SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the Quarterly Period Ended March 31, 2002
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ______ to ______
Commission File No.: 333-643
TRUMP ATLANTIC CITY ASSOCIATES
(Exact Name of Registrant as specified in its charter)
New Jersey 22-3213714
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification Number)
1000 Boardwalk at Virginia Avenue
Atlantic City, New Jersey 08401
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (609) 449-6515
Former name, former address and former fiscal year, if changed since last report:
TRUMP ATLANTIC CITY FUNDING, INC.
(Exact Name of Registrant as specified in its charter)
Delaware 22-3418939
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification Number)
1000 Boardwalk at Virginia Avenue
Atlantic City, New Jersey 08401
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (609) 449-6515
Former name, former address and former fiscal year, if changed since last report:
TRUMP ATLANTIC CITY FUNDING II, INC.
(Exact Name of Registrant as specified in its charter)
Delaware 22-3550202
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification Number)
1000 Boardwalk at Virginia Avenue
Atlantic City, New Jersey 08401
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (609) 449-6515
Former name, former address and former fiscal year, if changed since last report:
TRUMP ATLANTIC CITY FUNDING III, INC.
(Exact Name of Registrant as specified in its charter)
Delaware 22-3550203
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification Number)
1000 Boardwalk at Virginia Avenue
Atlantic City, New Jersey 08401
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (609) 449-6515
Former name, former address and former fiscal year, if changed since last report:
Indicate by check mark whether the Registrants (1) have filed all Reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrants were required to file such reports), and (2) have been subject to
such filing requirements for the past 90 days. Yes X No
--
As of May 15, 2002, there were 100 shares of Trump Atlantic City Funding,
Inc.'s Common Stock outstanding.
As of May 15, 2002, there were 100 shareS of Trump Atlantic City Funding
II, Inc.'s Common Stock outstanding.
As of May 15, 2002, there were 100 shares of Trump Atlantic City Funding
III, Inc.'s Common Stock outstanding.
Each of Trump Atlantic City Associates, Trump Atlantic City Funding, Inc.,
Trump Atlantic City Funding II, Inc. and Trump Atlantic City Funding III, Inc.
meets the conditions set forth in General Instruction (H)(1)(a) and (b) of Form
10-Q and is therefore filing this form with the reduced disclosure format.
TRUMP ATLANTIC CITY ASSOCIATES AND SUBSIDIARIES
INDEX TO FORM 10-Q
Page No.
--------
PART I -- FINANCIAL INFORMATION
ITEM 1 -- Financial Statements
Condensed Consolidated Balance Sheets as of December 31, 2001 and March 31, 2002 (unaudited) ..................... 1
Condensed Consolidated Statements of Operations for the Three Months Ended March 31, 2001
and 2002 (unaudited) ............................................................................................ 2
Condensed Consolidated Statement of Capital for the Three Months Ended March 31, 2002 (unaudited) ................ 3
Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2001
and 2002 (unaudited) ........................................................................................... 4
Notes to Condensed Consolidated Financial Statements (unaudited) ................................................. 5-6
ITEM 2 -- Management's Discussion and Analysis of Financial Condition and Results of Operations ................... 7-11
ITEM 3 -- Quantitative and Qualitative Disclosures About Market Risk .............................................. 11
PART II -- OTHER INFORMATION
ITEM 1 -- Legal Proceedings ....................................................................................... 12
ITEM 2 -- Changes in Securities and Use of Proceeds ............................................................... 12
ITEM 3 -- Defaults Upon Senior Securities ......................................................................... 12
ITEM 4 -- Submission of Matters to a Vote of Security Holders ..................................................... 12
ITEM 5 -- Other Information ....................................................................................... 12
ITEM 6 -- Exhibits and Reports on Form 8-K ........................................................................ 12
SIGNATURES
Signature -- Trump Atlantic City Associates ....................................................................... 13
Signature -- Trump Atlantic City Funding, Inc. .................................................................... 14
Signature -- Trump Atlantic City Funding II, Inc. ................................................................. 15
Signature -- Trump Atlantic City Funding III, Inc. ................................................................ 16
i
PART I -- FINANCIAL INFORMATION
ITEM 1 -- FINANCIAL STATEMENTS
TRUMP ATLANTIC CITY ASSOCIATES AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
ASSETS
December 31, March 31,
2001 2002
---------------- ----------------
(unaudited)
CURRENT ASSETS:
Cash and cash equivalents ................................................... $ 70,909 $ 119,092
Receivables, net ............................................................ 31,888 28,877
Inventories ................................................................. 8,620 8,479
Advances to affiliates, net ................................................. 88,842 89,301
Other current assets ........................................................ 6,278 4,991
--------------- ---------------
Total Current Assets ...................................................... 206,537 250,740
PROPERTY AND EQUIPMENT, NET ................................................... 1,277,002 1,268,715
DEFERRED LOAN COSTS, NET ...................................................... 14,839 13,752
OTHER ASSETS (Note 2) ......................................................... 42,075 42,177
--------------- ---------------
Total Assets .............................................................. $ 1,540,453 $ 1,575,384
=============== ===============
LIABILITIES AND CAPITAL
CURRENT LIABILITIES:
Current maturities of long-term debt ........................................ $ 7,266 $ 7,095
Accounts payable and accrued expenses ....................................... 103,893 105,290
Accrued interest payable .................................................... 24,375 60,938
--------------- ---------------
Total Current Liabilities ................................................. 135,534 173,323
LONG-TERM DEBT, net of current maturities ..................................... 1,307,643 1,307,438
OTHER LONG-TERM LIABILITIES ................................................... 17,070 17,070
--------------- ---------------
Total Liabilities ......................................................... 1,460,247 1,497,831
--------------- ---------------
CAPITAL:
Partners' Capital ........................................................... 329,691 329,691
Accumulated Deficit ......................................................... (249,485) (252,138)
--------------- --------------
Total Capital ............................................................. 80,206 77,553
--------------- --------------
Total Liabilities and Capital ............................................. $ 1,540,453 $ 1,575,384
=============== ==============
The accompanying notes are an integral part of these condensed
consolidated balance sheets.
1
TRUMP ATLANTIC CITY ASSOCIATES AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 2001 AND 2002
(unaudited)
(in thousands)
Three Months
Ended March 31,
---------------------------------------
2001 2002
------------------ -----------------
REVENUES:
Gaming ...................................................................... $ 199,780 $ 211,426
Rooms ....................................................................... 12,997 13,715
Food and Beverage ........................................................... 23,110 22,412
Other ....................................................................... 5,606 6,836
------------- ---------------
Gross Revenues ............................................................ 241,493 254,389
Less--Promotional allowances (Note 4) ....................................... 48,538 48,872
------------- ---------------
Net Revenues .............................................................. 192,955 205,517
------------- ---------------
COSTS AND EXPENSES:
Gaming (Note 4) ............................................................. 105,264 100,927
Rooms ....................................................................... 6,078 6,181
Food and Beverage ........................................................... 6,910 7,482
General and Administrative .................................................. 41,141 40,914
Depreciation and Amortization ............................................... 12,625 13,125
Debt Renegotiation Costs (Note 5) ........................................... -- 1,570
------------- ---------------
172,018 170,199
------------- ---------------
Income from operations .................................................... 20,937 35,318
------------- ---------------
NON-OPERATING INCOME AND (EXPENSES):
Interest and Other non-operating income ..................................... 701 248
Interest expense ............................................................ (38,180) (38,219)
------------- ---------------
Non-Operating expense, net ................................................. (37,479) (37,971)
------------- ---------------
NET LOSS ................................................................... $ (16,542) $ (2,653)
============= ==============
The accompanying notes are an integral part of these condensed
consolidated financial statements.
2
TRUMP ATLANTIC CITY ASSOCIATES AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CAPITAL
FOR THE THREE MONTHS ENDED MARCH 31, 2002
(unaudited)
(in thousands)
Partners' Accumulated Total
Capital Deficit Capital
------------- ------------- -------------
Balance, December 31, 2001 ..................................... $ 329,691 $ (249,485) $ 80,206
Net Loss ....................................................... -- (2,653) (2,653)
-------------- -------------- -------------
Balance, March 31, 2002 ........................................ $ 329,691 $ (252,138) $ 77,553
============== ============== =============
The accompanying notes are an integral part of this condensed
consolidated financial statement.
3
TRUMP ATLANTIC CITY ASSOCIATES AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 2001 AND 2002
(unaudited)
(dollars in thousands)
Three Months Ended
March 31,
-----------------------------
2001 2002
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ............................................................................ $ (16,542) $ (2,653)
Adjustments to reconcile net loss to net cash flows from operating activities
-- Noncash charges --
Depreciation and amortization ................................................... 12,625 13,125
Accretion of discounts on indebtedness .......................................... 141 126
Provisions for losses on receivables ............................................ 1,548 1,442
Amortization of deferred loan offering costs .................................... 1,218 1,087
Valuation allowance of CRDA investments ......................................... 1,238 1,118
(Increase) decrease in receivables ............................................... (4,665) 1,567
Decrease in inventories .......................................................... 278 142
Decrease (increase) in advances to affiliates .................................... 3,279 (459)
Decrease in other current assets ................................................. 1,316 1,028
(Increase) decrease in other assets .............................................. (152) 1,226
Increase in accounts payable, accrued expenses and other liabilities ............. 42,321 37,940
------------ ------------
Net cash provided by operating activities ....................................... 42,605 55,689
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment ............................................... (1,965) (3,015)
Purchase of CRDA investments ..................................................... (2,411) (2,534)
------------ ------------
Net cash used in investing activities ........................................... (4,376) (5,549)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments and current maturities of long-term debt ............................... (1,193) (1,957)
------------ ------------
Net cash used in financing activities .......................................... (1,193) (1,957)
------------ ------------
NET INCREASE IN CASH & CASH EQUIVALENTS ............................................... 37,036 48,183
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD ...................................... 67,205 70,909
------------ ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD ............................................ $ 104,241 $ 119,092
============ ============
CASH INTEREST PAID .................................................................... $ 1,078 $ 483
Supplemental Disclosure of noncash activities: ============ ============
Purchase of property and equipment under capitalized lease obligations ................ $ 2,491 $ 1,455
============ ============
The accompanying notes are an integral part of these condensed
consolidated financial statements.
4
TRUMP ATLANTIC CITY ASSOCIATES AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
(1) Organization and Operations
The accompanying condensed consolidated financial statements include those
of Trump Atlantic City Associates ("Trump AC"), a New Jersey general partnership
and its subsidiaries: (i) Trump Plaza Associates, a New Jersey general
partnership ("Plaza Associates") which owns and operates the Trump Plaza Hotel
and Casino located in Atlantic City, New Jersey ("Trump Plaza"), (ii) Trump Taj
Mahal Associates, a New Jersey general partnership ("Taj Associates") which owns
and operates the Trump Taj Mahal Casino Resort located in Atlantic City, New
Jersey (the "Taj Mahal"), (iii) Trump Atlantic City Funding, Inc. ("Trump AC
Funding"), (iv) Trump Atlantic City Funding II, Inc. ("Trump AC Funding II"),
(v) Trump Atlantic City Funding III, Inc. ("Trump AC Funding III"), (vi) Trump
Atlantic City Corporation ("TACC"), and (vii) Trump Administration, a separate
division of Taj Associates ("Trump Administration"). Trump AC's sole sources of
liquidity are distributions in respect of its interests in Plaza Associates and
Taj Associates. Trump AC is 100% beneficially owned by Trump Hotels & Casino
Resorts Holdings, L.P., a Delaware limited partnership ("THCR Holdings") of
which Trump Hotels & Casino Resorts, Inc. ("THCR") is the sole general partner.
Trump AC, Trump AC Funding, Trump AC Funding II and Trump AC Funding III have no
independent operations and, therefore, their ability to service debt is
dependent upon the successful operations of Plaza Associates and Taj Associates.
There are no restrictions on the ability of the guarantors (the "Subsidiary
Guarantors") of the 11 1/4% First Mortgage Notes due 2006 of Trump AC and Trump
AC Funding, of Trump AC and Trump AC Funding II and of Trump AC and Trump AC
Funding III (the "Trump AC Mortgage Notes") to distribute funds to Trump AC.
The separate financial statements of the Subsidiary Guarantors have not
been included because (i) the Subsidiary Guarantors constitute all of Trump AC's
direct and indirect subsidiaries; (ii) the Subsidiary Guarantors have fully and
unconditionally guaranteed the Trump AC Mortgage Notes on a joint and several
basis; (iii) the aggregate assets, liabilities, earnings and equity of the
Subsidiary Guarantors are substantially equivalent to the assets, liabilities,
earnings and equity of Trump AC on a consolidated basis; and (iv) the separate
financial and other disclosures concerning the Subsidiary Guarantors are not
deemed material to investors. The assets and operations of the nonguarantor
subsidiaries are not significant.
All significant intercompany balances and transactions have been eliminated
in the accompanying condensed consolidated financial statements.
The accompanying condensed consolidated financial statements have been
prepared without audit. In the opinion of management, all adjustments,
consisting of only normal recurring adjustments necessary to present fairly the
financial position, the results of operations and cash flows for the periods
presented, have been made.
The accompanying condensed consolidated financial statements have been
prepared pursuant to the rules and regulations of the Securities and Exchange
Commission ("SEC"). Accordingly, certain information and note disclosures
normally included in financial statements prepared in conformity with accounting
principles generally accepted in the United States have been condensed or
omitted.
These condensed consolidated financial statements should be read in
conjunction with the consolidated financial statements and notes thereto
included in the Registrants' Annual Report on Form 10-K for the year ended
December 31, 2001 filed with the SEC and available on the SEC's website,
www.sec.gov.
The casino industry in Atlantic City is seasonal in nature; therefore,
results of operations for the three months ended March 31, 2002 are not
necessarily indicative of the operating results for a full year.
Reclassifications
Certain reclassifications have been made to prior year financial statements
to conform to the current year presentation.
(2) Other Assets
Plaza Associates is appealing a real estate tax assessment by the City of
Atlantic City. Included in other assets at December 31, 2001 and March 31, 2002
is $8,014,000 which Plaza Associates believes will be recoverable on settlement
of the appeal.
5
(3) Combined Financial Information--Trump AC Funding, Trump AC Funding II, and
Trump AC Funding III.
Combined financial information relating to Trump AC Funding, Trump AC
Funding II and Trump AC Funding III is as follows:
December 31, March 31,
2001 2002
--------------- ----------------
(unaudited)
Total Assets (including notes receivable of $1,298,266,000 at
December 31, 2001 and $1,298,392,000 at March 31, 2002 and
related interest receivable) ................................. $ 1,322,641,000 $ 1,359,330,000
================ =================
Total Liabilities and Capital (including notes payable of
$1,298,266,000 at December 31, 2001 and $1,298,392,000 at
March 31, 2002 and related interest payable) ................. $ 1,322,641,000 $ 1,359,330,000
================ =================
Three Months Ended March 31,
2001 2002
----------------- -----------------
Interest Income ................................................. $ 36,562,000 $ 36,562,000
----------------- -----------------
Interest Expense ................................................ 36,562,000 36,562,000
----------------- -----------------
Net Income ...................................................... $ -- $ --
================= =================
(4) Recent Accounting Pronouncement
In January 2001, the Emerging Issues Task Force ("EITF") reached a
consensus on certain issues within Issue No. 00-22, "Accounting for `Points' and
Certain Other Time-Based or Volume-Based Sales Incentive Offers, and Offers for
Free Products or Services to Be Delivered in the Future" ("EITF 00-22").
Application of EITF 00-22 is required for interim and annual periods ending
after February 15, 2001. EITF 00-22 requires volume-based cash rebates to be
classified as a reduction of revenue. Accordingly, such additional rebates of
$19,603,000 in the three months ended March 31, 2001 have been reclassified as
promotional allowances. The Partnership previously classified these
expenditures as a gaming expense. Prior period amounts have been reclassified
to conform with the current presentation.
(5) Debt Renegotiation Costs
Trump AC was seeking to refinance or modify the terms of the Trump AC
Mortgage Notes which were approximately $1,300,000,000 aggregate principal
amount as of March 31, 2002. Trump AC has incurred approximately $1,570,000 in
Debt Renegotiation Costs in the three months ended March 31, 2002. Trump AC has
since terminated such efforts.
6
Item 2 --MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
This report includes "forward-looking statements" within the meaning of
Section 21E of the Securities Exchange Act of 1934. All statements other than
statements of historical facts included in this report regarding the prospects
of our industry or our prospects, plans, financial position or business
strategy, may constitute forward-looking statements. In addition,
forward-looking statements generally can be identified by the use of
forward-looking words such as "may," "will," "expect," "intend," "estimate,"
"anticipate," "believe," "plans," "forecasts" or "continue" or the negatives of
these terms or variations of them or similar terms. Although we believe that the
expectations reflected in these forward-looking statements are reasonable, we
cannot assure you that these expectations will prove to be correct. Important
factors that could cause actual results to differ materially from our
expectations include business, competition, regulatory and other uncertainties
and contingencies discussed in this report that are difficult or impossible to
predict and which are beyond our control. All subsequent written and oral
forward-looking statements attributable to us or persons acting on our behalf
are expressly qualified in their entirety by the cautionary statements included
in this document. These forward-looking statements speak only as of the date of
this report. We do not intend to update these statements unless the securities
laws require us to do so.
In this section, the words "Company," "we," "our," "ours," and "us" refer
to Trump Atlantic City Associates ("Trump AC") and its wholly owned
subsidiaries, unless otherwise noted. Trump AC owns and operates the Trump Plaza
Hotel and Casino ("Trump Plaza") and the Trump Taj Mahal Casino Resort (the "Taj
Mahal") collectively ("the Trump AC Properties"). Terms not defined in this
section shall have the meanings ascribed to them elsewhere in this Quarterly
Report on Form 10-Q.
General
The Company Has Substantial Indebtedness.
The Company has substantial indebtedness. At March 31, 2002, the Company's
long-term debt was approximately $1.3 billion and its ratio of debt to capital
was approximately 17 to 1. Interest expense as a percentage of net revenues was
19.8% and 18.5% for the three months ended March 31, 2001 and 2002,
respectively.
The Company previously announced its intention to seek to refinance or
modify the terms of the Trump AC Mortgage Notes, which were approximately $1.3
billion aggregate principal amount as of March 31, 2002. The primary reason to
refinance or modify the Trump AC Mortgage Notes is to extend their maturity and
to reduce the high levels of interest expense associated with such indebtedness
in order to devote more resources to capital expenditures at the Trump AC
Properties. Capital expenditures, such as room refurbishments, amenity upgrades
and new gaming equipment, are necessary to preserve the competitiveness of the
Trump AC Properties. The Atlantic City market is very competitive and is
anticipated to become more competitive in the future. Management believes that
the Company must provide for capital expenditures that it believes are necessary
to compete effectively.
The Company had retained financial advisors to provide financial advisory
services in connection with these matters. In February 2002, we had discussions
with a committee comprised of certain holders of the Trump AC Mortgage Notes
(the "TAC Notes Committee"). Discussions with the TAC Notes Committee did not
result in a transaction, and we have not had any subsequent meetings with the
TAC Notes Committee. Also, we have terminated our agreement with our financial
advisor pertaining to the Trump AC Mortgage Notes.
The Company may seek to modify or refinance the Trump AC Mortgage Notes in
the future if market conditions are favorable, although no transaction is
imminent and there can be no assurances that a transaction will occur or be
proposed in the future. As noted above, however, management believes that, based
upon its current cash flow forecasts for 2002, Trump AC will have sufficient
cash flows to meet its debt service and operating expense requirements
throughout 2002 without a transaction.
The ability of Trump AC and its subsidiaries to pay interest on and
principal of approximately $1.3 billion in Trump AC Mortgage Notes depends
primarily on the ability of Trump Plaza and the Taj Mahal to generate cash from
operations sufficient for such purposes. In the case of principal payments at
maturity, the ability to refinance such indebtedness is also important. The
future operating performance of Trump Plaza and the Taj Mahal is subject to
general economic conditions, industry conditions, including competition and
regulatory matters, and numerous other factors, many of which are unforeseeable
or are beyond the control of Trump Plaza and the Taj Mahal. There can be no
assurance that the future operating performance of Trump Plaza and the Taj Mahal
will be sufficient to generate the cash flows required to meet the debt service
obligations of Trump Plaza, Taj Mahal or Trump AC. The ability of Trump Plaza,
Taj Mahal and Trump AC to pay the principal amount of their public debt at
maturity (whether scheduled or by acceleration thereof) is primarily dependent
upon their ability to obtain refinancing. There is also no assurance that the
general state of the economy, the status of the capital markets generally, or
the receptiveness of the capital markets to the gaming industry or to the
Company will be conducive to refinancing debt at any given time.
7
The ability of Trump AC to distribute funds to THCR is also limited by
various covenants that bind such companies, including financial ratios that
require certain levels of cash flow be achieved as a condition to the
distribution of funds to THCR.
We Do Not Know How the Borgata, When Opened, Will Affect Us.
In September 2000, Boyd Gaming and MGM Mirage commenced their joint
development of a 25-acre site located in the Marina District of Atlantic City
for the construction of the "Borgata," a Tuscan-style casino expected to feature
a 40-story tower with 2,010 rooms and suites, as well as a 135,000 square-foot
casino, restaurants, retail shops, a spa and pool, and entertainment venues.
Construction of the Borgata is scheduled to be completed in the third quarter of
2003, and is estimated to cost approximately $1.0 billion. While we believe that
the opening of the Borgata will attract additional visitors to Atlantic City,
especially to the Marina district which could benefit our Trump Marina property,
it is also possible that the Borgata could have an adverse effect on the
business and operations of the Trump AC Properties. This potential adverse
effect could include a reduction in net revenues caused by a loss of gaming
patrons. Also, substantial new expansion and development activity has recently
been completed or has been announced in Atlantic City which further intensifies
competitive pressure in the Atlantic City market and which could have an adverse
effect on our patronage and revenues.
New York Has Enacted Gaming Legislation Which May Harm Our Trump Atlantic
City Properties and Other States May Do So In The Future.
In October 2001, the New York State legislature passed extensive
legislation that could adversely affect the Company. The legislation permits
three new casinos in western New York, one in Niagra Falls, one in Buffalo and
one on land owned by the Seneca Indian Nation, all of which would be owned by
the Seneca Indian Nation. It is possible that the Niagara Falls and Buffalo
casinos could be open within a year. The legislation also permits up to three
casinos in the Catskills in Ulster and Sullivan counties, also to be owned by
Native Americans, which could open as early as mid-2005. In addition, slot
machines would be allowed to be placed in Indian-owned casinos. Video lottery
terminals would be installed and five horse racing tracks across the state of
New York and, if local governments approve, at certain other tracks. Finally,
the law provides for New York joining the Powerball lottery that operates in 26
states with large jackpots. The net effect of these facilities and other items,
when operational, on Atlantic City cannot be predicted. The Company believes,
however, that a substantial amount of existing and potential new gaming
customers could patronize such facilities instead of Atlantic City, at least
occasionally. On January 29, 2002, a lawsuit was commenced contesting the above
legislation package on the grounds that certain of its provisions were adopted
in violation of the State's constitution. The likely outcome of this lawsuit
cannot be ascertained at this time.
We also believe that Ohio, Pennsylvania, Virginia and Delaware are among
the other states currently contemplating some form of gaming legislation. Since
our market is primarily a drive-to market, legalized gambling in one or more
states neighboring or within close proximity to New Jersey could have a material
adverse effect on the Atlantic City gaming industry overall, including THCR and
the Trump AC Properties.
Our Business is Subject to a Variety of Other Risks and Uncertainties.
As noted elsewhere, our financial condition and results of operations could
be affected by many events that are beyond our control, such as (i) capital
market conditions which could affect our ability to raise capital or pursue
other alternatives, (ii) future acts of terrorism and their impact on capital
markets, consumer behavior and operating expenses, (iii) competition from
existing and potential new competitors in Atlantic City and other nearby
markets, which is likely to increase over the next five years, (iv) possible
increases in gasoline prices which could discourage auto travel to Atlantic
City, and (v) adverse weather conditions. Good weather is particularly important
to the relative performance of our Trump AC Properties especially in the winter
months and our improved performance in the first quarter of 2002 is partially
attributable to mild weather conditions in the Northeast during such period, as
well as to expense reduction. Also, the cost of obtaining insurance is likely to
increase significantly in the wake of September 11, 2001. If certain coverages
are not available or are not available at a reasonable cost, we will be
self-insured for such risks.
Critical Accounting Policies
The preparation of our financial statements in conformity with generally
accepted accounting principles in the United States requires us to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Our estimates, judgements 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
8
Certain of our accounting policies require higher degrees of judgement than
others in their application. These condensed consolidated financial statements
should be read in conjunction with the consolidated financial statements and
notes thereto included in the annual report on Form 10-K for the year ended
December 31, 2001 filed with the SEC.
Financial Condition -
Liquidity and Capital Resources
Cash flows from operating activities of Trump Plaza and the Taj Mahal are
the Company's sole source of liquidity. The Company's ability to borrow funds
for its liquidity needs is severely restricted by covenants in the various
indentures governing its public debt issues and by its already high levels of
indebtedness. Sources of the Company's short-term and long-term liquidity
include: (i) table win, (ii) slot win, (iii) room occupancy, (iv) food and
beverage sales and (v) miscellaneous items, less promotional expenses. Although
we expect the Company to have sufficient liquidity from the operating activities
of Trump Plaza and the Taj Mahal to meet its short-term obligations, there 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.
Trump Plaza and the Taj Mahal compete with other Atlantic City
casino/hotels on the basis of the quality of their guests' experience. 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 dependant upon the
quality of customer service, the array of games offered, the attractiveness of a
casino/hotel and the extent and quality of the facilities and amenities.
Because the Company has substantial indebtedness and related interest
expenses, its capital expenditures in recent years at Trump Plaza and the Taj
Mahal have been limited. Moreover, the Company has not been able to pursue
various capital expansion plans, such as the addition of more hotel rooms.
TRUMP ATLANTIC CITY ASSOCIATES
CONSOLIDATING CAPITAL EXPENDITURES
(IN THOUSANDS)
TAJ PLAZA TOTAL
ASSOCIATES ASSOCIATES TRUMP AC
----------- ---------- ---------
FOR THE THREE MONTHS ENDED MARCH 31, 2001
Purchase of Property & Equipment $ 1,705 $ 260 $ 1,965
Capital Lease Additions (A) 2,413 78 2,491
------------ ----------- ----------
Total Capital Expenditures $ 4,118 $ 338 $ 4,456
============ =========== ==========
FOR THE THREE MONTHS ENDED MARCH 31, 2002
Purchase of Property & Equipment $ 2,153 $ 862 $ 3,015
Capital Lease Additions (A) 1,455 -- 1,455
------------ ----------- ----------
Total Capital Expenditures $ 3,608 $ 862 $ 4,470
============ =========== ==========
(A) Capital lease additions for Trump AC were principally slot machines
and telephone system.
Summary of the Company's Public Indebtedness
Trump AC Mortgage Notes. Trump AC's debt consists primarily of the (i) TAC
I Notes, (ii) TAC II Notes and (iii) TAC III Notes (collectively, the "Trump AC
Mortgage Notes").
The Trump AC Mortgage Notes($1.3 billion) bear interest at the rate of
11-1/4% per annum, payable on May 1st and November 1st of each year, and mature
on May 1, 2006.
9
Results of Operations: Operating Revenues and Expenses
The financial information presented below reflects the results of
operations of Plaza Associates and Taj Associates. Because Trump AC has no
business operations other than its interests in Plaza Associates and Taj
Associates, its results of operations are not discussed below.
Comparison of Three-Month Periods Ended March 31, 2001 and 2002. The
following tables include selected data of Plaza Associates and Taj Associates
for the three months ended March 31, 2001 and 2002.
Three Months Ended March 31,
------------------------------------------------------------------------------
2001 2002 2001 2002 2001 2002
Plaza Plaza Taj Taj Total Total
Associates Associates Associates Associates Trump AC * Trump AC *
------------------------------------------------------------------------------
(in thousands)
Revenues:
Gaming $ 80,345 $ 81,501 $ 119,435 $ 129,925 $ 199,780 $ 211,426
Other 17,454 16,622 24,259 26,341 41,713 42,963
---------- ---------- ---------- ----------- ----------- -----------
Gross Revenues 97,799 98,123 143,694 156,266 241,493 254,389
Less: Promotional Allowances 21,565 19,899 26,973 28,973 48,538 48,872
---------- ---------- ---------- ----------- ----------- -----------
Net Revenues 76,234 78,224 116,721 127,293 192,955 205,517
---------- ---------- ---------- ----------- ----------- -----------
Costs & Expenses:
Gaming 43,690 40,379 61,574 60,548 105,264 100,927
Other 4,524 5,198 8,464 8,465 12,988 13,663
General & Administrative 16,618 15,689 24,507 25,211 41,141 40,914
Depreciation & Amortization 4,100 4,319 8,525 8,806 12,625 13,125
Debt Renegotiation Costs -- -- -- -- -- 1,570
---------- ---------- ---------- ----------- ----------- -----------
Total Costs and Expenses 68,932 65,585 103,070 103,030 172,018 170,199
---------- ---------- ---------- ----------- ----------- -----------
Income from Operations 7,302 12,639 13,651 24,263 20,937 35,318
---------- ---------- ---------- ----------- ----------- -----------
Interest and Other Non-Operating Income 125 71 242 79 701 248
Interest Expense (11,815) (11,831) (23,262) (23,317) (38,180) (38,219)
---------- ---------- ---------- ----------- ----------- -----------
Total Non-Operating Expense (11,690) (11,760) (23,020) (23,238) (37,479) (37,971)
---------- ---------- ---------- ----------- ----------- -----------
Net Income (Loss) $ (4,388)$ 879 $ (9,369)$ 1,025 $ (16,542)$ (2,653)
========== ========== ========== =========== =========== ===========
* Intercompany eliminations and expenses of Trump Administration, Trump AC,
Trump AC Funding, Trump AC Funding II and Trump AC Funding III are not
separately shown.
10
Three Months Ended March 31,
------------------------------------------------------------------------------------
2001 2002 2001 2002 2001 2002
Plaza Plaza Taj Taj Total Total
Associates Associates Associates Associates Trump AC Trump AC
-----------------------------------------------------------------------------------
(dollars in thousands)
Table Game Revenues .............. $ 6,195 $ 25,661 $ 34,850 $ 39,356 $ 61,045 $ 65,017
Incr (Decr) over Prior Period .... $ (534) $ 4,506 $ 3,972
Table Game Drop .................. $ 40,884 $ 43,066 $ 239,831 $ 225,712 $ 380,715 $ 368,778
Incr (Decr) over Prior Period .... $ 2,182 $ (14,119) $ 11,937)
Table Win Percentage ............. 18.6% 17.9% 14.5% 17.4% 16.0% 7.6%
Incr (Decr) over Prior Period .... (0.7) pts 2.9 pts .6 pts
Number of Table Games ............ 98 88 143 139 241 227
Incr (Decr) over Prior Period .... (10) (4) (14)
Slot Revenues ..................... $ 54,150 $ 55,840 $ 79,093 $ 85,046 $ 133,243 $ 140,886
Incr (Decr) over Prior Period .... $ 1,690 $ 5,953 $ 7,643
Slot Handle ...................... $ 707,030 $ 702,943 $ 1,037,128 $ 1,100,722 $ 1,744,158 $ 1,803,665
Incr (Decr) over Prior Period .... $ (4,087) $ 63,594 $ 59,507
Slot Win Percentage .............. 7.7% 7.9% 7.6% 7.7% 7.6% 7.8%
Incr (Decr) over Prior Period .... 0.2 pts 0.1 pts 0.2 pts
Number of Slot Machines .......... 2,844 2,844 4,664 4,857 7,508 7,701
Incr (Decr) over Prior Period .... -- 193 193
Poker Revenues ................... -- -- $ 4,938 $ 4,991 $ 4,938 $ 4,991
Incr (Decr) over Prior Period .... -- $ 53 $ 53
Number of Poker Tables ........... -- -- 67 67 67 67
Incr (Decr) over Prior Period .... -- -- --
Other Gaming Revenues ............ -- -- $ 554 $ 532 $ 554 $ 532
Incr (Decr) over Prior Period .... -- $ (22) $ (22)
Total Gaming Revenues ............ $ 80,345 $ 81,501 $ 119,435 $ 129,925 $ 199,780 $ 1,426
Incr (Decr) over Prior Period .... $ 1,156 $ 10,490 $ 1,646
Number of Guest Rooms ............ 904 904 1,250 1,250 2,154 2,154
Occupancy Rate ................... 87.9% 91.6% 92.3% 94.4% 90.4% 93.2%
Average Daily Rate (Room Revenue) $ 76.58 $ 77.82 $ 72.48 $ 74.58 $ 73.78 $ 75.89
Gaming revenues are the primary source of Trump AC's revenues. The year
over year increase in gaming revenues was caused by both table games and slot
activity. Table game revenues increased by approximately $3,972,000 or 6.5% from
the comparable period in 2001 due primarily to an increase in the table game win
percentage at the Taj Mahal. Overall Trump AC's table win percentage increased
to 17.6% from 16.0% in the comparable period in 2001. Table game revenues
represent the amount retained by Trump AC from amounts wagered at table games.
The table win percentage tends to be fairly constant over the long term, but may
vary significantly in the short term, due to large wagers by "high rollers". The
Atlantic City industry table win percentages were 15.2% and 16.2% for the
quarters ended March 31, 2001 and 2002, respectively.
Slot revenues increased by approximately $7,643,000 or 5.7% from the
comparable period in 2001 primarily as a result of improved slot product on the
casino floor, managements continued focus on marketing initiatives and customer
service as well as favorable weather conditions.
Gaming expenses decreased by approximately $4,337,000 or 4.1% from the
comparable period in 2001. Expense decreases at both the Taj Mahal and Trump
Plaza were primarily related to decreased payroll expense and more efficient
marketing programs.
Trump AC was seeking to refinance or modify the terms of the Trump AC
Mortgage Notes which were approximately $1,300,000,000 aggregate principal
amount as of March 31, 2002. Trump AC has incurred approximately $1,570,000 in
Debt Renegotiation Costs in the three months ended March 31, 2002.
Seasonality
The casino industry in Atlantic City is seasonal in nature. Accordingly,
the results of operations for the period ended March 31, 2002 are not
necessarily indicative of the operating results for a full year.
ITEM 3--QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not Applicable.
11
PART II -- OTHER INFORMATION
ITEM 1 -- LEGAL PROCEEDINGS
General. Trump AC, its partners, certain members of its former executive
committee, and certain of its employees, have been involved in various legal
proceedings. Such persons and entities are vigorously defending the allegations
against them and intend to contest vigorously any future proceedings. In
general, Trump AC has agreed to indemnify such persons against any and all
losses, claims, damages, expenses (including reasonable costs, disbursements and
counsel fees) and liabilities (including amounts paid or incurred in
satisfaction of settlements, judgments, fines and penalties) incurred by them in
said legal proceedings.
Various legal proceedings are now pending against Trump AC. Trump AC
considers all such proceedings to be ordinary litigation incident to the
character of its business. Trump AC believes that the resolution of these
claims, to the extent not covered by insurance, will not, individually or in the
aggregate, have a material adverse effect on the financial condition or results
of operations of Trump AC.
ITEM 2 -- CHANGES IN SECURITIES AND USE OF PROCEEDS
Not Applicable.
ITEM 3 -- DEFAULTS UPON SENIOR SECURITIES
Not Applicable.
ITEM 4 -- SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable.
ITEM 5 -- OTHER INFORMATION
Subsequent Events
On April 26, 2002, THCR filed its definitive proxy statement (the "Proxy
Statement") with the SEC relating to THCR's 2002 stockholders' annual meeting
(the "Annual Meeting"). As explained in the Proxy Statement, due to Arthur
Andersen, LLP's federal indictment in March 2002 and the New Jersey Casino
Control Commission's (the "CCC") order requiring all New Jersey casino licensees
to terminate any ongoing business with Arthur Andersen by May 15, 2002, unless
otherwise extended by the CCC, THCR's stockholders will not be asked at the
Annual Meeting to ratify the Board of Directors' appointment of independent
auditors of the Company for the fiscal year ended December 31, 2002 in order to
allow the Company's Audit Committee and Board of Directors to carefully consider
Arthur Andersen's replacement. Although THCR anticipates completing its
selection process of new independent auditors by mid-June 2002, THCR has
petitioned the CCC to grant it a time extension for Arthur Andersen's
termination in order to allow Arthur Andersen to complete ongoing matters for
THCR and its subsidiaries and in order to allow an efficient transition to
THCR's new independent auditors.
ITEM 6 --EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits:
None.
b. Current Reports on Form 8-K:
On January 17, 2002, the Registrants filed a Current Report on Form 8-K with
the SEC therein announcing that THCR had settled a dispute, without admitting or
denying any of the allegations, with the SEC pertaining to a press release
issued by THCR in October 1999.
12
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
TRUMP ATLANTIC CITY ASSOCIATES
(Registrant)
By: TRUMP ATLANTIC CITY HOLDING, INC.,
its Managing General Partner
Date: May 15, 2002 By: /S/ FRANCIS X. MCCARTHY, JR.
--------------------------------------
Francis X. McCarthy, Jr.
Chief Financial Officer
(Duly Authorized Officer and Principal
Financial and Accounting Officer)
13
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
TRUMP ATLANTIC CITY FUNDING, INC.
(Registrant)
Date: May 15, 2002 By: /S/ FRANCIS X. MCCARTHY, JR.
-----------------------------------------
Francis X. McCarthy, Jr.
Chief Financial Officer
(Duly Authorized Officer and Principal
Financial and Accounting Officer)
14
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
TRUMP ATLANTIC CITY FUNDING II, INC.
(Registrant)
Date: May 15, 2002 By:/S/ FRANCIS X. MCCARTHY, JR.
-----------------------------
Francis X. McCarthy, Jr.
Chief Financial Officer
(Duly Authorized Officer and Principal
Financial and Accounting Officer)
15
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
TRUMP ATLANTIC CITY FUNDING III, INC.
(Registrant)
Date: May 15, 2002 By: /S/ FRANCIS X. MCCARTHY, JR.
----------------------------
Francis X. McCarthy, Jr.
Chief Financial Officer
(Duly Authorized Officer and Principal
Financial and Accounting Officer)
16