ITEM 1. BUSINESS
(a) GENERAL DEVELOPMENTS OF BUSINESS
Trump's Castle Funding, Inc. ("Funding") was incorporated under the laws of the State of New Jersey in May 1985 and is wholly-owned by Trump's Castle Associates, a New Jersey general partnership (the "Partnership"). Funding was formed to serve as a financing corporation to raise funds for the benefit of the Partnership. Since Funding has no business operations, its ability to service its indebtedness is completely dependent upon funds it receives from the Partnership. Accordingly, the discussion in this Report relates primarily to the Partnership and its operations.
The Partnership is owner and operator of Trump's Castle Casino Resort ("Trump's Castle"), a luxury casino hotel located in the Marina District of Atlantic City, New Jersey. The partners in the Partnership are TC/GP, Inc. ("TC/GP"), which has a 37.5% interest in the Partnership, Donald J. Trump ("Trump"), who has a 61.5% interest in the Partnership, and Trump's Castle Hotel & Casino, Inc. ("TCHI"), which has a 1% interest in the Partnership. Trump, by virtue of his ownership of TC/GP and TCHI, is the beneficial owner of 100% of the common equity interest in the Partnership, subject to the right of holders of warrants for 50% of the common stock of TCHI (the "TCHI Warrants") to acquire an indirect beneficial interest in 0.5% of the common equity interest in the Partnership.
In December 1993, the Partnership, Funding, and certain affiliated entities completed a recapitalization of their debt and equity capitalization (the "Recapitalization"). The purpose of the Recapitalization was (i) to improve the debt capitalization of the Partnership and, initially, to decrease its cash charges, (ii) to provide the holders of the Units, each Unit comprised of $1,000 principal amount of Funding's 9.5% Mortgage Bonds due 1998 (the "Bonds") and one share of TC/GP common stock, who participated in the Exchange Offer (as defined below) with a cash payment of $6.19 and securities having a combined principal amount of $905 for each Unit, and (iii) to provide Trump with beneficial ownership of 100% of the common equity interests in the Partnership (subject to the TCHI Warrants).
The Recapitalization was also designed to take advantage of certain provisions of the Units which were designed to provide Trump with incentives to cause the Units to be repaid or redeemed prior to maturity. The Units were issued in connection with a restructuring (the "Restructuring") of the indebtedness of Funding, the Partnership and TCHI through a prepackaged plan of reorganization (the "Plan") under chapter 11 of title 11 of the United States Code, as amended (the "Bankruptcy Code"), which was consummated on May 29, 1992. The Plan was designed to alleviate a liquidity problem which the Partnership began to experience in 1990.
In June of 1995, the Partnership acquired an option to acquire at least 92% of Funding's Increasing Rate Subordinate Pay-in-Kind Notes due 2005 (the "PIK Notes"). The option which was initially scheduled to expire on December 12, 1995 has been extended to March 19, 1996 and may be extended until June 21, 1996. The option is exercisable at a price equal to 60% of the aggregate principal amount and accrued interest of the PIK Notes delivered upon exercise of the option.
(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. Trump's Castle's 73,000 square foot casino, includes 90 table games (including six poker tables), 2,275 slot machines and simulcast racetrack wagering. See Item 2
ITEM 2. PROPERTIES OF THE PARTNERSHIP
THE CASINO PARCEL. Trump's Castle is located in the Marina District of Atlantic City on an approximately 14.7 acre triangular-shaped parcel of land, which is owned by the Partnership in fee, located at the intersection of Huron Avenue and Brigantine Boulevard, directly across from the Marina (see discussion below), approximately two miles from the Boardwalk.
Trump's Castle has a total of 73,000 square feet of casino space, which accommodates 90 table games (including 6 poker tables), 2,275 slot machines, and simulcasting facilities. In addition to the casino, Trump's Castle consists of a 27 story hotel with 728 guest rooms, including 185 suites, of which 99 are "Crystal Tower" luxury suites. The facility also offers eight restaurants, a 460-seat cabaret theater, one cocktail lounge, 58,000 square feet of convention, ballroom and meeting space, a swimming pool, tennis courts, and a sports and health club facility. Trump's Castle has been designed so that it can be enlarged in phases into a facility containing 2,000 rooms, a 1,600-seat cabaret theater, and additional recreational amenities. Trump's Castle also has a nine-story garage providing on-site parking for approximately 3,000 vehicles, and a helipad which is located atop the parking garage, making Trump's Castle the only Atlantic City casino with access by land, air, and sea.
During 1995, Trump's Castle replaced over 25% of the slot machines on its casino floor with new, more popular models, upgraded its computerized slot tracking and slot marketing system, and began the construction of two private clubs for preferred gaming patrons. In 1994, Trump's Castle added 153 slot machines, completed a 3,000 square foot expansion to its casino which enabled Trump's Castle to accommodate the addition of simulcast race track wagering, and expended in excess of $2 million on renovations to its hotel facility. The casino expansion also increased casino access and casino visibility for hotel patrons. In 1993, Trump's Castle completed the construction of a Las Vegas style marquee and reader board, the largest of its kind on the East Coast.
THE MARINA. Pursuant to an agreement (the "Marina 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 nautically-themed retail store. Any improvements made to the Marina (which is owned by the State of New Jersey), excluding the elevated pedestrian walkway, automatically become the property of the State of New Jersey upon their completion. Pursuant to the Marina Agreement and pursuant to a certain lease between the State of New Jersey, as landlord, and the Partnership, as tenant, dated as of September 1, 1990, the Partnership commenced leasing the Marina and the improvements thereon for an initial term of twenty- five years. The lease is a net lease pursuant to which the Partnership, in addition to the payment of annual rent equal to the greater of (i) a certain percentage of gross revenues, and (ii) minimum base rent of $300,000 annually (increasing every five years to $500,000 in 2011), is responsible for all costs and expenses related to the premises, including but not limited to, all maintenance and repair costs, insurance premiums, real estate taxes, assessments, and utility charges.
PARKING PARCEL. The Partnership also owns an employee parking lot located on Route 30, approximately two miles from Trump's Castle, which can accommodate approximately 1,000 cars.
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS
The Partnership, its partners, certain members of the former Executive Committee, Funding, and certain of their employees are involved in various legal proceedings. The Partnership and Funding have agreed to indemnify such persons and entities against any and all losses, claims, damages, expenses (including reasonable costs, disbursements and counsel fees) and liabilities (including amounts paid or incurred in satisfaction of settlements, judgments, fines and penalties) incurred by them in said legal proceedings. Such persons and entities are vigorously defending the allegations against them and intend to vigorously contest any future proceedings.
Various legal proceedings are now pending against the Partnership. The Partnership considers all such proceedings to be ordinary litigation incident to the character of its business. The majority of such claims are covered by liability insurance and the Partnership believes that the resolution of these claims, will not, individually or in the aggregate, have a material adverse effect on the financial condition or results of operations of the Partnership.
ITEM 4.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5.
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
(a) There is no established public trading market for Funding's outstanding common stock or for the Partnership's partnership interests.
(b) As of December 31, 1995, there was one holder of record of the outstanding common stock of Funding and three partners in the Partnership.
(c) Funding has paid no cash dividends on its common stock, and except as set forth under "Business -- The Recapitalization" (Item 1), the Partnership has made no general distributions with respect to its equity interests.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The financial information presented below reflects the financial condition and results of operations of the Partnership. Funding is a wholly-owned subsidiary of the Partnership and conducts no business other than collecting amounts due under certain intercompany notes from the Partnership for the purpose of paying principal of, premium, if any, and interest on its indebtedness, which Funding issued as a nominee for the Partnership.
RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994. The Partnership's net revenues (gross revenues less promotional allowances) for the years ended December 31, 1995 and 1994 were approximately $305.5 million and $283.8 million, respectively. The Partnership believes that the $21.7 million (7.6%) increase is the result of aggressive marketing programs and special events introduced by Management during the current year as well as a continuing emphasis on providing superior customer service.
Gaming revenues provide the majority of the Partnership's revenues and primarily consist of slot machine and table games win.
Slot machine win was approximately $197.4 million and $177.4 million (an increase of approximately $20.0 million or 11.3%) for the years ended December 31, 1995 and 1994, respectively. The total dollar amount wagered by customers on slot machines increased by approximately $322.9 million (16.4%) to $2,288.2 million for the year ended December 31, 1995 from $1,965.3 million for the year ended December 31, 1994. This increase in slot volume was partially offset by a decrease in the slot win percentage (slot win as a percentage of dollars wagered on slot machines) to 8.6% for the year ended December 31, 1995 from 9.0% for the year ended December 31, 1994. This win percentage decrease was primarily due to an increased volume of customer play on lower denomination slot machines which, traditionally, payout at a lower win percentage.
Table game win was approximately $82.7 million and $81.0 million (an increase of $1.7 million or 2.1%) for the years ended December 31, 1995 and 1994, respectively. The total dollar amount wagered by customers on table games increased by approximately $10.2 million (2.1%) to $487.7 million for the year ended December 31, 1995 from $477.5 for the year ended December 31, 1994. The table game win percentage (table game win as a percentage of dollars wagered on table games) remained at 17% for the year ended December 31, 1995 compared to the year ended December 31, 1994. The table game win percentage is outside the control of the Partnership, and although it is fairly constant over the long- term, it can vary significantly from period to period, due in part to the play of certain premium patrons who tend to wager substantial dollar amounts on table games.
For the years ended December 31, 1995 and 1994, credit extended to the table games customers was approximately 30.0% and 31.4% of overall table play, respectively. This relatively high level of credit play continues a trend which started in the last fiscal year and is the result of an increased level of play by individuals who wager relatively large sums. These premium patrons tend to use a higher percentage of credit when they wager.
Nongaming revenues, in the aggregate, increased by approximately $3.1 million (5.2%) to $60.0 million for the year ended December 31, 1995 from $56.9 million for the year ended December 31, 1994, primarily as the result of rooms revenue (an approximate $538,000 increase) and food and beverage revenue (an approximate $2.4 million increase) activity. During the current year, marketing programs designed to increase gaming revenues caused an increase in complimentary rooms and food and beverage revenues (an approximate $2.7 million increase) as compared to the prior year.
Promotional Allowances increased by approximately $2.9 million (9.2%) to $34.5 million for the year ended December 31, 1995 from $31.6 million for the year ended December 31, 1994. As discussed above, marketing programs instituted during the current year designed to increase gaming revenues caused an increase in complimentary rooms and food and beverage activity as compared to the prior year.
Gaming costs and expenses increased by approximately $14.7 million (9.7%) to $165.7 million for the year ended December 31, 1995 from $151.0 million for the year ended December 31, 1994. This increase is primarily the result of an increase in promotional cash back coupon costs associated with the new marketing programs and special events introduced during the current year to stimulate gaming revenues.
Food and beverage costs and expenses for the years ended December 31, 1995 and 1994 increased approximately $1.1 million (9.0%). This increase corresponds to the increased food and beverage and gaming revenue activity for the year.
Other costs and expenses increased approximately $790,000 (6.3%) to $13.4 million for the year ended December 31, 1995 from $12.6 million for the year ended December 31, 1994. This increase is principally the result of increased real estate taxes on the casino property.
Interest expense increased approximately $1.8 million (4.1%) to $46.0 million for the year ended December 31, 1995 from $44.2 million for the year ended December 31, 1994. This increase is the result of an increase in both the outstanding principal and the interest rate related to the PIK Notes as well as an increase in the interest rate related to the Amended Term Loan.
RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1993. The Partnership's net revenues (gross revenues less promotional allowances) for the years ended December 31, 1994 and
1993 totaled approximately $283.8 million and $273.2 million, respectively, representing a $10.6 million (3.9%) increase. Gaming revenues were approximately $258.5 million for the year ended December 31, 1994 and $246.4 million for the comparable period in 1993. Management believes the $12.1 million (4.9%) increase in gaming revenues was attributable primarily to a continuing emphasis on customer service and a repositioning by Trump's Castle to expand profitable market segments.
Slot machine win was approximately $177.5 million and $173.0 million (an increase of approximately $4.5 million or 2.6%) for the years ended December 31, 1994 and 1993, respectively. The total dollar amount wagered by customers on slot machines increased by approximately $113.9 million (6.2%) to $1,965.3 million for the year ended December 31, 1994 from $1,851.4 million for the year ended December 31, 1993. This increase in slot volume was partially offset by a decrease in the slot win percentage (slot win as a percentage of dollars wagered on slot machines) to 9.0% for the year ended December 31, 1994 from 9.3% for the year ended December 31, 1993. The lower slot win percentage was largely intentional and designed by Trump's Castle in order to remain competitive and stimulate patron play.
Table game win was approximately $81.0 million and $73.4 million (an increase of $7.6 million or 10.4%) for the years ended December 31, 1994 and 1993, respectively. The total dollar amount wagered by customers on table games decreased by approximately $14.6 million (3.0%) to $477.5 million for the year ended December 31, 1994 from $492.1 million for the year ended December 31, 1993. This decrease in gaming volume was offset by an increase in the table game win percentage (table game win as a percentage of dollars wagered on table games) to 17.0% for the year ended December 31, 1994 from 14.9% for the year ended December 31, 1993. The table game win percentage is outside the control of the Partnership, and although it is fairly constant over the long- term, it can vary significantly from period to period, due in part to the play of certain premium patrons who tend to wager substantial dollar amounts on table games.
For the years ended December 31, 1994 and 1993, gaming credit extended to customers was approximately 31.4% and 28.9% of overall table play, respectively. This increase in credit play reflected, in part, a shift in the gaming patron mix as a result of increased play by individuals who wager relatively large sums. These patrons tend to use a higher percentage of credit when they wager.
Nongaming revenues, in the aggregate, decreased approximately $1.6 million (2.6%) to $56.9 million for the year ended December 31, 1994, from $58.5 million for the year ended December 31, 1993. This decline was primarily attributable to a decrease in food and beverage revenues of $2.2 million (7.1%), to $28.4 million for the year ended December 31, 1994, of which approximately $15.9 million consisted of complimentary food and beverage. This decline was due to the discontinuance of certain unprofitable marketing programs which resulted in fewer customers served. Such measures were implemented to improve overall operating efficiencies.
Offsetting the nongaming revenues decrease was an increase in entertainment revenue of $100,000 (1.4%) and an increase in other income of $600,000 (8%).
Gaming costs and expenses increased by approximately $5.3 million (3.7%) to $151.0 million for the year ended December 31, 1994 from $145.7 for the year ended December 31, 1993. This increase corresponds to the increase in gaming revenues on a year- to-year basis.
The $2.6 million (15.1%) decrease in rooms and food and beverage operating expenses is primarily attributable to a variety of cost reduction measures and improvements in operational efficiency during 1994 compared to 1993.
General and administrative expenses increased approximately $7.4 million (13.6%) for the year ended December 31, 1994 as compared to the prior year. This increase was primarily attributable to:
(1) The contribution of $2.5 million to a joint project with Harrah's for the beautification of the marina district of Atlantic City in which both casinos operate. (2) The contributions of approximately $3.3 million in Casino Reinvestment Development Authority deposits to certain public improvement projects. (3) Increased spending in connection with new business development and facilities maintenance.
For the year ended December 31, 1994, depreciation and amortization decreased $2.0 million (12.1%) over the comparable period in 1993, primarily as a result of the impact of fully depreciated assets.
Other costs and expenses increased by $1.5 million (13.8%) due to significantly lower real estate tax expense incurred in the first quarter of 1993 because of a $1.8 million real estate tax credit.
Interest expense decreased for the year ended December 31, 1994 over the comparable period in 1993 by approximately $12.8 million as a result of the Recapitalization on December 28, 1993.
INFLATION. There was no significant impact on the Partnership's operations as a result of inflation during 1995, 1994, or 1993.
LIQUIDITY AND CAPITAL RESOURCES.
Cash flow from operating activities is the Partnership's principal source of liquidity. For the year ended December 31, 1995, the Partnership's net cash flow provided by operating activities before cash debt service obligations was $49.8 million and cash debt service was $36.7 million, resulting in net cash provided by operating activities of $13.1 million.
In addition to cash needs to fund the day-to-day operations of Trump's Castle, the Partnership's principal uses of cash are capital expenditures and debt service.
Capital expenditures for the year ended December 31, 1995 were $8.6 million and consisted of casino floor improvements, renovation of hotel rooms, and the purchase of slot machines. For 1996 total capital expenditures are anticipated to be $9.0 million and principally consist of (i) the purchase of slot machines, (ii) renovations to guest rooms and the hotel tower, and (iii) the construction of two new player clubs. Management believes that these levels of capital expenditures are sufficient to maintain the attractiveness of Trump's Castle and the aesthetics of its hotel rooms and other public areas.
The Partnership's debt consists primarily of (i) a loan with Midlantic National Bank (the "Term Loan"), (ii) the 11-1/2% Senior Notes due 2000 (the "Senior Notes"), (iii) the 11-3/4% Mortgage Notes due 2003 (the "Mortgage Notes"), and (iv) the Increasing Rate Subordinated Pay-in-Kind Notes due 2005 (the "PIK Notes").
On May 28, 1995, the Partnership exercised its option to extend the Term Loan for an additional five year term. The Term Loan bears interest at the prime rate plus 3%, currently 11-1/2%, and requires amortized monthly principal payments of approximately $158,000 which commenced May 31, 1995. The Term Loan matures on May 28, 2000.
The Senior Notes have an outstanding principal amount of $27 million, and bear interest at the rate of 11-1/2% per annum (which may be reduced to 11-1/4% upon the occurrence of certain events). The Senior Notes mature on November 15, 2000, and are subject to a sinking fund which requires the retirement of 15% of the Senior Notes on each November 15, 1998 and 1999.
The Mortgage Notes have an outstanding principal amount of approximately $242 million, bear interest at the rate of 11-3/4% per annum (which may be reduced to 11-1/2% upon the occurrence of certain events), and mature on November 15, 2003.
The PIK Notes have an outstanding principal amount of approximately $61.9 million and mature on November 15, 2005. Interest is currently payable semi-annually at the rate of 13-7/8%. On or prior to November 15, 2003, interest on the PIK Notes may be paid in cash or through the issuance of additional PIK Notes. During 1995, the Partnership and Funding issued an additional $7.8 million principal amount of PIK Notes in payment of interest on the PIK Notes. The Partnership anticipates that during 1996 interest on the PIK Notes will be paid through the issuance of additional PIK Notes.
On June 23, 1995, the Partnership entered into an Option Agreement with Hamilton Partners, L.P. ("Hamilton") which grants the Partnership an option (the "Option") to acquire the PIK Notes owned by Hamilton. Hamilton has represented to the Partnership
that it is the owner of at least 92% of the outstanding principal amount of the PIK Notes. The Option was granted to the Partnership in consideration of a $1.1 million payment to Hamilton. The Option is exercisable at a price equal to 60% of the aggregate principal amount and accrued interest of the PIK Notes delivered by Hamilton. Pursuant to the terms of the Option Agreement, upon the occurrence of certain events within 18 months of the time the Option is exercised, the Partnership is required to make an additional payment to Hamilton of up to 40% of the principal amount of the PIK Notes. The option expires on March 19, 1996 and may be extended to June 21, 1996.
The Partnership's cash debt service requirement was approximately $36.7 million in 1995 and the Partnership anticipates that approximately $37.8 million in cash will be required during 1996 to meet its debt service obligations.
For the years ended December 31, 1995 and 1994, the Partnership had a working capital surplus of $600,000 and a working capital deficit of $1.0 million, respectively. The Partnership believes that this level of working capital is adequate to sustain existing operations in the foreseeable future.
Management believes, based upon its current level of operations, that although the Partnership is highly leveraged, it will continue to have the ability to pay interest on its indebtedness and to pay other liabilities with funds from operations for the foreseeable future. However, there can be no assurance to that effect, as the Partnership's operating results are subject to numerous factors outside its control, including, without limitation, competition from within the Atlantic City market, from other gaming jurisdictions, and from the Other Trump Casinos; general economic conditions; weather and its effect on the ability of patrons to travel to Atlantic City; and, the slot machine and table game win percentages, which can vary significantly over a short-term time period. 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.
The ability of Funding and the Partnership to pay their indebtedness when due, will depend on their ability to either generate cash from operations sufficient for such purposes or to refinance such indebtedness on or before the date on which it becomes due. The Partnership does not currently anticipate being able to generate sufficient cash flow from operations to repay a substantial portion of the principal amounts of the Mortgage Notes and the PIK Notes. Thus, the repayment of the principal amount of this indebtedness will likely depend primarily upon the ability of Funding and the Partnership to refinance this debt when due. The future operating performance of the Partnership and the ability to refinance this debt will be subject to the then prevailing economic conditions, industry conditions, and numerous other financial, business, and other factors, many of which are beyond the control of Funding or the Partnership. There can be no
assurance that the future operating performance of the Partnership will be sufficient to meet these repayment obligations or that the general state of the economy, the status of the capital markets generally, or the receptiveness of the capital markets to the gaming industry will be conducive to refinancing this debt or other attempts to raise capital.
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 WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
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, Robert M. Pickus, Asher O. Pacholder, Thomas F. Leahy, and Arthur S. Bahr. Messrs. Trump, Ribis, and Pickus also serve on the governing boards of Trump Taj Mahal Associates ("TTMA"), and Trump Plaza Associates ("TPA"). Messrs. Trump and Ribis also serve as directors and officers of Trump Hotels & Casino Resorts, Inc. ("THCR"), and Mr. Pickus serves as an officer of THCR.
The Partnership also has an Audit Committee on which Mr. Ribis serves with Mr. Leahy and Mr. Bahr, 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, 49 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 has been Chairman of the Board of THCR and its related funding company since their formation in 1995. Trump is the sole shareholder, Chairman of the Board of Directors, President, and Treasurer of TPFI, and the managing general partner of TPA. Trump was
President and Chairman of the Board of Directors and a 50% shareholder of TP/GP Corp. ("TP/GP"), the former managing general partner of TPA, from May 1992 through June 1993; and Chairman of the Executive Committee and President of TPA from May 1986 to May 1992. Trump has been a director and President of TPHI and a partner in Trump Plaza Holding Associates ("TPHA") since February 1993. Trump was Chairman of the Executive Committee of TTMA, from June 1988 to October 1991; and has been Chairman of the Board of Directors of the managing general partner of TTMA since October 1991; and President of the Trump Organization, which has been in the business, through its affiliates and subsidiaries, of acquiring, developing and managing real estate properties for more than the past five years. Trump was a member of the Board of Directors of Alexander's Inc. from 1987 to March 1992.
NICHOLAS L. RIBIS - Mr. Ribis, 51 years old, has been a partner representative on the Board of Partner Representatives since May 1992 and Chief Executive Officer of 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 been President, Chief Executive Officer, Chief Financial Officer, and a director of THCR and its related funding company since their formation in 1995. 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 TTMA since March 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 from February 1991 to December 1995 was 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 has been a member of the Board of Trustees of the CRDA since October 1993.
ROGER P. WAGNER - Mr. Wagner, 48 years old, has been a partner representative on the Board of Partner Representatives since May 1992 and President and Chief Operating Officer of the Partnership since January 1991. Mr. Wagner served as a member of the Executive Committee of the Partnership from January 1991 to May 1992. Mr. Wagner has been a director and president of TCHI since January 1991. Prior to joining the Partnership, Mr. Wagner served as President of the Claridge Hotel Casino from June 1985 to January 1991 and is presently the Chairman of the Casino Association of New Jersey.
ROBERT M. PICKUS - Mr. Pickus, 41 years old, has been a partner representative on the Board of Partner Representatives since October 1995, Executive Vice President of Corporate and Legal Affairs since February 1995, and Corporate Secretary since February 1996. He has also been the Executive Vice President of Corporate and Legal Affairs of Plaza Associates since February 16,
1995. From December 1993 to February 1995, Mr. Pickus was the Senior Vice President and General Counsel of Plaza Associates and, since April 1994, he has been the Vice President and Assistant Secretary of Plaza Funding and Assistant Secretary of Plaza Holding, Inc. Mr. Pickus has been the Executive Vice President of Corporate and Legal Affairs of Taj Associates since February 1995, and a Class C Director of Taj Holding and TM/GP since November, 1995. He was the Senior Vice President and Secretary of Trump's Castle Funding, Inc. from June 1988 until December 1993 and General Counsel of Trump's Castle Associates from June 1985 to June 1988. Mr. Pickus was also Secretary of Trump's Castle Associates from October 1991 until December 1993. Mr. Pickus has been Executive Vice President of Corporate and Legal Affairs of THCR since June of 1995.
ASHER O. PACHOLDER - Dr. Pacholder, 58 years old, has been a partner representative of the Board of Partner Representative since May 1992. Dr. Pacholder served as a director and the President of TC/GP from May 1992 to December 1993. Dr. Pacholder has served as Chairman of the Board and Managing Director of Pacholder Associates, Inc., an investment advisory firm, since 1987. In addition, Dr. Pacholder serves on the Board of Directors of The Southland Corporation, United Gas Holding Corp., ICO, Incorporated, an oil field services company, UF&G Pacholder Fund, Inc., a publicly traded closed end mutual fund, U.S. Trails, Inc. a recreational facility company, and Forum Group, Inc., a retirement community managerial company.
THOMAS F. LEAHY - Mr. Leahy, 58 years old, has been a partner representative on the Board of Partner Representatives since June 1993. Mr. Leahy served as a director and Treasurer of TC/GP from May 1992 to December 1993. From 1991 to July 1992, Mr. Leahy served as Executive Vice President of CBS Broadcast Group, a unit of CBS, Inc. Since November 1992, Mr. Leahy has served as President of The Theater Development Fund, a service organization for the performing arts. From July 1992 through November 1992, Mr. Leahy served as chairman of VT Properties, Inc., a privately- held corporation which invests in literary, state, and film properties.
ARTHUR S. BAHR - Mr. Bahr, 64 years old, has been a partner representative on the Board of Partner Representatives since June of 1995 and previously served as a director of TC/GP from August 1993 to January of 1994. Mr. Bahr retired in February of 1994 after serving in various senior investment positions for General Electric Investment Corporation since 1970. Mr. Bahr serves on the Board of Directors of Renaissance Reinsurance and the Korean International Investment Fund.
ROBERT E. SCHAFFHAUSER - Mr. Schaffhauser, 49 years old, joined the Partnership as Senior Vice President of Finance in January 1994 and became Executive Vice President of Finance in January of 1995. He also became Assistant Treasurer, Chief Financial Officer, and Chief Accounting Officer of Funding, and Assistant Treasurer of TCHI and TC/GP in January 1994. He served as a consultant to Trump during 1993. Mr. Schaffhauser previously
served as Senior Vice President of Finance and Administration for the Sands Hotel & Casino in Atlantic City for four years. For a period of 13 years prior thereto, he served as the Chief Financial Officer and Secretary for Metex Corporation, a publicly held manufacturer of engineered products. Mr. Schaffhauser also served as a member of Metex Corporation's Board of Directors.
MARK A. BROWN - Mr. Brown, 35 years old, joined the Partnership as Executive Vice President of Operations in July of 1995. Previously, Mr. Brown served as Senior Vice President of Eastern Operations for Caesars World Marketing Corporation, National and International Divisions from 1993 until 1995. Prior to that, Mr. Brown served as Vice President of Casino Operations at Trump Taj Mahal from 1989 until 1993. From 1979 until 1989, Mr. Brown worked for Resorts International Hotel Casino departing as Casino Shift Manager in December 1989.
PATRICIA M. WILD - Ms. Wild, 43 years old, has been Secretary of Funding and Senior Vice President and General Counsel of the Partnership and Secretary of TCHI since December 1993. Ms. Wild served as Assistant Secretary of TPFI and Vice President, General Counsel of TPA from February 1991 to December 1993; Vice President and General Counsel of TPFI from July 1992 through December 1993; and Associate General Counsel of TPA from May 1989 through January 1991. From December 1986 to April 1989, Ms. Wild served as Deputy Attorney General on the Environmental Prosecutions Task Force of the New Jersey Department of Law and Public Safety, Division of Criminal Justice. From April 1983 to December 1986, Ms. Wild served as Deputy Attorney General with the New Jersey Division of Gaming Enforcement.
JOHN P. BURKE - Mr. Burke, 48 years old, has been the Corporate Treasurer of the Partnership and TPA since October 1991. Mr. Burke has been Chief Accounting Officer of TC/GP since May 1992. Mr. Burke has been a Vice President of TCHI, TC/GP, Funding and the Partnership since December 1993. Mr. Burke has been Vice President of the Trump Organization since September 1990. Since June 1995, Mr. Burke has been the Corporate Treasurer of THCR. He has also been Corporate Treasurer of Plaza Associates and Taj Associates since October 1991. Mr. Burke has been a Class C Director of TM/GP and Taj Holding, and Vice President of TM/GP since October 1991. Mr. Burke was an Executive Vice President and Chief Administrative officer of Imperial Corporation of America from April 1989 through September 1990.
Each member of the Board of Partner Representatives, of the Audit Committee and all of the other persons listed above have been licensed or found qualified by the CCC.
The employees of the Partnership serve at the pleasure of the Board of Partner Representatives subject to any contractual rights contained in any employment agreement. The officers of Funding serve at the pleasure of Donald J. Trump, the sole director of Funding.
Donald J. Trump and Nicholas L. Ribis served as either executive officers and/or directors of TTMA and its affiliated entities when such parties filed their petition for reorganization under chapter 11 of the Bankruptcy Code on July 17, 1991. The Second Amended Joint Plan of Reorganization of such parties was confirmed on August 28, 1991, and was declared effective on October 4, 1991. Donald J. Trump, Nicholas L. Ribis, and John P. Burke served as directors of TPA and its affiliated entitled, at the time such parties filed a petition for reorganization under chapter 11 of the Bankruptcy Code on March 9, 1992. The First Amended Joint Plan of Reorganization of such parties was confirmed on April 30, 1992, and declared effective on May 29, 1992. Donald J. Trump, Nicholas L. Ribis, Roger P. Wagner, and John P. Burke served as either executive officers and/or directors of the Partnership and its affiliated entities when such parties filed their petition for reorganization under chapter 11 of the Bankruptcy Code in March 1992. The First Amended Joint Plan of Reorganization of such parties was confirmed on May 5, 1992, and was declared effective on May 29, 1992. Donald J. Trump was a partner of Plaza Operating Partners Ltd. when it filed a petition for reorganization under chapter 11 of the Bankruptcy Code on November 2, 1992. The Plan of Reorganization was confirmed on December 11, 1992 and declared effective in January 1993. John P. Burke was Executive Vice President and Chief Administrative Officer of Imperial, a thrift holding company whose major subsidiary, Imperial Savings was seized by the Resolution Trust Corporation in February 1990. Subsequently, in February 1990, Imperial filed a petition for reorganization under chapter 11 of the Bankruptcy Code.
ITEM 11. EXECUTIVE COMPENSATION
Executive officers of Funding do not receive any additional compensation for serving in such capacity. In addition, Funding and the Partnership do not offer their executive officers stock option or stock appreciation right plans, long-term incentive plans, or defined benefit pension plans.
The following table sets forth compensation paid or accrued during the years ended December 31, 1995, 1994, and 1993 to the Chief Executive Officer, and each of the four most highly compensated executive officers of the Partnership whose cash compensation, including bonuses and deferred compensation, exceeded $100,000 for the year ended December 31, 1995. Compensation accrued during one year and paid in another is recorded under the year of accrual. Information relating to long- term compensation is inapplicable and has therefore been omitted from the table.
EMPLOYMENT AGREEMENTS. In September 1993, the Partnership entered into an employment agreement with Nicholas L. Ribis pursuant to which Mr. Ribis acts as Chief Executive Officer of the Partnership. The agreement, which expires in September 1996, provides for an annual salary of $550,000. The salary increases by ten percent for each of the second and third years of the agreement. Upon execution of the employment agreement, Mr. Ribis received a $250,000 signing bonus. In the event the Partnership, or any entity which acquires substantially all of the equity interests or assets of the Partnership, proposes to engage in an offering of common shares to the public, the Partnership and Mr. Ribis have agreed to negotiate new compensation arrangements which shall include equity participation for Mr. Ribis. Mr. Ribis also acts as Chief Executive Officer of TTMA and TPA, the Partnerships that own the Other Trump Casinos, and THCR which owns TPA and certain other gaming interests, and receives additional compensation from such entities. Mr. Ribis devotes approximately one-quarter of his professional time to the affairs of the Partnership. All other executive officers of the Partnership, except Messrs. Burke and Pickus, devote substantially all of their time to the business of the Partnership.
The Partnership, on January 17, 1991, entered into an employment agreement with Roger P. Wagner, with an amendment thereto dated January 17, 1991, and a second amendment thereto dated July 18, 1992, pursuant to which Mr. Wagner serves as the Partnership's and TCHI's President and Chief Operating Officer. Mr. Wagner's employment agreement, which terminates on January 16, 1997, provides for an annual salary beginning at a minimum of $400,000 until January 16, 1994, thereafter $500,000 per year until January 16, 1995, thereafter $600,000 per year until January 16, 1996, and thereafter $750,000 per year from January 17, 1996 until January 16, 1997 and, subject to CCC approval, 1% of the Partnership's Income from Operations (as defined in such agreement) in excess of $40.0 million.
The Partnership, on June 16, 1995, entered into a severance agreement with Robert E. Schaffhauser. Pursuant to the terms of this agreement Mr. Schaffhauser is to receive from the Partnership, if terminated by the Partnership for any reason other than cause as defined, an amount equal to twelve months of Mr. Schaffhauser's then current salary.
The Partnership, on July 10, 1995, entered into an employment agreement with Mark A. Brown pursuant to which Mr. Brown serves as the Partnership's Executive Vice President of Operations. The term of the agreement is three years. This employment agreement provides for an annual base salary of $350,000, a $75,000 bonus paid at the commencement of employment, and an annual bonus of no less than $75,000 per year over the three year term of the agreement.
The Partnership entered into an employment agreement with Patricia M. Wild pursuant to which, effective December 6, 1993, Ms. Wild serves as the Partnership's Senior Vice President/General Counsel. The term of the agreement is one year and, in accordance
with the terms of the agreement, is automatically extended on a weekly basis so that at all times the term of the agreement shall be an unexpired period of twelve months. This employment agreement provides for an annual base salary of $115,000 reviewed on an annual basis.
COMPENSATION OF DIRECTORS. Each Partner Representative of the Partnership (other than Messrs. Trump, Ribis, Wagner, and Pickus) receives an annual fee of $50,000. In addition, each Partner Representative of the Partnership (other than Messrs. Trump, Ribis, Pickus, and Wagner) receives $2,500 per meeting attended, plus reasonable out-of-pocket expenses incurred in attending any meeting of the Board.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION. In general, the compensation of executive officers of the Partnership is determined by the Board of Partner Representatives, which is composed of Donald J. Trump, Nicholas L. Ribis, Roger P. Wagner, Asher O. Pacholder, Thomas F. Leahy, Arthur S. Bahr, and Robert M. Pickus. The compensation of Nicholas L. Ribis and Roger P. Wagner is set forth in their employment agreements with the Partnership. The Partnership has delegated the responsibility over certain matters, such as the bonus of Mr. Ribis, to Mr. Trump. Executive officers of Funding do not receive any additional compensation for serving in such capacity.
The SEC requires issuers to disclose the existence of any other corporation in which both (i) an executive officer of the registrant serves on the board of directors and/or compensation committee, and (ii) a director of the registrant serves as an executive officer. Messrs. Ribis, Wagner, Pickus, and Burke, executive officers of the Partnership, serve on the Board of Directors of other entities in which members of the Board of Partner Representatives (namely, Messrs. Trump, Ribis, Wagner, and Pickus) serve as executive officers. The Partnership believes that such relationships have not affected the compensation decisions made by the Board of Partner Representatives in the last fiscal year.
Messrs. Trump and Wagner serve as directors of TCHI, of which Messrs. Trump, Ribis, and Wagner serve as executive officers.
Messrs. Trump, Ribis, Pickus, and Burke serve on the Board of Directors of Taj Mahal Holding Corp., which holds an indirect equity interest in TTMA, the partnership that owns the Taj Mahal, of which Messrs. Trump, Ribis, and Pickus are executive officers. Such persons also serve on the Board of Directors of TM/GP Corporation (a subsidiary of Taj Mahal Holding Corp.), the managing general partner of TTMA, of which Messrs. Trump, Ribis, and Pickus are executive officers. Mr. Ribis is compensated by TTMA for his services as its chief executive officer.
Mr. Ribis also serves on the Board of Directors of Trump Taj Mahal Realty Corp. ("Taj Realty Corp."), which leases certain real property to TTMA, of which Mr. Trump is an executive officer. Mr.
Trump, however, does not receive any compensation for serving as an executive officer of Taj Realty Corp.
Messrs. Trump and Ribis serve on the Board of Directors of TPFI, the managing general partner of TPA, of which Messrs. Trump, Ribis, and Pickus are executive officers. Messrs. Trump and Ribis also serve on the Board of Directors of TPHI, of which such persons are also executive officers. Mr. Ribis is compensated by TPA for his services as chief executive officer.
Messrs. Trump and Ribis serve on the Board of Directors of THCR, of which Mr. Trump is Chairman of the Board. Messrs. Ribis, Pickus and Burke are executive officers of THCR and are compensated for their services by THCR.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information with respect to the amount of Funding's Common Stock owned by beneficial owners of more than 5% of Funding's Common Stock. Funding has no other class of equity securities outstanding.
Amount and Nature Name and Address of of Beneficial Percent Title or Class Beneficial Owners Ownership of Class ______________ ___________________ _________________ ________
Common Stock Trump's Castle 200 shares 100% Associates Huron Avenue and Brigantine Blvd. Atlantic City, New Jersey 08401
Currently, Trump, TC/GP and TCHI hold 61.5%, 37.5%, and 1.0% interests, respectively, in the Partnership and therefore are the beneficial owners of all of the outstanding shares of Common Stock of Funding.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
OTHER TRUMP CASINOS. The following table sets forth the amounts due to the Partnership from Trump and his other affiliated casino entities as of December 31, 1995. For a more detailed description of these transactions, see "Other Transactions with Affiliates" below.
Amount Due and Outstanding to the Partnership as of December 31, 1995 __________________________
Trump Plaza Associates. . . . . . . . . . . .$ 720,000 Trump Taj Mahal Associates. . . . . . . . . . 164,000 The Trump Organization. . . . . . . . . . . . 262,000 _________ Total Due from Affiliates as of December 31, 1995. . . . . . . . .$1,146,000 ==========
OTHER TRANSACTIONS WITH AFFILIATES. The Partnership has engaged in transactions with TPA, TTMA, and the Trump Organization ("TO") which are affiliates of Trump. These transactions include certain shared payroll costs, fleet maintenance and limousine services, as well as complimentary services offered to customers, for which the Partnership makes the initial payment and is then reimbursed by the appropriate affiliated entity. During 1995, the Partnership incurred expenses of approximately $1,673,000 in corporate salaries, and $1,109,000 of other transactions on behalf of these related entities. In addition, the Partnership received payments totalling $1,401,000 for services rendered and had $580,000 of deductions for similar services incurred by these related entities on behalf of the Partnership.
SERVICES AGREEMENT. On December 28, 1993, the Partnership terminated the existing management agreement with a corporation wholly-owned by Trump and entered into a Services Agreement with TC/GP (the "Services Agreement"). In general, the Services Agreement obligates TC/GP to provide to the Partnership, from time-to-time when reasonably requested, consulting services on a non-exclusive basis, relating to marketing, advertising, promotional, and other related services (the "Services") with respect to the business and operations of the Partnership, in exchange for certain fees to be paid only in those years in which EBITDA (EBITDA represents income from operations before depreciation, amortization, restructuring costs and the non-cash write-down of CRDA investments) exceeds prescribed amounts.
In consideration for the Services to be rendered by TC/GP, the Partnership will pay an annual fee (which is identical to the fee which was payable under the previously existing management agreement) to TC/GP in the amount of $1,500,000 for each year in which EBITDA exceeds the following amounts for the years indicated: 1993 - $40,500,000; 1994 - $45,000,000; 1995 and
thereafter - $50,000,000. If EBITDA in any fiscal year does not exceed the applicable amount, no annual fee is due. In addition, TC/GP will be entitled to an incentive fee beginning with the fiscal year ending December 31, 1994 in an amount equal to 10% of EBITDA in excess of $45,000,000 for such fiscal year. The Partnership will also be required to advance to TC/GP $125,000 a month which will be applied toward the annual fee, provided, however, that no advances will be made during any year if and for so long as the Managing Partner (defined in the Services Agreement as Trump) determines, in his good faith reasonable judgment, that the Partnership's budget and year-to-date performance indicate that the minimum EBITDA levels (as specified above) for such year will not be met. If for any year during which annual fee advances have been made it is determined that the annual fee was not earned, TC/GP will be obligated to promptly repay any amounts previously advanced. For purposes of calculating EBITDA under the Services Agreement, any incentive fees paid in respect of 1994 or thereafter shall not be deducted in determining net income.
During the year ended 1995, the Partnership recorded fees of approximately $2,087,000 under the Services Agreement.
Unless sooner terminated pursuant to its terms, the Services Agreement will expire on December 31, 2005.
OTHER PAYMENTS TO TRUMP. During 1994, the Board of Partners Representatives approved a $1,000,000 bonus to be paid to Trump based upon 1994 operating results. The amount was paid in two equal installments in June and August 1995. No such bonus was approved for 1995.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(A) Financial Statements. See the Index immediately following the signature page.
(B) Reports on Form 8-K. Funding did not file any reports on Form 8-K during the last quarter of the year ended December 31, 1995.
(C) Exhibits. All exhibits listed below are filed with this Annual Report on Form 10-K unless specifically stated to be incorporated by reference to other documents previously filed with the Securities and Exchange Commission.
EXHIBIT
3(1) -Amended and Restated Certificate of Incorporation of Funding.
3.1(1) -Bylaws of Funding.
3.2-3.6 -Intentionally omitted.
3.7(2) -Second Amended and Restated Partnership Agreement of the Partnership.
4.1-4.10 -Intentionally omitted.
4.11(2) -Indenture, among Funding, as issuer, the Partnership, as guarantor, and the Mortgage Note Trustee, as trustee.
4.12(2) -Indenture of Mortgage between the Partnership, as Mortgagor, and Funding, as Mortgagee.
4.13(2) -Assignment Agreement between Funding and the Mortgage Note Trustee.
4.14(2) -Partnership Note.
4.15 -Form of Mortgage Note (included in Exhibit 4.11).
4.16 -Form of Partnership Guarantee (included in Exhibit 4.11).
4.17(2) -Indenture between Funding, as issuer, the Partnership, as guarantor, and the PIK Note Trustee, as trustee.
4.18(2) -Pledge Agreement between Funding and the PIK Note Trustee.
4.19(2) -Subordinated Partnership Note.
4.20 -Form of PIK Note (included in Exhibit 4.17).
4.21 -Form of Subordinated Partnership Guarantee (included in exhibit 4.17).
4.22(1) -Letter Agreement between the Partnership and the Proposed Senior Secured Note Purchasers regarding the Senior Secured Notes.
4.23(2) -Note Purchase Agreement for 11-1/2% Series A Senior Secured Notes of the Partnership due 1999.
4.24(2) -Indenture, among Funding, as issuer, the Partnership, as guarantor, and the Senior Secured Note Trustee, as trustee.
4.25(2) -Indenture of Mortgage and Security Agreement between the Partnership, as mortgagor/debtor, and Funding as mortgagee/secured party. (Senior Note Mortgage).
4.26(2) -Registration Rights Agreement by and among the Partnership and certain purchasers.
4.27 -Intentionally omitted.
4.28(2) -Guarantee Mortgage.
4.29(2) -Senior Partnership Note.
4.30(2) -Indenture of Mortgage and Security Agreement between the Partnership as mortgagor/debtor and the Senior Note Trustee as mortgagee/secured party. (Senior Guarantee Mortgage).
4.31(2) -Assignment Agreement between Funding, as assignor, and the Senior Note Trustee, as assignee. (Senior Assignment Agreement).
4.32(2) -Amended and Restated Nominee Agreement.
10.1-10.2 -Intentionally omitted.
10.3(3) -Employment Agreement dated January 17, 1991, between the Partnership and Roger P. Wagner.
10.4(4) -Second Amendment to Employment Agreement dated January 17, 1991 between the Partnership, TCHI, and Roger P. Wagner.
10.5(5) -Form of License Agreement between the Partnership and Donald J. Trump.
10.6-10.10 -Intentionally omitted.
10.11(2) -Employment Agreement, between the Partnership and Nicholas Ribis.
10.12(6) -Trump's Castle Hotel & Casino Retirement Savings Plan, effective as of September 1, 1986.
10.13-10.18 -Intentionally omitted.
10.19(3) -Lease Agreement by and between State of New Jersey acting through its Department of Environmental Protection, Division of Parks and Forests, as Landlord, and the Partnership, as tenant, dated September 1, 1990.
10.20-10.26 -Intentionally omitted.
10.27(1) -Services Agreement.
10.28-10.31 -Intentionally omitted.
10.32(7) -Employment Agreement dated December 20, 1993, between Patricia M. Wild and the Partnership
10.33 -Intentionally Omitted.
10.34(7) -Amended and Restated Credit Agreement, dated as of December 28, 1993, among Midlantic, the Partnership and Funding.
10.35(7) -Amendment No. 1 to Amended and Restated Indenture of Mortgage, between the Partnership, as Mortgagor and Midlantic, as Mortgagee.
10.36(7) -Amended and Restated Indenture of Mortgage, between the Partnership, as Mortgagor and Midlantic, as Mortgagee, dated as of May 29, 1992.
10.37(7) -Amendment No. 1 to Amended and Restated Assignment of Leases and Rents, between the Partnership, as assignor, and Midlantic, as assignee.
10.38(7) -Amended and Restated Assignment of Leases and Rents, between the Partnership, as assignor, and Midlantic, as assignee, dated as of May 29, 1992.
10.39(7) -Amendment No. 1 to Amended and Restated Assignment of Operating Assets, between the Partnership, as assignor and Midlantic, as assignee.
10.40(7) -Amended and Restated Assignment of Operating Assets, between the Partnership, as assignor, and Midlantic, as assignee, dated as of May 29, 1992.
10.41(7) -Intercreditor Agreement, by and among Midlantic, the Senior Note Trustee, the Mortgage Note Trustee, the PIK Note Trustee, Funding and the Partnership.
10.42(8) -Option Agreement, dated as of June 23, 1995, between Hamilton Partners, L.P. and the Partnership.
10.43(9) -Form of Amended and Restated Term Note, dated as of May 28, 1995, between Midlantic Bank, N.A. and the Partnership.
10.44 -Severance Agreement dated June 16, 1995, between Robert E. Schaffhauser and the Partnership.
10.45 -Employment Agreement dated July 10, 1995, between Mark A. Brown and the Partnership. _________________
(1) Incorporated herein by reference to the Exhibit to Funding's and the Partnership's Registration Statement on Form S-4, Registration No. 33-68038.
(2) Incorporated herein by reference to the Exhibit to Amendment No. 5 to the Schedule 13E-3 of TC/GP and the Partnership, File No. 5-36825, filed with the SEC on January 11, 1994.
(3) Incorporated herein by reference to the Exhibit to Funding's Annual Report on Form 10-K for the year ended December 31, 1990.
(4) Incorporated herein by reference to the Exhibit to Funding's Quarterly Report on Form 10-Q for the quarter ended June 30, 1992.
(5) Incorporated herein by reference to the Exhibit to Funding's Annual Report on Form 10-K for the year ended December 31, 1991.
(6) Incorporated herein by reference to the Exhibit to Funding's Annual Report on Form 10-K for the year ended December 31, 1986.
(7) Incorporated herein by reference to the identically numbered Exhibit to Funding's Registration Statement on Form S-4, Registration Number 33-52309 filed with the SEC on February 17, 1994.
(8) Incorporated herein by reference to the identically numbered Exhibit to Funding's and the Partnership's Current Report on Form 8-K dated as of June 23, 1995.
(9) Incorporated herein by reference to the identically numbered Exhibit to Funding's and the Partnership's Quarterly Report on Form 10-Q for the quarter ended June 30, 1995.
Report of Independent Public Accountants
Consolidated Balance Sheets of Trump's Castle Associates and Subsidiary as of December 31, 1995 and 1994
Consolidated Statements of Operations of Trump's Castle Associates and Subsidiary for the years ended December 31, 1995, 1994, and 1993
Consolidated Statements of Partners' Capital of Trump's Castle Associates and Subsidiary for the years ended December 31, 1995, 1994, and 1993
Consolidated Statements of Cash Flows of Trump's Castle Associates and Subsidiary for the years ended December 31, 1995, 1994, and 1993
Notes to Consolidated Financial Statements of Trump's Castle Associates and Subsidiary
Schedule
II Valuation and Qualifying Accounts for the years ended December 31, 1995, 1994, and 1993
Other Schedules are omitted for the reason that they are not required or are not applicable, or the required information is included in the combined financial statements or notes thereto.
Arthur Andersen LLP
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Trump's Castle Associates and Subsidiary:
We have audited the accompanying consolidated balance sheets of Trump's Castle Associates (a New Jersey general partnership) and Subsidiary as of December 31, 1995 and 1994, and the related consolidated statements of operations, partners' capital and cash flows for each of the three years in the period ended December 31, 1995. These consolidated financial statements and the schedule referred to below are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these consolidated financial statements and schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Trump's Castle Associates and Subsidiary as of December 31, 1995 and 1994, and the results of their operations and their cash flows for each of the three years in the period ending December 31, 1995, in conformity with generally accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the basic financial statements taken as a whole. The schedule listed in the index to the financial statements is presented for the purpose of complying with the Securities and Exchange Commission's rules and is not part of the basic financial statements. This schedule has been subjected to the auditing procedures applied in our audits of the basic financial statements, and in our opinion, fairly states in all material respects the financial data required to be set forth therein in relation to the basic financial statements taken as a whole.
ARTHUR ANDERSEN, LLP
Roseland, New Jersey February 16, 1996
The accompanying notes to consolidated financial statements are an integral part of these consolidated balance sheets.
A
The accompanying notes to consolidated financial statements are an integral part of these consolidated balance sheets.
B
The accompanying notes to consolidated financial statements are an integral part of these consolidated statements.
The accompanying notes to consolidated financial statements are an integral part of these consolidated statements.
The accompanying notes to consolidated financial statements are an integral part of these consolidated statements.
TRUMP'S CASTLE ASSOCIATES AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) ORGANIZATION AND OPERATIONS:
The accompanying consolidated financial statements include those of Trump's Castle Associates, a New Jersey general partnership (the "Partnership") and its wholly-owned subsidiary, Trump's Castle Funding, Inc., a New Jersey corporation ("Funding"). All significant intercompany balances and transactions have been eliminated in the consolidated financial statements.
The Partnership was formed as a limited partnership in 1985 for the sole purpose of acquiring and operating Trump's Castle Casino Resort ("Trump's Castle"). The Partnership converted to a general partnership in February 1992. Trump's Castle is a luxury casino hotel located in the Marina District of Atlantic City, New Jersey. A substantial portion of Trump's Castle's revenues are derived from its gaming operations. Competition in the Atlantic City gaming market is intense and the Partnership believes that the competition will continue as new entrants to the gaming industry become operational.
The partners in the Partnership are TC/GP, Inc. ("TC/GP"), which has a 37.5% interest in the Partnership, Donald J. Trump ("Trump"), who has a 61.5% interest in the Partnership, and Trump's Castle Hotel & Casino, Inc. ("TCHI"), which has a 1% interest in the Partnership. Trump, by virtue of his ownership of TC/GP and TCHI, is the beneficial owner of 100% of the common equity interest in the Partnership, subject to the right of holders of warrants for 50% of the common stock of TCHI (the "TCHI Warrants") to acquire an indirect beneficial interest in 0.5% of the common equity interest in the Partnership. Trump has pledged his direct and indirect ownership interest in the Partnership as collateral under various personal debt agreements.
Funding was incorporated on May 28, 1985 solely to serve as a financing company to raise funds through the issuance of bonds to the public (Note 4). Since Funding has no business operations, its ability to repay the principal and interest on the 11-1/2% Senior Secured Notes due 2000 (the "Senior Notes"), the 11-3/4% Mortgage Notes due 2003 (the "Mortgage Notes"), and its Increasing Rate Subordinated Pay-in-Kind Notes due 2005 (the "PIK Notes") is completely dependent upon the operations of the Partnership.
(2) PLAN OF RECAPITALIZATION:
On December 28, 1993, the Partnership, Funding, and TC/GP consummated a recapitalization plan (the "Recapitalization Plan") whereby each $1,000 of principal of the 9.5% Mortgage Bonds issued as part of an earlier plan of reorganization was exchanged for
$750 principal amount of Funding's Mortgage Notes, $120 principal amount of Funding's PIK Notes, and a cash payment of $6.19 plus all accrued and unpaid interest. Those bondholders who did not elect to exchange their Mortgage Bonds received a cash payment in redemption of their Mortgage Bonds of $750 for each $1,000 of principal amount of bonds plus accrued and unpaid interest. In addition, each share of TC/GP common stock was exchanged for $35 principal amount of PIK Notes.
As a result of the Recapitalization Plan, approximately 96% of the principal amount of the previously issued Mortgage Bonds were exchanged for Mortgage Notes and PIK Notes and the TC/GP common stock was redeemed. Those Bonds that were redeemed for cash were purchased at an amount which approximated their net book value at the date of purchase. The net book value of the exchanged Bonds has been carried forward and allocated to the Mortgage Notes and PIK Notes in proportion to the principal amount of Mortgage Notes and PIK Notes issued. The difference between the principal amount and net book value of these Mortgage Notes and PIK Notes is being accreted as a charge to interest expense over the life of the Mortgage Notes and PIK Notes using the effective interest method.
In addition to the Mortgage Notes and PIK Notes, Funding issued $27,000,000 of the Senior Notes. A portion of the proceeds from the Senior Notes were used to repay $7,000,000 of outstanding indebtedness.
Transaction costs related to the Recapitalization Plan of approximately $9,000,000 were included in interest expense. Included in these costs was a $1,500,000 bonus to Trump for the services he provided in connection with the Recapitalization Plan.
(3) ACCOUNTING POLICIES:
PERVASIVENESS OF ESTIMATES
The preparation of these financial statements in conformity with generally accepted accounting principals requires the Partnership to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results may differ from these estimates.
REVENUE RECOGNITION
Casino revenues consist of the net win from gaming activities, which is the difference between gaming wins and losses. Revenues from hotel and other services are recognized at the time the related services are performed.
The Partnership provides an allowance for doubtful accounts arising from casino, hotel, and other services, which is based
upon a specific review of certain outstanding receivables and historical collection performance. In determining the amount of the allowance, the Partnership is required to make certain estimates and assumptions and actual results may differ from these estimates and assumptions.
PROMOTIONAL ALLOWANCES
Gross revenues include the retail value of the complimentary food, beverage, and hotel services provided to patrons. The retail value of these promotional allowances is deducted from gross revenues to arrive at net revenues. The cost of such complimentaries have been included in gaming costs and expenses in the accompanying consolidated statements of operations. The estimated departmental costs of providing such promotional allowances are included in gaming costs and expenses and are as follows:
1995 1994 1993 ___________ ___________ ___________ Rooms $ 6,261,000 $ 6,554,000 $ 5,834,000 Food and Beverage 18,240,000 17,342,000 17,332,000 Other 2,483,000 2,693,000 2,073,000 ___________ ___________ ___________ $26,984,000 $26,589,000 $25,239,000 =========== =========== ===========
INCOME TAXES
The accompanying consolidated financial statements do not include a provision for Federal income taxes of the Partnership, since any income or losses allocated to the partners are reportable for Federal income tax purposes by the Partners.
Under the Casino Control Act (the "Act") and the regulations promulgated thereunder, the Partnership and Funding are required to file a consolidated New Jersey corporation business tax return.
As of December 31, 1995, the Partnership had New Jersey State net operating losses of approximately $162,000,000, which are available to offset taxable income through the year 2002. The net operating loss carryforwards result in a deferred tax asset of $15,200,000, which has been offset by a valuation allowance of $15,200,000, as utilization of such carryforwards is not considered to be more likely than not.
INVENTORIES
Inventories of provisions and supplies are carried at the lower of cost (first-in, first-out basis) or market.
PROPERTY AND EQUIPMENT
Property and equipment is recorded at cost and is depreciated
on the straight-line method over the estimated useful lives of the assets. Estimated useful lives for furniture, fixtures, and equipment and buildings are from three to eight years and forty years, respectively.
LONG LIVED ASSETS
During 1995, the Partnership adopted the provisions of Statement of Financial Accounting Standards No. 121 "Accounting for the Impairment of Long Lived Assets" ("SFAS 121"). SFAS 121 requires, among other things, that an entity review its long lived assets and certain related intangibles for impairment whenever changes in circumstances indicate that the carrying amount of an asset may not be fully recoverable. As a result of its review, the Partnership does not believe that any impairment exists in the recoverability of its long lived assets.
STATEMENTS OF CASH FLOWS
For purposes of the statements of cash flows, Funding and the Partnership consider all highly liquid debt instruments purchased with a maturity of three months or less to be cash equivalents.
The following supplemental disclosures are made to the statements of cash flows:
1995 1994 1993 Cash paid during the ___________ ___________ ___________ year for interest (net of amounts capitalized) $35,338,000 $31,255,000 $44,857,000 =========== =========== ===========
Issuance of debt in exchange for accrued $ 7,766,000 $ 3,559,000 $ -- interest =========== =========== ===========
RECLASSIFICATION
Certain reclassifications have been made to the 1994 and 1993 financial statements in order to conform to the classifications used in 1995.
(4) MORTGAGE NOTES AND PIK NOTES:
As discussed in Note 2, On December 28, 1993 all of the outstanding Mortgage Bonds and TC/GP common stock were either redeemed or exchanged for Mortgage Notes and PIK Notes by Funding. The Mortgage Notes bear interest, payable in cash, semi-annually, at 11-3/4% and mature on November 15, 2003. As discussed in Note 2, the net book value of the exchanged bonds has been carried forward and allocated to the Mortgage Notes and PIK Notes in proportion to the principal amount of Mortgage Notes and PIK Notes
issued. In the event the PIK Notes are redeemed prior to November 15, 1998, the interest rate on the Mortgage Notes will be reduced to 11-1/2%. The Mortgage Notes may be redeemed at Funding's option at a specified percentage of the principal amount commencing in 1998.
The PIK Notes bear interest payable, at Funding's option in whole or in part in cash and through the issuance of additional PIK Notes, semi-annually at the rate of 7% through September 30, 1994 and 13-7/8% through November 15, 2003. After November 15, 2003, interest on the Notes is payable in cash at the rate of 13-7/8%. The PIK Notes mature on November 15, 2005. The PIK Notes may be redeemed at Funding's option at 100% of the principal amount under certain conditions, as defined in the PIK Note Indenture, and are required to be redeemed from a specified percentage of any equity offering which includes the Partnership. Interest has been accrued using the effective interest method. On May 15, 1995 and November 15, 1995, the semi-annual interest payments of $3,753,000 and $4,013,000, respectively, were paid by the issuance of additional PIK Notes.
On June 23, 1995, the Partnership entered into an Option Agreement with Hamilton Partners, L.P. ("Hamilton") which grants the Partnership an option (the "Option") to acquire the PIK Notes owned by Hamilton. Hamilton has represented to the Partnership that it is the owner of at least 92% of the outstanding principal amount of the PIK Notes. The Option was granted to the Partnership in consideration of a $1,100,000 payment to Hamilton, which is included in prepaid expenses and other current assets.
The Option is exercisable at a price equal to 60% of the aggregate principal amount and accrued interest of the PIK Notes delivered by Hamilton. Pursuant to the terms of the Option Agreement, upon the occurrence of certain events within 18 months of the time the Option is exercised, the Partnership is required to make an additional payment to Hamilton of up to 40% of the principal amount of the PIK Notes. The option expires on March 19, 1996 and may be extended to June 21, 1996.
The terms of both the Mortgage Notes and PIK Notes include limitations on the amount of additional indebtedness the Partnership may incur, distributions of Partnership capital, investments, and other business activities.
The Mortgage Notes are secured by a promissory note of the Partnership to Funding (the "Partnership Note") in an amount and with payment terms necessary to service the Mortgage Notes. The Partnership Note is secured by a mortgage on Trump's Castle and substantially all of the other assets of the Partnership. The Partnership Note has been assigned by Funding to the Trustee to secure the repayment of the Mortgage Notes. In addition, the Partnership has guaranteed (the "Guaranty") the payment of the Mortgage Notes, which Guaranty is secured by a mortgage on Trump's Castle. The Partnership Note and the Guaranty are expressly subordinated to the indebtedness described in Note 5 (the "Senior Indebtedness") and the liens of the mortgages securing the
Partnership Note and the Guaranty are subordinate to the liens securing the Senior Indebtedness.
The PIK Notes are secured by a subordinated promissory note of the Partnership to Funding (the "Subordinated Partnership Note"), which has been assigned to the Trustee for the PIK Notes, and the Partnership has issued a subordinated guaranty (the "Subordinated Guaranty") of the PIK Notes. The Subordinated Partnership Note and the Subordinated Guaranty are expressly subordinated to the Senior Indebtedness, the Partnership Note, and the Guaranty.
The ability of Funding and the Partnership to pay their indebtedness when due, will depend on their ability to either generate cash from operations sufficient for such purposes or to refinance such indebtedness on or before the date on which it becomes due. The Partnership does not currently anticipate being able to generate sufficient cash flow from operations to repay a substantial portion of the principal amounts of the Mortgage Notes and the PIK Notes when due. Thus, the repayment of the principal amount of this indebtedness will likely depend primarily upon the ability of Funding and the Partnership to refinance this debt when due. The future operating performance of the Partnership and the ability to refinance this debt will be subject to the then prevailing economic conditions, industry conditions, and numerous other financial, business, and other factors, many of which are beyond the control of Funding or the Partnership. There can be no assurance that the future operating performance of the Partnership will be sufficient to meet these repayment obligations or that the general state of the economy, the status of the capital markets generally, or the receptiveness of the capital markets to the gaming industry will be conducive to refinancing this debt or other attempts to raise capital.
(5) OTHER BORROWINGS:
BANK BORROWINGS
The Partnership has a term loan with Midlantic National Bank (the "Term Loan") in the amount of $38,000,000. The Term Loan had an initial maturity date of May 29, 1995 and under its terms, the Partnership had the option, subject to certain conditions, to extend the Term Loan an additional five years. The Partnership exercised its option to extend the Term Loan on May 28, 1995. The interest rate was revised to be a fluctuating rate of 3% above the bank's prime rate, which was 8.5% at December 31, 1995, but in no event less than 9% per annum. In addition, the outstanding principal amount of the Term Loan will be amortized over the five- year extension period on a twenty year amortization schedule requiring principal payments of approximately $158,000 per month over the period. At December 31, 1995, $36,892,000 was outstanding on this Term Loan.
The Term Loan is secured by a mortgage lien on Trump's Castle that is prior to the lien securing the Mortgage Notes (Note 4) and the Senior Notes described below.
SENIOR NOTES
On December 28, 1993, Funding issued the Senior Notes. Similar to the Mortgage Notes, the Senior Notes are secured by an assignment of a promissory note of the Partnership (the "Senior Partnership Note") which is in turn secured by a mortgage on Trump's Castle and substantially all of the other assets of the Partnership. In addition, the Partnership has guaranteed (the "Senior Guaranty") the payment of the Senior Notes, which Senior Guaranty is secured by a mortgage on Trump's Castle. The Senior Partnership Note and the Senior Guaranty are subordinated to the Term Loan described above.
Interest on the Senior Notes is payable semiannually at the rate of 11-1/2%; however in the event that the PIK Notes are redeemed prior to November 15, 1998, the interest rate will be reduced to 11-1/4%. The Senior Notes are subject to a required partial redemption, as defined, commencing on June 1, 1998 at 100% of the principal amount of the amount redeemed.
(6) RELATED PARTY TRANSACTIONS:
TRUMP MANAGEMENT FEE
The Partnership had a management agreement (the "Management Agreement") with Trump's Castle Management Corp. ("TCMC"), a corporation wholly-owned by Trump. The Management Agreement provided that the day-to-day operation of Trump's Castle and all ancillary properties and businesses of the Partnership was to be under the exclusive management and supervision of TCMC.
Pursuant to the Management Agreement, the Partnership was required to pay an annual fee in the amount of $1,500,000 to TCMC for each year in which Earnings Before Interest, Taxes, Depreciation, and Amortization ("EBITDA"), as defined, exceeds certain levels. In addition, TCMC, beginning with the fiscal year ended December 31, 1994, was to receive an incentive fee equal to 10% of the excess EBITDA over $45,000,000 for such fiscal year. During the year ended December 31, 1993, the Partnership incurred fees and expenses of $1,647,000 under the Management Agreement.
As a result of the Recapitalization Plan described in Note 2, on December 28, 1993, the Partnership terminated the Management Agreement with TCMC and entered into a services agreement (the "Services Agreement") with TC/GP. Pursuant to the terms of the Services Agreement, TC/GP is obligated to provide the Partnership, from time to time, when reasonably requested, consulting services on a non-exclusive basis, relating to marketing, advertising, promotional, and other similar and related services with respect to the business and operations of the Partnership, including such other services as the Managing Partner may reasonably request.
In consideration for the services to be rendered, the Partnership will pay TC/GP an annual fee on the same basis as that of the previous Management Agreement, discussed above. During the
years ended December 31, 1995 and 1994, the Partnership incurred fees and expenses of $2,087,000 and $2,111,000, respectively, under the Services Agreement. The Services Agreement expires on December 31, 2005.
OTHER PAYMENTS TO TRUMP
During 1994, the Board of Partner Representatives approved a $1,000,000 bonus to be paid to Trump, based upon 1994 operating results. The amount was paid in two equal installments in June and August 1995. No such bonus was approved for 1995.
DUE FROM AFFILIATES
Amounts due from affiliates were $1,146,000 and $434,000 as of December 31, 1995 and 1994, respectively. The Partnership has engaged in limited intercompany transactions with Trump Plaza Associates, Trump Taj Mahal Associates, and the Trump Organization, which are affiliates of Trump. These transactions include certain shared payroll costs as well as complimentary services offered to customers, for which the Partnership makes initial payments and is then reimbursed by the affiliates.
During 1995, 1994, and 1993, the Partnership incurred expenses of approximately $1,673,000, $1,631,000, and $1,332,000, respectively, in corporate salaries and $1,109,000, $1,047,000, and $952,000, respectively, of other transactions on behalf of these related entities. In addition, the Partnership received payments totaling $1,401,000, $2,438,000, and $2,004,000, respectively, for services rendered and had $580,000, $441,000, and $407,000, respectively, of charges for similar costs incurred by these related entities on behalf of the Partnership.
PARTNERSHIP AGREEMENT
Under the terms of the Partnership Agreement, the Partnership was required to pay all costs incurred by TC/GP. For the years ended December 31, 1995, 1994, and 1993, the Partnership paid $1,248,000, $1,188,000, and $736,000, respectively, of expenses on behalf of TC/GP. For the years ended December 31, 1995 and 1994 these costs were charged to general and administrative expense in the accompanying consolidated financial statements. For the year ended December 31, 1993 these costs were expenses of TC/GP and recorded as a capital contribution.
(7) COMMITMENTS AND CONTINGENCIES:
CASINO LICENSE RENEWAL
The Partnership is subject to regulation and licensing by the CCC. The Partnership's casino license must be renewed periodically, is not transferable, is dependent upon the financial stability of the Partnership, and can be revoked at any time. Due to the uncertainty of any license renewal application, there can be no assurance that the license will be renewed. Upon
revocation, suspension for more than 120 days, or failure to renew the casino license due to the Partnership's financial condition or for any other reason, the Casino Control Act (the "Act") provides that the CCC may appoint a conservator to take possession of and title to the hotel and casino's business and property, subject to all valid liens, claims, and encumbrances.
On June 22, 1995, the CCC renewed the casino license of the Partnership through 1999 subject to certain continuing reporting and compliance conditions.
SELF INSURANCE RESERVES
Self insurance reserves represent the estimated amounts of uninsured claims settlements related to employee health medical costs, workers compensation, and other legal proceedings in the normal course of business. These reserves are established by the Partnership based upon a specific review of open claims as of the balance sheet date as well as historical claims settlement experience. Actual results may differ from these reserve amounts.
EMPLOYMENT AGREEMENTS
The Partnership has entered into employment agreements with certain key employees which expire at various dates through July 30, 1998. Total minimum commitments on these agreements at December 31, 1995 were approximately $4,061,000.
LEGAL PROCEEDINGS
The Partnership is involved in legal proceedings incurred in the normal course of business. In the opinion of management and its counsel, if adversely decided, none of these proceedings would have a material effect on the consolidated financial position of the Partnership.
CASINO REINVESTMENT DEVELOPMENT AUTHORITY OBLIGATIONS
Pursuant to the provisions of the Act, the Partnership, must either obtain investment tax credits, as defined in the Act, in an amount equivalent to 1.25% of its gross casino revenues, as defined in the Act, or pay an alternative tax of 2.5% of its gross casino revenues. Investment tax credits may be obtained by making qualified investments, as defined, or by depositing funds which may be converted to bonds by the Casino Reinvestment Development Authority (the "CRDA"), both of which bear interest at below market interest rates. The Partnership is required to make quarterly deposits with the CRDA to satisfy its investment obligations.
From time-to-time the Partnership has elected to donate funds that it has on deposit with the CRDA in return for tax credits to satisfy substantial portions of the Partnership's future investment alternative tax obligations. Donations in the amount of $375,000, $6,440,000, and $568,000 were made in 1995, 1994, and 1993, respectively. These donations, net of the tax credits
received, were charged against operations in the year in which they were made and resulted in CRDA tax credits of $191,000, $1,474,000, and $290,000 to be applied to the years ending December 31, 1995, 1994, and 1993, respectively. For the years ended December 31, 1995, 1994, and 1993 the Partnership charged to operations $720,000, $955,000, and $115,000, respectively, which represents amortization of a portion of the tax credits discussed above.
In addition, for the years ended December 31, 1995, 1994, and 1993, the Partnership charged to operations $936,000, $735,000, and $953,000, respectively, to give effect to the below market interest rates associated with purchased CRDA bonds.
(8) EMPLOYEE BENEFIT PLANS:
The Partnership has a retirement savings plan for its nonunion employees under Section 401(k) of the Internal Revenue Code. Employees are eligible to contribute up to 15% of their earnings to the plan up to the maximum amount permitted by law, and the Partnership will match 50% of an eligible employee's contributions up to a maximum of 5% of the employee's earnings. The Partnership recorded charges of approximately $1,013,000, $899,000, and $864,000 for matching contributions for the years ended December 31, 1995, 1994, and 1993, respectively.
The Partnership makes payments to various trusteed pension plans under industry-wide union agreements. The payments are based on the hours worked by or gross wages paid to covered employees. It is not practical to determine the amount of payments ultimately used to fund pension benefit plans or the current financial condition of the plans. Under the Employee Retirement Income Security Act, the Partnership may be liable for its share of the plans' unfunded liabilities, if any, if the plans are terminated. Pension expense for the years ended December 31, 1995, 1994, and 1993 were $497,000, $455,000, and $407,000, respectively.
The Partnership provides no other material post employment benefits.
(9) FINANCIAL INFORMATION OF FUNDING:
Financial information relating to Funding as of and for the years ended December 31, 1995 and 1994 is as follows:
1995 1994
Total Assets (including Mortgage $287,679,000 $277,541,000 Notes Receivable of $242,141,000, ============ ============ net of unamortized discount of $35,572,000 and $37,729,000 at December 31, 1995 and 1994; PIK Notes Receivable of $61,860,000, net of unamortized discount of $7,750,000 at December 31, 1995 and $54,094,000, net of unamortized discount of $7,965,000 at December 31, 1994, and Senior Notes Receivable of $27,000,000 at December 31, 1995 and 1994.)
Total Liabilities and Capital $287,679,000 $277,541,000 (including Mortgage Notes Payable ============ ============ of $242,141,000, net of unamortized discount of $35,572,000 and $37,729,000 at December 31, 1995 and 1994, PIK Notes Payable of $61,860,000, net of unamortized discount of $7,750,000 at December 31, 1995 and $54,094,000, net of unamortized discount of $7,965,000, at December 31, 1994 and Senior Notes Payable of $27,000,000 at December 31, 1995 and 1994.)
Interest Income $ 41,768,000 $ 40,600,000
Interest Expense $ 41,768,000 $ 40,600,000 ____________ ____________
NET INCOME $ - $ - ============ ============
(10) FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amount of the following financial instruments of the Partnership and Funding approximate fair value, as follows: (a) cash and cash equivalents and accrued interest receivables and payables based on the short-term nature of the financial instruments, (b) CRDA bonds and deposits based on the allowances to give effect to the below market interest rates.
The fair values of the Mortgage Notes and PIK Notes are based on quoted market prices. The fair value of the Mortgage Bonds was based on quoted market prices obtained by the Partnership from its investment advisor as follows:
December 31, 1995 ______________________________ Carrying Amount Fair Value _______________ _____________ 11-3/4% Mortgage Notes............ $ 206,569,000 $ 212,479,000 PIK Notes......................... $ 54,110,000 $ 48,096,000
December 31, 1994 ______________________________ Carrying Amount Fair Value ______________ _____________ 11-3/4% Mortgage Notes............ $ 204,412,000 $ 131,967,000 PIK Notes......................... $ 46,129,000 $ 43,546,000
There are no quoted market prices for the Partnership Term Loan and Senior Notes. A reasonable estimate of their value could not be made without incurring excessive costs.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the Registrants have duly caused this Annual Report to be signed on their behalf by the undersigned, thereunto duly authorized, on the 22nd day of March, 1996.
TRUMP'S CASTLE FUNDING, INC.
By: /s/Donald J. Trump _____________________ By: Donald J. Trump Title: President
TRUMP'S CASTLE ASSOCIATES
By: /s/Donald J. Trump _____________________ By: Donald J. Trump Title: Managing General Partner
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this Annual Report has been signed below by the following persons on behalf of the Registrants and in the capacities and on the date indicated.
Signature Title Date
TRUMP'S CASTLE FUNDING, INC.
By:/s/Donald J. Trump Chairman of the Board, March 22, 1996 ___________________ President, Chief Executive Donald J. Trump Officer (Principal Executive Officer), Treasurer (Principal Financial Officer), and sole Director of the Registrant.
By:/s/Robert E. Schaffhauser Assistant Treasurer March 22, 1996 _________________________ of the Registrant Robert E. Schaffhauser (Principal Accounting Officer)
Signature Title Date
TRUMP'S CASTLE ASSOCIATES
By:/s/Nicholas L. Ribis Board of Partner March 22, 1996 ____________________ Representatives Nicholas L. Ribis
By:/s/Roger P. Wagner Board of Partner March 22, 1996 __________________ Representatives Roger P. Wagner
By:/s/Asher O. Pacholder Board of Partner March 22, 1996 _____________________ Representatives Asher O. Pacholder
By:/s/Arthur S. Bahr Board of Partner March 22, 1996 ____________________ Representatives Arthur S. Bahr
By:/s/Thomas F. Leahy Board of Partner March 22, 1996 __________________ Representatives Thomas F. Leahy
By:/s/Robert M. Pickus Board of Partner March 22, 1996 ___________________ Representatives Robert M. Pickus
By:/s/Robert E. Schaffhauser Chief Financial Officer March 22, 1996 _________________________ and Chief Accounting Robert E. Schaffhauser Officer of the Partnership
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The financial information presented below reflects the financial condition and results of operations of the Partnership. Funding is a wholly-owned subsidiary of the Partnership and conducts no business other than collecting amounts due under certain intercompany notes from the Partnership for the purpose of paying principal of, premium, if any, and interest on its indebtedness, which Funding issued as a nominee for the Partnership.
RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994. The Partnership's net revenues (gross revenues less promotional allowances) for the years ended December 31, 1995 and 1994 were approximately $305.5 million and $283.8 million, respectively. The Partnership believes that the $21.7 million (7.6%) increase is the result of aggressive marketing programs and special events introduced by Management during the current year as well as a continuing emphasis on providing superior customer service.
Gaming revenues provide the majority of the Partnership's revenues and primarily consist of slot machine and table games win.
Slot machine win was approximately $197.4 million and $177.4 million (an increase of approximately $20.0 million or 11.3%) for the years ended December 31, 1995 and 1994, respectively. The total dollar amount wagered by customers on slot machines increased by approximately $322.9 million (16.4%) to $2,288.2 million for the year ended December 31, 1995 from $1,965.3 million for the year ended December 31, 1994. This increase in slot volume was partially offset by a decrease in the slot win percentage (slot win as a percentage of dollars wagered on slot machines) to 8.6% for the year ended December 31, 1995 from 9.0% for the year ended December 31, 1994. This win percentage decrease was primarily due to an increased volume of customer play on lower denomination slot machines which, traditionally, payout at a lower win percentage.
Table game win was approximately $82.7 million and $81.0 million (an increase of $1.7 million or 2.1%) for the years ended December 31, 1995 and 1994, respectively. The total dollar amount wagered by customers on table games increased by approximately $10.2 million (2.1%) to $487.7 million for the year ended December 31, 1995 from $477.5 for the year ended December 31, 1994. The table game win percentage (table game win as a percentage of dollars wagered on table games) remained at 17% for the year ended December 31, 1995 compared to the year ended December 31, 1994. The table game win percentage is outside the control of the Partnership, and although it is fairly constant over the long- term, it can vary significantly from period to period, due in part to the play of certain premium patrons who tend to wager substantial dollar amounts on table games.
For the years ended December 31, 1995 and 1994, credit extended to the table games customers was approximately 30.0% and 31.4% of overall table play, respectively. This relatively high level of credit play continues a trend which started in the last fiscal year and is the result of an increased level of play by individuals who wager relatively large sums. These premium patrons tend to use a higher percentage of credit when they wager.
Nongaming revenues, in the aggregate, increased by approximately $3.1 million (5.2%) to $60.0 million for the year ended December 31, 1995 from $56.9 million for the year ended December 31, 1994, primarily as the result of rooms revenue (an approximate $538,000 increase) and food and beverage revenue (an approximate $2.4 million increase) activity. During the current year, marketing programs designed to increase gaming revenues caused an increase in complimentary rooms and food and beverage revenues (an approximate $2.7 million increase) as compared to the prior year.
Promotional Allowances increased by approximately $2.9 million (9.2%) to $34.5 million for the year ended December 31, 1995 from $31.6 million for the year ended December 31, 1994. As discussed above, marketing programs instituted during the current year designed to increase gaming revenues caused an increase in complimentary rooms and food and beverage activity as compared to the prior year.
Gaming costs and expenses increased by approximately $14.7 million (9.7%) to $165.7 million for the year ended December 31, 1995 from $151.0 million for the year ended December 31, 1994. This increase is primarily the result of an increase in promotional cash back coupon costs associated with the new marketing programs and special events introduced during the current year to stimulate gaming revenues.
Food and beverage costs and expenses for the years ended December 31, 1995 and 1994 increased approximately $1.1 million (9.0%). This increase corresponds to the increased food and beverage and gaming revenue activity for the year.
Other costs and expenses increased approximately $790,000 (6.3%) to $13.4 million for the year ended December 31, 1995 from $12.6 million for the year ended December 31, 1994. This increase is principally the result of increased real estate taxes on the casino property.
Interest expense increased approximately $1.8 million (4.1%) to $46.0 million for the year ended December 31, 1995 from $44.2 million for the year ended December 31, 1994. This increase is the result of an increase in both the outstanding principal and the interest rate related to the PIK Notes as well as an increase in the interest rate related to the Amended Term Loan.
RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1993. The Partnership's net revenues (gross revenues less promotional allowances) for the years ended December 31, 1994 and
1993 totaled approximately $283.8 million and $273.2 million, respectively, representing a $10.6 million (3.9%) increase. Gaming revenues were approximately $258.5 million for the year ended December 31, 1994 and $246.4 million for the comparable period in 1993. Management believes the $12.1 million (4.9%) increase in gaming revenues was attributable primarily to a continuing emphasis on customer service and a repositioning by Trump's Castle to expand profitable market segments.
Slot machine win was approximately $177.5 million and $173.0 million (an increase of approximately $4.5 million or 2.6%) for the years ended December 31, 1994 and 1993, respectively. The total dollar amount wagered by customers on slot machines increased by approximately $113.9 million (6.2%) to $1,965.3 million for the year ended December 31, 1994 from $1,851.4 million for the year ended December 31, 1993. This increase in slot volume was partially offset by a decrease in the slot win percentage (slot win as a percentage of dollars wagered on slot machines) to 9.0% for the year ended December 31, 1994 from 9.3% for the year ended December 31, 1993. The lower slot win percentage was largely intentional and designed by Trump's Castle in order to remain competitive and stimulate patron play.
Table game win was approximately $81.0 million and $73.4 million (an increase of $7.6 million or 10.4%) for the years ended December 31, 1994 and 1993, respectively. The total dollar amount wagered by customers on table games decreased by approximately $14.6 million (3.0%) to $477.5 million for the year ended December 31, 1994 from $492.1 million for the year ended December 31, 1993. This decrease in gaming volume was offset by an increase in the table game win percentage (table game win as a percentage of dollars wagered on table games) to 17.0% for the year ended December 31, 1994 from 14.9% for the year ended December 31, 1993. The table game win percentage is outside the control of the Partnership, and although it is fairly constant over the long- term, it can vary significantly from period to period, due in part to the play of certain premium patrons who tend to wager substantial dollar amounts on table games.
For the years ended December 31, 1994 and 1993, gaming credit extended to customers was approximately 31.4% and 28.9% of overall table play, respectively. This increase in credit play reflected, in part, a shift in the gaming patron mix as a result of increased play by individuals who wager relatively large sums. These patrons tend to use a higher percentage of credit when they wager.
Nongaming revenues, in the aggregate, decreased approximately $1.6 million (2.6%) to $56.9 million for the year ended December 31, 1994, from $58.5 million for the year ended December 31, 1993. This decline was primarily attributable to a decrease in food and beverage revenues of $2.2 million (7.1%), to $28.4 million for the year ended December 31, 1994, of which approximately $15.9 million consisted of complimentary food and beverage. This decline was due to the discontinuance of certain unprofitable marketing programs which resulted in fewer customers served. Such measures were implemented to improve overall operating efficiencies.
Offsetting the nongaming revenues decrease was an increase in entertainment revenue of $100,000 (1.4%) and an increase in other income of $600,000 (8%).
Gaming costs and expenses increased by approximately $5.3 million (3.7%) to $151.0 million for the year ended December 31, 1994 from $145.7 for the year ended December 31, 1993. This increase corresponds to the increase in gaming revenues on a year- to-year basis.
The $2.6 million (15.1%) decrease in rooms and food and beverage operating expenses is primarily attributable to a variety of cost reduction measures and improvements in operational efficiency during 1994 compared to 1993.
General and administrative expenses increased approximately $7.4 million (13.6%) for the year ended December 31, 1994 as compared to the prior year. This increase was primarily attributable to:
(1) The contribution of $2.5 million to a joint project with Harrah's for the beautification of the marina district of Atlantic City in which both casinos operate. (2) The contributions of approximately $3.3 million in Casino Reinvestment Development Authority deposits to certain public improvement projects. (3) Increased spending in connection with new business development and facilities maintenance.
For the year ended December 31, 1994, depreciation and amortization decreased $2.0 million (12.1%) over the comparable period in 1993, primarily as a result of the impact of fully depreciated assets.
Other costs and expenses increased by $1.5 million (13.8%) due to significantly lower real estate tax expense incurred in the first quarter of 1993 because of a $1.8 million real estate tax credit.
Interest expense decreased for the year ended December 31, 1994 over the comparable period in 1993 by approximately $12.8 million as a result of the Recapitalization on December 28, 1993.
INFLATION. There was no significant impact on the Partnership's operations as a result of inflation during 1995, 1994, or 1993.
LIQUIDITY AND CAPITAL RESOURCES.
Cash flow from operating activities is the Partnership's principal source of liquidity. For the year ended December 31, 1995, the Partnership's net cash flow provided by operating activities before cash debt service obligations was $49.8 million and cash debt service was $36.7 million, resulting in net cash provided by operating activities of $13.1 million.
In addition to cash needs to fund the day-to-day operations of Trump's Castle, the Partnership's principal uses of cash are capital expenditures and debt service.
Capital expenditures for the year ended December 31, 1995 were $8.6 million and consisted of casino floor improvements, renovation of hotel rooms, and the purchase of slot machines. For 1996 total capital expenditures are anticipated to be $9.0 million and principally consist of (i) the purchase of slot machines, (ii) renovations to guest rooms and the hotel tower, and (iii) the construction of two new player clubs. Management believes that these levels of capital expenditures are sufficient to maintain the attractiveness of Trump's Castle and the aesthetics of its hotel rooms and other public areas.
The Partnership's debt consists primarily of (i) a loan with Midlantic National Bank (the "Term Loan"), (ii) the 11-1/2% Senior Notes due 2000 (the "Senior Notes"), (iii) the 11-3/4% Mortgage Notes due 2003 (the "Mortgage Notes"), and (iv) the Increasing Rate Subordinated Pay-in-Kind Notes due 2005 (the "PIK Notes").
On May 28, 1995, the Partnership exercised its option to extend the Term Loan for an additional five year term. The Term Loan bears interest at the prime rate plus 3%, currently 11-1/2%, and requires amortized monthly principal payments of approximately $158,000 which commenced May 31, 1995. The Term Loan matures on May 28, 2000.
The Senior Notes have an outstanding principal amount of $27 million, and bear interest at the rate of 11-1/2% per annum (which may be reduced to 11-1/4% upon the occurrence of certain events). The Senior Notes mature on November 15, 2000, and are subject to a sinking fund which requires the retirement of 15% of the Senior Notes on each November 15, 1998 and 1999.
The Mortgage Notes have an outstanding principal amount of approximately $242 million, bear interest at the rate of 11-3/4% per annum (which may be reduced to 11-1/2% upon the occurrence of certain events), and mature on November 15, 2003.
The PIK Notes have an outstanding principal amount of approximately $61.9 million and mature on November 15, 2005. Interest is currently payable semi-annually at the rate of 13-7/8%. On or prior to November 15, 2003, interest on the PIK Notes may be paid in cash or through the issuance of additional PIK Notes. During 1995, the Partnership and Funding issued an additional $7.8 million principal amount of PIK Notes in payment of interest on the PIK Notes. The Partnership anticipates that during 1996 interest on the PIK Notes will be paid through the issuance of additional PIK Notes.
On June 23, 1995, the Partnership entered into an Option Agreement with Hamilton Partners, L.P. ("Hamilton") which grants the Partnership an option (the "Option") to acquire the PIK Notes owned by Hamilton. Hamilton has represented to the Partnership
that it is the owner of at least 92% of the outstanding principal amount of the PIK Notes. The Option was granted to the Partnership in consideration of a $1.1 million payment to Hamilton. The Option is exercisable at a price equal to 60% of the aggregate principal amount and accrued interest of the PIK Notes delivered by Hamilton. Pursuant to the terms of the Option Agreement, upon the occurrence of certain events within 18 months of the time the Option is exercised, the Partnership is required to make an additional payment to Hamilton of up to 40% of the principal amount of the PIK Notes. The option expires on March 19, 1996 and may be extended to June 21, 1996.
The Partnership's cash debt service requirement was approximately $36.7 million in 1995 and the Partnership anticipates that approximately $37.8 million in cash will be required during 1996 to meet its debt service obligations.
For the years ended December 31, 1995 and 1994, the Partnership had a working capital surplus of $600,000 and a working capital deficit of $1.0 million, respectively. The Partnership believes that this level of working capital is adequate to sustain existing operations in the foreseeable future.
Management believes, based upon its current level of operations, that although the Partnership is highly leveraged, it will continue to have the ability to pay interest on its indebtedness and to pay other liabilities with funds from operations for the foreseeable future. However, there can be no assurance to that effect, as the Partnership's operating results are subject to numerous factors outside its control, including, without limitation, competition from within the Atlantic City market, from other gaming jurisdictions, and from the Other Trump Casinos; general economic conditions; weather and its effect on the ability of patrons to travel to Atlantic City; and, the slot machine and table game win percentages, which can vary significantly over a short-term time period. 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.
The ability of Funding and the Partnership to pay their indebtedness when due, will depend on their ability to either generate cash from operations sufficient for such purposes or to refinance such indebtedness on or before the date on which it becomes due. The Partnership does not currently anticipate being able to generate sufficient cash flow from operations to repay a substantial portion of the principal amounts of the Mortgage Notes and the PIK Notes. Thus, the repayment of the principal amount of this indebtedness will likely depend primarily upon the ability of Funding and the Partnership to refinance this debt when due. The future operating performance of the Partnership and the ability to refinance this debt will be subject to the then prevailing economic conditions, industry conditions, and numerous other financial, business, and other factors, many of which are beyond the control of Funding or the Partnership. There can be no
assurance that the future operating performance of the Partnership will be sufficient to meet these repayment obligations or that the general state of the economy, the status of the capital markets generally, or the receptiveness of the capital markets to the gaming industry will be conducive to refinancing this debt or other attempts to raise capital.
ITEM 8.
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.
ITEM 9. DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10.
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, Robert M. Pickus, Asher O. Pacholder, Thomas F. Leahy, and Arthur S. Bahr. Messrs. Trump, Ribis, and Pickus also serve on the governing boards of Trump Taj Mahal Associates ("TTMA"), and Trump Plaza Associates ("TPA"). Messrs. Trump and Ribis also serve as directors and officers of Trump Hotels & Casino Resorts, Inc. ("THCR"), and Mr. Pickus serves as an officer of THCR.
The Partnership also has an Audit Committee on which Mr. Ribis serves with Mr. Leahy and Mr. Bahr, 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, 49 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 has been Chairman of the Board of THCR and its related funding company since their formation in 1995. Trump is the sole shareholder, Chairman of the Board of Directors, President, and Treasurer of TPFI, and the managing general partner of TPA. Trump was
President and Chairman of the Board of Directors and a 50% shareholder of TP/GP Corp. ("TP/GP"), the former managing general partner of TPA, from May 1992 through June 1993; and Chairman of the Executive Committee and President of TPA from May 1986 to May 1992. Trump has been a director and President of TPHI and a partner in Trump Plaza Holding Associates ("TPHA") since February 1993. Trump was Chairman of the Executive Committee of TTMA, from June 1988 to October 1991; and has been Chairman of the Board of Directors of the managing general partner of TTMA since October 1991; and President of the Trump Organization, which has been in the business, through its affiliates and subsidiaries, of acquiring, developing and managing real estate properties for more than the past five years. Trump was a member of the Board of Directors of Alexander's Inc. from 1987 to March 1992.
NICHOLAS L. RIBIS - Mr. Ribis, 51 years old, has been a partner representative on the Board of Partner Representatives since May 1992 and Chief Executive Officer of 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 been President, Chief Executive Officer, Chief Financial Officer, and a director of THCR and its related funding company since their formation in 1995. 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 TTMA since March 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 from February 1991 to December 1995 was 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 has been a member of the Board of Trustees of the CRDA since October 1993.
ROGER P. WAGNER - Mr. Wagner, 48 years old, has been a partner representative on the Board of Partner Representatives since May 1992 and President and Chief Operating Officer of the Partnership since January 1991. Mr. Wagner served as a member of the Executive Committee of the Partnership from January 1991 to May 1992. Mr. Wagner has been a director and president of TCHI since January 1991. Prior to joining the Partnership, Mr. Wagner served as President of the Claridge Hotel Casino from June 1985 to January 1991 and is presently the Chairman of the Casino Association of New Jersey.
ROBERT M. PICKUS - Mr. Pickus, 41 years old, has been a partner representative on the Board of Partner Representatives since October 1995, Executive Vice President of Corporate and Legal Affairs since February 1995, and Corporate Secretary since February 1996. He has also been the Executive Vice President of Corporate and Legal Affairs of Plaza Associates since February 16,
1995. From December 1993 to February 1995, Mr. Pickus was the Senior Vice President and General Counsel of Plaza Associates and, since April 1994, he has been the Vice President and Assistant Secretary of Plaza Funding and Assistant Secretary of Plaza Holding, Inc. Mr. Pickus has been the Executive Vice President of Corporate and Legal Affairs of Taj Associates since February 1995, and a Class C Director of Taj Holding and TM/GP since November, 1995. He was the Senior Vice President and Secretary of Trump's Castle Funding, Inc. from June 1988 until December 1993 and General Counsel of Trump's Castle Associates from June 1985 to June 1988. Mr. Pickus was also Secretary of Trump's Castle Associates from October 1991 until December 1993. Mr. Pickus has been Executive Vice President of Corporate and Legal Affairs of THCR since June of 1995.
ASHER O. PACHOLDER - Dr. Pacholder, 58 years old, has been a partner representative of the Board of Partner Representative since May 1992. Dr. Pacholder served as a director and the President of TC/GP from May 1992 to December 1993. Dr. Pacholder has served as Chairman of the Board and Managing Director of Pacholder Associates, Inc., an investment advisory firm, since 1987. In addition, Dr. Pacholder serves on the Board of Directors of The Southland Corporation, United Gas Holding Corp., ICO, Incorporated, an oil field services company, UF&G Pacholder Fund, Inc., a publicly traded closed end mutual fund, U.S. Trails, Inc. a recreational facility company, and Forum Group, Inc., a retirement community managerial company.
THOMAS F. LEAHY - Mr. Leahy, 58 years old, has been a partner representative on the Board of Partner Representatives since June 1993. Mr. Leahy served as a director and Treasurer of TC/GP from May 1992 to December 1993. From 1991 to July 1992, Mr. Leahy served as Executive Vice President of CBS Broadcast Group, a unit of CBS, Inc. Since November 1992, Mr. Leahy has served as President of The Theater Development Fund, a service organization for the performing arts. From July 1992 through November 1992, Mr. Leahy served as chairman of VT Properties, Inc., a privately- held corporation which invests in literary, state, and film properties.
ARTHUR S. BAHR - Mr. Bahr, 64 years old, has been a partner representative on the Board of Partner Representatives since June of 1995 and previously served as a director of TC/GP from August 1993 to January of 1994. Mr. Bahr retired in February of 1994 after serving in various senior investment positions for General Electric Investment Corporation since 1970. Mr. Bahr serves on the Board of Directors of Renaissance Reinsurance and the Korean International Investment Fund.
ROBERT E. SCHAFFHAUSER - Mr. Schaffhauser, 49 years old, joined the Partnership as Senior Vice President of Finance in January 1994 and became Executive Vice President of Finance in January of 1995. He also became Assistant Treasurer, Chief Financial Officer, and Chief Accounting Officer of Funding, and Assistant Treasurer of TCHI and TC/GP in January 1994. He served as a consultant to Trump during 1993. Mr. Schaffhauser previously
served as Senior Vice President of Finance and Administration for the Sands Hotel & Casino in Atlantic City for four years. For a period of 13 years prior thereto, he served as the Chief Financial Officer and Secretary for Metex Corporation, a publicly held manufacturer of engineered products. Mr. Schaffhauser also served as a member of Metex Corporation's Board of Directors.
MARK A. BROWN - Mr. Brown, 35 years old, joined the Partnership as Executive Vice President of Operations in July of 1995. Previously, Mr. Brown served as Senior Vice President of Eastern Operations for Caesars World Marketing Corporation, National and International Divisions from 1993 until 1995. Prior to that, Mr. Brown served as Vice President of Casino Operations at Trump Taj Mahal from 1989 until 1993. From 1979 until 1989, Mr. Brown worked for Resorts International Hotel Casino departing as Casino Shift Manager in December 1989.
PATRICIA M. WILD - Ms. Wild, 43 years old, has been Secretary of Funding and Senior Vice President and General Counsel of the Partnership and Secretary of TCHI since December 1993. Ms. Wild served as Assistant Secretary of TPFI and Vice President, General Counsel of TPA from February 1991 to December 1993; Vice President and General Counsel of TPFI from July 1992 through December 1993; and Associate General Counsel of TPA from May 1989 through January 1991. From December 1986 to April 1989, Ms. Wild served as Deputy Attorney General on the Environmental Prosecutions Task Force of the New Jersey Department of Law and Public Safety, Division of Criminal Justice. From April 1983 to December 1986, Ms. Wild served as Deputy Attorney General with the New Jersey Division of Gaming Enforcement.
JOHN P. BURKE - Mr. Burke, 48 years old, has been the Corporate Treasurer of the Partnership and TPA since October 1991. Mr. Burke has been Chief Accounting Officer of TC/GP since May 1992. Mr. Burke has been a Vice President of TCHI, TC/GP, Funding and the Partnership since December 1993. Mr. Burke has been Vice President of the Trump Organization since September 1990. Since June 1995, Mr. Burke has been the Corporate Treasurer of THCR. He has also been Corporate Treasurer of Plaza Associates and Taj Associates since October 1991. Mr. Burke has been a Class C Director of TM/GP and Taj Holding, and Vice President of TM/GP since October 1991. Mr. Burke was an Executive Vice President and Chief Administrative officer of Imperial Corporation of America from April 1989 through September 1990.
Each member of the Board of Partner Representatives, of the Audit Committee and all of the other persons listed above have been licensed or found qualified by the CCC.
The employees of the Partnership serve at the pleasure of the Board of Partner Representatives subject to any contractual rights contained in any employment agreement. The officers of Funding serve at the pleasure of Donald J. Trump, the sole director of Funding.
Donald J. Trump and Nicholas L. Ribis served as either executive officers and/or directors of TTMA and its affiliated entities when such parties filed their petition for reorganization under chapter 11 of the Bankruptcy Code on July 17, 1991. The Second Amended Joint Plan of Reorganization of such parties was confirmed on August 28, 1991, and was declared effective on October 4, 1991. Donald J. Trump, Nicholas L. Ribis, and John P. Burke served as directors of TPA and its affiliated entitled, at the time such parties filed a petition for reorganization under chapter 11 of the Bankruptcy Code on March 9, 1992. The First Amended Joint Plan of Reorganization of such parties was confirmed on April 30, 1992, and declared effective on May 29, 1992. Donald J. Trump, Nicholas L. Ribis, Roger P. Wagner, and John P. Burke served as either executive officers and/or directors of the Partnership and its affiliated entities when such parties filed their petition for reorganization under chapter 11 of the Bankruptcy Code in March 1992. The First Amended Joint Plan of Reorganization of such parties was confirmed on May 5, 1992, and was declared effective on May 29, 1992. Donald J. Trump was a partner of Plaza Operating Partners Ltd. when it filed a petition for reorganization under chapter 11 of the Bankruptcy Code on November 2, 1992. The Plan of Reorganization was confirmed on December 11, 1992 and declared effective in January 1993. John P. Burke was Executive Vice President and Chief Administrative Officer of Imperial, a thrift holding company whose major subsidiary, Imperial Savings was seized by the Resolution Trust Corporation in February 1990. Subsequently, in February 1990, Imperial filed a petition for reorganization under chapter 11 of the Bankruptcy Code.
ITEM 11.
ITEM 11. EXECUTIVE COMPENSATION
Executive officers of Funding do not receive any additional compensation for serving in such capacity. In addition, Funding and the Partnership do not offer their executive officers stock option or stock appreciation right plans, long-term incentive plans, or defined benefit pension plans.
The following table sets forth compensation paid or accrued during the years ended December 31, 1995, 1994, and 1993 to the Chief Executive Officer, and each of the four most highly compensated executive officers of the Partnership whose cash compensation, including bonuses and deferred compensation, exceeded $100,000 for the year ended December 31, 1995. Compensation accrued during one year and paid in another is recorded under the year of accrual. Information relating to long- term compensation is inapplicable and has therefore been omitted from the table.
EMPLOYMENT AGREEMENTS. In September 1993, the Partnership entered into an employment agreement with Nicholas L. Ribis pursuant to which Mr. Ribis acts as Chief Executive Officer of the Partnership. The agreement, which expires in September 1996, provides for an annual salary of $550,000. The salary increases by ten percent for each of the second and third years of the agreement. Upon execution of the employment agreement, Mr. Ribis received a $250,000 signing bonus. In the event the Partnership, or any entity which acquires substantially all of the equity interests or assets of the Partnership, proposes to engage in an offering of common shares to the public, the Partnership and Mr. Ribis have agreed to negotiate new compensation arrangements which shall include equity participation for Mr. Ribis. Mr. Ribis also acts as Chief Executive Officer of TTMA and TPA, the Partnerships that own the Other Trump Casinos, and THCR which owns TPA and certain other gaming interests, and receives additional compensation from such entities. Mr. Ribis devotes approximately one-quarter of his professional time to the affairs of the Partnership. All other executive officers of the Partnership, except Messrs. Burke and Pickus, devote substantially all of their time to the business of the Partnership.
The Partnership, on January 17, 1991, entered into an employment agreement with Roger P. Wagner, with an amendment thereto dated January 17, 1991, and a second amendment thereto dated July 18, 1992, pursuant to which Mr. Wagner serves as the Partnership's and TCHI's President and Chief Operating Officer. Mr. Wagner's employment agreement, which terminates on January 16, 1997, provides for an annual salary beginning at a minimum of $400,000 until January 16, 1994, thereafter $500,000 per year until January 16, 1995, thereafter $600,000 per year until January 16, 1996, and thereafter $750,000 per year from January 17, 1996 until January 16, 1997 and, subject to CCC approval, 1% of the Partnership's Income from Operations (as defined in such agreement) in excess of $40.0 million.
The Partnership, on June 16, 1995, entered into a severance agreement with Robert E. Schaffhauser. Pursuant to the terms of this agreement Mr. Schaffhauser is to receive from the Partnership, if terminated by the Partnership for any reason other than cause as defined, an amount equal to twelve months of Mr. Schaffhauser's then current salary.
The Partnership, on July 10, 1995, entered into an employment agreement with Mark A. Brown pursuant to which Mr. Brown serves as the Partnership's Executive Vice President of Operations. The term of the agreement is three years. This employment agreement provides for an annual base salary of $350,000, a $75,000 bonus paid at the commencement of employment, and an annual bonus of no less than $75,000 per year over the three year term of the agreement.
The Partnership entered into an employment agreement with Patricia M. Wild pursuant to which, effective December 6, 1993, Ms. Wild serves as the Partnership's Senior Vice President/General Counsel. The term of the agreement is one year and, in accordance
with the terms of the agreement, is automatically extended on a weekly basis so that at all times the term of the agreement shall be an unexpired period of twelve months. This employment agreement provides for an annual base salary of $115,000 reviewed on an annual basis.
COMPENSATION OF DIRECTORS. Each Partner Representative of the Partnership (other than Messrs. Trump, Ribis, Wagner, and Pickus) receives an annual fee of $50,000. In addition, each Partner Representative of the Partnership (other than Messrs. Trump, Ribis, Pickus, and Wagner) receives $2,500 per meeting attended, plus reasonable out-of-pocket expenses incurred in attending any meeting of the Board.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION. In general, the compensation of executive officers of the Partnership is determined by the Board of Partner Representatives, which is composed of Donald J. Trump, Nicholas L. Ribis, Roger P. Wagner, Asher O. Pacholder, Thomas F. Leahy, Arthur S. Bahr, and Robert M. Pickus. The compensation of Nicholas L. Ribis and Roger P. Wagner is set forth in their employment agreements with the Partnership. The Partnership has delegated the responsibility over certain matters, such as the bonus of Mr. Ribis, to Mr. Trump. Executive officers of Funding do not receive any additional compensation for serving in such capacity.
The SEC requires issuers to disclose the existence of any other corporation in which both (i) an executive officer of the registrant serves on the board of directors and/or compensation committee, and (ii) a director of the registrant serves as an executive officer. Messrs. Ribis, Wagner, Pickus, and Burke, executive officers of the Partnership, serve on the Board of Directors of other entities in which members of the Board of Partner Representatives (namely, Messrs. Trump, Ribis, Wagner, and Pickus) serve as executive officers. The Partnership believes that such relationships have not affected the compensation decisions made by the Board of Partner Representatives in the last fiscal year.
Messrs. Trump and Wagner serve as directors of TCHI, of which Messrs. Trump, Ribis, and Wagner serve as executive officers.
Messrs. Trump, Ribis, Pickus, and Burke serve on the Board of Directors of Taj Mahal Holding Corp., which holds an indirect equity interest in TTMA, the partnership that owns the Taj Mahal, of which Messrs. Trump, Ribis, and Pickus are executive officers. Such persons also serve on the Board of Directors of TM/GP Corporation (a subsidiary of Taj Mahal Holding Corp.), the managing general partner of TTMA, of which Messrs. Trump, Ribis, and Pickus are executive officers. Mr. Ribis is compensated by TTMA for his services as its chief executive officer.
Mr. Ribis also serves on the Board of Directors of Trump Taj Mahal Realty Corp. ("Taj Realty Corp."), which leases certain real property to TTMA, of which Mr. Trump is an executive officer. Mr.
Trump, however, does not receive any compensation for serving as an executive officer of Taj Realty Corp.
Messrs. Trump and Ribis serve on the Board of Directors of TPFI, the managing general partner of TPA, of which Messrs. Trump, Ribis, and Pickus are executive officers. Messrs. Trump and Ribis also serve on the Board of Directors of TPHI, of which such persons are also executive officers. Mr. Ribis is compensated by TPA for his services as chief executive officer.
Messrs. Trump and Ribis serve on the Board of Directors of THCR, of which Mr. Trump is Chairman of the Board. Messrs. Ribis, Pickus and Burke are executive officers of THCR and are compensated for their services by THCR.
ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information with respect to the amount of Funding's Common Stock owned by beneficial owners of more than 5% of Funding's Common Stock. Funding has no other class of equity securities outstanding.
Amount and Nature Name and Address of of Beneficial Percent Title or Class Beneficial Owners Ownership of Class ______________ ___________________ _________________ ________
Common Stock Trump's Castle 200 shares 100% Associates Huron Avenue and Brigantine Blvd. Atlantic City, New Jersey 08401
Currently, Trump, TC/GP and TCHI hold 61.5%, 37.5%, and 1.0% interests, respectively, in the Partnership and therefore are the beneficial owners of all of the outstanding shares of Common Stock of Funding.
ITEM 13.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
OTHER TRUMP CASINOS. The following table sets forth the amounts due to the Partnership from Trump and his other affiliated casino entities as of December 31, 1995. For a more detailed description of these transactions, see "Other Transactions with Affiliates" below.
Amount Due and Outstanding to the Partnership as of December 31, 1995 __________________________
Trump Plaza Associates. . . . . . . . . . . .$ 720,000 Trump Taj Mahal Associates. . . . . . . . . . 164,000 The Trump Organization. . . . . . . . . . . . 262,000 _________ Total Due from Affiliates as of December 31, 1995. . . . . . . . .$1,146,000 ==========
OTHER TRANSACTIONS WITH AFFILIATES. The Partnership has engaged in transactions with TPA, TTMA, and the Trump Organization ("TO") which are affiliates of Trump. These transactions include certain shared payroll costs, fleet maintenance and limousine services, as well as complimentary services offered to customers, for which the Partnership makes the initial payment and is then reimbursed by the appropriate affiliated entity. During 1995, the Partnership incurred expenses of approximately $1,673,000 in corporate salaries, and $1,109,000 of other transactions on behalf of these related entities. In addition, the Partnership received payments totalling $1,401,000 for services rendered and had $580,000 of deductions for similar services incurred by these related entities on behalf of the Partnership.
SERVICES AGREEMENT. On December 28, 1993, the Partnership terminated the existing management agreement with a corporation wholly-owned by Trump and entered into a Services Agreement with TC/GP (the "Services Agreement"). In general, the Services Agreement obligates TC/GP to provide to the Partnership, from time-to-time when reasonably requested, consulting services on a non-exclusive basis, relating to marketing, advertising, promotional, and other related services (the "Services") with respect to the business and operations of the Partnership, in exchange for certain fees to be paid only in those years in which EBITDA (EBITDA represents income from operations before depreciation, amortization, restructuring costs and the non-cash write-down of CRDA investments) exceeds prescribed amounts.
In consideration for the Services to be rendered by TC/GP, the Partnership will pay an annual fee (which is identical to the fee which was payable under the previously existing management agreement) to TC/GP in the amount of $1,500,000 for each year in which EBITDA exceeds the following amounts for the years indicated: 1993 - $40,500,000; 1994 - $45,000,000; 1995 and
thereafter - $50,000,000. If EBITDA in any fiscal year does not exceed the applicable amount, no annual fee is due. In addition, TC/GP will be entitled to an incentive fee beginning with the fiscal year ending December 31, 1994 in an amount equal to 10% of EBITDA in excess of $45,000,000 for such fiscal year. The Partnership will also be required to advance to TC/GP $125,000 a month which will be applied toward the annual fee, provided, however, that no advances will be made during any year if and for so long as the Managing Partner (defined in the Services Agreement as Trump) determines, in his good faith reasonable judgment, that the Partnership's budget and year-to-date performance indicate that the minimum EBITDA levels (as specified above) for such year will not be met. If for any year during which annual fee advances have been made it is determined that the annual fee was not earned, TC/GP will be obligated to promptly repay any amounts previously advanced. For purposes of calculating EBITDA under the Services Agreement, any incentive fees paid in respect of 1994 or thereafter shall not be deducted in determining net income.
During the year ended 1995, the Partnership recorded fees of approximately $2,087,000 under the Services Agreement.
Unless sooner terminated pursuant to its terms, the Services Agreement will expire on December 31, 2005.
OTHER PAYMENTS TO TRUMP. During 1994, the Board of Partners Representatives approved a $1,000,000 bonus to be paid to Trump based upon 1994 operating results. The amount was paid in two equal installments in June and August 1995. No such bonus was approved for 1995.
PART IV
ITEM 14.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(A) Financial Statements. See the Index immediately following the signature page.
(B) Reports on Form 8-K. Funding did not file any reports on Form 8-K during the last quarter of the year ended December 31, 1995.
(C) Exhibits. All exhibits listed below are filed with this Annual Report on Form 10-K unless specifically stated to be incorporated by reference to other documents previously filed with the Securities and Exchange Commission.
EXHIBIT
3(1) -Amended and Restated Certificate of Incorporation of Funding.
3.1(1) -Bylaws of Funding.
3.2-3.6 -Intentionally omitted.
3.7(2) -Second Amended and Restated Partnership Agreement of the Partnership.
4.1-4.10 -Intentionally omitted.
4.11(2) -Indenture, among Funding, as issuer, the Partnership, as guarantor, and the Mortgage Note Trustee, as trustee.
4.12(2) -Indenture of Mortgage between the Partnership, as Mortgagor, and Funding, as Mortgagee.
4.13(2) -Assignment Agreement between Funding and the Mortgage Note Trustee.
4.14(2) -Partnership Note.
4.15 -Form of Mortgage Note (included in Exhibit 4.11).
4.16 -Form of Partnership Guarantee (included in Exhibit 4.11).
4.17(2) -Indenture between Funding, as issuer, the Partnership, as guarantor, and the PIK Note Trustee, as trustee.
4.18(2) -Pledge Agreement between Funding and the PIK Note Trustee.
4.19(2) -Subordinated Partnership Note.
4.20 -Form of PIK Note (included in Exhibit 4.17).
4.21 -Form of Subordinated Partnership Guarantee (included in exhibit 4.17).
4.22(1) -Letter Agreement between the Partnership and the Proposed Senior Secured Note Purchasers regarding the Senior Secured Notes.
4.23(2) -Note Purchase Agreement for 11-1/2% Series A Senior Secured Notes of the Partnership due 1999.
4.24(2) -Indenture, among Funding, as issuer, the Partnership, as guarantor, and the Senior Secured Note Trustee, as trustee.
4.25(2) -Indenture of Mortgage and Security Agreement between the Partnership, as mortgagor/debtor, and Funding as mortgagee/secured party. (Senior Note Mortgage).
4.26(2) -Registration Rights Agreement by and among the Partnership and certain purchasers.
4.27 -Intentionally omitted.
4.28(2) -Guarantee Mortgage.
4.29(2) -Senior Partnership Note.
4.30(2) -Indenture of Mortgage and Security Agreement between the Partnership as mortgagor/debtor and the Senior Note Trustee as mortgagee/secured party. (Senior Guarantee Mortgage).
4.31(2) -Assignment Agreement between Funding, as assignor, and the Senior Note Trustee, as assignee. (Senior Assignment Agreement).
4.32(2) -Amended and Restated Nominee Agreement.
10.1-10.2 -Intentionally omitted.
10.3(3) -Employment Agreement dated January 17, 1991, between the Partnership and Roger P. Wagner.
10.4(4) -Second Amendment to Employment Agreement dated January 17, 1991 between the Partnership, TCHI, and Roger P. Wagner.
10.5(5) -Form of License Agreement between the Partnership and Donald J. Trump.
10.6-10.10 -Intentionally omitted.
10.11(2) -Employment Agreement, between the Partnership and Nicholas Ribis.
10.12(6) -Trump's Castle Hotel & Casino Retirement Savings Plan, effective as of September 1, 1986.
10.13-10.18 -Intentionally omitted.
10.19(3) -Lease Agreement by and between State of New Jersey acting through its Department of Environmental Protection, Division of Parks and Forests, as Landlord, and the Partnership, as tenant, dated September 1, 1990.
10.20-10.26 -Intentionally omitted.
10.27(1) -Services Agreement.
10.28-10.31 -Intentionally omitted.
10.32(7) -Employment Agreement dated December 20, 1993, between Patricia M. Wild and the Partnership
10.33 -Intentionally Omitted.
10.34(7) -Amended and Restated Credit Agreement, dated as of December 28, 1993, among Midlantic, the Partnership and Funding.
10.35(7) -Amendment No. 1 to Amended and Restated Indenture of Mortgage, between the Partnership, as Mortgagor and Midlantic, as Mortgagee.
10.36(7) -Amended and Restated Indenture of Mortgage, between the Partnership, as Mortgagor and Midlantic, as Mortgagee, dated as of May 29, 1992.
10.37(7) -Amendment No. 1 to Amended and Restated Assignment of Leases and Rents, between the Partnership, as assignor, and Midlantic, as assignee.
10.38(7) -Amended and Restated Assignment of Leases and Rents, between the Partnership, as assignor, and Midlantic, as assignee, dated as of May 29, 1992.
10.39(7) -Amendment No. 1 to Amended and Restated Assignment of Operating Assets, between the Partnership, as assignor and Midlantic, as assignee.
10.40(7) -Amended and Restated Assignment of Operating Assets, between the Partnership, as assignor, and Midlantic, as assignee, dated as of May 29, 1992.
10.41(7) -Intercreditor Agreement, by and among Midlantic, the Senior Note Trustee, the Mortgage Note Trustee, the PIK Note Trustee, Funding and the Partnership.
10.42(8) -Option Agreement, dated as of June 23, 1995, between Hamilton Partners, L.P. and the Partnership.
10.43(9) -Form of Amended and Restated Term Note, dated as of May 28, 1995, between Midlantic Bank, N.A. and the Partnership.
10.44 -Severance Agreement dated June 16, 1995, between Robert E. Schaffhauser and the Partnership.
10.45 -Employment Agreement dated July 10, 1995, between Mark A. Brown and the Partnership. _________________
(1) Incorporated herein by reference to the Exhibit to Funding's and the Partnership's Registration Statement on Form S-4, Registration No. 33-68038.
(2) Incorporated herein by reference to the Exhibit to Amendment No. 5 to the Schedule 13E-3 of TC/GP and the Partnership, File No. 5-36825, filed with the SEC on January 11, 1994.
(3) Incorporated herein by reference to the Exhibit to Funding's Annual Report on Form 10-K for the year ended December 31, 1990.
(4) Incorporated herein by reference to the Exhibit to Funding's Quarterly Report on Form 10-Q for the quarter ended June 30, 1992.
(5) Incorporated herein by reference to the Exhibit to Funding's Annual Report on Form 10-K for the year ended December 31, 1991.
(6) Incorporated herein by reference to the Exhibit to Funding's Annual Report on Form 10-K for the year ended December 31, 1986.
(7) Incorporated herein by reference to the identically numbered Exhibit to Funding's Registration Statement on Form S-4, Registration Number 33-52309 filed with the SEC on February 17, 1994.
(8) Incorporated herein by reference to the identically numbered Exhibit to Funding's and the Partnership's Current Report on Form 8-K dated as of June 23, 1995.
(9) Incorporated herein by reference to the identically numbered Exhibit to Funding's and the Partnership's Quarterly Report on Form 10-Q for the quarter ended June 30, 1995.
Report of Independent Public Accountants
Consolidated Balance Sheets of Trump's Castle Associates and Subsidiary as of December 31, 1995 and 1994
Consolidated Statements of Operations of Trump's Castle Associates and Subsidiary for the years ended December 31, 1995, 1994, and 1993
Consolidated Statements of Partners' Capital of Trump's Castle Associates and Subsidiary for the years ended December 31, 1995, 1994, and 1993
Consolidated Statements of Cash Flows of Trump's Castle Associates and Subsidiary for the years ended December 31, 1995, 1994, and 1993
Notes to Consolidated Financial Statements of Trump's Castle Associates and Subsidiary
Schedule
II Valuation and Qualifying Accounts for the years ended December 31, 1995, 1994, and 1993
Other Schedules are omitted for the reason that they are not required or are not applicable, or the required information is included in the combined financial statements or notes thereto.
Arthur Andersen LLP
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Trump's Castle Associates and Subsidiary:
We have audited the accompanying consolidated balance sheets of Trump's Castle Associates (a New Jersey general partnership) and Subsidiary as of December 31, 1995 and 1994, and the related consolidated statements of operations, partners' capital and cash flows for each of the three years in the period ended December 31, 1995. These consolidated financial statements and the schedule referred to below are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these consolidated financial statements and schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Trump's Castle Associates and Subsidiary as of December 31, 1995 and 1994, and the results of their operations and their cash flows for each of the three years in the period ending December 31, 1995, in conformity with generally accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the basic financial statements taken as a whole. The schedule listed in the index to the financial statements is presented for the purpose of complying with the Securities and Exchange Commission's rules and is not part of the basic financial statements. This schedule has been subjected to the auditing procedures applied in our audits of the basic financial statements, and in our opinion, fairly states in all material respects the financial data required to be set forth therein in relation to the basic financial statements taken as a whole.
ARTHUR ANDERSEN, LLP
Roseland, New Jersey February 16, 1996
The accompanying notes to consolidated financial statements are an integral part of these consolidated balance sheets.
A
The accompanying notes to consolidated financial statements are an integral part of these consolidated balance sheets.
B
The accompanying notes to consolidated financial statements are an integral part of these consolidated statements.
The accompanying notes to consolidated financial statements are an integral part of these consolidated statements.
The accompanying notes to consolidated financial statements are an integral part of these consolidated statements.
TRUMP'S CASTLE ASSOCIATES AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) ORGANIZATION AND OPERATIONS:
The accompanying consolidated financial statements include those of Trump's Castle Associates, a New Jersey general partnership (the "Partnership") and its wholly-owned subsidiary, Trump's Castle Funding, Inc., a New Jersey corporation ("Funding"). All significant intercompany balances and transactions have been eliminated in the consolidated financial statements.
The Partnership was formed as a limited partnership in 1985 for the sole purpose of acquiring and operating Trump's Castle Casino Resort ("Trump's Castle"). The Partnership converted to a general partnership in February 1992. Trump's Castle is a luxury casino hotel located in the Marina District of Atlantic City, New Jersey. A substantial portion of Trump's Castle's revenues are derived from its gaming operations. Competition in the Atlantic City gaming market is intense and the Partnership believes that the competition will continue as new entrants to the gaming industry become operational.
The partners in the Partnership are TC/GP, Inc. ("TC/GP"), which has a 37.5% interest in the Partnership, Donald J. Trump ("Trump"), who has a 61.5% interest in the Partnership, and Trump's Castle Hotel & Casino, Inc. ("TCHI"), which has a 1% interest in the Partnership. Trump, by virtue of his ownership of TC/GP and TCHI, is the beneficial owner of 100% of the common equity interest in the Partnership, subject to the right of holders of warrants for 50% of the common stock of TCHI (the "TCHI Warrants") to acquire an indirect beneficial interest in 0.5% of the common equity interest in the Partnership. Trump has pledged his direct and indirect ownership interest in the Partnership as collateral under various personal debt agreements.
Funding was incorporated on May 28, 1985 solely to serve as a financing company to raise funds through the issuance of bonds to the public (Note 4). Since Funding has no business operations, its ability to repay the principal and interest on the 11-1/2% Senior Secured Notes due 2000 (the "Senior Notes"), the 11-3/4% Mortgage Notes due 2003 (the "Mortgage Notes"), and its Increasing Rate Subordinated Pay-in-Kind Notes due 2005 (the "PIK Notes") is completely dependent upon the operations of the Partnership.
(2) PLAN OF RECAPITALIZATION:
On December 28, 1993, the Partnership, Funding, and TC/GP consummated a recapitalization plan (the "Recapitalization Plan") whereby each $1,000 of principal of the 9.5% Mortgage Bonds issued as part of an earlier plan of reorganization was exchanged for
$750 principal amount of Funding's Mortgage Notes, $120 principal amount of Funding's PIK Notes, and a cash payment of $6.19 plus all accrued and unpaid interest. Those bondholders who did not elect to exchange their Mortgage Bonds received a cash payment in redemption of their Mortgage Bonds of $750 for each $1,000 of principal amount of bonds plus accrued and unpaid interest. In addition, each share of TC/GP common stock was exchanged for $35 principal amount of PIK Notes.
As a result of the Recapitalization Plan, approximately 96% of the principal amount of the previously issued Mortgage Bonds were exchanged for Mortgage Notes and PIK Notes and the TC/GP common stock was redeemed. Those Bonds that were redeemed for cash were purchased at an amount which approximated their net book value at the date of purchase. The net book value of the exchanged Bonds has been carried forward and allocated to the Mortgage Notes and PIK Notes in proportion to the principal amount of Mortgage Notes and PIK Notes issued. The difference between the principal amount and net book value of these Mortgage Notes and PIK Notes is being accreted as a charge to interest expense over the life of the Mortgage Notes and PIK Notes using the effective interest method.
In addition to the Mortgage Notes and PIK Notes, Funding issued $27,000,000 of the Senior Notes. A portion of the proceeds from the Senior Notes were used to repay $7,000,000 of outstanding indebtedness.
Transaction costs related to the Recapitalization Plan of approximately $9,000,000 were included in interest expense. Included in these costs was a $1,500,000 bonus to Trump for the services he provided in connection with the Recapitalization Plan.
(3) ACCOUNTING POLICIES:
PERVASIVENESS OF ESTIMATES
The preparation of these financial statements in conformity with generally accepted accounting principals requires the Partnership to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results may differ from these estimates.
REVENUE RECOGNITION
Casino revenues consist of the net win from gaming activities, which is the difference between gaming wins and losses. Revenues from hotel and other services are recognized at the time the related services are performed.
The Partnership provides an allowance for doubtful accounts arising from casino, hotel, and other services, which is based
upon a specific review of certain outstanding receivables and historical collection performance. In determining the amount of the allowance, the Partnership is required to make certain estimates and assumptions and actual results may differ from these estimates and assumptions.
PROMOTIONAL ALLOWANCES
Gross revenues include the retail value of the complimentary food, beverage, and hotel services provided to patrons. The retail value of these promotional allowances is deducted from gross revenues to arrive at net revenues. The cost of such complimentaries have been included in gaming costs and expenses in the accompanying consolidated statements of operations. The estimated departmental costs of providing such promotional allowances are included in gaming costs and expenses and are as follows:
1995 1994 1993 ___________ ___________ ___________ Rooms $ 6,261,000 $ 6,554,000 $ 5,834,000 Food and Beverage 18,240,000 17,342,000 17,332,000 Other 2,483,000 2,693,000 2,073,000 ___________ ___________ ___________ $26,984,000 $26,589,000 $25,239,000 =========== =========== ===========
INCOME TAXES
The accompanying consolidated financial statements do not include a provision for Federal income taxes of the Partnership, since any income or losses allocated to the partners are reportable for Federal income tax purposes by the Partners.
Under the Casino Control Act (the "Act") and the regulations promulgated thereunder, the Partnership and Funding are required to file a consolidated New Jersey corporation business tax return.
As of December 31, 1995, the Partnership had New Jersey State net operating losses of approximately $162,000,000, which are available to offset taxable income through the year 2002. The net operating loss carryforwards result in a deferred tax asset of $15,200,000, which has been offset by a valuation allowance of $15,200,000, as utilization of such carryforwards is not considered to be more likely than not.
INVENTORIES
Inventories of provisions and supplies are carried at the lower of cost (first-in, first-out basis) or market.
PROPERTY AND EQUIPMENT
Property and equipment is recorded at cost and is depreciated
on the straight-line method over the estimated useful lives of the assets. Estimated useful lives for furniture, fixtures, and equipment and buildings are from three to eight years and forty years, respectively.
LONG LIVED ASSETS
During 1995, the Partnership adopted the provisions of Statement of Financial Accounting Standards No. 121 "Accounting for the Impairment of Long Lived Assets" ("SFAS 121"). SFAS 121 requires, among other things, that an entity review its long lived assets and certain related intangibles for impairment whenever changes in circumstances indicate that the carrying amount of an asset may not be fully recoverable. As a result of its review, the Partnership does not believe that any impairment exists in the recoverability of its long lived assets.
STATEMENTS OF CASH FLOWS
For purposes of the statements of cash flows, Funding and the Partnership consider all highly liquid debt instruments purchased with a maturity of three months or less to be cash equivalents.
The following supplemental disclosures are made to the statements of cash flows:
1995 1994 1993 Cash paid during the ___________ ___________ ___________ year for interest (net of amounts capitalized) $35,338,000 $31,255,000 $44,857,000 =========== =========== ===========
Issuance of debt in exchange for accrued $ 7,766,000 $ 3,559,000 $ -- interest =========== =========== ===========
RECLASSIFICATION
Certain reclassifications have been made to the 1994 and 1993 financial statements in order to conform to the classifications used in 1995.
(4) MORTGAGE NOTES AND PIK NOTES:
As discussed in Note 2, On December 28, 1993 all of the outstanding Mortgage Bonds and TC/GP common stock were either redeemed or exchanged for Mortgage Notes and PIK Notes by Funding. The Mortgage Notes bear interest, payable in cash, semi-annually, at 11-3/4% and mature on November 15, 2003. As discussed in Note 2, the net book value of the exchanged bonds has been carried forward and allocated to the Mortgage Notes and PIK Notes in proportion to the principal amount of Mortgage Notes and PIK Notes
issued. In the event the PIK Notes are redeemed prior to November 15, 1998, the interest rate on the Mortgage Notes will be reduced to 11-1/2%. The Mortgage Notes may be redeemed at Funding's option at a specified percentage of the principal amount commencing in 1998.
The PIK Notes bear interest payable, at Funding's option in whole or in part in cash and through the issuance of additional PIK Notes, semi-annually at the rate of 7% through September 30, 1994 and 13-7/8% through November 15, 2003. After November 15, 2003, interest on the Notes is payable in cash at the rate of 13-7/8%. The PIK Notes mature on November 15, 2005. The PIK Notes may be redeemed at Funding's option at 100% of the principal amount under certain conditions, as defined in the PIK Note Indenture, and are required to be redeemed from a specified percentage of any equity offering which includes the Partnership. Interest has been accrued using the effective interest method. On May 15, 1995 and November 15, 1995, the semi-annual interest payments of $3,753,000 and $4,013,000, respectively, were paid by the issuance of additional PIK Notes.
On June 23, 1995, the Partnership entered into an Option Agreement with Hamilton Partners, L.P. ("Hamilton") which grants the Partnership an option (the "Option") to acquire the PIK Notes owned by Hamilton. Hamilton has represented to the Partnership that it is the owner of at least 92% of the outstanding principal amount of the PIK Notes. The Option was granted to the Partnership in consideration of a $1,100,000 payment to Hamilton, which is included in prepaid expenses and other current assets.
The Option is exercisable at a price equal to 60% of the aggregate principal amount and accrued interest of the PIK Notes delivered by Hamilton. Pursuant to the terms of the Option Agreement, upon the occurrence of certain events within 18 months of the time the Option is exercised, the Partnership is required to make an additional payment to Hamilton of up to 40% of the principal amount of the PIK Notes. The option expires on March 19, 1996 and may be extended to June 21, 1996.
The terms of both the Mortgage Notes and PIK Notes include limitations on the amount of additional indebtedness the Partnership may incur, distributions of Partnership capital, investments, and other business activities.
The Mortgage Notes are secured by a promissory note of the Partnership to Funding (the "Partnership Note") in an amount and with payment terms necessary to service the Mortgage Notes. The Partnership Note is secured by a mortgage on Trump's Castle and substantially all of the other assets of the Partnership. The Partnership Note has been assigned by Funding to the Trustee to secure the repayment of the Mortgage Notes. In addition, the Partnership has guaranteed (the "Guaranty") the payment of the Mortgage Notes, which Guaranty is secured by a mortgage on Trump's Castle. The Partnership Note and the Guaranty are expressly subordinated to the indebtedness described in Note 5 (the "Senior Indebtedness") and the liens of the mortgages securing the
Partnership Note and the Guaranty are subordinate to the liens securing the Senior Indebtedness.
The PIK Notes are secured by a subordinated promissory note of the Partnership to Funding (the "Subordinated Partnership Note"), which has been assigned to the Trustee for the PIK Notes, and the Partnership has issued a subordinated guaranty (the "Subordinated Guaranty") of the PIK Notes. The Subordinated Partnership Note and the Subordinated Guaranty are expressly subordinated to the Senior Indebtedness, the Partnership Note, and the Guaranty.
The ability of Funding and the Partnership to pay their indebtedness when due, will depend on their ability to either generate cash from operations sufficient for such purposes or to refinance such indebtedness on or before the date on which it becomes due. The Partnership does not currently anticipate being able to generate sufficient cash flow from operations to repay a substantial portion of the principal amounts of the Mortgage Notes and the PIK Notes when due. Thus, the repayment of the principal amount of this indebtedness will likely depend primarily upon the ability of Funding and the Partnership to refinance this debt when due. The future operating performance of the Partnership and the ability to refinance this debt will be subject to the then prevailing economic conditions, industry conditions, and numerous other financial, business, and other factors, many of which are beyond the control of Funding or the Partnership. There can be no assurance that the future operating performance of the Partnership will be sufficient to meet these repayment obligations or that the general state of the economy, the status of the capital markets generally, or the receptiveness of the capital markets to the gaming industry will be conducive to refinancing this debt or other attempts to raise capital.
(5) OTHER BORROWINGS:
BANK BORROWINGS
The Partnership has a term loan with Midlantic National Bank (the "Term Loan") in the amount of $38,000,000. The Term Loan had an initial maturity date of May 29, 1995 and under its terms, the Partnership had the option, subject to certain conditions, to extend the Term Loan an additional five years. The Partnership exercised its option to extend the Term Loan on May 28, 1995. The interest rate was revised to be a fluctuating rate of 3% above the bank's prime rate, which was 8.5% at December 31, 1995, but in no event less than 9% per annum. In addition, the outstanding principal amount of the Term Loan will be amortized over the five- year extension period on a twenty year amortization schedule requiring principal payments of approximately $158,000 per month over the period. At December 31, 1995, $36,892,000 was outstanding on this Term Loan.
The Term Loan is secured by a mortgage lien on Trump's Castle that is prior to the lien securing the Mortgage Notes (Note 4) and the Senior Notes described below.
SENIOR NOTES
On December 28, 1993, Funding issued the Senior Notes. Similar to the Mortgage Notes, the Senior Notes are secured by an assignment of a promissory note of the Partnership (the "Senior Partnership Note") which is in turn secured by a mortgage on Trump's Castle and substantially all of the other assets of the Partnership. In addition, the Partnership has guaranteed (the "Senior Guaranty") the payment of the Senior Notes, which Senior Guaranty is secured by a mortgage on Trump's Castle. The Senior Partnership Note and the Senior Guaranty are subordinated to the Term Loan described above.
Interest on the Senior Notes is payable semiannually at the rate of 11-1/2%; however in the event that the PIK Notes are redeemed prior to November 15, 1998, the interest rate will be reduced to 11-1/4%. The Senior Notes are subject to a required partial redemption, as defined, commencing on June 1, 1998 at 100% of the principal amount of the amount redeemed.
(6) RELATED PARTY TRANSACTIONS:
TRUMP MANAGEMENT FEE
The Partnership had a management agreement (the "Management Agreement") with Trump's Castle Management Corp. ("TCMC"), a corporation wholly-owned by Trump. The Management Agreement provided that the day-to-day operation of Trump's Castle and all ancillary properties and businesses of the Partnership was to be under the exclusive management and supervision of TCMC.
Pursuant to the Management Agreement, the Partnership was required to pay an annual fee in the amount of $1,500,000 to TCMC for each year in which Earnings Before Interest, Taxes, Depreciation, and Amortization ("EBITDA"), as defined, exceeds certain levels. In addition, TCMC, beginning with the fiscal year ended December 31, 1994, was to receive an incentive fee equal to 10% of the excess EBITDA over $45,000,000 for such fiscal year. During the year ended December 31, 1993, the Partnership incurred fees and expenses of $1,647,000 under the Management Agreement.
As a result of the Recapitalization Plan described in Note 2, on December 28, 1993, the Partnership terminated the Management Agreement with TCMC and entered into a services agreement (the "Services Agreement") with TC/GP. Pursuant to the terms of the Services Agreement, TC/GP is obligated to provide the Partnership, from time to time, when reasonably requested, consulting services on a non-exclusive basis, relating to marketing, advertising, promotional, and other similar and related services with respect to the business and operations of the Partnership, including such other services as the Managing Partner may reasonably request.
In consideration for the services to be rendered, the Partnership will pay TC/GP an annual fee on the same basis as that of the previous Management Agreement, discussed above. During the
years ended December 31, 1995 and 1994, the Partnership incurred fees and expenses of $2,087,000 and $2,111,000, respectively, under the Services Agreement. The Services Agreement expires on December 31, 2005.
OTHER PAYMENTS TO TRUMP
During 1994, the Board of Partner Representatives approved a $1,000,000 bonus to be paid to Trump, based upon 1994 operating results. The amount was paid in two equal installments in June and August 1995. No such bonus was approved for 1995.
DUE FROM AFFILIATES
Amounts due from affiliates were $1,146,000 and $434,000 as of December 31, 1995 and 1994, respectively. The Partnership has engaged in limited intercompany transactions with Trump Plaza Associates, Trump Taj Mahal Associates, and the Trump Organization, which are affiliates of Trump. These transactions include certain shared payroll costs as well as complimentary services offered to customers, for which the Partnership makes initial payments and is then reimbursed by the affiliates.
During 1995, 1994, and 1993, the Partnership incurred expenses of approximately $1,673,000, $1,631,000, and $1,332,000, respectively, in corporate salaries and $1,109,000, $1,047,000, and $952,000, respectively, of other transactions on behalf of these related entities. In addition, the Partnership received payments totaling $1,401,000, $2,438,000, and $2,004,000, respectively, for services rendered and had $580,000, $441,000, and $407,000, respectively, of charges for similar costs incurred by these related entities on behalf of the Partnership.
PARTNERSHIP AGREEMENT
Under the terms of the Partnership Agreement, the Partnership was required to pay all costs incurred by TC/GP. For the years ended December 31, 1995, 1994, and 1993, the Partnership paid $1,248,000, $1,188,000, and $736,000, respectively, of expenses on behalf of TC/GP. For the years ended December 31, 1995 and 1994 these costs were charged to general and administrative expense in the accompanying consolidated financial statements. For the year ended December 31, 1993 these costs were expenses of TC/GP and recorded as a capital contribution.
(7) COMMITMENTS AND CONTINGENCIES:
CASINO LICENSE RENEWAL
The Partnership is subject to regulation and licensing by the CCC. The Partnership's casino license must be renewed periodically, is not transferable, is dependent upon the financial stability of the Partnership, and can be revoked at any time. Due to the uncertainty of any license renewal application, there can be no assurance that the license will be renewed. Upon
revocation, suspension for more than 120 days, or failure to renew the casino license due to the Partnership's financial condition or for any other reason, the Casino Control Act (the "Act") provides that the CCC may appoint a conservator to take possession of and title to the hotel and casino's business and property, subject to all valid liens, claims, and encumbrances.
On June 22, 1995, the CCC renewed the casino license of the Partnership through 1999 subject to certain continuing reporting and compliance conditions.
SELF INSURANCE RESERVES
Self insurance reserves represent the estimated amounts of uninsured claims settlements related to employee health medical costs, workers compensation, and other legal proceedings in the normal course of business. These reserves are established by the Partnership based upon a specific review of open claims as of the balance sheet date as well as historical claims settlement experience. Actual results may differ from these reserve amounts.
EMPLOYMENT AGREEMENTS
The Partnership has entered into employment agreements with certain key employees which expire at various dates through July 30, 1998. Total minimum commitments on these agreements at December 31, 1995 were approximately $4,061,000.
LEGAL PROCEEDINGS
The Partnership is involved in legal proceedings incurred in the normal course of business. In the opinion of management and its counsel, if adversely decided, none of these proceedings would have a material effect on the consolidated financial position of the Partnership.
CASINO REINVESTMENT DEVELOPMENT AUTHORITY OBLIGATIONS
Pursuant to the provisions of the Act, the Partnership, must either obtain investment tax credits, as defined in the Act, in an amount equivalent to 1.25% of its gross casino revenues, as defined in the Act, or pay an alternative tax of 2.5% of its gross casino revenues. Investment tax credits may be obtained by making qualified investments, as defined, or by depositing funds which may be converted to bonds by the Casino Reinvestment Development Authority (the "CRDA"), both of which bear interest at below market interest rates. The Partnership is required to make quarterly deposits with the CRDA to satisfy its investment obligations.
From time-to-time the Partnership has elected to donate funds that it has on deposit with the CRDA in return for tax credits to satisfy substantial portions of the Partnership's future investment alternative tax obligations. Donations in the amount of $375,000, $6,440,000, and $568,000 were made in 1995, 1994, and 1993, respectively. These donations, net of the tax credits
received, were charged against operations in the year in which they were made and resulted in CRDA tax credits of $191,000, $1,474,000, and $290,000 to be applied to the years ending December 31, 1995, 1994, and 1993, respectively. For the years ended December 31, 1995, 1994, and 1993 the Partnership charged to operations $720,000, $955,000, and $115,000, respectively, which represents amortization of a portion of the tax credits discussed above.
In addition, for the years ended December 31, 1995, 1994, and 1993, the Partnership charged to operations $936,000, $735,000, and $953,000, respectively, to give effect to the below market interest rates associated with purchased CRDA bonds.
(8) EMPLOYEE BENEFIT PLANS:
The Partnership has a retirement savings plan for its nonunion employees under Section 401(k) of the Internal Revenue Code. Employees are eligible to contribute up to 15% of their earnings to the plan up to the maximum amount permitted by law, and the Partnership will match 50% of an eligible employee's contributions up to a maximum of 5% of the employee's earnings. The Partnership recorded charges of approximately $1,013,000, $899,000, and $864,000 for matching contributions for the years ended December 31, 1995, 1994, and 1993, respectively.
The Partnership makes payments to various trusteed pension plans under industry-wide union agreements. The payments are based on the hours worked by or gross wages paid to covered employees. It is not practical to determine the amount of payments ultimately used to fund pension benefit plans or the current financial condition of the plans. Under the Employee Retirement Income Security Act, the Partnership may be liable for its share of the plans' unfunded liabilities, if any, if the plans are terminated. Pension expense for the years ended December 31, 1995, 1994, and 1993 were $497,000, $455,000, and $407,000, respectively.
The Partnership provides no other material post employment benefits.
(9) FINANCIAL INFORMATION OF FUNDING:
Financial information relating to Funding as of and for the years ended December 31, 1995 and 1994 is as follows:
1995 1994
Total Assets (including Mortgage $287,679,000 $277,541,000 Notes Receivable of $242,141,000, ============ ============ net of unamortized discount of $35,572,000 and $37,729,000 at December 31, 1995 and 1994; PIK Notes Receivable of $61,860,000, net of unamortized discount of $7,750,000 at December 31, 1995 and $54,094,000, net of unamortized discount of $7,965,000 at December 31, 1994, and Senior Notes Receivable of $27,000,000 at December 31, 1995 and 1994.)
Total Liabilities and Capital $287,679,000 $277,541,000 (including Mortgage Notes Payable ============ ============ of $242,141,000, net of unamortized discount of $35,572,000 and $37,729,000 at December 31, 1995 and 1994, PIK Notes Payable of $61,860,000, net of unamortized discount of $7,750,000 at December 31, 1995 and $54,094,000, net of unamortized discount of $7,965,000, at December 31, 1994 and Senior Notes Payable of $27,000,000 at December 31, 1995 and 1994.)
Interest Income $ 41,768,000 $ 40,600,000
Interest Expense $ 41,768,000 $ 40,600,000 ____________ ____________
NET INCOME $ - $ - ============ ============
(10) FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amount of the following financial instruments of the Partnership and Funding approximate fair value, as follows: (a) cash and cash equivalents and accrued interest receivables and payables based on the short-term nature of the financial instruments, (b) CRDA bonds and deposits based on the allowances to give effect to the below market interest rates.
The fair values of the Mortgage Notes and PIK Notes are based on quoted market prices. The fair value of the Mortgage Bonds was based on quoted market prices obtained by the Partnership from its investment advisor as follows:
December 31, 1995 ______________________________ Carrying Amount Fair Value _______________ _____________ 11-3/4% Mortgage Notes............ $ 206,569,000 $ 212,479,000 PIK Notes......................... $ 54,110,000 $ 48,096,000
December 31, 1994 ______________________________ Carrying Amount Fair Value ______________ _____________ 11-3/4% Mortgage Notes............ $ 204,412,000 $ 131,967,000 PIK Notes......................... $ 46,129,000 $ 43,546,000
There are no quoted market prices for the Partnership Term Loan and Senior Notes. A reasonable estimate of their value could not be made without incurring excessive costs.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the Registrants have duly caused this Annual Report to be signed on their behalf by the undersigned, thereunto duly authorized, on the 22nd day of March, 1996.
TRUMP'S CASTLE FUNDING, INC.
By: /s/Donald J. Trump _____________________ By: Donald J. Trump Title: President
TRUMP'S CASTLE ASSOCIATES
By: /s/Donald J. Trump _____________________ By: Donald J. Trump Title: Managing General Partner
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this Annual Report has been signed below by the following persons on behalf of the Registrants and in the capacities and on the date indicated.
Signature Title Date
TRUMP'S CASTLE FUNDING, INC.
By:/s/Donald J. Trump Chairman of the Board, March 22, 1996 ___________________ President, Chief Executive Donald J. Trump Officer (Principal Executive Officer), Treasurer (Principal Financial Officer), and sole Director of the Registrant.
By:/s/Robert E. Schaffhauser Assistant Treasurer March 22, 1996 _________________________ of the Registrant Robert E. Schaffhauser (Principal Accounting Officer)
Signature Title Date
TRUMP'S CASTLE ASSOCIATES
By:/s/Nicholas L. Ribis Board of Partner March 22, 1996 ____________________ Representatives Nicholas L. Ribis
By:/s/Roger P. Wagner Board of Partner March 22, 1996 __________________ Representatives Roger P. Wagner
By:/s/Asher O. Pacholder Board of Partner March 22, 1996 _____________________ Representatives Asher O. Pacholder
By:/s/Arthur S. Bahr Board of Partner March 22, 1996 ____________________ Representatives Arthur S. Bahr
By:/s/Thomas F. Leahy Board of Partner March 22, 1996 __________________ Representatives Thomas F. Leahy
By:/s/Robert M. Pickus Board of Partner March 22, 1996 ___________________ Representatives Robert M. Pickus
By:/s/Robert E. Schaffhauser Chief Financial Officer March 22, 1996 _________________________ and Chief Accounting Robert E. Schaffhauser Officer of the Partnership