ITEM 1. BUSINESS.................................................... 2 ITEM 2.
ITEM 2. DESCRIPTION OF PROPERTY
The racetrack facilities, which are located in Revere, Massachusetts, 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's Wonderland Park racing facility is mortgaged to secure the indebtedness owed under a term loan to the Century Bank and Trust Company. (See Item 1(C), "Description of Business", Item 7, "Liquidity and Capital Resources" and Note 2 of Notes to Consolidated Financial Statements).
The executive offices are owned by the Company and are located at Wonderland Greyhound Park in Revere, Massachusetts.
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS
The Company is subject to various legal proceedings that arise in the ordinary course of its business.
In 1996, litigation ensued between Foxboro Realty Associates, LLC, et al. and the Company, its subsidiary Foxboro Park, Inc., et al. in Norfolk Superior Court in Massachusetts, over Foxboro Park's right to occupy Foxboro Raceway. The Court issued an execution pursuant to which Foxboro Park was evicted from the racetrack on July 31, 1997. The parties appealed to the Appeals Court on January 27, 1998.
On July 8, 1998, Foxboro Route 1 Limited Partnership, et al., filed a civil action in Suffolk Superior Court in Massachusetts against The Westwood Group, Inc., Wonderland Greyhound Park, Inc., et al., seeking payment for use and occupancy of Foxboro Raceway, and other damages, from 1992 through July 1997.
On January 30, 2001, the above-mentioned cases were settled without monetary damages to either party.
In January 2001, the Company lost at arbitration a claim brought against it by a former totalisator vendor. The settlement amount was $468,000. This amount has been recorded in "Other income (expense), net" as of the fourth quarter of 2000 and fully accrued in current liabilities. The arbitrator's decision has been appealed in United States Federal District Court in Massachusetts.
ITEM 4.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
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PART II
ITEM 5.
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.
The Company's Common Stock is traded on the pink sheets. The following table sets forth for the periods indicated the high and low bid prices.
Such over-the-counter market quotations reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not necessarily represent actual transactions.
(b) APPROXIMATE NUMBER OF RECORD HOLDERS OF COMMON STOCK AND CLASS B COMMON STOCK
(c) DIVIDEND HISTORY
No dividends have been declared by the Company on its Common Stock during 2000, 1999, or 1998. 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 Common Stock or Class B Common Stock in the immediate future.
ITEM 6.
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 as of and for the fiscal years ended December 31, 2000, 1999, 1998, 1997 and 1996 is derived from the Consolidated Financial Statements, as audited by BDO Seidman, LLP, 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
(1) Long term debt at December 31, 2000, 1999 ,1998, 1997, and 1996 excludes $295, $273, $351, $4,373, and $3,412 respectively, of long term debt reclassified as current obligations ( see Note 2 of Consolidated Financial Statements)
(2) The table above reflects the Company's accounting for its investment in Back Bay Restaurant Group, Inc. ("BBRG") under the equity method. Other income (expense), net contains income of approximately $157, $525, $337, and $86 from the Company's investment in BBRG for 1999, 1998, 1997, and 1996, respectively.
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ITEM 7.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Wonderland conducts live racing seven nights per week, and offers simulcast wagering afternoons and evenings. The table below illustrates certain key statistics for Wonderland, for each of the past three years:
Wonderland has been granted a license to conduct up to 520 racing performances during 2001.
BALLOT INITIATIVE TO BAN GREYHOUND RACING IN MASSACHUSETTS
In August 2000, animal rights activists were able to obtain the necessary number of signatures in order to place a binding initiative petition to ban all wagering on greyhound racing within Massachusetts effective June 1, 2001 on the November 2000 Massachusetts ballot. If the initiative had passed, it would have prohibited both live and simulcast wagering at Wonderland, thus, in all likelihood, shutting down the Company's principal business. The initiative was defeated in the November 7, 2000 election. Massachusetts Election laws prohibit the placing of any substantially similar measure on the ballot in any year prior to November 2006.
The Company spent approximately $881,000 on the campaign to defeat the ballot initiative through December 31, 2000. The campaign was conducted jointly with the dog track in Raynham, Massachusetts. These funds were used primarily for acquisition of media time and the development and implementation of a media campaign to promote the industry point of view. This amount was fully accrued at December 31, 2000 and is included in administrative and operating expenses for the year then ended.
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OPERATING REVENUE
The Company is still experiencing a decline in total attendance and live-on track handle caused by a variety of factors including a general decline in the pari-mutuel racing industry, the negative effect of the ballot initiative on greyhound racing's image, 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.
2000 VERSUS 1999
Total operating revenue and parimutuel commissions remained relatively unchanged as compared to 1999. Total handle in 2000 was $113 million as compared to $115 million in 1999. Live-on track handle decreased by $2 million or 9% in 2000 as compared to 1999, while Live-simulcast handle decreased by $2 million or 4%. Guest-simulcast handle increased by approximately $1.3 million or 3% in 2000 as compared to 1999.
Wonderland had 10 fewer live racing performances in 2000 as compared to 1999, with a 10% decrease in attendance between 2000 and 1999.
Concessions revenue increased slightly to $1.6 million from $1.5 million 2000. Concessions revenue consists of food, beverage, parking, program sales, and advertising income.
Other operating revenue remained essentially unchanged compared to 1999.
Revenue for 2000 includes $246,000 deposited into the Greyhound Promotional Trust Fund and $244,000 deposited into the Greyhound Capital Improvements Trust Fund. These funds are dedicated to reimbursement of promotional expenses and capital improvements, respectively, incurred by Wonderland. These funds are maintained through remittance by Wonderland of a percentage of the handle that is retained by Wonderland after payment to bettors. Reimbursement is periodically approved by The Commonwealth of Massachusetts to the extent that the trust fund balance equals or exceeds the reimbursements applied for.
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1999 VERSUS 1998
Total operating revenue decreased to $17.5 million in 1999 or 7.9% as compared to $19.0 million in 1998. Pari-mutuel commissions decreased by approximately $1.2 million to $14.2 million in 1999 from $15.4 million in 1998. Total handle in 1999 was $115 million as compared to $121 million in 1998. Live-on track handle decreased by $6 million or 19% in 1999 as compared to 1998, while Live-simulcast handle increased by $3 million or 8%. Guest-simulcast handle decreased by approximately $3 million or 6% in 1999 as compared to 1998.
Commission revenue was negatively impacted by a decline in live-on track and Guest simulcast handle. Wonderland had 39 fewer live racing performances in 1999 as compared to 1998, with a 14% decrease in attendance between 1999 and 1998.
Concessions revenue decreased to $1.5 million in 1999 from $1.8 million in 1998. Such decline is largely attributable to the decline in total attendance. Concessions revenue consists of food, beverage, parking, program sales, and advertising income.
Other operating revenue remained essentially unchanged during 1999 compared to 1998.
Revenue for 1999 includes $246,000 deposited into the Greyhound Promotional Trust Fund and $202,000 deposited into the Greyhound Capital Improvements Trust Fund.
OPERATING EXPENSES 2000 VERSUS 1999
Total operating expenses were $17.2 million and $16.9 million in 2000 and 1999, respectively. Purse expense declined by 4% because of the decline in on-track handle. Purse expense is determined by contractual agreement with the dog owners and statutory requirements of the Commonwealth of Massachusetts based upon on-track handle.
During 2000, administrative and operating expenses increased by approximately $626,000 compared to the same period in 1999. When deduction is made for $881,000 of expenditures on the ballot initiative, baseline administrative and operating expenses show a decrease of $255,000. (See "Ballot Initiative to Ban Greyhound Racing in Massachusetts.")
OPERATING EXPENSES 1999 VERSUS 1998
Total operating expenses were $16.9 million and $18.2 million in 1999 and 1998, respectively. Purse expense declined approximately $170,000 in 1999 as compared to 1998. The decrease in purse expense in 1999 is attributable to a decline in on-track handle.
The decline in operating expenses of 7.0% was roughly in line with the decline in operating revenue. This reflects the variable nature of certain important cost components such as purses and salaries, as well as realized savings in the marketing, utility, and occupancy cost areas.
DEPRECIATION AND AMORTIZATION
Depreciation and amortization decreased in 2000 as compared to 1999 by approximately $61,000 and decreased by approximately $116,000 in 1999 from 1998. Certain assets reached the end of their depreciable lives during 2000, resulting in the reduction in depreciation in 2000 from 1999. The Company continues to replace capital items as they become obsolete.
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INTEREST EXPENSE
During 2000, interest expense decreased by approximately $38,000 as compared to 1999. The decrease is the result of decreasing interest as the Century Bank note payable matures. During 1999, interest expenses increased by approximately $101,000 as compared to 1998. The increase arose from inclusion in expense of accrued interest on a note payable to a subsidiary that was sold (See below at "EQUITY INCOME IN AND SALE OF INVESTMENT") during 1999.
OTHER INCOME (EXPENSE)
During 2000, other income (expense) decreased by approximately $695,000 as compared to 1999. This decrease resulted from the accrual of various litigation settlements in 2000 (See "LEGAL PROCEEDINGS").
EQUITY INCOME IN AND SALE OF INVESTMENT
During 1994, the Company and Back Bay Restaurant Group jointly pursued a series of transactions, the effect of which resulted in the control of Back Bay Restaurant Group no longer resting with the Company. Accordingly, the Company's investment in Back Bay Restaurant Group was accounted for under the equity method. The equity income in investments represented the Company's proportionate share of Back Bay Restaurant Group's net earnings. (See Note 9 of Notes to Consolidated Financial Statements).
On December 31, 1998, the Company owned approximately 673,000, or 19%, of the outstanding shares of Back Bay Restaurant Group.
On September 24, 1999, the Company entered into a Stock Purchase Agreement with Charles F. Sarkis, pursuant to which Mr. Sarkis purchased 450,518 shares of common stock of Back Bay Restaurant Group, Inc., a Delaware corporation, owned by the Company.
Immediately prior to consummation of the transactions contemplated by the Stock Purchase Agreement and the Stock Repurchase Agreement, the Company was the majority stockholder of Back Bay Restaurant Group, which had gone private in April, 1999.
The aggregate purchase price of the stock was $2,703,108. In exchange for the delivery of the shares, Mr. Sarkis delivered a promissory note in the amount of the purchase price and a stock pledge agreement relating to the shares. Under the terms of the note, $500,927 was paid on November 4, 1999, $500,000 was paid on December 16, 1999, $351,554 was paid on January 31, 2000, $338,000 was paid on December 1, 2000, and the remaining outstanding principal balance and all accrued interest shall be paid in three equal installments of principal on December 16, 2001, December 16, 2002 and December 16, 2003. The balance outstanding under the note was $1,168,268 at December 31, 2000.
Simultaneously with the execution of the Stock Purchase Agreement, the Company entered into a Stock Repurchase Agreement with Back Bay Restaurant Group pursuant to which Back Bay Restaurant Group repurchased 222,933 shares of common stock of Back Bay Restaurant Group in exchange for the cancellation of a certain promissory note, dated May 2, 1994, issued by the Company in favor of Back Bay Restaurant Group in the principal amount of $970,000 and accrued interest thereon in the amount of $367,598.
The purchase price of the Back Bay Restaurant Group stock in the above transaction was $6.00 per share. The per share book value of the Company's investment in Back Bay Restaurant Group immediately prior to these transactions was $8.92. The Company incurred a loss of $2.69 per share on the Purchase and Repurchase transactions, for an aggregate loss of $1,809,000, net of $157,000 of equity in the earnings of Back Bay Restaurant Group for 1999.
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PROVISION FOR INCOME TAXES
The Company's provision for income taxes is less than the statutory federal tax rate of 34% during 2000, 1999, and 1998 primarily due to the utilization of available net operating loss carryforwards for which the related deferred tax asset has been fully reserved. The provision for taxes of $ 93,605 in 2000, $90,600 in 1999, and $82,400 in 1998 consists of the Federal alternative minimum tax and state income taxes.
DISCONTINUED OPERATIONS
Foxboro Park, Inc. ("Foxboro", which term as used herein includes its wholly-owned subsidiaries) conducted seasonal live harness racing generally two evenings and two matinees per week, while simulcasting afternoons and evenings through July 1997 (see Item 3 and Note 3 of Notes to Consolidated Financial Statements).
The Company recognized a gain on the discontinuance of the Company's harness racing business of $1.0 million for the year ended December 31, 1998. Such gain is primarily comprised of the excess of occupancy and other liabilities over non-recoverable net leasehold improvements and other assets.
In 2000, the Company recognized a gain of $353,000 resulting from the reduction of liabilities related to discontinued operations.
Page 11 of 45 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 facility at Wonderland, and for debt service requirements. The Company's unrestricted cash and cash equivalents totaled $141,000 at December 31, 2000, compared with $343,000 at December 31, 1999. The Company generated a cash deficit from operations of approximately $593,000 in 2000 as compared to a deficit of $397,000 in 1999. Non-cash items included in the Company's net loss in 2000 consist of depreciation and amortization expense of approximately $524,000. Changes in working capital accounts including restricted cash, accounts payable and other accrued liabilities used approximately $643,000 of cash in 2000. Net cash used in investing activities in 2000 is comprised of additions to property, plant and equipment of approximately $88,000. Financing activities in 2000 include principal payments of debt of $273,000, short term financing received and retired of $338,000, and proceeds of notes receivable from officers of $752,000. The Company expects to fund any capital expenditures for 2001 from internally generated cash. The Company expects cash flow from operations in 2001 to be sufficient to cover the operating obligations of the Company.
RACING SUBSIDIARY
In order to meet the requirements for renewal of racing licenses in 2002, the Company's racing subsidiary must demonstrate that among other criteria, it is a financially stable entity, capable of disposing of its obligations on an annual basis. Although management is optimistic that it will be able to demonstrate financial stability in the application for a 2002 racing license, the Company cannot assure you that the Racing Commission will continue to grant a license to conduct racing on the schedule presently maintained at Wonderland.
In the event that the Company is not successful in obtaining a year 2002 racing license, the adverse impact on the Company's financial results and position would be material.
The current legislation which permits the Company to provide simulcast broadcasting expires in June 2001. If the current legislation expires and new legislation is not enacted, it would have a material adverse effect on the revenues and business of the Company. Over the course of the last several months, the Company, along with other Massachusetts race tracks, has been working to have legislation passed which would permit the Company to provide simulcast broadcasting of thoroughbred racing on a more frequent basis. Additionally, the Company and the other tracks are seeking to amend the current racing statutes to provide for a decrease in the parimutuel taxes paid to the Commonwealth. The Company and the other track owners have proposed that the funds available from the parimutuel tax decrease be made available for increases in purses and the Capital Improvement and Promotional Trust Funds as well as the establishment of a Greyhound Adoption Fund. Additionally, the proposal provides for account wagering, satellite wagering and other revisions to the racing statute. The Company cannot assure you that either the simulcast or the parimutuel tax legislation will be adopted.
OUTLOOK
Management has worked diligently over the last several years in attempting to convince the Governor and the Legislature of The Commonwealth of Massachusetts of the need to allow the Commonwealth's commercial racetracks to offer their patrons expanded gaming opportunities. The Massachusetts state legislature took no action on gaming in the year 2000 and no gaming legislation is anticipated in 2001. The Company cannot predict whether such legislation will ever be enacted or enacted on favorable terms.
Management continues to examine the full range of strategic alternatives available in an effort to maximize shareholder value, including the benefits and disadvantages of remaining a public company, particularly in light of the lack of a meaningful trading market for its common stock.
IMPACT OF INFLATION AND CHANGING PRICES
Certain of the Company's operating expenses, such as wages and benefits, equipment repair and replacement, and inventory and marketing costs, increase with general inflation. In order for the Company to cope with inflation, it must, to the extent permitted by competition and patron acceptance, pass increased cost on by periodically increasing prices. The Company is limited in its ability to offset the effects of inflation by increasing its percentage of handle because this percentage is governed by statute.
NEW ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133 "Accounting for Derivatives Instruments and Hedging Activities" ("SFAS No. 133") which requires companies to recognize all derivatives contracts as either assets or liabilities on the balance sheet and to measure them at fair value. If certain conditions are met, a derivative may be specifically designated as a hedge, the objective of which is to match the timing of gain or loss recognition on the hedging derivative with the recognition of (i) the changes in the fair value of the hedged assets or liability or (ii) the earnings effect of the hedged forecasted transaction. For a derivative not designated as a hedging instrument, the gain or loss is recognized in income in the period of change.
In June 1999, the Financial Accounting Standards Board issued SFAS No. 137, which changed the SFAS No. 133 effective date of adoption for all fiscal quarters of fiscal years beginning after June 15, 1999 to all fiscal quarters of fiscal years beginning after June 15, 2000.
Historically, the Company has not entered into derivative contracts, either to hedge existing risks or for speculative purposes. Accordingly, the adoption of the new standard on January 1, 2001 did not materially affect the Company's consolidated financial statements.
In March 2000, the FASB issued interpretation No. 44 ("FIN 44"), "Accounting for Certain Transactions Involving Stock Compensation, an interpretation of APB Opinion No. 25." FIN 44 clarifies the application of APB NO. 25 for (a) the definition of employee for purposes of applying APB 25, (b) the criteria for determining whether a plan qualifies as a noncompensatory plan, (c) the accounting consequences of various modifications to the previously fixed stock option or award, and (d) the accounting for an exchange of stock compensation awards in a business combination. FIN 44 became effective July 1, 2000 but certain conclusions cover specific events that occur after either December 15, 1998 or January 12, 2000. The Company has adopted FIN 44 in fiscal 2000 and it did not have a material effect on the Company's financial statements.
Page 12 of 45 FORWARD-LOOKING STATEMENTS
Certain statements contained througout this annual report constitute "forward-looking statements" as that term is defined under the Private Securities Litigation Reform Act of 1995. Such forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause the actual results, performance or achievements of the Company, or industry results, to be materially different from those contemplated or projected, forecasted, estimated or budgeted in or expressed or implied by such forward-looking statements. Such factors include, among others, the following: general economic and business conditions; industry trends, changes in business strategy or development plans; availability and quality of management; and availability, terms and deployment of capital. SPECIAL ATTENTION SHOULD BE PAID TO SUCH FORWARD-LOOKING STATEMENTS INCLUDING, BUT NOT LIMITED TO, STATEMENTS RELATING TO (I) THE COMPANY'S ABILITY TO EXECUTE ITS BUSINESS STRATEGY, (II) THE COMPANY'S ABILITY TO OBTAIN SUFFICIENT RESOURCES TO FINANCE ITS WORKING CAPITAL AND CAPITAL EXPENDITURE NEEDS AND PROVIDE FOR ITS OBLIGATIONS, AND (III) THE STATEMENTS CONTAINED IN THIS ITEM 7.
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ITEM 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO FINANCIAL STATEMENTS PAGE
REPORT OF INDEPENDENT CERTIFIED ACCOUNTANTS 15
CONSOLIDATED BALANCE SHEETS 16-17
CONSOLIDATED STATEMENTS OF OPERATIONS 18
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIENCY 19
CONSOLIDATED STATEMENTS OF CASH FLOWS 20
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 21
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REPORT OF INDEPENDENT CERTIFIED ACCOUNTANTS
To the Board of Directors and Stockholders of The Westwood Group, Inc. and Subsidiaries Revere, Massachusetts
We have audited the accompanying consolidated balance sheets of The Westwood Group, Inc. and Subsidiaries as of December 31, 2000 and 1999 and the related consolidated statements of operations, changes in stockholders' deficiency and cash flows for each of the three years in the period ended December 31, 2000. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We did not audit the financial statement of the investee which was the basis for recording the Company's equity in earnings of the investment. The equity in the income for the investor represents 29.0% of net income for the year ended December 31, 1998. Those statements were audited by other auditors whose report has been furnished to us, and our opinion, insofar as it relates to the amounts included for such investment, is based solely on the report of the other auditors.
We conducted our audits in accordance with generally accepted auditing standards in the United States of America. 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, based on our audits and the report of the other auditors for 1998, 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, 2000 and 1999, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 2000, in conformity with generally accepted accounting principles in the United States of America.
BDO SEIDMAN, LLP
Boston, Massachusetts February 16, 2001
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THE WESTWOOD GROUP, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
The accompanying notes are an integral part of these consolidated financial statements.
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THE WESTWOOD GROUP, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Continued)
The accompanying notes are an integral part of these consolidated financial statements.
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THE WESTWOOD GROUP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS
The accompanying notes are an integral part of these consolidated financial statements.
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CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' DEFICIENCY FOR THE YEARS ENDED DECEMBER 31, 2000, 1999, AND 1998
The accompanying notes are an integral part of these consolidated financial statements.
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THE WESTWOOD GROUP AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
Non-cash investing activities: During 1999 the Company sold an investment in a subsidiary for $4,040,706, of which $1,337,598 was a cancellation of a note payable and related accrued interest (See Note 9).
The accompanying notes are an integral part of these consolidated financial statements.
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THE WESTWOOD GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS
The Company operates primarily in one business segment through its pari-mutuel racing subsidiary. Wonderland Greyhound Park, Inc. is a pari-mutuel greyhound racing facility located in Revere, Massachusetts. The Company also operated Foxboro Park, a pari-mutuel harness racing facility located in Foxboro, Massachusetts through the date of eviction in July, 1997 (see Litigation at Note 5). The Company's Foxboro harness racing operations were discontinued during 1997 and is reported as a discontinued operation in the accompanying consolidated financial statements (see Discontinued Operations at Note 3).
The Wonderland facility includes a one-quarter mile sand track, a physical plant consisting of a climate controlled grandstand and clubhouse and a two-story administrative center. The Company maintains and operates two full service restaurants, a sports bar and other concession facilities at the racetrack. The racetrack facility can accommodate 10,000 patrons. The average attendance per performance in 2000 was approximately 894 persons. The complex encompasses a total of approximately 35 acres, including paved and lighted parking providing capacity for approximately 2,300 cars.
Wonderland provides its patrons with a variety of entertainment options including live racing and full card simulcast wagering.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements 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.
RESTRICTED CASH
Restricted cash is related to the operations of Wonderland and includes amounts held by The Commonwealth of Massachusetts in trust funds (for capital improvements and advertising/promotion). Wonderland disburses these funds upon approval by the Commonwealth. Restricted cash also includes a certificate of deposit held as collateral for the Company's racing bond, as well as funds dedicated to payment of the Company's liability for outstanding pari-mutuel tickets. Unclaimed winnings from pari-mutuel wagering are held by Wonderland until they become payable to the Commonwealth by the operation of unclaimed property statutes.
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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:
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 Statement of Financial Accounting Standards No. 121 ("SFAS No. 121") "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of" issued by the Financial Accounting Standards Board. 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 and amortization expense (including amortization of deferred charges) of approximately $523,000, $584,000, and $700,000 was recorded for the years ended December 31, 2000, 1999 and 1998, respectively.
FAIR VALUE OF FINANCIAL INSTRUMENTS
As of December 31, 2000 and 1999, 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.
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. Concentration of credit risk, with respect to accounts receivable, is limited due to the Company's credit evaluation process. The Company does not require collateral from its customers. The Company's accounts receivable balance is comprised principally of amounts due from other race tracks. Historically, the Company has not incurred any significant credit related losses.
REVENUE RECOGNITION
The Company's annual revenues are mainly derived from the commission that it receives from wagers made by patrons during its racing performances and from admission and concession charges at such performances.
INCOME TAXES
The Company uses the liability method of accounting for income taxes. Under this method, deferred income taxes are provided based on the estimated future tax effects of differences between financial statement carrying amounts and the tax basis of existing assets and liabilities. The Company's policy is to record a valuation allowance against deferred tax assets unless it is more likely than not that such assets will be realized in future periods. The Company considers estimated future taxable income or loss and other available evidence when assessing the need for its deferred tax asset valuation allowance.
INCOME (LOSS) PER COMMON SHARE
The Company follows Statement of Financial Accounting Standards No. 128 ("SFAS No. 128"), Earnings per Share, issued by the Financial Accounting Standards Board. Under SFAS No. 128, the basic and diluted net income (loss) per share of common stock are computed by dividing the net income (loss) by the weighted average number of common shares outstanding during the period, including potentially dilutive stock options. The Company's stock options did not have a dilutive effect in 2000 or 1999 since the Company incurred a net loss. Options excluded from the computation of income (loss) per share were 215,000, 241,334 and 241,334 for the years ended December 31, 2000, 1999 and 1998, respectively.
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USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates.
ADVERTISING
The Company expenses advertising costs as incurred. Advertising expense was approximately $128,000, $99,000, and $219,000 for the years ended December 31, 2000, 1999, and 1998 respectively.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133 "Accounting for Derivatives Instruments and Hedging Activities" ("SFAS No. 133") which requires companies to recognize all derivatives contracts as either assets or liabilities in the balance sheet and to measure them at fair value. If certain conditions are met, a derivative may be specifically designated as a hedge, the objective of which is to match the timing of gain or loss recognition on the hedging derivative with the recognition of (i) the changes in the fair value of the hedged assets or liability or (ii) the earnings effect of the hedged forecasted transaction. For a derivative not designated as a hedging instrument, the gain or loss is recognized in income in the period of change.
In June 1999, the Financial Accounting Standards Board issued SFAS No. 137, which changed the SFAS No. 133 effective date of adoption for all fiscal quarters of fiscal years beginning after June 15, 1999 to all fiscal quarters of fiscal years beginning after June 15, 2000.
Historically, the Company has not entered into derivative contracts, either to hedge existing risks or for speculative purposes. Accordingly, adoption of the new standard on January 1, 2001 did not materially affect the Company's consolidated financial statements.
In March 2000, the FASB issued interpretation No. 44 ("FIN 44"), "Accounting for Certain Transactions Involving Stock Compensation, an interpretation of APB Opinion No. 25." FIN 44 clarifies the application of APB NO. 25 for (a) the definition of employee for purposes of applying APB 25, (b) the criteria for determining whether a plan qualifies as a noncompensatory plan, (c) the accounting consequences of various modifications to the previously fixed stock option or award, and (d) the accounting for an exchange of stock compensation awards in a business combination. FIN 44 became effective July 1, 2000 but certain conclusions cover specific events that occur after either December 15, 1998 or January 12, 2000. The Company has adopted FIN 44 in fiscal 2000 and it did not have a material effect on the Company's financial statements.
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2. LONG-TERM DEBT
At December 31, 2000 and 1999, long-term debt consisted of the following:
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The aggregate principal payments required to be made on long-term debt, for the years subsequent to December 31, 2000 are as follows:
The final payment on the loan is to be made on July 1, 2003 in the amount of $3,568,204.
The note agreement contains certain restrictive covenants including the maintenance of certain financial ratios and debt coverage requirements. The note is collateralized by a mortgage and security interest in all real estate and personal property at Wonderland Greyhound Park.
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3. DISCONTINUED OPERATIONS
In 1996, litigation ensued between Foxboro Realty Associates, LLC, ET AL. and the Company, its subsidiary Foxboro Park, Inc., ET AL., over Foxboro's right to occupy Foxboro Raceway. The Court issued an execution pursuant to which Foxboro was evicted from the racetrack on July 31, 1997 (see Litigation at Note 5 of Notes to Consolidated Financial Statements). As a result the Company discontinued its harness racing operations. The gain on the discontinuance of approximately $1.0 million for the year ended December 31, 1998, is primarily comprised of the excess of occupancy and other liabilities over non-recoverable net leasehold improvements and other assets. The 1998 gain also includes approximately $445,000 for a change in a liability estimate. In the fourth quarter of 2000, the Company recognized a gain of $353,000 resulting from the reduction of liabilities related to discontinued operations.
4. OTHER LONG-TERM LIABILITIES
Other long-term liabilities include approximately $417,000 and $677,000 at December 31, 2000 and 1999, respectively, of fees owed to a law firm primarily related to the Foxboro litigation (see Litigation at Note 5 of Notes to Consolidated Financial Statements). Such outstanding amounts are currently payable at $5,000 per week. Current maturities of $260,000 are included in accounts payable and accrued liabilities.
Page 26 of 45 5. COMMITMENTS AND CONTINGENCIES
PLEDGES OF ASSETS
A certificate of deposit for $139,000 had been pledged to collateralize a performance bond for Wonderland, which is required annually by the Racing Commission for all race tracks. The bond is for $125,000. To meet working capital needs connected with the "Ballot Initiative" the Company gave, in November 2000, a second mortgage to Century Bank & Trust Company of Medford, MA. In return, Century Bank issued a letter of credit securing the Company's racing bond with the Massachusetts State Racing Commission for the 2001 racing license. In January 2001 this transaction was completed, enabling the certificate of deposit that had previously been used to secure the racing bond to be used for the Company's working capital needs.
RACING LICENSE
In order to meet the requirements for renewal of racing licenses, Wonderland must demonstrate, on an annual basis, that it is a financially viable entity, capable of disposing of its obligations on a timely basis. The racing license has been granted for the 2001 calendar year. Although management is optimistic that it will be able to demonstrate financial stability in their applications for a year 2002 racing license, there can be no assurance that the Racing Commission will continue to grant licenses to conduct racing on the schedules presently maintained at Wonderland. In the event that the Company is not successful in obtaining a year 2002 racing license, the adverse impact on the Company would be material.
LEASE COMMITMENT
Totalisator equipment rent (which is primarily based on the handle per performance) was approximately $292,000, $403,000, and $320,000 in 2000, 1999, and 1998, respectively. The Company changed totalisator vendors in June 1999. Future minimum payments are due at amounts calculated as a percentage of the Company's total handle amounts.
The Company is also liable for numerous operating leases for automobiles and other equipment which expire through 2001. The future minimum lease commitments relating to noncancelable operating leases as of December 31, 2000 are immaterial.
In 2000 the Company entered into capital leases for various operating equipment items.
As of December 31, 2000, future minimum lease payments under capital leases were as follows:
Year ended December 31, ----------------------- 2001 $13,132 2002 13,132 2003 9,142 2004 6,292 2005 3,146 ------- Total maximum lease payments 44,844 Amount representing interest @ 10.5% (7,182) ------- Present value of minimum lease payments $37,662 =======
Current portion of lease payments $ 9,832 Long-term portion of lease payments 27,830 ------- $37,662 =======
LITIGATION
The Company is subject to various legal proceedings that arise in the ordinary course of its business.
In 1996 litigation ensued between Foxboro Realty Associates, LLC, et al. and the Company, its subsidiary Foxboro Park, Inc., et al. in Norfolk Superior Court in Massachusetts, over Foxboro Park's right to occupy Foxboro Raceway. The Court issued an execution pursuant to which Foxboro Park was Evicted from the racetrack on July 31, 1997. The parties appealed to the Appeals Court on January 27, 1998.
On July 8, 1998, Foxboro Route 1 Limited Partnership, et al., filed a civil action in Suffolk Superior Court in Massachusetts against The Westwood Group, Inc., Wonderland Greyhound Park, Inc., et al., seeking payment for use and occupancy of Foxboro Raceway, and other damages, from 1992 through July 1997.
On January 30, 2001, the above-mentioned cases were settled without monetary damages to either party.
In January 2001, the Company lost at arbitration a claim brought against it by a former totalisator vendor. The settlement amount was $468,000. This amount has been recorded in "Other income (expense), net" as of the fourth quarter of 2000 and fully accrued in current liabilities. The arbitrator's decision has been appealed in U.S. Federal District Court in Massachusetts.
The Company believes that the effect that these matters with have on the consolidated financial statements, if any, will be immaterial.
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6. COMMON STOCK, STOCK OPTION AND GRANT PLANS
The Company follows SFAS No. 123, "Accounting for Stock-Based Compensation". SFAS No. 123 allows the Company to account for its stock-based compensation plans based upon either a fair value method or the intrinsic value method. The Company has elected to follow the intrinsic value method of accounting for stock-based compensations plans prescribed under Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees". Under SFAS No. 123, the Company is required to disclose the effects of applying the fair value method on the net income or loss.
In October 1995, the Board of Directors approved and ratified the granting of non-qualified stock options. These options were granted to the Directors of the Company to purchase shares of common stock at an option price equal to the fair market value of the Company's common stock at the date the options were granted.
The Company's stock options activity is summarized as follows:
The Company's total stock options outstanding of 257,500 at December 31, 2000 expire as follows: 165,000 in 2002; 50,000 in 2005; and 42,500 in 2007.
The Company has computed the pro forma disclosures required under SFAS No. 123 for stock options using the Black-Scholes option pricing model prescribed by SFAS No. 123.
The assumptions used and the weighted average information for the years ended December 31, 2000 and 1999 are as follows:
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The effect of applying SFAS No. 123 for the year ended December 31, 2000 and 1999, as follows:
7. INCOME TAXES
The Company's provision for income taxes for the year ended December 31, 2000 represents state income taxes. The provision for years ended 1999 and 1998 represents alternative minimum federal taxes and state taxes.
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:
The tax effects of the significant temporary differences which comprise the deferred tax assets and liabilities are as follows:
The Company's net operating loss carryforwards begin expiring as of December 31, 2008. The net operating loss carryforwards, amounting to $5.77 million, expire as follows (in thousands) $1,744 in 2008, $43 in 2010, $437 in 2011, and $3,546 in 2012. The Company has fully reserved for all net deferred tax assets as future realization of these assets is not presently determinable.
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8. PENSION PLANS AND RETIREMENT BENEFITS
The Company contributed $44,247, $80,778, $81,399 in 2000, 1999, and 1998, 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 and one for non-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 $123,170, $153,643, and $142,073 in 2000, 1999, and 1998, respectively. Benefits under the plan are provided by a group annuity contract purchased from an insurance carrier. The expense for this plan includes amortization of the cost of providing plan benefits for past service over a period of approximately 14 years. The Company's funding policy is to contribute amounts annually to the Plan, subject to the Internal Revenue Service and ERISA minimum required and maximum allowable funding limitations. The following table sets forth the plan's funded status at December 31, 2000 and 1999:
Net periodic pension cost included the following components:
Page 30 of 45
Assumptions used in accounting for the above pension information included a discount rate of 7.25% for the years ended December 31, 2000 and 1999, and an expected long-term rate of return of 8.5% for all years presented.
The following tables set forth pension obligations and plan assets as of December 31, 2000 and 1999:
Change in benefit obligation:
The Company amended the defined benefit plan in connection with the renewal of a collective bargaining agreement. The amendment provides that as of January 31, 1998, benefit accruals under the plan will be frozen for those active employees who accrued benefits under the plan before January 31, 1998. The amendment further provides that on and after January 31, 1998, employees hired by Wonderland will no longer be eligible to join the plan. The Company will make contributions on behalf of these employees at a fixed rate to the union 401(k) plan based upon hours worked. These contributions commenced in 1998 and amounted to approximately $4,300 in that year.
During 1997 the Company established separate 401(k) plans for union and nonunion employees, respectively. The plans are administered by an insurance company. The Company made contributions on behalf of certain union employees based upon a fixed rate and performances worked. The total of these contributions was approximately $71,000, $72,000, and $56,000 for the years ended December 31, 2000, 1999, and 1998, respectively.
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.
Expense for all retirement plans of the Company for the years ended December 31, 2000, 1999, and 1998 was approximately $278,000, $279,000, and $436,000, respectively.
9. EQUITY INCOME IN AND SALE OF INVESTMENTS
During 1994, the Company and Back Bay Restaurant Group jointly pursued a series of transactions, the effect of which resulted in the control of Back Bay Restaurant Group no longer resting with the Company. Accordingly, the Company began accounting for its investments in Back Bay Restaurant Group under the equity method. The equity income in investments represents the Company's proportionate share of Back Bay Restaurant Group's net earnings.
On December 31, 1998, the Company owed approximately 673,000, or 19%, of the outstanding shares of Back Bay Restaurant Group.
On September 24, 1999, the Company entered into a Stock Purchase Agreement which Charles F. Sarkis pursuant to which Mr. Sarkis purchased 450,518 shares of common stock of Back Bay Restaurant Group.
Immediately prior to consummation of the transactions contemplated by the Stock Purchase Agreement and the Stock Repurchase Agreement, the Company was the majority stockholder of Back Bay Restaurant Group, which had gone private in April, 1999.
The aggregate purchase price of the stock was $2,703,108. In exchange for the delivery of the shares, Mr. Sarkis delivered a promissory note in the amount of the purchase price and a stock pledge agreement relating to the shares. Under the terms of the note, Mr. Sarkis paid the Company $500,927 on November 4, 1999, $500,000 was paid on December 16, 1999, $351,554 was paid on January 31, 2000, and $338,000 was paid on December 1, 2000 and the remaining outstanding principal balance and all accrued interest is to be paid in three equal installments of principal on December 16, 2001, December 16, 2002 and December 16, 2003. The balance outstanding under the note was $1,168,268 at December 31, 2000.
Simultaneously with the execution of the Stock Purchase Agreement, the Company entered into a Stock Repurchase Agreement with Back Bay Restaurant Group pursuant to which Back Bay Restaurant Group repurchased 222,933 shares of common stock of Back Bay Restaurant Group in exchange for the cancellation of a certain promissory note, dated May 2, 1994, issued by the Company in favor of Back Bay Restaurant Group in the principal amount of $970,000 and accrued interest thereon in the amount of $376,598.
The purchase price of the Back Bay Restaurant Group stock in the above transaction was $6.00 per share. The per share book value of the Company's investment in Back Bay Restaurant Group immediately prior to these transactions was $8.92. The Company incurred a non-cash loss of $2.69 per share on these transactions, for an aggregate non-cash loss of $1,809,000 net of $157,000 of equity in the earnings of Back Bay Restaurant Group for 1999.
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10. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Accounts payable and accrued liabilities as of December 31, 2000 and 1999 consisted of the following:
11. TRANSACTIONS WITH OFFICERS, EMPLOYEES AND RELATED PARTIES
In May 1994, the Company purchased all restaurant and concession operations at Wonderland from Back Bay Restaurant Group for a sales price of $770,000. Included in the term note of $970,000 were additional amounts owed to Back Bay Restaurant Group for costs incurred under a Cross Indemnification Agreement amounting to $200,000, and interest expense of approximately $58,000 for the years ended December 31, 1999 and 1998. This note was cancelled during 1999 in conjunction with the stock repurchase agreement entered into with Back Bay Restaurant Group.
Upon the sale of Back Bay Restaurant Group common stock to Charles F. Sarkis, the Company received a promissory note in the amount of $2,703,108. The note bears interest of 9.5%. $500,927 was paid on November 4, 1999, $500,000 was paid on December 16, 1999, $351,554 was paid on January 31, 2000, $338,000 was paid on December 1, 2000, and the remaining outstanding principal and accrued interest is payable in three equal annual installments due on December 16, 2001 through December 16, 2003. The balance outstanding under the note was $1,168,268 at December 31, 2000.
At December 31, 2000 and 1999, there are additional loans outstanding to officers/stockholders including interest, of $578,076 and $742,017, respectively. The loans have been restructured and are payable over five years and bear interest at 8.0% per annum. Notes receivable and related interest, in the amount of $248,751 are due from Charles Sarkis and $329,325 is due from Richard P. Dalton, the Company's President and Chief Executive Officer. The $384,434 was recorded as a note receivable at December 31, 1998. The accrued bonus due to Mr. Sarkis of $241,420 at December 31, 2000 will be used to repay the outstanding notes receivable balance as it becomes due. The current portion of these bonus amounts are classified in Accounts payable and other accrued liabilities at December 31, 2000.
In October 1999, the Company received a letter of credit from the Anglo Irish Bank securitized by Mr. Charles Sarkis' property located on Boylston Street in Boston, Massachusetts. The letter of credit was established on October 14, 1999 between Mr. Sarkis and the Anglo Irish Bank. The letter of credit specifically stated that its purpose was to fund the unclaimed winning tickets of the Wonderland Greyhound Park racetrack, i.e. the "outs" due to the state. Subsequently, Mr. Sarkis refinanced the Boylston Street property and loaned the Company $500,000. The Company designated this $500,000, which was wired into the Company's Anglo Irish Bank account, to be used for the 1998 and 1999 outstanding pari-mutuel tickets due to the state. The loan agreement between the Company and Mr. Sarkis provided that the $500,000 due, at the option of the payee, could be used to offset any amounts due from Mr. Sarkis, pursuant to the Promissory Note dated September 24, 1999. Accordingly, the Company offset the first payment due on the $2,703,108 loan due from Mr. Sarkis against the $500,000 loan payable to him.
The Company has an accrued bonus due to A. Paul Sarkis, a former employee and current stockholder, of $50,233 at December 31, 2000. This amount is classified in Other accrued short-term liabilities at December 31, 2000.
In August 2000 animal rights activists were able to obtain the necessary number of signatures in order to place on the November 2000 State ballot a binding initiative petition to ban all wagering on dog racing within Massachusetts effective June 1, 2001. The Company expended approximately $881,000 on the campaign to defeat the ballot initiative through December 31, 2000. The campaign to defeat the ballot initiative was conducted jointly with the dog track in Raynham, Massachusetts through a Ballot Question Committee established in accordance with the campaign finance laws of Massachusetts. The Company's President and CEO, Richard P. Dalton, served as the chairman of this Ballot Question Committee. These funds were used primarily for the aquisition of media time and the development and implementation of a media campaign to promote the industry point of view.
On August 16, 2000, the Company entered into a Settlement Agreement and Mutual Release with a stockholder of more than 5% of the Company's Common Stock who agreed to cancel certain stock options in the Company held by him, sell his shares of common stock in the Company to a third party and release the Company and Charles Sarkis from certain claims in consideration for $140,755 and the payment of his legal expenses. This amount has been recorded in "Other income (expense), net" in the accompanying statement of operations.
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12. CHANGE IN LIABILITY
In prior years, Westwood recorded a liability of approximately $890,000 to a supplier. During 1998, Westwood eliminated the recorded liability by recording approximately half as discontinued operations on Foxboro and recording approximately half against general operating expenses of Wonderland.
13. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
The following table sets forth selected quarterly financial data for 2000 and 1999 (in thousands, except per share amounts):
1ST 2ND 3RD 4TH QUARTER QUARTER QUARTER QUARTER ------- ------- ------- -------
Revenues $4,239 $4,722 $ 4,636 $4,074 Operating income (loss) 787 423 (478) (334) Net income (loss) 576 268 (670) (670) Basic and Dilutive net income (loss) per share 0.46 0.21 (0.53) (0.53)
Revenues $4,265 $4,728 $ 4,565 $3,987 Operating income (loss) 636 27 453 (516) Net income (loss) 484 (119) (1,754) (407) Basic and Dilutive net income (loss) per share 0.38 (0.09) (1.39) (0.32)
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ITEM 9
ITEM 9 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None
PART III
ITEM 10.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
DIRECTORS
NAME AGE SINCE POSITION
Charles F. Sarkis 61 1978 Chairman of the Board Richard P. Dalton 53 1978 President, Chief Executive Officer, Director Paul J. DiMare 58 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) for more than six years.
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.
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.
All of the directors and executive officers are citizens of the United States. There are no arrangements or understandings between any of the directors or executive officers of the Company and any other person pursuant to which such director or executive officer was or will be selected as a director or officer of the Company. Each of the executive officers of the Company holds office at the pleasure of the Board of Directors.
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ITEM 11.
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, 2000, to each of the Company's executive officers whose aggregate remuneration exceeded $100,000.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION-During the year ended December 31, 2000, Messrs. Charles F. Sarkis and Richard P. Dalton served as executive officers of the Company and as members of the Board of Directors of the Company which performs the functions of a compensation committee.
REMUNERATION OF DIRECTORS -The Company pays to each nonemployee Director $2,000 per Board meeting attended with an additional fee of $1,000 for each Committee meeting attended.
COMPENSATION PLAN - The Company has adopted an executive compensation plan. The compensation plan is designed to provide an environment and opportunity for key executives to be rewarded for individual achievement as well as for attaining overall corporate goals. The compensation plan includes provisions for a base salary, annual incentive and long term incentives. Base salary is determined annually and is based upon the level and amount of responsibility in the context of comparable companies. Additional annual incentives are to be distributed to key executives from a bonus pool. A performance bonus equal to 10% of income before tax will be allocated to the key executives at the discretion of the Compensation Committee and Board of Directors. Additionally, a discretionary bonus of up to 5% of income before income taxes will be available to reward an employee's individual performance. Based on the Company's financial results, no bonuses were granted during the 2000 fiscal year. Finally, long term incentives will consist of stock options granted to key executives at the discretion of the Compensation Committee and Board of Directors. In addition, a special transaction bonus is available in the event the Chairman initiates and/or negotiates an extraordinary transaction to enhance shareholder value, including a merger, sale, acquisition or joint venture. The transaction bonus is equal to 2% of the value of any such transaction.
STOCK OPTION AGREEMENTS - During 1997, the Company issued to those certain executives 47,500 options to purchase the Company's common stock at an exercise price of $3.00 per share. During 1995, the Company awarded to Directors and Former Directors of the Company, non-qualified stock options to purchase 241,334 shares of the Company's common stock at an exercise price of $3.00 per share. All such options expire ten (10) years from the date of grant.
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Year-End Option Values
The table below shows the total number of unexercised options held at December 31, 2000. There are no unexercised in-the-money options(1) at the fiscal year-end. No options were exercised in the year-ended December 31, 2000.
(1) In-the-Money Options are those where the fair market value of the underlying securities exceeds the exercise price of the option.
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ITEM 12.
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 10, 2001, with respect to the beneficial ownership (1) 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 five percent (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.
(1) As used in this table, "beneficial ownership" means the sole or shared power to vote, or to direct the voting of, a security, or the sole or shared investment power with respect to a security (i.e., the power to dispose of or to direct the disposition of, a security). For purposes of this table a person is deemed to have "beneficial ownership" of any security that such person has the right to acquire within 60 days, including by conversion of such stockholder's shares of Class B Common Stock into shares of Common Stock or by exercise of options. For purposes of this table, any shares of Common Stock not outstanding which are subject to such a right, or conversion privileges, 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 to purchase 40,000 shares.
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(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 40,000 shares.
(4) Includes presently exercisable options to purchase 32,500 shares and 16,109 shares issuable upon conversion of the shares of Class B Common Stock beneficially owned by Mr. Sarkis. Mr. Sarkis' address is 599 East Sixth St., Apt. 1, South Boston, MA 02127. Mr. Sarkis is a former Director and officer of the Company.
(5) Consists of 804,616 shares issuable upon conversion of the shares of Class B Common Stock beneficially owned by Mr. Sarkis, 7,250 shares of Common Stock, as well as presently exercisable options to purchase 95,000 shares. See footnote (2) to the table below showing beneficial ownership of Class B Common Stock.
(6) Includes presently exercisable options to purchase 175,000 shares and 804,616 shares issuable upon conversion of shares of Class B Common Stock, held by all directors and officers as a group.
(7) See Footnote (3)
(8) Includes presently exercisable options to purchase 25,000 shares. Mr. Fawcett's address is c/o Dorman & Fawcett, P.O. Box 214, Hamilton, Massachusetts 01936.
(9) Includes presently exercisable options to purchase 25,000 shares. Mr. O'Donnell's address is c/o Boston Concessions Group, Inc., 111 6th Street, Cambridge, Massachusetts 02141.
(10) Ms. Evans' address is 3600 Galt Ocean Drive, Fort Lauderdale, Florida 33308.
(11) Ms. Harris' address is 11 Royal Road, Brookline, Massachusetts 02146.
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(b) SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS OF CLASS B COMMON STOCK
The following table sets forth certain information, as of February 28, 2001, with respect to the beneficial ownership of the Company's Class B Common Stock by each Director, and named Executive Officer and by all Directors and officers of the Company as a group and by persons known by the Company to own beneficially more than 5% of the outstanding Class B Common Stock. Unless otherwise noted, such stockholders have full voting power and investment power with respect to the shares listed as beneficially owned by them.
(1) As used in this table, "beneficial ownership" means the sole or shared power to vote, or to direct the voting of, a security, or the sole or shared investment power with respect to a security (i.e., the power to dispose of, or to direct the disposition of, a security). In addition, for purposes of this table a person is deemed to have "beneficial ownership" of any security that such person has the right to acquire within 60 days.
(2) Includes shares held by Sarkis Management Corporation, which is wholly-owned by Mr. Sarkis, and shares held by one of Mr. Sarkis' adult children who has granted Mr. Sarkis a proxy to vote her shares. Does not include 80,545 shares held by Mr. Sarkis' five (5) other adult children; Mr. Sarkis disclaims beneficial ownership of such shares.
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT.
Based solely on the review of Forms 3, 4 and 5 and all amendments thereto furnished to the Company with respect to its most recent fiscal year, it appears that each Director, officer and 10% beneficial owner of Common Stock of the Company complied with Section 16(a) of the Securities Exchange Act of 1934, with the exception of former 10% beneficial owner of common stock, Jon M. Baker, who failed to file on a timely basis a Form 4 for the month of August 2000, and Charles Sarkis, who failed to file on a timely basis a Form 4 for the month of December 2000.
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ITEM 13.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In May 1994, the Company purchased all restaurant and concession operations at Wonderland from Back Bay Restaurant Group for a sales price of $770,000. Included in the term note of $970,000 were additional amounts owed to Back Bay Restaurant Group for costs incurred under a Cross Indemnification Agreement amounting to $200,000, and interest expense of approximately $58,000 for the years ended December 31, 1999 and 1998. This note was cancelled during 1999 in conjunction with the stock repurchase agreement entered into with Back Bay Restaurant Group.
Upon the sale of Back Bay Restaurant Group common stock to Charles F. Sarkis, the Company received a promissory note in the amount of $2,703,108. The note bears interest of 9.5%. $500,927 was paid on November 4, 1999, $500,000 was paid on December 16, 1999, $351,554 was paid on January 31, 2000, $338,000 was paid on December 1, 2000, and the remaining outstanding principal and accrued interest is payable in three equal annual installments due on December 16, 2001 through December 16, 2003. The balance outstanding under the note was $1,168,268 at December 31, 2000.
At December 31, 2000 and 1999, there are additional loans outstanding to officers/stockholders including interest, of $578,076 and $742,017, respectively. The loans have been restructured and are payable over five years and bear interest at 8.0% per annum. Notes receivable and related interest, in the amount of $248,751 are due from Charles Sarkis and $329,325 is due from Richard P. Dalton, the Company's President and Chief Executive Officer. The $384,434 was recorded as a note receivable at December 31, 1998. The accrued bonus due to Mr. Sarkis of $241,420 at December 31, 2000 will be used to repay the outstanding notes receivable balance as it becomes due. The current portion of these bonus amounts are classified in Accounts payable and other accrued liabilities at December 31, 2000.
In October 1999, the Company received a letter of credit from the Anglo Irish Bank securitized by Mr. Charles Sarkis' property located on Boylston Street in Boston, Massachusetts. The letter of credit was established on October 14, 1999 between Mr. Sarkis and the Anglo Irish Bank. The letter of credit specifically stated that its purpose was to fund the unclaimed winning tickets of the Wonderland Greyhound Park racetrack, i.e. the "outs" due to the state. Subsequently, Mr. Sarkis refinanced the Boylston Street property and loaned the Company $500,000. The Company designated this $500,000, which was wired into the Company's Anglo Irish Bank account, to be used for the 1998 and 1999 outstanding pari-mutuel tickets due to the state. The loan agreement between the Company and Mr. Sarkis provided that the $500,000 due, at the option of the payee, could be used to offset any amounts due from Mr. Sarkis, pursuant to the Promissory Note dated September 24, 1999. Accordingly, the Company offset the first payment due on the $2,703,108 loan due from Mr. Sarkis against the $500,000 loan payable to him.
The Company has an accrued bonus due to A. Paul Sarkis, a former employee and current stockholder, of $50,233 at December 31, 2000. This amount is classified in "Other accrued short-term liabilities" at December 31, 2000.
In August 2000 animal rights activists were able to obtain the necessary number of signatures in order to place on the November 2000 State ballot a binding initiative petition to ban all wagering on dog racing within Massachusetts effective June 1, 2001. The Company expended approximately $881,000 on the campaign to defeat the ballot initiative through December 31, 2000. The campaign to defeat the ballot initiative was conducted jointly with the dog track in Raynham, Massachusetts through a Ballot Question Committee established in accordance with the campaign finance laws of Massachusetts. The Company's President and CEO, Richard P. Dalton, served as the chairman of this Ballot Question Committee. These funds were used primarily for the aquisition of media time and the development and implementation of a media campaign to promote the industry point of view.
On August 16, 2000, the Company entered into a Settlement Agreement and Mutual Release with a stockholder of more than 5% of the Company's Common Stock who agreed to cancel certain stock options in the Company held by him, sell his shares of common stock in the Company to a third party and release the Company and Charles Sarkis from certain claims in consideration for $140,755 and the payment of his legal expenses. This amount has been recorded in "Other income (expense), net" in the accompanying statement of operations.
Prior to 1995, the Company engaged a firm to assist management in the planning and execution of a financial and operational reorganization of the Company. As compensation for its services, the Company agreed to a success fee, in addition to the basic fee, to grant options to acquire common stock totaling 6% of the total of the Company's capital stock at $3 per share (the "success fee" option). The success fee also stipulated that Michael S. Fawcott, a principal of such firm, who was a director of the Company at the time would be required to return options to purchase 25,000 shares of the Company's common stock if the success fee option is exercised. The Company has not granted the success fee option to date.
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PART IV
ITEM 14.
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 Changes in Stockholders' Deficiency Consolidated Statements of Cash Flows Notes to Consolidated Financial Statements
(2) Financial Statement Schedules
All financial statement schedules are omitted because they are not applicable or the required information is shown in the consolidated financial statements or notes thereto.
(3) Exhibits
3.1 Certificate of Incorporation of the Company.(1)
3.2 Amendment, dated May 15, 1987, to the Certificate of Incorporation of the Company.(3)
3.21 Amendment, dated November 2, 1995, to the Certificate of Incorporation of the Company.(7)
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.(3)
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10.1 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.(4)
10.2 Contract dated November 20, 1992, in connection with services to be provided to the Company by an entity of which a former Director of the Company is a principal, together with an amendment by letter agreement, dated February 2, 1993.(4)
10.3 Collective Bargaining Agreement between the Company and United Food and Commercial Workers' Union, Local 1445 AFL-CIO, CLC, dated June 1, 1993.(5)
10.4 Collective Bargaining Agreement between the Company and Local 25-Teamsters, effective January 1, 1993.(5)
10.5 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.(6)
10.6 Collective Bargaining Agreement between Wonderland Greyhound Park, Inc. and Local 22 - Laborers' International Union, dated July 1, 1993.(6)
10.7 Collective Bargaining Agreement Extension between RFSC, Inc. and Local 26 - Hotel and Restaurant Workers, effective January 1, 1994.(6)
10.8 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.(6)
10.9 Amendment to Term Note between certain subsidiaries of the Company
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and BBRG, dated March 17, 1995.(6)
10.10 Assignment for the Benefit of Creditors and Sharing Agreement (Foxboro Harness).(8)
10.11 Assignment for the Benefit of Creditors and Sharing Agreement (Foxboro Thoroughbred).(8)
10.12 Assignment for the Benefit of Creditors and Sharing Agreement (Foxboro Park).(8)
10.13 Form of Executive Non-Qualified Stock Option Agreement.(8)
10.14 Form of Employee Non-Qualified Stock Option Agreement.(8)
10.15 Third Amendment to Term Note between certain subsidiaries of the Company and BBRG, dated January 5, 1998.(8)
10.16 Voting and Shares Exchange Agreement, dated as of March 31, 1999.(9)
10.17 Stock Purchase Agreement, dated as of September 24, 1999, between the Company and Charles Sarkis.(10)
10.18 Stock Repurchase Agreement dated as of September 24, 1999, between the Company and BBRG.(10)
10.19 Term Loan Agreement between Wonderland Greyhound Park, Inc. and Century Bank and Trust Company, dated June 30, 1998. (11)
21 Subsidiaries of the Company (filed herewith).
23.1 Consent of Independent Auditors (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 1987 and incorporated herein by reference.
(4) Filed with the Company's Annual Report on Form 10-K for 1992 and incorporated herein by reference.
(5) Filed with the Company's Annual Report on Form 10-K for 1993 and incorporated herein by reference.
(6) Filed with the Company's Annual Report on Form 10-K for 1994 and incorporated herein by reference.
(7) Filed with the Company's Annual Report on Form 10-K for 1995 and
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incorporated herein by reference.
(8) Filed with the Company's Annual Report on Form 10-K for 1997 and incorporated herein by reference.
(9) Filed with the Company's Annual Report on Form 10-K for 1998 and incorporated herein by reference.
(10) Filed as an exhibit with Form 8-K, as filed by the Company on October 12, 1999 and incorporated herein by reference.
(11) Filed with the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1998 and incorporated herein by reference.
(b) REPORTS ON 8-K.
None
SIGNATURES
Pursuant to the requirements of Sections 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
THE WESTWOOD GROUP, INC.
/s/ Charles F. Sarkis ---------------------------- Charles F. Sarkis Chairman of the Board Date: March 30, 2001
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.
/s/ Charles F. Sarkis Date: March 30, 2001 ------------------------------------------- Charles F. Sarkis Chairman of the Board
/s/ Richard P. Dalton Date: March 30, 2001 ------------------------------------------- Richard P. Dalton President, Chief Executive Officer and Director (Principal financial and accounting officer)
/s/ Paul J. DiMare Date: March 30, 2001 -------------------------------------------- Paul J. DiMare Director
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