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Table of Contents
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
 
FORM 10-Q
 
(Mark One)
x
 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the Quarterly Period Ended June 30, 2002
 
OR
 
¨
 
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from                            to                             .
 
Commission file number 333-643
 
 
TRUMP ATLANTIC CITY ASSOCIATES
(Exact Name of Registrant as specified in its charter)
 
NEW JERSEY
  
22-3213714
(State or other jurisdiction of
incorporation or organization)
  
(I.R.S. Employer
Identification Number)
1000 Boardwalk at Virginia Avenue
Atlantic City, New Jersey 08401
(609) 449-6515
(Address, Including Zip Code and Telephone Number, Including
Area Code, of Registrant’s Principal Executive Offices)
Not Applicable
Former name, former address and former fiscal year,
if changed since last report:
 
TRUMP ATLANTIC CITY FUNDING, INC.
(Exact Name of Registrant as specified in its charter)
 
DELAWARE
  
22-3418939
(State or other jurisdiction of
incorporation or organization)
  
(I.R.S. Employer
Identification Number)
1000 Boardwalk at Virginia Avenue
Atlantic City, New Jersey 08401
(609) 449-6515
(Address, Including Zip Code and Telephone Number, Including
Area Code, of Registrant’s Principal Executive Offices)
Not Applicable
Former name, former address and former fiscal year,
if changed since last report:
 
TRUMP ATLANTIC CITY FUNDING II, INC.
(Exact Name of Registrant as specified in its charter)
 
DELAWARE
  
22-3550202
(State or other jurisdiction of
incorporation or organization)
  
(I.R.S. Employer
Identification Number)
1000 Boardwalk at Virginia Avenue
Atlantic City, New Jersey 08401
(609) 449-6515
(Address, Including Zip Code and Telephone Number, Including
Area Code, of Registrant’s Principal Executive Offices)
Not Applicable
Former name, former address and former fiscal year,
if changed since last report:
 
TRUMP ATLANTIC CITY FUNDING III, INC.
(Exact Name of Registrant as specified in its charter)
DELAWARE
  
22-3550203
(State or other jurisdiction of
incorporation or organization)
  
(I.R.S. Employer
Identification Number)
1000 Boardwalk at Virginia Avenue
Atlantic City, New Jersey 08401
(609) 449-6515
(Address, Including Zip Code and Telephone Number, Including
Area Code, of Registrant’s Principal Executive Offices)
Not Applicable
Former name, former address and former fiscal year,
if changed since last report:
 
Indicate by check mark whether the Registrants (1) have filed all Reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrants were required to file such reports), and (2) have been subject to such filing requirements for the past 90 days. Yes x No ¨
As of August 14, 2002, there were 100 shares of Trump Atlantic City Funding, Inc.’s Common Stock outstanding.
As of August 14, 2002, there were 100 shares of Trump Atlantic City Funding II, Inc.’s Common Stock outstanding.
As of August 14, 2002, there were 100 shares of Trump Atlantic City Funding III, Inc.’s Common Stock outstanding.
Each of Trump Atlantic City Associates, Trump Atlantic City Funding, Inc., Trump Atlantic City Funding II, Inc. and Trump Atlantic City Funding III, Inc. meets the conditions set forth in General Instruction (H)(1)(a) and (b) of Form 10-Q and is therefore filing this form with the reduced disclosure format.

Table of Contents
 
TRUMP ATLANTIC CITY ASSOCIATES AND SUBSIDIARIES
 
INDEX TO FORM 10-Q
 
    
Page No.
PART I—FINANCIAL INFORMATION
 
     
ITEM 1—Financial Statements
 
     
 
   
1
  
2
 
   
3
 
   
4
 
   
5-7
  
8-15
 
  
15
 
PART II—OTHER INFORMATION
 
     
 
   
16
 
   
16
 
   
16
 
   
16
 
   
16
 
   
16
SIGNATURES
 
     
 
   
17
 
   
17
 
   
17
  
17

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Table of Contents
PART I—FINANCIAL INFORMATION
 
ITEM 1—FINANCIAL STATEMENTS
 
TRUMP ATLANTIC CITY ASSOCIATES AND SUBSIDIARIES
 
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
 
 
    
December 31, 2001
     
June 30,
2002
  
           
(unaudited)
  
ASSETS
                  
CURRENT ASSETS:
                  
Cash and cash equivalents
   
$
70,909
 
   
$
82,614
 
Receivables, net
   
 
31,888
 
   
 
30,402
 
Inventories
   
 
8,620
 
   
 
8,472
 
Advances to affiliates, net (Note 6)
   
 
88,842
 
   
 
—  
 
Other current assets
   
 
6,278
 
   
 
10,966
 
    
  
Total Current Assets
   
 
206,537
 
   
 
132,454
 
PROPERTY AND EQUIPMENT, NET
   
 
1,277,002
 
   
 
1,265,704
 
DEFERRED LOAN COSTS, NET
   
 
14,839
 
   
 
12,697
 
OTHER ASSETS (Note 2)
   
 
42,075
 
   
 
43,274
 
    
  
Total Assets
   
$
1,540,453
 
   
$
1,454,129
 
    
  
LIABILITIES AND CAPITAL
                  
CURRENT LIABILITIES:
                  
Current maturities of long-term debt
   
$
7,266
 
   
$
7,832
 
Accounts payable and accrued expenses
   
 
103,893
 
   
 
109,432
 
Accrued interest payable
   
 
24,375
 
   
 
24,375
 
Due to affiliates, net (Note 6)
   
 
—  
 
   
 
6,623
 
    
  
Total Current Liabilities
   
 
135,534
 
   
 
148,262
 
LONG-TERM DEBT, net of current maturities
   
 
1,307,643
 
   
 
1,309,725
 
OTHER LONG-TERM LIABILITIES
   
 
17,070
 
   
 
16,906
 
    
  
Total Liabilities
   
 
1,460,247
 
   
 
1,474,893
 
    
  
CAPITAL/(DEFICIT):
                  
Partners’ Capital (Note 6)
   
 
329,691
 
   
 
228,350
 
Accumulated Deficit
   
 
(249,485
)
   
 
(249,114
)
    
  
Total Capital/(Deficit)
   
 
80,206
 
   
 
(20,764
)
    
  
Total Liabilities and Capital/(Deficit)
   
$
1,540,453
 
   
$
1,454,129
 
    
  
 
The accompanying notes are an integral part of these condensed consolidated balance sheets.

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TRUMP ATLANTIC CITY ASSOCIATES AND SUBSIDIARIES
 
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2001 AND 2002
(unaudited)
(in thousands)
 
    
Three Months
Ended June 30,
     
Six Months
Ended June 30,
  
    
2001
     
2002
     
2001
     
2002
  
REVENUES:
                                    
Gaming
   
$
213,191
 
   
$
216,836
 
   
$
412,971
 
   
$
428,262
 
Rooms
   
 
15,250
 
   
 
15,447
 
   
 
28,247
 
   
 
29,162
 
Food and Beverage
   
 
23,812
 
   
 
23,321
 
   
 
46,922
 
   
 
45,733
 
Other
   
 
6,191
 
   
 
6,564
 
   
 
11,797
 
   
 
13,400
 
    
  
  
  
Gross Revenues
   
 
258,444
 
   
 
262,168
 
   
 
499,937
 
   
 
516,557
 
Less—Promotional allowances (Note 4)
   
 
49,776
 
   
 
49,168
 
   
 
98,314
 
   
 
98,040
 
    
  
  
  
Net Revenues
   
 
208,668
 
   
 
213,000
 
   
 
401,623
 
   
 
418,517
 
    
  
  
  
COSTS AND EXPENSES:
                                    
Gaming (Note 4)
   
 
106,680
 
   
 
101,676
 
   
 
211,944
 
   
 
202,603
 
Rooms
   
 
6,552
 
   
 
6,876
 
   
 
12,630
 
   
 
13,057
 
Food and Beverage
   
 
7,608
 
   
 
8,111
 
   
 
14,518
 
   
 
15,593
 
General and Administrative
   
 
41,805
 
   
 
41,713
 
   
 
82,946
 
   
 
82,627
 
Depreciation and Amortization
   
 
12,544
 
   
 
13,678
 
   
 
25,169
 
   
 
26,803
 
Debt Renegotiation Costs (Note 5)
   
 
—  
 
   
 
—  
 
   
 
—  
 
   
 
1,570
 
    
  
  
  
    
 
175,189
 
   
 
172,054
 
   
 
347,207
 
   
 
342,253
 
    
  
  
  
Income from operations
   
 
33,479
 
   
 
40,946
 
   
 
54,416
 
   
 
76,264
 
    
  
  
  
NON-OPERATING INCOME AND (EXPENSES):
                                    
Interest and Other non-operating income
   
 
980
 
   
 
310
 
   
 
1,681
 
   
 
558
 
Interest expense
   
 
(38,585
)
   
 
(38,232
)
   
 
(76,765
)
   
 
(76,451
)
    
  
  
  
Non-Operating expense, net
   
 
(37,605
)
   
 
(37,922
)
   
 
(75,084
)
   
 
(75,893
)
    
  
  
  
NET INCOME (LOSS)
   
$
(4,126
)
   
$
3,024
 
   
$
(20,668
)
   
$
371
 
    
  
  
  
 
The accompanying notes are an integral part of these condensed consolidated financial statements.

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TRUMP ATLANTIC CITY ASSOCIATES AND SUBSIDIARIES
 
CONDENSED CONSOLIDATED STATEMENT OF CAPITAL/(DEFICIT)
FOR THE SIX MONTHS ENDED JUNE 30, 2002
(unaudited)
(in thousands)
 
 
    
Partners’ Capital
     
Accumulated Deficit
     
Total
Capital/(Deficit)
  
Balance, December 31, 2001
   
$
329,691
 
   
$
(249,485
)
   
$
80,206
 
Partnership Distribution (Note 6)
   
 
(101,341
)
   
 
—  
 
   
 
(101,341
)
Net Income
   
 
—  
 
   
 
371
 
   
 
371
 
    
  
  
Balance, June 30, 2002
   
$
228,350
 
   
$
(249,114
)
   
$
(20,764
)
    
  
  
 
 
 
The accompanying notes are an integral part of this condensed consolidated financial statement.

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TRUMP ATLANTIC CITY ASSOCIATES AND SUBSIDIARIES
 
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2001 AND 2002
(unaudited)
(dollars in thousands)
 
    
Six Months Ended
June 30,
  
    
2001
     
2002
  
CASH FLOWS FROM OPERATING ACTIVITIES:
                  
Net income (loss)
   
$
(20,668
)
   
$
371
 
Adjustments to reconcile net income (loss) to net cash flows from operating activities—  
                  
Noncash charges—
                  
Depreciation and amortization
   
 
25,169
 
   
 
26,803
 
Accretion of discounts on indebtedness
   
 
278
 
   
 
248
 
Provisions for losses on receivables
   
 
3,333
 
   
 
3,086
 
Amortization of deferred loan offering costs
   
 
2,403
 
   
 
2,141
 
Valuation allowance of CRDA investments
   
 
2,093
 
   
 
2,246
 
Gain on disposition of property and equipment
   
 
(295
)
   
 
—  
 
Decrease (increase) in receivables
   
 
2,027
 
   
 
(1,600
)
Decrease in inventories
   
 
328
 
   
 
148
 
Increase in advances to affiliates
   
 
(3,822
)
   
 
(5,875
)
Increase in other current assets
   
 
(2,412
)
   
 
(3,753
)
(Increase) decrease in other assets
   
 
(113
)
   
 
205
 
Increase in accounts payable, accrued expenses and other liabilities
   
 
6,783
 
   
 
5,094
 
    
  
Net cash provided by operating activities
   
 
15,104
 
   
 
29,114
 
    
  
 
CASH FLOWS FROM INVESTING ACTIVITIES:
                  
Purchase of property and equipment
   
 
(3,723
)
   
 
(7,382
)
Purchase of CRDA investments
   
 
(4,961
)
   
 
(5,200
)
    
  
Net cash used in investing activities
   
 
(8,684
)
   
 
(12,582
)
    
  
 
CASH FLOWS FROM FINANCING ACTIVITIES:
                  
Payments and current maturities of long-term debt
   
 
(2,568
)
   
 
(4,827
)
    
  
Net cash used in financing activities
   
 
(2,568
)
   
 
(4,827
)
    
  
 
NET INCREASE IN CASH & CASH EQUIVALENTS
   
 
3,852
 
   
 
11,705
 
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD
   
 
67,205
 
   
 
70,909
 
    
  
CASH AND CASH EQUIVALENTS AT END OF PERIOD
   
$
71,057
 
   
$
82,614
 
    
  
CASH INTEREST PAID
   
$
74,154
 
   
$
74,062
 
    
  
Supplemental Disclosure of noncash activities:
                  
Purchase of property and equipment under capitalized lease obligations
   
$
12,544
 
   
$
7,227
 
    
  
Partnership Distribution
   
$
—  
 
   
$
101,341
 
    
  
 
The accompanying notes are an integral part of these condensed consolidated financial statements.

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TRUMP ATLANTIC CITY ASSOCIATES AND SUBSIDIARIES
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
 
(1)    Organization and Operations
 
The accompanying condensed consolidated financial statements include those of Trump Atlantic City Associates, a New Jersey general partnership (“Trump AC”), and its subsidiaries: (i) Trump Plaza Associates, a New Jersey general partnership (“Plaza Associates”) which owns and operates the Trump Plaza Hotel and Casino located in Atlantic City, New Jersey (“Trump Plaza”), (ii) Trump Taj Mahal Associates, a New Jersey general partnership (“Taj Associates”) which owns and operates the Trump Taj Mahal Casino Resort located in Atlantic City, New Jersey (the “Taj Mahal”), (iii) Trump Atlantic City Funding, Inc. (“Trump AC Funding”), (iv) Trump Atlantic City Funding II, Inc. (“Trump AC Funding II”), (v) Trump Atlantic City Funding III, Inc. (“Trump AC Funding III”), (vi) Trump Atlantic City Corporation (“TACC”), and (vii) Trump Administration, a separate division of Taj Associates (“Trump Administration”). Trump AC’s sole sources of liquidity are distributions in respect of its interests in Plaza Associates and Taj Associates. Trump AC is 100% beneficially owned by Trump Hotels & Casino Resorts Holdings, L.P., a Delaware limited partnership (“THCR Holdings”) of which Trump Hotels & Casino Resorts, Inc., a Delaware corporation (“THCR”), is the sole general partner. Trump AC, Trump AC Funding, Trump AC Funding II and Trump AC Funding III have no independent operations and, therefore, their ability to service debt is dependent upon the successful operations of Plaza Associates and Taj Associates. There are no restrictions on the ability of Plaza Associates and Taj Associates, the primary guarantors (the “Subsidiary Guarantors”) of the 11¼% First Mortgage Notes due 2006 issued by (i) Trump AC and Trump AC Funding, (ii) Trump AC and Trump AC Funding II and (iii) Trump AC and Trump AC Funding III (collectively, the “Trump AC Mortgage Notes”) to distribute funds to Trump AC in respect of the guaranteed debt.
 
The separate financial statements of the Subsidiary Guarantors have not been included because (i) the Subsidiary Guarantors constitute all of Trump AC’s direct and indirect subsidiaries; (ii) the Subsidiary Guarantors have fully and unconditionally guaranteed the Trump AC Mortgage Notes on a joint and several basis; (iii) the aggregate assets, liabilities, earnings and equity of the Subsidiary Guarantors are substantially equivalent to the assets, liabilities, earnings and equity of Trump AC on a consolidated basis; and (iv) the separate financial and other disclosures concerning the Subsidiary Guarantors are not deemed by management to be material. The assets and operations of the nonguarantor subsidiaries are not significant.
 
All significant intercompany balances and transactions have been eliminated in the accompanying condensed consolidated financial statements.
 
The accompanying condensed consolidated financial statements have been prepared without audit. In the opinion of management, all adjustments, consisting of only normal recurring adjustments necessary to present fairly the financial position, the results of operations and cash flows for the periods presented, have been made.
 
The accompanying condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Accordingly, certain information and note disclosures normally included in financial statements prepared in conformity with accounting principles generally accepted in the United States have been condensed or omitted.
 
These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Registrants’ Annual Report on Form 10-K for the year ended December 31, 2001 filed with the SEC and available on the SEC’s website, www.sec.gov.
 
The casino industry in Atlantic City is seasonal in nature; therefore, results of operations for the three and six months ended June 30, 2002 are not necessarily indicative of the operating results for a full year.
 
Reclassifications
 
Certain reclassifications have been made to prior year financial statements to conform to the current year presentation.
 
(2)    Other Assets
 
Plaza Associates is appealing a real estate tax assessment by the City of Atlantic City. Included in other assets at December 31, 2001 and June 30, 2002 is $8,014,000 which Plaza Associates believes will be recoverable on settlement of the appeal.

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TRUMP ATLANTIC CITY ASSOCIATES AND SUBSIDIARIES
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

(3)    Combined Financial Information—Trump AC Funding, Trump AC Funding II, and Trump AC Funding III.
 
Combined financial information relating to Trump AC Funding, Trump AC Funding II and Trump AC Funding III is as follows:
 
    
December 31,
2001
   
June 30,
2002
         
(unaudited)
Total Assets (including notes receivable of $1,298,266,000 at December 31, 2001 and $1,298,514,000 at June 30, 2002 and related interest receivable)
   
$
1,322,641,000
   
$
1,322,889,000
    
  
Total Liabilities and Capital (including notes payable of $1,298,266,000 at December 31, 2001 and $1,298,514,000 at June 30, 2002 and related interest payable)
   
$
1,322,641,000
   
$
1,322,889,000
    
  
    
 
Six Months Ended June 30,
    
2001
   
2002
Interest Income
   
$
73,125,000
   
$
73,125,000
    
  
Interest Expense
   
 
73,125,000
   
 
73,125,000
    
  
Net Income
   
$
—  
   
$
—  
    
  
 
(4)    Recent Accounting Pronouncement
 
In January 2001, the Emerging Issues Task Force (“EITF”) reached a consensus on certain issues within Issue No. 00-22, “Accounting for ‘Points’ and Certain Other Time-Based or Volume-Based Sales Incentive Offers, and Offers for Free Products or Services to Be Delivered in the Future” (“EITF 00-22”). Application of EITF 00-22 is required for interim and annual periods ending after February 15, 2001. EITF 00-22 requires volume-based cash rebates to be classified as a reduction of revenue. Accordingly, such additional rebates of $19,195,000 and $38,798,000 in the three and six months ended June 30, 2001 have been reclassified as promotional allowances. The Partnership previously classified these expenditures as a gaming expense. Prior period amounts have been reclassified to conform with the current presentation.
 
(5)    Debt Renegotiation Costs
 
Trump AC was seeking to refinance or modify the terms of the Trump AC Mortgage Notes which were approximately $1,300,000,000 aggregate principal amount as of June 30, 2002. Trump AC has incurred approximately $1,570,000 in Debt Renegotiation Costs in the six months ended June 30, 2002. Trump AC has since terminated such efforts. Accordingly, the debt renegotiation costs have been expensed in the accompanying statements of operations. Trump AC may renew its efforts to refinance or modify the Trump AC Mortgage Notes at a later date if and when capital market conditions are favorable.
 
(6)    Partnership Distribution
 
Pursuant to the indentures governing the Trump AC Mortgage Notes, Trump AC is permitted to reimburse THCR for its operating and interest expenses. These reimbursements are subject to limitations set forth in such indentures, including an annual limitation of $10,000,000 in operating expense reimbursements and a life-time limitation of $50,000,000 in interest expense reimbursements. During the quarter ended June 30, 2002, Trump AC declared a non-cash partnership distribution to THCR of $101,341,000, consisting of $50,000,000 of prior years interest reimbursements and $51,341,000 of prior years operating expense reimbursements. Previously these amounts were presented as Advances to Affiliates on the balance sheet.

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TRUMP ATLANTIC CITY ASSOCIATES AND SUBSIDIARIES
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

 
(7)    Subsequent Events
 
On July 3, 2002, the State of New Jersey passed the New Jersey Tax Act (the “Act”). This Act, among other things, requires the suspension of the use of the New Jersey net operating loss carryforwards for two years and the introduction of a new Alternative Minimum Assessment amount under the New Jersey corporate business tax based on gross receipts or gross profits, as defined. The Act is retroactive to January 1, 2002. As a result of the change in the tax law, Trump AC has preliminarily estimated that it will record a charge to tax expense of approximately $2,250,000 to $4,000,000 for the year ended December 31, 2002. This charge will be recorded beginning in the period in which the tax law was passed (third quarter) pursuant to the accounting literature in Financial Accounting Standards Board Statement Number 109, Accounting For Income Taxes.

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Item 2— MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
 
This report includes “forward-looking statements” within the meaning of Section 21E of the Securities Exchange Act of 1934. All statements other than statements of historical facts included in this report regarding the prospects of our industry or our prospects, plans, financial position or business strategy, may constitute forward-looking statements. In addition, forward-looking statements generally can be identified by the use of forward-looking words such as “may,” “will,” “expect,” “intend,” “estimate,” “anticipate,” “believe,” “plans,” “forecasts,” “continue” or “could” or the negatives of these terms or variations of them or similar terms. Although we believe that the expectations reflected in these forward-looking statements are reasonable, we cannot assure you that these expectations will prove to be correct. Important factors that could cause actual results to differ materially from our expectations include business, competition, regulatory and other uncertainties and contingencies discussed in this report that are difficult or impossible to predict and which are beyond our control. All subsequent written and oral forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by the cautionary statements included in this document. These forward-looking statements speak only as of the date of this report. We do not intend to update these statements unless the securities laws require us to do so.
 
In this section, the words “Company,” “we,” “our,” “ours,” and “us” refer to Trump Atlantic City Associates (“Trump AC”) and its wholly owned subsidiaries, unless otherwise noted. Trump AC owns and operates the Trump Plaza Hotel and Casino (“Trump Plaza”) and the Trump Taj Mahal Casino Resort (the “Taj Mahal” and together with Trump Plaza, the “Trump AC Properties”). Terms not defined in this section shall have the meanings ascribed to them elsewhere in this Quarterly Report on Form 10-Q.
 
General
 
Our business is subject to a variety of risks and uncertainties, some of which are discussed below.
 
The Company Has Substantial Indebtedness.
 
The Company’s indebtedness consists primarily of the Trump AC Mortgage Notes. At June 30, 2002, the outstanding principal balance of the Trump AC Mortgage Notes was approximately $1.3 billion. Interest expense as a percentage of net revenues was 19.1% and 18.3% for the six months ended June 30, 2001 and 2002, respectively.
 
The Company has previously announced that it may seek to refinance or modify the terms of the Trump AC Mortgage Notes, although no transaction is imminent and there can be no assurances that a transaction will occur or be proposed in the future. The primary reason to refinance or modify the Trump AC Mortgage Notes would be to extend their May 2006 maturity date and to reduce the high levels of interest expense in order to devote more resources to capital expenditures at the Trump AC Properties. The Atlantic City market is very competitive and is anticipated to become more competitive in the future, especially when the Borgata opens in the third quarter of 2003 (as discussed below). Capital expenditures, such as room refurbishments, amenity upgrades and new gaming equipment, are necessary to preserve the competitiveness of the Trump AC Properties. Management believes that the Company must provide for capital expenditures to compete effectively. See “Financial Condition—Liquidity and Capital Resources.”
 
The ability of Trump AC and its subsidiaries to pay interest on the Trump AC Mortgage Notes depends primarily on the ability of Trump Plaza and the Taj Mahal to generate sufficient amounts of cash from operations. Management believes that, based upon its current cash flow forecasts for 2002, Trump AC will have sufficient cash flows to meet its debt service and operating expense requirements throughout 2002 without a transaction. The future operating performance of Trump Plaza and the Taj Mahal is subject to general economic conditions, industry conditions, including competition and regulatory matters, and numerous other factors, many of which are unforeseeable or are beyond the control of management. There can be no assurance that the future operating performance of Trump Plaza and the Taj Mahal will be sufficient to generate the cash flows required to meet the debt service obligations of Trump Plaza, Taj Mahal or Trump AC. Also, the ability of the Company to pay the principal amount of the Trump AC Mortgage Notes at maturity (whether scheduled or by acceleration thereof) is primarily dependent upon its ability to obtain refinancing. There is also no assurance that the general state of the economy, the status of the capital markets generally, or the receptiveness of the capital markets to the gaming industry in general or to the Company in particular will be conducive to refinancing debt at any given time.
 
We Do Not Know How the Borgata, When Opened, Will Affect Us.
 
In September 2000, Boyd Gaming and MGM Mirage commenced their joint development of a 25-acre site located in the marina district of Atlantic City for the construction of the “Borgata,” a Tuscan-style casino expected to feature a 40-story tower with 2,010 rooms and suites, as well as a 135,000 square-foot casino, restaurants, retail shops, a spa and pool, and entertainment venues. Construction of the Borgata is scheduled to be completed in the third quarter of 2003, and is estimated to cost approximately $1.0 billion. While we believe that the opening of the Borgata will attract additional visitors to Atlantic

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City, it is also possible that the Borgata could have an adverse effect on the business and operations of the Trump AC Properties. This potential adverse effect could include a reduction in net revenues caused by a loss of gaming patrons. Also, substantial new expansion and development activity has recently been completed, is under construction or has been announced in Atlantic City which further intensifies competitive pressure in the Atlantic City market and which could have an adverse effect on our patronage and revenues. See “Financial Condition—Liquidity and Capital Resources.”
 
New York Has Enacted Gaming Legislation Which May Harm Our Trump Atlantic City Properties and Other States May Do So In The Future.
 
In October 2001, the New York State legislature passed extensive legislation that could adversely affect the Company. The legislation permits three new casinos in western New York, one in Niagara Falls, one in Buffalo and one on land owned by the Seneca Indian Nation, all of which would be owned by the Seneca Indian Nation. The legislation also permits up to three casinos in the Catskills in Ulster and Sullivan counties, also to be owned by Native Americans, which could open as early as mid-2005. In addition, slot machines would be allowed to be placed in Indian-owned casinos. Video lottery terminals would be installed in five horse racing tracks across the state of New York and, if local governments approve, at certain other tracks. Finally, the law provides for New York joining the Powerball lottery that operates in 26 states with large jackpots. The net effect of these facilities and other items, when operational, on Atlantic City cannot be predicted. The Company believes, however, that a substantial amount of existing and potential new gaming customers could patronize such facilities instead of Atlantic City, at least occasionally. On January 29, 2002, a lawsuit was commenced contesting the above legislation package on the grounds that certain of its provisions were adopted in violation of the State’s constitution. The likely outcome of this lawsuit cannot be ascertained at this time.
 
We also believe that Ohio, Pennsylvania, Virginia and Delaware are among the other states currently contemplating some form of gaming legislation. Since our market is primarily a drive-to market, legalized gambling in one or more states neighboring or within close proximity to New Jersey could have a material adverse effect on the Atlantic City gaming industry overall, including THCR and the Trump AC Properties.
 
Our Business is Subject to a Variety of Other Risks and Uncertainties.
 
Our financial condition and results of operations could be affected by many events that are beyond our control, such as (i) capital market conditions which could affect our ability to raise capital for refinancing debt or pursuing other alternatives, (ii) future acts of terrorism and their impact on capital markets, consumer behavior and operating expenses, including insurance costs, (iii) competition from existing and potential new competitors in Atlantic City and other nearby markets, which is likely to increase over the next five years, (iv) regulatory changes, (v) possible increases in gasoline prices which could discourage auto travel to Atlantic City, and (vi) adverse weather conditions. Good weather is particularly important to the relative performance of our Trump AC Properties in the winter months and our improved performance in the first quarter of 2002 is partially attributable to mild weather conditions in the Northeast during such period. In connection with recent insurance renewals, certain types and levels of insurance have not been available or are not available at reasonable cost. The Company is, therefore, self-insured for certain risks.
 
Critical Accounting Policies
 
The preparation of our financial statements in conformity with generally accepted accounting principles in the United States requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Our estimates, judgments and assumptions are continually evaluated based on available information and experience. Because of the use of estimates inherent in the financial reporting process, actual results could differ from those estimates.
 
Certain of our accounting policies require higher degrees of judgment than others in their application. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2001 filed with the SEC.
 
Financial Condition—
 
Liquidity and Capital Resources
 
Cash flows from operating activities of Trump Plaza and the Taj Mahal are the Company’s primary source of liquidity. The Company’s ability to borrow funds for its liquidity needs is severely restricted by covenants in the indentures governing the Trump AC Mortgage Notes and by its already high levels of indebtedness. Sources of the Company’s short-term and long-term liquidity include casino gaming revenues and room, food and beverage sales. Although we expect the Company to have sufficient liquidity from the operating activities of Trump Plaza and the Taj Mahal to meet its short-term obligations, there

9

Table of Contents
can be no assurances in this regard. A variety of factors, including a decrease or change in the demand for our services, could have a material adverse effect on our liquidity and our ability to service our debt obligations including the Trump AC Mortgage Notes.
 
Trump Plaza and the Taj Mahal also compete with other Atlantic City casino/hotels based on the quality of customer service, the array of games offered, the attractiveness of a casino/hotel and the extent and quality of the facilities and amenities. Because of the high levels of interest expense related to the Trump AC Mortgage Notes, the Company’s capital expenditures in recent years at Trump Plaza and the Taj Mahal have been limited and have prohibited the Company from pursuing various capital expansion plans, such as the addition of more hotel rooms.
 
Capital expenditures at the Trump AC Properties for the six months ended June 30, 2001 and 2002 are as follows:
 
TRUMP ATLANTIC CITY ASSOCIATES
CONSOLIDATING CAPITAL EXPENDITURES
(in thousands)
 
    
TAJ ASSOCIATES
     
PLAZA ASSOCIATES
   
TOTAL TRUMP AC
FOR THE SIX MONTHS ENDED JUNE 30, 2001
                       
Purchase of Property & Equipment
   
$
2,200
     
$
1,523
   
$
3,723
Capital Lease Additions (a)
   
 
6,128
     
 
6,416
   
 
12,544
    
    
  
Total Capital Expenditures
   
$
8,328
     
$
7,939
   
$
16,267
    
    
  
 
FOR THE SIX MONTHS ENDED JUNE 30, 2002
                       
Purchase of Property & Equipment
   
$
5,045
     
$
2,337
   
$
7,382
Capital Lease Additions (a)
   
 
5,131
     
 
2,096
   
 
7,227
    
    
  
Total Capital Expenditures
   
$
10,176
     
$
4,433
   
$
14,609
    
    
  
 
(a)
 
Capital lease additions for Trump AC were principally slot machines and telephone system.
 
Pursuant to the indentures governing the Trump AC Mortgage Notes, Trump AC is permitted to reimburse THCR for its operating and interest expenses. These reimbursements are subject to limitations set forth in such indentures, including an annual limitation of $10.0 million in operating expense reimbursements and a life time limitation of $50.0 million in interest expense reimbursements. During the quarter ended June 30, 2002, Trump AC declared a non-cash partnership distribution to THCR of $101.3 million, consisting of $50.0 million of prior years interest reimbursements and $51.3 million of prior years operating expense reimbursements. Previously these amounts were presented as Advances to Affiliates on the balance sheet.
 
On July 3, 2002, the State of New Jersey passed the New Jersey Tax Act (the “Act”). This Act, among other things, requires the suspension of the use of the New Jersey net operating loss carryforwards for two years and the introduction of a new Alternative Minimum Assessment amount under the New Jersey corporate business tax based on gross receipts or gross profits, as defined. The Act is retroactive to January 1, 2002. As a result of the change in the tax law, Trump AC has preliminarily estimated that it will record a charge to tax expense of approximately $2.25 million to $4.0 million for the year ended December 31, 2002. This charge will be recorded beginning in the period in which the tax law was passed (third quarter) pursuant to the accounting literature in Financial Accounting Standards Board Statement Number 109, Accounting For Income Taxes.
 
Summary of the Company’s Public Indebtedness
 
Trump AC Mortgage Notes. Trump AC’s debt consists primarily of the Trump AC Mortgage Notes. The Trump AC Mortgage Notes have an outstanding principal balance of $1.3 billion, bear interest at the rate of 11¼% per annum, payable on May 1st and November 1st of each year, and mature on May 1, 2006. The Trump AC Mortgage Notes are secured by first priority liens on substantially all of the assets of Trump Plaza and the Taj Mahal.

10

Table of Contents
 
Results of Operations:    Operating Revenues and Expenses
 
The financial information presented below reflects the results of operations of Plaza Associates and Taj Associates. Because Trump AC has no business operations other than its interests in Plaza Associates and Taj Associates, its results of operations are not discussed below.
 
Comparison of Three-Month Periods Ended June 30, 2001 and 2002.    The following tables include selected data of Plaza Associates and Taj Associates for the three months ended June 30, 2001 and 2002.
 
    
Three Months Ended June 30,
  
    
2001
Plaza Associates
     
2002
Plaza Associates
     
2001
Taj Associates
     
2002
Taj Associates
     
2001
Total Trump AC*
     
2002
Total Trump AC*
  
    
(in thousands)
  
Revenues:
                                                      
Gaming
   
$
80,725
 
   
$
84,383
 
   
$
132,466
 
   
$
132,453
 
   
$
213,191
 
   
$
216,836
 
Other
   
 
18,250
 
   
 
17,755
 
   
 
27,003
 
   
 
27,577
 
   
 
45,253
 
   
 
45,332
 
    
  
  
  
  
  
Gross Revenues
   
 
98,975
 
   
 
102,138
 
   
 
159,469
 
   
 
160,030
 
   
 
258,444
 
   
 
262,168
 
Less: Promotional Allowances
   
 
20,697
 
   
 
19,911
 
   
 
29,079
 
   
 
29,257
 
   
 
49,776
 
   
 
49,168
 
    
  
  
  
  
  
Net Revenues
   
 
78,278
 
   
 
82,227
 
   
 
130,390
 
   
 
130,773
 
   
 
208,668
 
   
 
213,000
 
    
  
  
  
  
  
Costs & Expenses:
                                                      
Gaming
   
 
44,030
 
   
 
42,351
 
   
 
62,650
 
   
 
59,325
 
   
 
106,680
 
   
 
101,676
 
Other
   
 
4,920
 
   
 
5,471
 
   
 
9,240
 
   
 
9,516
 
   
 
14,160
 
   
 
14,987
 
General & Administrative
   
 
17,068
 
   
 
15,525
 
   
 
24,683
 
   
 
26,162
 
   
 
41,805
 
   
 
41,713
 
Depreciation & Amortization
   
 
4,197
 
   
 
4,182
 
   
 
8,347
 
   
 
9,496
 
   
 
12,544
 
   
 
13,678
 
    
  
  
  
  
  
Total Costs and Expenses
   
 
70,215
 
   
 
67,529
 
   
 
104,920
 
   
 
104,499
 
   
 
175,189
 
   
 
172,054
 
    
  
  
  
  
  
Income from Operations
   
 
8,063
 
   
 
14,698
 
   
 
25,470
 
   
 
26,274
 
   
 
33,479
 
   
 
40,946
 
    
  
  
  
  
  
Interest and Other Non-Operating Income
   
 
464
 
   
 
98
 
   
 
283
 
   
 
77
 
   
 
980
 
   
 
310
 
Interest Expense
   
 
(12,226
)
   
 
(13,115
)
   
 
(23,265
)
   
 
(24,095
)
   
 
(38,585
)
   
 
(38,232
)
    
  
  
  
  
  
Total Non-Operating Expense
   
 
(11,762
)
   
 
(13,017
)
   
 
(22,982
)
   
 
(24,018
)
   
 
(37,605
)
   
 
(37,922
)
    
  
  
  
  
  
Net Income (Loss)
   
$
(3,699
)
   
$
1,681
 
   
$
2,488
 
   
$
2,256
 
   
$
(4,126
)
   
$
3,024
 
    
  
  
  
  
  
*
 
Intercompany eliminations and expenses of Trump Administration, Trump AC, Trump AC Funding, Trump AC Funding II and Trump AC Funding III are not separately shown.

11

Table of Contents
 
    
Three Months Ended June 30,
  
    
2001
Plaza Associates
     
2002
Plaza Associates
     
2001
Taj
Associates
     
2002
Taj
Associates
     
2001
Total Trump AC
     
2002
Total Trump AC
  
    
(dollars in thousands)
  
Table Game Revenues
   
$  22,173
 
   
$
24,333
 
   
$
42,657
 
   
$
35,161
 
   
$
64,830
 
   
$
59,494
 
Incr (Decr) over Prior Period
          
$
2,160
 
            
$
(7,496
)
            
$
(5,336
)
Table Game Drop
   
$141,347
 
   
$
146,944
 
   
$
245,342
 
   
$
217,835
 
   
$
386,689
 
   
$
364,779
 
Incr (Decr) over Prior Period
          
$
 5,597
 
            
$
(27,507
)
            
$
(21,910
)
Table Win Percentage
   
15.7
%
   
 
16.6
%
   
 
17.4
%
   
 
16.1
%
   
 
16.8
%
   
 
16.3
%
Incr (Decr) over Prior Period
          
 
0.9 pts
 
            
 
(1.3) pts
 
            
 
(0.5) pts
 
Number of Table Games
   
99
 
   
 
88
 
   
 
143
 
   
 
139
 
   
 
242
 
   
 
227
 
Incr (Decr) over Prior Period
          
 
(11
)
            
 
(4
)
            
 
(15
)
Slot Revenues
   
$  58,552
 
   
$
60,050
 
   
$
84,328
 
   
$
91,887
 
   
$
142,880
 
   
$
151,937
 
Incr (Decr) over Prior Period
          
$
1,498
 
            
$
7,559
 
            
$
9,057
 
Slot Handle
   
$768,834
 
   
$
738,220
 
   
$
1,100,943
 
   
$
1,156,659
 
   
$
1,869,777
 
   
$
1,894,879
 
Incr (Decr) over Prior Period
          
$
(30,614
)
            
$
55,716
 
            
$
25,102
 
Slot Win Percentage
   
7.6
%
   
 
8.1
%
   
 
7.7
%
   
 
7.9
%
   
 
7.6
%
   
 
8.0
%
Incr (Decr) over Prior Period
          
 
0.5 pts
 
            
 
0.2 pts
 
            
 
0.4 pts
 
Number of Slot Machines
   
2,839
 
   
 
2,908
 
   
 
4,597
 
   
 
4,847
 
   
 
7,436
 
   
 
7,755
 
Incr (Decr) over Prior Period
          
 
69
 
            
 
250
 
            
 
319
 
Poker Revenues
   
—  
 
   
 
—  
 
   
$
4,936
 
   
$
4,890
 
   
$
4,936
 
   
$
4,890
 
Incr (Decr) over Prior Period
          
 
—  
 
            
$
(46
)
            
$
(46
)
Number of Poker Tables
   
—  
 
   
 
—  
 
   
 
67
 
   
 
67
 
   
 
67
 
   
 
67
 
Incr (Decr) over Prior Period
          
 
—  
 
            
 
—  
 
            
 
—  
 
Other Gaming Revenues
   
—  
 
   
 
—  
 
   
$
545
 
   
$
515
 
   
$
545
 
   
$
515
 
Incr (Decr) over Prior Period
          
 
—  
 
            
$
(30
)
            
$
(30
)
Total Gaming Revenues
   
$  80,725
 
   
$
84,383
 
   
$
132,466
 
   
$
132,453
 
   
$
213,191
 
   
$
216,836
 
Incr (Decr) over Prior Period
          
$
3,658
 
            
$
(13
)
            
$
3,645
 
Number of Guest Rooms
   
904
 
   
 
904
 
   
 
1,250
 
   
 
1,250
 
   
 
2,154
 
   
 
2,154
 
Occupancy Rate
   
94.3
%
   
 
94.0
%
   
 
96.2
%
   
 
95.3
%
   
 
95.4
%
   
 
94.8
%
Average Daily Rate (Room Revenue)
   
$    82.13
 
   
$
84.07
 
   
$
81.12
 
   
$
82.50
 
   
$
81.55
 
   
$
83.15
 
 
Gaming revenues are the primary source of Trump AC’s revenues. The year over year increase in gaming revenues was primarily due to an increase in slot activity.
 
Table game revenues decreased by approximately $5,336,000, or 8.2%, from the comparable period in 2001 due primarily to a decrease in both table game drop and the table game win percentage at the Taj Mahal. Overall Trump AC’s table win percentage decreased to 16.3% from 16.8% in the comparable period in 2001. Table game revenues represent the amount retained by Trump AC from amounts wagered at table games. The table win percentage tends to be fairly constant over the long term, but may vary significantly in the short term, due to large wagers by “high rollers.” The Atlantic City industry table win percentages were 15.4% and 15.8% for the quarters ended June 30, 2001 and 2002, respectively.
 
Slot revenues increased by approximately $9,057,000, or 6.3%, from the comparable period in 2001 primarily as a result of improved slot product on the casino floor and management’s continued focus on marketing initiatives and customer service.
 
Gaming costs and expenses decreased by approximately $5,004,000, or 4.7%, from the comparable period in 2001. Expense decreases at both the Taj Mahal and Trump Plaza were primarily related to decreased payroll expense and more efficient marketing programs.

12

Table of Contents
 
Comparison of Six-Month Periods Ended June 30, 2001 and 2002.    The following table includes selected data of Plaza Associates and Taj Associates for the six months ended June 30, 2001 and 2002.
 
    
Six Months Ended June 30,
  
    
2001
Plaza Associates
     
2002
Plaza Associates
     
2001
Taj Associates
     
2002
Taj Associates
     
2001
Total Trump AC*
     
2002
Total Trump AC*
  
    
(in thousands)
  
Revenues:
                                                      
Gaming
   
$
161,070
 
   
$
165,884
 
   
$
251,901
 
   
$
262,378
 
   
$
412,971
 
   
$
428,262
 
Other
   
 
35,704
 
   
 
34,377
 
   
 
51,262
 
   
 
53,918
 
   
 
86,966
 
   
 
88,295
 
    
  
  
  
  
  
Gross Revenues
   
 
196,774
 
   
 
200,261
 
   
 
303,163
 
   
 
316,296
 
   
 
499,937
 
   
 
516,557
 
Less: Promotional Allowances
   
 
42,262
 
   
 
39,810
 
   
 
56,052
 
   
 
58,230
 
   
 
98,314
 
   
 
98,040
 
    
  
  
  
  
  
Net Revenues
   
 
154,512
 
   
 
160,451
 
   
 
247,111
 
   
 
258,066
 
   
 
401,623
 
   
 
418,517
 
    
  
  
  
  
  
Costs & Expenses:
                                                      
Gaming
   
 
87,720
 
   
 
82,730
 
   
 
124,224
 
   
 
119,873
 
   
 
211,944
 
   
 
202,603
 
Other
   
 
9,444
 
   
 
10,669
 
   
 
17,704
 
   
 
17,981
 
   
 
27,148
 
   
 
28,650
 
General & Administrative
   
 
33,686
 
   
 
31,214
 
   
 
49,190
 
   
 
51,373
 
   
 
82,946
 
   
 
82,627
 
Depreciation & Amortization
   
 
8,297
 
   
 
8,501
 
   
 
16,872
 
   
 
18,302
 
   
 
25,169
 
   
 
26,803
 
Debt Renegotiation Costs
   
 
—
 
   
 
—
 
   
 
—
 
   
 
—
 
   
 
—
 
   
 
1,570
 
    
  
  
  
  
  
Total Costs and Expenses
   
 
139,147
 
   
 
133,114
 
   
 
207,990
 
   
 
207,529
 
   
 
347,207
 
   
 
342,253
 
    
  
  
  
  
  
Income from Operations
   
 
15,365
 
   
 
27,337
 
   
 
39,121
 
   
 
50,537
 
   
 
54,416
 
   
 
76,264
 
    
  
  
  
  
  
Interest and Other Non-Operating Income
   
 
589
 
   
 
169
 
   
 
525
 
   
 
156
 
   
 
1,681
 
   
 
558
 
Interest Expense
   
 
(24,041
)
   
 
(24,946
)
   
 
(46,527
)
   
 
(47,412
)
   
 
(76,765
)
   
 
(76,451
)
    
  
  
  
  
  
Total Non-Operating Expense
   
 
(23,452
)
   
 
(24,777
)
   
 
(46,002
)
   
 
(47,256
)
   
 
(75,084
)
   
 
(75,893
)
    
  
  
  
  
  
Net Income (Loss)
   
$
(8,087
)
   
$
2,560
 
   
$
(6,881
)
   
$
3,281
 
   
$
(20,668
)
   
$
371
 
    
  
  
  
  
  
*
 
Intercompany eliminations and expenses of Trump Administration, Trump AC, Trump AC Funding, Trump AC Funding II and Trump AC Funding III are not separately shown.

13

Table of Contents
 
    
Six Months Ended June 30,
  
    
2001
Plaza Associates
     
2002
Plaza Associates
     
2001
Taj
Associates
     
2002
Taj
Associates
     
2001
Total
Trump AC
     
2002
Total
Trump AC
  
    
(dollars in thousands)
  
Table Game Revenues
   
$
48,368
 
   
$
49,993
 
   
$
77,507
 
   
$
74,517
 
   
$
125,875
 
   
$
124,510
 
Incr (Decr) over Prior Period
            
$
1,625
 
            
$
(2,990
)
            
$
(1,365
)
Table Game Drop
   
$
282,231
 
   
$
290,010
 
   
$
485,173
 
   
$
443,547
 
   
$
767,404
 
   
$
733,557
 
Incr (Decr) over Prior Period
            
$
7,779
 
            
$
(41,626
)
            
$
(33,847
)
Table Win Percentage
   
 
17.1
%
   
 
17.2
%
   
 
16.0
%
   
 
16.8
%
   
 
16.4
%
   
 
17.0
%
Incr (Decr) over Prior Period
            
 
0.1 pts
 
            
 
0.8 pts
 
            
 
0.6 pts
 
Number of Table Games
   
 
99
 
   
 
88
 
   
 
143
 
   
 
139
 
   
 
242
 
   
 
227
 
Incr (Decr) over Prior Period
            
 
(11
)
            
 
(4
)
            
 
(15
)
Slot Revenues
   
$
112,702
 
   
$
115,891
 
   
$
163,421
 
   
$
176,933
 
   
$
276,123
 
   
$
292,824
 
Incr (Decr) over Prior Period
            
$
3,189
 
            
$
13,512
 
            
$
16,701
 
Slot Handle
   
$
1,475,863
 
   
$
1,441,163
 
   
$
2,138,071
 
   
$
2,257,381
 
   
$
3,613,934
 
   
$
3,698,544
 
Incr (Decr) over Prior Period
            
$
(34,700
)
            
$
119,310
 
            
$
84,610
 
Slot Win Percentage
   
 
7.6
%
   
 
8.0
%
   
 
7.6
%
   
 
7.8
%
   
 
7.6
%
   
 
7.9
%
Incr (Decr) over Prior Period
            
 
0.4 pts
 
            
 
0.2 pts
 
            
 
0.3 pts
 
Number of Slot Machines
   
 
2,842
 
   
 
2,877
 
   
 
4,631
 
   
 
4,852
 
   
 
7,473
 
   
 
7,729
 
Incr (Decr) over Prior Period
            
 
35
 
            
 
221
 
            
 
256
 
Poker Revenues
   
 
—
 
   
 
—
 
   
$
9,874
 
   
$
9,881
 
   
$
9,874
 
   
$
9,881
 
Incr (Decr) over Prior Period
            
 
—
 
            
$
7
 
            
$
7
 
Number of Poker Tables
   
 
—
 
   
 
—
 
   
 
67
 
   
 
67
 
   
 
67
 
   
 
67
 
Incr (Decr) over Prior Period
            
 
—
 
            
 
—
 
            
 
—
 
Other Gaming Revenues
   
 
—
 
   
 
—
 
   
$
1,099
 
   
$
1,047
 
   
$
1,099
 
   
$
1,047
 
Incr (Decr) over Prior Period
            
 
—
 
            
$
(52
)
            
$
(52
)
Total Gaming Revenues
   
$
161,070
 
   
$
165,884
 
   
$
251,901
 
   
$
262,378
 
   
$
412,971
 
   
$
428,262
 
Incr (Decr) over Prior Period
            
$
4,814
 
            
$
10,477
 
            
$
15,291
 
Number of Guest Rooms
   
 
904
 
   
 
904
 
   
 
1,250
 
   
 
1,250
 
   
 
2,154
 
   
 
2,154
 
Occupancy Rate
   
 
91.1
%
   
 
92.8
%
   
 
94.3
%
   
 
94.8
%
   
 
93.0
%
   
 
94.0
%
Average Daily Rate (Room Revenue)
   
$
79.42
 
   
$
81.00
 
   
$
76.91
 
   
$
78.58
 
   
$
77.94
 
   
$
79.61
 
 
Gaming revenues are the primary source of Trump AC’s revenues. The year over year increase in gaming revenues was primarily due to an increase in slot activity.
 
Table game revenues decreased by approximately $1,365,000, or 1.1%, from the comparable period in 2001 due primarily to a decrease in table game drop at the Taj Mahal. Overall Trump AC’s table win percentage increased to 17.0% from 16.4% in the comparable period in 2001. Table game revenues represent the amount retained by Trump AC from amounts wagered at table games. The table win percentage tends to be fairly constant over the long term, but may vary significantly in the short term, due to large wagers by “high rollers”. The Atlantic City industry table win percentages were 15.3% and 16.0% for the six months ended June 30, 2001 and 2002, respectively.
 
Slot revenues increased by approximately $16,701,000, or 6.0%, from the comparable period in 2001 primarily as a result of improved slot product on the casino floor, management’s continued focus on marketing initiatives and customer service as well as favorable weather conditions.
 
Gaming costs and expenses decreased by approximately $9,341,000, or 4.4%, from the comparable period in 2001. Expense decreases at both the Taj Mahal and Trump Plaza were primarily related to decreased payroll expense and more efficient marketing programs.
 
As previously reported, Trump AC was seeking to refinance or modify the terms of the Trump AC Mortgage Notes which were approximately $1,300,000,000 aggregate principal amount as of June 30, 2002. In connection with such efforts, Trump AC has incurred approximately $1,570,000 in debt renegotiation costs in the six months ended June 30, 2002. Trump AC has since terminated such efforts but intends to revisit the capital markets at a later time if and when more favorable market conditions exist. See “General, The Company Has Substantial Indebtedness.”

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Table of Contents
 
Seasonality
 
The casino industry in Atlantic City is seasonal in nature with the peak season occurring in the second and third quarters. Accordingly, the results of operations for the period ended June 30, 2002 are not necessarily indicative of the operating results for a full year.
 
ITEM 3—QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 
Not Applicable.

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Table of Contents
 
PART II—OTHER INFORMATION
 
ITEM 1—LEGAL PROCEEDINGS
 
General.    Trump AC, its partners, certain members of its former executive committee, and certain of its employees, have been involved in various legal proceedings. Such persons and entities are vigorously defending the allegations against them. In general, Trump AC has agreed to indemnify such persons against any and all losses, claims, damages, expenses (including reasonable costs, disbursements and counsel fees) and liabilities (including amounts paid or incurred in satisfaction of settlements, judgments, fines and penalties) incurred by them in said legal proceedings.
 
Various legal proceedings are now pending against Trump AC. Trump AC considers all such proceedings to be ordinary litigation incident to the character of its business. Trump AC 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 Trump AC.
 
ITEM 2—CHANGES IN SECURITIES AND USE OF PROCEEDS
 
Not Applicable.
 
ITEM 3— DEFAULTS UPON SENIOR SECURITIES
 
Not Applicable.
 
ITEM 4— SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
 
Not Applicable.
 
ITEM 5— OTHER INFORMATION
 
Subsequent Events
 
On July 3, 2002, the State of New Jersey passed the New Jersey Tax Act (the “Act”). This Act, among other things, requires the suspension of the use of the New Jersey net operating loss carryforwards for two years and the introduction of a new Alternative Minimum Assessment amount under the New Jersey corporate business tax based on gross receipts or gross profits, as defined. The Act is retroactive to January 1, 2002. As a result of the change in the tax law, Trump AC has preliminarily estimated that it will record a charge to tax expense of approximately $2.25 million to $4.0 million for the year ended December 31, 2002. This charge will be recorded beginning in the period in which the tax law was passed (third quarter) pursuant to the accounting literature in Financial Accounting Standards Board Statement Number 109, Accounting For Income Taxes.
 
ITEM 6— EXHIBITS AND REPORTS ON FORM 8-K
 
a.    Exhibits:
 
99.1
   
Certification of the Chief Executive Officer of the Registrants Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
99.2
   
Certification of the Chief Financial Officer of the Registrants Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 
b.    Current Reports on Form 8-K:
 
On June 4, 2002, the Registrants filed a Current Report on Form 8-K with the SEC therein announcing that THCR and its subsidiaries, including the Registrants, dismissed Arthur Andersen LLP (“Andersen”) as their independent public accountants on June 3, 2002. In the same Form 8-K, THCR and its subsidiaries also announced that the firm of Ernst & Young LLP (“E&Y”) had been engaged as their new independent accountants as of June 3, 2002. The Audit Committee of THCR’s Board of Directors participated in and approved of the decision to dismiss Andersen and to retain E&Y as Andersen’s replacement.

16

Table of Contents
 
SIGNATURES
 
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, each of the registrants has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
       
TRUMP ATLANTIC CITY ASSOCIATES
(Registrant)
           
By:
  
TRUMP ATLANTIC CITY HOLDING, INC.,
its Managing General Partner
 
Date: August 14, 2002
      
By:
  
/s/    FRANCIS X. MCCARTHY, JR.         
               
Francis X. McCarthy, Jr.
Chief Financial Officer
(Duly Authorized Officer and
Principal Financial and Accounting Officer)
 
       
TRUMP ATLANTIC CITY FUNDING, INC.
(Registrant)
Date: August 14, 2002
      
By:
  
/s/    FRANCIS X. MCCARTHY, JR.         
               
Francis X. McCarthy, Jr.
Chief Financial Officer
(Duly Authorized Officer and
Principal Financial and Accounting Officer)
 
       
TRUMP ATLANTIC CITY FUNDING II, INC.
(Registrant)
Date: August 14, 2002
      
By:
  
/s/    FRANCIS X. MCCARTHY, JR.         
               
Francis X. McCarthy, Jr.
Chief Financial Officer
(Duly Authorized Officer and
Principal Financial and Accounting Officer)
 
       
TRUMP ATLANTIC CITY FUNDING III, INC.
(Registrant)
Date: August 14, 2002
      
By:
  
/s/    FRANCIS X. MCCARTHY, JR.         
               
Francis X. McCarthy, Jr.
Chief Financial Officer
(Duly Authorized Officer and
Principal Financial and Accounting Officer)
 
 

17