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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended Commission file Number 0-1590
December 31, 1997
THE WESTWOOD GROUP, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 190 V.F.W. PARKWAY 04-1983910
(state or other jurisdiction) REVERE, MA 02151 (IRS Employer Identifi-
of incorporation or organization (address of principal executive offices fication No.)
including zip code)
781-284-2600
(Registrant's telephone number, including area code)
---------------
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Title of Class
Common Stock-$.01 par value
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and 2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark disclosure of delinquent filers pursuant to item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of the Form 10-K or any amendment of this
Form 10-K. [ ]
The aggregate market value of the voting stock held by nonaffiliates of the
registrant, computed by reference to the price at which the stock was sold, or
the average bid and asked prices of such stock, as of a specified date within
60 days prior to the date of filing, was:
TOTAL NO. OF SHARES
PRICING OF COMMON STOCK HELD BY AGGREGATE
VOTING STOCK NONAFFILIATES MARKET VALUE
------------ -------------------- ------------
$ 3.00(1) 313,875(2) $ 941,625
(1) The registrant's Common Stock was removed from quotation through the NASDAQ
system on July 29, 1988. There is no established trading market for either
the Company's Common Stock or Class B Common Stock.
(2) Excludes shares held by Executive Officers and Directors of the registrant,
without admitting that any such Executive Officer or Director is an
affiliate of the registrant.
The number of shares outstanding of each of the registrant's classes of common
stock, as of April 10, 1998, was as follows:
Common Stock, $.01 par value: 351,210
Class B Common stock, $.01 par value: 912,015
DOCUMENTS INCORPORATED BY REFERENCE
None
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PART I
ITEM I. BUSINESS
(A) GENERAL
The Westwood Group, Inc. (the "Company," which term as used herein
includes its wholly-owned subsidiaries) was incorporated in Delaware in
1984 as the successor to racing and restaurant operations which
commenced in 1935 and 1968, respectively. The Company operates
Wonderland Greyhound Park, a pari-mutuel greyhound racing facility
located in Revere, Massachusetts. The Company also operated a
pari-mutual harness racing facility located in Foxboro, Massachusetts
through July, 1997 (see Item 3).
(B) BUSINESS SEGMENTS
In 1997, 1996, and 1995, the Company's business was principally
conducted in the pari-mutuel greyhound and harness racing industries.
(C) DESCRIPTION OF BUSINESS
The Company's wholly-owned subsidiary, Wonderland Greyhound Park,
Inc. owns and operates a greyhound racetrack (collectively
"Wonderland"), located in the City of Revere, Massachusetts. Revere
adjoins the City of Boston. Wonderland Park is approximately five miles
north of downtown Boston and is served directly by major transportation
routes and the Massachusetts Bay Transportation Authority rail line. The
racetrack is approximately two miles from Boston's Logan International
Airport.
The racetrack facilities include a one-quarter mile oval sand
track, a physical plant consisting of a climate controlled grandstand
and clubhouse and a two-story administrative center. The Company
maintains and operates two full service restaurants, a sports bar and
other concession facilities at the racetrack to serve Wonderland's
patrons. The racetrack facility can accommodate 10,000 patrons. The
average attendance per live performance in 1997 was approximately 1,070
persons. The total attendance for the year was approximately 490,000
persons. The complex encompasses a total of approximately 35 acres,
including paved and lighted parking providing capacity for approximately
2,300 cars.
Wonderland was originally opened in 1935 and has operated
continuously from the same location since that time. Wonderland operates
a year-round racing schedule of up to 520 live matinee and evening
performances. Wonderland continues to provide its patrons with a variety
of entertainment options by enhancing its full card simulcast wagering.
During 1997, Wonderland provided its patrons with simulcast wagering
from over 20 various tracks throughout the country and was one of the
first sites, and the only greyhound race track, in North America to
introduce international simulcasting from the Hong Kong Jockey Club. In
addition, Wonderland has broadcast its simulcast signal to over 45
locations throughout the country. The Company is continuing to research
new markets to broadcast its signal and new ways to provide quality
racing entertainment to its on-track patron.
The Company's annual revenues are mainly derived from the
commissions that it receives from wagers made by the public during its
racing performances and from admission and concession charges at such
performances. Wagers at Wonderland are placed under the pari-mutuel
wagering system, pursuant to which the winning bettors in each race
divide the total amount bet on the race (the "pool") in proportion to
the sums they wagered individually, after deducting certain percentages
governed by state law including amounts which are reserved for the
Commonwealth of Massachusetts, the owners of the winning greyhounds, and
the racetrack.
The pari-mutuel commission is regulated by the local and state
regulatory commission in the jurisdiction of the individual race track.
In addition, the net pari-mutuel commission varies based upon the type
of wager. Also, the Company generates commission revenue from other
tracks for all amounts wagered on our product at their facility. These
commissions vary based upon contractual arrangements from approximately
1.75% to 7%.
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During 1995, the Commonwealth of Massachusetts approved new
legislation allowing Wonderland to increase the amount of certain
pari-mutuel wagering that may be retained by the track, to 26% of each
$1.00 wagered on certain live wagers beginning in 1996. As such, the
average net pari-mutuel commission at Wonderland was approximately 23.8%
and 22.5% of each $1.00 wagered on track during 1997 and 1996,
respectively. Out of this amount approximately 5.4% is distributed to
kennel operators as purses paid, 5.0% is paid to the Commonwealth of
Massachusetts in the form of pari-mutuel tax and .5% is deposited into
both the Capital Improvements Trust Fund and Promotional Trust Fund. The
average net simulcast fee earned in 1997 on the Wonderland Park signal
broadcast to other tracks was approximately 3.8%.
The Commonwealth of Massachusetts State Racing Commissioners, as
individuals, are the trustees and Wonderland is the beneficiary of the
Greyhound Capital Improvements and Promotional Trust Funds which have
been established in accordance with Massachusetts law and are dedicated
to reimbursement of capital improvements and promotional expenses.
(D) COMPETITION AND MARKETING
The Company is trying to adapt and survive in a dramatically
changing environment, one in which the Company and the racing industry
nationally have experienced significant declines in on-site attendance
and dollars wagered.
The Company continues to be negatively impacted by a strong
Massachusetts Lottery, two Indian Casinos in Connecticut and slot
machines at the Lincoln, Rhode Island, greyhound track. The casinos and
track are in close proximity to the Massachusetts border and therefore
rely upon their ability to attract Massachusetts patrons.
Management believes that the long-term strategy to best maximize
shareholder value is to position Westwood for growth, not in the narrow
confines of the greyhound pari-mutuel industry, but rather, in the
gaming and entertainment industry. To that end, management has worked
diligently attempting to convince the Governor and the Legislature of
the Commonwealth of Massachusetts of the need to allow the State's
commercial racetracks to offer their patrons expanded gaming
opportunities. In light of the significant economic benefits that the
racing industry has provided the Commonwealth of Massachusetts,
management is cautiously optimistic that the Governor and the
Legislature may enact such gaming legislation. No assurance can be
given, however, that such legislation will be enacted or enacted on
favorable terms.
(E) GOVERNMENT REGULATION
Wonderland operates under annual license granted after application
to, and public hearings by, the Massachusetts State Racing Commission
(the "Racing Commission"). Wonderland received its first license in 1935
and has had its license renewed annually since that date. The Racing
Commission has certain regulatory powers with respect to the dates and
the number of performances granted to its licensees and various other
aspects of racetrack operations. In addition, the Racing Commission
licenses certain key officials employed by Wonderland.
Alcoholic beverage control regulations require each of the
restaurant and bar facilities at Wonderland to apply to a state and
local authority for a license or permit to sell alcoholic beverages on
the premises. The licenses must be renewed annually and may be revoked
or suspended for cause at any time. Alcoholic beverage control
regulations relate to numerous aspects of the daily operations of the
restaurants and bars, including minimum age of patrons and employees,
hours of operation, advertising, wholesale purchasing, inventory control
and handling, and storage and dispensing of alcoholic beverages. The
failure to receive or retain, or a delay in obtaining, a liquor license
could adversely affect the Company's ability to operate the restaurant
facilities. The Company has not encountered any material problems
relating to alcoholic beverage licenses to date.
Various federal and state labor laws govern the Company's
relationship with its employees, including such matters as minimum wage
requirements, overtime and other working conditions.
Significant additional government-imposed increases in minimum
wages, paid leaves of absence, mandated health benefits or increased tax
payment requirements in respect to employees who receive gratuities
could, however, have a material adverse effect on the Company's results
of operations.
(F) EMPLOYEES
At December 31, 1997, the Company employed approximately
400 persons.
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ITEM 2. DESCRIPTION OF PROPERTY
The Company's Wonderland Park racing facility is mortgaged to secure the
indebtedness owed under a term loan to the MSCGAF Realty Trust and a term loan
to First Trade Union Bank. (See Item 7, Liquidity and Capital Resources and
Note 4 of Notes to Consolidated Financial Statements).
The executive offices are owned by the Company and are located at
Wonderland Greyhound Park in Revere, Massachusetts.
ITEM 3. LEGAL PROCEEDINGS
The Company is subject to various claims and legal actions that arise in
the ordinary course of its business.
On October 3, 1996, Foxboro Realty Associates, LLC, Foxboro Stadium
Associates Limited Partnership, and New England Patriots, L.P. filed a complaint
against Foxboro Park, Inc., Foxboro Harness, Inc., and The Westwood Group, Inc.
(collectively "Foxboro Park") in Norfolk Superior Court in Massachusetts. The
complaint sought a declaratory judgment with respect to the right to occupy the
Foxboro Raceway, as well as specific performance of an agreement relating to the
use of hospitality facilities at the Raceway.
On October 8, 1996, Foxboro Park filed an answer to the complaint as
well as counterclaims which assert that Foxboro Park has a long-term right to
occupy the Raceway and is entitled to substantial monetary damages. On that day,
Foxboro Park also filed a related complaint in Norfolk Superior Court against
Robert K. Kraft, Foxboro Realty Associates LLC, New Foxboro Corp., and Thomas L.
Aronson and moved to consolidate that case with the earlier filed case. Foxboro
Park also moved to add Robert K. Kraft as a party defendant to the counterclaims
in the earlier case.
On November 17, 1996, Foxboro Realty Associates LLC filed a summary
process complaint against Foxboro Park in Norfolk Superior Court. This complaint
sought to evict Foxboro Park from the Foxboro Raceway. On November 18, 1996,
Foxboro Park filed an answer asserting numerous defenses and counterclaims
against Foxboro Park Realty Associates LLC and moved to consolidate this case
with the first action.
Trial commenced on a jury waived basis on April 16, 1997. On April 25,
1997, the Court entered an order finding, inter alia that Foxboro Park is not
entitled to possession of the premises. On June 24, 1997, the Court entered
judgment against Foxboro Park in the declaratory judgment and summary process
actions. After denying Foxboro Park's motion for a new trial and request for a
stay of judgment in those actions, the Court issued an execution pursuant to
which Foxboro Park was evicted from the Raceway on July 31, 1997. Foxboro Park
has not occupied the Raceway since that date.
Foxboro Harness, Inc. returned its license to conduct a harness horse
racing meeting for calendar year 1997 to the Massachusetts State Racing
Commission on August 12, 1997, as the eviction at Foxboro Park prevented it from
completing its racing meeting.
On April 30, 1997, Foxboro Park's fraud and related claims trial
commenced. On May 29, 1997, the jury returned its verdict in favor of Robert
Kraft on Foxboro Park's fraud claim against him. The jury returned a verdict in
favor of Foxboro Park on Foxboro Realty Associate's claim against Foxboro Park
for use and occupancy charges for the period from May 29, 1997 through December
31, 1997. On June 13, 1997, the Court issued findings against Foxboro Park on
its remaining claims with the exception of Foxboro Park's claim against Foxboro
Stadium Associates and New England Patriots L.P. for breach of contract. With
respect to that claim, the Court entered judgment in favor of Foxboro Park in
the amount of $74,843. Foxboro Park moved for a new trial on its fraud and
related claims. That motion was denied.
On January 27, 1998, Foxboro Park appealed to the Appeals Court from all
adverse rulings and judgments. On February 2, 1998, Foxboro Realty Associates
LLC, et al, and Aronson and New Foxboro Corp. appealed to the Appeals Court from
all adverse rulings. The appeals now are before the Appeals Court with briefs
anticipated to be filed in late 1998. The Company believes that an unfavorable
outcome from the Foxboro Realty Associates LLC et al appeal is unlikely and does
not expect the outcome to materially impact operations or the Company's
financial condition.
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In December 1993, the labor contract between Wonderland and the
Wonderland Dog Track Employees Union, Local 410 (the "Union"), which governed
the terms of employment of the mutuel clerks at Wonderland was due to expire.
The parties mutually agreed to extend the contract several times while
attempting to reach a new agreement. In February 1994, Wonderland implemented
the terms of its final offer to the Union, after months of negotiations and an
impasse having been reached. Such terms included a reduction in the hourly
compensation rate of approximately 35%, and the elimination of certain weekend
and holiday premiums. In October 1994, the national office of the Union
reassigned the Union to Service Employees International Union, Local 254 ("Local
254"). In October 1994, Local 254 agreed to a three year extension of the
Union's current contract amended by Wonderland's final offer. The Union
challenged the implementation of the final offer at the State Labor Relations
Commission for the period from implementation in February 1994 through the
reassignment of the Union in October 1994. This litigation was subsequently
withdrawn by Local 254 in connection with the renewal of the collective
bargaining agreement.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
(a) MARKET PRICE
There is no established trading market for the Company's Common
Stock or the Company's Class B Common Stock.
(b) APPROXIMATE NUMBER OF RECORD HOLDERS OF COMMON STOCK AND CLASS B
COMMON STOCK
NUMBER
OF RECORD
HOLDERS AS OF
TITLE OR CLASS APRIL 10, 1998
-------------- --------------
Common Stock -- par value $.01 463
Class B Common Stock -- par value $.01 11
(c) DIVIDEND HISTORY
No dividends have been declared by the Company on its Common Stock
during 1997 or 1996. The Company has not paid a cash dividend on its
Class B Common Stock to date. The Company does not intend to pay cash
dividends on either class of Common Stock in the immediate future.
The Company is in default on its outstanding 14.25% subordinated
debentures which prohibits the Company from declaring or paying any
dividend or from making any distribution on any of its capital stock.
(See Item 7, Liquidity and Capital Resources and Note 4 of Notes to
Consolidated Financial Statements).
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA.
The following table summarizes certain financial information derived
from the Consolidated Financial Statements of the Company. The Selected
Consolidated Financial Information for the fiscal year ended December 31, 1997
and 1996 is derived from the Consolidated Financial Statements, as audited by
BDO Seidman, LLP, independent accountants. The Selected Consolidated Financial
Information for the fiscal years ended December 31, 1995, 1994 and 1993 is
derived from the Consolidated Financial Statements, as audited by Coopers &
Lybrand L.L.P., independent accountants as adjusted for the discontinued Foxboro
business during 1997. Operating revenue and operating expenses for the
discontinued Foxboro business for all years prior to 1997 have been combined and
reclassified to loss from operations of discontinued harness racing subsidiary.
This information should be read in conjunction with and is qualified by
reference to the Consolidated Financial Statements of the Company and the notes
thereto and "Management's Discussion and Analysis of Financial Condition and
Results of Operations," included in the Company's prior years' Form 10-K and
included herein.
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ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA.(continued)
DECEMBER 31,
----------------------------------------------------------------------
1997 1996 1995 1994 1993
---------- ---------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNT)
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Revenue:
Operating revenue $ 21,046 $ 20,582 $ 22,079 $ 21,069 $ 19,254
Former restaurant division(2) -- -- -- -- 77,292
---------- ---------- ---------- ---------- ----------
Total revenue 21,046 20,582 22,079 21,069 96,546
---------- ---------- ---------- ---------- ----------
Expenses:
Operating expenses 18,509 18,161 21,147 21,071 20,110
Former restaurant division -- -- -- -- 68,680
Depreciation and amortization 529 828 883 942 4,889
---------- ---------- ---------- ---------- ----------
Total expenses 19,038 18,989 22,030 22,013 93,679
---------- ---------- ---------- ---------- ----------
Income (loss) from operations 2,008 1,593 49 (944) 2,867
Interest expense, net (387) (755) (709) (2,248) (5,884)
Other income (expense), net 1,169 1,867 (159) 6,643 (81)
Minority interest -- -- -- -- (1,977)
---------- ---------- ---------- ---------- ----------
Income (loss) before income taxes and extraordinary item 2,790 2,705 (819) 3,451 (5,075)
Provision for income taxes -- 13 -- 145 2,358
---------- ---------- ---------- ---------- ----------
Income (loss) from continuing operations, before
extraordinary item 2,790 2,692 (819) 3,306 (7,433)
Extraordinary item, net -- -- -- 11,160 --
---------- ---------- ---------- ---------- ----------
Income (loss) from continuing operations 2,790 2,692 (819) 14,466 (7,433)
Loss from operations of discontinued harness racing
subsidiary (2,412) (2,180) (1,235) (2,374) (1,942)
Gain on discontinuance of harness racing subsidiary 2,581 -- -- -- --
---------- ---------- ---------- ---------- ----------
Net income (loss) $ 2,959 $ 512 $ (2,054) $ 12,092 $ (9,375)
========== ========== ========== ========== ==========
Basic and diluted per share data:
Income from continuing operations before
extraordinary $ 2.22 $ 2.15 $ (.65) $ 2.63 $ (5.92)
========== ========== ========== ========== ==========
item per share
Extraordinary item per share $ -- $ -- $ -- $ 8.89 $ --
========== ========== ========== ========== ==========
Income (loss) from discontinued operations per share $ .14 $ (1.74) $ (.98) $ (1.89) $ (1.55)
========== ========== ========== ========== ==========
Net income (loss) per share $ 2.36 $ .41 $ (1.64) $ 9.63 $ (7.47)
========== ========== ========== ========== ==========
Basic and diluted weighted average common shares
outstanding 1,255,225 1,255,225 1,255,225 1,255,225 1,255,225
========== ========== ========== ========== ==========
CONSOLIDATED BALANCE SHEET DATA:
Working capital (deficit) $ (9,309) $ (17,105) $ (20,480) $ (15,264) $ (47,550)
Total assets 13,581 20,830 25,608 27,823 62,722
Long-term debt(1) 997 3,435 5,774 9,550 544
Stockholders' deficit (1,551) (4,464) (4,913) (2,952) (15,022)
- ---------------------------
(1) Long-term debt at December 31, 1997, 1996, 1995, 1994, and 1993 excludes $4,373, $3,412, $1,751, $2,504, and 25,382,
respectively of long term debt reclassified as current obligations (see Note 4 of Consolidated Financial Statements).
(2) The table above reflects the Company's accounting for its investment in Back Bay Restaurant Group, Inc. ("BBRG") under the
consolidation method for 1993 and under the equity method for 1997, 1996, 1995 and 1994.
(3) The 1996, 1995, 1994 and 1993 statement of operations data has been restated to present the Company's Foxboro harness racing
business as a discontinued operation.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Wonderland conducts live racing seven nights and two afternoons per
week, and offers simulcast wagering every afternoon and evening. The table below
illustrates certain key statistics for Wonderland, for each of the past three
years:
YEAR ENDED DECEMBER 31,
----------------------------
1997 1996 1995
----- ----- -----
Performances 458 449 509
Simulcast Days 362 358 359
Pari-mutuel handle (millions)
Live-on track $ 40 $ 45 $ 63
Live-simulcast 35 27 30
Guest-simulcast 52 52 52
----- ----- -----
Total handle $ 127 $ 124 $ 145
===== ===== =====
Total attendance (thousands) 490 524 631
===== ===== =====
Average per capita on site wagering $ 188 $ 185 $ 182
===== ===== =====
Wonderland has been granted a license to conduct 465 racing performances
during 1998.
OPERATING REVENUE
The Company is still experiencing a decline in total attendance, caused
by a variety of factors including a general decline in the pari-mutuel racing
industry and strong competition for the wagered dollar, from the Massachusetts
State Lottery and from the introduction of casino gambling and slot machines in
neighboring states.
1997 VERSUS 1996
Total operating revenue increased to $21.0 million in 1997 as compared
to $20.6 million in 1996. Pari-mutuel commissions increased by approximately
$303,000 or 1.8% to $17.1 million in 1997 from $16.8 million in 1996. Total
handle in 1997 was approximately $127 million as compared to $124 million in
1996. Guest-simulcast handle remained consistent at approximately $52 million.
Live-on track handle decreased by approximately $5 million or 11% in 1997 as
compared to 1996, while Live-simulcast handle increased by approximately $8
million or 30%.
The increase in pari-mutuel commission revenue is attributable to the
increase in Live-simulcast handle and an increase in the commission rate earned
on Guest-simulcast handle. Commission revenue was negatively impacted by a
decline in Live-on track handle which was partially offset by an increase in the
commission rate. Per capita wagering at Wonderland did not change significantly
in 1997 as compared to 1996. Wonderland had nine more live racing performances
in 1997 as compared to 1996, with an average attendance of approximately 1,070
persons, while average attendance was approximately 1,167 persons in 1996.
Concessions revenue was essentially unchanged in 1997 as compared to
1996 at approximately $1.9 million. Other operating revenue consists of program
sales, admissions, parking and gift shop sales. These revenues increased by
approximately $136,000 or 7% in 1997 as compared to 1996 to $2.04 million from
$1.90 million.
Revenue for 1997 includes approximately $334,000 deposited into the
Greyhound Promotional Trust Fund and approximately $332,000 deposited into the
Greyhound Capital Improvements Trust Fund. These funds are dedicated to
reimbursement of promotional expenses and capital improvements, respectively,
incurred by Wonderland.
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OPERATING REVENUES (continued)
1996 VERSUS 1995
Total operating revenue decreased to $20.6 million in 1996 from
$22.1 million in 1995, a decrease of $1.5 million or 7%. Pari-mutuel commissions
decreased by $1.1 million to $16.8 million from $17.9 million. The decrease in
commission revenue is primarily due to a decline in on-track wagering of
approximately $18 million at Wonderland. The impact of these handle declines was
partially offset by an increase in the pari-mutuel commission rate at Wonderland
during 1996. Per capita wagering at Wonderland did not change significantly in
1996 as compared to 1995, however, Wonderland experienced a decline in on-track
attendance of approximately 107,000 persons in 1996, or an approximate 17%
reduction, as compared to 1995. Wonderland had 60 fewer live racing performances
in 1996 as compared to 1995, with an average attendance of approximately 1,167
persons, while average attendance in 1995 was approximately 1,240 persons.
Concessions revenue decreased to $1.93 million in 1996 from
$2.12 million in 1995 or by approximately 9%. Other operating revenue consists
of program sales, admission, parking and gift shop sales. These revenues
declined by approximately $199,000 in 1996 as compared to 1995 from
$2.10 million to $1.90 million. The decreases in these revenues in 1996 are the
result of lower attendance as compared to 1995.
Revenue for 1996 includes approximately $357,000 deposited into the
Greyhound Promotional Trust Fund and approximately $354,000 deposited into the
Greyhound Capital Improvements Trust Fund. These funds are dedicated to
reimbursement of promotional expenses and capital improvements, respectively,
incurred by Wonderland.
OPERATING EXPENSES
1997 VERSUS 1996
Operating expenses were approximately $19 million in both 1997 and 1996.
The Company realized cost savings on purse expense of approximately $151,000 in
1997 as compared to 1996. Purse expense is determined by contractual agreement
with the dog owners and statutory requirements of the Commonwealth of
Massachusetts based upon on-track handle. The decrease in purse expense in 1997
is attributable to a decline in on-track handle.
The Company also realized savings in general operating and cost of food
and beverage expenses of approximately $50,000 and $18,000, respectively in 1997
as compared to 1996.
The cost savings realized by the Company were offset by increases in
operating wages, taxes and benefits of approximately $406,000 and administrative
costs of $159,000, respectively in 1997 as compared to 1996.
1996 VERSUS 1995
Operating expenses in 1996 of $19.0 million decreased from $22.0 million
in 1995. This $3.0 million reduction or approximately 13.6% is attributable to
the Company's efforts to contain costs and renegotiate and restructure vendor
relationships. The Company realized savings in operating wages, taxes and
benefits of approximately $948,000 in 1996.
Wonderland purses decreased by approximately $809,000 to $5.24 million
in 1996 from $6.05 million in 1995. Purse expense at Wonderland is determined by
contractual agreement with the dog owners and the statutory requirements of the
Commonwealth of Massachusetts and this decrease is attributable to the decrease
in total on-track handle.
In addition, the Company realized savings in general and administrative
costs in 1996 of approximately $1.1 million. These savings are attributable to
reductions in almost all operating expense categories due to successful cost
containment efforts.
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DEPRECIATION AND AMORTIZATION
Depreciation and amortization decreased by approximately $299,000 and
$55,000 in 1997 and 1996, respectively, as compared to the previous year.
Certain assets reached the and of their depreciable lives during 1997 and 1996.
The Company continues to replace capital items as they become obsolete.
Depreciation and amortization are expensed on a straight-line basis over the
estimated life of the asset.
INTEREST EXPENSE
During 1997, interest expense decreased by approximately $368,000 as
compared to 1996. The decrease was attributed to a lower level of debt
outstanding during the entire year of 1997 as compared to 1996. The Company
reduced its outstanding debt by approximately $2 million in December 1996 in
connection with the foreclosure on the property located at 284 Newbury Street in
the Back Bay section of Boston. Interest increased by approximately $46,000 in
1996 due to expense incurred on short-term borrowings. As discussed further
below, the Company significantly reduced its long-term debt during 1996 and
1997. However, the Company's 1996 interest expense was not significantly
impacted due to the late timing of such events in December of 1996.
EQUITY INCOME (LOSS) IN INVESTMENTS
The Company owns approximately 673,000 or 19% of the outstanding shares
of the Back Bay Restaurant Group, Inc. ("BBRG"). During 1994, the Company and
BBRG jointly pursued a series of transactions, the effect of which resulted in
the control of BBRG no longer resting with the Company (see Note 13 of Notes to
Consolidated Financial Statements). Accordingly, the Company's investment in
BBRG for the years ended December 31, 1997, 1996 and 1995 has been accounted for
under the equity method. The equity income (loss) in investments represents the
Company's proportionate share of BBRG's net earnings or loss.
NET GAIN ON SALE/FORECLOSURE OF REAL PROPERTY
In 1997, the Company sold its interest in a limited partnership which
owned land and an office and retail building for a cash payment of $500,000.
During 1992, the Company reduced the carrying value of this investment to zero,
therefore the entire amount of the proceeds resulted in a gain in 1997.
In December 1996 the first and second mortgage holders completed
foreclosure proceedings on the Company's property located at 284 Newbury Street
in the Back Bay Section of Boston. These transactions resulted in a gain of
approximately $1.1 million and the reduction of liabilities of approximately
$5.2 million including accrued interest and property taxes of approximately
$471,000. These mortgage obligations were non-recourse to the Company and also
resulted in the release of 45,000 shares of BBRG stock previously held by the
first mortgagee as additional collateral.
PROVISION FOR INCOME TAXES
The Company's provision for income taxes is less than the statutory
federal tax rate of 34% during 1997, 1996 and 1995 primarily due to the
utilization of available net operating loss carryforwards. The provision for
taxes of $13,000 in 1996 represents estimated alternative minimum tax.
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DISCONTINUED OPERATIONS
Foxboro conducted seasonal live harness racing generally two evenings
and two matinees per week, while simulcasting afternoons and evenings through
July 1997 (see Item 3 and Note 3 in notes to consolidated financial statements.)
The table below presents certain key statistics for Foxboro for each of the past
three years:
YEAR ENDED DECEMBER 31,
--------------------------
1997 1996 1995
----- ----- -----
Performances 99 150 165
Simulcast Days 204 352 357
Pari-mutuel handle (millions)
Live-on track $ 3 $ 6 $ 7
Live-simulcast 27 32 21
Guest-simulcast 28 48 48
----- ----- -----
$ 58 $ 86 $ 76
===== ===== =====
Total attendance (thousands) 148 257 252
===== ===== =====
Average per capita on site wagering $ 209 $ 211 $ 219
===== ===== =====
Foxboro operated the premises through July 1997 (see Item 3 Legal
Proceedings and Note 3 to the Company's consolidated financial statements).
The Company recognized a gain on the discontinuance of the Company's
harness racing business of $2.6 million for year ended December 31, 1997. Such
gain is primarily comprised of the excess of occupancy and other liabilities of
approximately $8.9 million over non recoverable net leasehold improvements and
other assets of approximately $6.3 million.
The loss from operations of the Company's discontinued harness racing
subsidiary is summarized as follows:
YEAR ENDED DECEMBER 31,
---------------------------------------------
1997 1996 1995
----------- ------------ ------------
Operating revenues $ 6,564,416 $ 11,214,689 $ 11,028,823
Operating expenses (8,976,203) (13,395,125) (12,264,506)
----------- ------------ ------------
$(2,411,787) $ (2,180,436) $ (1,235,683)
=========== ============ ============
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1997, the Company has a working capital deficit of
approximately $9.3 million, a stockholders' deficit of approximately $1.6
million and is in default on certain debt obligations. In addition, the report
by the Company's independent certified public accountants on the Company's
consolidated financial statements for the year ended December 31, 1997 states
that these factors raise substantial doubt about its ability to continue as a
going concern (see Consolidated Financial Statements at Item 8).
Historically, the Company's primary sources of capital to finance its
businesses have been its cash flow from operations and credit facilities. The
Company's capital needs are primarily for maintenance and enhancement of the
racing facility at Wonderland, and for debt service requirements
The Company's cash and cash equivalents totaled $374,292 at December 31,
1997, compared with $1.034 million at December 31, 1996. The Company generated
cash flows from operations of approximately $441,000 in 1997 as compared to
$2.335 million in 1996. The decrease in 1997 is principally attributable to
non-cash income items primarily offsetting improved operating results with a net
income of $2.9 million in 1997 compared to approximately $512,000 in 1996. Non
cash items included in the Company's net income in 1997 consist of gain on
discontinuance of harness racing business of approximately $2.6 million,
depreciation and amortization expense of approximately $529,000, net gain on
sale foreclosure of real property of $500,000, equity in income from investments
of approximately $337,000 and amortization of deferred revenue of $132,500.
Changes in working capital accounts including restricted cash, accounts payable
and other accrued liabilities used approximately $642,000 of cash in 1997. Net
cash used in investing activities in 1997 is comprised of investments and
additions to the property, plant and equipment of approximately $756,000 which
was offset by proceeds from sales and redemption of investments aggregating
approximately $599,000. Financing activities in 1997 include approximately
$378,000 of funds used to reduce outstanding balances on long term debt.
Short-term borrowings arrangements used net cash of approximately $565,000.
10
11
GENERAL
In May 1994, holders of approximately $19,300,000 of the Company's
14.25% Subordinated Notes (the "Notes") exchanged them for approximately 887,000
shares of BBRG common stock. The shares were exchanged in full settlement of
principal, accumulated interest and default premiums due in respect of such
Notes. The transaction resulted in an extraordinary gain of approximately $11.2
million net of applicable income taxes. The net extraordinary gain includes
forgiveness of interest and indebtedness reduced by related expenses and the
write-off of remaining bond issuance fees. Holders of approximately $285,000 of
the Notes elected not to participate in the exchange. These Notes remain in
default and matured in 1997.
In 1992, the Company, through its subsidiaries, invested approximately
$9,400,000 for capital improvements, equipment and start-up costs in connection
with the commencement of thoroughbred and harness racing at Foxboro Park. The
Company entered into certain agreements for the financing of this investment
principally through the MSCGAF Realty Trust Note ("MSCGAF Note") and the
Creditors Trust Agreement. During 1996, the Company renewed and extended the
MSCGAF note until January 1998. The MSCGAF note matured on January 31, 1998. The
lender has made a demand for the entire principal and interest amounts due on
the note. Accordingly, the debt is in default and the related collateral
represented by a first mortgage on the Wonderland property is subject to
possible foreclosure proceedings. The Company is seeking to refinance this note
with another lender and has made monthly installment payments on this note
consistent with the terms prior to maturity.
In May 1994, the Company settled certain litigation regarding the
Creditor Trust Agreement and entered into a Settlement Agreement of
approximately $2.2 million. The Company has pledged 100% of the distributions of
the Foxboro Park Capital Improvement Trust Funds as payments towards these
amounts. All receipts from the Capital Improvements Trust Funds have been
distributed as payments. The entire obligation has been included as a current
liability at December 31, 1997 under net liabilities of discontinued operations.
The line of credit with an outstanding balance of $1,568,000 at December
31, 1997 matured on February 1, 1998. The lender has made a demand for the
entire principal and interest amounts due. Accordingly, the debt is in default
and the related collateral, represented by a second mortgage on the Wonderland
property and 401,000 shares of BBRG common stock, is subject to possible
foreclosure proceedings. The Company is seeking to refinance this obligation
with another lender and has made monthly installment payments on this obligation
consistent with the terms prior to maturity.
Included in the current portion of long term debt is outstanding
indebtedness under a margin agreement of approximately $118,000 and $116,000 at
December 31, 1997 and 1996, respectively. The indebtedness is collateralized by
88,000 shares of BBRG common stock.
Short-term borrowing arrangements totaling approximately $356,000 at
December 31, 1997, mature in 1998.
In May 1994, the Company entered into an agreement with BBRG to transfer
the operations under the Concessions Agreement and the Management Agreement to
the Company in, return for a six year term note in the amount of $970,000. On
January 5, 1998, the Note was amended to require equal quarterly payments of
principal and interest beginning April 1, 1999 of approximately $36,000 with
interest at 6%.
The Company and its subsidiaries have several immediate needs for cash.
Financing arrangements consist of current maturities of long-term debt,
including obligations in default, totaling approximately $4.2 million and
short-term borrowing arrangements of approximately $356,000. There can be no
assurance that the Company's efforts to provide additional liquidity or to
renew, extend or refinance existing financial arrangements will be successful.
Management anticipates that unless its efforts are successful, the Company will
not have sufficient cash to cover operating expenses and scheduled debt payments
during 1998.
11
12
RACING SUBSIDIARY
In order to meet the requirements for renewal of racing licenses in
1999, the Company's racing subsidiary must demonstrate it is a financially
stable entity, capable of disposing of its obligations on a timely basis.
Although management is optimistic that it will be able to demonstrate financial
stability in their applications for 1999 racing license, there can be no
assurance that the Racing Commission will continue to grant a licenses to
conduct racing on the schedule presently maintained at Wonderland.
In the event that the Company is not successful in obtaining 1999 racing
licenses, the adverse impact on the Company's financial results and position
would be material.
IMPACT OF INFLATION AND CHANGING PRICES
Certain of the Company's operating expenses, such as wages and benefits,
equipment repair and replacement, and inventory and marketing costs, increase
with general inflation. In order for the Company to cope with inflation, it
must, to the extent permitted by competition and patron acceptance, pass
increased cost on by periodically increasing prices. The Company is limited in
its ability to offset the effects of inflation by increasing its percentage of
handle because this percentage is governed by statute.
NEW ACCOUNTING STANDARDS
In June 1997, the Financial Accounting Standards Board issued two new
disclosure standards. Results of operations and financial position will be
unaffected by implementation of these new standards.
Statement of Financial Accounting Standards No. 130, "Reporting
Comprehensive Income," ("SFAS No. 130") establishes standards for reporting and
display of comprehensive income, its components, and accumulated balances.
Comprehensive income is defined to include all changes in equity except those
resulting from investments by owners and distributions to owners. Among other
disclosures, SFAS No. 130 requires that all items that are required to be
recognized under current accounting standards as components of comprehensive
income be reported in a financial statement that is displayed with the same
prominence as other financial statements.
SFAS No. 131, "Disclosure about Segments of an Enterprise and Related
Information," which supersedes SFAS No. 14, "Financial Reporting for Segments of
a Business Enterprise," establishes standards for the way that public
enterprises report information about operating segments in annual financial
statements and requires reporting of selected information about operating
segments in interim financial statements issued to the public. It also
establishes standards for disclosures regarding products and services,
geographic areas, and major customers. SFAS No. 131 defines operating segments
as components of an enterprise about which separate financial information is
available that is evaluated regularly by the chief operating decision maker in
deciding how to allocate resources and in assessing performance.
Both of these new standards are effective for financial statements for
periods beginning after December 15, 1997 and require comparative information
for earlier years to be restated. Management does not expect these new
pronouncements to have a material impact on future financial statement
disclosures.
FORWARD-LOOKING STATEMENTS
Certain statements contained in this report constitute "forward-looking
statements" as that term is defined under the Private Securities Litigation
Reform Act of 1995. Such forward-looking statements involve known and unknown
risks, uncertainties and other factors that may cause the actual results,
performance or achievements of the Company, or industry results, to be
materially different from those contemplated or projected, forecasted, estimated
or budgeted in or expressed or implied by such forward-looking statements. Such
factors include, among others, the following: general economic and business
conditions; industry trends, changes in business strategy or development plans;
availability and quality of management; and availability, terms and deployment
of capital. SPECIAL ATTENTION SHOULD BE PAID TO SUCH FORWARD-LOOKING STATEMENTS
INCLUDING, BUT NOT LIMITED TO, STATEMENTS RELATING TO (I) THE COMPANY'S ABILITY
TO EXECUTE ITS BUSINESS STRATEGY, AND (II) THE COMPANY'S ABILITY TO OBTAIN
SUFFICIENT RESOURCES TO FINANCE ITS WORKING CAPITAL AND CAPITAL EXPENDITURE
NEEDS AND PROVIDE FOR ITS OBLIGATIONS.
12
13
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO FINANCIAL STATEMENTS
PAGE
REPORTS OF INDEPENDENT ACCOUNTANTS 14-15
CONSOLIDATED BALANCE SHEETS 16-17
CONSOLIDATED STATEMENTS OF OPERATIONS 18
CONSOLIDATED STATEMENTS OF CHANGES IN
STOCKHOLDERS' DEFICIT 19
CONSOLIDATED STATEMENTS OF CASH FLOWS 20
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 21-34
13
14
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
The Westwood Group, Inc.
Revere, Massachusetts
We have audited the accompanying consolidated balance sheets of The Westwood
Group, Inc. and Subsidiaries as of December 31, 1997 and 1996 and the related
consolidated statements of operations, changes in stockholders' deficit 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 generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance as to 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 consolidated financial position of The Westwood Group,
Inc. and Subsidiaries as of December 31, 1997 and 1996 and the consolidated
results of their operations and their cash flows for the years then ended, in
conformity with generally accepted accounting principles. We also audited the
adjustments for discontinued operations described in Note 3 that were applied to
restate the 1995 consolidated statement of operations. In our opinion, such
adjustments are appropriate and have been properly applied to the 1995
consolidated financial statements.
The accompanying 1997 and 1996 consolidated financial statements have been
prepared assuming that the Company will continue as a going concern. As
discussed in Note 2 to the consolidated financial statements, the Company has
encountered substantial cash flow and liquidity problems, has a significant
working capital deficiency and stockholders' deficit and is in default on
certain debt obligations. These factors raise substantial doubt about its
ability to continue as a going concern. Management's plans in regard to these
matters is also described in Note 2. The consolidated financial statements do
not include any adjustments that might result from the outcome of this
uncertainty.
BDO Seidman, LLP
Boston, Massachusetts
April 8, 1998
14
15
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
The Westwood Group, Inc. and Subsidiaries:
We have audited the consolidated statements of operations, changes in
stockholders' deficit and cash flows of the Westwood Group, Inc. (a Delaware
Corporation) and Subsidiaries for the year ended December 31, 1995, prior to the
restatement (and, therefore, are not presented herein) for discontinued
operations as described in Note 3 to the restated consolidated financial
statements. The consolidated 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 generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance as to 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 consolidated financial statements referred to above
present fairly, in all material respects the consolidated results of The
Westwood Group, Inc. and Subsidiaries operations and cash flows for the year
ended December 31, 1995 in conformity with generally accepted accounting
principles.
The 1995 consolidated financial statements have been prepared assuming that
the Company will continue as a going concern. As discussed in Note 2 to the
consolidated financial statements, the Company has suffered significant losses
from operations, encountered substantial cash flow and liquidity problems, has a
significant working capital deficiency and stockholders' deficit and is in
default on debt obligations. These factors raise substantial doubt about its
ability to continue as a going concern. Management's plan in regard to these
matters is also described in Note 2. The consolidated financial statements do
not include any adjustments that might result from the outcome of this
uncertainty.
Coopers & Lybrand L.L.P.
Boston, Massachusetts
March 8, 1996
15
16
THE WESTWOOD GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
---------------
DECEMBER 31,
---------------------------
1997 1996
----------- -----------
ASSETS
Current assets:
Cash and cash equivalents $ 374,292 $ 1,033,911
Restricted cash 612,037 1,021,221
Accounts receivable 629,204 641,345
Prepaid expenses and other current assets 161,502 198,295
----------- -----------
Total current assets 1,777,035 2,894,772
----------- -----------
Property, plant & equipment:
Land 348,066 348,066
Buildings and building improvements 17,830,342 17,358,197
Machinery and equipment 4,441,026 5,034,426
Leasehold improvements -- 8,136,450
----------- -----------
22,619,434 30,877,139
Less accumulated depreciation and amortization 16,913,769 18,919,632
----------- -----------
Net property, plant and equipment 5,705,665 11,957,507
----------- -----------
Other assets:
Goodwill, less accumulated amortization
of $528,000 and $384,000 192,000 336,000
Investments 5,324,522 4,987,796
Notes receivable from officer 369,375 336,190
Other assets 212,875 317,736
----------- -----------
Total other assets 6,098,772 5,977,722
----------- -----------
Total assets $13,581,472 $20,830,001
=========== ===========
The accompanying notes are an integral part
of these consolidated financial statements.
16
17
THE WESTWOOD GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(CONTINUED)
---------------
DECEMBER 31,
---------------------------
1997 1996
----------- -----------
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Debt obligations in default $ 4,234,286 $ 1,185,500
Current maturities of long-term debt 139,022 2,226,973
Short-term borrowings 355,539 520,990
Accounts payable and other accrued liabilities 4,765,747 15,646,522
Net liabilities of discontinued operations 1,280,620 --
Outstanding pari-mutuel tickets 310,763 420,119
----------- -----------
Total current liabilities 11,085,977 20,000,104
Long-term debt, less current maturities 996,671 3,434,758
Other long-term liabilities 3,049,452 1,859,378
----------- -----------
Total liabilities 15,132,100 25,294,240
----------- -----------
Commitments and contingencies
Stockholders' deficit:
Common stock, $.01 par value authorized
3,000,000 shares; 1,936,409 shares issued 19,364 19,364
Class B common stock, $.01 par value;
authorized 1,000,000 shares; 912,615 shares
issued 9,126 9,126
Additional paid-in capital 13,355,355 13,355,355
Accumulated deficit (6,538,493) (9,497,349)
Note receivable from stockholder (345,119) (330,594)
Minimum pension liability adjustment (86,079) (55,359)
Cost of 1,593,199 common and 600 Class B
common shares in treasury (7,964,782) (7,964,782)
----------- -----------
Total stockholders' deficit (1,550,628) (4,464,239)
----------- -----------
Total liabilities and stockholders' deficit $13,581,472 $20,830,001
=========== ===========
The accompanying notes are an integral part of these
consolidated financial statements.
17
18
THE WESTWOOD GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
---------------
YEAR ENDED DECEMBER 31,
-------------------------------------------
1997 1996 1995
----------- ----------- -----------
Operating revenue:
Pari-mutuel commissions $17,057,287 $16,754,300 $17,861,836
Concessions 1,952,759 1,928,152 2,119,168
Other operating 2,035,732 1,899,295 2,098,334
----------- ----------- -----------
Total operating revenue 21,045,778 20,581,747 22,079,338
----------- ----------- -----------
Operating expenses:
Wages, taxes and benefits 7,311,681 6,905,439 7,852,995
Purses 5,092,615 5,243,461 6,052,840
Cost of food and beverage 562,403 580,151 698,687
Administrative 1,460,084 1,300,739 1,447,765
General operating 4,081,578 4,131,154 5,095,713
Depreciation and amortization 529,288 828,191 882,667
----------- ----------- -----------
Total operating expenses 19,037,649 18,989,135 22,030,667
----------- ----------- -----------
Income from operations 2,008,129 1,592,612 48,671
----------- ----------- -----------
Other income (expense):
Interest expense, net (386,803) (754,796) (708,975)
Equity income (loss) in investments 336,726 86,395 (552,230)
Net gain on sale/foreclosure of real property 500,000 1,427,697 --
Other income, net 331,915 353,334 393,783
----------- ----------- -----------
Total other income (expense) 781,838 1,112,630 (867,422)
----------- ----------- -----------
Income (loss) from continuing operations before provision
for income taxes 2,789,967 2,705,242 (818,751)
Provision for income taxes -- 13,000 --
----------- ----------- -----------
Income (loss) from continuing operations 2,789,967 2,692,242 (818,751)
Loss from operations of discontinued harness racing subsidiary (2,411,787) (2,180,436) (1,235,683)
Gain on discontinuance of harness racing subsidiary 2,580,676 -- --
----------- ----------- -----------
Net income (loss) $ 2,958,856 $ 511,806 $(2,054,434)
=========== =========== ===========
Basic and diluted per share data:
Income (loss) from continuing operations per share $ 2.22 $ 2.15 $ (.65)
=========== =========== ===========
Income (loss) from discontinued operations per share $ .14 $ (1.74) $ (.98)
=========== =========== ===========
Net income (loss) per share $ 2.36 $ .41 $ (1.64)
=========== =========== ===========
Basic and diluted weighted average common shares outstanding 1,255,225 1,255,225 1,255,225
=========== =========== ===========
The accompanying notes are an integral part of these
consolidated financial statements.
18
19
THE WESTWOOD GROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIT
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
---------------
NOTE
RECEIVABLE
CLASS B ADDITIONAL RETAINED FROM
COMMON COMMON PAID-IN EARNINGS RELATED
STOCK STOCK CAPITAL (DEFICIT) PARTY
------- ------- ------------ ------------ ----------
Balance, December 31, 1994 $ 9,364 $9,126 $13,355,355 $ (7,954,721) $(301,551)
Net loss -- -- -- (2,054,434) --
Interest receivable -- -- -- -- (14,522)
Minimum pension liability adjustment -- -- -- -- --
Balance, December 31, 1995 19,364 9,126 13,355,355 (10,009,155) (316,073)
Net income -- -- -- 511,806 --
Interest receivable -- -- -- -- (14,521)
Pension Liability Adjustment -- -- -- -- --
Balance, December 31, 1996 19,364 9,126 13,355,355 (9,497,349) (330,594)
Net income -- -- -- 2,958,856 --
Interest receivable -- -- -- -- (14,525)
Pension Liability Adjustment -- -- -- -- --
Balance, December 31, 1997 $19,364 $9,126 $13,355,355 $ (6,538,493) $(345,119)
======= ====== =========== ============ =========
MINIMUM
PENSION TOTAL
LIABILITY TREASURY STOCKHOLDERS'
ADJUSTMENT STOCK DEFICIT
----------- ----------- -------------
Balance, December 31, 1994 $(115,182) $(7,964,782) $(2,952,391)
Net loss -- -- (2,054,434)
Interest receivable -- -- (14,522)
Minimum pension liability adjustment 108,621 -- 108,621
Balance, December 31, 1995 (6,561) (7,964,782) (4,912,726)
Net income -- -- 511,806
Interest receivable -- -- (14,521)
Pension Liability Adjustment (48,798) -- (48,798)
Balance, December 31, 1996 (55,359) (7,964,782) (4,464,239)
Net income -- -- 2,958,856
Interest receivable -- -- (14,525)
Pension Liability Adjustment (30,720) -- (30,720)
Balance, December 31, 1997 $ (86,079) $(7,964,782) $(1,550,628)
========= =========== ===========
The accompanying notes are an integral part of these
consolidated financial statements.
19
20
THE WESTWOOD GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
---------------
YEAR ENDED DECEMBER 31,
-------------------------------------------
1997 1996 1995
----------- ----------- -----------
Cash flows from operating activities:
Net income (loss) $ 2,958,856 $ 511,806 $(2,054,434)
----------- ----------- -----------
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Gain on discontinuance of harness racing (2,580,676) -- --
subsidiary
Depreciation and amortization 529,288 1,539,918 1,627,925
Gain on sale/foreclosure of real property (500,000) (1,427,697) --
Gain on bond sales and redemptions (199,415) -- --
Equity in (income) loss from investments (336,726) (86,395) 552,230
Deferred revenue (132,500) (353,334) (353,333)
Minimum pension liability adjustment (30,720) (48,798) 108,621
Other -- 142,698 (158,424)
Changes in operating assets and liabilities:
Decrease (increase) in restricted cash 409,184 380,578 (2,073)
Decrease (increase) in accounts receivable 112,141 154,740 (106,344)
Decrease (increase) in prepaid expenses
and other current assets 36,793 72,390 (25,946)
Decrease (increase) in other assets, net (5,134) 26,601 206,998
Increase (decrease) in accounts payable and
other accrued liabilities (1,200,511) 557,355 2,101,342
Increase (decrease) in other long-term
liabilities 1,380,295 865,287 (1,114,906)
----------- ----------- -----------
Total adjustments (2,517,981) 1,823,343 2,836,090
----------- ----------- -----------
Net cash provided by operating 440,875 2,335,149 781,656
----------- ----------- -----------
activities
Cash flows from investing activities:
Additions to property, plant and equipment (756,444) (676,457) (413,100)
Proceeds from bond sales and redemptions 99,415 -- --
Proceeds from sale of real property 500,000 -- --
----------- ----------- -----------
Net cash used in for investing activities (157,029) (676,457) (413,100)
----------- ----------- -----------
Cash flows from financing activities:
Proceeds from short-term debt 407,466 900,000 300,000
Principal payments of debt (1,350,931) (1,975,768) (1,029,993)
----------- ----------- -----------
Net cash used in financing activities (943,465) (1,075,768) (729,993)
----------- ----------- -----------
Net increase (decrease) in cash and cash equivalents (659,619) 582,924 (361,437)
Cash and cash equivalents at beginning of year 1,033,911 450,987 812,424
----------- ----------- -----------
Cash and cash equivalents at end of year $ 374,292 $ 1,033,911 $ 450,987
=========== =========== ===========
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Interest $ 439,165 $ 958,960 $ 779,566
=========== =========== ===========
Income taxes $ -- $ 91,704 $ 114,892
=========== =========== ===========
Non-cash financing activities:
During 1997, the Company wrote-off property and other assets of $6,372,682
and relieved liabilities of $8,953,358 in connection with the Company's
discontinuance of its Foxboro harness racing business (see Note 3).
During 1996, the Company wrote-off property of $4,103,702 in exchange for the
discharge of $5,231,399 in debt related to a foreclosure transaction (see
Note 12).
The accompanying notes are an integral part of these
consolidated financial statements.
20
21
THE WESTWOOD GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
---------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS
The Company operates primarily through its pari-mutuel racing
subsidiary. Wonderland Greyhound Park is a pari-mutuel greyhound racing facility
located in Revere, Massachusetts. The Company also operated Foxboro Park, a
pari-mutual harness racing facility located in Foxboro, Massachusetts through
the date of eviction in July, 1997 (see Litigation at Note 8). The Company's
Foxboro harness racing business was discontinued during 1997 and is reported as
a discontinued operation in the accompanying consolidated financial statements
(see Note 3).
The Wonderland facility includes a one-quarter mile sand track, a
physical plant consisting of a climate controlled grandstand and clubhouse and a
two-story administrative center. The Company maintains and operates two full
service restaurants, a sports bar and other concession facilities at the
racetrack. The racetrack facility can accommodate 10,000 patrons. The complex
encompasses a total of approximately 35 acres, including paved and lighted
parking.
Wonderland provides its patrons with a variety of entertainment options
including live racing and full card simulcast wagering.
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements for fiscal years
December 31 1997, 1996 and 1995, include the accounts of the Company and its
wholly-owned subsidiaries. All material intercompany accounts and transactions
have been eliminated in consolidation.
CASH AND CASH EQUIVALENTS
Cash investments with maturities of three months or less at the time of
their purchase are classified as cash equivalents.
RESTRICTED CASH
Restricted cash is related to the operations of Wonderland and consists
of amounts held by The Commonwealth of Massachusetts (the "Commonwealth") in
trust funds (for capital improvements and advertising/promotion), and unclaimed
winnings from pari-mutuel wagering. Removal of restrictions on the use of the
trust funds is dependent upon approval by the Commonwealth.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost and are depreciated
using the straight-line method over the following estimated useful lives:
ASSET CLASSIFICATION ESTIMATED USEFUL LIFE
-------------------- ---------------------
Buildings and improvements 30 Years
Machinery and equipment 5-10 Years
Leasehold improvements are amortized over the lesser of the assets'
estimated useful lives or the actual or expected lease terms. During 1997, the
Company wrote-off its leasehold improvements related to its discontinued
operations (see Note 3). Gains or losses are recognized upon the disposal of
property, plant and equipment, and the related accumulated depreciation and
amortization are adjusted accordingly. Losses are also recognized on buildings
and improvements in the event of a permanent impairment to their value, as
determined by management. Maintenance, repairs and betterments that do not
enhance the value of or increase the life of the assets are charged to
operations as incurred.
21
22
Depreciation expense of approximately $385,000, $631,000 and $453,000
was recorded for the years ended December 31, 1997, 1996 and 1995, respectively.
INTANGIBLE ASSETS
Intangible assets, including goodwill, trade names and trademarks, are
amortized over periods not exceeding 30 years on a straight-line basis. The
carrying value of intangible assets is reviewed periodically by management. If
expected future operating cash flows derived from such intangible assets is less
than their carrying value, an impairment in the carrying value is recognized. In
performing this analysis, management considers such factors as current results,
trends and future prospects, in addition to economic factors.
NOTE RECEIVABLE FROM STOCKHOLDER
Certain amounts receivable from the Company's majority shareholder are
reflected in the balance sheet as an offset to equity.
INVESTMENTS
The Company's investment in Back Bay Restaurant Group, Inc. ("BBRG")
represents approximately 19% of BBRG common stock. The Company is deemed to have
the ability to exercise influence over BBRG since the Chairman of the Board of
the Company is also the Chief Executive Officer of BBRG. Accordingly, the
investment in BBRG has been accounted for under the equity method for each of
the three years ended December 31, 1997.
FAIR VALUE OF FINANCIAL INSTRUMENTS
As of December 31, 1997 and 1996, the following methods and assumptions
were used to estimate the fair value of each class of financial instruments for
which it is practical to estimate. The carrying amount of cash equivalents
approximates the fair value due to short term maturity of the cash equivalents.
The fair value of the Company's long-term debt is estimated based on the quoted
market prices for the same or similar issues or on the current rates offered to
the Company for debt of the same remaining maturities. The carrying amount
approximates fair value since the Company's interest rates approximate current
interest rates.
CONCENTRATION OF CREDIT RISK
Financial instruments which potentially subject the Company to credit
risk consist of cash equivalents and accounts receivable. The Company's policy
is to limit the amount of credit exposure to any one financial institution and
place investments with financial institutions evaluated as being creditworthy.
At December 31, 1997, the Company had bank deposits which exceeded federally
insured limits by approximately $911,000. Concentration of credit risk, with
respect to accounts receivable, is limited due to the Company's credit
evaluation process. The Company does not require collateral from its customers.
The Company's customer base consists principally of other race tracks.
Historically, the Company has not incurred any significant credit related
losses.
DEBT
Long-term obligations which are in default have been classified as
current liabilities. (See Note 4 of Notes to Consolidated Financial Statements)
INCOME TAXES
The Company uses the liability method of accounting for income taxes.
Under this method, deferred income taxes are provided based on the estimated
future tax effects of differences between financial statement carrying amounts
and the tax basis of existing assets and liabilities. The Company's policy is to
record a valuation allowance against deferred tax assets unless it is more
likely than not that such assets will be realized in future periods. The Company
considers estimated future taxable income or loss and other available evidence
when assessing the need for its deferred tax asset valuation allowance. The tax
effect of differences in the timing of recognition of income and expense for tax
purposes are reflected in the deferred income tax accounts (which are included
in "accounts payable and other accrued liabilities" in the accompanying
consolidated balance sheets).
22
23
INCOME (LOSS) PER COMMON SHARE
The Company follows Statement of Financial Accounting Standards (SFAS)
No. 128, Earnings per Share, issued by the Financial Accounting Standards Board.
Under SFAS No. 128, the basic and diluted net income (loss) per share of common
stock for the years ended December 31, 1997, 1996 and 1995 is computed by
dividing the net income (loss) by the weighted average number of common shares
outstanding during the period, including potentially dilutive stock options. The
Company's stock options did not have a dilutive effect in 1997, 1996 and 1995
since the option prices per share were deemed to be equal to or higher than the
estimated average per share market price of the Company's common stock.
The amount of potentially dilutive common shares issuable under the
Company's stock options, if any, are determined based on the treasury stock
method.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles 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 periods. Actual results could differ from those estimates.
ADVERTISING
The Company expenses advertising costs as incurred. Advertising expense
was approximately $319,000, $350,000 and $414,000 for the years ended
December 31, 1997, 1996 and 1995, respectively.
NEW ACCOUNT PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board issued two new
disclosure standards. Results of operations and financial position will be
unaffected by implementation of these new standards.
SFAS No. 130, Reporting Comprehensive Income, establishes standards for
reporting and display of comprehensive income, its components, and accumulated
balances. Comprehensive income is defined to include all changes in equity
except those resulting from investments by owners and distributions to owners.
Among other disclosures, SFAS No. 130 requires that all items that are required
to be recognized under current accounting standards as components of
comprehensive income be reported in a financial statement that is displayed with
the same prominence as other financial statements.
SFAS No. 131, Disclosure about Segments of an Enterprise and Related
Information, which supersedes SFAS No. 14, Financial Reporting for Segments of a
Business Enterprise, establishes standards for the way that public enterprises
report information about operating segments in annual financial statements and
requires reporting of selected information about operating segments in interim
financial statements issued to the public. It also establishes standards for
disclosures regarding products and services, geographic areas, and major
customers. SFAS No. 131 defines operating segments as components of an
enterprise about which separate financial information is available that is
evaluated regularly by the chief operating decision maker in deciding how to
allocate resources and in assessing performance.
23
24
Both of these new standards are effective for financial statements for
periods beginning after December 15, 1997 and require comparative information
for earlier years to be restated. Management does not expect these new
pronouncements to have a significant impact on future financial statement
disclosures.
RECLASSIFICATIONS
Certain amounts in the 1996 and 1995 consolidated financial statements
have been reclassified to conform with the 1997 presentation. Additionally, the
consolidated statements of operations for 1996 and 1995 have been restated to
present the Foxboro harness racing business as a discontinued operation.
2. RESULTS OF OPERATIONS AND MANAGEMENT'S PLANS
The Company's consolidated financial statements have been prepared on
the basis that it will be able to continue in existence. The Company has
encountered substantial cash flow and liquidity problems, has a significant
working capital deficiency and stockholders' deficit and is in default on
certain debt obligations (see Note 4). The Company has implemented certain
reorganization plans to address its cash flow and liquidity problems as detailed
below. The improvement in the Company's operating results during the years ended
December 31, 1997 and 1996 compared to the corresponding period in 1995 is
primarily due to a decrease in operating expenses of approximately $3 million in
1997 and 1996 as compared to 1995.
The Company reorganized and restructured its financial and operational
management team, with the addition of an Executive Vice-president and Chief
Financial Officer in August of 1995. Management has continued to monitor cost
containment and seek ways to improve operational profitability. Also, management
is continuing to negotiate existing obligations and commitments to reduce the
burden on current cash flow from operations. Management is looking for new
opportunities to grow and expand its current product, through increasing new
markets via simulcast wagering and adding new entertainment operations.
The above factors, however, raise substantial doubt about its ability to
continue as a going concern. The Company's ability to continue as a going
concern depends on future events, including its continued success in its
reorganization efforts and the resolution of the Company's debt obligation
issues.
3. DISCONTINUED OPERATIONS
During July 1997, the Company's harness racing subsidiary, Foxboro Park,
Inc. (including wholly owned subsidiaries), was evicted from the Foxboro Raceway
(see Litigation at Note 8).
The gain on the discontinuance of the Company's harness racing business
of approximately $2.6 million for year ended December 31, 1997, is primarily
comprised of the excess of occupancy and other liabilities of approximately $8.9
million over non-recoverable net leasehold improvements and other assets of
approximately $6.3 million.
The remaining net liabilities of the Company's discounted operations at
December 31, 1997 are comprised of the following:
Cash and restricted cash $ 326,808
Accounts receivable and other 148,691
Less liabilities:
Creditors Trust Agreement Promissory obligation
and other liabilities 423,493
Trade payables 816,446
Outstanding pari-mutual tickets 516,180
----------
$1,280,620
==========
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The loss from operations of the Company's discontinued harness racing
business is summarized as follows:
1997 1996 1995
----------- ------------ ------------
Operating revenues $ 6,564,416 $ 11,214,689 $ 11,028,823
Operating expenses (8,976,203) (13,395,125) (12,264,506)
----------- ------------ ------------
$(2,411,787) $ (2,180,436) $ (1,235,683)
============ ============ ============
In February 1998 the Company executed an Assignment for the Benefit of
Creditors ("AFBC") for Foxboro Park, Inc., Foxboro Harness, Inc. and Foxboro
Thoroughbred, Inc. (collectively, the "Foxboro Entities"). The AFBC was executed
to provide a mechanism for the liquidation of its assets and the distribution of
proceeds to its creditors. Provided that 70% in amount and 50% in number of the
Foxboro Entities creditors become Assenting Creditors, the Company shall
partially subordinate its claims.
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4. LONG-TERM DEBT
At December 31, 1997 and 1996, long-term debt consisted of the
following:
1997 1996
---------- ----------
8-3/4% MSCGAF Realty Trust term loan requiring
monthly payments of principal and interest of $42,298
until maturity in January 1998, collateralized by a
mortgage and security interest in all real estate and
personal property located at Wonderland Park, by all
of the stock of Wonderland Park, and guaranteed by
three subsidiaries of the Company, including
Wonderland Park. $2,381,286 $2,644,632
Line of credit, interest at 10% requiring monthly
payments of interest plus $16,000 principal until
maturity at June 1, 1997, final payment of $1,648,000
due February 1, 1998 collateralized by a second
mortgage and security interest in all real estate and
personal property located at Wonderland Greyhound
Park and by approximately 401,000 shares of BBRG
common stock held by the Company. 1,568,000 1,744,000
6%BBRG Term Note, payable in equal quarterly payments
of principal and interest of approximately $36,000
beginning April 1, 1999, collateralized by certain
tangible personal property and licenses. 970,000 970,000
14-1/4% Subordinated Notes due August, 1997 285,000 285,000
Margin agreement due on demand
collateralized by 88,000 shares
of BBRG stock held by the Company. 117,855 115,674
7.5% Promissory Note, payable in 60
monthly payments of principal and
interest of $2,003, commencing
April, 1995. 47,838 67,425
Creditor Trust Agreement Promissory obligation,
non-interest bearing, with a quarterly minimum
guaranteed amount, of all distributions from Foxboro
Capital Improvements Trust Funds applicable to the
period beginning January 1, 1994, until paid
in full. - 900,500
6% Promissory Notes, payable in monthly payments of
principal plus interest at $9,000 per month until
April, 1996 and $12,000 per month until maturity in
October, 1997. Collateralized by 60,333 shares of
BBRG common stock held by the Company. - 120,000
---------- ----------
$5,369,979 6,847,231
Less:
Current maturities 139,022 2,226,973
Debt obligations in default 4,234,286 1,185,500
---------- ----------
Long-debt portion $ 996,671 $3,434,758
========== ==========
26
27
The aggregate principal payments required to be made on long term debt,
for the years subsequent to December 31, 1997 are as follows:
1998 $4,373,308
1999 113,748
2000 125,111
2001 121,250
2002 121,250
2003 and thereafter 515,312
----------
$5,369,979
==========
The above MSCGAF Realty Trust term loan and the $1.6 million line of
credit matured on January 31, 1998 and February 1, 1998, respectively. The
lenders have made a demand for the entire principal and interest amounts due on
the notes. Accordingly, the debt is in default and the related collateral,
represented by a first and second mortgages on the Wonderland property and the
pledge of 401,000 shares of BBRG common stock, is subject to possible
foreclosure proceedings. The Company is seeking to refinance these notes with
another lender and has made monthly installment payments on these notes
consistent with the terms prior to maturity.
In May 1994, the Company settled certain litigation regarding the
Creditor Trust Agreement and entered into a Settlement Agreement. The Company
had pledged 100% of the distributions of the Foxboro Park Capital Improvement
Trust Funds as payment towards the Creditors Trust Agreement Debt. All receipts
from the Capital Improvements Trust Funds have been distributed as principal
payments. The Creditors Trust Agreement Promissory obligation has been
reclassified under net liabilities of the Company's discontinued operations at
December 31, 1997 (see Note 3).
The outstanding first and second mortgage notes relating to the property
at 284 Newbury Street in the Back Bay section of Boston were retired in 1996
pursuant to the foreclosure of the property (See Note 12).
In May 1994, the Company entered into an agreement with BBRG to transfer
the operations under the Concessions Agreement and the Management Agreement to
the Company in return for a six year term note in the amount of $970,000. On
January 5, 1998 the Note was amended requiring equal quarterly payments of
principal and interest beginning April 1, 1999 of approximately $36,000 with
interest at 6%.
In May 1994, holders of approximately $19,300,000 of the Company's
14.25% Subordinated Notes (the "Notes") exchanged them for approximately 887,000
shares of BBRG common stock. The shares were exchanged in full settlement of
principal, accumulated interest and default premiums due in respect of such
Notes. The transaction resulted in an extraordinary gain of approximately $11.2
million net of applicable income taxes of approximately $1.3 million. Holders of
approximately $285,000 of the Notes elected not to participate in the exchange.
These Notes remain in default.
5. SHORT-TERM BORROWINGS
The Company had $355,539 outstanding at December 31,1997 under a
short-term borrowing arrangement. This note bears interest at 12% per annum and
requires weekly principal and interest payments of $12,000 with a maturity date
of August 7, 1998.
The Company had $520,990 outstanding at December 31, 1996 under two
short-term borrowing arrangements. An unsecured Line of Credit for $1 million
was established in 1996 solely for the purpose of funding the payment of
pari-mutuel outs tickets due to the Commonwealth of Massachusetts. The line of
credit matured in November, 1997, bearing interest at 12% per annum and had an
outstanding balance of $300,000 at December 31, 1996. The Company also had a
short-term note payable of $220,990 at December 31, 1996 bearing interest at
12% per annum and requiring weekly principal and interest payments of $11,900
with a maturity date of May 16, 1997.
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6. LABOR CONTRACTS
In December 1993, the labor contract between Wonderland and the
Wonderland Dog Track Employees Union, Local 410 (the "Union"), which governed
the terms of employment of the mutual clerks at Wonderland, was due to expire.
The parties mutually agreed to extend the contract several times while
attempting to reach a new agreement. In February 1994, Wonderland implemented
the terms of its final offer to the Union, after months of negotiations and an
impasse having been reached. Such terms included a reduction in the hourly
compensation rate of approximately 35%, and the elimination of certain week-end
and holiday premiums. In October 1994, the national office of the Union
reassigned the Union to Service Employees International Union, Local 254 ("Local
254"). In October 1994, Local 254 agreed to a three year extension of the
Union's current contract amended by Wonderland's final offer. The annual savings
to the Company as a result of the new contract approximates $1.0 million. The
Union challenged the implementation of the final offer at the State Labor
Relations Commission for the period from implementation in February 1994 through
the reassignment of the Union in October 1994. This litigation was subsequently
withdrawn by Local 254 in connection with the renewal of the collective
bargaining agreement. Accordingly, no reserve has been established at December
31, 1997 and 1996.
7. OTHER LONG-TERM LIABILITIES
Other long-term liabilities includes approximately $1,346,000 at
December 31, 1997 of fees owed to a law firm primarily related to the Foxboro
litigation (see Litigation at Note 8). The total obligation of approximately
$1,606,000 is currently payable at $5,000 per week.
Other long-term liabilities also includes approximately $1,000,000 at
December 31, 1997 and 1996, of funds advanced from Autotote Limited
("Autotote"). The original advance of $1,000,000 was made to the Company in 1992
in consideration for the exclusive right to provide totalisator services for any
off-track betting and simulcast operations that the Company may undertake in the
future. The terms of the original agreement required repayment in weekly
installments of $4,944. The Company has not made any of the weekly installments
required under this agreement. Management has classified this debt as a
long-term liability based on its intended maturity after 1998.
8. COMMITMENTS AND CONTINGENCIES
PLEDGES OF BBRG STOCK
As of December 31, 1997, the Company has pledged, or has committed to
pledge, approximately 549,000 shares of BBRG common stock in connection with
debt financing arrangements.
Approximately 80,000 shares have been pledged to collateralize a
performance bond for Wonderland Park, which is required annually by the Mass
State Racing Commission for all race tracks.
The Company currently owns approximately 673,000 shares of stock in
BBRG, representing approximately 19% of BBRG total outstanding shares (See Note
13).
RACING LICENSE
In order to meet the requirements for renewal of racing licenses, the
Company's racing subsidiary must demonstrate, on an annual basis, that it is a
financially viable entity, capable of disposing of their obligations on a timely
basis. The racing license has been granted for the 1998 calendar year. Although
management is optimistic that it will be able to demonstrate financial stability
in their applications for 1999 racing license, there can be no assurance that
the Racing Commission will continue to grant licenses to conduct racing on the
schedules presently maintained at Wonderland.
In the event that the Company is not successful in obtaining 1999 racing
licenses, the adverse impact on the Company's assets would be material.
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LEASE COMMITMENT
Totalisator equipment rent (which is primarily based on the handle per
performance) was approximately $386,000, $471,000, and $628,000 in 1997, 1996
and l995, respectively. Future minimum payments are due at amounts contingent on
the Company's total handle amounts.
LITIGATION
The Company is subject to various claims and legal actions that arise in
the ordinary course of its business.
On October 3, 1996, Foxboro Realty Associates, LLC, Foxboro Stadium
Associates Limited Partnership, and New England Patriots, L.P. filed a complaint
against Foxboro Park, Inc., Foxboro Harness, Inc., and The Westwood Group, Inc.
(collectively "Foxboro Park") in Norfolk Superior Court in Massachusetts. The
complaint sought a declaratory judgment with respect to the right to occupy the
Foxboro Raceway, as well as specific performance of an agreement relating to the
use of hospitality facilities at the Raceway.
On October 8, 1996, Foxboro Park filed an answer to the complaint as
well as counterclaims which assert that Foxboro Park has a long-term right to
occupy the Raceway and is entitled to substantial monetary damages. On that day,
Foxboro Park also filed a related complaint in Norfolk Superior Court against
Robert K. Kraft, Foxboro Realty Associates LLC, New Foxboro Corp., and Thomas L.
Aronson and moved to consolidate that case with the earlier filed case. Foxboro
Park also moved to add Robert K. Kraft as a party defendant to the counterclaims
in the earlier case.
On November 17, 1996, Foxboro Realty Associates LLC filed a summary
process complaint against Foxboro Park in Norfolk Superior Court. This complaint
sought to evict Foxboro Park from the Foxboro Raceway. On November 18, 1996,
Foxboro Park filed an answer asserting numerous defenses and counterclaims
against Foxboro Realty Associates LLC and moved to consolidate this case with
the first action.
Trial commenced on a jury waived basis on April 16, 1997. On April 25,
1997, the Court entered an order finding, inter alia that Foxboro Park is not
entitled to possession of the premises. On June 24, 1997, the Court entered
judgment against Foxboro Park in the declaratory judgment and summary process
actions. After denying Foxboro Park's motion for a new trial and request for a
stay of judgment in those actions, the Court issued an execution pursuant to
which Foxboro Park was evicted from the Raceway on July 31, 1997. Foxboro Park
has not occupied the Raceway since that date.
Foxboro Harness, Inc. returned its license to conduct a harness horse
racing meeting for calendar year 1997 to the Massachusetts State Racing
Commission on August 12, 1997, as the eviction at Foxboro Park prevented it from
completing its racing meeting.
On April 30, 1997, Foxboro Park's fraud and related claims trial
commenced. On May 29, 1997, the jury returned its verdict in favor of Robert
Kraft on Foxboro Park's fraud claim against him. The jury returned a verdict in
favor of Foxboro Park on Foxboro Realty Associate's claim against Foxboro Park
for use and occupancy charges for the period from May 29, 1997 through December
31, 1997. On June 13, 1997, the Court issued findings against Foxboro Park on
its remaining claims with the exception of Foxboro Park's claim against Foxboro
Stadium Associates and New England Patriots L.P. for breach of contract. With
respect to that claim, the Court entered judgment in favor of Foxboro Park in
the amount of $74,843. Foxboro Park moved for a new trial on its fraud and
related claims. That motion was denied.
On January 27, 1998, Foxboro Park appealed to the Appeals Court from all
adverse rulings and judgments. On February 2, 1998, Foxboro Realty Associates
LLC et al, and Aronson and New Foxboro Corp. appealed to the Appeals Court from
all adverse rulings. The appeals now are before the Appeals Court with briefs
anticipated to be filed in late 1998. The Company believes that an unfavorable
outcome from the Foxboro Realty Associates LLC et al appeal is unlikely and does
not expect the outcome to materially impact operations or the Company's
financial condition.
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CONSULTING ARRANGEMENT
Prior to 1995, the Company engaged a firm to assist management in the
planning and execution of a financial and operational reorganization of the
Company. One of the principles of such firm was a director of the Company. As
compensation for its services, the Company agreed to grant warrants to purchase
shares of the Company's common stock. At December 31, 1997, the Company has not
executed a warrant agreement with the consulting firm. The Company is currently
in the process of renegotiating the amount of shares, per share price and other
terms. At December 31, 1997, the Company has recorded an estimated reserve of
$100,000 for this consulting arrangement which is included with accounts payable
and other accrued liabilities in the accompanying consolidated balance sheet.
9. COMMON STOCK, STOCK OPTION AND GRANT PLANS
The Company accounts for its stock-based compensation plans under
Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to
Employees. In October 1995, the Financial Accounting Standards Board issued SFAS
No. 123, Accounting for Stock-Based Compensation, which was effective for fiscal
years beginning after December 15, 1995. SFAS No. 123 established a
fair-value-based method of accounting for stock-based compensation plans. The
Company has adopted the disclosure-only alternative under SFAS No. 123, which
requires disclosure of the pro forma effects on earnings and earnings per share
as if the fair value based method under SFAS No. 123 had been adopted, as well
as certain other information.
In October 1995, the Board of Directors approved and ratified the
granting of non-qualified stock options. These options were granted to the
Directors of the Company to purchase shares of common stock at an option price
equal to the fair market value of the Company's common stock at the date the
options were granted (estimated at $3.00 per share).
During 1997, the Company issued to certain executives 47,500 options to
purchase the Company's common stock at an exercise price of $3.00 per share.
During 1995, the Company awarded to Directors and former Directors of the
Company, non-qualified stock options to purchase 241,334 shares of the
Company's common stock at an exercise price of $3.00 per share. All such
options expire 10 years from the date of grant.
The Company's stock options activity is summarized as follows:
Number Exercise
of Shares Price
--------- --------
Balance, December 31, 1994 -- --
Granted 241,334 $3.00
Exercised -- --
Terminated -- --
------- -----
Balance, December 31, 1995 241,334 $3.00
Granted -- --
Exercised -- --
Terminated -- --
------- -----
Balance, December 31, 1996 241,334 3.00
Granted 52,500 3.00
Exercised -- --
Terminated (5,000) 3.00
------- -----
Balance, December 31, 1997 288,834 $3.00
======= =====
Exercisable, December 31, 1997 283,834 $3.00
======= =====
The Company's total stock options outstanding of 288,834 at December 31,
1997 expire as follows: 190,000 in 2002; 51,334 in 2005; and 47,500 in 2007.
The Company has computed the pro forma disclosures required under SFAS
No. 123 for stock options granted during the year ended December 31, 1997 using
the Black-Scholes option pricing model prescribed by SFAS No. 123.
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31
The assumptions used and the weighted average information for year ended
December 31, 1997 are as follows:
Risk-free interest rates 6.5%
Expected dividend yield None
Expected lives 8 years
Expected volatility 46.5%
Weighted average fair value of
options on date of grant $3.81
Weighted-average exercise price $3.00
Weighed-average remaining
contractual life of options
outstanding 9 years
The effect of applying SFAS No. 123 would be as follows:
Year Ended
December 31,
------------
Pro forma net income $2,796,931
Pro forma net income per share:
Basic and diluted $2.23
10. INCOME TAXES
The Company's provision for income taxes for the year ended December 31,
1996 represents estimated alternative minimum Federal taxes. There is no
provision for income taxes for the years ended December 31, 1997 or 1995 due to
the Company's taxable net operating loss position as indicated below.
The Company's effective tax rates differ from amounts computed by
applying the statutory federal income tax rate to income (loss) before income
taxes, as follows:
1997 1996 1995
------ ------ ------
Statutory federal income tax rate 34.0% 34.0% (34.0%)
(Utilization) deferral of temporary
items subject to valuation allowance (34.0) 11.6 36.2
Alternative minimum tax -- 2.0 --
Utilization of carryforward losses -- (45.1) (2.2)
----- ----- -----
Income tax rate --% 2.5% --%
===== ===== =====
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The tax effects of the significant temporary differences which comprise
the deferred tax assets and liabilities are as follows:
1997 1996 1995
------- ------- -------
(IN THOUSANDS)
DEFERRED TAX ASSETS
Net operating loss carryforwards $ 4,701 $ 3,257 $ 3,492
Capital loss carryforwards 670 670 -
Fixed assets 1,168 1,164 1,284
Deferred compensation 258 292 312
Miscellaneous operating reserves 341 748 748
Alternative minimum tax credit 580 580 580
Capitalized expense 150 150 170
Rent expense -- 2,212 1,732
------- ------- -------
Gross deferred assets 7,868 9,073 8,318
Less valuation allowance (5,409) (7,001) (6,280)
-------- ------- -------
Net deferred assets 2,459 2,072 2,038
DEFERRED TAX LIABILITIES
Miscellaneous liabilities 244 64 64
Investment in BBRG 2,215 2,008 1,974
------- ------- -------
Net deferred tax liabilities $ -- $ -- $ --
======= ======= =======
The Company has fully reserved for all net deferred tax assets as future
realization of these assets is not determinable. At December 31, 1997, the
Company has net operating loss and capital loss carryforward aggregating
approximately $10.0 million, subject to review and possible adjustment by the
Internal Revenue Service. Such net operating loss carryforwards expire beginning
in 2007 through 2010.
11. PENSION PLANS AND RETIREMENT BENEFITS
The Company contributed $84,049, $86,338 and $71,551 in 1997, 1996 and
1995, respectively, to three multi-employer pension plans for employees covered
by collective bargaining agreements. These plans are not administered by the
Company and contributions are determined in accordance with the provisions of
negotiated labor contracts. The Company maintains a defined benefit retirement
plan for certain other union employees. The plan provides a benefit of a flat
dollar amount, determined by the collective bargaining agreement with the union.
Company contributions to this plan totaled $100,650, $78,740 and $101,528 in
1997, 1996 and 1995, respectively. Benefits under the plan maintained by the
Company are provided by a group annuity contract purchased from an insurance
carrier. Expense for this plan includes amortization of the cost of providing
plan benefits for past service over a period of approximately 14 years. The
Company's funding policy is to contribute amounts annually to the Plan, subject
to the Internal Revenue Service and ERISA minimum required and maximum allowable
funding limitations. The following table sets forth the plan's funded status at
December 31, 1997 and 1996:
1997 1996
---------- ----------
Accumulated and projected
benefit obligation:
Vested $1,709,769 $1,689,292
Nonvested 54,150 52,172
---------- ----------
Total 1,763,919 1,741,464
Less plan assets at fair value 1,319,124 1,277,477
---------- ----------
Unfunded projected benefit obligation 444,795 463,987
Unrecognized net transition obligation (170,299) (212,875)
Unrecognized net losses (89,735) (59,015)
Adjustment for minimum liability 260,034 271,891
---------- ----------
Adjusted accrued pension cost $ 444,795 $ 463,988
========== ==========
Net periodic pension cost included the following components:
1997 1996 1995
--------- -------- ---------
Service cost-benefits earned during
the period $ 24,344 $ 26,820 28,130
Interest cost on projected benefit
obligation 133,086 136,508 136,328
Actual return on plan assets (113,811) (77,609) (211,832)
Net gain (loss) during the year,
deferred for later recognition (7,120) (31,944) 112,549
Amortization of unrecognized net
obligation 42,576 42,576 42,576
--------- -------- ---------
Net periodic pension cost $ 79,075 $ 96,351 $ 107,751
========= ======== =========
32
33
Assumptions used in accounting for the above pension information
included a discount rate of 8% and an expected long-term rate of return of 8.5%
for all years presented.
Included in accounts payable and other accrued expenses is approximately
$445,000 which reflects the unfunded accumulated benefit obligation, as detailed
in the table above. This includes an accrued pension cost of approximately
$185,000 and an additional minimum liability of approximately $260,000.
Approximately $213,000 of the $445,000 is offset by an intangible asset which
reflects unrecognized prior service cost accumulated (including any unrecognized
net transition obligation). The remaining balance of the $445,000, or
approximately $232,000, has been recognized in the Company's statements of
operations since adoption of SFAS No. 87.
The Company amended the defined benefit plan in connection with the
renewal of a collective bargaining agreement. The amendment provides that as of
January 31, 1998, benefit accruals under the plan will be frozen for those
active employees who accrued benefits under the plan before January 31, 1998.
The amendment further provides that on and after January 31, 1998, employees
hired by Wonderland will no longer be eligible to join the plan. The Company
will make contributions on behalf of these employees at a fixed rate to the
union 401(k) plan based upon hours worked. These contributions commenced in
1998.
During 1997 the Company established separate 401(k) plans for union and
nonunion employees, respectively. The plans are administered by an insurance
company. The Company made contributions on behalf of certain union employees
based upon a fixed rate and performances worked. The total of these
contributions was approximately $41,000 in 1997.
The Company also has employment contracts with certain retired employees
which provide for the payment of retirement benefits, the cost of which has been
accrued during their active employment. Deferred tax benefits have been recorded
for these costs which are deductible for tax purposes when paid.
Expense for all retirement plans of the Company for the years ended
December 31, 1997, 1996, and 1995, was approximately $358,000, $329,000 and
$409,000, respectively.
12. GAIN ON SALE/FORECLOSURE OF REAL PROPERTY
The Company had a 32% limited partnership interest in a partnership
which owned land and an office and retail building. During 1992, the Company
determined that the carrying value of its investment in the partnership had been
permanently impaired. Accordingly, the Company's carrying value of its limited
partnership investment was reduced and has been zero since 1992. During 1997,
the Company sold its interest in the limited partnership for $500,000. The
proceeds are included under other income in the accompanying consolidated
statement of operations.
In December 1996 the first and second mortgage holders completed
foreclosure proceedings on the property located at 284 Newbury Street in the
Back Bay Section of Boston. These transactions resulted in a gain of
approximately $1.1 million and the reduction of liabilities of approximately
$5.2 million including accrued interest and property taxes of approximately
$471,000. The Company believes that the fair value of the property approximated
the amount of debt relieved. Accordingly, the related gain of approximately $1.1
million is included under other income in the accompanying consolidated
statement of operations. These mortgage obligations were non-recourse to the
Company and also resulted in the release of 45,000 shares of BBRG stock
previously held by the first mortgagee as additional collateral.
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34
13. INVESTMENTS
During 1994, the Company and BBRG jointly pursued a series of
transactions, the effect of which resulted in the control of BBRG no longer
resting with the Company. Accordingly, the Company's investment in BBRG for the
years ended December 31, 1997, 1996 and 1995 has been accounted for under the
equity method.
The following unaudited financial information summarizes the financial
position and results of operations of BBRG:
BALANCE SHEET INFORMATION DECEMBER 28, DECEMBER 29,
(IN THOUSANDS) 1997 1996
------------------------- ------------ ------------
Current assets $ 4,050 $ 3,356
Noncurrent assets 39,022 40,555
Current liabilities 11,786 12,243
Noncurrent liabilities 4,274 6,466
Net equity 27,012 25,202
YEARS ENDED
------------------------------------------
OPERATIONS INFORMATION DECEMBER 28, DECEMBER 29, DECEMBER 29,
(IN THOUSANDS) 1997 1996 1995
---------------------- ------------ ------------ ------------
Net sales $94,904 $87,753 $93,496
Gross profit 68,503 62,968 67,516
Net income (loss) 1,731 467 (2,810)
Company's equity in net
earnings (loss) of BBRG 337 86 (552)
The quoted market value of BBRG stock during 1997 reflected a high and
low price of $8.50 and $2.63, respectively. At December 31, 1997, the quoted
market value of the Company's investment in BBRG was approximately $3.7 million.
14. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Accounts payable and accrued liabilities as of December 31, 1997 and
1996 consisted of the following:
1997 1996
---------- -----------
Accounts payable, trade $2,399,542 $ 2,237,617
Other accrued liabilities 2,147,913 4,874,827
Accrued interest 218,292 1,231,987
Accrued lease obligations and occupancy costs -- 7,302,091
---------- -----------
$4,765,747 $15,646,522
========== ===========
15. TRANSACTIONS WITH OFFICERS, EMPLOYEES AND RELATED PARTIES
In May 1994, the Company purchased all restaurant and concession
operations at Wonderland from BBRG for a sales price of $770,000, including
goodwill of $720,000. Included in the term note of $970,000 was additional
amounts owed to BBRG for costs incurred under the Cross Indemnification
agreement amounting to $200,000.
For the period of November 1993 through February 1995, the Company
engaged the professional services of a former Director of the Corporation to
assist in the financial and operational reorganization of the Company. Fees paid
in 1995 for these services amounted to approximately $36,000.
The Company received payments of $80,000 in January 1995, as repayments
on a note receivable from Charles Sarkis, the Company's Chairman and majority
stockholder. At December 31, 1997 and 1996, the aggregate amounts of loans
outstanding to officers/stockholders including interest, was $714,494 and
$666,784, respectively. The loans are payable on demand and bear interest at the
prime rate of one of the Company's lending banks plus 1.5% per annum. Notes
receivable and related interest, in the amount of $345,119 and $330,594 have
been classified as an offset to stockholders' equity at December 31, 1997 and
1996, respectively. Interest receivable, exclusive of the amount recorded in
equity, at December 31, 1997 and 1996 was $134,087 and $119,562, respectively.
34
35
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
DIRECTORS
NAME AGE SINCE POSITION
---- --- ----- --------
Charles F. Sarkis 58 1978 Chairman of the Board
Richard P. Dalton 50 1978 President, Chief Executive
Officer, Director
A. Paul Sarkis 30 1995 Executive Vice President,
Director
Richard G. Egan, Jr. 35 1995 Vice President of Finance,
Treasurer, Secretary and
Chief Financial Officer
Paul J. DiMare 55 1987 Director
CHARLES F. SARKIS has served as Chairman of the Board since 1978. He was
Chief Executive Officer of the Company from 1978 to 1992 and President from 1984
to 1992. He has been Chairman of the Board, President and Chief Executive
Officer of Back Bay Restaurant Group, Inc. (restaurant holding company),
formerly a wholly-owned subsidiary of the Company, for more than six years. He
also has been Chief Executive Officer of Sarkis Management Corporation
(restaurant management).
RICHARD P. DALTON has served as President and Chief Executive Officer of
the Company since 1993. He served as Executive Vice President of the Company
from 1988 to 1992 and Chief Operating Officer from 1989 until 1992. He was Vice
President from 1984 until 1987; Chief Financial Officer from 1988 to 1989;
Treasurer from 1974 to 1989; Assistant Secretary since 1984; and General Manager
from 1981 to 1983. Mr. Dalton is also a director of Back Bay Restaurant Group,
Inc.
A. PAUL SARKIS was elected Executive Vice President and Director in
August, 1995. Mr. Sarkis was Corporate Director of Development from 1993 to 1995
and Financial Analyst from 1990 to 1993.
RICHARD G. EGAN, JR. was elected Vice President of Finance, Treasurer,
Secretary and Chief Financial Officer on October 24, 1995. Prior to that time,
Mr. Egan was Accounting and Financial Officer at Copley Real Estate Advisors and
was previously a manager at Price Waterhouse.
PAUL J. DIMARE has been President of DiMare Homestead, Inc.
(agricultural processing and packaging) and DiMare Management Corp.
(agricultural management and marketing) for over six years. He also is a
director of First National Bank of Homestead, Florida.
Mr. A. Paul Sarkis, currently an Executive Vice President of the Company
and director of the Company, is the son of Charles F. Sarkis, the Chairman of
the Board of Directors. All of the directors and executive officers are citizens
of the United States. There are no arrangements or understandings between any of
the directors or executive officers of the Company and any other person pursuant
to which such director or executive officer was or will be selected as a
director or officer of the Company. Each of the executive officers of the
Company holds office at the pleasure of the Board of Directors.
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36
ITEM 11. EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE - The following table shows the cash and other
remuneration paid or accrued, in respect of services rendered to the Company and
its wholly-owned subsidiaries for the three years ended December 31, 1997, to
each of the Company's executive officers whose aggregate remuneration exceeded
$100,000.
COMPENSATION --AWARDS-- PAYOUTS
- --------------------------------------------------------------------------------------------------------------------
NAME AND OTHER RESTRICTED
PRINCIPAL ANNUAL STOCK OPTIONS/ LTIP ALL OTHER
POSITION YEAR SALARY BONUS COMPENSATION AWARDS(S) SARS PAYOUTS COMPENSATION
- ------------------------ ---- -------- ------- ------------ --------- ---- --------- ------------
Charles F. Sarkis
Chairman of the Board 1997 $200,000 $23,616 - 20,000 - - -
1996 $200,000 - - - - - -
1995 $200,000 - - - - - -
Richard P. Dalton
President and Chief
Executive Officer 1997 $186,250 $19,680 - 15,000 - - -
1996 $180,000 - - - - - -
1995 $180,000 - - 25,000 - - -
A. Paul Sarkis
Executive Vice 1997 $ 93,750 $15,744 - 7,500 - - -
President
Richard G. Egan, Jr.
Vice President and CFO 1997 $100,817 $ 9,840 - 5,000 - - -
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During the year ended December 31, 1997, Messrs. Charles F. Sarkis,
Richard P. Dalton and A. Paul Sarkis served as executive officers of the Company
and as members of the Board of Directors of the Company which performs the
functions of a compensation committee. In addition, Mr. Charles F. Sarkis
served as a director and executive officer of BBRG and Mr. Dalton served as a
member of the Compensation Committee of the Board of Directors of BBRG.
REMUNERATION OF DIRECTORS - The Company pays to each nonemployee
Director $2,000 per Board meeting attended with an additional fee of $1,000 for
each Committee meeting attended.
COMPENSATION PLAN - The Company has adopted an executive compensation
plan. The compensation plan is designed to provide an environment and
opportunity for key executives to be rewarded for individual achievement as well
as for attaining overall corporate goals. The compensation plan includes
provisions for a base salary, annual incentive and long term incentives. Base
salary is determined annually and is based upon the level and amount of
responsibility in the context of comparable companies. Additional annual
incentives are to be distributed to key executives from a bonus pool. A
performance bonus equal to 10% of income before tax will be allocated to the key
executives at the discretion of the Compensation Committee and Board of
Directors. Additionally, a discretionary bonus up to 5% of income before income
taxes will be available to reward an employee's individual performance. Finally,
long term incentives will consist of stock options granted to key executives at
the discretion of the Compensation Committee and Board of Directors.
In addition, a special transaction bonus is available in the event the
Chairman initiates and/or negotiates an extraordinary transaction to enhance
shareholder value, including a merger, sale, acquisition or joint venture. The
transaction bonus is equal to 2% of the value of any such transaction.
STOCK OPTION AGREEMENTS - During 1997, the Company issued to certain
executives 47,500 options to purchase the Company's common stock at an exercise
price of $3.00 per share. During 1995, the Company awarded to Directors and
Former Directors of the Company, non-qualified stock options to purchase 241,334
shares of the Company's common stock at an exercise price of $3 per share. All
such options expire 10 years from the date of grant.
36
37
OPTION GRANTS IN FISCAL YEAR 1997 AND YEAR-END OPTION VALUES
The following table provides certain information regarding options to
purchase shares of the Company's Common Stock granted to the named executive
officers in Fiscal Year 1997.
OPTIONS GRANTED IN FISCAL YEAR 1997
Potential Realizable Value
at Assumed Annual Rates
Number of % of Total Market Price of Stock Price Appreciation for
Securities Options Granted Exercise on Date Option Term
Underlying to Employees Price of Grant Expiration -------------------------------
Name Options Granted in Fiscal Year(%) ($/share) ($/share) Date 0% ($) 5% ($) 10% ($)
- ---- --------------- ----------------- --------- ------------ ---------- ------ ------ -------
Charles F. Sarkis 20,000 38.1 3.00 3.00 11/24/07 0 37,734 95,625
Richard P. Dalton 15,000 28.6 3.00 3.00 11/24/07 0 28,300 71,718
A. Paul Sarkis 7,500 14.3 3.00 3.00 11/24/07 0 14,150 35,859
Richard G. Egan, Jr. 5,000 9.5 3.00 3.00 11/24/07 0 9,433 23,906
The table below shows the total number of unexercised options held at
December 31, 1997. There are no unexercised in-the-money options at the fiscal
year end. No options were exercised in the fiscal year ended December 31, 1997.
FISCAL YEAR-END OPTION VALUES
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS AT
OPTIONS AT FISCAL YEAR-END (#) YEAR-END ($)(1)
-------------------------------- -------------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ------------ ------------- ----------- -------------
Charles F. Sarkis 95,000 - 0 -
Richard Dalton 40,000 - 0 -
A. Paul Sarkis 32,500 - 0 -
Richard G. Egan, Jr. 0 5,000 0 0
- -----------
(1) In-the-Money Options are those where the fair market value of the
underlying Securities exceeds the exercise price of the option.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
(a) SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS OF COMMON STOCK
The following table sets forth certain information, as of March 31,
1998, with respect to the beneficial ownership of the Company's Common Stock by
each Director and named Executive Officer, by all Directors and officers of the
Company as a group and by persons known by the Company to own beneficially more
than 5% of the outstanding Common Stock. Unless otherwise noted, such
stockholders have full voting and investment power with respect to the shares
listed as beneficially owned by them.
AMOUNT AND NATURE
NAME AND ADDRESS OF BENEFICIAL PERCENT
OF BENEFICIAL OWNER OWNERSHIP(1) OF CLASS
------------------- ----------------- --------
Directors and Officers:
Richard P. Dalton 52,350(2) 13.7%
The Westwood Group, Inc.
190 VFW Parkway
Revere, MA 02151
Paul J. DiMare* 143,300(3) 37.4%
P.O. Box 900460
Homestead, FL 33090
A. Paul Sarkis 48,609(4) 12.4%
The Westwood Group, Inc.
190 VFW Parkway
Revere, MA 02151
Charles F. Sarkis* 899,616(5) 72.4%
The Westwood Group, Inc.
190 VFW Parkway
Revere, MA 02151
Richard G. Egan, Jr. 0 0%
The Westwood Group, Inc. --------- ----
190 VFW Parkway
Revere, MA 02151
All Directors and Officers as a
group (five persons) 1,143,875(6) 83.4%
========= ====
HOLDERS OF MORE THAN 5%, NOT INCLUDED ABOVE
DiMare Homestead, Inc. 92,500(7) 27.0%
Jori M. Baker 37,749(8) 10.2%
Michael S. Fawcett 25,600(9) 7.0%
Joseph J. O'Donnell 47,669(10) 12.9%
Pauline F. Evans 26,122(11) 7.6%
Patricia F. Harris 19,850(12) 5.8%
* Messrs. Sarkis and DiMare each beneficially owns over five percent of the
outstanding Common Stock.
(1) As used in this table, "beneficial ownership" means the sole or shared
power to vote, or to direct the voting of, a security, or the sole or
shared investment power with respect to a security (i.e., the power to
dispose of or to direct the disposition of, a security). For purposes of
this table, a person is deemed to have "beneficial ownership" of any
security that such person has the right to acquire within 60 days,
including by conversion of such stockholder's shares of Class B Common
Stock into shares of Common Stock or by exercise of options. For purposes
of this table, any shares of Common Stock not outstanding which are subject
to such a right, options or conversion privileges, are deemed to be
outstanding for the purpose of computing the percentage of outstanding
shares beneficially owned by such person or group, but are not deemed to be
outstanding for the purposes of computing such percentage owned by any
other person or group.
(2) Includes presently exercisable options to purchase 40,000 shares.
(3) Includes 92,500 shares held of record by DiMare Homestead, Inc. a Florida
corporation controlled by Mr. DiMare. Also includes presently exercisable
options to purchase 40,000 shares.
(4) Includes presently exercisable options to purchase 32,500 shares and 16,109
shares issuable upon conversion of the shares of Class B Common Stock
beneficially owned by Mr. Sarkis.
(5) Consists of 804,616 shares issuable upon conversion of the shares of Class
B Common Stock beneficially owned by Mr. Sarkis as well as presently
exercisable options to purchase 95,000 shares. Does not include 6,750
shares of Common Stock or 2,900 shares of Class B Common Stock held by Mr.
Sarkis' wife; Mr. Sarkis disclaims beneficial ownership of such shares. See
footnote (2) to the table below showing beneficial ownership of Class B
Common Stock.
(6) Includes presently exercisable options to purchase 207,500 shares and
820,725 shares issuable upon conversion of shares of Class B Common Stock,
held by all directors and officers as a group.
(7) See Footnote (3).
(8) Includes 7,665 shares held of record by International Planning Group 401
(K) Profit Sharing Plan over which Mr. Baker has voting and investment
power, and presently exercisable options to purchase 26,334 shares. Mr.
Baker's address is c/o The Baker Companies, 62 Walnut Street, Wellesley,
Massachusetts 02181.
(9) Includes presently exercisable options to purchase 25,000 shares. Mr.
Fawcett's address is c/o Dorman & Fawcett, P.O. Box 214, Hamilton,
Massachusetts 01936.
(10) Includes presently exercisable options to purchase 25,000 shares. Mr.
O'Donnell's address is c/o Boston Concessions Group, Inc., 111 6th Street,
Cambridge, Massachusetts 02141.
(11) Ms. Evans' address is 3600 Galt Ocean Drive, Fort Lauderdale, Florida
33308.
(12) Ms. Harris' address is 11 Royal Road, Brookline, Massachusetts 02146.
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38
(b) SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS OF CLASS B COMMON STOCK
The following table sets forth certain information, as of March 31, 1998
with respect to the beneficial ownership of the Company's Class B Common Stock
by each Director and named Executive Officer and by all Directors and officers
of the Company as a group and by persons known by the Company to own
beneficially more than 5% of the outstanding Class B Common Stock. Unless
otherwise noted, such stockholders have full voting power and investment power
with respect to the shares listed as beneficially owned by them.
SHARES OF CLASS B
NAME AND ADDRESS COMMON STOCK PERCENT
OF BENEFICIAL OWNER BENEFICIALLY OWNED(1) OF CLASS
------------------- --------------------- --------
Charles F. Sarkis 804,616(2) 88.2%
The Westwood Group, Inc.
190 V.F.W. Parkway
Revere, MA 02151
A. Paul Sarkis 16,109 1.8%
The Westwood Group, Inc.
190 V.F.W. Parkway
Revere, MA 02151
------- ----
All Directors and 820,725(2) 90%
Officers as a ======= ====
Group (five persons)
(1) As used in this table, "beneficial ownership" means the sole or shared power
to vote, or to direct the voting of, a security, or the sole or shared
investment power with respect to a security (i.e., the power to dispose of, or
to direct the disposition of, a security). In addition, for purposes of this
table a person is deemed to have "beneficial ownership" of any security that
such person has the right to acquire within 60 days.
(2) Includes shares held by Sarkis Management Corporation which is wholly-owned
by Mr. Sarkis Does not include 93,754 shares held by Mr. Sarkis' six adult
children (including A. Paul Sarkis) or 2,900 shares held by Mr. Sarkis' wife;
Mr. Sarkis disclaims beneficial ownership of such shares.
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT.
Based solely on the review of Forms 3, 4 and 5 and all amendments thereto
furnished to the Company with respect to its most recent fiscal year, it appears
that each Director, officer and 10% beneficial owner of Common Stock of the
Company complied with Section 16(a) of the Securities Exchange Act of 1934,
except that Messrs. Charles F. Sarkis, A. Paul Sarkis, Richard P. Dalton and
Richard G. Egan, Jr. failed to timely file a Form 5 with respect to option
grants made in fiscal year 1997.
38
39
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
(a) The Company made loans of $28,000, $52,000 and $32,400 to Richard P.
Dalton, a director and executive officer of the Company, in 1986, 1987 and 1988
respectively, in connection with certain purchases by Mr. Dalton of shares of
the Company's Common Stock. Personal loans in the amounts of $107,905, $55,104
and $10,000 were also made to Mr. Dalton during 1989, 1990 and 1991,
respectively. During 1990, Mr. Dalton repaid $25,000 in principal amount of
these loans. The Company also made personal loans to Mr. Sarkis in the amounts
of $201,086 and $209,237 during 1989 and 1990, respectively. In January, 1995,
Mr. Sarkis repaid $80,000 to the Company. These loans are payable on demand and
bear interest at prime plus 1.5% per annum. As of December 31, 1997, all of
these loans ($714,494 in the aggregate including accrued interest) remain
outstanding.
(b) Mr. Charles F. Sarkis is the majority shareholder of the Company. The
Company owns more than 10% of the common stock of Back Bay Restaurant Group,
Inc. ("BBRG"). Certain arrangements between the Company and BBRG and/or their
respective affiliates were made while BBRG was a wholly-owned subsidiary of the
Company and accordingly, were established by related parties and were not
subject to arms length negotiations. Prior to 1994, the Company and BBRG were
parties to agreements pursuant to which BBRG operated the concession business
and received certain other revenues in connection with the operation of
Wonderland Greyhound Park and Foxboro Park, two parimutuel race tracks owned by
the Company. In May 1994, BBRG transferred its concession and related operations
to the Company in return for $770,000 term note to which $200,000 owed by the
Company to BBRG was added, to bring the total principal amount of the note to
$970,000. In 1997, this note was amended requiring equal quarterly payments of
principal and interest beginning April 1, 1999 of approximately $36,000 with
interest at 6%.
(c) In November 1992 the Company engaged a firm to assist management in the
planning and execution of financial and operational reorganization of the
Company. One of the principals of such firm is Mr. Fawcett. The agreement
provided such Firm would be granted warrants to acquire an amount of shares of
the Company's common stock which, upon exercise, would constitute 6% of the
Company's capital stock on a fully diluted basis, with an exercise price of $3
per share and a term of fifteen years upon successful completion of the
engagement. At December 31, 1997, the Company has not executed a warrant
agreement with the consulting firm. The Company is currently in the process of
renegotiating the amount of shares, per share price and other terms.
39
40
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) (1) Financial Statements
Included under Item 8 in Part II of this report:
Reports of Independent Accountants
Consolidated Balance Sheets
Consolidated Statements of Operations
Consolidated Statements of Stockholders' Deficit
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
(2) Financial Statement Schedules
All financial statement schedules are omitted because they are
not applicable or the required information is shown in the
consolidated financial statements or notes thereto.
(3) Exhibits
3.1 Certificate of Incorporation of the Company.(1)
3.2 Amendment, dated May 15, 1987, to the Certificate of Incorporation of
the Company.(4)
3.21 Amendment, dated November 2, 1995, to the Certificate of Incorporation
of the Company.(9)
3.3 Bylaws of the Company.(1)
4.1 Indenture, dated as of August 15, 1987, between the Company and State
Street Bank and Trust Company, as trustee, relating to the Company's
Subordinated Notes.(2)
4.2 Supplemental Indenture, dated as of March 16, 1988, between the
Company and State Street Bank and Trust company, as trustee.(4)
10.7 Collective Bargaining Agreement between Wonderland Greyhound Park,
Inc. and Local 103 - Electrical Workers, dated November 12, 1986.(2)
10.8 Retirement arrangement with James F Kelley.(5)
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41
10.9 Loan Agreement dated May 15, 1992, in connection with a loan from the
MSCGAF Realty Trust, together with a promissory note and a mortgage
and security agreement.(6)
10.10 Term Loan Agreement, dated August 24, 1992 in connection with a loan
from First Trade Union Savings Bank, FSB, together with a term
promissory note, a pledge and security agreement and with a
Modification Agreement, dated August 27, 1992.(6)
10.11 Creditor Trust and Settlement Agreement dated September 29, 1992, in
connection with a settlement with certain trade creditors, together
with a promissory note and a creditors trust security agreement. (6)
10.12 Totalisator Service Agreement, dated August 30, 1991, in connection
with an exclusive service contract, together with an amendment and
extension agreement dated April 2, 1992.(6)
10.13 Contract dated November 20, 1992, in connection with services to be
provided to the Company by an entity of which a former Director of the
Company is a principal, together with an amendment by letter
agreement, dated February 2, 1993.(6)
41
42
10.14 Collective Bargaining Agreement between the Company and United Food
and Commercial Workers' Union, Local 1445 AFL-CIO, CLC, dated June 1,
1993.(7)
10.15 Collective Bargaining Agreement between the Company and Local
25-Teamsters, effective January 1, 1993.(7)
10.16 Purchase and Sale Agreement dated December 14, 1993 between Back Bay
Restaurant Group, Inc. and The Westwood Group, Inc.(7)
10.17 Termination Agreement dated December 14, 1993 between Back Bay
Restaurant Group, Inc. and The Westwood Group, Inc. together with
termination of employee and administrative services agreement, a
termination of amended and restated tax sharing and indemnification
agreement, an amended and restated cross-indemnification agreement and
a mutual release.(7)
10.18 Loan Restructuring Agreement, dated as of July 1, 1993, between
certain subsidiaries of the Company and the MSCGAF Realty Trust, in
connection with the restructuring of $4,500,000 Term Loan, together
with Exhibits A through F of such agreement.(7)
10.19 Amendment, dated December 16, 1994, to Loan Restructuring Agreement
between certain subsidiaries of the Company and the MSCGAF Realty
Trust, in connection with the restructuring of $4,500,000 Term
Loan.(8)
10.20 Settlement of Litigation Agreement, dated October 12, 1994, between
Foxboro Park, Inc. and the trustee of the Creditor Trust and
Settlement Agreement, in connection with the restructuring of the
Creditor Trust and Settlement Agreement with related promissory notes,
dated July 7, 1994.(8)
10.21 Collective Bargaining Agreement between Wonderland Greyhound Park,
Inc. and Local 22 - Laborers' International Union, dated July 1,
1993.(8)
10.22 Collective Bargaining Agreement Extension between RFSC, Inc. and
Local 26 - Hotel and Restaurant Workers, effective January 1, 1994.(8)
10.23 Settlement Agreement between Wonderland Greyhound Park, Inc. and
Local 254 - Service Employees International Union, dated September 19,
1994, in connection with a successor collective bargaining
agreement.(8)
10.24 Amendment to Term Note between certain subsidiaries of the Company and
BBRG, dated March 17, 1995.(8)
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43
10.25 Margin Account Client Agreement between Westwood Financial Group, Inc.
and Tucker Anthony Inc., dated May 19, 1994, together with a side
agreement detailing additional terms.(8)
10.26 Assignment for the Benefit of Creditors and Sharing Agreement
(Foxboro Harness) (filed herewith).
10.27 Assignment for the Benefit of Creditors and Sharing Agreement (Foxboro
Thoroughbred) (filed herewith).
10.28 Assignment for the Benefit of Creditors and Sharing Agreement (Foxboro
Park) (filed herewith).
10.29 Form of Executive Non-Qualified Stock Option Agreement (filed
herewith).
10.30 Form of Employee Non-Qualified Stock Option Agreement (filed
herewith).
10.31 Third Amendment to Term Note between certain subsidiaries of the
Company and BBRG, dated January 5, 1998 (filed herewith).
22 Subsidiaries of the Company (filed herewith).
27 Financial Data Schedule (filed herewith).
(1) Filed with the Company's Annual Report on Form 10-K for 1984 and
incorporated herein by reference.
(2) Filed with the Company's Registration Statement on Form S-2 No. 33-15344
filed on June 25, 1987 and incorporated herein by reference. (3)
(3) Filed with the Company's Annual Report on Form 10-K for 1980 and
incorporated herein by reference.
(4) Filed with the Company's Annual Report on Form 10-K for 1987 and
incorporated herein by reference.
(5) Filed with the Company's Annual Report on Form 10-K for 1988 and
incorporated herein by reference.
(6) Filed with the Company's Annual Report on Form 10-K for 1992 and
incorporated hereby by reference.
(7) Filed with the Company's Annual Report on Form 10-K for 1993 and
incorporated hereby by reference.
(8) Filed with the Company's Annual Report on Form 10-K for 1994 and
incorporated herein by reference.
(9) Filed with Company's Annual Report on Form 10-K for 1995 and incorporated
hereby by reference.
(b) REPORTS ON 8-K.
No reports on Form 8-K were filed during the quarter ended December 31,
1997.
43
44
SIGNATURES
Pursuant to the requirements of Sections 13 or 15(d) of the Securities
Exchange Act of l934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
THE WESTWOOD GROUP, INC.
By /s/ Charles F. Sarkis
---------------------
Charles F. Sarkis
Chairman of the Board
Date: April 14, 1998
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Date: April 14, 1998 By /s/ Charles F. Sarkis
------------------------------------
Charles F. Sarkis
Chairman of the Board
Date: April 14, 1998 By /s/ Richard P. Dalton
------------------------------------
Richard P. Dalton
President, Chief Executive
Officer and Director
Date: April 14, 1998 By /s/ A. Paul Sarkis
------------------------------------
A. Paul Sarkis
Executive Vice President
Director
Date: April 14, 1998 By /s/ Richard G. Egan, Jr.
------------------------------------
Richard G. Egan, Jr.
Vice President of Finance,
Treasurer, Secretary, and
Chief Financial Officer
(Principal Financial and Accounting
Officer)
Date: April 14, 1998 By /s/ Paul J. Dimare
------------------------------------
Paul J. DiMare
Director
44