EX-99.1 3 dex991.htm INFORMATION FURNISHED TO POTENTIAL INVESTORS BY TRUMP HOTLES & CASINO RESORTS, I INFORMATION FURNISHED TO POTENTIAL INVESTORS BY TRUMP HOTLES & CASINO RESORTS, I

 

EXHIBIT 99.1

 

TABLE OF CONTENTS

 

 

    

Page


Use of Proceeds

  

1

Management’s Discussion and Analysis of Financial Condition and Results of Operations

  

3

Unaudited Pro Forma Financial Information

  

13

Index of Financial Statements

  

19

Risk Factor

  

66


 

 

USE OF PROCEEDS

 

The net proceeds from this offering and the concurrent private offering of Second Priority Notes to our affiliate are estimated to be $448.5 million after deducting offering discounts and estimated offering expenses. These net proceeds will be used substantially as follows (dollars in millions):

 

    

Aggregate

Outstanding

Principal

Amount


Redeem Castle Funding’s 11.75% Mortgage Notes due in 2003

  

$242.1

Repay Marina Associates’ bank debt due in 2003

  

    70.0

Redeem Castle Funding’s 13.875% Pay-In-Kind Notes due in 2005

  

    14.3

Repay Trump Indiana’s bank debt due in 2006

  

    20.3

Distribution to acquire or redeem THCR Holdings’ 15.5% Senior Notes due in 2005

  

    96.9

Repay Trump 29 Services’ bank debt due in 2003

  

      0.6

 

We will use cash on hand for the payment of accrued interest on all retired indebtedness (estimated to be $19.3 million) and the payment to terminate an interest rate swap agreement for Trump Indiana, Inc. (estimated to be $1.0 million).

 

Upon consummation of this offering and the concurrent private offering to an affiliate of ours, the 11.75% Mortgage Notes and the 13.875% PIK Notes held by non-affiliates will be immediately and irrevocably called for redemption on the date occurring 30 days after the closing of this offering and the concurrent private offering to an affiliate of ours, (the “redemption date”) at the applicable redemption price specified in the relevant indenture, which is 100% of the face amount thereof, plus accrued interest to the redemption date. A portion of the net proceeds of this offering and the concurrent private offering to an affiliate of ours, which, together with cash on hand, will be sufficient to pay the redemption price for these securities will be deposited with the respective Indenture Trustees until the redemption date.

 

In connection with this offering and the concurrent private offering to an affiliate of ours, THCR Holdings will contribute all of the outstanding equity interests (common stock, partnership interests and limited liability company interests, as the case may be) that it currently owns in the Guarantors, or the Interests, to Trump Casino Holdings. When this contribution is made, the Guarantors will become wholly-owned subsidiaries of Trump Casino Holdings. Certain of the Interests and certain other assets of THCR Holdings, including $141.9 million principal amount of Castle Funding’s 13.875% Pay-In-Kind Notes due 2005 (or PIK Notes), are pledged as collateral security for approximately $109.5 million principal amount of the 15.5% Senior Notes due 2005 issued by THCR Holdings in June 1995. Neither the Issuers nor any of the Guarantors have any obligations under the 15.5% Senior Notes. A portion of the net proceeds of this offering and the concurrent private offering to an affiliate of ours, will be distributed to THCR Holdings and used to purchase or redeem the 15.5% Senior Notes in order to release the Interests and the 13.875% PIK Notes owned by THCR Holdings from the lien of the indenture pursuant to which the 15.5% Senior Notes were issued. The 13.875% PIK Notes owned by THCR Holdings and the 15.5% Senior Notes owned by its subsidiary and to be acquired from Donald J. Trump will be released by the Trustee and then delivered to the issuers thereof on the closing date and retired without payment.

 

THCR Holdings will acquire $83.6 million principal amount of its 15.5% Senior Notes on the closing date of this offering and the concurrent private offering to an affiliate of ours, in a private transaction from unaffiliated third parties for a price equal to 102.583% of the face amount thereof, plus accrued interest thereon. THCR Holdings will also acquire $16.7 million principal amount of its 15.5% Senior Notes on the closing date in a private transaction with Donald J. Trump. The purchase price for the 15.5% Senior Notes acquired from Mr. Trump will consist of shares of capital stock of THCR valued at $15.0 million, plus a cash amount equal to $1.7 million, plus the applicable redemption premium of 2.583% (approximately $430,000) and accrued interest on the entire $16.7 million of 15.5% Senior Notes being sold by Mr. Trump to THCR. The remaining THCR

 

1


Holdings 15.5% Senior Notes not being acquired in the purchase transactions (approximately $9.2 million principal amount) will be called for redemption upon consummation of this offering and the concurrent private offering to an affiliate of ours, (other than $35.5 million of 15.5% Senior Notes owned by its subsidiary).

 

The net proceeds of this offering and the concurrent private offering to an affiliate of ours, will not, under any circumstances, be used at, or on behalf of, the casino facility at Trump 29 or the operations thereof.

 

For a discussion of the concurrent private offering of Second Priority Notes to Donald J. Trump or one of his affiliates, see “Certain Relationships and Related Party Transactions” and “Private Placement.”

 

2


MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

Results of Operations

 

Overview

 

Upon consummation of this offering and the concurrent private offering of Second Priority Notes to an affiliate of ours, we will own and operate two casino gaming facilities, Trump Marina and Trump Indiana, and manage a third casino gaming facility, Trump 29. These businesses derive substantial benefit from the “Trump” name and its association with quality amenities and first class service. A number of other factors, including proven executive and property level management, combined with our focus on slot revenue, well-targeted marketing programs, stringent cost controls, strong customer service and improved customer access to our owned properties have positioned each property to capitalize on its strong competitive position. Our successful business strategy has generated strong financial results at each property and should enable us to capitalize on certain near-term growth opportunities. This offering and the concurrent private offering of Second Priority Notes to an affiliate of ours will extend the maturity of our long-term debt.

 

In connection with the issuance of the Notes pursuant to this offering memorandum and the concurrent private offering of Second Priority Notes to an affiliate of ours, Marina Associates, Trump Indiana, Inc. and Trump 29 Services will become wholly owned subsidiaries of Trump Casino Holdings. There is no other entity, which had significant assets or operations, which will become a wholly owned subsidiary of Trump Casino Holdings. Prior to the date of consummation of this offering and the concurrent private offering of Second Priority Notes to an affiliate of ours, Trump Casino Holdings will have had no significant assets or operations. Accordingly, we have included a discussion and analysis of the financial condition and results of operations of each of Marina Associates, Trump Indiana, Inc. and Trump 29 Services. The Management Discussion and Analysis of Financial Condition and Results of Operations of each of these entities should be read in connection with the respective audited financial statements and notes thereto included elsewhere in this offering memorandum.

 

3


 

Trump Marina Associates, L.P.

 

The financial information presented below reflects the financial condition and results of operations of Marina Associates. Castle Funding is a wholly-owned subsidiary of Marina Associates and conducts no business other than collecting amounts due under certain intercompany notes from Marina Associates for the purpose of paying principal of, premium, if any, and interest on its indebtedness, which Castle Funding issued as a nominee for Marina Associates.

 

Gaming revenues are the primary source of Marina Associates’ revenues and primarily consist of slot machine and table game win. The following table details activity for the major components of gaming revenue:

 

    

Year Ended December 31,


 
    

2000


    

2001


    

2002


 
    

(Dollars in millions)

 

Table Game Revenues

  

$

73.0

 

  

$

63.3

 

  

$

64.2

 

Incr (Decr) over prior period

           

$

(9.7

)

  

$

0.9

 

Table Game Drop

  

$

440.8

 

  

$

384.7

 

  

$

377.6

 

Incr (Decr) over prior period

           

$

(56.1

)

  

$

(7.1

)

Table Win Percentage

  

 

16.6

%

  

 

16.5

%

  

 

17.0

%

Incr (Decr) over prior period

           

 

(0.1) pts

 

  

 

0.5 pts

 

Average Number of Table Games

  

 

76

 

  

 

78

 

  

 

79

 

Incr (Decr) over prior period

           

 

2

 

  

 

1

 

Slot Revenues

  

$

193.0

 

  

$

202.4

 

  

$

216.9

 

Incr (Decr) over prior period

           

$

9.4

 

  

$

14.5

 

Slot Handle

  

$

2,459.2

 

  

$

2,599.6

 

  

$

2,734.8

 

Incr (Decr) over prior period

           

$

140.4

 

  

$

135.2

 

Slot Win Percentage

  

 

7.8

%

  

 

7.8

%

  

 

7.9

%

Incr (Decr) over prior period

           

 

—  

 

  

 

0.1 pts

 

Average Number of Slot Machines

  

 

2,410

 

  

 

2,526

 

  

 

2,527

 

Incr (Decr) over prior period

           

 

116

 

  

 

1

 

Other Gaming Revenues

  

$

1.4

 

  

$

0.8

 

  

$

0.8

 

Incr (Decr) over prior period

           

$

(0.6

)

  

$

—  

 

Total Gaming Revenues

  

$

267.4

 

  

$

266.5

 

  

$

281.9

 

Incr (Decr) over prior period

           

$

(0.9

)

  

$

15.4

 

 

Results of Operations for the Years Ended December 31, 2002 and 2001

 

Table game revenues increased approximately $833,000, or 1.3%, to $64.2 million for the year ended December 31, 2002 from $63.3 million for the year ended December 31, 2001. This increase was due primarily to a higher table game win percentage of 17.0% for the twelve months ended December 31, 2002, as compared to 16.5% for the twelve months ended December 31, 2001. Table game revenues represent the amount retained by Marina Associates from amounts wagered at table games. The table game win percentage tends to be fairly constant over the long term, but may vary significantly in the short term due to the large wagers by “high end” players. The Atlantic City industry table game win percentages were 15.6% and 15.7% for the years ended December 31, 2001 and 2002, respectively.

 

Slot revenues increased approximately $14.5 million, or 7.2%, to $216.9 million for the year ended December 31, 2002 from $202.4 million for the year ended December 31, 2001, due primarily to an increased slot handle of approximately $135.2 million, or 5.2%. The increased slot handle is due primarily to sustained marketing programs and events designed specifically for the slot customer.

 

Nongaming revenues, in aggregate, increased by approximately $1.2 million, or 2.1%, to $61.6 million for the year ended December 31, 2002 from $60.4 million for the year ended December 31, 2001. Cash sales from nongaming operations increased by approximately $2.0 million, or 8.2%, to $26.3 million for the year ended December 31, 2002 from $24.3 million for the year ended December 31, 2001. Also, promotional allowances

 

4


decreased approximately $685,000, or 0.9% to $73.3 million for the year ended December 31, 2002 from $74.0 million for the year ended December 31, 2001. These results reflect the continued strategy designed to efficiently manage marketing costs and to increase cash sales from nongaming operations.

 

Gaming costs and expenses increased approximately $3.1 million, or 2.5%, to $127.4 million for the year ended December 31, 2002 from $124.3 for the year ended December 31, 2001. This was due primarily to the increased spending on marketing programs, which was incurred to stimulate gaming revenues.

 

Room costs increased by approximately $969,000, or 27.1%, to $4.5 million for the year ended December 31, 2002 from $3.6 million for the year ended December 31, 2001. This increase is due primarily to associated costs incurred related to a 27.9% increase in the number of cash rooms sold for the year ended December 31, 2002 as compared to the year ended December 31, 2001.

 

Food and beverage costs increased by approximately $281,000, or 2.8%, to $10.4 million for the year ended December 31, 2002 from $10.2 million for the year ended December 31, 2001. This increase is due primarily to costs incurred related to a 6.2% increase in food and beverage cash revenues generated in 2002 as compared to 2001.

 

General and administrative costs and expenses increased approximately $4.1 million, or 6.1%, to $70.5 million for the year ended December 31, 2002 from $66.4 million for the year ended December 31, 2001. This increase is due primarily to costs incurred related to real estate taxes, the Services Agreement, and the additional writeoff of CRDA deposits, as a result of additional donations Marina Associates committed to during the year ended December 31, 2002.

 

Debt renegotiation costs of $1.3 million for the year ended December 31, 2002 were expenses related to abandoned efforts to refinance the existing long term debt of Marina Associates.

 

Depreciation and amortization increased approximately $3.5 million, or 19.8%, to $21.4 million for the year ended December 31, 2002 from $17.8 million for the year ended December 31, 2001, primarily due to slot machine purchases during 2001 and 2002.

 

Interest expense increased approximately $3.5 million, or 5.9%, to $63.6 million for the year ended December 31, 2002 from $60.1 million for the year ended December 31, 2001 primarily due to an increase in the outstanding principal amount of the PIK Notes. THCR Holdings owns approximately 91% of the outstanding principal amount of the PIK Notes.

 

On July 3, 2002, the State of New Jersey passed the Business Tax Reform Act. This Act, among other things, suspended the use of the New Jersey net operating loss carryforward for two years and introduced a new Alternative Minimum Assessment amount under the New Jersey corporate business tax based on gross receipts or gross profits, as defined. The Business Tax Reform Act is retroactive to January 1, 2002. As a result of the change in the tax law, Marina Associates has recorded a charge to provision for income tax expense of $1.2 million for the year ended December 31, 2002.

 

Results of Operations for the Years Ended December 31, 2001 and 2000

 

Table game revenues decreased approximately $9.7 million, or 13.3%, to $63.3 million for the year ended December 31, 2001 from $73.0 million for the year ended December 31, 2000. This decrease was due primarily to a $56.1 million, or 12.7%, decrease in table drop. Table game revenues represent the amount retained by Marina Associates from amounts wagered at table games. The table game win percentage tends to be fairly constant over the long term, but may vary significantly in the short term due to the large wagers by “high end” players. The Atlantic City industry table game win percentages were 15.4% and 15.6% for the years ended December 31, 2000 and 2001, respectively.

 

5


 

Slot revenues increased approximately $9.4, or 4.9%, to $202.4 million for the year ended December 31, 2001 from $193.0 million for the year ended December 31, 2000, due primarily to an increased slot handle of approximately $140.3 million, or 5.7%. The increased slot handle is due primarily to sustained marketing programs and events designed specifically for the slot customer.

 

Promotional allowances increased approximately $4.1 million, or 5.9%, to $74.0 million for the year ended December 31, 2001 from $69.9 million for the year ended December 31, 2000. This was due primarily to increased spending in promotional and complimentary marketing programs, which was incurred to stimulate slot revenues.

 

Gaming costs decreased approximately $3.9 million, or 3.0%, to $124.3 million for the year ended December 31, 2001 from $128.2 million for the year ended December 31, 2000. These savings are primarily the result of a decrease in promotional and complimentary expenses achieved by eliminating less profitable programs.

 

Room costs decreased by approximately $700,000, or 16.4%, to $3.6 million for the year ended December 31, 2001 from $4.3 million for the year ended December 31, 2000. This decrease is due primarily to associated costs incurred related to a 27.3% decrease in the number of cash rooms sold in 2001 as compared to 2000. This reduction reflects a change in marketing strategy in response to industry trends, which increased the offerings of complimentary rooms to patrons in 2001. In some cases, as a result of this change in marketing strategy, the same person who received a cash room at a discounted price in 2000 may have been offered a complimentary room in 2001.

 

Food and beverage costs decreased by approximately $773,000, or 7.1%, to $10.2 million for the year ended December 31, 2001 from $10.9 million for the year ended December 31, 2000. This decrease is due primarily to associated costs incurred related to an 8.1% decrease in food and beverage cash revenues generated in 2001 as compared to 2000.

 

General and administrative costs and expenses decreased approximately $2.1 million, or 3.1%, to $66.4 for the year ended December 31, 2001 from $68.5 million for the year ended December 31, 2000. This variance is due primarily to the additional write-off of CRDA deposits, which were necessitated due to additional donations Marina Associates committed to during the year ended December 31, 2000.

 

Interest expense increased approximately $3.3 million, or 5.8%, to $60.1 million for the year ended December 31, 2001 from $56.8 million for the year ended December 31, 2000, primarily due to an increase in the outstanding principal of the PIK Notes. THCR Holdings owns approximately 90% of the PIK Notes.

 

6


 

Trump Indiana, Inc.

 

The financial information presented below reflects the financial condition and results of operations of Trump Indiana, Inc.

 

Gaming revenues are the primary source of Trump Indiana, Inc. revenues and primarily consist of slot machine and table game win. The following table details activity for the major components of gaming revenue:

 

    

Year Ended December 31,


 
    

2000


    

2001


    

2002


 
    

(Dollars in millions)

 

Table Game Revenues

  

$

26.7

 

  

$

24.7

 

  

$

21.2

 

Incr (Decr) over prior period

           

 

(2.0

)

  

$

(3.5

)

Table Game Drop

  

$

161.8

 

  

 

143.9

 

  

$

128.3

 

Incr (Decr) over prior period

           

 

(17.9

)

  

$

(15.6

)

Table Win Percentage

  

 

16.5

%

  

 

17.2

%

  

 

16.6

%

Incr (Decr) over prior period

           

 

0.7 pts.

 

  

 

(0.6) pts.

 

Average Number of Table Games

  

 

50

 

  

 

52

 

  

 

46

 

Incr (Decr) over prior period

           

 

2

 

  

 

(6

)

Slot Revenues

  

$

92.5

 

  

 

98.9

 

  

$

107.5

 

Incr (Decr) over prior period

           

$

6.4

 

  

$

8.6

 

Slot Handle

  

$

1,422.3

 

  

$

1,366.4

 

  

$

1,398.4

 

Incr (Decr) over prior period

           

$

(55.9

)

  

$

32.0

 

Slot Win Percentage

  

 

6.5

%

  

 

7.2

%

  

 

7.7

%

Incr (Decr) over prior period

           

 

0.7 pts.

 

  

 

0.5 pts.

 

Average Number of Slot Machines

  

 

1,238

 

  

 

1,334

 

  

 

1,635

 

Incr (Decr) over prior period

           

 

96

 

  

 

301

 

Other Gaming Revenues

  

 

N/A

 

  

 

N/A

 

  

 

N/A

 

Incr (Decr) over prior period

           

 

N/A

 

  

 

N/A

 

Total Gaming Revenues

  

$

119.2

 

  

$

123.6

 

  

$

128.7

 

Incr (Decr) over prior period

           

$

4.4

 

  

$

5.1

 

 

Results of Operations for the Years Ended December 31, 2002 and 2001

 

Gaming revenues are the primary source of Trump Indiana, Inc.’s revenues. Table game revenues represent the amount retained by Trump Indiana, Inc. from amounts wagered at table games. The table win percentage tends to be fairly constant over the long term, but may vary significantly in the short term, due to large wagers by “high end” players. Trump Indiana, Inc. does not actively market to such players. Trump Indiana, Inc.’s table game win percentage was 17.2% and 16.6% for the years ended December 31, 2001 and 2002, respectively.

 

Table game revenues decreased by $3.5 million, or 14.2%, to $21.2 million for the year ended December 31, 2002 from $24.7 million in the comparable period in 2001. Decreased table drop primarily contributed to the decrease in revenues. Trump Indiana, Inc.’s table drop decreased by $15.6 million or 10.8%. A 0.6 point decrease in table win percentage also contributed to the decrease in table game revenue. Table drop decreased due to management’s decision in 2001 to eliminate “high end” table player marketing efforts, a change in our Asian bus program in the third quarter of 2002, and the general decrease in table game play experienced throughout the casino industry.

 

Slot revenues increased $8.6 million, or 8.7%, to $107.5 million for the year ended December 31, 2002 from $98.9 million in the comparable period in 2001. There was a 0.5 point increase in slot win percentage in 2002 over 2001. The increase in slot revenues reflects an increase in the number of slot machines in the casino, new slot product and improved marketing and customer service programs. The opening of the new 2,000 space parking garage and the commencement of dockside gaming also contributed to the increase.

 

7


 

Gaming costs and expenses decreased to $63.0 million for the year ended December 31, 2002, or 3.7%, from $65.4 million for the year ended December 31, 2001. A portion of this decrease was due to the State of Indiana’s change in assessing a $3 tax on admissions from a per person per excursion basis to a $3 tax per person on admission to the gaming facility. The rest of the decrease reflects labor and expense cost management.

 

Promotional allowances increased $1.0 million, or 8.4% to $12.9 million for the year ended December 31, 2002 from $11.9 million for the year ended December 31, 2001. This increase reflects a continuation of a strategy to manage marketing costs to drive revenue growth within a reasonable cost structure.

 

General and administrative expenses were $27.9 million for the year ended December 31, 2002, a 0.7% decrease from $28.1 million for the year ended December 31, 2001.

 

Interest expense decreased $1.3 million, or 24.5%, to $4.0 million for the year ended December 31, 2002, from $5.3 million for the year ended December 31, 2001. This decrease reflects refinancing loans at lower interest rates and the repayment of certain capital leases.

 

Other non-operating income increased $1.1 million to $1.2 million for the year ended December 31, 2002 from $0.1 million the year ended December 31, 2001. This increase reflects the reversal of an accrual for litigation as a result of a final judgment by the court in favor of Trump Indiana, Inc.

 

No provision for income taxes has been recorded for the year ended December 31, 2002 or 2001 as the Company has sufficient net operating loss carryforwards to offset the taxable income generated. At December 31, 2002, the Company has a federal net operating loss carryforward of approximately $22.2 million for which a full valuation has been recorded as it is uncertain whether the Company will realize full benefit from its net operating loss carryforwards.

 

Results of Operations for the Years Ended December 31, 2001 and 2000

 

Gaming revenues are the primary source of Trump Indiana, Inc.’s revenues. Table game revenues represent the amount retained by Trump Indiana, Inc. from amounts wagered at table games. The table win percentage tends to be fairly constant over the long term, but may vary significantly in the short term, due to large wagers by “high end” players. Trump Indiana, Inc.’s table game win percentage was 16.5% and 17.2% for the years ended December 31, 2000 and 2001, respectively.

 

Table game revenues decreased by $2 million, or 7.5%, to $24.7 million for the year ended December 31, 2001 from $26.7 million in the comparable period in 2000. Decreased table drop primarily contributed to the decrease in revenues. Trump Indiana, Inc.’s table drop decreased by $17.9 million or 11%. This decrease was partially offset by a 0.7 point increase in table win percentage. Table drop was negatively affected by management’s decision in 2001 to eliminate “high end” table player marketing efforts and the general decrease in table game play experienced throughout the casino industry.

 

Slot revenues increased $6.4 million, or 6.9%, to $98.9 million for the year ended December 31, 2001 from $92.5 million in the comparable period in 2000 primarily due to increasing the number of slot machines in the casino, new slot product and improved marketing and customer service programs. A 0.7 point increase in slot win percentage totally offset a $55.9 million, or 3.9%, decrease in slot handle.

 

Promotional allowances decreased $7.1 million, or 37.3% to $11.9 million for the year ended December 31, 2001 from $19.0 million for the year ended December 31, 2000. This decrease reflects a strategy to efficiently and effectively manage marketing costs to drive revenue growth within a reasonable cost structure.

 

Gaming costs and expenses increased to $65.4 million for the year ended December 31, 2001, an increase of $3.3 million, or 5.3%, from $62.1 million for the year ended December 31, 2000. Most of this increase is due to increased gaming taxes associated with the increase in gaming revenues.

 

8


 

General and administrative expenses were $28.1 million for the year ended December 31, 2001, a 11.4% decrease from $31.7 million for the year ended December 31, 2000. This expense decrease is primarily due to a decrease in expense associated with the completion of the five-year license period regulatory obligation in June 2001 for economic development and infrastructure improvements of the City of Gary.

 

THCR Management Holdings, LLC and THCR Management Services, LLC

 

Pursuant to the management agreement approved by the NIGC on April 15, 2002, Trump 29 Services commenced operating Trump 29. The term of the management agreement is for five years. In consideration for its management services, Trump 29 Services receives an annual fee equal to 30% of the Net Revenues (as defined in the management agreement) of Trump 29. From April 16, 2002 through December 31, 2002, Trump 29 Services earned a fee of $2.7 million.

 

General and administrative expenses for the year ended December 31, 2002 were $1.1 million, of which $574,000 were pre-opening costs. Other general and administrative costs of Trump 29 Services consist of direct payroll, travel, legal, insurance and other associated expenses incurred by Trump 29 Services in performance of its management services agreement. There was no comparable expense charged to Trump 29 Services by THCR during 2001.

 

Interest income for the year ended December 31, 2002 was $278,000 compared to interest income of $38,000 for the two months ended December 31, 2001. The increase is primarily related to interest income on the loan from Trump 29 Services to the Tribe.

 

Interest expense for the year ended December 31, 2002 was $3.2 million compared to $280,000 for the two months ended December 31, 2001. Interest expense for the year ended December 31, 2002 includes the write-off of approximately $1.7 million deferred financing fees related to a bank loan which was repaid during September 2002.

 

Pro Forma Results of Operations

 

On a pro forma basis, our interest expense for the year ended December 31, 2002 would have been approximately $67.9 million compared to actual interest expense of approximately $70.7 million for such period, a reduction of approximately $2.8 million. In addition, on a pro forma basis, we would not have incurred approximately $6.1 million of general and administrative expense for the year ended December 31, 2002 in connection with the Marketing Services Agreement or $1.5 million of interest expense under the intercompany promissory note issued by Trump Indiana, Inc., both of which will be assigned from an affiliate of THCR to Trump Casino Holdings in connection with the consummation of this offering and the concurrent private offering of Second Priority Notes to an affiliate of ours. Under certain circumstances, the cash interest rate on the Notes may increase.

 

Financial Condition—Liquidity and Capital Resources

 

Historically, cash flows from operating activities have been the primary source of liquidity for Trump Marina and Trump Indiana. To a lesser extent, Trump Marina and Trump Indiana have relied on borrowings or capital lease financings for their liquidity and/or capital resources.

 

After this offering and the concurrent private offering of Second Priority Notes to an affiliate of ours, we will continue to rely primarily on cash flows from operating activities for our liquidity and capital resources. Our ability to borrow funds for our liquidity needs will be severely restricted by covenants in the indentures governing the Notes and by our high level of indebtedness. Sources of our short-term and long-term liquidity will include primarily: (i) table win, (ii) slot win, (iii) room occupancy, (iv) food and beverage sales and (v) miscellaneous items, less promotional expenses. Although we expect to have sufficient liquidity from the operating activities of Trump Marina and Trump Indiana and the management fees received by Trump 29 Services to meet our obligations, there can be no assurances in this regard. A variety of factors, including a decrease or change in the demand for our services, could have a material adverse effect on our liquidity.

 

9


 

Our combined cash and cash equivalents at December 31, 2002 and 2001were $33.7 million compared to $34.3 million at December 31, 2001. A portion of the cash and cash equivalents balance is required for the day-to-day operations of Trump Marina and Trump Indiana, which includes approximately $13 million of currency and coin on-hand for casino and hotel operations. This amount varies by days of the week, holidays, and seasons.

 

Trump Marina competes with other Atlantic City hotel casinos on the basis of the quality of our guests’ experiences. We seek to provide high-quality service and amenities and a first class casino gaming experience. In a competitive marketplace like Atlantic City, the ability to offer a high-quality casino gaming experience is largely dependent upon the attractiveness of a hotel casino and on the extent and quality of our facilities.

 

The cost of the new garage at Trump Indiana, which we own with a joint venture partner that is an affiliate of Majestic Star, was financed with a $20.9 million loan which is secured by an assignment of two separate leases of the garage from the joint venture to each of: (i) Trump Indiana, Inc. pursuant to a lease, dated June 19, 2001, and (ii) Majestic Star under a substantially identical lease. The term of the lease between the joint venture and Trump Indiana, Inc. expires on December 31, 2018. The initial rent payment paid by Trump Indiana, Inc. was approximately $8.4 million. In addition, Trump Indiana, Inc. is obligated to pay the joint venture a monthly rent equal to 50% of the debt service on the $20.9 million loan and 50% of any construction costs incurred by the joint venture in excess of the net proceeds of the loan. In the event either Trump Indiana, Inc. or Majestic Star defaults on its rental obligations under its respective garage lease with the joint venture, the other venturer will be obligated to pay rent in an amount sufficient to satisfy 100% of the joint venture’s debt service obligations under the loan.

 

Pursuant to a management agreement among Trump 29 Services, the Tribe and Twenty-Nine Palms, Trump 29 Services manages and directs all business and affairs in connection with the day-to-day operation, management and maintenance of Trump 29. In consideration for its management services, Trump 29 Services is entitled to an annual management fee equal to 30.0% of net revenues (as defined in the management agreement), which is payable monthly in arrears. Payments of the management fee are subject to the payment of certain priority amounts under the management agreement. In addition, Trump 29 Services has agreed to subordinate its right to receive management fees to the payment by the Tribe of the Tribe’s bank debt. As a result of such subordination, until the Tribe’s bank debt is paid in full, Trump 29 Services may not accept or receive any prepayment of its management fee or accept or receive any payment from the Tribe in respect of the management fee if a default has occurred and is continuing under the Tribe’s bank debt or if such payment of the management fee would result in a default under the Tribe’s bank debt. Trump 29 Services also agreed to guarantee repayment of up to $2.5 million of the Tribe’s bank debt.

 

Critical Accounting Policies

 

The preparation of our financial statements in conformity with generally accepted accounting principles in the United States requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Our estimates, judgments and assumptions are continually evaluated based on available information and experience. Because of the use of estimates inherent in the financial reporting process, actual results could differ from those estimates.

 

Certain of our accounting policies require higher degrees of judgment than others in their application. See “Notes to Financial Statements” for a discussion of the significant accounting policies of Marina Associates, Trump Indiana, Inc. and Trump 29 Services.

 

Recent Accounting Pronouncements

 

In July 2001, the FASB issued Statement No. 141 Business Combinations (or SFAS 141) and Statement No. 142, Goodwill and Other Intangible Assets (or SFAS 142). SFAS 141 is effective as follows: (a) use of the pooling-of-interest method is prohibited for business combinations initiated after June 30, 2001; and (b) the provisions of SFAS 141 also apply to all business combinations accounted for by the purchase method that are

 

10


completed after June 30, 2001. SFAS 142 is effective for fiscal years beginning after December 15, 2001 and applies to all goodwill and other intangible assets recognized in an entity’s statement of financial position at that date, regardless of when those assets were initially recognized. The effect of adoption of these pronouncements did not have a material impact on us.

 

In July 2001, the FASB issued SFAS No. 143, Accounting for Asset Retirement Obligations (or SFAS 143). This standard addresses the financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. The standard is effective for fiscal years beginning after June 15, 2002. Our management does not expect the adoption of SFAS 143 to have an impact on our financial results.

 

In August 2001, the FASB issued SFAS No. 144, Accounting for the Impairment of Disposal of Long-Lived Assets (or SFAS 144). This standard addresses financial accounting and reporting for the impairment or disposal of long-lived assets. The standard is effective for fiscal years beginning after December 31, 2001. We adopted SFAS 144 on January 1, 2002 and the effect of adoption was not material to us.

 

In April 2002, the FASB issued SFAS No. 145, Rescission of FASB Statements Nos. 4, 44 and 64, Amendment of FASB Statement No. 13, and Technical Correction (or SFAS 145). SFAS 145 requires, among other items, gains or losses of extinguishments of debt to be classified as income (loss) from continuing operations rather than as an extraordinary item as previously required under SFAS No. 4 unless such extinguishments is determined to be extraordinary pursuant to Accounting Principles Board (or APB) Opinion No. 30, “Reporting the Results of Operations—Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Transactions.” SFAS 145 was effective for financial statements issued on or after May 15, 2002. We adopted the provisions of SFAS 145 during 2002, and the effect of adoption was not material to us.

 

In June 2002 the FASB issued SFAS No. 146, Accounting for Costs Associated with Exit or Disposal Activities (or SFAS 146). This pronouncement, which nullifies EITF 94-3, “Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit on Activity (including Certain Costs Incurred in a Restructuring)”, addresses the accounting and reporting for costs associated with exit or disposal activities. We do not expect the adoption of SFAS No. 146 to have a material impact on our financial position or results of operations.

 

In November 2002, the FASB issued Interpretation No. 45, Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others—an Interpretation of FASB Statements No. 5, 57, and 107 and Rescission of FASB Interpretation No. 34 (or FIN No. 45). The interpretation requires that upon issuance of a guarantee, the entity must recognize a liability for the fair value of the obligation it assumes under that obligation. This interpretation is intended to improve the comparability of financial reporting by requiring identical accounting for guarantees issued with separately identified consideration and guarantees issued without separately identified consideration. For the Company, the initial recognition, measurement provision and disclosure requirements of FIN No. 45 are applicable to guarantees issued or modified after December 31, 2002. We are currently evaluating what impact, if any, adoption of FIN No. 45 will have on our financial position, results of operations or liquidity.

 

In January 2003, the FASB issued Interpretation No. 46, Consolidation of Variable Interest Entities (or FIN No. 46). This interpretation clarifies the application of Accounting Research Bulletin No. 51, “Consolidated Financial Statements,” to certain entities in which equity investors do not have the characteristics of a controlling financial interest or do not have sufficient subordinated financial support from other parties. FIN No. 46 applies immediately to variable interest entities created after January 31, 2003, and to variable interest entities in which an enterprise obtains an interest after that date. For existing variable interest entities, the consolidated requirement is effective for interim or annual financial statements beginning after June 15, 2003. We do not believe that we have any variable interest entities which will be subject to consolidation pursuant to FIN No. 46.

 

11


 

Seasonality

 

Our cash flows from operating activities are seasonal in nature. Spring and Summer are traditionally the peak seasons for Trump Marina, with Autumn and Winter being non-peak seasons. Trump 29’s peak seasons are late Winter and Spring and Trump Indiana is not seasonal. Since Trump Marina accounts for the majority of our business, our operating results during the two quarters ending in March and December are not historically as profitable as the two quarters ending in June and September. Any excess cash flow achieved from operations during peak seasons is used to subsidize non-peak seasons. Performance in non-peak seasons is usually dependent on favorable weather and a long-weekend holiday calendar. In the event that we are unable to generate excess cash flow in one or more peak seasons, it may not be able to subsidize non-peak seasons, if necessary.

 

Inflation

 

There was no significant impact on operations as a result of inflation during 2000, 2001 or 2002.

 

12


UNAUDITED PRO FORMA FINANCIAL INFORMATION

 

In connection with the issuance of the Notes pursuant to this offering memorandum, Trump Casino Funding, LLC, Marina Associates, Trump Indiana, Inc., Trump Indiana Realty, LLC, Trump 29 Services and Trump 29 Holdings will become wholly owned subsidiaries of Trump Casino Holdings, LLC. Prior to the date of the consummation of this offering and the concurrent private offering of Second Priority Notes to an affiliate of ours, Trump Casino Funding, LLC, Trump 29 Holdings or Trump Indiana Realty, LLC will have had no significant assets or operations. Prior to the date of consummation of this offering and the concurrent private offering of Second Priority Notes to an affiliate of ours, Trump Casino Holdings, LLC will have had no assets or operations. The combined balance sheet of Trump Casino Holdings, LLC as of December 31, 2002 and the combined statement of operations for the year ended December 31, 2002 do not include any elimination entries or other adjustments to the historical audited financial statements of Marina Associates, Trump Indiana, Inc., and  Trump 29 Services as there are no significant elimination or other adjustments to record; accordingly, the combined balance sheet as of December 31, 2002 and the combined statement of operations for the year ended December 31, 2002 of Trump Casino Holdings, LLC represents the arithmetic combination of the amounts included in the audited financial statements of Marina Associates, Trump Indiana, Inc. and Trump 29 Services.

 

The Unaudited Pro Forma Consolidated Balance Sheet of the Company, as of December 31, 2002 and the Unaudited Pro Forma Consolidated Statements of Operations for the year ended December 31, 2002 (or the Unaudited Pro Forma Financial Statements) are set forth below.

 

The Unaudited Pro Forma Consolidated Balance Sheet has been prepared assuming that the contribution by THCR Holdings of its interests in Marina Associates, Trump Indiana, Inc. and Trump 29 Holdings to Trump Casino Holdings (or the Contribution) had occurred on December 31, 2002. The Unaudited Pro Forma Consolidated Statement of Operations has been prepared assuming that the Contribution occurred on January 1, 2002.

 

The Unaudited Pro Forma Financial Statements are presented for informational purposes only and do not purport to present what the Balance Sheet would have been had the Contribution, in fact, occurred on December 31, 2002 or what the results of operations for the year ended December 31, 2002 would have been had the Contribution in fact occurred on January 1, 2002 or to project the results of operations for any future period.

 

The Unaudited Pro Forma Consolidated Balance Sheet and Statement of Operations of the Company also give effect to (a) the redemption of (i) Castle Funding’s 11.75% Mortgage Notes and (ii) Castle Funding’s 13.875% PIK Notes, (b) the repayment of Marina Associates’ bank debt, (c) the repayment of Trump Indiana, Inc.’s bank debt, (d) the repayment of Trump 29 Services’ bank debt and the related termination of an interest rate swap agreement and (e) the capital distribution by Trump Casino Holdings to THCR Holdings for the redemption or purchase of THCR Holdings’ 15.5% Senior Notes. The Unaudited Pro Forma Consolidated Statements of Operations of the Company gives effect to the transactions described above.

 

The Contribution is anticipated to be accounted for as a “Reorganization of Entities Under Common Control” for accounting and reporting purposes.

 

The Unaudited Pro Forma Financial Statements should be read in conjunction with the financial statements and related notes thereto included elsewhere in this offering memorandum and the information set forth in “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

 

13


TRUMP CASINO HOLDINGS, LLC

 

PRO FORMA CONSOLIDATED BALANCE SHEET

 

As of December 31, 2002

(Dollars in Thousands)

(unaudited)

 

ASSETS


  

Trump Marina


    

Trump Indiana


    

Trump 29 Services


    

Combined


    

Pro Forma Adjustments


      

Pro Forma


 

Current assets:

                                                       

Cash and cash equivalents

  

$

25,766

 

  

$

7,897

 

  

$

  —  

 

  

$

33,663

 

  

$

468,036

  (a)

          
                                        

 

(244,512

) (b)

          
                                        

 

(70,000

) (c)

          
                                        

 

(14,458

) (e)

          
                                        

 

(98,007

) (f)

          
                                        

 

(21,891

) (g)

          
                                        

 

(1,268

) (h)

          
                                        

 

(19,500

) (i)

          
                                        

 

(3,778

) (j)

          
                                                   

$

28,285

 

Accounts receivable, net

  

 

8,652

 

  

 

920

 

  

 

—  

 

  

 

9,572

 

             

 

9,572

 

Inventories

  

 

2,850

 

  

 

332

 

  

 

—  

 

  

 

3,182

 

             

 

3,182

 

Due from affiliates

  

 

—  

 

  

 

378

 

  

 

—  

 

  

 

378

 

             

 

378

 

Prepaid expenses and other current assets

  

 

3,831

 

  

 

2,850

 

  

 

554

 

  

 

7,235

 

             

 

7,235

 

    


  


  


  


             


Total current assets

  

 

41,099

 

  

 

12,377

 

  

 

554

 

  

 

54,030

 

             

 

48,652

 

Property and equipment, net

  

 

462,560

 

  

 

55,294

 

  

 

—  

 

  

 

517,854

 

             

 

517,854

 

Investment in Buffington Harbor

  

 

—  

 

  

 

31,842

 

  

 

—  

 

  

 

31,842

 

             

 

31,842

 

Other assets

  

 

11,399

 

  

 

12,716

 

  

 

223

 

  

 

24,338

 

                   
                                        

 

19,500

(i)

          
                                        

 

(4,229

) (k)

    

 

39,609

 

    


  


  


  


             


Total assets

  

$

515,058

 

  

$

112,229

 

  

$

777

 

  

$

628,064

 

             

$

637,957

 

    


  


  


  


             


LIABILITIES AND CAPITAL


                                           

Current liabilities:

                                                       

Current maturities of long-term debt

  

$

309,256

 

  

$

6,214

 

  

$

1,268

 

  

$

316,738

 

  

$

(235,087

) (b)

          
                                        

 

(70,000

) (c)

          
                                        

 

(3,924

) (g)

          
                                        

 

(1,268

) (h)

    

$

6,459

 

Accounts payable and accrued expenses

  

 

28,169

 

  

 

12,389

 

           

 

40,558

 

             

 

40,558

 

Due to affiliates

  

 

4,381

 

           

 

—  

 

  

 

4,381

 

             

 

4,381

 

Accrued interest payable

  

 

3,773

 

  

 

—  

 

  

 

5

 

  

 

3,778

 

  

 

(3,778

) (j)

    

 

—  

 

    


  


  


  


             


Total current liabilities

  

 

345,579

 

  

 

18,603

 

  

 

1,273

 

  

 

365,455

 

             

 

51,398

 

Long-term debt, net of current maturities

  

 

159,474

 

  

 

18,742

 

  

 

—  

 

  

 

178,216

 

  

 

468,036

  (a)

          
                                        

 

(138,377

) (d)

          
                                        

 

(13,686

) (e)

          
                                        

 

(17,029

) (g)

          
                                        

 

(938

) (g)

    

 

476,222

 

Due to THCR Holdings

  

 

—  

 

  

 

32,566

 

           

 

32,566

 

  

 

(32,566

) (o)

    

 

—  

 

Other

  

 

5,974

 

  

 

—  

 

           

 

5,974

 

  

 

(3,382

) (d)

          
                                        

 

(330

) (e)

    

 

2,262

 

Capital:

                                                       

Contributed capital

  

 

175,395

 

  

 

61,802

 

  

 

1,076

 

  

 

238,273

 

  

 

123,505

  (d)

          
                                        

 

(98,007

) (f)

          
                                        

 

32,566

  (o)

    

 

296,337

 

Accumulated deficit

  

 

(171,364

)

  

 

(18,546

)

  

 

(1,572

)

  

 

(191,482

)

  

 

(9,425

) (b)

          
                                        

 

18,254

  (d)

          
                                        

 

(442

) (e)

          
                                        

 

(938

) (g)

          
                                        

 

(4,229

) (k)

    

 

(188,262

)

Accumulated other comprehensive loss

  

 

—  

 

  

 

(938

)

           

 

(938

)     

  

 

938

 (g)

    

 

—       

 

    


  


  


  


             


Total capital

  

 

4,031

 

  

 

42,318

 

  

 

(496

)

  

 

45,853

 

             

 

108,075

 

    


  


  


  


             


Total liabilities and capital

  

$

515,058

 

  

$

112,229

 

  

$

777

 

  

$

628,064

 

             

$

637,957

 

    


  


  


  


             


 

14


TRUMP CASINO HOLDINGS, LLC

 

PRO FORMA CONSOLIDATED INCOME STATEMENT

 

Year Ended December 31, 2002

(Dollars in Thousands)

(unaudited)

 

    

Trump Marina


    

Trump Indiana


    

Trump 29 Services


    

Pro Forma Adjustments


    

Pro Forma


 

Revenues:

                                            

Gaming

  

$

281,898

 

  

$

128,747

 

  

$

—  

 

  

$

—  

 

  

$

410,645

 

Rooms

  

 

18,504

 

  

 

3,331

 

  

 

—  

 

  

 

—  

 

  

 

21,835

 

Food and beverage

  

 

32,710

 

  

 

2,891

 

  

 

—  

 

  

 

—  

 

  

 

35,601

 

Other

  

 

10,425

 

  

 

1,910

 

  

 

2,710

 

           

 

15,045

 

    


  


  


  


  


Gross revenues

  

 

343,537

 

  

 

136,879

 

  

 

2,710

 

  

 

—  

 

  

 

483,126

 

Less promotional allowances

  

 

73,288

 

  

 

12,877

 

  

 

—  

 

  

 

—  

 

  

 

86,165

 

    


  


  


  


  


Net revenues

  

 

270,249

 

  

 

124,002

 

  

 

2,710

 

  

 

—  

 

  

 

396,961

 

Costs and expenses:

                                            

Gaming

  

 

127,417

 

  

 

63,038

 

  

 

—  

 

  

 

—  

 

  

 

190,455

 

Rooms

  

 

4,541

 

  

 

1,705

 

  

 

—  

 

  

 

—  

 

  

 

6,246

 

Food and beverage

  

 

10,435

 

  

 

4,421

 

  

 

—  

 

  

 

—  

 

  

 

14,856

 

General and administrative

  

 

70,529

 

  

 

27,900

 

  

 

1,115

 

  

 

(6,114

)(l)

  

 

93,430

 

Debt renegotiation costs.

  

 

1,345

 

  

 

284

 

  

 

—  

 

  

 

(1,629

)(m)

  

 

—  

 

Depreciation and amortization

  

 

21,356

 

  

 

6,250

 

  

 

—  

 

  

 

—  

 

  

 

27,606

 

    


  


  


  


  


    

 

235,623

 

  

 

103,598

 

  

 

1,115

 

  

 

(7,743

)

  

 

332,593

 

    


  


  


  


  


Income from operations

  

 

34,626

 

  

 

20,404

 

  

 

1,595

 

  

 

7,743

 

  

 

64,368

 

Non-operating income (expense):

                                            

Interest income

  

 

316

 

  

 

273

 

  

 

278

 

           

 

867

 

Interest expense

  

 

(63,574

)

  

 

(3,951

)

  

 

(3,203

)

  

 

1,320

 (n)

        
                               

 

1,479

 (o)

  

 

(67,929

)

Other

  

 

—  

 

  

 

1,219

 

  

 

—  

 

           

 

1,219

 

    


  


  


  


  


    

 

(63,258

)

  

 

(2,459

)

  

 

(2,925

)

  

 

2,799

 

  

 

(65,843

)

    


  


  


  


  


Income (loss) before equity in loss of Buffington Harbor

  

 

(28,632

)

  

 

17,945

 

  

 

(1,330

)

  

 

10,542

 

  

 

(1,475

)

Equity in loss from Buffington Harbor

  

 

—  

 

  

 

(2,448

)

  

 

—  

 

  

 

—  

 

  

 

(2,448

)

Provision for income taxes (p)

  

 

(1,200

)

  

 

—  

 

  

 

—  

 

  

 

—  

 

  

 

(1,200

)            

    


  


  


  


  


Net income (loss)

  

$

(29,832

)

  

$

15,497

 

  

$

(1,330

)

  

$

10,542

 

  

$

(5,123

)

    


  


  


  


  


 

15


 

TRUMP CASINO HOLDINGS, LLC

NOTES TO UNAUDITED PRO FORMA FINANCIAL INFORMATION

As of December 31, 2002

(in thousands)

 

(a)   To record the issuance of the First Priority Notes and the Second Priority Notes (including the Second Priority Notes being offered to our affiliate) issued by Trump Casino Holdings each due in 2010. The interest rates on the First Priority Notes and the Second Priority Notes are 11 5/8% and 17 5/8%, respectively.

 

(b)   To record the redemption of Castle Funding’s 11.75% Mortgage Notes at 100% of principal amount of $242,141. As of December 31, 2002, the carrying value (principal, net of original issue discount) of these Mortgage Notes was $235,087. Additionally, the Mortgage Notes have a thirty day call period where they will remain outstanding from the closing of this transaction. Accordingly, the pro forma balance sheet reflects an additional reduction of cash in the amount of $2,371 for the interest that will be payable thirty days from the closing of this offering and the concurrent private offering of Second Priority Notes to an affiliate of ours.

 

(c)   To record the repayment of Marina Associates $70,000 bank debt.

 

(d)   To record the cancellation of Castle Funding’s 13.875% PIK Notes at face value of approximately $141,900 and related interest, net of discount, which is held by THCR Holdings, which will be contributed to Marina Associates at book value and cancelled at face value, and the gain of $18,254 resulting therefrom.

 

(e)   To record the redemption of PIK notes held by third parties at face value of $14,300 and related interest, net of discount, which is held by third parties. Additionally, the PIK Notes have a thirty day call period where they will remain outstanding from the closing of this transaction. Accordingly, the pro forma balance sheet reflects additional reduction of cash in the amount of $158 for the interest that will be payable thirty days from the closing of this offering and the concurrent private offering of Second Priority Notes to an affiliate of ours.

 

(f)   To record the distribution from Trump Casino Holdings to THCR Holdings. The proceeds from the distribution will be utilized by THCR Holdings to retire the outstanding principal balance of $94,500 of THCR Holding’s 15.5% Senior Notes at approximately 102.583% of face value, plus accrued interest (aggregate amount of $98,007).

 

(g)   To record the repayment of Trump Indiana Inc.’s bank debt and settlement of related interest rate swap.

 

(h)   To record the repayment of Trump 29 Services’ bank debt.

 

(i)   To record the payment of the fees associated with the issuance of the Notes.

 

(j)   To record the payment of accrued interest on the debt redemption as follows:

 

Castle Funding’s Mortgage Notes

  

$3,556

Marina Associates’ bank debt

  

217

Trump 29 Services’ bank debt

  

5

Trump Indiana Inc.’s bank debt

  

—  

    
    

$3,778

    

 

(k)   To write-off deferred loan costs associated with the redemption of debt as follows:

 

Marina Associates’ bank debt

  

$1,060

Consent fee on PIK purchase

  

1,900

Trump 29 Services’ bank debt

  

223

Trump Indiana Inc.’s bank debt

  

1,046

    
    

$4,229

    

 

16


 

(l)   To eliminate marketing services and license fees charged to Trump Indiana, Inc. from Trump Casino Holdings pursuant to a previously existing agreement between Trump Indiana, Inc. and an affiliate of THCR. Such agreement will be assigned from the affiliate of THCR to Trump Casino Holdings in connection with the closing of this offering and the concurrent private offering of Second Priority Notes to an affiliate of ours.

 

(m)   To eliminate costs incurred with terminated debt restructuring.

 

(n)   To eliminate PIK and currently payable interest expense and amortization of deferred financing costs on debt being redeemed or repaid and to reflect the interest expense on the Notes (including the Second Priority Notes being offered to an affiliate of ours) as well as the amortization of the deferred financing costs, as follows:

 

Castle Funding’s Mortgage Notes

  

$  28,448

 

Castle Funding senior secured notes

  

3,442

 

Castle working capital facility

  

278

 

Marina Associates bank debt

  

2,346

 

Castle Funding PIK Notes

  

19,843

 

Mortgage Notes discount amortization

  

6,083

 

PIK Notes discount amortization

  

902

 

Castle Funding amortization of deferred financing fees

  

892

 

Trump Indiana, Inc.’s bank debt

  

1,659

 

Trump 29 Services’ bank debt

  

727

 

Trump Indiana, Inc. amortization of deferred financing fees

  

437

 

Trump 29 Services amortization of deferred financing fees

  

2,476

 

Interest expense on Notes

  

(60,863

)

Amortization of discount on Notes

  

(2,834

)

Amortization of fees on Notes

  

(2,516

)

    

    

$   1,320

 

    

 

Of the $19.8 million of PIK interest, $17.8 million was satisfied through the issuance of additional PIK notes and accordingly did not have a cash obligation.

 

During July 2002, Marina Associates entered into a $70 million bank loan facility, the proceeds of which were used to retire Trump Castle Funding’s $62 million senior secured notes and a $5 million working capital loan. The above pro forma adjustments reflect the elimination of the interest expense on the senior secured notes and the working capital loan through July 2002 and the elimination of interest expense on Marina Associates $70 million bank debt from July 2002 through December 31, 2002.

During September 2002, Trump 29 Services repaid existing bank debt (“Trump 29 Old Loan”), a portion of which was refinanced with a $2.2 million bank loan (“Trump 29 New Loan”). The above pro forma adjustments reflect the elimination of interest expense on the Trump 29 Old Loan through September 2002, the elimination of the write-off of deferred financing fees on the Trump 29 Old Loan which occurred in September 2002 in connection with the redemption of this loan, and the elimination of the interest expense on the Trump 29 New Loan from September 2002 through December 31, 2002.

 

Upon the issuance of the Notes, the Castle Funding Mortgage Notes and Castle Funding PIK Notes owned by the public will not be retired for 30 days. Accordingly, we will incur interest on each of these facilities during the thirty day call period.

 

(o)   To eliminate the expense on the intercompany loan charge from an affiliate of THCR to Trump Indiana, Inc. Such intercompany loan will be assigned from the affiliate of THCR to Trump Casino Holdings in connection with the closing of this offering and the concurrent private offering of Second Priority Notes to an affiliate of ours.

 

(p)   The above pro forma adjustments have no effect on income taxes. See notes to consolidated financial statements.

 

17


  (q)   EBITDA represents income from operations before depreciation, amortization, non-cash write-downs and charges related to required regulatory obligations, non-recurring debt renegotiation costs and, with respect to (i) Marina Associates, fees paid pursuant to the Castle Services Agreement (see “Certain Relationships and Related Party Transactions”); (ii) Trump Indiana, Inc., fees paid pursuant to a marketing service agreement with THCR and (iii) Trump 29 Services, certain pre-opening costs. EBITDA should not be construed as an alternative to net income or any other measure of performance determined in accordance with generally accepted accounting principles or as an indicator of our operating performance, liquidity or cash flows generated by operating, investing and financing activities. Management has included information concerning EBITDA, as management understands that it is used by certain investors as one measure of our historical ability to service our debt. A reconciliation of income from operations to EBITDA is as follows:

 

    

Trump Marina


  

Trump Indiana


  

Trump 29 Services


  

Pro Forma Adjustments


    

Pro Forma


Income from operations

  

$

34,626

  

$

20,404

  

$

1,595

  

$

(7,743

)

  

$

64,368

Depreciation and amortization

  

 

21,356

  

 

6,250

  

 

—  

  

 

—  

 

  

 

27,606

Debt negotiations costs

  

 

1,345

  

 

284

  

 

—  

  

 

(1,629

)

  

 

—  

CRDA/Indiana Municipal State Obligations(i)

  

 

3,762

  

 

—  

  

 

—  

  

 

—  

 

  

 

3,762

Management fee and corporate charges

  

 

3,454

  

 

6,114

  

 

—  

  

 

(6,114

)

  

 

3,454

Pre-opening costs

  

 

—  

  

 

—  

  

 

574

  

 

—  

 

  

 

574

    

  

  

  


  

    

$

64,543

  

$

33,052

  

$

2,169

  

$

—  

 

  

$

99,764

    

  

  

  


  

 
  (i)   Reflects amortization of deposits made to New Jersey Casino Reinvestment Development Authority (“CRDA”) and direct contributions made to the CRDA. Trump Marina is required to make a cash contribution of 1.25% of revenues to the CRDA on a quarterly basis. The total cash contributions to the CRDA was approximately $3.5 million. See financial statements and related notes included elsewhere in this offering memorandum.

 

18


INDEX TO FINANCIAL STATEMENTS

 

    

Page


Trump’s Castle Associates, L.P. and Subsidiary

    

Reports of Independent Auditors

  

F-2

Consolidated Balance Sheets as of December 31, 2001 and 2002

  

F-4

Consolidated Statements of Operations for the years ended December 31, 2000, 2001 and 2002

  

F-5

Consolidated Statements of Partners’ Capital for the years ended December 31, 2000, 2001 and 2002

  

F-6

Consolidated Statements of Cash Flows for the years ended December 31, 2000, 2001 and 2002

  

F-7

Notes to Consolidated Financial Statements.

  

F-8

Financial Statement Schedule

    

Schedule II—Valuation and Qualifying Accounts for the years ended December 31, 2000, 2001 and 2002

  

F-19

Other Schedules are omitted for the reason that they are not required or are not applicable, or the required information is included in the consolidated financial statements or notes thereto.

    

Trump Indiana, Inc.

    

Reports of Independent Auditors

  

F-20

Balance Sheets as of December 31, 2001 and 2002

  

F-22

Statements of Operations for the years ended December 31, 2000, 2001 and 2002

  

F-23

Statements of Capital for the years ended December 31, 2000, 2001 and 2002

  

F-24

Statements of Cash Flows for the years ended December 31, 2000, 2001 and 2002

  

F-25

Notes to Financial Statements

  

F-26

All Schedules are omitted for the reason that they are not required or are not applicable, or the required information is included in the consolidated financial statements or notes thereto.

    

THCR Management Services, LLC

    

Reports of Independent Auditors

  

F-37

Balance Sheets as of December 31, 2001 and 2002

  

F-39

Statements of Operations for the year ended December 31, 2002 and the two months ended December 31, 2001

  

F-40

Statements of Changes in Members’ Deficit for the year ended December 31, 2002 and the two months ended December 31, 2001

  

F-41

Statements of Cash Flows for the year ended December 31, 2002 and the two months ended December 31, 2001

  

F-42

Notes to Financial Statements

  

F-43

All Schedules are omitted for the reason that they are not required or are not applicable, or the required information is included in the consolidated financial statements or notes thereto.

    

 

 

F-1

19


REPORT OF INDEPENDENT AUDITORS

 

Partners

Trump’s Castle Associates, L.P. and Subsidiary

 

We have audited the accompanying consolidated balance sheet of Trump’s Castle Associates, L.P. and Subsidiary as of December 31, 2002 and the related consolidated statements of operations, partners’ capital, and cash flows for the year then ended. Our audit also included the financial statement schedule listed in the index to the financial statements. These financial statements and schedule are the responsibility of the Partnership’s management. Our responsibility is to express an opinion on these financial statements and schedule based on our audit.

 

We conducted our audit in accordance with auditing standards generally accepted in the United States. 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 audit provides a reasonable basis for our opinion.

 

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Trump’s Castle Associates, L.P. and Subsidiary at December 31, 2002, and the consolidated results of their operations and their cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein.

 

The accompanying consolidated financial statements have been prepared assuming that the Partnership will continue as a going concern. As discussed in Note 1 to the consolidated financial statements, the Partnership has approximately $312 million of indebtedness which is scheduled to mature during November 2003. This matter raises substantial doubt about the Partnership’s ability to continue as a going concern. Management is actively pursuing refinancing of this debt, and management’s plans in regard to this matter are also described in Note 1 to the consolidated financial statements. The accompanying consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 

 
   

/S/    ERNST & YOUNG LLP

     

 

Philadelphia, Pennsylvania

January 14, 2003

 

F-2

20


 

THE FOLLOWING REPORT OF ARTHUR ANDERSEN LLP IS A COPY OF A PREVIOUSLY ISSUED REPORT THAT HAS NOT BEEN REISSUED BY ARTHUR ANDERSEN LLP. THE REPORT OF ERNST & YOUNG LLP INCLUDED IN THIS OFFERING MEMORANDUM RELATES TO THE YEAR ENDED DECEMBER 31, 2002. CONSEQUENTLY, FOR THE PURPOSES OF THIS OFFERING MEMORANDUM, THE FOLLOWING REPORT OF ARTHUR ANDERSEN LLP, WHICH IS THE MOST RECENTLY ISSUED REPORT, RELATES ONLY TO THE YEARS ENDED DECEMBER 31, 2001 AND 2000.

 

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

 

To Trump’s Castle Associates, L.P. and Subsidiary:

 

We have audited the accompanying consolidated balance sheets of Trump’s Castle Associates, L.P. (a New Jersey limited partnership) and Subsidiary as of December 31, 2000 and 2001, and the related consolidated statements of operations, partners’ capital and cash flows for each of the three years in the period ended December 31, 2001. These consolidated financial statements and 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 schedule based on our audits.

 

We conducted our audits in accordance with auditing standards generally accepted in the United States. 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, L.P. and Subsidiary as of December 31, 2000 and 2001, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2001, in conformity with accounting principles generally accepted in the United States.

 

Our audits were made for the purposes of forming an opinion on 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 rule 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 set forth therein in relation to the basic financial statements taken as a whole.

 

 
   

/s/    ARTHUR ANDERSEN LLP

     

 

Roseland, New Jersey

March 13, 2002

 

F-3

21


 

TRUMP’S CASTLE ASSOCIATES, L.P. AND SUBSIDIARY

 

CONSOLIDATED BALANCE SHEETS

(in thousands)

 

    

December 31, 2001


    

December 31, 2002


 

ASSETS

                 

CURRENT ASSETS

                 

Cash and cash equivalents

  

$

22,074

 

  

$

25,766

 

Trade receivables, less allowance for doubtful accounts of $2,852 and $2,475, respectively

  

 

12,023

 

  

 

8,652

 

Other receivables

  

 

941

 

  

 

1,065

 

Inventories

  

 

2,801

 

  

 

2,850

 

Prepaid expenses and other current assets

  

 

1,856

 

  

 

2,766

 

    


  


Total current assets

  

 

39,695

 

  

 

41,099

 

    


  


PROPERTY AND EQUIPMENT

                 

Land and land improvements

  

 

92,379

 

  

 

92,379

 

Buildings and building improvements

  

 

409,324

 

  

 

410,310

 

Furniture, fixtures and equipment

  

 

51,717

 

  

 

61,803

 

Construction in progress

  

 

3,779

 

  

 

6,639

 

    


  


    

 

557,199

 

  

 

571,131

 

Less-Accumulated depreciation and amortization

  

 

88,387

 

  

 

108,571

 

    


  


    

 

468,812

 

  

 

462,560

 

    


  


OTHER ASSETS

  

 

11,503

 

  

 

11,399

 

    


  


Total assets

  

$

520,010

 

  

$

515,058

 

    


  


LIABILITIES AND PARTNERS’ CAPITAL

                 

CURRENT LIABILITIES

                 

Current maturities of long-term debt

  

$

4,385

 

  

$

309,256

 

Trade accounts payable

  

 

10,630

 

  

 

7,588

 

Due to affiliates

  

 

8,184

 

  

 

4,381

 

Accrued payroll and related expenses

  

 

6,451

 

  

 

6,927

 

Accrued interest payable

  

 

4,701

 

  

 

3,773

 

Self insurance reserves

  

 

3,258

 

  

 

2,704

 

Other

  

 

9,009

 

  

 

10,950

 

    


  


Total current liabilities

  

 

46,618

 

  

 

345,579

 

LONG-TERM DEBT, LESS CURRENT MATURITIES

  

 

433,176

 

  

 

159,474

 

OTHER LONG-TERM LIABILITIES

  

 

6,353

 

  

 

5,974

 

    


  


Total liabilities

  

 

486,147

 

  

 

511,027

 

    


  


PARTNERS’ CAPITAL

                 

Contributed capital

  

 

175,395

 

  

 

175,395

 

Accumulated deficit

  

 

(141,532

)

  

 

(171,364

)

    


  


Total partners’ capital

  

 

33,863

 

  

 

4,031

 

    


  


Total liabilities and partners’ capital

  

$

520,010

 

  

$

515,058

 

    


  


 

See accompanying notes.

 

F-4

22


 

TRUMP’S CASTLE ASSOCIATES, L.P. AND SUBSIDIARY

 

CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands)

 

    

For the Years Ended December 31,


 
    

2000


    

2001


    

2002


 

REVENUES

                          

Gaming

  

$

267,377

 

  

$

266,493

 

  

$

281,898

 

Rooms

  

 

17,640

 

  

 

18,280

 

  

 

18,504

 

Food and beverage

  

 

33,804

 

  

 

31,700

 

  

 

32,710

 

Other

  

 

10,124

 

  

 

10,419

 

  

 

10,425

 

    


  


  


Gross revenues

  

 

328,945

 

  

 

326,892

 

  

 

343,537

 

Less—Promotional allowances

  

 

69,881

 

  

 

73,973

 

  

 

73,288

 

    


  


  


Net revenues

  

 

259,064

 

  

 

252,919

 

  

 

270,249

 

    


  


  


COSTS AND EXPENSES

                          

Gaming

  

 

128,232

 

  

 

124,322

 

  

 

127,417

 

Rooms

  

 

4,272

 

  

 

3,572

 

  

 

4,541

 

Food and beverage

  

 

10,927

 

  

 

10,154

 

  

 

10,435

 

General and administrative

  

 

68,557

 

  

 

66,445

 

  

 

70,529

 

Debt renegotiation costs

  

 

—  

 

  

 

—  

 

  

 

1,345

 

Depreciation and amortization

  

 

17,381

 

  

 

17,831

 

  

 

21,356

 

    


  


  


    

 

229,369

 

  

 

222,324

 

  

 

235,623

 

    


  


  


Income from operations

  

 

29,695

 

  

 

30,595

 

  

 

34,626

 

INTEREST INCOME

  

 

1,490

 

  

 

609

 

  

 

316

 

INTEREST EXPENSE

  

 

(56,775

)

  

 

(60,056

)

  

 

(63,574

)

    


  


  


Loss before income taxes

  

 

(25,590

)

  

 

(28,852

)

  

 

(28,632

)

Provision for income taxes

  

 

—  

 

  

 

—  

 

  

 

(1,200

)

    


  


  


Net loss

  

$

(25,590

)

  

$

(28,852

)

  

$

(29,832

)

    


  


  


 

 

 

See accompanying notes

 

 

F-5

23


 

TRUMP’S CASTLE ASSOCIATES, L.P. AND SUBSIDIARY

 

CONSOLIDATED STATEMENTS OF PARTNERS’ CAPITAL

(in thousands)

 

    

Contributed Capital


  

Accumulated Deficit


    

Total


 

Balance at December 31, 1999

  

$

175,395

  

$

(87,090

)

  

$

88,305

 

Net loss

  

 

—  

  

 

(25,590

)

  

 

(25,590

)

    

  


  


Balance at December 31, 2000

  

 

175,395

  

 

(112,680

)

  

 

62,715

 

Net loss

  

 

—  

  

 

(28,852

)

  

 

(28,852

)

    

  


  


Balance at December 31, 2001

  

 

175,395

  

 

(141,532

)

  

 

33,863

 

Net loss

  

 

—  

  

 

(29,832

)

  

 

(29,832

)

    

  


  


Balance at December 31, 2002

  

$

175,395

  

$

(171,364

)

  

$

4,031

 

    

  


  


 

 

 

See accompanying notes.

 

F-6

24


TRUMP’S CASTLE ASSOCIATES, L.P. AND SUBSIDIARY

 

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

 

    

For the Years Ended December 31,


 
    

2000


    

2001


    

2002


 

CASH FLOWS FROM OPERATING ACTIVITIES

                          

Net loss

  

$

(25,590

)

  

$

(28,852

)

  

$

(29,832

)

Adjustments to reconcile net loss to net cash flows provided by

    operating activities—

                          

Depreciation and amortization

  

 

17,381

 

  

 

17,831

 

  

 

21,356

 

Issuance of PIK debt in satisfaction of accrued interest

  

 

15,188

 

  

 

17,368

 

  

 

17,805

 

Accretion of bond discount

  

 

5,122

 

  

 

5,981

 

  

 

6,985

 

Provision of losses on receivables

  

 

1,318

 

  

 

1,313

 

  

 

2,100

 

Valuation allowance—CRDA investments

  

 

3,680

 

  

 

1,432

 

  

 

3,762

 

(Increase) decrease in receivables

  

 

(5,275

)

  

 

307

 

  

 

1,147

 

Decrease (increase) in inventories

  

 

167

 

  

 

324

 

  

 

(49

)

(Increase) decrease in prepaid expenses and other current assets

  

 

(186

)

  

 

155

 

  

 

(910

)

Decrease (increase) in other assets

  

 

956

 

  

 

844

 

  

 

(272

)

Decrease in due to affiliates

  

 

(3,373

)

  

 

(9,127

)

  

 

(4,022

)

Increase (decrease) in current liabilities

  

 

264

 

  

 

2,337

 

  

 

(3,970

)

Increase in other long-term liabilities

  

 

17

 

  

 

69

 

  

 

1,932

 

    


  


  


Net cash flows provided by operating activities

  

 

9,669

 

  

 

9,982

 

  

 

16,032

 

    


  


  


CASH FLOWS FROM INVESTING ACTIVITIES

                          

Purchases of property and equipment, net

  

 

(5,114

)

  

 

(3,979

)

  

 

(5,468

)

Purchases of CRDA investments

  

 

(3,347

)

  

 

(3,388

)

  

 

(3,486

)

    


  


  


Net cash flows used in investing activities

  

 

(8,461

)

  

 

(7,367

)

  

 

(8,954

)

    


  


  


CASH FLOWS FROM FINANCING ACTIVITIES

                          

Repayment of other borrowings

  

 

(1,385

)

  

 

(1,777

)

  

 

(71,856

)

Proceeds of other borrowings

  

 

—  

 

  

 

—  

 

  

 

70,000

 

Cost of issuing debt

  

 

—  

 

  

 

—  

 

  

 

(1,530

)

    


  


  


Net cash flows used in financing activities

  

 

(1,385

)

  

 

(1,777

)

  

 

(3,386

)

    


  


  


Net (decrease) increase in cash and cash equivalents

  

 

(177

)

  

 

838

 

  

 

3,692

 

CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR

  

 

21,413

 

  

 

21,236

 

  

 

22,074

 

    


  


  


CASH AND CASH EQUIVALENTS AT END OF YEAR

  

$

21,236

 

  

$

22,074

 

  

$

25,766

 

    


  


  


SUPPLEMENTAL INFORMATION:

                          

Cash paid for interest

  

$

36,142

 

  

$

36,372

 

  

$

38,737

 

    


  


  


Cash paid for income taxes

  

$

—  

 

  

$

—  

 

  

$

75

 

    


  


  


Purchase of equipment under capitalized lease obligations

  

$

1,383

 

  

$

5,340

 

  

$

8,235

 

    


  


  


 

See accompanying notes.

 

 

F-7

25


 

TRUMP’S CASTLE ASSOCIATES, L.P. AND SUBSIDIARY

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

(1)    Organization and Operations

 

The accompanying consolidated financial statements include those of Trump’s Castle Associates, L.P., a New Jersey limited partnership (the “Partnership”), and its wholly owned subsidiary, Trump’s Castle Funding, Inc., a New Jersey corporation (“Funding”). The Partnership is 99% owned by Trump Hotels & Casino Resorts Holdings, L.P., a Delaware limited partnership (“THCR Holdings”) and 1% by Trump’s Castle Hotel & Casino, Inc., a New Jersey corporation (“TCHI”). TCHI is wholly owned by THCR Holdings, and THCR Holdings is currently owned 63.4% by Trump Hotels & Casino Resorts, Inc., a Delaware corporation (“THCR”) and 36.6% by Donald J. Trump (“Trump”). THCR and THCR Holdings are reporting companies under the Securities Exchange Act of 1934, as amended.

 

All significant intercompany balances and transactions have been eliminated in the consolidated financial statements.

 

The Partnership operates the Trump Marina Hotel Casino (“Trump Marina”), a casino hotel located in the marina district of Atlantic City, New Jersey (the “Marina District”). Trump Marina’s revenues are derived primarily from its gaming operations. Competition in the Atlantic City gaming market is intense, and the Partnership believes that this competition, along with potential competition from other jurisdictions, will continue to intensify due to the scheduled opening of a new casino hotel during 2003 and other potential future expansion in Atlantic City and other nearby jurisdictions.

 

The Partnership has substantial indebtedness. As of December 31, 2002, the Partnership has approximately $312,141,000 of indebtedness which is scheduled to mature during November 2003. This matter raises substantial doubt about the Partnership’s ability to continue as a going concern. The Partnership is actively pursuing the refinancing of these debt obligations (see Note 12). However, there can be no assurance that the Partnership will be successful in refinancing this debt on terms acceptable to the Partnership.

 

(2)    Accounting Policies

 

Use of Estimates

 

The preparation of these financial statements in conformity with generally accepted accounting principles 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. Actual results may differ from these estimates and assumptions.

 

 

F-8

26


TRUMP’S CASTLE ASSOCIATES, L.P. AND SUBSIDIARY

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

 

 

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 costs of such complimentaries have been included in gaming costs and expenses in the accompanying consolidated statements of operations and consist of:

 

    

For the Years Ended December 31,


    

2000


  

2001


  

2002


Rooms

  

$

10,123,000

  

$

10,177,000

  

$

9,254,000

Food and Beverage

  

 

20,976,000

  

 

20,103,000

  

 

19,793,000

Other

  

 

3,061,000

  

 

2,269,000

  

 

811,000

    

  

  

    

$

34,160,000

  

$

32,549,000

  

$

29,858,000

    

  

  

 

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 New Jersey Casino Control Act (the “Casino Control 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, 2002, the Partnership had New Jersey state net operating loss carryforwards of approximately $109,000,000, which is available to offset taxable income through the year 2009. The net operating loss carryforward results in a deferred tax asset of $9,810,000, which has been offset by a valuation allowance of $9,810,000 as utilization of such carryforward is not certain.

 

On July 3, 2002, the State of New Jersey passed the New Jersey Business Tax Reform Act. This Act, among other things, requires the suspension of the use of the New Jersey net operating loss carryforward for two years and the introduction of a new Alternative Minimum Assessment amount under the New Jersey corporate business tax based on gross receipts or gross profits, as defined. The New Jersey Business Tax Reform Act is retroactive to January 1, 2002. In accordance with the Act, the Partnership has recorded a provision for current income tax expense of $1,200,000 for the year ended December 31, 2002.

 

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 are recorded at cost and depreciated on the straight-line method over the estimated useful lives of the related assets, which are: 40 years for buildings and building improvements; and 2 - 7 years for furniture, fixtures and equipment. Depreciation expense includes amortization of assets under capital lease obligations.

 

F-9

27


TRUMP’S CASTLE ASSOCIATES, L.P. AND SUBSIDIARY

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

 

 

Long-Lived Assets

 

The provisions of Statement of Financial Accounting Standards No. 144 “Accounting for the Impairment or Disposal of Long-Lived Assets” requires, among other things, that an entity review its long-lived assets for impairment whenever changes in circumstances indicate that the carrying amount of an asset may not be fully recoverable. The Partnership does not believe that any such changes have occurred.

 

Advertising Expense

 

The Partnership expenses advertising costs as they are incurred. Advertising expense was $3,883,000, $3,042,000, and $2,736,000 for the years ended December 31, 2000, 2001, and 2002, respectively.

 

Statements of Cash Flows

 

For purposes of the statements of cash flows, the Partnership considers all highly liquid debt instruments purchased with a maturity of three months or less, at the time of purchase, to be cash equivalents.

 

Recent Accounting Pronouncements

 

In July 2001, the FASB issued Statement No. 141 “Business Combinations” (“SFAS 141”) and Statement No. 142 “Goodwill and Other Intangible Assets” (“SFAS 142”). SFAS 141 is effective as follows: a) use of the pooling-of-interest method is prohibited for business combinations initiated after June 30, 2001; and b) the provisions of SFAS 141 also apply to all business combinations accounted for by the purchase method that are completed after June 30, 2001. SFAS 142 is effective for fiscal years beginning after December 15, 2001 and applies to all goodwill and other intangible assets recognized in an entity’s statement of financial position at that date, regardless of when those assets were initially recognized. The effect of adoption of these pronouncements did not have any impact on the Partnership.

 

In July 2001, the FASB issued SFAS No. 143, “Accounting for Asset Retirement Obligations.” This standard addresses the financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. The standard is effective for fiscal years beginning after June 15, 2002. The Partnership does not expect the adoption of SFAS No. 143 to have an impact on the Partnership’s financial position or results of operations.

 

In August 2001, the FASB issued SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets.” This standard addresses financial accounting and reporting for the impairment or disposal of long-lived assets. The standard is effective for fiscal years beginning after December 31, 2001. The Partnership adopted SFAS No.144 on January 1, 2002 and the effect of adoption had no impact to the Partnership.

 

In April, 2002, the FASB issued SFAS No. 145, “Recission of FASB Statements No. 4, 44 and 64, Amendment of FASB Statement No. 13, and Technical Corrections”. SFAS No. 145 requires, among other items, gains or losses of extinguishment of debt to be classified as income (loss) from continuing operations rather than as an extraordinary item as previously required under SFAS No. 4 unless such extinguishment is determined to be extraordinary pursuant to Accounting Principles Board (“APB”) Opinion No. 30, “Reporting the Results of Operations—Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Transactions”. SFAS No.145 was effective for financial statements issued on or after May 15, 2002. The Partnership adopted the provisions of SFAS No. 145 during 2002, and the effect of adoption was not material to the Partnership.

 

In June 2002 the FASB issued SFAS No. 146 “Accounting for Costs Associated with Exit or Disposal Activities”. This pronouncement, which nullifies EITF 94-3, “Liability Recognition for Certain Employee

 

F-10

28


TRUMP’S CASTLE ASSOCIATES, L.P. AND SUBSIDIARY

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

 

Termination Benefits and Other Costs to Exit on Activity (including Certain Costs Incurred in a Restructuring)”, addresses the accounting and reporting for costs associated with exit or disposal activities and is effective for exit or disposal activities initiated after December 31, 2002. The Partnership does not expect the adoption of SFAS No. 146 to have a material impact on the Partnership’s financial position or results of operations.

 

In November 2002, the FASB issued Interpretation No. 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others—an Interpretation of FASB Statements No. 5, 57, and 107 and Rescission of FASB Interpretation No. 34” (“FIN No. 45”). The interpretation requires that upon issuance of a guarantee, the entity must recognize a liability for the fair value of the obligation it assumes under that obligation. This interpretation is intended to improve the comparability of financial reporting by requiring identical accounting for guarantees issued with separately identified consideration and guarantees issued without separately identified consideration. For the Partnership, the initial recognition, measurement provision and disclosure requirements of FIN No. 45 are applicable to guarantees issued or modified after December 31, 2002. The Partnership is currently evaluating what impact, if any, adoption of FIN No. 45 will have on its financial position, results of operations, or liquidity.

 

In January 2003, the FASB issued Interpretation No. 46, “Consolidation of Variable Interest Entities” (“FIN No. 46”). This interpretation clarifies the application of Accounting Research Bulletin No. 51, “Consolidated Financial Statements,” to certain entities in which equity investors do not have the characteristics of a controlling financial interest or do not have sufficient subordinated financial support from other parties. FIN No. 46 applies immediately to variable interest entities created after January 31, 2003, and to variable interest entities in which an enterprise obtains an interest after that date. For existing variable interest entities, the consolidated requirement is effective for interim or annual financial statements beginning after June 15, 2003. The Partnership does not believe that it has any variable interest entities, which will be subject to consolidation pursuant to Fin No. 46.

 

Reclassifications

 

Certain reclassifications and disclosures have been made to the prior period financial statements in order to conform to the 2002 presentation.

 

(3)    Long-Term Debt

 

Long-term debt consists of:

 

    

December 31, 2001


  

December 31, 2002


Mortgage Notes, due 2003
(Net of discount of $13,137,000 and $7,054,000, respectively)

  

$

229,004,000

  

$

235,087,000

PIK Notes, due 2005
(Net of discount of $4,991,000 and $4,089,000, respectively)

  

 

133,356,000

  

 

152,063,000

Senior Notes

  

 

62,000,000

  

 

—  

Working Capital Loan

  

 

5,000,000

  

 

—  

Term Credit Facility, due 2003

  

 

—  

  

 

70,000,000

Capital lease obligations

  

 

8,201,000

  

 

11,580,000

    

  

Total debt

  

 

437,561,000

  

 

468,730,000

Less-current maturities

  

 

4,385,000

  

 

309,256,000

    

  

Long-term debt

  

$

433,176,000

  

$

159,474,000

    

  

 

F-11

29


TRUMP’S CASTLE ASSOCIATES, L.P. AND SUBSIDIARY

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

 

 

The Mortgage Notes bear interest at 11 3/4%, payable in cash semiannually, and mature on November 15, 2003. The Mortgage Notes may be redeemed at Funding’s option at a rate of 100% through their maturity date. If the Mortgage Notes are called for redemption, there is a 30 day call period where the Mortgage Notes remain outstanding and continue to accrue interest pursuant to the terms of the Mortgage Note Indenture.

 

The PIK Notes bear interest at 13 7/8% payable at Funding’s option in whole or in part in cash and through the issuance of additional PIK Notes through November 15, 2003. After November 15, 2003, interest on the PIK 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 a specified percentage is required to be redeemed from the proceeds of any equity offering of the Partnership. If the PIK Notes are called for redemption, there is a 30 day call period where the PIK Notes remain outstanding and continue to accrue interest pursuant to the terms of the PIK Note Indenture. Interest payments of $15,188,000, $17,368,000 and $17,805,000 in 2000, 2001 and 2002, respectively, were satisfied by the issuance of additional PIK Notes. THCR Holdings owns approximately 91% of the PIK Notes.

 

The terms of both the Mortgage Notes and PIK Notes include limitations on the amount of additional indebtedness the Partnership may incur, distributions, investments and other business activities of the Partnership.

 

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 Marina 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 Marina. The Partnership Note and the Guaranty are expressly subordinated to the indebtedness of the Term Credit Facility and the liens on the mortgages securing the Partnership Note and the Guaranty are subordinate to the liens securing the Term Credit Facility.

 

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 Term Credit Facility, the Partnership Note and the Guaranty.

 

On June 12, 2002, the Partnership entered into a $70,000,000 term credit facility (the “Term Credit Facility”) which matures on November 1, 2003 and bears interest at a rate based on the Eurodollar rate (LIBOR based) (6.9375% as of December 31, 2002). The Term Credit Facility is secured by substantially all of the Partnership’s assets on a first priority basis. On July 12, 2002, the net proceeds from the Term Credit Facility were used to redeem the Senior Notes and Working Capital Loan.

 

The Partnership has entered into various capital leases which are secured by the related equipment. These leases mature on various dates during the years 2003 through 2005.

 

F-12

30


TRUMP’S CASTLE ASSOCIATES, L.P. AND SUBSIDIARY

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

 

 

Future minimum payments under capital leases as of December 31, 2002, are as follows:

 

2003

  

$

5,627,000

2004

  

 

4,945,000

2005

  

 

3,590,000

    

Total minimum payments

  

 

14,162,000

Less: amount representing interest

  

 

2,582,000

    

Present value of minimum lease payments

  

$

11,580,000

    

 

The aggregate maturities of long-term debt, including capital leases, as of December 31, 2002 are as follows:

 

2003

  

$

316,310,000

2004

  

 

4,093,000

2005

  

 

159,470,000

    

    

$

479,873,000

    

 

The ability of the Partnership and Funding to pay their indebtedness when due, will depend on the ability of the Partnership 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. Cash flow from operations will not be sufficient to repay a substantial portion of the principal amount of the debt at maturity. 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, TCHI 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 or the receptiveness of the capital markets to the gaming industry will be conducive to refinancing this debt or other attempts to raise capital.

 

(4)    Related Party Transactions

 

Trump Management Fee

 

The Partnership has a Services Agreement (the “Services Agreement”) with Trump Casinos II, Inc. (“TCI-II”), a corporation wholly-owned by Donald J. Trump (“Trump”). Pursuant to the terms of the Services Agreement, TCI-II 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 of the Partnership may reasonably request.

 

Pursuant to the Services Agreement, the Partnership is required to pay an annual fee in the amount of $1,500,000 to TCI-II for each year in which Earnings Before Interest, Taxes, Depreciation and Amortization (“EBITDA”), as defined, exceeds $50,000,000. In addition, if the annual fee is attained, TCI-II is to receive an incentive fee equal to 10% of the excess EBITDA over $45,000,000 for such fiscal years. The Services Agreement expires on December 31, 2005.

 

For the years ended December 31, 2000, 2001 and 2002, the Partnership incurred fees and expenses of $2,306,000, $2,207,000 and $3,454,000, respectively related to the Services Agreement.

 

The Services Agreement will be terminated upon consummation of the offering.

 

F-13

31


TRUMP’S CASTLE ASSOCIATES, L.P. AND SUBSIDIARY

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

 

 

Partnership Agreement

 

Under the terms of the Partnership Agreement and the Services Agreement, the Partnership is required to pay all costs incurred by TCI-II. For the years ended December 31, 2000, 2001 and 2002, the Partnership paid no expenses on behalf of TCI-II.

 

Transactions with Affiliates

 

At December 31, 2001 and 2002, amounts due to affiliates were $8,184,000 and $4,381,000, respectively. The Partnership has engaged in limited intercompany transactions with Trump Plaza Associates (“Plaza Associates”), Trump Taj Mahal Associates (“Taj Associates”), Trump Administration, a division of Taj Associates (“Trump Administration”), THCR, and the Trump Organization, all of which are affiliates of Trump.

 

Beginning in late 1997, the Partnership has utilized certain facilities owned by Trump to entertain high-end customers. Management believes that the ability to utilize these facilities has enhanced the Partnerships’ revenues. In 2000, 2001 and 2002, the Partnership incurred approximately $173,000, $7,000 and $10,000, respectively, for customer costs associated with such utilization. Also, in exchange for having Trump’s plane available to customers of Trump Marina, the Partnership has incurred pilot costs of approximately $60,000, $60,000 and $76,000 for the years ended December 31, 2000, 2001 and 2002.

 

Trump Casino Services, L.L.C. (“TCS”), formed in 1996 for the purpose of realizing cost savings and operational synergies, provided certain administrative functions and certain services to Plaza Associates, Taj Associates and the Partnership. Effective December 31, 2000, TCS was merged into Taj Associates, and the obligations and administrative duties and responsibilities of TCS were assumed by Trump Administration, a division of Taj Associates. Management believes that Trump Administration’s services will continue to result in substantial cost savings and operational synergies for Plaza Associates, Taj Associates and the Partnership. Amounts charged to the Partnership by Trump Administration for these services were $4,902,000, $3,499,000, and $3,391,000 for the years ended December 31, 2000, 2001, and 2002.

 

(5)    Commitments and Contingencies

 

Casino License Renewal

 

The Partnership is subject to regulation and licensing by the New Jersey Casino Control Commission (the “CCC”). The Partnership’s casino license must be renewed periodically, is not transferable, is dependent upon the financial stability of the Partnership and can be revoked at any time. Due to the uncertainty of any license renewal application, there can be no assurance that the license will be renewed. Upon revocation, suspension for more than 120 days, or failure to renew the casino license due to the Partnership’s financial condition or for any other reason, the Casino Control Act provides that the CCC may appoint a conservator to take possession of and title to the hotel and casino’s business and property, subject to all valid liens, claims and encumbrances. The Partnership’s license, which is subject to certain continuing reporting and compliance conditions, expires in May 2003, and the Partnership is currently renewing such license with the CCC.

 

Self Insurance Reserves

 

Self insurance reserves represent the estimated amounts of uninsured claims related to employee health medical costs, workers’ compensation, general liability 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, with consideration of incurred but not reported claims as of the balance sheet date. The costs of the ultimate disposition of these claims may differ from these reserve amounts.

 

F-14

32


TRUMP’S CASTLE ASSOCIATES, L.P. AND SUBSIDIARY

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

 

 

Leases

 

The Partnership has entered into leases for certain property (primarily land), advertising billboards, and various equipment under operating leases. Rent expense for the years ended December 31, 2000, 2001 and 2002 was $2,913,000, and $3,117,000 and $4,009,000, respectively.

 

Future minimum lease payments under the noncancellable operating leases are as follows:

 

2003

  

$

872,000

2004

  

 

500,000

2005

  

 

504,000

2006

  

 

450,000

2007

  

 

450,000

Thereafter

  

 

3,400,000

    

    

$

6,176,000

    

 

Certain of these leases contain options to purchase the leased properties at various prices throughout the leased terms.

 

Employment Agreements

 

The Partnership has entered into employment agreements with certain key employees which will expire on various dates through July 31, 2005. Total minimum commitment on these agreements at December 31, 2002 was approximately $1,552,000.

 

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 Casino Control Act, the Partnership must either obtain investment tax credits, as defined in the Casino Control Act, in an amount equivalent to 1 1/4% of its gross casino revenues, as defined in the Casino Control Act, or pay an alternative tax of 2 1/2% 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 rates. The Partnership is required to make quarterly deposits with the CRDA to satisfy its investment obligations.

 

For the years ended December 31, 2000, 2001 and 2002, the Partnership charged to operations $3,680,000, $1,432,000 and $3,762,000, respectively, to give effect to the below market interest rates and valuation allowance adjustments associated with CRDA deposits and bonds. From time to time, the Partnership has elected to donate funds it has on deposit with the CRDA for various projects. Donations in the amounts of $5,769,000, $682,000 and $3,957,000 were made during the years ended December 31, 2000, 2001 and 2002, respectively. As a result of these donations, the Partnership charged to operations $2,553,000, $303,000 and $2,638,000 during the years ended December 31, 2000, 2001 and 2002, respectively.

 

F-15

33


TRUMP’S CASTLE ASSOCIATES, L.P. AND SUBSIDIARY

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

 

 

(6)    Debt Renegotiation Costs

 

The Partnership was seeking to refinance or modify the terms of their long-term debt throughout 2002. For those refinancing efforts that the Partnership decided not to pursue, the Partnership has expensed the costs related to these efforts in the accompanying statement of operations. Such costs included $121,000 in travel related expenses which were paid to an entity which is affiliated to the Chairman of THCR.

 

(7)    Employee Benefit Plans

 

The Partnership participates in a retirement savings plan, Trump Capital Accumulation Plan, for its nonunion employees under Section 401(k) of the Internal Revenue Code. Employees are eligible to contribute up to 20% of their earnings (as defined) 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 6% of the employee’s earnings. The Partnership recorded charges of approximately $1,086,000, $1,090,000 and $1,029,000 for matching contributions for the years ended December 31, 2000, 2001 and 2002, respectively.

 

The Partnership makes payments to various trusteed multi-employer 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 or if the Partnership withdraws from participation in such plans. Pension expense charged to operations for the years ended December 31, 2000, 2001 and 2002 was $1,054,000, $1,281,000 and $1,301,000, respectively.

 

The Partnership provides no other material post employment benefits.

 

(8)    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, receivables and payables based on the short-term nature of these financial instruments, (b) CRDA bonds and deposits based on the allowances to give effect to the below market interest rates, and (c) Term Credit Facility based upon the current interest rate being reflective of fair value.

 

The fair values of the Mortgage Notes and PIK Notes are based on quoted market prices as follows:

 

    

December 31, 2001


    

Carrying

Amount


  

Fair Value


Mortgage Notes

  

$

229,004,000

  

$

186,449,000

PIK Notes

  

$

133,356,000

  

$

74,707,000

    

December 31, 2002


    

Carrying Amount


  

Fair Value


Mortgage Notes

  

$

235,087,000

  

$

234,877,000

PIK Notes

  

$

152,063,000

  

$

135,851,000

 

At December 31, 2001, there were no quoted market prices for the Partnership’s Senior Notes and Working Capital Loan. A reasonable estimate of their value could not be made without incurring excessive costs.

 

 

F-16

34


TRUMP’S CASTLE ASSOCIATES, L.P. AND SUBSIDIARY

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

 

 

(9)    Financial Information of Funding

 

Financial information relating to Funding is as follows:

 

    

December 31,

2001


  

December 31,

2002


Assets:

             

Mortgage Notes Receivable, net of unamortized discount of $13,137,000 and $7,054,000

  

$

229,004,000

  

$

235,087,000

PIK Notes Receivable, net of unamortized discount of $4,991,000 and $4,089,000

  

 

133,356,000

  

 

152,063,000

Senior Notes Receivable

  

 

62,000,000

  

 

—  

    

  

Total Assets

  

$

424,360,000

  

$

387,150,000

    

  

Liabilities and Capital:

             

Mortgage Notes Payable, net of unamortized discount of $13,137,000 and $7,054,000

  

$

229,004,000

  

$

235,087,000

PIK Notes Payable, net of unamortized discount of $4,991,000 and $4,089,000

  

 

133,356,000

  

 

152,063,000

Senior Notes Payable

  

 

62,000,000

  

 

—  

    

  

Total Liabilities and Capital

  

$

424,360,000

  

$

387,150,000

    

  

    

For the Years Ended December 31,


    

2001


  

2002


Interest Income

  

$

58,322,000

  

$

58,702,000

Interest Expense

  

 

58,322,000

  

 

58,702,000

    

  

Net Income

  

$

—  

  

$

—  

    

  

 

(10)    Financial Information of TCHI

 

Financial information relating to TCHI is as follows:

 

    

December 31, 2001


  

December 31, 2002


               

Total Assets (including Working Capital Loan Receivable of $5,000,000 at December 31, 2001)

  

$

5,000,000

  

$

—  

    

  

Total Liabilities and Capital (including Working Capital Loan Payable of $5,000,000 at December 31, 2001)

  

$

5,000,000

  

$

—  

    

  

    

For the Years Ended December 31,


    

2001


  

2002


Interest Income

  

$

515,000

  

$

273,000

Interest Expense

  

 

515,000

  

 

273,000

    

  

Net Income

  

$

—  

  

$

—  

    

  

 

F-17

35


TRUMP’S CASTLE ASSOCIATES, L.P. AND SUBSIDIARY

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

 

 

(11)    Quarterly Financial Data (unaudited)

 

    

2001


 
    

First Quarter


    

Second Quarter


    

Third Quarter


    

Fourth Quarter


 

Net Revenues (Restated)

  

$

57,462,000

 

  

$

60,987,000

 

  

$

72,208,000

 

  

$

62,262,000

 

Income from Operations

  

 

3,798,000

 

  

 

6,046,000

 

  

 

13,126,000

 

  

 

7,625,000

 

Net Loss

  

 

(10,594,000

)

  

 

(8,623,000

)

  

 

(1,875,000

)

  

 

(7,760,000

)

    

2002


 
    

First Quarter


    

Second Quarter


    

Third Quarter


    

Fourth Quarter


 

Net Revenues (Restated)

  

$

63,212,000

 

  

$

68,490,000

 

  

$

76,858,000

 

  

$

61,689,000

 

Income from Operations

  

 

8,464,000

 

  

 

10,030,000

 

  

 

13,611,000

 

  

 

2,521,000

 

Net Loss

  

 

(7,112,000

)

  

 

(5,677,000

)

  

 

(3,388,000

)

  

 

(13,655,000

)

 

During the quarter ended September 30, 2002, the Partnership reclassified certain costs (primarily bus coin) from costs and expenses to promotional allowances to be consistent with prevailing industry practices. Such amounts totaled $886,000, $804,000, $636,000, $499,000 for the three months ended March 31, 2001, June 30, 2001, September 30, 2001, and December 31, 2001 and $590,000 and $606,000 for the three months ended March 31, 2002 and June 30, 2002, respectively. All prior periods in the accompanying financial statements have been restated related to this reclassification.

 

(12)    Pending Transactions

 

Trump Casino Holdings, LLC (“TCH”), a wholly owned subsidiary of THCR, is currently seeking to issue, in one or more private placement transactions, Mortgage Notes (“Notes”). Pursuant to the terms of such transactions as currently contemplated, the Partnership would legally change its name to Trump Marina Associates, L.P. and would become a wholly owned subsidiary of TCH. THCR and TCH currently anticipate using a portion of the proceeds of the Notes to redeem all of the outstanding principal balance of the Mortgage Notes due in 2003, the PIK Notes held outside THCR due in 2005, and the Term Credit Facility due in 2003. Additionally, upon the successful completion of the Offering Memorandum and the issuance of the Notes, the PIK Notes held by THCR will be contributed to the Partnership and retired. There can be no assurance that the issuance of the Notes and the related transactions discussed above will occur.

 

 

F-18

36


SCHEDULE II

 

TRUMP’S CASTLE ASSOCIATES, L.P. AND SUBSIDIARY

 

SCHEDULE II—VALUATION AND QUALIFYING ACCOUNTS

 

    

Balance at Beginning of Period


  

Charged to Costs and Expenses


  

Other Changes (Deductions)


      

Balance at End of Period


YEAR ENDED DECEMBER 31, 2000:

                               

Allowance for doubtful accounts

  

$

2,001,000

  

$

1,318,000

  

$

(1,105,000

)(A)

    

$

2,214,000

    

  

  


    

Valuation allowance for CRDA investments

  

$

5,819,000

  

$

3,680,000

  

$

(4,513,000

)(B)

    

$

4,986,000

    

  

  


    

YEAR ENDED DECEMBER 31, 2001:

                               

Allowance for doubtful accounts

  

$

2,214,000

  

$

1,313,000

  

$

(675,000

)(A)

    

$

2,852,000

    

  

  


    

Valuation allowance for CRDA investments

  

$

4,986,000

  

$

1,432,000

  

$

(1,569,000

)(B)

    

$

4,849,000

    

  

  


    

YEAR ENDED DECEMBER 31, 2002:

                               

Allowance for doubtful accounts

  

$

2,852,000

  

$

2,100,000

  

$

(2,477,000

)(A)

    

$

2,475,000

    

  

  


    

Valuation allowance for CRDA investments

  

$

4,849,000

  

$

3,762,000

  

$

(4,051,000

)(B)

    

$

4,560,000

    

  

  


    


(A)   Write-off of uncollectible accounts.
(B)   Reversal of allowance applicable to contribution of CRDA investments.

 

F-19

37


 

REPORT OF INDEPENDENT AUDITORS

 

Stockholder of

Trump Indiana, Inc.

 

We have audited the accompanying balance sheet of Trump Indiana, Inc. as of December 31, 2002, and the related statements of operations, capital and cash flows for the year then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audit.

 

We conducted our audit in accordance with auditing standards generally accepted in the United States. 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 audit provides 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 Indiana, Inc. at December 31, 2002, and the results of its operations and its cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States.

 

 
   

/S/    ERNST & YOUNG LLP

     

 

Philadelphia, Pennsylvania

January 14, 2003

 

F-20

38


THE FOLLOWING REPORT OF ARTHUR ANDERSEN LLP IS A COPY OF A PREVIOUSLY ISSUED REPORT THAT HAS NOT BEEN REISSUED BY ARTHUR ANDERSEN LLP.

 

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

 

To the Stockholder of Trump Indiana, Inc.:

 

We have audited the accompanying balance sheets of Trump Indiana, Inc. (a Delaware corporation) as of December 31, 2001 and 2000, and the related statements of operations, capital and cash flows for the years then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

 

We conducted our audits in accordance with auditing standards generally accepted in the United States. 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 Indiana, Inc. as of December 31, 2001 and 2000, and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States.

 

/s/    ARTHUR ANDERSEN LLP

 

Roseland, New Jersey

March 13, 2002

 

F-21

39


 

TRUMP INDIANA, INC.

 

BALANCE SHEETS

 

    

December 31,

2001


    

December 31,

2002


 

ASSETS

                 

Current assets:

                 

Cash and cash equivalents

  

$

11,863,000

 

  

$

7,897,000

 

Accounts receivable, net of allowance for doubtful accounts of $127,000 and $132,000, respectively

  

 

961,000

 

  

 

920,000

 

Inventories

  

 

237,000

 

  

 

332,000

 

Surety bond and related interest

  

 

1,384,000

 

  

 

1,819,000

 

Prepaid expenses and other current assets

  

 

593,000

 

  

 

1,031,000

 

Due from Buffington Harbor Riverboats, LLC

  

 

216,000

 

  

 

378,000

 

    


  


Total current assets

  

 

15,254,000

 

  

 

12,377,000

 

    


  


Property and equipment:

                 

Building and improvements

  

 

14,707,000

 

  

 

14,717,000

 

Riverboat and improvements

  

 

34,159,000

 

  

 

34,239,000

 

Furniture, fixtures and equipment

  

 

30,180,000

 

  

 

40,211,000

 

    


  


    

 

79,046,000

 

  

 

89,167,000

 

Less accumulated depreciation and amortization

  

 

27,411,000

 

  

 

33,873,000

 

    


  


Net property and equipment

  

 

51,635,000

 

  

 

55,294,000

 

    


  


Other assets:

                 

Investment in Buffington Harbor Riverboats, LLC

  

 

33,889,000

 

  

 

31,842,000

 

Prepaid rent to Buffington Harbor Parking Associates

  

 

8,843,000

 

  

 

9,140,000

 

Other assets, net

  

 

9,194,000

 

  

 

3,576,000

 

    


  


Total other assets

  

 

51,926,000

 

  

 

44,558,000

 

    


  


Total assets

  

$

118,815,000

 

  

$

112,229,000

 

    


  


LIABILITIES AND CAPITAL

                 

Current liabilities:

                 

Current maturities of long-term debt

  

$

5,817,000

 

  

$

6,214,000

 

Accounts payable and accrued expenses

  

 

10,223,000

 

  

 

7,414,000

 

Obligation to City of Gary

  

 

—  

 

  

 

4,975,000

 

    


  


Total current liabilities

  

 

16,040,000

 

  

 

18,603,000

 

    


  


Long-term debt, net of current maturities

  

 

23,067,000

 

  

 

18,742,000

 

Due to THCR Holdings

  

 

42,553,000

 

  

 

32,566,000

 

Obligation to City of Gary

  

 

9,768,000

 

  

 

—  

 

    


  


Total liabilities

  

 

91,428,000

 

  

 

69,911,000

 

    


  


Capital:

                 

Common stock, no par value, 1,500 shares authorized, 100 shares issued and outstanding

  

 

1,000

 

  

 

1,000

 

Additional paid-in capital

  

 

61,801,000

 

  

 

61,801,000

 

Accumulated other comprehensive loss

  

 

(372,000

)

  

 

(938,000

)

Accumulated deficit

  

 

(34,043,000

)

  

 

(18,546,000

)

    


  


Total capital

  

 

27,387,000

 

  

 

42,318,000

 

    


  


Total liabilities and capital

  

$

118,815,000

 

  

$

112,229,000

 

    


  


 

See accompanying notes.

 

F-22

40


 

TRUMP INDIANA, INC.

 

STATEMENTS OF OPERATIONS

 

    

For the Years Ended December 31,


 
    

2000


    

2001


    

2002


 

REVENUES:

                          

Gaming

  

$

119,164,000

 

  

$

123,611,000

 

  

$

128,747,000

 

Hotel

  

 

4,187,000

 

  

 

4,190,000

 

  

 

3,331,000

 

Food and beverage

  

 

3,167,000

 

  

 

3,369,000

 

  

 

2,891,000

 

Other

  

 

1,325,000

 

  

 

1,623,000

 

  

 

1,910,000

 

    


  


  


Gross revenues

  

 

127,843,000

 

  

 

132,793,000

 

  

 

136,879,000

 

Less promotional allowances

  

 

18,986,000

 

  

 

11,890,000

 

  

 

12,877,000

 

    


  


  


Net revenues

  

 

108,857,000

 

  

 

120,903,000

 

  

 

124,002,000

 

    


  


  


COST AND EXPENSES:

                          

Gaming

  

 

62,145,000

 

  

 

65,390,000

 

  

 

63,038,000

 

Hotel

  

 

2,039,000

 

  

 

2,173,000

 

  

 

1,705,000

 

Food and beverage

  

 

4,321,000

 

  

 

4,417,000

 

  

 

4,421,000

 

General and administrative

  

 

31,708,000

 

  

 

28,106,000

 

  

 

27,900,000

 

Debt renegotiation costs

  

 

—  

 

  

 

—  

 

  

 

284,000

 

Depreciation and amortization

  

 

7,768,000

 

  

 

6,306,000

 

  

 

6,250,000

 

    


  


  


    

 

107,981,000

 

  

 

106,392,000

 

  

 

103,598,000

 

    


  


  


Income from operations

  

 

876,000

 

  

 

14,511,000

 

  

 

20,404,000

 

NONOPERATING INCOME (EXPENSE):

                          

Interest income

  

 

585,000

 

  

 

735,000

 

  

 

273,000

 

Interest expense

  

 

(5,675,000

)

  

 

(5,349,000

)

  

 

(3,951,000

)

Other nonoperating income (expense)

  

 

(218,000

)

  

 

100,000

 

  

 

1,219,000

 

    


  


  


Nonoperating expense, net

  

 

(5,308,000

)

  

 

(4,514,000

)

  

 

(2,459,000

)

    


  


  


Income (loss) before equity in loss from Buffington Harbor, LLC and income taxes

  

 

(4,432,000

)

  

 

9,997,000

 

  

 

17,945,000

 

Equity in loss from Buffington Harbor, LLC

  

 

(3,134,000

)

  

 

(2,808,000

)

  

 

(2,448,000

)

Income tax expense

  

 

—  

 

  

 

(150,000

)

  

 

—  

 

    


  


  


Net income (loss)

  

$

(7,566,000

)

  

$

7,039,000

 

  

$

15,497,000

 

    


  


  


 

 

See accompanying notes.

 

 

F-23

41


TRUMP INDIANA, INC.

STATEMENTS OF CAPITAL

 

FOR THE YEARS ENDED DECEMBER 31, 2000, 2001 AND 2002

 

    

Shares of Common Stock


  

Amount


  

Additional Paid-In Capital


  

Accumulated Deficit


    

Accumulated Other Comprehensive Loss


    

Total


 

Balance, December 31, 1999

  

100

  

$

1,000

  

$

53,619,000

  

$

(33,516,000

)

  

$

—  

 

  

$

20,104,000

 

Capital contribution from Trump Hotels & Casino Resorts Holdings, L.P.

  

—  

  

 

—  

  

 

7,732,000

  

 

—  

 

  

 

—  

 

  

 

7,732,000

 

Comprehensive loss:

                                             

Net loss

  

—  

  

 

—  

  

 

—  

  

 

(7,566,000

)

  

 

—  

 

  

 

(7,566,000

)

                                         


Total comprehensive loss

                                       

 

(7,566,000

)

    
  

  

  


  


  


Balance, December 31, 2000

  

100

  

 

1,000

  

 

61,351,000

  

 

(41,082,000

)

  

 

—  

 

  

 

20,270,000

 

Capital contribution from Trump Hotels & Casino Resorts Holdings, L.P.

  

—  

  

 

—  

  

 

450,000

  

 

—  

 

  

 

—  

 

  

 

450,000

 

Comprehensive income:

                                             

Net income

  

—  

  

 

—  

  

 

—  

  

 

7,039,000

 

  

 

—  

 

  

 

7,039,000

 

Adjustment for interest rate swap

  

—  

  

 

—  

  

 

—  

  

 

—  

 

  

 

(372,000

)

  

 

(372,000

)

                                         


Total comprehensive income

                                       

 

6,667,000

 

    
  

  

  


  


  


Balance, December 31, 2001

  

100

  

 

1,000

  

 

61,801,000

  

 

(34,043,000

)

  

 

(372,000

)

  

 

27,387,000

 

Comprehensive income:

                                             

Net income

  

—  

  

 

—  

  

 

—  

  

 

15,497,000

 

  

 

—  

 

  

 

15,497,000

 

Adjustment for interest rate swap

  

—  

  

 

—  

  

 

—  

  

 

—  

 

  

 

(566,000

)

  

 

(566,000

)

                                         


Total comprehensive income

                                       

 

14,931,000

 

    
  

  

  


  


  


Balance, December 31, 2002

  

100

  

$

1,000

  

$

61,801,000

  

$

(18,546,000

)

  

$

(938,000

)

  

$

42,318,000

 

    
  

  

  


  


  


 

 

See accompanying notes.

 

 

F-24

42


 

TRUMP INDIANA, INC.

 

STATEMENTS OF CASH FLOWS

 

    

Year ended December 31


 
    

2000


    

2001


    

2002


 

Cash flows from operating activities

                          

Net income (loss)

  

$

(7,566,000

)

  

$

7,039,000

 

  

$

15,497,000

 

Depreciation and amortization

  

 

7,768,000

 

  

 

6,306,000

 

  

 

6,250,000

 

Amortization of loan costs

  

 

151,000

 

  

 

760,000

 

  

 

450,000

 

Provision for doubtful accounts

  

 

102,000

 

  

 

117,000

 

  

 

203,000

 

Amortization for City of Gary development agreement

  

 

3,700,000

 

  

 

667,000

 

  

 

—  

 

Equity in loss from Buffington Harbor, LLC

  

 

3,134,000

 

  

 

2,808,000

 

  

 

2,448,000

 

Gain (loss) on sale of fixed assets

  

 

(109,000

)

  

 

(126,000

)

  

 

—  

 

Adjustments to reconcile net income (loss) to net cash flows provided by operating activities:

                          

(Increase) decrease in interest receivable

  

 

—  

 

  

 

(306,000

)

  

 

1,201,000

 

(Increase) decrease in accounts receivable

  

 

(289,000

)

  

 

(199,000

)

  

 

(162,000

)

Decrease (increase) in inventories

  

 

39,000

 

  

 

34,000

 

  

 

(95,000

)

Decrease (increase) in prepaid expenses and other current assets

  

 

158,000

 

  

 

(17,000

)

  

 

(436,000

)

(Increase) decrease in other assets

  

 

(8,016,000

)

  

 

(1,895,000

)

  

 

3,444,000

 

Increase (decrease) in accounts payable and accrued expenses

  

 

1,287,000

 

  

 

1,323,000

 

  

 

(2,813,000

)

Increase (decrease) in due to affiliates

  

 

2,515,000

 

  

 

564,000

 

  

 

(10,151,000

)

Decrease in obligation to City of Gary

  

 

—  

 

  

 

(7,233,000

)

  

 

(4,793,000

)

    


  


  


Net cash provided by operating activities

  

 

2,874,000

 

  

 

9,842,000

 

  

 

11,043,000

 

    


  


  


Cash flows from investing activities

                          

Investment in Buffington Harbor Riverboats, LLC

  

 

(1,534,000

)

  

 

(112,000

)

  

 

(401,000

)

Purchase of property and equipment

  

 

(2,379,000

)

  

 

(3,306,000

)

  

 

(9,910,000

)

Proceeds from sale of fixed assets

  

 

2,123,000

 

  

 

322,000

 

  

 

—  

 

    


  


  


Net cash used in investing activities

  

 

(1,790,000

)

  

 

(3,096,000

)

  

 

(10,311,000

)

    


  


  


Cash flows from financing activities

                          

Debt issuance cost

  

 

(290,000

)

  

 

(1,918,000

)

  

 

(208,000

)

Contributed capital

  

 

—  

 

  

 

450,000

 

  

 

—  

 

Repayments of debt

  

 

(6,290,000

)

  

 

(27,341,000

)

  

 

(7,535,000

)

Proceeds from borrowing

  

 

5,000,000

 

  

 

27,500,000

 

  

 

3,045,000

 

    


  


  


Net cash used in financing activities

  

 

(1,580,000

)

  

 

(1,309,000

)

  

 

(4,698,000

)

    


  


  


Net (decrease) increase in cash and cash equivalents

  

 

(496,000

)

  

 

5,437,000

 

  

 

(3,966,000

)

Cash and cash equivalents, beginning of year

  

 

6,922,000

 

  

 

6,426,000

 

  

 

11,863,000

 

    


  


  


Cash and cash equivalents, end of year

  

$

6,426,000

 

  

$

11,863,000

 

  

$

7,897,000

 

    


  


  


 

 

See accompanying notes.

 

F-25

43


TRUMP INDIANA, INC.

NOTES TO FINANCIAL STATEMENTS

 

Years Ended December 31, 2002, 2001 And 2000

 

(1)    Operations

 

Trump Indiana, Inc. (the Company) is a wholly-owned subsidiary of Trump Hotels and Casino Resorts Holdings, L.P. (THCR Holdings). THCR Holdings is currently owned approximately 63.4% by Trump Hotels and Casino Resorts, Inc. (THCR), a Delaware corporation, as both a limited and general partner and approximately 36.6% by Donald J. Trump (Trump) as a limited partner.

 

The Company operates a riverboat (the Riverboat) and a 300 room hotel located at Buffington Harbor on Lake Michigan, approximately 25 miles southeast of downtown Chicago. The Riverboat is one of 11 riverboat gaming projects permitted under current Indiana law and one of five located in northern Indiana.

 

The Company and the Majestic Star Casino, LLC (Barden) are the two holders of certificates of suitability for Buffington Harbor and each owns 50% of Buffington Harbor Riverboats, LLC (BHR). The Company and Barden have entered into an agreement (the BHR Agreement) relating to the joint ownership, development and operation of all common land-based and waterside operations in support of each of the Company’s and Barden’s separate riverboat casinos as Buffington Harbor. The Company and Barden are equally responsible for the operating expenses of the common land-based facilities at such site. There can be no assurance that the Company and/or Barden will be able to fund their respective share of future capital contributions or operating expenses.

 

(2)    Summary of Significant Accounting Policies

 

Use of Estimates

 

The preparation of these financial statements in conformity with generally accepted accounting principles in the United States requires management 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 could differ from those estimates.

 

Revenue Recognition

 

Gaming revenues represent the net win from gaming activities, which is the difference between amounts wagered and amounts won by patrons. Revenues from hotel and other services are recognized at the time the related services are performed.