- $ -0-
interest =========== =========== ==========
(4) Mortgage Bonds and Notes:
Upon consummation of the Plan on May 29, 1992, each $1,000
principal amount of the Company's then outstanding Series A-1
Bonds or $1,000 accreted amount as of December 15, 1990 of Series
A-2 Bonds were exchanged for $1,000 in principal amount of the
Company's 9.50% Bonds (the "Bonds"), together with one share of
the Common Stock of TC/GP and certain other payments. The New
Bonds and Common Stock traded together as a unit (the "Unit") and
could not be transferred separately, except upon the occurrence of
certain events.
The Bonds had a scheduled maturity of August 15, 1998 and
bore interest at 9.50% per annum from the date of issuance,
payable semi-annually on each February 15 and August 15,
commencing August 15, 1992. The Company was required to pay
interest in cash to the holders of the Bonds outstanding on the
immediately preceding August 1 or February 1 at varying rates per
annum (the "Mandatory Cash Amounts") as follows:
Mandatory
Cash Rate
Interest Payment Date (Per Annum)
August 15, 1992 5.00%
February 15, 1993 6.00%
August 15, 1993 7.00%
February 15, 1994 8.00%
August 15, 1994 and thereafter 9.50%
For interest payment dates on or before February 15, 1994,
the difference between interest calculated at the rate of 9.50%
per annum and the Mandatory Cash Amount (the "Additional Amount")
was required to be payable to holders of the Bonds in cash to the
extent that Excess Available Cash, as defined, of the Partnership
was available for such purpose and in additional Units to the
extent that Excess Available Cash was less than the Additional
Amount, as defined. Through August 15, 1993, interest was paid to
the bondholders at the mandatory cash rate, with the balance paid
in additional units.
F-11
As discussed in Note 2, On December 28, 1993 all of the
outstanding Mortgage Bonds and TC/GP Common stock were either
redeemed or exchanged for Mortgage and PIK Notes. The Mortgage
Notes bear interest, payable in cash, semi-annually, commencing
May 15, 1994 at 11-3/4% and mature on November 15, 2003. As
discussed in Note 2, the net book value of the exchanged bonds has
been carried forward and allocated to the Mortgage Notes and PIK
Notes in proportion to the principal amount of Mortgage Notes and
PIK Notes issued. Accordingly, as of December 31, 1993, the
Mortgage Notes and PIK Notes outstanding are reflected on the
balance sheet net of unamortized discount of $39,589,000 and
$8,257,000 respectively. In the event the PIK Notes are redeemed
prior to November 15, 1998, the interest rate on the Mortgage
Notes will be reduced to 11-1/2%. The Mortgage Notes may be
redeemed at the Company's option at a specified percentage of the
principal amount commencing in 1998.
The PIK Notes bear interest, payable at the Company's option
in whole or in part in cash and through the issuance of additional
PIK Notes, semi-annually commencing May 15, 1994 at the rate of 7%
through September 30, 1994 and 13-7/8% through November 15, 2003.
After November 15, 2003, interest on the Notes is payable in cash,
semi-annually at the rate of 13-7/8%. The PIK Notes mature on
November 15, 2005. The PIK Notes may be redeemed at the Company's
option at 100% of the principal amount under certain conditions,
as defined in the PIK Note Indenture, and are required to be
redeemed from a specified percentage of any equity offering which
includes the Partnership. Interest has been accrued under the
effective interest method for the year ended December 31, 1994.
Other Long Term Liabilities of $3.3 million represents a cash
differential of $2.8 million as a result of the application of the
effective interest method and $.6 million of additional PIK notes
to be issued on May 15, 1995.
The terms of both the Mortgage Notes and PIK Notes include
limitations on the amount of additional indebtedness the
Partnership may incur, distributions of Partnership capital,
investments and other business activities.
The Mortgage Notes are secured by a promissory note of the
Partnership to the Company (the "Partnership Note") in an amount
and with payment terms necessary to service the Mortgage Notes.
The Partnership Note is secured by a mortgage on Trump's Castle
and substantially all of the other assets of the Partnership. The
Partnership Note has been assigned by the Company to the Trustee
to secure the repayment of the Mortgage Notes. In addition, the
Partnership has guaranteed (the "Guaranty") the payment of the
Mortgage Notes, which Guaranty is secured by a mortgage on Trump's
Castle. The Partnership Note and the Guaranty are expressly
subordinated to the indebtedness described in Note 5 (the "Senior
Indebtedness") and the liens of the mortgages securing the
Partnership Note and the Guaranty are subordinate to the liens
securing the Senior Indebtedness.
F-12
The PIK Notes are secured by a subordinated promissory note
of the Partnership to the Company (the "Subordinated Partnership
Note"), which has been assigned to the Trustee for the PIK Notes,
and the Partnership has issued a subordinated guaranty (the
"Subordinated Guaranty") of the PIK Notes. The Subordinated
Partnership Note and the Subordinated Guaranty are expressly
subordinated to the Senior Indebtedness, the Partnership Note and
the Guaranty.
(5) Other Borrowings:
Bank Borrowings
In February 1988, the Company and the Partnership entered
into a $50,000,000 revolving credit facility with Midlantic
National Bank ("Midlantic") which was later converted to a term
loan in August 1990 ("Term Loan"). In addition, in June 1990, the
Partnership borrowed $13,000,000 from Midlantic under an unsecured
line of credit pursuant to a grid note ("Grid Note"). Pursuant to
the Plan, the terms of both of these loans were modified.
The principal amount of the amended Term Loan (the "Amended
Term Loan") was reduced to $38,000,000. The Amended Term Loan has
an initial maturity of three years from the Effective Date and
under its terms, the Partnership has the option, subject to
certain conditions, to extend the Amended Term Loan an additional
five years. The Partnership intends to exercise its option to
extend the Amended Term Loan. Upon such an extension, the
interest rate applicable to the Midlantic Term Loan will be either
a fluctuating or fixed rate, at Midlantic's option, adjusted to
such rate in excess of Midlantic's prime rate as Midlantic may
determine is reasonable for a secured term loan of that nature,
but in any event such rate will not be less than 9% per annum nor
more than, in the case of a fluctuating rate, 3% above Midlantic's
prime rate in effect from time to time, and in the case of a fixed
rate, 3% above Midlantic's prime rate in effect at the time of
extension. In addition, if the term of the Midlantic Term Loan is
extended, the outstanding principal amount of the Midlantic Term
Loan will be amortized over the five-year extension period on a
twenty-year amortization schedule requiring principal prepayments
of $158,333 per month over such period. It will be an additional
condition to the exercise of such extension option that the
Partnership will have paid Midlantic all accrued interest and
principal required to be paid on the Midlantic Term Loan through
the date of extension.
The Amended Term Loan is secured by a mortgage lien on
Trump's Castle that is prior to the lien securing the Mortgage
Notes (Note 4) and the Senior Notes described below.
The amended Grid Note (the "Amended Grid Note") bore
interest at 8.5% and the outstanding principal amount of
$13,000,000 was reduced to $7,000,000 payable on demand as part of
the Plan (Note 2). On December 28, 1993, the Amended Grid Note
was paid in full.
F-13
Senior Notes
On December 28, 1993, the Company issued 11-1/2% Senior
Secured Notes, due 2000. Similar to the Mortgage Notes, the
Senior Notes are secured by an assignment of a promissory note of
the Partnership (the "Senior Partnership Note") which is in turn
secured by a mortgage on Trump's Castle and substantially all of
the other assets of the Partnership. In addition, the Partnership
has guaranteed (the "Senior Guaranty") the payment of the Senior
Notes, which Senior Guaranty is secured by a mortgage on Trump's
Castle. The Senior Partnership Note and the Senior Guaranty are
subordinated to the Amended Term Loan described above.
Interest on the Senior Notes is payable semiannually
commencing May 15, 1994 at the rate of 11-1/2%; however in the
event that the PIK Notes are redeemed prior to November 15, 1998,
the interest rate will be reduced to 11-1/4%. The Senior Notes
are subject to a required partial redemption commencing on June 1,
1998 at 100% of the principal amount.
(6) Related Party Transactions:
Trump Management Fee
The Partnership had a management agreement with Trump's
Castle Management Corp. ("TCMC"), a corporation wholly owned by
Donald J. Trump (the "Management Agreement"). The Management
Agreement provided that the day-to-day operation of Trump's Castle
and all ancillary properties and businesses of the Partnership was
to be under the exclusive management and supervision of TCMC.
Pursuant to the Management Agreement, the Partnership was
required to pay an annual fee in the amount of $1,500,000 to TCMC
for each year in which Earnings Before Interest, Taxes,
Depreciation and Amortization ("EBITDA"), as defined, exceeds
certain levels. In addition, TCMC, beginning with the fiscal year
ended December 31, 1994, was to receive an incentive fee equal to
10% of the excess EBITDA over $45,000,000 for such fiscal year.
During the year ended December 31, 1993, the Partnership incurred
fees and expenses of $1,647,000 under the Management Agreement.
As a result of the Recapitalization Plan described in Note 2,
on December 28, 1993, the Partnership terminated the Management
Agreement with TCMC and entered into a Services Agreement with
TC/GP. Pursuant to the terms of the services agreement, TC/GP is
obligated to provide the Partnership, from time to time, when
reasonably requested, consulting services on a non-exclusive
basis, relating to marketing, advertising, promotional and other
similar and related services with respect to the business and
operations of the Partnership, including such other services as
the Managing Partner may reasonably request.
In consideration for the services to be rendered, the
Partnership will pay TC/GP an annual fee on the same basis as that
F-14
of the previous Management Agreement, discussed above. During the
year ended December 31, 1994, the Partnership incurred fees and
expenses of $2,111,000 under the Services Agreement. The Services
Agreement expires on December 31, 2005.
Other Payments to Donald J. Trump
During 1994, the Board of Partner Representatives approved
a $1,000,000 bonus to be paid to Trump in 1995, based on 1994
operating results. The amount is payable in two equal
installments in May 1995 and November 1995 and is subject to the
maintenance of certain minimum cash balances after the semi-annual
payment of interest and CCC approval. This amount has been
accrued for in the accompanying financial statements.
Fred Trump Gaming Chip Liability
In December 1990, Fred Trump, the father of Donald J. Trump,
placed $3,500,000 in cash on deposit with the Partnership's casino
cage, which was recorded by the Partnership as a gaming patron
deposit. Counter checks totaling $3,500,000 were issued against
the deposit, for which Fred Trump received gaming chips valued at
$3,500,000. On October 8, 1992, in accordance with the indenture,
pursuant to which the Bonds were issued, ("Bond Indenture") Fred
Trump redeemed $1,000,000 in gaming chips for cash. In December
1993, Fred Trump redeemed $1,000,000 in gaming chips and placed
the same amount on deposit in the casino cage. This amount was
included in Patrons Deposits as of December 31, 1993 and was
subsequently redeemed on January 6, 1994. On May 19, 1994 in
accordance with the Bond Indentures, Fred Trump redeemed
$1,475,000 in gaming chips for cash. The remaining gaming chip
liability to Fred Trump of $25,000 is included in unredeemed chip
liability as of December 31, 1994.
Due from Affiliates
Amounts due from affiliates were $434,000 and $615,000 as of
December 31, 1994 and 1993, respectively. The Partnership has
engaged in some limited intercompany transactions with Trump's
Plaza Associates (TPA), Trump Taj Mahal Associates, (TTMA), Plaza
Operating Partners, Ltd. (Plaza Hotel -- the partnership which
operates The Plaza Hotel in New York City) and the Trump
Organization (TO). TPA, TTMA, Plaza Hotel and TO are affiliates of
Donald J. Trump. These transactions include certain shared
payroll costs as well as complimentary services offered to
customers, for which the Partnership makes initial payments and is
then reimbursed by the affiliates.
During 1994, the Partnership incurred expenses of
approximately $1,631,000 in corporate salaries and $1,047,000 of
other transactions on behalf of these related entities. In
addition, the Partnership received payments totaling $2,438,000
for services rendered and had $441,000 of charges for similar
costs incurred by these related entities on behalf of the
Partnership.
F-15
During 1993, the Partnership incurred expenses of
approximately $1,332,000 in corporate salaries and $952,000 of
other transactions on behalf of these related entities. In
addition, the Partnership received payments totaling $2,004,000
for services rendered and had $407,000 of charges for similar
costs incurred by these related entities on behalf of the
Partnership.
During 1992, the Partnership incurred expenses of
approximately $1,240,000 in corporate salaries, $513,000 of other
transactions on behalf of these related entities. In addition,
the Partnership received payments totaling $1,372,000 for services
rendered and had $202,000 of charges for similar costs incurred by
these related entities on behalf of the Partnership.
Partnership Agreement
Under the terms of the Partnership Agreement, the Partnership
was required to pay all costs incurred by TC/GP. For the years
ended December 31, 1994 and December 31, 1993, the Partnership
paid $1,188,000 and $736,000, respectively of expenses on behalf
of TC/GP. For the year ended December 31, 1994 these costs were
charged to general and administrative expense in the accompanying
financial statements. For the year ended December 31, 1993 these
costs were expenses of TC/GP and recorded as a capital
distribution.
(7) Commitments and Contingencies:
Casino License Renewal
The Partnership is subject to regulation and licensing by the
New Jersey Casino Control Commission (the "CCC"). The
Partnership's casino license must be renewed periodically, is not
transferable, is dependent upon the financial stability of the
Partnership and can be revoked at any time. Due to the
uncertainty of any license renewal application, there can be no
assurance that the license will be renewed. Upon revocation,
suspension for more than 120 days, or failure to renew the casino
license due to the Partnership's financial condition or for any
other reason, the Casino Control Act ("the Act") provides that the
CCC may appoint a conservator to take possession of and title to
the hotel and casino's business and property, subject to all valid
liens, claims and encumbrances.
The CCC renewed the casino license of the Partnership through
May 31, 1995 subject to certain continuing reporting and
compliance conditions.
Employment Agreements
The Partnership has entered into employment agreements with
certain key employees which expire at various dates through
F-16
January 16, 1997. Total minimum commitments on these agreements
at December 31, 1994 were approximately $5,717,000.
Legal Proceedings
The Partnership is involved in legal proceedings incurred in
the normal course of business. In the opinion of management and
its counsel, if adversely decided, none of these proceedings would
have a material effect on the consolidated financial position of
the Partnership.
Casino Reinvestment Development Authority Obligations
Pursuant to the provisions of the Act, the Partnership,
must either obtain investment tax credits (as defined in the Act),
in an amount equivalent to 1.25% of its gross casino revenues (as
defined in the Act) or pay an alternative tax of 2.5% of its gross
casino revenues. Investment tax credits may be obtained by making
qualified investments, as defined, or by the purchase of bonds at
below market interest rates from the Casino Reinvestment
Development Authority ("CRDA"). The Partnership is required to
make quarterly deposits with the CRDA to satisfy its investment
obligations.
From time-to-time the Partnership has elected to donate funds
that it has on deposit with the CRDA in return for tax credits to
satisfy substantial portions of the Partnership's future
investment alternative tax obligations. Donations in the amount
of $6,440,000 and $568,000 were made in 1994 and 1993,
respectively. These donations, net of the tax credits received,
were charged against operations in the year in which they were
made and resulted in CRDA tax credits of $1,474,000 and $290,000
to be applied to the years ending December 31, 1994 and 1993,
respectively. For the years ended December 31, 1994, 1993 and
1992 the Partnership charged to operations $955,000, $115,000 and
$679,000 respectively which represents amortization of a portion
of the tax credits discussed above.
In addition, for the years ended December 31, 1994, 1993, and
1992, the Partnership charged to operations $735,000, $953,000 and
$656,000, respectively, to give effect to the below market
interest rates associated with purchased CRDA bonds.
(8) Employee Benefit Plans:
The Partnership has a retirement savings plan for its
nonunion employees under Section 401(k) of the Internal Revenue
Code. Employees are eligible to contribute up to 15% of their
earnings to the plan up to the maximum amount permitted by law,
and the Partnership will match 50% of an eligible employee's
contributions up to a maximum of 5% of the employee's earnings.
The Partnership recorded charges of approximately $899,000,
$846,000 and $764,000 for matching contributions for the years
ended December 31, 1994, 1993 and 1992, respectively.
F-17
The Partnership makes payments to various trusteed pension
plans under industry-wide union agreements. The payments are based
on the hours worked by or gross wages paid to covered employees.
It is not practical to determine the amount of payments ultimately
used to fund pension benefit plans or the current financial
condition of the plans. Under the Employee Retirement Income
Security Act, the Partnership may be liable for its share of the
plans' unfunded liabilities, if any, if the plans are terminated.
Pension expense for the years ended December 31, 1994, 1993 and
1992 were $455,000, $407,000 and $397,000, respectively.
The Partnership provides no other material post employment
benefits.
(9) Financial Information of the Company:
Financial information relating to the Company as of and for
the years ended December 31, 1994 and 1993 is as follows:
(in thousands of dollars)
1994 1993
Total Assets (including Mortgage Notes $323,235 $319,640
Receivable of $242,141,000, PIK Notes ======== ========
Receivable of $54,094,000 and Senior
Notes Receivable of $27,000,000 in 1994
and Mortgage Notes Receivable of
$242,141,000, PIK Notes Receivable of
$50,499,000 and Senior Notes Receivable
of $27,000,000 in 1993
Total Liabilities and Capital (including $323,235 $319,640
Mortgage Notes payable of $242,141,000, ======== ========
PIK Notes payable of $54,094,000 and
Senior Notes payable of $27,000,000 in
1994 and Mortgage Notes payable of
$242,141,000, PIK Notes payable of
$50,499,000 and Senior Notes Payable of
$27,000,000 in 1993.
Interest Income $ 41,996 $ 42,008
Interest Expense $ 41,996 $ 42,008
________ ________
Net Income $ - $ -
======== ========
F-18
(10) Fair Value of Financial Instruments
The carrying amount of the following financial instruments of
the Partnership and the Company approximate fair value, as
follows: (a) cash and cash equivalents and accrued interest
receivables and payables based on the short term nature of the
financial instruments, (b) CRDA bonds and deposits based on the
allowances to give effect to the below market interest rates.
The fair values of the Mortgage Notes and PIK Notes are based
on quoted market prices. The fair value of the Mortgage Bonds
was based on quoted market prices obtained by the Partnership from
its investment advisor.
The estimated fair values of other financial instruments are
as follows:
December 31, 1994
_____________________________
Carrying Amount Fair Value
_______________ _____________
11-3/4% Mortgage Notes............ $ 204,412,000 $ 134,388,000
Increasing Rate PIK Notes......... $ 46,129,000 $ 38,407,000
There are no quoted market prices for the Partnership
Amended Term Loan and Senior Notes. A reasonable estimate of
its value could not be made without incurring excessive costs.
F-19
SCHEDULE II
TRUMP'S CASTLE ASSOCIATES AND SUBSIDIARY
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
Balance at Charged to Balance at
Beginning Costs and Other End
of Period Expenses Charges of Period
YEARS ENDED DECEMBER 31, 1994:
Allowance for doubtful
accounts $1,928,000 $3,438,000 ($1,662,000) $3,704,000
Valuation allowance for
interest differential
on CRDA bonds $2,362,000 $934,000 - $3,926,000
YEAR ENDED DECEMBER 31, 1993:
Allowance for doubtful
accounts $2,721,000 $755,000 ($1,548,000) $1,928,000
Valuation allowance for
interest differential
on CRDA bonds $1,409,000 $953,000 - $2,362,000
YEARS ENDED DECEMBER 31, 1992:
Allowance for doubtful
accounts $3,104,000 $2,290,000 ($2,673,000) $2,721,000
Valuation allowance for
interest differential
on CRDA bonds $753,000 $656,000 - $1,409,000
Write-off of uncollectible accounts.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, as amended, the Registrants have duly caused this Annual Report
to be signed on their behalf by the undersigned, thereunto duly
authorized, on the 15th day of March, 1995.
TRUMP'S CASTLE FUNDING, INC.
By: /s/Donald J. Trump
_____________________
By: Donald J. Trump
Title: President
TRUMP'S CASTLE ASSOCIATES
By: /s/Donald J. Trump
_____________________
By: Donald J. Trump
Title: Managing General Partner
Pursuant to the requirements of the Securities Exchange Act of
1934, as amended, this Annual Report has been signed below by the
following persons on behalf of the Registrants and in the capacities
and on the date indicated.
Signature Title Date
TRUMP'S CASTLE FUNDING, INC.
By:/s/Donald J. Trump Chairman of the Board, March 15, 1995
___________________ President, Chief
Donald J. Trump Executive Officer
(Principal Executive
Officer), Treasurer
(Principal Financial
Officer) and sole
Director of the
Registrant.
By:/s/Robert E. Schaffhauser Assistant Treasurer of March 15, 1995
_________________________ of the Registrant
Robert E. Schaffhauser (Principal Accounting
Officer)
Signature Title Date
TRUMP'S CASTLE ASSOCIATES
By:/s/Nicholas L. Ribis Board of Partner March 15, 1995
____________________ Representatives
Nicholas L. Ribis
By:/s/Roger P. Wagner Board of Partner March 15, 1995
__________________ Representatives
Roger P. Wagner
By:/s/Asher O. Pacholder Board of Partner March 15, 1995
_____________________ Representatives
Asher O. Pacholder
By:/s/Wallace B. Askins Board of Partner March 15, 1995
____________________ Representatives
Wallace B. Askins
By:/s/Thomas F. Leahy Board of Partner March 15, 1995
__________________ Representatives
Thomas F. Leahy
By:/s/Robert E. Schaffhauser Chief Financial Officer March 15, 1995
_________________________ and Chief Accounting
Robert E. Schaffhauser Officer of the Partnership