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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, 1996
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)
617-284-2600
(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
------------ ------------- ------------
$1.50(1) 305,875(2) $458,813
(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 9, 1997, was as follows:
Common Stock, $.01 par value: 343,210
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, and Foxboro Park, a pari-mutuel
harness racing facility located in Foxboro, Massachusetts. In May,
1994, the Company reduced its ownership in the Back Bay Restaurant
Group, Inc. ("BBRG") to approximately 19%.
(B) BUSINESS SEGMENTS
In 1996, 1995, and 1994, the Company's business was
principally conducted in the pari-mutuel racing industry.
(C) DESCRIPTION OF BUSINESS RACING SUBSIDIARIES
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 performance in
1996 was 1,167 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 matinee and evening
performances.
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Wonderland continues to provide its patrons with a variety of
entertainment options by enhancing its full card simulcast wagering.
During 1996, Wonderland provided its patrons with simulcast wagering
from over 20 various tracks throughout the country. In addition,
Wonderland has broadcast its simulcast signal to over 20 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 wholly-owned subsidiary, Foxboro Park, Inc.
("Foxboro"), operates a harness racetrack ("Foxboro Park") under an
agreement to lease and is located on approximately 78 acres of land in
the town of Foxboro, Massachusetts. The validity of Foxboro Park's
agreement to lease the premises has been challenged by the present
lessor and is the subject of ongoing litigation. (See Item 3. Legal
Proceedings and Note 7 of Notes to Consolidated Financial Statements).
Foxboro Park is approximately 25 miles southwest of Boston, and 32
miles southeast of Worcester, Massachusetts, and is served by major
transportation routes.
The racetrack facilities include a five-eighths mile oval
track, a physical plant consisting of a climate controlled grandstand
and clubhouse, and administrative offices. The facility also includes
stalls to accommodate 600 horses. The Company maintains and operates a
full-service restaurant and various other concession facilities at the
racetrack to serve Foxboro's patrons. The racetrack facility can
accommodate 9,000 patrons, and includes paved and lighted parking
providing capacity for 3,500 cars.
Foxboro also provides its patrons with the opportunity to
wager on premier thoroughbred and harness racing, simulcast from
various tracks throughout the country.
Foxboro's harness racing meet commenced in September l992 and
continued for the remainder of the year. Foxboro conducted 150 and 165
harness racing performances in 1996 and 1995, respectively, and
continues to operate exclusively as a harness racing facility, pursuant
to a license to conduct 168 racing performances in 1997.
Foxboro has continued to enhance its simulcast wagering by
providing its patrons with simulcast wagering from over 87 tracks
throughout the country. In addition, through reciprocal arrangements
with many of these same tracks, Foxboro has broadcast its live
performances to a combination of over 578 tracks, casinos and off-track
betting facilities throughout the country. This approach has provided
Foxboro's patrons with top quality racing, both live and simulcast,
while enhancing its total handle.
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 and
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Foxboro 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
which are reserved for the Commonwealth of Massachusetts, the owners of
the winning greyhounds, the owners of the harness race winners, the
racetrack, and certain associations of breeders.
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 our contractual arrangements from
approximately 1.75% to 11%.
The Commonwealth of Massachusetts approved new simulcast
legislation allowing Wonderland to increase the amount of certain
pari-mutuel wagering that may be retained by the track, up to 26% of
each $1.00 wagered starting in 1996.
As such, the average net pari-mutuel commission at Wonderland
is approximately 22.1% of each $1.00 wagered on track. Out of this
amount approximately 5.4% is distributed to kennel operators as purses
paid, 4.0% 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 1996 on the Wonderland Park signal broadcast to other tracks
was 2.4%.
At Foxboro the average net pari-mutuel commission earned was
approximately 21.5% of each $1.00 wagered. Out of this amount
approximately 6.3% is distributed to the horse owners as purses paid,
.425% is paid to the Commonwealth of Massachusetts in the form of a
pari-mutuel tax, .64% is paid to the association representing the
breeders and 1% is deposited each into both the Capital Improvement
Trust Funds and Promotional Trust Funds. The average net simulcast fee
earned in 1996 on the Foxboro Park signal broadcast to other tracks was
4.0%.
The Commonwealth of Massachusetts is the trustee and
Wonderland and Foxboro are the beneficiaries of the Greyhound Capital
Improvements and Promotional Trust Funds, and the Harness Horse and
Running Horse Capital Improvements and Promotional Trust Funds,
respectively, which have been established in accordance with
Massachusetts law and are dedicated to reimbursement of capital
improvements and promotional expenses.
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(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
and growing 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 pari-mutuel industry, but rather, in the
gaming and entertainment industry. To that end, management has worked
diligently over the last four years attempting to convince the Governor
and the Legislature of the Commonwealth of Massachusetts of the need to
allow the State's four commercial racetracks to offer their patrons
expanded gaming opportunities. It has been a long and involved process
which has become more complicated by the Wampanoag Indians' efforts to
open a casino in Massachusetts. In light of the significant economic
benefits that the racing industry has provided the Commonwealth of
Massachusetts over the past sixty years, 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 and Foxboro operate under annual licenses 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. Foxboro commenced operations in l992. 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 the Racing Subsidiaries.
Alcoholic beverage control regulations require each of the
restaurant and bar facilities at Wonderland and Foxboro 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
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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, 1996, the Company employed approximately 600
persons.
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 3 of Notes to Consolidated Financial Statements).
The Company invested approximately $9.4 million in 1992, in connection
with the commencement of operations at Foxboro Park, which is owned by an
unrelated party. Included in the $9.4 million is approximately $7.5 million in
capital improvements. The Company is conducting operations at such facility
under an agreement to lease and the Company's occupancy right is currently
subject to litigation (see Item 3, Legal Proceedings).
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 seeks a declaratory judgment with
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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 filed an answer to the complaint as well as
counterclaims which assert that Foxboro has a long-term right to occupy the
Raceway and is entitled to substantial monetary damages. On that day, Foxboro
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 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 The Westwood Group, Inc., Foxboro Park, Inc. and
Foxboro Harness, Inc. in Norfolk Superior Court. This complaint seeks to evict
Foxboro from the Foxboro Raceway. On November 18, 1996, Foxboro filed an answer
asserting numerous defenses and counterclaims against Foxboro Realty Associates
LLC and moved to consolidate this case with the first action.
On December 5, 1996, the Court consolidated the three actions referred
to above and scheduled trial for March 11, 1997. The court subsequently
rescheduled the trial of the consolidated actions to April 14, 1997.
On March 11, 1997, Foxboro Realty filed a motion for summary judgment
with respect to its summary process claim for possession of the Foxboro Raceway
premises. Foxboro has opposed Foxboro Realty's motion for summary judgement. The
Court has not yet ruled on the motion.
Foxboro intends to vigorously contest the claims asserted against it
and related parties Foxboro Harness, Inc. and The Westwood Group, Inc. and to
fully prosecute its affirmative claims against Foxboro Realty Associates, LLC
and related parties.
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 is
challenging 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. If the Union is successful in its
challenge, Wonderland may be
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required to retroactively compensate the Union member employees for the
difference between the old contract rates and the new contract rates for that
period of time, or approximately $750,000. The Company believes it has
meritorious defenses to the challenge.
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 March 28, 1997
-------------- --------------
Common Stock -- par value $.01 473
Class B Common Stock -- par value $.01 11
(c) DIVIDEND HISTORY
No dividends have been declared by the Company on its Common
Stock during 1996 or 1995. 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 3
of Notes to Consolidated Financial Statements).
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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, 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, 1993, and 1992
is derived from the Consolidated Financial Statements, as audited by Coopers &
Lybrand L.L.P., independent accountants. 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,
------------
1996 1995 1994 1993 1992
-------- -------- -------- --------- --------
(Dollars in Thousands Except Per Share Amount)
CONSOLIDATED STATEMENT OF
OPERATIONS DATA:
Revenue:
Operating revenue $ 31,796 $ 33,108 $ 32,805 $ 31,801 $ 27,840
Former restaurant division(2) -- -- -- 77,292 63,349
Total revenue 31,796 33,108 32,805 109,093 91,189
-------- -------- -------- --------- --------
Expenses:
Operating expenses 30,844 32,667 34,620 33,903 32,782
Former restaurant division -- -- -- 68,680 54,775
Depreciation and amortization 1,540 1,628 1,680 5,585 5,468
-------- -------- -------- --------- --------
Total expenses 32,384 34,295 36,300 108,168 93,025
-------- -------- -------- --------- --------
Income (loss) from operations (588) (1,187) (3,495) 925 (1,836)
Interest expense, net (755) (709) (2,248) (5,884) (4,522)
Other income (expense), net 1,868 (158) 6,820 (81) (6,082)
Minority interest -- -- -- (1,977) (1,385)
-------- -------- -------- --------- --------
Income (loss) before income taxes
and extraordinary item 525 (2,054) 1,077 (7,017) (13,825)
Provision for income taxes 13 -- 145 2,358 1,847
-------- -------- -------- --------- --------
Income (loss) before extraordinary item 512 (2,054) 932 (9,375) (15,672)
Extraordinary item, net -- -- 11,160 -- --
-------- -------- -------- --------- --------
Net income (loss) $ 512 $ (2,054) $ 12,092 $ (9,375) $(15,672)
======== ======== ======== ========= ========
Income (loss) per share:
Income (loss) before extraordinary item $ .41 $ (1.64) $ .74 $ (7.47) $ (12.49)
Extraordinary item -- -- 8.89 -- --
-------- -------- -------- --------- --------
Net income (loss) per share $ .41 $ (1.64) $ 9.63 $ (7.47) $ (12.49)
======== ======== ======== ========= ========
Cash dividends declared $ -- $ -- $ -- $ -- $ --
======== ======== ======== ========= ========
CONSOLIDATED BALANCE SHEET DATA:
Working capital (deficit) $(17,105) $(20,480) $(15,264) $ (47,550) $(40,161)
Total assets 20,830 25,608 27,823 62,722 64,846
Long-term debt(1) 3,435 5,774 9,550 544 4,265
Stockholders' deficit (4,464) (4,913) (2,952) (15,022) (5,235)
- ----------------------------
(1) Long-term debt at December 31, 1996, 1995, 1994, 1993, and 1992 excludes
$3,412, $1,751, $2,504, $25,382 and $31,534, respectively of long term debt
reclassified as current obligations (see Note 3 of Consolidated Financial
Statements).
(2) The table above reflects the Company's accounting for its investment in BBRG
under the consolidation method for 1993 and 1992 and under the equity method for
1996, 1995 and 1994.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
WONDERLAND
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,
-----------------------
1996 1995 1994
---- ---- ----
Performances 449 509 511
Simulcast Days 358 359 357
Pari-mutuel handle (millions)
Live-on track $ 45 $ 63 $ 72
Live-simulcast 27 30 3
Guest-simulcast 52 52 43
---- ---- ----
Total $124 $145 $118
==== ==== ====
Total attendance (thousands) 524 631 737
Average per capital on site wagering $185 $182 $156
==== ==== ====
During 1996, the Company continued to monitor operational profitability
per performance. In efforts to improve Wonderland's operational results, the
Company reduced its weekly schedule to nine performances compared to ten during
1995 and 1994. Wonderland has been granted a license to conduct 465 racing
performances during 1997.
FOXBORO
In 1996 and 1995, Foxboro conducted seasonal live harness racing
generally three evenings and one to two matinees per week, while simulcasting
every afternoon and evening. Live racing and simulcasting were conducted
year-round in 1994. The table below presents certain key statistics for Foxboro
for each of the past three years:
Year Ended December 31,
-----------------------
1996 1995 1994
---- ---- ----
Performances 150 165 158
Simulcast Days 352 357 352
Pari-mutuel handle (millions)
Live-on track $ 6 $ 7 $ 10
Live-simulcast 32 21 14
Guest-simulcast 48 48 47
---- ---- ----
Total $ 86 $ 76 $ 71
==== ==== ====
Total attendance (thousands) 257 252 221
Average per capital on site wagering $211 $219 $257
==== ==== ====
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The Company has made significant changes in the scheduling of its live
races to accommodate simulcast times of many of its simulcast partners. This
effort has made our product more marketable. These factors also have a
significant impact on the Company's ability to improve the quality of horses and
racing at Foxboro.
Foxboro has been granted a license to conduct 168 harness racing
performances during 1997.
Foxboro is currently operating under an agreement to lease the
premises, the validity of which has been challenged by the present lessor (See
Item 3. Legal Proceedings). Pursuant to the terms and conditions of its racing
license, Foxboro began paying $87,500 per month for the use and occupancy of the
premises effective January, 1997.
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.
1996 VS 1995
Total operating revenue decreased to $31.8 million from $33.1 million
in 1995, a decrease of $1.3 million or 4%. Pari-mutuel commissions decreased by
$1.0 million to $26.6 million from $27.6 million. The decrease in commission
revenue is due to a decline in on-track wagering of approximately $18 million at
Wonderland and $1 million at Foxboro. The impact of these on-track handle
declines was partially offset by an increase in live-simulcast wagering at
Foxboro of approximately $12 million and an increase in the pari-mutuel
commission rate at Wonderland during 1996. Per capita wagering at both
Wonderland and Foxboro 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. Foxboro's
attendance was up slightly in 1996 over 1995.
Concessions revenue decreased to $2.98 million in 1996 from $3.15
million in 1995 or by approximately 5%. Other operating revenue consists of
program sales, admission, parking and gift shop sales. These revenues declined
by approximately $129,000 in 1996 as compared to 1995 from $2.36 million to
$2.23 million. The decreases in these revenues in 1996 are the result of lower
attendance as compared to 1995.
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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. Additionally, revenue for this period
includes approximately $141,000 deposited into the Harness and Running Horse
Promotional Trust Funds combined and $421,000 deposited into the Harness and
Running Horse Capital Improvement Trust Funds combined. These funds are
dedicated to reimbursement of promotional expenses and capital improvements,
respectively, incurred by Wonderland and Foxboro.
1995 VS 1994
Total operating revenue increased to $33.1 in 1995 from $32.8 million
in 1994, an increase of $0.3 million or 1.%. Revenue from pari-mutuel
commissions increased slightly to $27.6 million in l995, from $27.3 million in
l994, an increase of $.3 million. The increase in pari-mutuel commission is
attributable to the increase in live simulcasting. The total handle on product
exported to other tracks increased by $33.5 million, $6.5 million at Foxboro and
$27 million at Wonderland. This increase results in an increase in commissions
receivable from various tracks through-out the country of approximately 3% of
handle or $1.1 million. On-track handle remained consistent from 1994 to 1995 at
$170 million, $55 million at Foxboro and $115 million at Wonderland. This
stabilization of on-track handle represents an increase in per capita wagering
as on-track attendance has decreased. The Company has made an aggressive effort
to provide a larger variety of wagering options to its patrons by increasing the
number of tracks available. This effort has enabled the Company to maintain
consistent handle results given a dwindling attendance base. As such,
approximately $11 million of the on-track wagering shifted to simulcast product.
This change in product mix has resulted in a lower net commission rate.
Consequently, on-track commission decreased by $.8 million, resulting in a net
increase of pari-mutuel commissions of $.3 million.
Concessions revenue increased by approximately $167,000 in 1995 from
1994, as a result of the Company controlling the entire food service operation
in 1995. Other operating revenue consists of program revenue, admissions,
parking and gift shop sales. The decrease of approximately $173,000 in 1995 is a
result of the decrease in attendance.
Revenue for l995 includes approximately $470,00 deposited into the
Greyhound Promotional Trust Fund and approximately $470,000 deposited into the
Greyhound Capital Improvements Trust Fund. Additionally, revenue for this period
includes approximately $136,000 deposited into the Harness and Running Horse
Promotional Trust Funds combined and $420,000 deposited into the Harness and
Running Horse Capital Improvement Trust Funds combined. These funds are
dedicated to reimbursement of promotional expenses and capital improvements,
respectively, incurred by Wonderland and Foxboro.
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OPERATING EXPENSES
1996 VS 1995
Operating expenses in 1996 of $32.4 million decreased from $34.3
million in 1995. This $1.9 million reduction or approximately 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 $507,000 in 1996, which was primarily attributable to Wonderland.
The Company realized cost savings on purse expense in 1996 of
approximately $205,000. Wonderland purses decreased by approximately $809,000 to
$5.24 million in 1996 from $6.05 million in 1995. Purses at Wonderland is
determined by the statutory requirements of the Commonwealth of Massachusetts
and this decrease is attributable to the decrease in total on-track handle. In
1996, purses in Foxboro increased by approximately $604,000 to $3.41 million
from $2.81 million in 1995. The increase in purses is attributable to the
increase in live-simulcast handle to $32.2 million in 1996 from $20.6 million in
1995 and payments made in excess of statutory and contractual amounts in an
effort to bring premier harness horses to Foxboro.
In addition, the Company realized savings in general and administrative
costs in 1996 of $1.1 million. These savings are attributable to reductions in
almost all operating expense categories due to successful cost containment
efforts. The savings in operating expenses were partially offset by increased
legal costs for litigation in 1996 (See Item 3 and Note 7 of Notes to
Consolidated Financial Statements).
1995 VS. 1994
Operating expenses in 1995 of $34.3 million decreased from $36.3
million in 1994 by $2 million. This decrease is attributable to the Company's
continued reorganization efforts and cost containment procedures. The Company
realized savings in operating wages, taxes and benefits of approximately
$477,000 in 1995, of which $258,000 and $219,000 were attributable to Foxboro
and Wonderland, respectively. These savings represent efforts to manage the
facilities by running live racing at Foxboro during the peak season only and
closing parts of the Wonderland facility during non-peak performances.
The Company realized cost savings on purse expense in 1995 of
approximately $673,000. Wonderland purses increased by approximately $310,000 to
$6.1 million in 1995 from $5.8 million in 1994. Purses at Wonderland is
determined by the statutory requirements of the Commonwealth of Massachusetts
and this increase is attributable to the increase in total handle. In 1995,
Foxboro only paid purses in the amounts dictated by its statutory requirements
with the Commonwealth of Massachusetts and its contractual obligations with the
14
15
Horse Owners. During 1994, Foxboro paid purses in excess of statutory
requirements during the summer season. This period was marketed as the "Summer
Sizzle" and an effort was made to bring the premier Harness Horses to Foxboro.
In conjunction with this marketing effort, a large sales effort was started to
broadcast Foxboro's signal to various tracks throughout the country. As a
result, Foxboro was able to increase the number of tracks receiving the
simulcast signal and increase simulcast handle in 1995. As a result of paying
purses in excess of statutory requirements in 1994 a reduction of purses in 1995
of approximately $980,000, was realized.
In addition, the Company realized savings in general and administrative
costs in 1995 of $858,000. These savings are attributable to a reduction in
legal and consulting costs associated with the restructuring of approximately
$300,000. In addition, the Company reduced its marketing budget by approximately
$600,000 in 1995.
DEPRECIATION AND AMORTIZATION
Depreciation and amortization decreased by $88,000 and $52,000 in 1996
and 1995, respectively, as compared to the previous year. Depreciation and
Amortization remained relatively consistent with the level of property, plant
and equipment or intangible asset changes during these periods.
INTEREST EXPENSE
Interest expense increased by approximately $46,000 in 1996 to $755,000
from $709,000 in 1995 due to expense incurred on short-term borrowings. As
discussed further below, the Company significantly reduced its long-term debt
during 1996. However, the Company's 1996 interest expense was not significantly
impacted due to the late timing of such events in December of 1996.
Interest expense decreased by approximately $1,539,000 to $709,000 in
1995 from $2,248,000 in 1994. This decrease is attributable to the restructuring
of many of the Company's debts as discussed in further detail below.
INVESTMENT GAINS
As part of the exchange of 98.6% of the Company's 14.25% Subordinated
Notes for 887,000 shares of BBRG common stock, the Company realized an
investment gain of approximately $4,252,000 in 1994 (See Liquidity and Capital
Resources - General). Other net gains on investments in 1994, are attributable
to the sale of certain marketable securities.
15
16
GAIN ON SALE/FORECLOSURE OF REAL PROPERTY
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.
In December 1994, the Company and Revere Realty Group ("Revere Realty")
collectively sold fifteen acres of excess land located in Revere, MA to a third
party for $3,705,000. The Company owned nine of the fifteen acres and held a
mortgage of approximately $1.6 million on the remaining six acres, which were
owned by Revere Realty. The proceeds allocated to Revere Realty were used by
Revere Realty to satisfy its indebtedness to the Company. The Company realized a
pre-tax gain of approximately $1.1 million on the sale of the land and recorded
other income of approximately $.6 million related to the repayment of the Revere
Realty indebtedness, for interest due and the recovery of amounts previously
written off. In 1996, the remaining $300,000 contingent mortgage was discharged
pursuant to the agreement with the buyer. The $300,000 discharge was recorded as
a gain on sale of real property in 1996.
EXTRAORDINARY ITEM - GAIN ON RETIREMENT AND
FORGIVENESS OF DEBT (NET OF TAX)
In May 1994, the Company realized an extraordinary gain of
approximately $11.2 million, net of taxes and the write-off of bond issuance
cost, premiums and interest, from the exchange of approximately 98.6% of the
Company's 14.25% Subordinated Notes (See Liquidity and Capital Resources -
General).
LIQUIDITY AND CAPITAL RESOURCES
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 facilities at Wonderland and Foxboro, and for debt service requirements,
including those relating to debt incurred in connection with capital
expenditures at Foxboro Park during l992.
The Company's cash and cash equivalents totaled $1.034 million at
December 31, 1996, compared with $451,000 at December 31, 1995. The Company
generated cash flows from operations of $2.335 million in 1996 as compared to
$782,000 in 1995. The increase in 1996 is principally attributable to improved
operating results with a net income of $512,000 in 1996 compared to a net loss
of $2,054,000 loss in 1995. Non cash items included in the
16
17
Company's net income in 1996 consist of depreciation and amortization expense of
$1.5 million, net gain on sale foreclosure of real property of $1.4 million and
amortization of deferred revenue of $353,000. Changes in working capital
accounts including restricted cash, accounts payable and other accrued
liabilities provided $938,000 of cash in 1996. During 1996 the Company increased
its accrual for rent at Foxboro by $1.4 million through a charge to general
operating expenses. Cash payments for rent commenced in 1997. Net cash used in
investing activities in 1996 of $676,000 represents investments and additions to
the property, plant and equipment, principally at Wonderland. Financing
activities in 1996 include approximately $1.98 million of funds used to reduce
outstanding balances on long term debt. Significant reductions were made in the
MSCGAF Realty Trust note of approximately $753,000, the creditors composition
note of approximately $451,000 and the First Trade Union Bank line of credit of
$192,000. Short-term borrowing arrangements provided net proceeds of $521,000 in
1996.
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 mature 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 Creditors Trust Agreement was in default at
December 31, 1996 (See further discussion below).
In May 1994, the Company settled certain litigation regarding the
Creditor Trust Agreement and entered into a Settlement Agreement of
approximately $2.2 million. Under the Settlement Agreement, the balance was
divided into two non-interest bearing obligations. The first obligation included
a principal balance of $200,000 with four equal monthly installments through
September 15, 1994 which has been paid. The second obligation included a
principal balance of $2 million, and requires minimum quarterly payments of
$230,000 through maturity in September 1997. The Company has pledged 100% of the
distributions of the Foxboro Park Capital Improvement Trust Funds as payments
towards these amounts. A conditional bonus provision is required upon future
events and conditions. The Company is in default of the minimum payment
requirements and is currently negotiating to restructure the
17
18
minimum payment requirement. 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, 1996 due to the events of default.
Included in the current portion of long term debt is outstanding
indebtedness under a margin agreement of approximately $116,000 and $163,000 at
December 31, 1996 and 1995, respectively. The indebtedness is collateralized by
88,000 shares of BBRG common stock.
Included in the current portion of long term debt at December 31, 1996,
is the outstanding indebtedness under a line of credit of $1,744,000 which
matures in July, 1997. Short-term borrowing arrangements totaling $521,000 at
December 31, 1996, mature in 1997.
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. In April 1996 the Note was amended requiring equal quarterly payments
of principal and interest beginning April 1, 1998 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 $3,412,000 and short-term borrowing
arrangements of $521,000. Additionally, pursuant to the terms and conditions of
its license, the Company is required to make monthly rent payments for the
Foxboro facility of $87,500 ($1,050,000 annual requirements). There can be no
assurance that the Company's efforts to provide additional liquidity or to renew
and extend existing financial arrangements will be successful. Management
anticipates that unless its efforts are successful, the Company may not have
sufficient cash to cover operating expenses and scheduled debt payments during
l997.
RACING SUBSIDIARIES
In order to meet the requirements for renewal of racing licenses in
1998, the Company's racing subsidiaries must demonstrate that they are
financially stable entities, capable of disposing of their obligations on a
timely basis. Although management is optimistic that it will be able to
demonstrate financial stability in their applications for 1998 racing licenses,
there can be no assurance that the Racing Commission will continue to grant
licenses to conduct racing on the schedules presently maintained at Wonderland
and Foxboro.
In the event that the Company is not successful in obtaining 1998
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
18
19
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 in the racing subsidiaries,
because its percentage is governed by statute.
NEW ACCOUNTING STANDARDS
In October 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 123 ("SFAS No. 123"),
"Accounting for Stock-Based Compensation." The Company has determined that it
will continue to account for stock-based compensation for employees under
Accounting Principles Board Opinion No. 25 and elect the disclosure-only
alternative under SFAS No. 123. The Company is required to disclose the pro
forma net income or loss and per share amounts in the Notes to the Consolidated
Financial Statements using the fair-value based method. During the three years
ended December 31, 1996, the Company had no stock based compensation.
Statement of Financial Accounting Standards No. 128 ("SFAS No. 128"),
"Earnings per Share" is effective for fiscal years ending after December 15,
1997. SFAS No. 128 establishes new standards for computing and presenting
earnings per share. The effect of adopting SFAS No. 128 has not been estimated.
The Company does not expect the adoption of SFAS No. 128 to have a material
effect on its consolidated financial statements.
19
20
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO FINANCIAL STATEMENTS
PAGE
REPORTS OF INDEPENDENT ACCOUNTANTS 21-22
CONSOLIDATED BALANCE SHEETS 23-24
CONSOLIDATED STATEMENTS OF OPERATIONS 25
CONSOLIDATED STATEMENTS OF CHANGES IN
STOCKHOLDERS' DEFICIT 26
CONSOLIDATED STATEMENTS OF CASH FLOWS 27-28
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 29-30
20
21
REPORT OF INDEPENDENT ACCOUNTANTS
- ---------------------------------
To the Board of Directors and Stockholders
of The Westwood Group, Inc. and Subsidiaries
We have audited the accompanying consolidated balance sheet of The Westwood
Group, Inc. and Subsidiaries as of December 31, 1996 and the related
consolidated statements of operations, changes in stockholders' deficit and cash
flows for the year then ended. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audit.
We conducted our audit in accordance with 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 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, 1996 and the consolidated results of
its operations and cash flows for the year then ended, in conformity with
generally accepted accounting principles.
The accompanying 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 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.
BDO Seidman, LLP
Boston, Massachusetts
March 25, 1997
21
22
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders
of The Westwood Group, Inc. and Subsidiaries:
We have audited the accompanying consolidated balance sheets of The
Westwood Group, Inc. (a Delaware Corporation) and Subsidiaries as of December
31, 1995, and the related consolidated statements of operations, changes in
stockholders' deficit and cash flows for each of the two years in the period
ended December 31, 1995. These 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 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 consolidated 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, 1995, and the
consolidated results of its operations and cash flows for each of the two years
in the period ended December 31, 1995, in conformity with generally accepted
accounting principles.
The accompanying 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
22
23
THE WESTWOOD GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
----------
ASSETS 1996 1995
----------- -----------
Current assets:
Cash and cash equivalents $ 1,033,911 $ 450,987
Restricted cash 1,021,221 1,401,799
Accounts receivable 641,345 796,085
Prepaid expenses and other current
assets 198,295 270,685
----------- -----------
Total current assets 2,894,772 2,919,556
----------- -----------
Property, Plant & Equipment:
Land 348,066 348,066
Buildings 14,630,088 19,397,281
Machinery and Equipment 5,034,426 4,936,976
Leasehold improvements 10,864,559 10,694,678
----------- -----------
30,877,139 35,377,001
Less accumulated depreciation and
amortization 18,919,632 18,765,247
----------- -----------
Net property, plant and equipment 11,957,507 16,611,754
----------- -----------
Other assets:
Goodwill, less accumulated amortization
of $384,000 and $240,000 336,000 480,000
Investments 4,987,796 4,901,401
Notes receivable from officer 336,190 318,005
Other assets, less accumulated amortization
of $871,732 and $818,614 317,736 376,909
----------- -----------
Total other assets 5,977,722 6,076,315
----------- -----------
Total assets $20,830,001 $25,607,625
=========== ===========
The accompanying notes are an integral part
of these consolidated financial statements.
23
24
THE WESTWOOD GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
------------
LIABILITIES AND STOCKHOLDERS' DEFICIT 1996 1995
------------ ------------
Current liabilities:
Current maturities of long-term debt $ 2,226,973 $ 5,853,754
Long-term obligations in default 900,500 1,751,235
Subordinated notes payable 285,000 285,000
Short-term borrowings 520,990 --
Accounts payable and other accrued liabilities 15,646,522 14,944,406
Outstanding pari-mutuel tickets 420,119 564,880
------------ ------------
Total current liabilities 20,000,104 23,399,275
Long-term debt, less current maturities 3,434,758 5,773,651
Other long-term liabilities 1,859,378 1,347,425
------------ ------------
Total liabilities 25,294,240 30,520,351
------------ ------------
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 (9,497,349) (10,009,155)
Note receivable from stockholder (330,594) (316,073)
Minimum pension liability adjustment (55,359) (6,561)
Cost of 1,593,199 common and 600 Class B
common shares in treasury (7,964,782) (7,964,782)
------------ ------------
Total stockholders' deficit (4,464,239) (4,912,726)
------------ ------------
Total liabilities and stockholders' deficit $ 20,830,001 $ 25,607,625
============ ============
The accompanying notes are an integral part of these
consolidated financial statements.
24
25
THE WESTWOOD GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
-----------
1996 1995 1994
------------ ------------ ------------
Operating revenue:
Pari-mutuel commissions $ 26,584,195 $ 27,598,801 $ 27,289,706
Concessions 2,984,352 3,152,174 2,984,933
Other operating 2,227,889 2,357,186 2,530,248
------------ ------------ ------------
Total operating revenue 31,796,436 33,108,161 32,804,887
------------ ------------ ------------
Operating expenses:
Wages, taxes and benefits 10,011,713 10,518,322 10,995,734
Purses 8,658,256 8,863,655 9,536,257
Cost of food and beverage 1,058,612 1,088,348 1,033,544
Administrative 2,470,422 2,196,102 3,157,811
General operating 8,645,339 10,000,821 9,896,954
Depreciation and amortization 1,539,918 1,627,925 1,679,671
------------ ------------ ------------
Total operating expenses 32,384,260 34,295,173 36,299,971
------------ ------------ ------------
Loss from operations (587,824) (1,187,012) (3,495,084)
------------ ------------ ------------
Other income (expense):
Interest expense, net (754,796) (708,975) (2,247,860)
Equity income (loss) in investments 86,395 (552,230) 115,377
Investment gains -- -- 4,399,435
Net gain on sale/foreclosure of real property 1,427,697 -- 1,087,883
Other income 353,334 393,783 1,217,722
------------ ------------ ------------
Total other income (expense) 1,112,630 (867,422) 4,572,557
------------ ------------ ------------
Income (loss) before provision for income taxes
and extraordinary item 524,806 (2,054,434) 1,077,473
Provision for income taxes 13,000 -- 145,000
------------ ------------ ------------
Income (loss) before extraordinary item 511,806 (2,054,434) 932,473
Extraordinary item-gain on retirement and
forgiveness of debt (net of tax) -- -- 11,159,640
------------ ------------ ------------
Net income (loss) $ 511,806 $ (2,054,434) $ 12,092,113
============ ============ ============
Income (loss) per share:
Income (loss) before extraordinary item $ .41 $ (1.64) $ .74
Extraordinary item -- -- 8.89
------------ ------------ ------------
Net income (loss) per share $ .41 $ (1.64) $ 9.63
============ ============ ============
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.
25
26
THE WESTWOOD GROUP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIT
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
--------------------------
Note
Receivable
Class B Additional Retained From
Common Common Paid-In Earnings Related
Stock Stock Capital (Deficit) Party
-----------------------------------------------------------------------------
Balance, December 31, 1993 $19,364 $9,126 $ 13,871,473 $(20,046,834) $(534,210)
Elimination of previously consolidated
subsidiary -- -- (516,118) -- --
Net income -- -- -- 12,092,113 --
Interest receivable -- -- -- -- (36,017)
Note receivable payments -- -- -- -- 268,676
Minimum pension liability adjustment -- -- -- -- --
---------
Balance, December 31, 1994 19,364 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)
======= ====== ============ ============ =========
Minimum
Pension Total
Liability Treasury Stockholders
Adjustment Stock Deficit
-------------------------------------------------
Balance, December 31, 1993 $(376,090) $(7,964,782) $(15,021,953)
Elimination of previously consolidated
subsidiary -- -- (516,118)
Net income -- -- 12,092,113
Interest receivable -- -- (36,017)
Note receivable payments -- -- 268,676
Minimum pension liability adjustment 260,908 -- 260,908
--------- ----------- ------------
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)
========= =========== ============
The accompanying notes are an integral part of these
consolidated financial statements.
27
THE WESTWOOD GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
----------
1996 1995 1994
----------- ----------- ------------
Cash flows from operating activities:
Net income (loss) $ 511,806 $(2,054,434) $ 12,092,113
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation and amortization 1,539,918 1,627,925 1,679,671
Gain on sale/foreclosure of real property (1,427,697) -- (1,087,883)
Extraordinary gain on extinguishment of debt -- -- (11,159,640)
Realized investment loss -- -- (4,399,435)
Equity in (income) loss from investments (86,395) 552,230 (115,377)
Deferred revenue (353,334) (353,333) (353,332)
Minimum pension liability adjustment (48,798) 108,621 260,908
Other 142,698 (158,424) --
Changes in operating assets and liabilities:
Decrease (increase) in restricted cash 380,578 (2,073) 295,240
Decrease (increase) in accounts receivable 154,740 (106,344) 1,117,612
Decrease (increase) in prepaid expenses
and other current assets 72,390 (25,946) 48,692
Increase in other assets, net 26,601 206,998 134,868
Increase in accounts payable and other
accrued liabilities 557,355 2,101,342 2,896,520
Increase (decrease) in other long-term
liabilities 865,287 (1,114,906) (370,610)
----------- ----------- ------------
Total adjustments 1,823,343 2,836,090 (11,052,766)
----------- ----------- ------------
Net cash provided by operating
activities 2,335,149 781,656 1,039,347
----------- ----------- ------------
27
28
THE WESTWOOD GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
CONTINUED
----------------
1996 1995 1994
----------- ----------- -----------
Cash flows from investing activities:
Additions to property, plant and equipment (676,457) (413,100) (260,720)
Proceeds from sales of marketable equity securities -- -- 147,474
Proceeds from sale of real property -- -- 1,459,567
----------- ----------- -----------
Net cash provided by (used in) investing
activities (676,457) (413,100) 1,346,321
----------- ----------- -----------
Cash flows from financing activities:
Proceeds from short-term debt 900,000 300,000 300,000
Principal payments of debt (1,975,768) (1,029,993) (1,903,504)
Payments related to exchange of debt -- -- (324,131)
----------- ----------- -----------
Net cash used in financing activities (1,075,768) (729,993) (1,927,635)
----------- ----------- -----------
Net increase (decrease) in cash and cash equivalents 582,924 (361,437) 458,033
----------- ----------- -----------
Cash and cash equivalents at beginning of year 450,987 812,424 2,725,391
Cash effect of deconsolidation -- -- (2,371,000)
----------- ----------- -----------
Adjusted cash and cash equivalents
at beginning of year 450,987 812,424 354,391
----------- ----------- -----------
Cash and cash equivalents at end of year $ 1,033,911 $ 450,987 $ 812,424
=========== =========== ===========
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Interest $ 958,960 $ 779,566 $ 1,009,479
=========== =========== ===========
Income taxes $ 91,704 $ 114,892 $ --
=========== =========== ===========
Non-cash financing activities:
During 1996, the Company wrote-off property of $4,103,702 in exchange
for the discharge of $5,231,399 in debt related to foreclosure
transaction (see Note 11 of Notes to Consolidated Financial
Statements).
The accompanying notes are an integral part of these
consolidated financial statements.
28
29
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
subsidiaries. Wonderland Greyhound Park is a pari-mutuel greyhound
racing facility located in Revere, Massachusetts. Foxboro Park is a
pari-mutuel harness racing facility located in Foxboro, Massachusetts.
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 average attendance per performance in
1996 was approximately 1,167 persons. The complex encompasses a total
of approximately 35 acres, including paved and lighted parking
providing capacity for approximately 2,300 cars.
The Foxboro facility includes a five-eighths mile oval track, a
physical plant consisting of a climate controlled grandstand and
clubhouse, and administrative offices. The facility also includes
stalls to accommodate 600 horses. The Company maintains and operates a
full-service restaurant and various other concession facilities at the
racetrack. The racetrack facility can accommodate 9,000 patrons, and
includes paved and lighted parking providing capacity for 3,500 cars.
Wonderland and Foxboro provide 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 1996, 1995 and 1994, include the accounts of the Company
and its wholly-owned subsidiaries. All material intercompany
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.
29
30
THE WESTWOOD GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
-------------------
RESTRICTED CASH
Restricted cash is related to the operations of Wonderland and Foxboro,
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. Restricted cash at
December 31, 1995, also includes $500,000 held as collateral on certain
indebtedness (see Note 3).
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. 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.
Depreciation expense of approximately $1,343,000, $1,198,000, and
$1,282,000 was recorded for the years ended December 31, 1996, 1995 and
1994, 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
30
31
THE WESTWOOD GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
-------------------
performing this analysis, management considers such factors as current
results, trends and future prospects, in addition to economic factors.
NOTE RECEIVABLE FROM STOCKHOLDER
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") at
December 31, 1996 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, 1996.
FAIR VALUE OF FINANCIAL INSTRUMENTS
As of December 31, 1996 and 1995, 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, 1996, the
Company had bank deposits which exceeded federally insured limits by
approximately $600,000. Concentration of credit risk, with respect to
accounts receivable, is limited due to the Company's credit evaluation
process. The Company does not require
31
32
THE WESTWOOD GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
-------------------
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 3 of Notes to Consolidated Financial
Statements)
INCOME TAXES
The Company uses the liability method of accounting for deferred 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 "other long-term liabilities").
INCOME (LOSS) PER COMMON SHARE
Income (loss) per share amounts are based on the weighted average
number of common and Class B common shares and common share equivalents
outstanding (if dilutive) during each year. Common share equivalents
consist of dilutive stock options and warrants, if any, under 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.
32
33
THE WESTWOOD GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
-------------------
RECLASSIFICATIONS
Certain amounts in the 1995 and 1994 consolidated financial statements
have been reclassified to conform with the 1996 presentation.
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 3). The improvement in
the Company's operating results during the year ended December 31, 1996
compared to the corresponding period in 1995 is primarily due to a
decrease in operating expenses of approximately $1.9 million
attributable to the reorganization plan discussed below.
The Company has implemented certain reorganization plans to address its
cash flow and liquidity problems as detailed below. The above factors,
however, raise substantial doubt about its ability to continue as a
going concern.
In June of 1995, the Company reorganized and restructured its financial
and operational management team, with the addition of an Executive
vice-president, Chief Financial Officer and Controller. 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 options at its two
locations.
The Company's ability to continue as a going concern depends on future
events, including its continued success in its reorganization efforts.
33
34
THE WESTWOOD GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
-------------------
3. DEBT
At December 31, 1996 and 1995, debt consisted of the following:
1996 1995
---- ----
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. $ 2,644,632 $3,397,479
Line of credit, interest at 10% requiring
monthly payments of of interest plus $16,000
principal until maturity at June 1, 1997,
final payment of $1,648,000 due July 1997,
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. 1,744,000 1,936,000
6%BBRG Term Note, payable in equal quarterly
payments of principal and interest of
approximately $36,000 beginning April 1,
1998, collateralized by certain tangible
personal property and licenses. 970,000 970,000
34
35
THE WESTWOOD GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
-------------------
1996 1995
---- ----
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. 120,000 255,000
Margin agreement due on demand
collateralized by 88,000 shares
of BBRG stock held by the Company. 115,674 163,457
7.5% Promissory Note, payable in 60
monthly payments of principal and
interest of $2,003, commencing
April, 1995. 67,425 85,818
14-1/4% Subordinated Notes due August, 1997 285,000 285,000
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 1,351,235
Mortgage note, principal amount of
$4,100,000 with interest at 5.5% through
October, 1995 and 8.29% thereafter,
discharged through foreclosure of
collateralized property in December, 1996. - 4,519,651
35
36
THE WESTWOOD GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
-------------------
1996 1995
---- ----
10% Second Mortgage Note collateralized
by certain property, discharged through
foreclosure of collateralized
property in December, 1996 -- 400,000
Promissory Note collateralized by
a second mortgage on certain
property, discharged in 1996 -- 300,000
----------- -----------
6,847,231 13,633,640
Less:
Current maturities 2,226,973 5,853,754
Long-term obligations in default
which have been classified as
a current liability 900,500 1,751,235
Subordinated notes in default,
which have been classified
as a current liability 285,000 285,000
----------- -----------
Long-term debt, net of current
maturities, long-term obligations
and subordinated notes in default $ 3,434,758 $ 5,773,651
=========== ===========
The aggregate principal payments required to be made on long term debt,
assuming the Company and its subsidiaries were not in default on any of
their borrowings (see hereunder for debt defaults), for the years
subsequent to December 31, 1996 are as follows:
1997 $3,412,473
1998 2,535,415
1999 126,179
2000 114,064
2001 116,604
2002 and thereafter 542,496
-----------
$6,847,231
===========
36
37
THE WESTWOOD GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
-------------------
In 1996, the Company renewed and extended its loan with the MSCGAF
Realty Trust until January 1998. The principal balance of this loan was
reduced by $500,000 at renewal through the use of previously restricted
funds.
In 1996 the Company renewed and extended its Line of Credit until July
1997.
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. In 1996 the Note was amended requiring equal
quarterly payments of principal and interest beginning April 1, 1998 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.
In May 1994, the Company settled certain litigation regarding the
Creditor Trust Agreement and entered into a Settlement Agreement of
approximately $2.2 million. Under the Settlement Agreement, the balance
was divided into two non-interest bearing notes. The first note
included a principal balance of $200,000 and four equal monthly
installments through September 15, 1994 which has been paid. The second
note included a principal balance of $2 million, and requires minimum
quarterly payments of $230,000 through maturity in September 1997. The
Company has pledged 100% of the distributions of the Foxboro Park
Capital Improvement Trust Funds as payment towards these amounts. A
conditional bonus provision, which is required upon future events and
conditions, has been accrued. Additionally, the agreement includes an
acceleration clause contingent upon future events and conditions. The
Company is in default of the minimum payment requirements is currently
negotiating to restructure the minimum payment requirement. All
receipts from the Capital Improvements Trust Funds have been
distributed as principal payments. The entire obligation has been
included as a current liability at year end.
37
38
THE WESTWOOD GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
-------------------
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
11 of the Notes to Consolidated Financial Statements).
The $300,000 contingent note due December 15, 1997 was discharged in
1996 pursuant to the agreement (See Note 11 of the Notes to
Consolidated Financial Statements).
4. SHORT-TERM BORROWINGS
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 matures in November, 1997, bears
interest at 12% per annum and has an outstanding balance of $300,000 at
December 31, 1996. The Company also has 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.
5. 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 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 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 is challenging the implementation
of the final offer at the State Labor Relations Commission for the
period from implementation in February 1994 through the reassignment of
38
39
THE WESTWOOD GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
-------------------
the Union in October 1994. If the Union is successful in its challenge,
Wonderland may be required to retroactively compensate the Union member
employees for the difference between the old contract rates and the new
contract rates for that period of time, or approximately $750,000. The
Company has meritorious defenses to the challenge and believes that
payment of any retroactive compensation is unlikely. Accordingly, no
reserve has been established at December 31, 1996 and 1995.
6. DEFERRED REVENUE
Included in other long-term liabilities at December 31, 1996 and 1995
was $265,000 and $619,000, respectively representing 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, with a final installment due on May 31, 1997.
The Company made none of the weekly installments required under this
agreement.
In 1993, Autotote made an additional advance to the Company of
$325,000, as an inducement to the Company to consider entering into
negotiations leading to further investment or other joint activity by
Autotote in or with the Company. The Company and Autotote agreed that,
if negotiations did not lead to such further investment or joint
activity by April 30, 1993, then the repayment period of the original
advance of $1.0 million would be accelerated in order that it would be
completely repaid at the end of the twenty four month period commencing
April 30, 1993. In January 1994, the Company granted Autotote the
exclusive right to supply keno terminals and systems for Wonderland and
Foxboro, in the event the Company is authorized by law to select such
equipment, in exchange for the forgiveness of any current and future
amounts owed by the Company in respect of either of the above advances.
Accordingly, the Company reclassified $1,325,000 from notes payable to
deferred revenue and will realize such deferred revenue over the
remaining contract life of the current service agreement with Autotote.
39
40
THE WESTWOOD GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
-------------------
7. COMMITMENTS AND CONTINGENCIES
PLEDGES OF BBRG STOCK
As of December 31, 1996, the Company has pledged, or has committed to
pledge, 549,000 shares of BBRG common stock in connection with debt
financing arrangements.
Approximately 80,000 shares have been pledged to collateralize two
performance bonds for Wonderland and Foxboro Park, which are 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 12 of Notes to Consolidated Financial Statements).
RACING LICENSES
In order to meet the requirements for renewal of racing licenses, the
Company's racing subsidiaries must demonstrate, on an annual basis,
that they are financially viable entities, capable of disposing of
their obligations on a timely basis. Racing licenses have been granted
for the 1997 calendar year. Although management is optimistic that it
will be able to demonstrate financial stability in their applications
for 1998 racing licenses, there can be no assurance that the Racing
Commission will continue to grant licenses to conduct racing on the
schedules presently maintained at Wonderland and Foxboro.
In the event that the Company is not successful in obtaining 1998
racing licenses, the adverse impact on the Company's assets would be
material.
LEASES
Rent expense for facility leases for the years ended December 31, 1996,
1995 and 1994 was approximately $1,400,000 annually for each year.
Totalisator equipment rent (which is primarily based on the handle per
performance) was approximately $799,000, $1,016,000, and $974,000 in
1996, l995, and l994, respectively. Future minimum payments are due at
amounts contingent on the Company's total handle amounts.
40
41
THE WESTWOOD GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
-------------------
The Company is conducting operations at its Foxboro facility under an
agreement to lease and has been granted a rent-free period extending
from 1992 through December 1995. The validity of Foxboro Park's
agreement to lease the premises has been challenged by the present
lessor and is the subject of ongoing litigation (see further discussion
below). The agreement to lease provides for future annual minimum rent
of $1,000,000 for the year ended December 31, 1997 with an annual
increase of $50,000 each year thereafter through January 31, 2016. Such
agreement also provides for the payment of real estate taxes and
additional percentage rent based on excess gross handle at amounts and
formulas to be agreed upon between the Company and the lessor. The
Company is recording its Foxboro facility rent expenses on a straight
line basis.
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 seeks 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 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 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 The Westwood Group, Inc., Foxboro Park, Inc.
and Foxboro Harness, Inc. in Norfolk Superior Court. This complaint
seeks to evict Foxboro from the Foxboro Raceway. On November 18, 1996,
Foxboro filed an answer asserting numerous defenses and counterclaims
against Foxboro Realty Associates LLC and moved to consolidate this
case with the first action.
41
42
THE WESTWOOD GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
-------------------
On December 5, 1996, the Court consolidated the three actions referred
to above and scheduled trial for March 11, 1997. The court subsequently
rescheduled the trial of the consolidated actions to April 14, 1997.
On March 11, 1997, Foxboro Realty filed a motion for summary judgment
with respect to its summary process claim for possession of the Foxboro
Raceway premises. Foxboro has opposed Foxboro Realty's motion for
summary judgement. The Court has not yet ruled on the motion.
Foxboro intends to vigorously contest the claims asserted against it
and related parties Foxboro Harness, Inc. and The Westwood Group, Inc.
and to fully prosecute its affirmative claims against Foxboro Realty
Associates, LLC and related parties.
8. COMMON STOCK, STOCK OPTION AND GRANT PLANS
In October 1995, the Board of Directors approved and ratified the
granting of non-qualified stock options granted in October, 1992. 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 ($3.00
per share). In connection with the above options, the Company issued
options to purchase 241,334 shares of the Company's common stock to
Directors during the period 1992 through 1995.
The Company also has a Stock Grant Plan which is intended to reward key
employees of the Company. The maximum number of the Company's
nonregistered common shares which may be awarded under the plan shall
not exceed an aggregate of 35,000 shares. At December 31, 1996, 17,950
shares had been awarded under the plan and are fully vested. These
grants were awarded prior to 1985 at values ranging from $8.00 to
$13.00 per share.
9. INCOME TAXES
A summary of the provision for income taxes (including tax provisions
applied to extraordinary items) in the accompanying consolidated
statements of operations is as follows:
42
43
THE WESTWOOD GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
-------------------
1996 1995 1994
---- ---- ----
Federal:
Current $13,000 $ -- $ 345,000
Deferred -- -- --
------- -------- ----------
13,000 -- 345,000
------- -------- ----------
State:
Current -- -- 1,070,000
Deferred -- -- --
------- -------- ----------
-- -- 1,070,000
------- -------- ----------
Provision for income taxes
after extraordinary item 13,000 -- 1,415,000
------- -------- ----------
Provision for extraordinary
item -- -- 1,270,000
------- -------- ----------
Provision for income taxes
before extraordinary item $13,000 $ -- $ 145,000
======= ======== ==========
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:
1996 1995 1994
---- ---- ----
Statutory federal income tax rate 34.0% (34.0%) 34.0%
State income tax, net of federal
income tax benefit -- -- 2.3
(Utilization) deferral of temporary
items subject to valuation allowance 11.6 35.7 (43.4)
Alternative minimum tax 2.0 -- 11.2
Excess tax gain over book on sale
of BBRG stock -- 221.8
Utilization of carryforward losses (45.1) (2.2) (212.4)
Other, including tax credits ____ .5 --
----- ----- -----
Income tax rate 2.5% 0.0% 13.5%
===== ===== =====
The tax effects of the significant temporary differences which comprise
the deferred tax assets and liabilities are as follows:
43
44
THE WESTWOOD GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
-------------------
1996 1995 1994
---- ---- ----
(in thousands)
ASSETS
Net operating loss carryforwards $ 3,257 $ 3,492 $ 2,858
Capital loss carryforwards 670 - -
Fixed assets 1,164 1,284 1,599
Deferred compensation 292 312 386
Miscellaneous operating reserves 748 748 438
Rent expense 2,212 1,732 1,248
Alternative minimum tax credit 580 580 602
Capitalized expense 150 170 234
------- ------- -------
Gross deferred assets 9,073 8,318 7,365
Less valuation allowance (7,001) (6,280) (4,991)
------- ------- -------
Net deferred assets 2,072 2,038 2,374
LIABILITIES
Miscellaneous liabilities 64 64 178
Investment in BBRG 2,008 1,974 2,196
------- ------- -------
Net deferred tax liabilities $ 0 $ 0 $ 0
======= ======= =======
The Company has fully reserved for all net deferred tax assets as
future realization of these assets is not determinable.
10. PENSION PLANS AND RETIREMENT BENEFITS
The Company contributed $86,338 and $71,551 in 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 $78,740 and $101,528 in 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
44
45
THE WESTWOOD GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
-------------------
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, 1996 and 1995:
1996 1995
---- ----
Accumulated and projected
benefit obligation:
Vested $ 1,689,292 $ 1,747,894
Nonvested 52,172 5,718
----------- -----------
Total 1,741,464 1,753,612
Less plan assets at fair value 1,277,477 1,313,459
----------- -----------
Unfunded projected benefit obligation 463,987 440,153
Unrecognized net transition obligation (212,875) (255,451)
Unrecognized net losses (59,015) (10,217)
Adjustment for minimum liability 271,891 265,668
----------- -----------
Adjusted accrued pension cost $ 463,988 $ 440,153
=========== ===========
Net periodic pension cost included the following components:
1996 1995 1994
---- ---- ----
Service cost-benefits earned during
the period $ 26,820 $ 28,130 $ 40,782
Interest cost on projected benefit
obligation 136,508 136,328 122,349
Actual return on plan assets (77,609) (211,832) 23,931
Net gain (loss) during the year,
deferred for later recognition (31,944) 112,549 (114,799)
Amortization of unrecognized net
obligation 42,576 42,576 42,576
Amortization of unrecognized
net loss - - 12,654
--------- --------- --------
Net periodic pension cost $ 96,351 $ 107,751 $127,493
========= ========= ========
Assumptions used in accounting at December 31 were:
1996 1995 1994
---- ---- ----
Discount rates 8.00% 8.00% 8.00%
Expected long-term rate of return on assets 8.50% 8.50% 8.50%
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THE WESTWOOD GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
-------------------
Included in accounts payable and other accrued expenses is
approximately $440,000 which reflects the unfunded accumulated benefit
obligation, as detailed in the table above. This includes an accrued
pension cost of approximately $175,000 and an additional minimum
liability of approximately $265,000. Approximately $255,000 of the
$440,000 is offset by an intangible asset which reflects unrecognized
prior service cost accumulated (including any unrecognized net
transition obligation). The remaining balance of the $440,000, or
approximately $175,000, has been recognized in the Company's statements
of operations since adoption of SFAS No. 87.
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, 1996, 1995, and 1994, was approximately $329,000,
$409,000, and $404,000, respectively.
11. GAIN ON SALE/FORECLOSURE OF REAL PROPERTY
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.
In December 1994, the Company and Revere Realty collectively sold
fifteen acres of excess land located in Revere, Massachusetts to a
third party for $3,705,000. The Company owned nine of the fifteen acres
and held a mortgage of approximately $1.6 million on the remaining six
acres, which were owned by Revere Realty. The selling price was
allocated between the fifteen acres based on terms negotiated between
the Company and Revere Realty.
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THE WESTWOOD GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
-------------------
The Company used $1.0 million of the proceeds it received to satisfy a
portion of its indebtedness to the MSCGAF Realty Trust and
approximately $62,000 to satisfy interest due. The Company also used
approximately $1.6 million to satisfy outstanding real estate taxes due
to the City of Revere.
The Company realized a pre-tax gain of approximately $1.1 million on
the sale of the land and recorded other income of approximately $.6
million related to the repayment of the Revere Realty indebtedness, for
interest due and the recovery of amounts previously written off in
1994.
Of the total proceeds, $300,000 was contingent upon the buyer obtaining
certain permits for construction. These permits were obtained and this
contingent obligation was discharged in 1996. The Company recorded a
$300,000 gain on sale of real property in 1996.
12. 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 (see Notes 13 and 16 of Notes to
Consolidated Financial Statements). Accordingly, the Company's
investment in BBRG for the years ended December 31, 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, as of and for the years
ended December 29, 1996 and December 31, 1995.
Financial Information December 29, December 31,
(In thousands) 1996 1995
--------------------- ----------- -----------
Balance sheet data:
Current assets $ 3,356 $ 5,236
Noncurrent assets 40,555 40,864
Current liabilities 12,243 13,363
Noncurrent liabilities 6,466 8,010
Net equity 25,202 24,727
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THE WESTWOOD GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
-------------------
Year Ended
----------------------------------
Financial Information (continued) December 29, December 31,
(In thousands) 1996 1995
-------------------------------- ----------- -----------
Earnings data
Net sales $87,753 $93,496
Gross profit 62,968 67,516
Income from continuing operations 467 (2,810)
Net income (loss) 467 (2,810)
Company's equity in net earnings
(loss) of BBRG $ 86 $ (552)
The quoted market value of BBRG stock during 1996 reflected a high and
low price of $5.50 and $2.63, respectively.
13. INVESTMENT GAINS
In 1994, the Company realized an investment gain of approximately
$4,252,000 related to the exchange of 887,000 shares of BBRG common
stock for 98.6% of the Company's Notes. Other net gains of
approximately $147,000 on investments in 1994 are attributable to the
sale of certain marketable securities.
14. INVESTMENT IN PARTNERSHIP
The Company has a 32% limited partnership interest in a partnership
which owns 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 has been zero
since 1992.
15. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Accounts payable and accrued liabilities as of December 31, 1996 and
1995 consisted of the following:
1996 1995
---- ----
Accounts payable, trade $ 2,237,617 $ 2,349,256
Accrued interest 1,231,987 1,592,000
Accrued lease obligations
and occupancy costs 7,302,091 5,700,347
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THE WESTWOOD GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
-------------------
Other accrued liabilities 4,874,827 5,302,803
----------- -----------
$15,646,522 $14,944,406
=========== ===========
16. TRANSACTIONS WITH OFFICERS, EMPLOYEES AND RELATED PARTIES
In May 1994, the Company purchased all restaurant and concession
operations at both facilities, Wonderland and Foxboro, 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 and 1994 for these services amounted
to approximately $36,000 and $456,000, respectively.
The Company received payments of $80,000 in January 1995, $188,675 in
1994, and $225,000 in 1993 as repayments on a note receivable from
Charles Sarkis, the Company's Chairman and majority stockholder. At
December 31, 1996 and 1995, the aggregate amounts of loans outstanding
to officers/stockholders including interest, was $666,786 and $634,078,
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 $330,594 and
$316,073 have been classified as an offset to stockholders' equity at
December 31, 1996 and 1995, respectively. Interest receivable,
exclusive of the amount recorded in equity, at December 31, 1996 and
1995 was $119,562 and $110,066, respectively.
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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
On December 23, 1996, the Company filed Form 8-K to report a
change in its independent accountants from Coopers & Lybrand L.L.P. to BDO
Seidman, LLP.
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PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
DIRECTOR
NAME AGE SINCE POSITION
- ---- --- ----- --------
Charles F. Sarkis 57 1978 Chairman of the Board
Richard P. Dalton 49 1978 President, Chief Executive
Officer, Director
A. Paul Sarkis 29 1995 Executive Vice President,
Director
Richard G. Egan, Jr. 34 1995 Vice President of Finance,
Treasurer, Secretary and
Chief Financial Officer
Anthony V. Boschetto 33 1995 Controller, Asst. Secretary
Paul J. DiMare 54 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.
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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.
ANTHONY V. BOSCHETTO was elected Controller and Asst. Secretary on October 24,
1995. Prior to that time, Mr. Boschetto was Treasurer and Controller for Boston
Bagel Inc. and was previously an associate of Laventhol & Horwath for many
years.
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.
Mr. Jon M. Baker, a Director since 1987, resigned his position during 1996.
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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, 1995, 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 1996 $200,000 - - - - - -
1995 $200,000 - - - - - -
1994 $200,000 - - - - - -
Richard P. Dalton
President and Chief
Executive Officer 1996 $180,000 - - - - - -
1995 $180,000 - - $25,000 - - -
1994 $180,000 - - - - - -
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COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During the year ended December 31, 1996, Messrs. Dalton and A. Paul Sarkis
served as executive officers of the Company and as members of the Board of
Directors of the Company. Mr. Charles F. Sarkis served as an executive officer
of BBRG and as Chairman of the Board of the Company. Mr. Charles F. Sarkis is
also a member of the Board of Directors of the Company.
During the year ended December 31, 1994, Mr. Dalton served as an executive
officer of the Company and as a member of the Compensation and Benefits
Committee of the Board of Directors of BBRG, and Mr. Charles F. Sarkis served as
an executive officer of BBRG and as Chairman of the Board of the Company.
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 a compensation plan for the fiscal
years 1995, 1996 and 1997. 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.
As of December 31, 1996, no bonus had been paid or accrued based upon the
operating results of the Company.
STOCK OPTION AGREEMENTS - During 1995, The Company awarded to Directors and
Former Directors of the Company, non-qualified stock options to purchase 241,334
shares of the Corporation's common stock at an exercise price of $3 per share.
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Pursuant to the Director Non-qualified Stock Option Agreement and the Former
Director Non-qualified Stock Option Agreement, the options terminate 10 years
from date of grant.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR END OPTION
VALUES - The following table shows the total number of unexercised options held
at December 31, 1996. There are no unexercised in-the-money options at the
fiscal year end. No options were exercised in the fiscal year ended December 31,
1996.
Number of Securities
Underlying Unexercised
Options at Fiscal Year-End (#)
-----------------------------
Name Exercisable Unexercisable
- ---------------------------------------------------------------------
Charles F. Sarkis 75,000 -
Richard Dalton 25,000 -
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 28,
1997, with respect to the beneficial ownership of the Company's Common Stock by
each Director, 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 40,100 (2) 2.1%
The Westwood Group, Inc.
190 VFW Parkway
Revere, MA 02151
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Paul J. DiMare* 143,900 (3) 7.4%
P.O. Box 900460
Homestead, FL 33090
A. Paul Sarkis 41,109 (4) 2.1%
Back Bay Restaurant Group, Inc.
284 Newbury Street
Boston, MA 02115
Charles F. Sarkis* 883,416 (5) 45.6%
Back Bay Restaurant Group, Inc. --------- ----
284 Newbury Street
Boston, MA 02115
All Directors and Officers as a
group (seven persons) 1,108,525 57.2%
========= ====
Holders of more than 5%, not included above
- -------------------------------------------
None
* 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). 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, 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 of, or such options or conversion
privileges held by, a person or group are deemed to be outstanding for the
purposes of computing the percentage of outstanding shares 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 and grants to purchase 27,750 shares.
(3) Includes 92,500 shares held of record by DiMare Homestead Inc. over which
Mr. DiMare has voting and investment power, and presently exercisable options
and grants to purchase 40,600 shares.
(4) Includes presently exercisable options to purchase 25,000 shares.
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(5) Includes presently exercisable options to purchase 25,000 shares.
(b) SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS OF CLASS B COMMON STOCK
The following table sets forth certain information, as of March 28,
1997 with respect to the beneficial ownership of the Company's Class B Common
Stock by each Director, 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. Such stockholders have full voting power and
investment power with respect to the shares listed as beneficially owned by
them. Each stockholder of Class B Common Stock is entitled to ten votes for each
share of Class B Common Stock registered in his name on the Company's records.
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%
Back Bay Restaurant
Group, Inc.
284 Newbury St.
Boston, MA 02116
A. Paul Sarkis 16,109 1.8%
Back Bay Restaurant
Group, Inc.
284 Newbury St.
Boston, MA 02116
------- -----
All Directors and 820,725(2) 90%
Officers as a ======= =====
Group (seven 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. For purposes of this table,
any shares of Class B Common Stock not outstanding which are subject to such a
right of a person or group are deemed to be outstanding for the purposes of
computing the percentage of outstanding shares owned by such person or group,
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but are not deemed to be outstanding for the purposes of computing such
percentage owned by any other person or group.
(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; Mr. Sarkis disclaims beneficial ownership of such shares.
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires the
Company's officers and directors, and persons who own more than ten percent of a
registered class of the Company's equity securities, to file reports of
ownership and changes in ownership with the SEC. Officers, directors and greater
than ten percent stockholders are required by regulation of the SEC to furnish
the Company with copies of all Section 16(a) forms they file.
Based solely on its review of the copies of such forms received by it, or
written representations from certain reporting persons that no Forms 5 were
required for those persons, the Company believes that, during the fiscal year
ended December 31, 1995, all filing requirements applicable to its officers,
directors and greater than ten percent beneficial owners were complied with.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The following is a summary of certain agreements between the Company and BBRG,
formerly a wholly-owned subsidiary of the Company in which the Company now holds
approximately a 19% equity interest, that were entered into or formalized in
connection with the initial public Offering:
CONCESSIONS AGREEMENT -- Wonderland and BBRG entered into a concessions
agreement (the "Concessions Agreement") which formalized an arrangement in
effect since 1980 pursuant to which BBRG continued to operate two full-service
restaurants, a sports bar and two food courts at Wonderland Park. BBRG also
received revenues from parking, program sales, and rentals of box seats. BBRG
employees did not conduct the parking or program sales operations. The Agreement
was terminated in May 1994, in connection with the purchase by the Company of
the concessions operations at Wonderland (see Note 17 of Notes to Consolidated
Financial Statements).
Under the Concessions Agreement, Wonderland received (i) a fee calculated on the
basis of the number of daily attendees at the racetrack and (ii) 10% of
Clubhouse Dining Room revenues, 25% of sports bar, pub and food court revenues
and 10% of tobacco revenues. Wonderland was responsible for and provided
maintenance, security, trash removal services, heat, electricity, water, air
conditioning and telephone services for Wonderland Park, including the
restaurants and concession facilities at no charge to BBRG. BBRG was responsible
for the recruitment, training and
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compensation of all food service personnel and for the procurement of and
payment for all food, beverages, liquor, disposables and cleaning supplies. BBRG
also was required to maintain insurance in specified amounts and agreed to
indemnify Wonderland against all claims for personal injuries arising out of
BBRG's performance under the Concessions Agreement.
AMENDED AND RESTATED CROSS INDEMNIFICATION AGREEMENT -- The Company and BBRG
entered into an Amended and Restated Cross Indemnification Agreement (the "Cross
Indemnification Agreement") pursuant to which BBRG agreed generally to indemnify
the Company against substantially all liabilities relating to the business of
BBRG as has been conducted, including claims arising from the Company's
guarantee of the lease obligations of certain of BBRG's subsidiaries, but
excluding tax liabilities, which were addressed in the Tax Sharing Agreement (as
defined below). The Company agreed to indemnify BBRG against substantially all
liabilities relating to the business of the Company and its subsidiaries (other
than the business of BBRG) excluding tax liabilities, which were addressed in
the Tax Sharing Agreement. The Company also agreed to indemnify and hold BBRG
harmless against losses that it incurred in connection with certain potential
liquor liability claims. In addition, the Company agreed to indemnify BBRG
against any losses, damages, costs, expenses, penalties and liabilities arising
from the operation of certain restaurants in Florida which have been closed.
The agreement was terminated in March 1995.
The Company has guaranteed the obligations of certain of BBRG's subsidiaries
under five leases for restaurant space with unaffiliated third parties. The
aggregate annual base rent guaranteed by the Company under these leases was
approximately $625,000 at December 31, 1992. Pursuant to the Cross
Indemnification Agreement (as defined above), BBRG will indemnify the Company
for any amounts that are paid under such guarantees.
REVERE REALTY
On December 31, 1990, Revere Realty Group, Inc., a company owned by Mr. Dalton
purchased certain real property from the Company for $1,856,000 consisting of
$278,400 in cash and a note receivable of $1,577,600. The note accrues interest
at the rate of 10% per annum and was due in quarterly installments of
approximately $46,000 commencing March 31, 1991 with the entire unpaid balance
of principal and interest to be paid in full on December 31, 1995. The note was
secured by a mortgage on the property sold, an assignment of the proceeds of an
expected lease on the property and Mr. Dalton's guaranty. The Company recorded a
pretax gain of approximately $1.3 million in connection with this transaction.
In December 1994, the Company and Revere Realty collectively sold fifteen acres
of excess land located in Revere, MA to a third party for $3,705,000. The
Company owned nine of the fifteen acres and held a mortgage of approximately
$1.6 million on
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the remaining six acres, which were owned by Revere Realty. The selling price
was allocated between the fifteen acres based on terms negotiated between the
Company and Revere Realty. The proceeds allocated to Revere Realty were used by
Revere Realty to satisfy its indebtedness to the Company. The Company used a
portion of the proceeds it received to satisfy a portion of its indebtedness to
the MSCGAF Realty Trust and to satisfy outstanding real estate taxes assessed by
the City of Revere.
OTHER RELATED TRANSACTIONS
In November 1992 the Company engaged the professional services of a related
party to assist management in the planning and execution of a financial and
operational reorganization of the Company, exclusive of its Restaurant Division.
One of the principals of the related party was a member of the Board of
Directors of the Company.
Fees paid in 1995 and 1994 for these services amounted to $36,000 and $456,000,
respectively.
ART 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.
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(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 (8).
3.21 Amendment, dated November 2, 1995, to
the Certificate of Incorporation of
the Company (19)
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 (8).
4.3 Warrant Agreement, dated as of August
15, 1987, between the Company and
Drexel Burnham Lambert, Inc. (2).
10.2 Stock Grant Plan (2).
10.3 Nonqualified Stock Option Plan (2).
10.7 Collective Bargaining Agreement
between Wonderland Greyhound Park,
Inc. and Local 103 - Electrical
Workers, dated November 12, 1986 (2).
10.16 1984 Incentive Stock Option Plan (9).
10.18 Retirement arrangement with James F
Kelley (9)
10.19 Contract of Limited Partnership of
Boylston 745 Limited Partnership,
dated March 24, 1989 (10).
10.22 Loan Agreement, dated August 17, 1989,
relating to the purchase of a building
in Boston, Massachusetts, together
with a mortgage note and mortgage and
security agreement (10).
10.32 Agreement, dated December 27, 1990,
relating to the sale of real property
in Revere, Massachusetts, together
with related commercial real estate
promissory note, personal guaranty and
mortgage deed and security agreement
(12).
10.39 Cross Indemnification Agreement dated
as of February 7, 1992 between Back
Bay Restaurant Group, Inc. and The
Westwood Group, Inc. (13).
10.40 Amended and Restated Tax Sharing and
Indemnification Agreement dated as of
March 12, 1992 between The Westwood
Group, Inc. and Back Bay Restaurant
Group, Inc. (13)
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10.41 Lease dated January 10, 1992 between
The Westwood Newbury Restaurant, Inc.,
a subsidiary of Back Bay Restaurant
Group, Inc. and 284 Newbury Street
Trust. (13)
10.43 Lease dated January 10, 1992 between
Back Bay Restaurant Group, Inc. and
284 Newbury Street Trust. (13)
10.44 Concession Agreement dated as of March
6, 1992 between Wonderland Greyhound
Park, Inc., The Westwood Group Inc.
and Back Bay Restaurant Group, Inc.
(13)
10.45 Letter Agreement dated January 16,
1992 between Back Bay Restaurant
Group, Inc. and The Westwood Group,
Inc. (13)
10.49 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. (15)
10.50 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. (15)
10.51 Term Note, dated September 9, 1992, in
connection with the refinancing of a
purchase money mortgage on a building
in Boston, Massachusetts, together
with a mortgage financing statement
and security agreement. (15)
10.52 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. (15)
10.53 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. (15)
10.54 Notice of Sales Agreement, dated
February 8, 1993, in connection with a
sales agreement entered into jointly
by the Company and a related party to
sell, collectively, certain parcels of
land owned severally by the Company
and such related party, together with
a joinder and a sales agreement. (15)
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10.55 Forbearance Agreement, dated April 5,
1993, in connection with the mortgagee
of a building owned by the Company in
Boston, Massachusetts, together with
subordinated unconditional guarantee.
(15)
10.56 Management Agreement, dated May 27,
1992, between the Company and its
42.9% owned subsidiary, BBRG, in
connection with services to be
provided by BBRG to the Company. (15)
10.58 Contract dated November 20, 1992, in
connection with services to be
provided to the Company by an entity
of which a Director of the Company is
a principal, together with an
amendment by letter agreement, dated
February 2, 1993. (15)
10.59 First Amendment of Lease dated July
1, 1993 between Back Bay Restaurant
Group, Inc. and 284 Newbury Street
Trust (16).
10.60 First Amendment of Lease dated July 1,
1993 between The Westwood Newbury
Restaurant, Inc. and 284 Newbury
Street Trust (16).
10.61 Letter Agreement dated January 6, 1994
in connection with an exclusive
service contract (16).
10.62 Collective Bargaining Agreement
between the Company and United Food
and Commercial Workers' Union, Local
1445 AFL-CIO, CLC, dated June 1, 1993
(16).
10.63 Collective Bargaining Agreement
between the Company and Local
25-Teamsters, effective January 1,
1993 (16).
10.64 Purchase and Sale Agreement dated
December 14, 1993 between Back Bay
Restaurant Group, Inc. and The
Westwood Group, Inc. (16).
10.65 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 (16).
10.66 Letter of Intent dated March 8, 1994
from The Westwood Group, Inc., Back
Bay Restaurant Group, Inc., John
Hancock Mutual Life Insurance
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Company and Fidelity Management &
Research Company, on behalf of funds
managed by it, defining the terms
under which an exchange for the
Company's 14.25%. Subordinated
debentures would take place (16).
10.67 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 (16).
10.68 Settlement and Debt Forgiveness
Agreement between The Westwood Group,
Inc. and each Noteholder of the
Company's 14.25%. Subordinated Notes
due August 15, 1997 (17).
10.69 Exchange Form Restructuring of the
14.25%. Subordinated Notes due 1997 of
The Westwood Group, Inc. (17).
10.70 Loan Restructure Agreement, dated
October 31, 1994, between certain
subsidiaries of the Company and Winter
Hill Federal Savings Bank, in
connection with the restructuring of a
$4.3 million loan, together with an
amendment to mortgage note (18).
10.71 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 (18).
10.72 Agreement, dated December 16, 1994,
between certain subsidiaries of the
Company and National Development
Associates of New England Limited
Partnership in connection with the
sale of real property in Revere,
Massachusetts, together with related
promissory note and mortgage (18).
10.73 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
(18).
10.74 Collective Bargaining Agreement
between Wonderland Greyhound Park,
Inc. and Local 22 -
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Laborers' International Union, dated
July 1, 1993 (18)
10.75 Collective Bargaining Agreement
Extension between RFSC, Inc. and Local
26 - Hotel and Restaurant Workers,
effective January 1, 1994 (18)
10.76 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 (18)
10.77 Agreement for Termination of Amended
and Restated Cross-Indemnification
Agreement between the Company and
BBRG, dated March 18, 1994 (18)
10.78 Amendment to Term Note between certain
subsidiaries of the Company and BBRG,
dated March 17, 1995 (18)
10.79 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 (18)
11 Statement re: Computation of Earnings
Per Share (filed herewith).
22 Subsidiaries of the Company (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 1983 and incorporated
herein by reference.
(5) Filed with the Company's Annual Report
on Form 10-K for 1985 and incorporated
herein by reference.
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(6) Filed with the Company's Annual Report
on Form 10-K for 1986 and incorporated
herein by reference.
(7) Filed with the Company's Current
Report on Form 8-K dated November 21,
1986.
(8) Filed with the Company's Annual Report
on Form 10-K for 1987 and incorporated
herein by reference.
(9) Filed with the Company's Annual Report
on Form 10-K for 1988 and incorporated
herein by reference.
(10) Filed with the Company's Annual Report
on Form 10-K for 1989 and incorporated
herein by reference.
(11) Filed with the Company's Quarterly
Reports on Forms 10-Q for 1990 and
incorporated herein by reference.
(12) Filed with the Company's Annual Report
on Form 10-K for 1990 and incorporated
herein by reference.
(13) Filed as an exhibit to Back Bay
restaurant Group, Inc.'s Form S-1
Registration Statement No. 33-45184
and incorporated herein by reference.
(14) Filed with the Company's Annual Report
on Form 10-K for 1991 and incorporated
herein by reference.
(15) Filed with the Company's Annual Report
on Form 10-K for 1992 and incorporated
hereby by reference.
(16) Filed with the Company's Annual Report
on Form 10-K for 1993 and incorporated
hereby by reference.
(17) Filed with the Company's Quarterly
Reports on Forms 10-Q for 1994 and
incorporated herein by reference.
(18) Filed with the Company's Annual Report
on Form 10-K for 1994 and incorporated
herein by reference.
(19) Filed with Company's Annual Report on
Form 10-K for 1995 and incorporated
hereby by reference.
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(b) Reports on Form 8-K.
The following reports on Form 8-K were filed during the quarter ended
December 31, 1996:
Change in Independent Accountants - filed December 23, 1996
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 15, 1997
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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 15, 1997 By /s/ Charles F. Sarkis
----------------------------------
Charles F. Sarkis
Chairman of the Board
Date: April 15, 1997 By /s/ Richard P. Dalton
----------------------------------
Richard P. Dalton
President, Chief Executive
Officer and Director
Date: April 15, 1997 By /s/ A. Paul Sarkis
----------------------------------
A. Paul Sarkis
Executive Vice President
Director
Date: April 15, 1997 By /s/ Richard G. Egan, Jr.
----------------------------------
Richard G. Egan, Jr.
Vice President of Finance,
Treasurer, Secretary, and
Chief Financial Officer
(Principal Financial Officer)
Date: April 15, 1997 By /s/ Anthony V. Boschetto
----------------------------------
Anthony V. Boschetto
Controller, Asst. Secretary
(Principal Accounting Officer)
Date: April 15, 1997 By /s/ Paul J. DiMare
----------------------------------
Paul J. DiMare
Director
68