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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (FEE REQUIRED) For the Fiscal Year Ended
December 31, 1993
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from __ to __
Commission File No. 1-9029
TRUMP'S CASTLE FUNDING, INC.
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(Exact Name of Registrant as specified in its charter)
New Jersey 11-2739203
- ------------------------------- -------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) Number)
Huron Avenue and Brigantine Boulevard
Atlantic City, New Jersey 08401
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (609) 441-8640
Securities registered pursuant to Section 12(b) of the Act:
Name of each Exchange
Title of Each Class on which Registered
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11 3/4% Mortgage Notes due 2003 American Stock Exchange, Inc.
Increasing Rate Subordinated Pay-in-Kind American Stock Exchange, Inc.
Notes due 2005
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
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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 )
The aggregate market value of the voting stock of Trump Castle Funding,
Inc. held by non-affiliates of the Registrant is $0.
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, 1993, there were 200 shares of the Registrant's Common
Stock outstanding.
Documents Incorporated by Reference -- Not applicable.
FORM 10-K
TABLE OF CONTENTS
Item Page
PART I
Item 1 Business............................................................................................... 1
Item 2 Properties of the Partnership..........................................................................21
Item 3 Legal Proceedings......................................................................................23
Item 4 Submission of Matters to a Vote of Security Holders....................................................24
PART II
Item 5 Market for Funding's Common Equity and Related
Stockholder Matters...................................................................................25
Item 6 Selected Consolidated Financial Data...................................................................25
Item 7 Management's Discussion and Analysis of Financial
Condition and Results of Operations...................................................................28
Item 8 Financial Statements and Supplementary Data............................................................32
Item 9 Disagreements on Accounting and Financial
Disclosure............................................................................................32
PART III
Item 10 Directors and Executive Officers ......................................................................33
Item 11 Executive Compensation.................................................................................37
Item 12 Security Ownership of Certain Beneficial Owners
and Management........................................................................................40
Item 13 Certain Relationships and Related Transactions.........................................................41
PART IV
Item 14 Exhibits, Financial Statement Schedules and
Reports on Form 8-K...................................................................................44
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 herein concentrates upon 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 the plaintiffs in
certain litigation to be issued warrants for the common stock of TCHI (the
"Litigation Warrants") representing the right to acquire an indirect beneficial
interest in 0.5% of the common equity interest in the Partnership. See "LEGAL
PROCEEDINGS" below.
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 Litigation 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.
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. Pursuant to the terms of a Registration Rights
Agreement with the purchasers of the Series A Notes, Funding and the Partnership
have filed a registration statement with the Securities and Exchange Commission
(the "SEC") for the issuance of $27 million principal amount of Funding's
11-1/2% Series B Senior Secured Notes (the "Series B Notes") in exchange for the
$27 million outstanding principal amount of the Series A Notes. The Series B
Notes have terms which are virtually identical to those of the Series A Notes.
There can be no assurance that such offering will be consummated.
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 those who exercised their 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 Litigation Warrants).
Also as a consequence of the Recapitalization, the principal amount of the
Partnership's debt has been reduced, and, initially, the Partnership's cash
charges have been reduced.
Upon consummation of the Recapitalization, Funding's outstanding debt
consisted of the $27 million principal amount 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
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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 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.
The terms of the Bonds and the partnership agreement executed upon
consummation of the Restructuring were designed to provide Trump with incentives
to cause the Bonds to be repaid or redeemed prior to maturity. Under the terms
of the indenture pursuant to which the Bonds were issued, the Bonds were
initially redeemable at a redemption price equal to 70% of the outstanding
principal amount thereof, together with accrued and unpaid interest to the date
of redemption. Such redemption price, however, increased over time to par on or
after January 1, 1996. In addition, the partnership agreement provided that upon
a redemption of the Bonds, the interest of TC/GP in the Partnership would be
decreased, and the interest of Trump in the Partnership would be increased,
based upon the redemption date of the Bonds and the redemption price paid with
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respect thereto. The earlier the redemption and the greater the redemption price
paid with respect to the Bonds, the greater the adjustment to TC/GP's and
Trump's partnership interests.
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 70,000
square foot casino, first-class guest rooms and other luxury amenities, Trump's
Castle has been awarded a "Four Star" Mobil Travel Guide rating in each of the
last three years. Management believes that the "Four Star" rating reflects the
high quality amenities and services that Trump's Castle provides to its casino
patrons and hotel guests.
Trump's Castle's casino offers 94 table games (including 13
poker tables) and 2,098 slot machines. During 1993, Trump's Castle completed a
10,000 square foot expansion to its casino which has enabled Trump's Castle to
increase the number of slot machines on the casino floor by 300 units, to
provide more space between slot machines, and to place stools in front of
additional slot machines, all of which are designed to provide the gaming patron
with a more comfortable gaming experience. Presently, Trump's Castle is
undertaking a 3,000 square foot expansion to accommodate the addition of
simulcast race-track wagering. The expansion will also increase casino access
and casino visibility for hotel patrons. In addition, Trump's Castle recently
completed the construction of a Las Vegas style marquee and reader board, the
largest of its kind on the East Coast. See "PROPERTIES OF THE PARTNERSHIP"
below.
Trump's Castle has identified exceptional service as a means of
differentiating itself from and competing with other casinos in Atlantic City.
It has invested significant resources to the development of its 700 managers and
3,000 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" 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. Trump's Castle has also recently implemented an aggressive overseas
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marketing plan designed to broaden its patron base by seeking to attract "high
roller" table game patrons who tend to wager large sums of money. Recently,
Trump's Castle has recruited several senior level casino marketing executives
who have extensive experience in overseas marketing and a proven track record of
attracting profitable international "high rollers". This new strategy will also
include promotions and offer special events aimed at the overseas market and is
designed to offset the decline of table games play by the domestic market.
Trump's Castle also intends to capitalize on its first-class facilities,
particularly its luxury suite tower and on-site helipad to attract international
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. 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. See
"Competition" below.
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 new
management team implemented a new business strategy designed to capitalize on
Trump's Castle's first-class facilities and improve operating results.
Key elements of the new 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 1990 and
1991 and to attract new patrons by increasing its promotional activities and
complimentaries offered. Trump's Castle improved its market share by the end of
1992 and continues to improve operating margins by directing complimentaries and
promotional activities to attract the most profitable patrons in each market
segment. In addition, Trump's Castle has recently implemented an aggressive
overseas marketing plan designed to broaden its patron base by seeking to
attract high-end table game patrons. This new strategy will include promotions
and offer special events and is designed to offset the decline of table games
play by the domestic market.
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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 1993, the Partnership completed a 10,000 square foot expansion of
its main casino floor space bringing the total casino floor space to 70,000
square feet. This expansion enabled the Partnership to introduce live poker
games and at the same time to increase the number of slot machines, to provide
more space between slot machines, and to place stools in front of additional
slot machines. These changes are designed to provide the gaming patron with a
more comfortable 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 67.1% of the industry gaming revenue in 1993. Trump's Castle experienced a
similar increase, with slot revenue increasing from 52.5% of gaming revenue in
1988 to 70.2% of gaming revenue in 1993. In response to this trend, Trump's
Castle has devoted more of its casino floor space to slot machines and has
replaced 900 of its slot machines with newer machines. In the next six months
Trump's Castle intends to acquire an additional 100 slot machines to replace
less popular, older models. Moreover, as part of its program to attract middle
market slot patrons, the Partnership has created "Castle Square", a section of
the casino floor devoted to one dollar slot machines, and "Monte Carlo", a
section of the casino floor devoted to high denomination slot machines (most of
which provide for $5 or more per play). The Partnership is currently considering
introducing another high denomination slot machine area next to the "King of
Clubs" lounge and intends to introduce "keno" in the second quarter of 1994,
subject to approval by the CCC.
"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 1991 and
1992, Trump's Castle increased promotional activities and complimentaries to its
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targeted patrons in order to regain lost market share. Currently, 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
twelve times a year which, in 1993, included performances by Joan Rivers, Johnny
Cash, Ann Margaret, Frankie Avalon, Bobby Rydell, and The Neville Brothers.
Headliners who are scheduled to appear at Trump's Castle in 1994 include Tom
Jones, Sheena Easton, The Everly Brothers, The Pointer Sisters and The Beach
Boys. During 1994, Trump's Castle will also produce a series of review-style
shows with up to 12 shows per week for 30 weeks over the year. The review-style
shows will focus on attracting mass market customers and will also be used to
reward loyal high frequency middle market customers.
As a part of its overseas marketing plan, Trump's Castle offers special
events aimed at the overseas market. In 1993, for example, Trump's Castle held
an Italian Christmas celebration targeted toward the European Market. In
addition, Trump's Castle hosts over 100 special events on an invitation only
basis in an effort to attract middle market gaming patrons and build loyalty
among 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 approximately ten 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 machine
gaming patrons, as well as high rollers, through its "junket" marketing
operations, which involves 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 high-end table gaming
markets in Europe, Asia, Canada and Latin America. The Partnership also has
contracts with two international sales representatives and has recruited several
senior level casino marketing executives who have extensive experience in
overseas marketing and a proven track record of attracting profitable high-end
table gaming patrons.
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 slot card)
sign-ups in order to increase the Partnership's marketing base.
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
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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 his slot play. They also use
this information to provide attentive service to the cardholder while he is 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.
Credit Policy
Historically, Trump's Castle has extended credit to certain qualified
patrons. For the years ended December 31, 1991 and 1992, credit play at Trump's
Castle as a percentage of total dollars wagered was approximately 31% and 28%,
respectively. In recognition of the general economic conditions in the Northeast
and consistent with a more focused marketing strategy, Trump's Castle also
imposed stricter standards on applications for new or additional credit.
Although Trump's Castle has successfully attracted high-end table games patrons,
who in general tend to use a higher percentage of credit in their wagering,
through its "junket" marketing operations and has recently undertaken a
marketing effort aimed at high-end international table game patrons, who also
tend to use a higher percentage of credit in their wagering, credit play as a
percentage of total dollars wagered increased to only 29% for the year ended
December 31, 1993.
Bus Program
Trump's Castle has a bus program which transports approximately 2,100
gaming patrons per day during the week and 2,600 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.
Risks Inherent in an International Marketing Strategy
The potential benefit derived from the Partnership's recently
implemented overseas marketing plan designed to attract "high rollers", may not
outweigh the high costs associated with attracting such players. In addition,
the large sums of money wagered by "high rollers" may result in substantial
gains or losses by individual patrons, which could increase the volatility of
Trump's Castle's results of operations and thus increase the Partnership's need
for liquidity. There may also be difficulties presented in collecting from such
players.
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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 1994, with
approximately $3.3 billion of casino industry revenue generated in 1993. Gaming
revenue for all Atlantic City casino hotels has increased approximately 2.6%,
5.2%, 1.3%, 7.5% and 2.6% during 1989, 1990, 1991, 1992 and 1993, 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 recently completed. Despite the expansion of the
Atlantic City International Airport, however, 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.
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 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. In 1991, six Atlantic City casino hotels
reported increases in gaming revenues as compared to 1990, and five reported
decreases in gaming revenues (including Trump's Castle). The Partnership
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believes that results in 1991 were affected by the weakness in the economy
throughout the Northeast and the adverse impact in 1991 on tourism and consumer
spending of the Persian Gulf War. 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. In 1993, nine casinos (including Trump's Castle) experienced increased
casino revenues, as compared to 1992, while three casinos reported decreases.
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.
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 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
-10-
1992, the Mashantucket Pequot Nation initiated 24 hour gaming. In January 1993,
slot machines were added at such facility, and the facility currently contains
over 3,100 slot machines. The Mashantucket Pequot Nation has announced various
expansion plans, including its intention to build another casino in Ledyard
together with hotels, restaurants and a theme park.
Trump, the Partnership and the Other Trump Casinos have recently filed
a lawsuit seeking, among other things, a declaration that IGRA is
unconstitutional and seeking an injunction against the enforcement of certain
provisions of IGRA. The complaint states, among other things, that the
Mashantucket Pequot Nation's casino has caused the Partnership substantial
economic injury. The complaint states further that any future expansions of
existing Native American gaming facilities or new ventures by such persons or
others in the northeastern or mid-Atlantic region of the United States would
have a further adverse impact on Atlantic City in general and could cause the
Partnership further substantial economic injury.
A group in New Jersey terming itself the "Ramapough Indians" has
applied to the U.S. Department of the Interior to be recognized formally as a
Native American tribe, which recognition would permit it to require the State of
New Jersey to negotiate a gaming compact under IGRA. On December 3, 1993,
however, the Interior Department proposed that such Federal recognition to the
Ramapough Indians be denied. Similarly, 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,
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
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 the summer of 1994. 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 recently
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
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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, and 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. In addition, Trump has a personal services agreement with the partnership
that owns 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 100%. 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 Messrs. Ernest E. East and John P. Burke, officers
of the Partnership, are also executive officers of the partnerships that own the
Other Trump Casinos. In addition, Messrs. Trump, Ribis, East 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 other common officers, 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, East and Burke do 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, 1993, the Partnership
employed approximately 3,700 full and part time employees for the operation of
Trump's Castle, of whom approximately 932 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
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AFL-CIO expires on September 14, 1994. Such agreement extends to approximately
820 employees. Preparation for negotiations for a new collective bargaining
agreement with Local No. 54 are currently underway. In addition, three other
collective bargaining agreements which expire in 1996 cover approximately 112
maintenance 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.
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.
-13-
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 up to two 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.
-14-
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-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 a series of publicly-traded mortgage
bonds 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 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 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
-15-
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 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
-16-
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.
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.
Interim Casino Authorization
Interim casino authorization is a process which permits a person who
enters into a contract to obtain property relating to a casino operation or who
obtains publicly-traded securities relating to a casino licensee to close on the
contract or own the securities until plenary licensure or qualification. During
the period of interim authorization, the property relating to the casino
operation or the securities are held in trust.
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, 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
licensee, a holding or intermediary company or entity qualifier of a licensee or
a financing entity of a licensee, 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.
-17-
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
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 will not be required to add any
additional sleeping units in connection with its 3,000 square foot expansion for
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 two-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.
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 and 1993, the
Partnership's gross revenue tax was approximately $19 million and $19.7 million,
-18-
respectively, and its license, investigations, and other fees and assessments
totalled approximately $3.2 million and $2.6 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 25 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 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.
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.
-19-
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
All employees of the Partnership must be licensed by or registered with
the CCC, depending on the nature of the position held. 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 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
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.
-20-
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. The Department of
the Treasury has adopted further regulations, the effectiveness of which has
been suspended until December 1994, which will require the Partnership, among
other things, to keep records of the name, permanent address and taxpayer
identification number (or in the case of a nonresident alien, such person's
passport number) of any person engaging in a currency transaction in excess of
$3,000. The Partnership is unable to predict what effect, if any, these new
reporting obligations will have on the gaming practices of certain of its
patrons.
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 currency transactions in excess of $10,000 during the period
from 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. 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
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Avenue and Brigantine Boulevard directly across from the Marina, approximately
two miles from The Boardwalk.
Trump's Castle has 70,000 square feet of casino space, which
accommodates 94 table games (including 13 poker tables) and 2,098 slot machines.
In addition to the casino, Trump's Castle consists of a 27 story hotel with 725
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 are scheduled to be renovated by April of 1994. The facility also
offers nine restaurants, a 460 seat cabaret theater, two cocktail lounges,
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 1993, Trump's Castle completed a 10,000 square foot expansion to
its casino which has enabled Trump's Castle to increase the number of slot
machines on the casino floor by 300 units, to provide more space between slot
machines and to place stools in front of additional slot machines, all of which
are designed to provide the gaming patron with a more comfortable gaming
experience. Presently, Trump's Castle is undertaking a 3,000 square foot
expansion to accommodate the addition of simulcast race track wagering. The
expansion will also increase casino access and casino visibility for hotel
patrons. In addition, Trump's Castle recently 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 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.
-22-
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, some of which are described below. 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.
Bondholder Litigation. Since June 1990, various purported class actions
were commenced on behalf of the holders of Funding's Old Bonds which were
outstanding prior to the consummation of the prepackaged plan of reorganization
under chapter 11 of the Bankruptcy Code, and the publicly traded bonds of the
Other Trump Casinos.
By an order of the Judicial Panel on Multidistrict Litigation dated
December 4, 1990, the United States District Court for the District of New
Jersey (the "Court") was given jurisdiction over these class actions for
coordinated consolidated pretrial proceedings. Pursuant to an Order of the New
Jersey District Court, on or about March 1, 1991, plaintiffs in the class filed
an amended and consolidated complaint (the "Complaint") that superseded the
complaints originally filed in those actions.
On March 5, 1992, the parties executed a Stipulation and Agreement of
Compromise and Settlement (the "Stipulation of Settlement"), which embodied the
agreement contained in a Memorandum of Understanding, dated July 30, 1991. On
March 10, 1992, the Court preliminarily approved the terms and conditions of the
Settlement proposed in the Stipulation of Settlement (the "Settlement") and
certified a settlement class (the "Settlement Class"). On May 21, 1992 a
settlement hearing was held before the Court and the Court approved the
Settlement and determined that the Settlement was fair, reasonable, adequate,
and in the best interest of the Settlement Class.
Under the terms of the Settlement, the holders of Funding's publicly
traded bonds outstanding prior to the Restructuring will receive: (1) the
Litigation Warrants, giving holders thereof the right to purchase common stock
reflecting an indirect .50% of the equity of the Partnership on a fully diluted
basis, which Litigation Warrants contain an option, pursuant to which for a six
month period commencing March 2000 the holders thereof can require the issuer to
repurchase such Litigation Warrants at an aggregate exercise price of $4
million, subject to certain terms and conditions set out more fully in the
Memorandum of Understanding, but which include payment in full of the Bonds
(which condition has been satisfied), satisfaction of the mortgage securing the
Midlantic Term Loan, the Partnership earning net income of $20 million in the
-23-
aggregate for the years 1997, 1998 and 1999, and holders of at least 60% of the
Litigation Warrants electing to exercise the option; and (2) a settlement in the
amount of $1,350,000 in cash, which will be used to satisfy the costs of notice
and administration as well as to compensate plaintiffs.
Other Litigation. 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.
On December 28, 1993, Funding obtained the consent of the holders of
$322,855,072 outstanding principal amount of Bonds (96.2%) to an amendment of
the indenture pursuant to which the Bonds were issued shortening the notice
period for the redemption of the Bonds. The holders of $173,000 principal amount
of Bonds (.05%) voted against such amendment and the holders of $12,698,321
principal amount of Bonds (3.8%) abstained.
-24-
PART II
ITEM 5. MARKET FOR FUNDING'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
(a) There is no established public trading market for Funding's
outstanding Common Stock.
(b) As of December 31, 1993, there was one holder of record of the
outstanding Common Stock of Funding.
(c) Funding has paid no cash dividends on its Common Stock.
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, 1989, 1990, 1991, 1992 and 1993
respectively, and the Consolidated Balance Sheets as of December 31, 1989, 1990,
1991, 1992 and 1993 respectively:
-25-
Year Ended December 31,
1989 1990 1991 1992(1) 1993(2)
---- ---- ---- ------- -------
INCOME STATEMENT DATA:
Gross Revenues $338,508,000 $302,223,000 $247,968,000 $299,306,000 $304,826,000
Less-Promotional Allowances 43,777,000 33,391,000 27,882,000 30,656,000 31,599,000
------------ ------------ ------------ ------------ ------------
Net Revenues 294,731,000 268,832,000 220,086,000 268,650,000 273,227,000
Total Costs and Expenses 260,307,000 267,583,000 222,446,000 260,623,000 245,361,000
------------ ------------ ------------ ------------ ------------
Income (Loss) from 34,424,000 1,249,000 (2,360,000) 8,027,000 27,866,000
Continuing Operations
Interest Income 1,712,000 893,000 505,000 499,000 675,000
Interest Expense (43,300,000) (48,759,000) (48,344,000) (45,360,000) (56,926,000)
Gain on Sinking Fund Payment - 3,136,000 - - -
Extraordinary Item(3) - - - 128,187,000 -
Benefit for State Income Tax 486,000 - - - _ -
------------ ------------ ------------ ------------ ------------
Net Income (Loss) ($6,678,000) ($43,481,000) ($50,199,000) $91,353,000 ($28,385,000)
============ ============ ============ ============ ============
BALANCE SHEET DATA:
Cash and cash equivalents $14,600,000 $8,046,000 $14,972,000 $23,610,000 $20,439,000
Total assets 439,775,000 408,276,000 391,303,000 379,641,000 375,935,000
Current Liabilities 74,357,000 421,483,000 454,709,000 39,397,000 34,463,000
Total long-term debt(4) 335,144,000 - - 279,445,000 309,794,000
Total capital (deficit) 30,274,000 (13,207,000) (63,406,000) 60,799,000 31,678,000
Notes: (1) On May 29, 1992, Funding, the Partnership and TCHI consummated
the Plan, which materially affects the comparability of the
information set forth above.
(2) On December 28, 1993, the Partnership and its affiliated entities
consummated the Recapitalization, which materially affects the
comparability of the information set forth above.
(3) 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, an $18,000,000 forgiveness of bank borrowings,
$22,805,000 representing discharge of accrued interest and net of
the write-off of $9,514,000 of unamortized Bond issuance costs.
(4) 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.
-26-
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
SELECTED QUARTERLY FINANCIAL DATA:
1993:
Net Revenues $61,522,000 $67,866,000 $78,361,000 $65,478,000
Income (Loss) 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) 10,218,000 873,000
Extraordinary Items -- 128,187,000 -- --
Net Income (Loss) (13,173,000) 115,238,000 (651,000) (10,061,000)
1991:
Net Revenues $ 50,633,000 $ 51,887,000 $ 63,573,000 $ 53,993,000
Income (Loss) from Operations (2,080,000) (2,177,000) 4,799,000 (2,902,000)
Net Income (Loss) (14,150,000) (14,102,000) (7,186,000) (14,761,000)
-27-
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION.
General. In 1990, the Partnership began experiencing a liquidity
problem that culminated in the Restructuring, which was consummated on May 29,
1992. Results of operations of the Partnership through December 31, 1992 were
affected by the Restructuring, which resulted in an extraordinary gain of
approximately $128.2 million for the year ended December 31, 1992. The
Partnership's business is highly competitive, and any future expansions by the
Mashantucket Pequot Nation or new gaming ventures by other Native American
tribes or other persons in the Northeastern or mid-Atlantic regions of the
United States could have a material adverse effect on the Partnership's future
financial condition and results of operations. See "Competition" above.
The financial information presented below reflects the results of
operations of the Partnership. Since Funding has no business operations, its
results of operations are not discussed below.
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. At December 31, 1993, gaming receivables amounted to approximately
$7.3 million, net of allowances for doubtful gaming receivables of approximately
$1.9 million, an increase of approximately $2.5 million over gaming receivables
of $4.8 million, net of allowances for doubtful gaming receivables of
approximately $2.7 million as of December 31, 1992.
-28-
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. 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,
previously implemented cost containment measures 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.
-29-
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.
Results of Operations for the Years Ended December 31, 1992 and 1991.
Net revenues (gross revenues, less promotional expenses) for the years ended
December 31, 1992 and 1991 totalled approximately $268.7 million and $220.1
million, respectively. Gaming revenues were approximately $242.0 million and
$194.8 million in 1992 and 1991, respectively. Management believes the increase
in gaming revenues in 1992 of 24.3% is attributable to improved customer service
and a refocusing of marketing efforts to reduce unprofitable market segments.
For the years ended December 31, 1992 and 1991, table game win
approximated $77.7 million and $67.6 million and slot win approximated $164.3
million and $127.2 million, respectively. During these periods, table game win
percentage was 15.4% in 1992 and 15.3% in 1991. Slot win percentage in 1992 was
9.8% and 9.9% in 1991. The lower slot win percentage in 1992 was largely
intentional and designed to remain competitive and stimulate patron play. Slot
machine wagerings increased 31.6% for the twelve months ended December 31, 1992
over the comparable period in 1991, while slot machine revenue increased 29.2%.
The Partnership elected to discontinue certain Progressive Slot Jackpot
Programs which positively impacted slot revenue by $1.8 million for the year
ended December 31, 1992.
During the year ended December 31, 1992, gaming credit extended to
customers was approximately 28.1% of overall table play. At December 31, 1992,
gaming receivables amounted to approximately $4.8 million, net of allowances for
doubtful gaming receivables of approximately $2.7 million.
Nongaming revenues increased approximately $4.1 million from $53.2
million in 1991 to $57.3 million in 1992. This improvement was attributable
primarily to an increase in food and beverage revenues of 10.8% in 1992 as
compared to 1991 and an increase in revenues from hotel rooms of 7.1% in 1992 as
compared to 1991. Revenues from food and beverage sales for this period amounted
to approximately $31.4 million, of which approximately $16.1 million consisted
of complimentary food and beverage. Revenues from hotel rooms during this period
amounted to approximately $17.8 million, of which $11.0 million consisted of
complimentary rooms. Trump's Castle's average hotel occupancy rate, based on
available rooms, was 85.8% in 1992, including occupancy of 50.7% of the
available rooms by patrons receiving complimentary rooms. The average rate
remained constant primarily from pricing casino room promotional allowances at
competitive levels in the Atlantic City market. Food and beverage revenues
improved as the marketing emphasis was shifted from attracting large numbers of
mass market gaming patrons to upscale patrons with higher gaming budgets.
Offsetting the nongaming revenue increase was an increase in promotional
allowances of $2.8 million. Promotional allowances as a percentage of gaming
revenues declined to 12.7% in 1992 from 14.3% in 1991.
-30-
Gaming costs and expenses increased for the year ended December 31,
1992 by $29.6 million (or 24.8%) and all other operating expenses, excluding
depreciation and amortization and restructuring costs, increased $7.3 million
(or 9.5%). The comparatively lower percentage increase in other expenses (as
compared to the percentage increase in gaming expenses) was due to cost
containment measures, including payroll reductions and discontinuance of
unprofitable marketing programs. Such measures were implemented to improve
overall operating efficiencies while remaining competitive and dedicated to long
range marketing goals.
Depreciation and amortization declined $1.6 million (7.5%) due
primarily to the implementation of cost containment measures related to capital
expenditures.
Income from operations improved $11.7 million primarily as a result of
revenue improvements and the continuation of cost containment measures.
The Partnership generated a net income of $91.4 million for the year
ended December 31, 1992 and incurred a net loss of $50.2 million for the
comparable period in 1991. The net income of $91.4 million includes an
extraordinary gain, as a result of the Plan of Reorganization, of $128.2 million
offset by litigation expenses of $1.4 million.
Inflation. There was no significant impact on the Partnership's
operations as a result of inflation during 1993, 1992 and 1991.
Liquidity and Capital Resources. Cash flow from operating activities is
the Partnership's principal source of liquidity. For the year ended December 31,
1993, the Partnership's net cash flow provided by operating activities before
cash debt service obligations was $24.7 million and cash debt service was $33.8
million, resulting in net cash used by operating activities of $9.1 million.
Cash and cash equivalents of $20.4 million at December 31, 1993 reflects a
reduction of $3.0 million from $23.6 million at December 31, 1992. The $3.2
million reduction in cash was due to the $9.1 million used by operating
activities, $10.4 million used to acquire capital assets and $3.0 million used
to purchase CRDA investments ($22.3 million in the aggregate) offset by a net
$19.3 million provided by financing activities.
Upon consummation of the Recapitalization in December 1993, the
Partnership had a working capital surplus of $2.2 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.
The effect of the Recapitalization on the Partnership's capital
structure has been to increase the Partnership's weighted average cost of debt
from approximately 9.43% to approximately 11.74%. The increase in the weighted
average cost of debt capital will be offset, at least initially, by an
approximately $23 million decrease in the principal amount of the Partnership's
outstanding indebtedness and by a reduction in the cash required to meet the
Partnership's debt service obligations in the near future. As a result of the
Recapitalization, the Partnership's consolidated indebtedness has been reduced
from $381 million to $358 million. The pay-in-kind feature of the PIK Notes
could, however, result in an additional $130 million of indebtedness over the
next ten years, assuming all accrued interest on the PIK Notes is paid in
-31-
additional PIK Notes. It is projected that the Partnership will require
approximately $31.4 million in 1994 and $36.1 million in 1995 in operating cash
flow to meet its debt service obligations. If necessary, the Partnership may
seek to obtain a credit facility of up to $10 million in principal amount to
fund any shortfall in cash available to meet debt service obligations.
Capital expenditures of $11.0 million for the year ended December 31,
1993 increased approximately $2.4 million due primarily to the expansion of the
casino floor and the construction of an electronic graphic sign affixed to the
front of the building. Capital expenditures were $8.6 million for the year ended
December 31, 1992 and included the Partnership's remaining obligation on the
Marina Roadway and the acquisition of new slot machines.
The lower level of capital expenditures for 1992 and 1991 of $8.6
million and $5.1 million, respectively, reflected the Partnership's liquidity
problems. Anticipated capital expenditures for 1994 are approximately $8 million
and include casino floor improvements, renovation of certain hotel rooms and the
purchase of additional slot machines for the casino expansion. Management
believes that currently planned future levels of capital expenditures would be
sufficient to maintain the attractiveness of Trump's Castle and the aesthetics
of its casino, 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.
Management also 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.
-32-
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, Ernest E. East, Asher O.
Pacholder, Thomas F. Leahy and Wallace B. Askins. Messrs. Trump, Ribis and East
also serve on the governing boards of Trump Taj Mahal Associates ("TTMA") and
Trump Plaza Associates ("TPA").
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, 47 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 Trump Plaza Funding, Inc. ("TPFI"), 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"), 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 Trump Plaza Holding, Inc. ("TPHI") and a
partner in Trump Plaza Holding Associates ("TPHA") since February 1993. Trump
was Chairman of the Executive Committee of TTMA, from
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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, 49 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 th