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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 JUNE 30, 1997
COMMISSION FILE NUMBER 1-12783
WHG RESORTS & CASINOS INC.
(Exact name of registrant as specified in its charter)
DELAWARE 36-3277019
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
6063 EAST ISLA VERDE AVENUE, CAROLINA, PR 00979
(Address of principal executive offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: 787-791-2222
Securities registered pursuant to Section 12(b) of the Act:
NAME OF EACH
TITLE OF EACH CLASS EXCHANGE ON WHICH REGISTERED
Voting Common Stock, $.01 par value New York Stock Exchange
Stock Purchase Rights Pursuant
to Stockholder Rights Agreement New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
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 and (2) has been subject to such filing requirements for
the past 90 days. Yes /X/ No / /
Indicate by check mark if 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 this Form 10-K or any amendment to this
Form 10-K. /X/
The aggregate market value of the 4,309,642 shares of Voting Common Stock held
by non-affiliates of the registrant on September 15, 1997 was $80,267,082 (for
purposes of this calculation, all officers, directors and holders of more than
10% of the Voting Common Stock were assumed to be affiliates). On such date, the
closing price of the Voting Common Stock on the New York Stock Exchange, Inc.
was $18.625 per share and the number of shares of Voting Common Stock
outstanding was 6,050,200 shares.
DOCUMENTS INCORPORATED BY REFERENCE:
PART
Annual Report to Stockholders of Registrant for fiscal
year ended June 30, 1997 I, II, IV
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PART I
This Annual Report on Form 10-K contains forward looking information and
describes the beliefs of WHG Resorts & Casinos Inc. (the "Company") concerning
future business conditions and the outlook for the Company based on currently
available information. Wherever possible, the Company has identified these
forward looking statements by words such as "anticipates," "believes,"
"estimates," "expects" and similar expressions. These forward looking statements
are subject to risks and uncertainties which could cause the Company's actual
results or performance to differ materially from the those expressed in these
statements. These risks and uncertainties include the following: the financial
leverage of the El Conquistador Resort & Country Club, the minority ownership
interests in the El Conquistador and the El San Juan, operating and financing
limitations associated with debt covenants, continued availability of tourism
tax exemptions, capital requirements, potential results from changes in tax
laws, competition, reliance on a single market, seasonality, the strategy and
marketing of the hotel and casino properties, the collection of clients' casino
losses, casino gaming regulations and the competitiveness of the casinos under
the 1997 amendments to the Gaming Act (as defined herein), as well as the
outcome of certain legal proceedings to which the Company is a party. The
Company assumes no obligation to update publicly any forward looking
statements, whether as a result of new information, future events or otherwise.
Discussions containing such forward looking statements may be found in the
materials set forth under "Item 1. Business," "Item 3. Legal Proceedings" and
"Item 13. Certain Relationships and Related Transactions -- Relationship with
WMS" contained herein and in "Management's Discussion and Analysis of Financial
Condition and Results of Operations" contained in the Company's 1997 Annual
Report to Stockholders (the "1997 Annual Report").
ITEM 1. BUSINESS.
GENERAL DEVELOPMENT OF BUSINESS
WHG Resorts & Casinos Inc. was incorporated in Delaware on June 13,
l983. Registrant's principal executive offices are located at 6063 East Isla
Verde Avenue, Carolina, PR 00979. During fiscal year 1997 the Registrant,
through its subsidiaries and affiliates, was engaged in the ownership and
operation of hotels and casinos in Puerto Rico.
Distribution by WMS. Prior to April 21, 1997, the Company was a
wholly-owned subsidiary of WMS Industries Inc., a Delaware corporation ("WMS"),
the common stock of which is traded on the New York Stock Exchange. Effective
April 21, 1997 (the "Distribution Date"), WMS distributed all of the outstanding
shares of the Company's Common Stock (as defined) to its stockholders as a tax
free dividend on its common stock (the "WMS Common Stock"). Such dividend and
the transactions effected in connection therewith are referred to in this report
as the "Distribution." As a result of the Distribution, the Company became an
independent public company and its voting common stock, $.01 par value per share
("Common Stock"), is traded on the New York Stock Exchange under the symbol
"WHG."
Allocation of Cost Basis of WMS Common Stock to Common Stock of the
Company. The aggregate basis of the WMS Common Stock and the Company Common
Stock in the hands of a stockholder immediately after the Distribution is the
same as the aggregate basis of WMS Common Stock held immediately before the
Distribution. Based on the market value of each on the first day of trading
after the Distribution, 11.9454% of the cost basis is allocable to the Company
Common Stock and 88.0546% of the cost basis is allocable to the WMS Common
Stock.
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GENERAL
The Company, through its subsidiaries and affiliates as detailed below,
owns interests in three of the leading hotels and casinos in Puerto Rico -- the
Condado Plaza Hotel & Casino (the "Condado Plaza"), the El San Juan Hotel &
Casino (the "El San Juan") and the El Conquistador Resort & Country Club (the
"El Conquistador"). These three hotels and casinos are managed by Williams
Hospitality Group Inc. ("Williams Hospitality"), which is 62% owned by the
Company. In all, the Company owns interests in and manages 1,875 suites and
hotel rooms, 36,300 square feet of casino floor space containing 120 gaming
tables and 940 slot machines and approximately 146,000 square feet of convention
and meeting space. These properties also include a total of 22 restaurants, 41
shops, one showroom, three health and fitness centers, 13 tennis courts, an
18-hole championship golf course, a marina and 25 cocktail and entertainment
lounges.
The Company's hotels are each focused on different market segments: the
Condado Plaza primarily services the business traveler, the El San Juan caters
to individual vacation travelers, as well as to small groups and conferences and
corporate executives and the El Conquistador offers extensive group and
conference facilities as well as attracting the individual leisure traveler.
The El San Juan and Williams Hospitality are owned in part by the
Company and in part by unaffiliated third parties (the "Other Owners"). The
Company was formed in 1983 and in that same year, together with the Other
Owners, formed Posadas de Puerto Rico Associates, Incorporated ("PPRA") and
Williams Hospitality for the purpose of acquiring and managing the hotel and
casino property now known as the Condado Plaza. A year later, the Company,
together with the Other Owners, caused the formation of Posadas de San Juan
Associates ("PSJA") for the purpose of acquiring and managing, through Williams
Hospitality, the hotel and casino property now known as the El San Juan. In
fiscal 1997, the Company increased its ownership interest in PPRA to 100%. It
continues to hold a 62% interest in Williams Hospitality and a 50% interest in
the El San Juan. In 1990 the Company, together with the Other Owners, caused the
formation of WKA El Con Associates ("WKA") for the purpose of becoming a general
and limited partner of the El Conquistador Partnership L.P. ("El Con
Partnership"). The El Con Partnership was formed by WKA and Kumagai Caribbean,
Inc. ("Kumagai"), a subsidiary of Kumagai Gumi Co., Ltd., a large Japanese
construction company, for the purpose of acquiring and renovating the hotel and
casino property now known as the El Conquistador. The Company's interest in WKA
represents a 23.3% effective ownership interest in the El Conquistador, which is
also managed by Williams Hospitality.
In April 1993, WKA became a limited partner in Las Casitas Development
Company I, S en C (S.E.) which acquired certain land from the El Conquistador
for the purpose of developing and selling approximately 90 condominiums known as
Las Casitas Village. The project was substantially completed in or about January
1997. Almost all of the owners of the condominiums have entered into rental
arrangements with the El Conquistador pursuant to which the units are made
available as additional guest rooms of the resort. Las Casitas Village now
provides the El Conquistador with 167 additional luxury rooms.
The Company's operations are divided into two industry segments: the
Condado Plaza and Williams Hospitality. The Company's investments in the El San
Juan and the El Conquistador are accounted for in the Consolidated Financial
Statements on the equity method. See Note 15 of the Notes to the Consolidated
Financial Statements in the Company's 1997 Annual Report which information is
incorporated herein by reference.
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STRATEGY AND MARKETING
The Company's business strategy is to maximize the economic potential of
its existing properties while building on its hotel and casino expertise by
seeking other opportunities to manage and own hotels and casinos in Puerto Rico,
the Caribbean and elsewhere. The Company believes that its strengths make it an
attractive candidate to other hotel and casino owners seeking third-party
managers as well as an attractive joint venture partner for other hotel and
casino developers and owners.
The Company is constantly seeking new ways to reduce operating costs as
well as upgrade or add amenities to its hotel and casino properties to enhance
the overall experience of its guests. The lobby of the Condado Plaza was fully
renovated during fiscal year 1997 and restaurants, a nightclub and shops were
added. The El San Juan recently completed a major renovation and refurbishment
which included all of its guest rooms, guest room corridors, an additional
restaurant and public areas. The El Conquistador recently opened three new
restaurants, a nightclub and nine new retail shops.
The Company currently employs approximately 400 managers in its three
hotels and casinos. These managers provide a pool of experienced talent to the
Company for purposes of operating its existing properties as well as for future
training and expansion. In fiscal 1997, Williams Hospitality initiated a
twelve-month training program for senior managers and department heads in order
to identify the next generation of managerial leaders and insure its continued
track record of successful management of hotels and casinos in keeping with its
long-term management philosophy and commitment to excellence and service.
The Company maintains centralized reservation and purchasing systems
staffed by trained personnel. The centralized reservation system handles over
500,000 telephone inquiries per year and provides the Company the opportunity to
cross-sell its properties depending on supply and demand, guest type and various
other factors. The centralized purchasing system enables the Company to reduce
operating costs and achieve certain economies of scale so that it can more
effectively compete with larger hotel chains as well as provide its guests
first-class amenities at lower incremental costs.
The Company directs its marketing to three distinct hotel guest
customers -- the corporate-executive traveler, the individual vacation and
leisure traveler and the group and convention traveler. The Company believes the
Condado Plaza and the El San Juan are attractive to the corporate-executive
traveler because they are easily accessible from the San Juan International
Airport and from Hato Rey, San Juan's business and commercial center and include
an aggregate of 56,000 square feet of convention and meeting space. The
individual vacation traveler is attracted to all facilities by the Caribbean
climate and resort amenities including casinos, swimming pools, whirlpools and
spas, tennis, golf and water sports facilities, health clubs and entertainment
lounges. The group and convention traveler is attracted by the combination of
business and resort amenities at all facilities. Because of its emphasis on
business-related services and facilities, the Condado Plaza attracts groups and
conventions meeting to conduct business in Puerto Rico. The El San Juan, a
luxury resort hotel, attracts small groups and conferences interested in a
combination of business, recreational and social activities while in Puerto
Rico. "Blue Chip" corporate and incentive groups comprise a significant portion
of the El Conquistador's clientele in addition to appealing to the upscale
leisure traveler.
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The Company's marketing strategy includes attracting to its hotel and
casino facilities members of the local business community, residents of Puerto
Rico and vacation travelers who are staying at other hotel and lodging
accommodations. The Company believes a substantial percentage of the casino,
restaurant, nightclub and bar revenues at all facilities are from local
clientele. Local business people entertain in the hotels' restaurants and
lounges on a regular basis. Residents of Puerto Rico frequently utilize the
casinos, shops and recreational facilities. Many local social events and
receptions are held in the ballrooms and banquet facilities of the Company's
properties.
The Company's hotel and casino facilities are marketed primarily in the
United States, as well as in Canada, Mexico, Europe and South America. In
addition to its in-house marketing staff of approximately 35 employees, the
Company has a U.S. mainland exclusive marketing service with 40 employees
located primarily in Miami and New York, sales agents in South America and
Europe, as well as strategic relationships with major airlines, cruise ship
operators and travel industry partners. This combined marketing effort promotes
the hotels and casinos to tour operators, meeting planners, corporate incentive
groups, wholesale and retail travel agencies and airlines, as well as to
individuals. In addition, the marketing staff solicits casino business by
identifying and contacting individual players and through the efforts of
commissioned sales representatives. The activities of the sales force include
direct sales promotions, telephone and direct mail solicitations, participation
in trade shows and public relations.
THE CONDADO PLAZA
The Condado Plaza is owned by PPRA, which is owned 100% by the Company.
Such ownership interest was increased from 95% to 100% on April 11, 1997. The
main building of the Condado Plaza fronting the ocean was originally constructed
in 1962. The Laguna Wing was built in 1959. Acquired by the Company in 1983, the
Condado Plaza has since become one of the leading hotels in the Caribbean.
Located on the Atlantic Ocean in the Condado area of San Juan, the Condado Plaza
is a ten-minute drive from Hato Rey, the city's business and commercial center.
The Condado Plaza has 570 rooms and consists of two separate structures on a
five-acre site -- the 13-story main building, which is owned by PPRA, and the
11-story Laguna Wing, which is leased from certain of the Other Owners. The
Laguna Wing lease expires March 31, 2004 and is renewable through September 30,
2008. In fiscal 1997, the American Automobile Association awarded the Condado
Plaza a "Four Diamond" rating for the tenth consecutive year.
During the fiscal years ended June 30, 1997, 1996 and 1995, the Condado
Plaza's capital expenditures for the purchase of property, plant and equipment
were $3,181,000, $1,285,000 and $2,487,000, respectively. On September 17, 1997,
PPRA entered into an agreement with the owners and managers of The Regency Hotel
which is located adjacent to the Condado Plaza pursuant to the terms of which
PPRA would acquire the 127-room hotel and adjacent land upon the completion to
its satisfaction of its due-diligence investigation and various other
conditions.
The Condado Plaza guest accommodations are geared to the needs of
traveling executives and include "The Plaza Club," a hotel-within-a-hotel with
72 deluxe guest rooms and suites, private lounges and a specially-trained staff
providing concierge services. The Condado Plaza has an executive service center
which offers all necessary business-related services and facilities, conference
facilities which can accommodate groups of up to 1,000, seven restaurants, two
retail shops, a health and fitness center, three tennis courts and three pools
with spas.
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Most restaurants and all of the shops located in the Condado Plaza are
owned and operated by unaffiliated concessionaires which pay the Company rentals
based primarily on a percentage of their revenues. In addition, the water sports
and parking are operated as concessions.
The Condado Plaza maintained an average occupancy during the fiscal year
ended June 30, 1997 of 82.4% compared with 87.4% for the fiscal year ended June
30, 1996 and 84.5% for the fiscal year ended June 30, 1995. The 82.4% occupancy
was achieved notwithstanding the opening of several new hotels in the greater
San Juan area during recent years. Occupancy is based upon available rooms
excluding immaterial numbers of rooms under renovation or otherwise unavailable
for occupancy from time to time. Average daily room rates at the Condado Plaza
were $142.83, $138.68 and $143.73, respectively, during the fiscal years ended
June 30, 1997, 1996 and 1995.
THE EL SAN JUAN
The El San Juan is owned by PSJA, a partnership which is 50% owned by a
wholly-owned subsidiary of the Company and 50% owned by the Other Owners. The El
San Juan was originally constructed in 1958 and was acquired and substantially
renovated by the Company in 1984. The El San Juan is located in the Isla Verde
area of metropolitan San Juan on a 13-acre oceanfront site twenty-five minutes
from the shopping and historic sights of Old San Juan. The hotel now consists of
four structures of from one to nine stories and contains 388 guest rooms and
suites and conference and meeting space of 36,000 square feet with a seating
capacity of 3,000. With its marble floors, elaborate chandeliers and carved
mahogany ceilings and walls, the El San Juan was also awarded in fiscal 1997 a
"Four Diamond" rating by the American Automobile Association for the eleventh
year in a row. The El San Juan was also awarded its sixth consecutive Gold Key
Award by Meetings and Conventions Magazine which recognizes the world's best
meeting resorts as well as the Award of Excellence from Corporate & Incentive
Travel magazine for the seventh consecutive year.
During the fiscal years ended June 30, 1997, 1996 and 1995, the El San
Juan's capital expenditures for the purchase of property, plant and equipment
were $4,059,000, $2,502,000 and $3,310,000, respectively.
The El San Juan caters to individual vacation travelers, as well as to
small groups and conferences and corporate-executive travelers. The El San Juan
guest rooms and suites have luxury appointments and amenities and, in many of
the guest rooms, private balconies, whirlpools and spas. The Roof Top Health
Spa, two swimming pools, three tennis courts and beach area contribute to the
attractiveness of this property.
The El San Juan maintained an average occupancy during the fiscal year
ended June 30, 1997 of 80.6% compared with 82.3% for the fiscal year ended June
30, 1996 and 82.4% for the fiscal year ended June 30, 1995. Average daily room
rates at the El San Juan during the fiscal years ended June 30, 1997, 1996 and
1995 were $188.42, $185.30 and $184.41, respectively.
The El San Juan also features an indoor shopping arcade designed to
resemble a European village, which features 12 fashionable stores serving resort
guests and community residents. All of the stores in the El San Juan and all of
the restaurants except "La Veranda" and "Tequila Bar & Grill" are owned and
operated by unaffiliated concessionaires which pay the El San Juan rentals based
primarily on a percentage of their revenues. In addition, the watersports and
valet parking are operated as concessions.
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THE EL CONQUISTADOR
On January 12, 1990, Williams Hospitality entered into an agreement with
the El Con Partnership for the management of the El Conquistador. The El
Conquistador is 23.3% owned by a wholly-owned subsidiary of the Company, 26.7%
owned by certain of the Other Owners and 50% owned by Kumagai. The hotel was
originally built as a 388 room hotel in 1962. The El Conquistador was
substantially renovated and expanded during 1991 and 1992 with Kumagai acting as
construction manager and Williams Hospitality rendering technical development
services during the construction phase. The completed resort opened for business
in November 1993.
The El Conquistador, a world class destination resort complex, is
located at the old El Conquistador site in Las Croabas. The resort has 751 guest
rooms, an 18-hole championship golf course, a marina, seven tennis courts,
90,000 square feet of convention and meeting facilities, six lounges and
nightclubs, 12 restaurants, a 10,000 square foot casino, 25 retail shops, a
fitness center and five pool areas, all situated on a bluff overlooking the
convergence of the Atlantic Ocean and the Caribbean Sea. The El Conquistador
also features a secluded beach located on a private island three miles offshore.
In addition, the El Conquistador has available 90 condominium units known as the
Las Casitas Village. Las Casitas Village provides another 167 rooms to the
inventory of luxury rooms available to the El Conquistador bringing the total
available rooms at the resort to 918. The resort has received the prestigious
Gold Key Award by Meetings and Conventions Magazine and the Paragon Award by
Corporate Meetings and Incentives Magazine for excellence in meeting and
conventions. The American Automobile Association awarded the resort a "Four
Diamond" rating for each of its three full years of operation and recently
awarded a "Five Diamond" rating to Las Casitas Village.
During the fiscal years ended March 31, 1997, 1996 and 1995, the El
Conquistador's capital expenditures for the purchase of property and equipment
were $1,428,000, $864,000 and $3,002,000, respectively.
The El Conquistador finished its third full fiscal year ended March 31,
1997 with an average occupancy of 72.0% and gross revenues of $94,423,000. This
compares to an average occupancy of 70.9% and gross revenues of $90,351,000 for
the fiscal year ended March 31, 1996 and an average occupancy of 73.3% and gross
revenues of $85,948,000 for fiscal year ended March 31, 1995. The average daily
room rate at the El Conquistador was $202.86 for the fiscal year ended March 31,
1997 compared to $198.99 during the fiscal year ended March 31, 1996 and $188.87
during the fiscal year ended March 31, 1995.
WILLIAMS HOSPITALITY
Williams Hospitality is owned 62% by PPRA and 38% by certain of the
Other Owners and currently provides hotel and casino management services to
properties owned by the Company. It has managed the Condado Plaza since 1983,
the El San Juan since 1985 and the El Conquistador since 1993. Williams
Hospitality has management contracts with all such facilities expiring in the
years 2003 (Condado Plaza), 2005 (El San Juan) and 2013 (El Conquistador). It
earns basic management fees based on gross revenues and incentive management
fees based on gross operating profits. In fiscal 1997, Williams Hospitality
earned $7,391,000 in basic management fees and $5,327,000 in incentive
management fees from the three properties. Williams Hospitality is reimbursed
for certain administrative expenses incurred in connection with its management
of such properties and receives fees with respect to certain centralized
services being rendered for all hotel and casino properties. In addition
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to supervising the daily operations of each of the properties it manages,
Williams Hospitality supervises marketing, sales and promotions and recommends
long-term policies for the three hotels and casinos.
CASINO CREDIT POLICY
All of the Company's casinos extend credit to qualified players who
satisfy its credit review procedures. The procedures include external credit
verification and internal management level approvals.
Credit play at the Condado Plaza for the fiscal years ended June 30,
1997, 1996 and 1995, represented 35.1%, 36% and 32%, respectively, of total play
at the casino. Casino credit receivables, net of allowance for doubtful
accounts, at the Condado Plaza at each of the fiscal years ended June 30, 1997,
1996 and 1995 were $1,333,000, $464,000 and $1,330,000, respectively,
representing 3.4%, 1.2% and 3.9% of annual credit play.
Credit play at the El San Juan for the fiscal years ended June 30, 1997,
1996 and 1995 represented 52.7%, 55% and 60%, respectively, of total play at the
casino. Casino credit receivables, net of allowance for doubtful accounts, at
the El San Juan at each of the fiscal years ended June 30, 1997, 1996 and 1995
were $1,203,000, $473,000 and $2,265,000, respectively, representing 2.4%, 0.8%
and 2.9% of annual credit play.
Credit play at the El Conquistador has not been significant since its
opening in November 1993.
The credit players represent a significant portion of total play at the
El San Juan and Condado Plaza casinos and the Company believes that collection
losses have not been unusual or material to the results of operations, except
for the El San Juan casino, where the losses for fiscal 1995 were $3.7 million
compared with $4.2 million in fiscal 1994 and $2.6 million in fiscal 1993.
Gaming debts are enforceable in Puerto Rico and the majority of States in the
United States. Those States that do not enforce gaming debts will nonetheless
generally allow enforcement of a judgment obtained in a jurisdiction such as
Puerto Rico. Due to the unenforceability generally of gaming debts in Latin
America, where a significant number of the Company's players reside, procedures
have been established to obtain promissory notes from most Latin American credit
casino clients.
GOVERNMENT REGULATION AND LICENSING
The Commonwealth of Puerto Rico legalized gambling by the adoption of
Law No. 221 May 15, 1948 (the "Gaming Act"). The Office of the Commissioner of
Financial Institutions of the Commonwealth of Puerto Rico is responsible for
investigating and licensing casino owners and the Gaming Division (the "Gaming
Division") of the Tourism Development Company of Puerto Rico (the "TDC")
regulates and supervises casino operations. A government inspector must be
on-site whenever a casino is open. Among its responsibilities, the Gaming
Division licenses all casino employees and enforces regulations relating to
method of play and operation of the casino.
The casinos at the Condado Plaza, the El San Juan and the El
Conquistador are subject to strict internal controls imposed by the Company over
all facets of their operations, including the handling of cash and security
measures. Until the adoption of amendments to the Gaming Act in 1997, as
discussed below, all slot machines at these and all other casinos on the island
were owned and maintained by the Commonwealth of Puerto Rico and 34% of the
profits from the slot machines was received by the casino and the remaining 66%
was allocated to Puerto
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Rico government agencies and educational institutions. Each casino pays the
Government a franchise fee depending on total play or drop in the casino, which
ranges from $50,000 to $200,000. The Condado Plaza and the El San Juan each pay
an annual franchise fee of $200,000 and the El Conquistador pays an annual
franchise fee of $150,000 in quarterly installments. Each casino is required to
renew its franchise quarterly; and, unless a change of ownership of the
franchisee has occurred or the gaming authorities have reason to believe that
reinvestigation of the franchisee is necessary, renewal is generally automatic.
The hotels and casinos are also subject to various local laws and
regulations affecting their business, including provisions relating to fire
safety, sanitation, health and the sale of alcoholic beverages.
In recent years, the Legislature of Puerto Rico liberalized its gaming
laws. The amendments adopted to the Gaming Act in 1996 (the "1996 Law") approved
a variety of new table games, increased table maximum bets, provided flexibility
in the acquisition and regulation of new table games, authorized the acquisition
by the TDC of approximately 1,600 new slot machines and increased the ratio of
slot machines to table games permitted in a casino from 1:1 to 1.5:1. In fiscal
1997, the TDC added 44 new slot machines and replaced 270 of the older slot
machines in the Company's casinos. As permitted by the 1996 Law, the Condado
Plaza and El San Juan increased their table maximums in order to entice higher
stakes gamblers and introduced Caribbean Stud Poker and Let It Ride.
The amendments adopted to the Gaming Act in 1997 (the "1997 Law")
authorize owners of hotels -- which possess a casino gaming franchise and are
licensed to operate slot machines located within their casinos -- to acquire the
slot machines currently in their casinos as well as new slot machines for use in
their casinos. In order to acquire new slot machines, the casino owner is
required: to purchase from the TDC at book value or assume the lease of the slot
machines currently in its casino, to assume all other obligations of the TDC
relating to those slot machines, to offer employment (under specified
conditions) to the attendants and slot machine technicians employed by the TDC
in their casino, and to provide evidence to the TDC that all suppliers of
slot-machine-related services to their casino are duly licensed. The 1997 Law
increases the ratio of slot machines to table games (up to 6 slot machines are
now permitted for every position at gaming tables located in the casino if the
casino owns or leases its slot machines) and authorizes the installation of $5
and $25 slot machines in the casino. Rules relating to hours of operation,
service of liquor and the conduct of entertainment within the casino were also
liberalized by the 1997 Law and are now similar to those of other major gaming
jurisdictions in the United States. Under the 1997 Law, the TDC is now
responsible for the licensing of slot machine producers, sellers, distributors,
technicians and attendants, the types of slot machines that may be acquired and
operated by a casino and the requirements pursuant to which producers, sellers
and distributors may sell or lease slot machines to a casino.
The distribution of the net annual income per casino slot machine (as
determined pursuant to a specified formula)("NAI") was also changed by the 1997
Law. For the TDC fiscal years ended June 30, 1998, 1999 and 2000, the TDC is
entitled to 66% and the casino owner is entitled to 34% of the casino's NAI up
to the amount of slot machine revenue (as adjusted pursuant to the 1997 Law)
received by the TDC from that casino for its 1997 fiscal year ("Base Period
Income"). Thereafter, the TDC is entitled to 90% of the excess over Base Period
Income ("Excess") and the casino owner is entitled to 10% of the Excess,
provided, if the Excess is greater than $30.0 million, the casino owner is then
entitled to 60% of the amount over $30.0 million and the TDC is entitled to 40%
of the
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amount over $30.0 million. For the TDC fiscal year ending June 30, 2001 and
thereafter, the TDC is entitled to 66% of the Base Period Income and 40% of the
Excess and the casino owner is entitled to 34% of Base Period Income and 60% of
the Excess.
The Company's casinos expect to take full advantage of these changes
which they believe will enable them to be much more competitive with other
gaming jurisdictions in the Caribbean as well as the new casinos opening in
Puerto Rico.
SEASONALITY
Tourism in Puerto Rico is at its peak during the months of December
through April. Most hotels, in spite of reducing their room rates during the
off-season months, experience decreased occupancy and lower revenues. By
attracting business travelers and residents of Puerto Rico on a year-round
basis, the Condado Plaza has reduced, to some extent, the seasonality of its
operations. The El San Juan and the El Conquistador expect that group business
developed during the off- and shoulder-seasons will reduce the effect of
seasonality.
Seasonal fluctuations in the tourism industry do not have as much of an
effect on the Condado Plaza as they have on other Caribbean hotels since
approximately 40% of the Condado Plaza's accommodations are booked by business
travelers. As a result, the Condado Plaza's monthly occupancy for the fiscal
year ended June 30, 1997 ranged from 68.9% to 89% with an average occupancy of
82.4%. The in-season average occupancy figure for December 1996 to April 1997
was 83.7% compared to 88.6% and 87.6% for such period in the fiscal years 1996
and 1995, respectively. The Condado Plaza, like other Caribbean hotels, reduces
its rates during the off-season months but, unlike many other Caribbean hotels,
occupancy remains at relatively high levels.
During the fiscal year ended June 30, 1997, the El San Juan's monthly
occupancy ranged from 52.8% to 91.2%, with an average occupancy of 80.6%. The
in-season average occupancy figure for December 1996 to April 1997 was 84.7%
compared to 85.8% and 88.3% for such period in the fiscal years 1996 and 1995,
respectively.
The El Conquistador's monthly occupancy during its fiscal year ended
March 31, 1997 ranged from 47.1% to 89.6%, with an average occupancy of 72.0%.
The in-season average occupancy figure for December 1996 to April 1997 was 79.8%
compared to 77.1% and 80.8% for such period in the fiscal years 1996 and 1995,
respectively.
COMPETITION
The hotel and casino business in the Caribbean region is highly
competitive. The Company's facilities compete with each other and with numerous
hotels and resorts on the island of Puerto Rico (including 16 other hotels and
resorts with casinos) and on other Caribbean islands and in the southeastern
United States and Mexico. The Company competes with such chains as Hyatt,
Marriott, Hilton, Embassy Suites, Holiday Inn and Westin as well as numerous
other hotel and resort chains and local hotel and motel operators. The Company
also competes for hotel and casino customers to a lesser extent with the Nevada
and New Jersey hotels and casinos as well as other casinos now operating in the
United States. The principal methods of competition for casino players include
maintaining promotional allowance packages that are comparable to other casinos
and providing outstanding service to players in the hotel and casino. The
promotional allowance package will vary depending upon the size of the play and
may include reduced or complimentary hotel and restaurant charges and air
10
<PAGE> 11
fares. Some of these competing properties are owned or managed by hotel
companies possessing substantially greater financial and marketing resources
than those of the Company.
At June 30, 1997, there were 25 hotels in the San Juan area designated
as "tourist hotels" by the Tourism Company of Puerto Rico offering a total of
approximately 5,205 rooms, of which only 10 hotels offered more than 200 rooms;
approximately 3,210 additional rooms were offered in 21 tourist hotels elsewhere
on the island of Puerto Rico. The island also has numerous commercial hotels and
guest houses. Approximately 31 cruise ships operate out of Puerto Rico in the
winter. Currently, 20 ships include San Juan as a port of call while 17 ships
have made San Juan their home base.
The Company believes that Puerto Rico offers many advantages over
geographical areas in which competing properties are located. Unlike most other
Caribbean islands, Puerto Rico is served by many direct air flights from the
continental United States and has a highly developed economy and a well-educated
population. Moreover, Puerto Rico is a Commonwealth of the United States,
freeing mainland visitors from concerns about foreign currencies or customs and
immigration laws. Unlike resort areas in the southeastern United States, Puerto
Rico enjoys a mild subtropical climate throughout the year and offers legalized
gambling.
EMPLOYEES
The Condado Plaza employs approximately 840 persons, 570 of whom are
represented by two labor unions (410 employees belong to the hotel union and 160
employees belong to the casino union). The Condado Plaza's contract with the
Hotel and Restaurant Employees International Union expired August 31, 1997 and
negotiations with respect to a new contract are currently being conducted. The
Condado Plaza's contract with the Puerto Rico Association of Casino Employees
expires May 31, 1999.
The El San Juan employs approximately 822 persons of which 225 are
casino employees. The Teamsters Union was certified by the National Labor
Relations Board on May 12, 1995 to represent the 93 non-managerial casino
employees and a contract was signed on May 31, 1996 and expires May 31, 1999.
The El Conquistador employs approximately 1,490 persons of which 120 are
casino employees. Williams Hospitality employs approximately 57 persons,
including the executive office staff and the reservation staffs for all
operations. None of the Company's employees at the El Conquistador or Williams
Hospitality are represented by a labor union.
The number of persons employed by the Company varies from season to
season and is at its highest during the high season when occupancy is at its
highest. The Company considers its current relationships with all employees,
union and non-union, to be satisfactory.
11
<PAGE> 12
ITEM 2. PROPERTIES
The Company owns interests in and manages 1,875 suites and hotel rooms,
36,300 square feet of casino floor space containing 120 gaming tables and 940
slot machines and approximately 146,000 square feet of convention and meeting
space. These properties also include a total of 22 restaurants, 41 shops, one
showroom, three health and fitness centers, 13 tennis courts, 25 cocktail and
entertainment lounges, an 18-hole championship golf course and a marina.
The following table sets forth, with respect to the Company's principal
properties, the location, principal use, approximate floor space and the annual
rental and lease expiration date, where leased, or encumbrances at June 30,
1997.
Management believes that all of the facilities listed in the following
table are in good repair and are adequate for their respective purposes. The
Company owns substantially all of the machinery, equipment, furnishings, goods
and fixtures used in its businesses, all of which are well maintained and
satisfactory for the purposes intended. The Company's personal property utilized
in the Condado Plaza, the El San Juan and the El Conquistador operations is
subject to security interests.
<TABLE>
<CAPTION> OWNERSHIP
APPROXIMATE INTEREST/ EXP.
LOCATION PRINCIPAL USE SQUARE FEET ANNUAL RENT DATE ENCUMBRANCES
<S> <C> <C> <C> <C> <C>
Las Croabas, PR El Conquistador 854,000 23.3% Owned -- (1)
Resort by Company
San Juan, PR Condado Plaza 136,081 100% Owned -- (2)
Hotel/Casino by Company
San Juan, PR Condado Plaza 60,500 $684,000(3) 03/31/04 (2)
Laguna Wing
San Juan, PR Condado Plaza 28,611 100% Owned -- (4)
Parking Lots by Company
San Juan, PR Condado Plaza 8,343 100% Owned -- (4)
Parking Lot by Company
Carolina, PR El San Juan 162,500 50% Owned -- (5)
Hotel/Casino by Company
Carolina, PR El San Juan 10,663 62% Owned -- (4)
Parking Lot by Company
Carolina, PR El San Juan 210,000 $150,000 11/16/02 --
Parking Lot
Carolina, PR Williams 10,000 62% Owned -- (6)
Hospitality by Company
Admin. Offices
</TABLE>
- -------------------
(1) Subject to a first mortgage lien in the amount of $146,612,000
securing: (i) a $120,000,000 loan from the Puerto Rico Industrial,
Medical Educational and Environmental Pollution Control Facilities
Financing Authority; (ii) a $120,000,000 letter of credit issued by
12
<PAGE> 13
The Mitsubishi Bank, Limited, now known as The Bank of
Tokyo-Mitsubishi, Ltd., which serves as collateral for the loan
referred to in (i) above; and (iii) termination liability up to
$20,000,000 under an Interest Rate Swap Agreement with respect to
interest due on the loan referred to in (i) above; subject to a second
mortgage lien securing a $25,000,000 loan from the Government
Development Bank ("GDB"); subject to a third mortgage lien securing a
$6,000,000 revolving credit facility from the GDB; and subject to a
fourth mortgage lien in the amount of $6,000,000 securing interest due
under an $8,000,000 loan from the GDB to the partners of the El
Conquistador, the proceeds of which were loaned to the El Conquistador.
(2) Subject to mortgage liens to secure a loan in the original principal
amount of $35,500,000 from Scotiabank de Puerto Rico under the terms of
an Operating Credit and Term Loan Agreement dated August 30, 1988, as
amended.
(3) Annual rent of $684,000 is fixed through September 30, 1998;
thereafter, $752,000 to September 30, 2003 and $827,000 to March 31,
2004. The Company has an option to renew the lease for an additional
four and one half years, expiring on September 30, 2008.
(4) Subject to a mortgage in favor of the GDB to secure a $4,000,000 loan
to WKA, the proceeds of which were loaned to the El Conquistador.
(5) Subject to a first mortgage lien to secure a loan in the original
principal amount of $34,000,000 from The Bank of Nova Scotia under the
terms of a Credit Agreement dated as of January 20, 1993.
(6) Subject to a first mortgage lien to secure a loan in the original
principal amount of $800,000 from Scotiabank de Puerto Rico.
The El Conquistador is situated on approximately 220 acres in Las Croabas,
Puerto Rico. The Company owns approximately 42 additional acres of land in the
vicinity of the El Conquistador which have various uses including employee
parking facilities for the El Conquistador. The Company, through, ESJ Hotel
Corporation also owns approximately 150 acres of vacant land adjacent to the El
Conquistador.
ITEM 3. LEGAL PROCEEDINGS
In July 1993, Chung Lung, Inc. and its owner Wei-YangLi (collectively "Chung
Lung"), which operated the Lotus Flower Restaurant at the Condado Plaza,
instituted a declaratory judgment action against PPRA and Williams Hospitality
before the Puerto Rico Superior Court, San Juan Part. The action sought a
declaration as to the rights and obligations of the parties under the concession
agreement pursuant to which the restaurant was operating. In a related case,
Chung Lung claimed damages in the amount of $87,858.50, plus interest, costs and
attorney's fees. Williams Hospitality and PPRA have filed a counterclaim in this
case seeking damages of $1,000 per day from October 1, 1993. All parties base
their claims for damages on alleged breaches of the concession agreement. Both
cases were consolidated with PPRA's case for eviction of Chung Lung from the
Condado Plaza premises. On May 15, 1995, the parties agreed to a temporary
settlement, endorsed by the Court, in which they would maintain the prevailing
working conditions until January 15, 1996, at which time Chung Lung would either
continue the relationship with the Condado Plaza for a new term of 10 years, or
proceed with the litigation. On January 10, 1996, Chung Lung informed the Court
that it had decided to continue with the litigation and was ceasing operations
at the
13
<PAGE> 14
Condado Plaza. Both parties amended their respective pleadings in the case to
increase their claims for damages. Chung Lung is now claiming $3,250,000, and
PPRA is claiming in excess of $1,000,000. The Court divided the case into two
parts. The first involves the issue of whether Chung Lung had the right to
remain in the premises after the contract term had expired. If the Court decides
that Chung Lung had such right, the case will enter a second phase for the
determination of damages in favor of Chung Lung. Trial on the first phase was
held in April 1997 and the parties are presently awaiting the Court's decision.
On November 8, 1996, Gaucho Tourism Adventure S.E. ("Gaucho"), a restaurant
concessionaire at the El Conquistador, instituted an action before the Fajardo
Superior Court in Humacao, Puerto Rico against El Conquistador Partnership L.P.
and Williams Hospitality ("El Con/Williams") alleging that El Con/Williams
deceived Gaucho prior to entering into the concession agreement by making
representations which were not later honored. Gaucho also alleges that El
Con/Williams sought to eliminate Gaucho's competition in violation of Federal
and local antitrust laws. Gaucho claims damages of $3,000,000, as well as
injunctive relief. El Con/Williams have answered the complaint, filed an
opposition to Gaucho's request for equitable relief, filed a counterclaim
against Gaucho and requested its eviction. The Court has denied Gaucho's request
for preliminary injunction.
In May 1997, Homero San Antonio Mendoza, Magda Rosario and Eduardo
Bidot Gonzalez filed an action in the United States District Court for the
District of Puerto Rico against WMS Industries Inc., Williams Hospitality, PPRA,
Stuart C. Levene, Louis Nicastro and Brian Gamache. The plaintiffs, former
employees at the Condado Plaza, allege age discrimination, infringement of
Puerto Rico's Minimum Wage Act and defamation and libel and seek actual damages
of $6,000,000; their back pay and benefits in excess of $341,737; loss of income
of not less than $3,696,645; emotional and mental suffering of $200,000 arising
from the alleged libel and defamation of plaintiffs and seek reinstatement.
Plaintiffs claim they are entitled to double the foregoing damages under Puerto
Rico's Antidiscrimination Statute. None of the defendants have as yet been
served with the Complaint, however, the Court has already dismissed the
complaint as to the individuals named as defendants.
Other than set forth above, the Company currently and from time to time is
involved in litigation incidental to the conduct of its business. The Company is
not currently a party to any lawsuit or proceeding which, in the opinion of the
Company, is likely to have a material adverse effect on the Company including
those described above.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
PART II
ITEM 5. MARKET FOR THE COMPANY'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS.
Reference is made to "Market for the Company's Common Stock and Related
Security-Holder Matters" set forth in the 1997 Annual Report, which information
is incorporated by reference herein.
14
<PAGE> 15
ITEM 6. SELECTED FINANCIAL DATA.
Reference is made to "Selected Financial Data" set forth in the 1997 Annual
Report, which information is incorporated by reference herein.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.
Reference is made to "Management's Discussion and Analysis of Financial
Condition and Results of Operations" set forth in the 1997 Annual Report, which
information is incorporated by reference herein.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK.
Not Applicable.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Reference is made to the Consolidated Financial Statements and Notes
thereto and Report of Independent Auditors set forth in the 1997 Annual Report,
which information is incorporated by reference herein.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not Applicable.
15
<PAGE> 16
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
(a) Identification of Directors. The directors listed in the following
table were elected to serve until the following Annual Meetings of Stockholders:
Class I Directors - year 2000 Annual Meeting; Class II Directors - year 1999
Annual Meeting; and Class III Directors - year 1998 Annual Meeting and until
their respective successors are duly elected and qualify. All are at present
directors of the Company. There is no family relationship between any of the
directors or executive officers of the Company.
IDENTIFICATION OF DIRECTORS
<TABLE>
<CAPTION>
Shares of
Common Stock Percentage
Position With Director Deemed to be Of
Company and of the Beneficially Outstanding
Principal Occupation Company Owned Common
Director (Age) As of 9/15/97 Since 9/15/97(1) Stock (2)
- -------------- ------------- ----- ---------- ----------
<S> <C> <C> <C> <C>
CLASS I DIRECTORS
Louis J. Nicastro (69) Chairman of the Board of 1983 1,651,158(3) 21.4%
Directors and
Chief Executive Officer
George R. Baker (67) Vice Chairman of the Board 1997 92,550(4) 1.5%
of Directors
CLASS II DIRECTORS
Brian R. Gamache (40) President, Chief Operating 1997 150,000(5) 2.4%
Officer and Director
David M. Satz, Jr. (71) Director and 1997 21,000(6) *
Attorney, Saiber
Schlesinger Satz &
Goldstein
CLASS III DIRECTORS
Joseph A. Lamendella (60) Director and 1997 20,025(7) *
Attorney Lamendella &
Daniel, P.C.
Barbara M. Norman (59) Vice President, Secretary, 1997 28,775(8) *
General Counsel and Director
</TABLE>
- ---------------------------
* Less than 1% of the number of outstanding shares of Common Stock on
September 15, 1997.
(1) Pursuant to Rule 13d-3(d)(1) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), shares underlying options are deemed to be
beneficially owned if the holder of the option has the right to acquire
beneficial ownership of such shares within 60 days.
(2) For purposes of calculating the percentage of outstanding Common Stock
owned, shares issuable upon the exercise of options within 60 days have
been deemed to be outstanding.
16
<PAGE> 17
(3) Includes certain shares of Common Stock which Mr. Nicastro is deemed
to beneficially own. See footnote (4) under "Item 12. Security
Ownership of Certain Beneficial Owners and Management."
(4) Includes 87,000 shares of Common Stock which Mr. Baker has the right
to acquire upon the exercise of stock options.
(5) Includes 150,000 shares of Common Stock which Mr. Gamache has the
right to acquire upon the exercise of stock options.
(6) Includes 20,000 shares of Common Stock which Mr. Satz has the right
to acquire upon the exercise of stock options.
(7) Includes 20,000 shares of Common Stock which Mr. Lamendella has the
right to acquire upon the exercise of stock options.
(8) Includes 25,000 shares of Common Stock which Ms. Norman has the
right to acquire upon the exercise of stock options.
LOUIS J. NICASTRO, 69, is the Chairman of the Board and Chief
Executive Officer of the Company. Mr. Nicastro has been Chairman of the
Board and Chief Executive Officer of the Company since 1983. Mr. Nicastro
has also been a Director and has held various executive positions at the
Company's subsidiaries since their respective formations. Mr. Nicastro
served as Chairman of the Board of Directors of WMS since its
incorporation in 1974 and currently holds such position. He served WMS as
Co-Chief Executive Officer (1994-1996), Chief Executive Officer
(1974-1994), President (1985-1988 and 1990-1991) and Chief Operating
Officer (1985-1986). Mr. Nicastro also serves as a director of Midway
Games Inc., approximately 87% of which is owned by WMS.
GEORGE R. BAKER, 67, is the Vice Chairman of the Board of the
Company. Mr. Baker has served in that position since April 21, 1997. He
also served as Secretary of the Company from April 21, 1997 to June 16,
1997. Mr. Baker has also been a Director of Williams Hospitality since
1983. He served as a private consultant to and director of WMS (1983-
1997), a general partner of Barrington Limited Partners (private
investment partnership) (1985-1986), a special limited partner of Bear,
Stearns & Co., Inc. (investment banking) (1983-1985) and an Executive Vice
President of Continental Bank N.A. (1951-1982). Mr. Baker is also a
director of The Midland Co., Reliance Group Holdings, Inc., Reliance
Insurance Co. and W.W. Grainger, Inc.
BRIAN R. GAMACHE, 40, is the President and Chief Operating Officer of
the Company. Mr. Gamache has served in that position since April 21, 1997. Mr.
Gamache has also been President and Chief Operating Officer of Williams
Hospitality since March 1996 and President of the El Conquistador since May
1995. He has also served as Vice President -- Sales and Marketing of Williams
Hospitality (September 1990-May 1995). Prior to joining the Company, Mr. Gamache
held various positions for Hyatt Hotels Corp. (1983-1990), including Corporate
Director of Sales and Marketing -- Resorts (1987-1990) and he held various
positions at Marriott Hotels Corporation (1980-1983), including Director of
Sales at the Marriott Camelback Resort and Country Club in Scottsdale, Arizona.
DAVID M. SATZ, JR., 71, has been a member of the law firm of Saiber
Schlesinger Satz & Goldstein, Newark, New Jersey, for in excess of five years.
Mr. Satz is also a director of the Atlantic City Racing Association.
17
<PAGE> 18
JOSEPH A. LAMENDELLA, 60, has been a member of the law firm of
Lamendella & Daniel, P.C., Chicago, Illinois, for in excess of five years.
BARBARA M. NORMAN, 59, is the Vice President, Secretary and General
Counsel of the Company and certain of its subsidiaries. Ms. Norman has served
the Company and its subsidiaries in those positions during the periods 1986-1990
and 1992 to April 21, 1997. She served as Vice President, Secretary and General
Counsel of WMS and its subsidiaries during the periods 1986-1990 and 1992 to
June 16, 1997. During the period 1990-1992, Ms. Norman was associated with the
law firm Whitman & Ransom, New York, New York.
The Board of Directors has two standing committees: an Audit Committee
and a Compensation Committee.
The Audit Committee is comprised of directors who are not employees of
the Company or any of its subsidiaries. The Audit Committee meets at least twice
a year with the Company's independent auditors, management representatives and
internal auditors. The Audit Committee recommends to the Company Board the
appointment of independent auditors, approves the scope of audits and other
services to be performed by the independent and internal auditors, considers
whether the performance of any professional services by the independent auditors
other than services provided in connection with the audit function could impair
the independence of the independent auditors and reviews the results of internal
and external audits and the accounting principles applied in financial reporting
and financial and operational controls. The independent auditors and internal
auditors will have unrestricted access to the Audit Committee and vice versa.
The members of the Audit Committee are Messrs. Satz (Chairman) and Lamendella.
The Compensation Committee is comprised of directors who are not
employees of the Company or any of its subsidiaries. The Compensation
Committee's functions include recommendations on policies and procedures
relating to senior executive officers' compensation and various employee stock
option and other benefit plans as well as approval of individual salary
adjustments and stock awards in those areas. The members of the Compensation
Committee are Messrs. Lamendella (Chairman) and Satz.
(b) Identification of Executive Officers. The following table sets forth
certain information concerning the persons who serve as executive officers of
the Company. Each such person has been elected to the indicated office to serve
until the 1998 annual meeting of the Board of Directors and serves at the
pleasure of the Board. See also "Item 11. Executive Compensation--Employment
Agreements" with respect to the term of each officer's employment with the
Company.
<TABLE>
<CAPTION>
NAME AGE POSITION WITH THE COMPANY
---- --- -------------------------
<S> <C> <C>
Louis J. Nicastro 69 Chairman of the Board and Chief Executive
Officer
George R. Baker 67 Vice Chairman of the Board
Brian R. Gamache 40 President and Chief Operating Officer
Richard F. Johnson 51 Chief Financial Officer and Treasurer
Barbara M. Norman 59 Vice President, Secretary and General
Counsel
</TABLE>
18
<PAGE> 19
For a description of the business experience of Messrs. Nicastro,
Baker and Gamache and Ms. Norman, see "Item 10 (a) -- Identification of
Directors."
RICHARD F. JOHNSON, 51, is Chief Financial Officer and Treasurer of the
Company. Prior to joining the Company in March 1997, Mr. Johnson was Chief
Financial Officer of Millamax, Inc. (October 1995-February 1997), Chief
Financial Officer of Sun International Bahamas Limited (March 1994-September
1995), Vice President-Finance of Great Bay Hotel & Casino Corporation (June
1993-March 1994), Vice President-Finance of Loews Hotels, Inc. (February
1983-May 1992) and he held various positions for Caesars World, Inc. (February
1975-February 1983), including Vice President-Finance for Caesars Tahoe, Inc.
(February 1980-February 1983). From May 1992 until June 1993 Mr. Johnson was a
private hotel consultant. He also was associated with KPMG Peat Marwick for
approximately seven years and is a certified public accountant.
ITEM 11. EXECUTIVE COMPENSATION.
The Summary Compensation Table below sets forth the cash compensation
paid during the past three fiscal years by WMS and/or its subsidiaries and
amounts paid since April 21, 1997 by the Company and/or its subsidiaries since
for service in all capacities to each of the Company's executive officers who
served during such periods and whose compensation exceeded $100,000. Mr. George
Baker, Vice Chairman of the Board, commenced his employment with the Company on
April 21, 1997 and, therefore, is not included in the Summary Compensation
Table. Mr. Richard F. Johnson, Chief Financial Officer and Treasurer of the
Company, commenced his employment with the Company in March 1, 1997 and,
therefore, is not included in the Summary Compensation Table. For a description
of the compensation arrangements of certain of these individuals by the Company,
see "Employment Agreements" below.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long Term
Annual Compensation Compensation Awards
----------------------------- -------------------
Name and Principal Securities
Position with Underlying All Other
with the Company Year Salary ($) Bonus ($) Options (#) Compensation ($)
- ---------------- ---- ---------- ------- ----------- ----------------
<S> <C> <C> <C> <C> <C>
Louis J. Nicastro, 1997 422,500(1) 219,200 150,000 ----
Chairman of the Board & 1996 832,500 --- ---- 629,971(2)
Chief Executive Officer 1995 682,500 300,000 ---- 409,784(2)
Brian R. Gamache, 1997 350,000 100,000 150,000 ----
President and Chief 1996 290,000 75,000 ---- ----
Operating Officer 1995 280,000 50,000 ---- ----
Barbara M. Norman 1997 175,000 50,000 25,000 ----
Vice President, Secretary 1996 157,500 27,200 ---- ----
& General Counsel 1995 150,000 27,200 ---- ----
</TABLE>
- ------------------------------
(1) Includes Directors fees for services as a Director of Williams
Hospitality.
(2) Amounts shown include accrual for contractual retirement for Mr.
Nicastro.
19
<PAGE> 20
The following table sets forth certain information with respect to
options to purchase Common Stock granted under the Company's Stock Option Plan
to persons who served as executive officers of the Company during fiscal year
1997.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE VALUE
AT ASSUMED ANNUAL RATES OF
STOCK PRICE APPRECIATION FOR
INDIVIDUAL GRANTS OPTION TERM (1)
---------------------------------------------------------------- ---------------
NUMBER OF
SECURITIES PERCENT OF TOTAL
UNDERLYING OPTIONS GRANTED EXERCISE
OPTIONS TO EMPLOYEES IN PRICE EXPIRATION
NAME GRANTED (#) FISCAL YEAR (%) ($/SHARE) DATE 5% ($) 10% ($)
- ---- ----------- --------------- --------- ---------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
George R. Baker 87,000 9.7 8.375 4/21/07 458,228 1,161,241
Brian R. Gamache 150,000 16.8 8.375 4/21/07 479,049 2,002,139
Richard F. Johnson 84,000 9.4 8.375 4/21/07 442,427 1,121,198
Louis J. Nicastro 150,000 16.8 8.375 4/21/07 709,049 2,002,139
Barbara M. Norman 25,000 2.8 8.375 4/21/07 131,675 333,690
</TABLE>
- ----------------------
(1) The assumed appreciation rates are set pursuant to the rules and
regulations promulgated under the Exchange Act, and are not derived
from the historical or projected prices of the Company's Common Stock
or results of operations or financial conditions and they should not be
viewed as a prediction of possible prices for the Common Stock in the
future. Total potential stock price appreciation from April 21, 1997
to April 21, 2007 for all stockholders based on the price of $8.375 per
share of Common Stock on April 21, 1997 and a total of 6,050,200 shares
of Common Stock outstanding would be $31,885,383 and $80,803,820 at
assumed rates of stock appreciation of 5% and 10%, respectively.
20
<PAGE> 21
AGGREGATED STOCK OPTION EXERCISES AND YEAR-END VALUES
The table below sets forth, on an aggregated basis, information regarding
the exercise during the 1997 fiscal year of options to purchase shares of the
Company's Common Stock by each of the persons listed on the Summary Compensation
Table above and the value on June 30, 1997 of all unexercised options held by
such individuals.
AGGREGATED STOCK OPTION EXERCISES IN
LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING IN-THE-MONEY
OPTIONS AT FISCAL OPTIONS AT FISCAL
SHARES YEAR-END (#) YEAR-END ($)
ACQUIRED VALUE EXERCISABLE (E) EXERCISABLE (E)
NAME ON EXERCISE (#) REALIZED ($) UNEXERCISABLE (U) UNEXERCISABLE (U)
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Louis J. Nicastro --- --- 150,000(E) 375,000(E)
Brian R. Gamache --- --- 150,000(E) 375,000(E)
Barbara M. Norman --- --- 25,000(E) 62,500(E)
</TABLE>
COMPENSATION OF DIRECTORS
The Company pays a fee of $25,000 per annum to each Director who is not an
employee of the Company or any of its subsidiaries. Each such Director who
serves as the Chairman of any committee of the Company Board will receive a
further fee of $5,000 per annum for his services in such capacity. Individuals
who serve as Directors of Williams Hospitality, other than Brian R. Gamache, are
paid an annual fee of $22,500.
The Company's Stock Option Plan (the "Plan") provides for the issuance of
shares of Common Stock of the Company pursuant to stock options which may be
granted to officers, directors, employees and certain consultants and advisers
to the Company and its subsidiaries at not less than 85% of the fair market
value of the shares of Company Common Stock on the date of grant or, in the case
of incentive stock options, at not less than 100% of the fair market value of
the shares of Company Common Stock on the date of grant. Upon adoption of the
Plan, directors and the executive officers listed in the Summary Compensation
Table above were granted options to purchase shares of the Company's Common
Stock at an exercise price of $8.375 as set forth in the footnotes to "Item 10.
(a) Identification of Directors."
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During the last fiscal year, Mr. Joseph A. Lamendella served as Chairman of
the Company's Compensation Committee and Mr. David M. Satz, Jr., served as the
sole additional member, neither of whom are employees or officers of the Company
or any of its subsidiaries or had any relationship requiring disclosure herein
by the Company.
21
<PAGE> 22
EMPLOYMENT AGREEMENTS
LOUIS J. NICASTRO. Mr. Nicastro entered into an employment agreement with
the Company dated as of April 21, 1997 pursuant to which he serves as Chairman
of the Board and Chief Executive Officer of the Company for a term of five years
with an annual base salary of not less than $400,000 per annum, plus bonus
compensation in an amount equal to two percent of the pre-tax income of the
Company. Mr. Nicastro is also entitled to participate in the Company's employee
benefit plans for which he is eligible and which are made available to other
executive officers of the Company. Mr. Nicastro has agreed not to engage in any
competitive business with the Company during the term of the agreement and for
one year thereafter. The employment agreement is terminable at the election of
Mr. Nicastro upon the occurrence without his consent or acquiescence of any one
or more of the following events: (i) the placement of Mr. Nicastro in a position
of lesser stature or the assignment to Mr. Nicastro of duties, performance
requirements or working conditions significantly different from or at a variance
with those presently in effect; (ii) the treatment of Mr. Nicastro in a manner
which is in derogation of his status as a senior executive; (iii) the cessation
of service of Mr. Nicastro as a member of the Board; (iv) the discontinuance or
reduction of amounts payable or personal benefits available to Mr. Nicastro
pursuant to such agreement; or (v) the requirement that Mr. Nicastro work
outside his agreed-upon metropolitan area. In any such event, and in the event
the Company is deemed to have wrongfully terminated Mr. Nicastro's employment
agreement under the terms thereof, the Company is obligated (a) to make a lump
sum payment to Mr. Nicastro equal in amount to the sum of the aggregate base
salary during the remaining term of his employment agreement and the bonus
(assuming pre-tax income of the Company during the remainder of the term of the
employment agreement is earned at the highest level achieved in either of the
last two full fiscal years prior to such termination) and (b) to purchase at the
election of Mr. Nicastro all stock options held by him with respect to Company
Common Stock at a price equal to the spread between the option price and the
fair market price of such stock as defined in the agreement. The employment
agreement is also terminable at the election of Mr. Nicastro if individuals
constituting the Company Board, or successors approved by such Company Board
members, cease for any reason to constitute at least a majority of the Company
Board. Upon such an event, the Company may be required to purchase the stock
options held by Mr. Nicastro and make payments similar to those described above.
Mr. Nicastro also receives additional compensation of $22,500 per annum for his
services as a Director of Williams Hospitality.
In connection with the Distribution, the Board of Directors of WMS
requested Mr. Nicastro, and Mr. Nicastro agreed, to become the Chairman of the
Board and Chief Executive Officer of the Company and to relinquish his position
as Co-Chief Executive Officer of WMS. Effective July 1, 1996, Mr. Nicastro also
agreed to the early termination and full settlement of his employment agreement
with WMS. Pursuant to the terms of his agreement with WMS, in lieu of all future
payments of base salary, bonus, retirement and death benefits, Mr. Nicastro
received from WMS a lump sum payment of $9,125,000, with interest from July 1,
1996.
GEORGE R. BAKER. Mr. Baker entered into a three-year employment agreement
with the Company dated April 21, 1997 pursuant to which he serves as a Vice
Chairman of the Board of Directors of the Company and as a Director of Williams
Hospitality. The agreement provides for an annual base salary of not less than
$100,000. The Company has agreed
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<PAGE> 23
that Mr. Baker may engage in other activities which may command his full-time
and attention and that it is anticipated that he will not be required to render
services for more than 20 hours per month. Mr. Baker is also entitled to
participate in the Company's employee benefit plans for which he is eligible and
which are made available to other executive officers of the Company. The
employment agreement is terminable at the election of Mr. Baker upon the
occurrence without his consent or acquiescence of any one or more of the
following events: (i) the placement of Mr. Baker in a position of lesser stature
or the assignment to Mr. Baker of duties, performance requirements or working
conditions significantly different from or at a variance with those presently in
effect; (ii) the treatment of Mr. Baker in a manner which is in derogation of
his status as a senior executive; (iii) the cessation of service of Mr. Baker as
a member of the Company Board; or (iv) the discontinuance or reduction of
amounts payable or personal benefits available to Mr. Baker pursuant to such
agreement. In any such event, and in the event the Company is deemed to have
wrongfully terminated Mr. Baker's employment agreement under the terms thereof,
the Company is obligated (a) to make a lump sum payment to Mr. Baker equal in
amount to the sum of the aggregate base salary during the remaining term of his
employment agreement and (b) to purchase at the election of Mr. Baker all stock
options held by him with respect to Company Common Stock at a price equal to the
spread between the option price and the fair market price of such stock as
defined in the agreement. The employment agreement is also terminable at the
election of Mr. Baker if individuals constituting the Company Board, or
successors approved by such Company Board members, cease for any reason to
constitute at least a majority of the Company Board. Upon such an event, the
Company may be required to purchase the stock options held by Mr. Baker and make
payments similar to those described above. Mr. Baker will also continue to
receive additional compensation of $22,500 per annum for his services as a
Director of Williams Hospitality.
BRIAN R. GAMACHE. Mr. Gamache is employed as President and Chief Operating
Officer of Williams Hospitality pursuant to an employment agreement dated
October 27, 1996. The two-year term of the agreement ends October 27, 1998 and
is automatically extended from year to year thereafter. The agreement provides
for a minimum annual base salary of $300,000 as well as a minimum bonus of
$50,000 for the 1997 fiscal year. Additionally, Mr. Gamache is entitled to bonus
compensation at the discretion of the Company Board, as well as participation,
to the extent eligible, in any health and life insurance plans generally
available to executive officers of the Company; provided that the Company is
obligated, to the extent available at normal rates, to provide Mr. Gamache with
$500,000 of term life insurance and additional whole life insurance in a face
amount equal to the lesser of $500,000 or such amount of whole life insurance as
may be obtained for annual premiums of $5,000. Mr. Gamache shall also be
entitled to any cash surrender value with respect to the aforementioned whole
life insurance policy. Williams Hospitality may terminate the agreement without
cause upon at least 90 days' prior written notice. In such event, Mr. Gamache
will receive an amount equal to two years' base salary, payable one-half on the
termination date and the balance a year later. Mr. Gamache has the right to
terminate his employment agreement by providing the Company at least 90 days'
notice. Upon receipt of such notice, the Company has the right to terminate Mr.
Gamache's employment at an earlier date by providing Mr. Gamache notice thereof.
In such event, Mr. Gamache will receive one year's base salary, payable 25% upon
termination and the balance to be paid in equal installments commencing on the
first customary payment date of the Company occurring three months after the
termination date. Mr.
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<PAGE> 24
Gamache has agreed not to engage in any competitive business with the Company in
Puerto Rico and the Caribbean during the term of his agreement and for one year
thereafter. Mr. Gamache also entered into an employment agreement dated April
21, 1997 with the Company pursuant to which he serves as President and Chief
Operating Officer. The term of this agreement coincides with the term of Mr.
Gamache's employment agreement with Williams Hospitality. Mr. Gamache is paid an
annual salary of $50,000 for his service to the Company. The agreement provides
that Mr. Gamache will devote such time to the business of the Company that is
reasonable to perform his duties thereunder.
RICHARD F. JOHNSON. Mr. Johnson is employed as Senior Vice President and
Chief Financial Officer of Williams Hospitality pursuant to an employment
agreement which commenced March 1, 1997 and terminates February 28, 1999, which
term may be extended by mutual agreement on a year-to-year basis. The agreement
provides for a minimum annual base salary of $185,000. Additionally, Mr. Johnson
is entitled to participate in any bonus, incentive and salary deferment plans
generally available to senior executives of Williams Hospitality. He is also
entitled to participate, to the extent he is eligible, in any health, medical,
disability and life insurance plans generally available to executives of
Williams Hospitality. Upon 10 days' notice, Williams Hospitality may terminate
Mr. Johnson for cause (as defined in the agreement). In the event the current
owners of Williams Hospitality cease to own 50% of Williams Hospitality, Mr.
Johnson may terminate his employment and Williams Hospitality will be obligated
to pay his base salary and to provide health and life insurance benefits from
the date of termination until the earlier of: (i) the expiration of the term of
the agreement; (ii) one year after the date of the change of ownership; or (iii)
the date Mr. Johnson begins other employment, provided that if Mr. Johnson's
compensation level at such new employment is less than his base salary at
Williams Hospitality, then Williams Hospitality will pay Mr. Johnson the
difference thereof until the earlier to occur of (i) or (ii) above. If a change
in ownership occurs, Williams Hospitality may terminate Mr. Johnson's employment
and pay him severance equal to one year's base salary. Under certain other
circumstances, Williams Hospitality will be obligated to pay Mr. Johnson
severance equal to six months' base salary. Williams Hospitality also paid Mr.
Johnson certain other amounts in connection with his relocation to Puerto Rico.
On April 21, 1997, Mr. Johnson became Chief Financial Officer and Treasurer of
the Company.
BARBARA M. NORMAN. Ms. Norman entered into a one and one-half year
employment agreement with the Company dated June 16, 1997 pursuant to which she
serves as Vice President, Secretary, General Counsel and Director of the
Company. The agreement provides for a minimum annual base salary of not less
than $175,000. Ms. Norman is also entitled to participate in the Company's
employee benefit plans for which she is eligible and which are made available to
other senior executive officers of the Company. The employment agreement is
terminable at the election of Ms. Norman upon the occurrence without her consent
or acquiescence of any one or more of the following events: (i) the placement of
Ms. Norman in a position of lesser stature or the assignment to Ms. Norman of
duties, performance requirements or working conditions significantly different
from or at a variance with those presently in effect; (ii) the treatment of Ms.
Norman in a manner which is in derogation of her status as a senior executive;
(iii) the cessation of service of Ms. Norman as a member of the Company Board;
or (iv) the discontinuance or reduction of amounts payable or personal benefits
available to Ms. Norman pursuant to such agreement. In any such event, and in
the event the Company is deemed to have wrongfully terminated
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<PAGE> 25
Ms. Norman's employment agreement under the terms thereof, the Company is
obligated (a) to make a lump sum payment to Ms. Norman equal in amount to the
sum of the aggregate base salary during the remaining term of her employment
agreement,(b) to purchase at the election of Ms. Norman all stock options held
by her with respect to Company Common Stock at a price equal to the spread
between the option price and the fair market price of such stock as defined in
the agreement, (c) to reimburse Ms. Norman for all reasonable costs and expenses
of relocation to the New York area (limited to $10,000) and (d) either (i) pay
Ms. Norman for any financial loss, as defined in the agreement, she may suffer
as a result of the sale of her Puerto Rico condominium or (ii) if Ms. Norman is
unable to sell the condominium for a period of three months after such
termination, purchase the condominium from Ms. Norman at the price defined in
the agreement. The employment agreement is also terminable at the election of
Ms. Norman if individuals constituting the Company Board, or successors approved
by such Company Board members, cease for any reason to constitute at least a
majority of the Company Board. Upon such an event, the Company may be required
to purchase the stock options held by Ms. Norman and make payments similar to
those described above.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.
The following table sets forth certain information as of September 15, 1997
(except as otherwise footnoted) with respect to persons known to be the
beneficial owner of more than five percent of the outstanding Company Common
Stock and directors and executive officers of the Company as a group. Security
ownership of management is set forth under the heading "Identification of
Directors" in Item 10 (a) above as supplemented by footnote 8 to this table.
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF PERCENTAGE OF
NAME AND ADDRESS OF BENEFICIAL OWNERSHIP OUTSTANDING
BENEFICIAL OWNER OF COMMON STOCK (1) COMMON STOCK (2)
------------------- --------------------- ----------------
<S> <C> <C>
Sumner M. Redstone and 1,729,425(3) 28.6%
National Amusements, Inc.
200 Elm Street
Dedham, MA 02026
Louis J. Nicastro 1,651,158(4) 21.4%
Cleft Road
Mill Neck, New York 11765
Libra Fund, L.P.,Libra Advisors, 479,550(5) 7.9%
Ranjan Tandon and Chandrika Tandon
277 Park Avenue
New York, NY 10017
FMR Corp. 413,925(6) 6.8%
82 Devonshire Street
Boston, MA 02109
Waveland Partners, L.P., 350,100(7) 5.8%
Waveland Capital Management, L.P.
Clincher Capital Corporation
333 West Wacker Drive # 1600
Chicago, IL 60606
Directors & Executive 1,963,508(8) 24.4%
Officers as a Group (7 persons)
</TABLE>
- ----------------------
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<PAGE> 26
(1) Pursuant to Rule 13d-3(d)(1)of the Exchange Act, shares underlying
options are deemed to be beneficially owned if the holder of the options
has the right to acquire beneficial ownership of such shares within 60
days.
(2) For purposes of calculating the percentage of outstanding Common Stock
owned, shares issuable upon the exercise of options within 60 days have
been deemed to be outstanding.
(3) The number of shares reported is based upon information contained in
Schedule 13D dated April 30, 1997 filed by Mr. Summer M. Redstone with
the Securities and Exchange Commission (the "Commission"). Pursuant to
such Schedule, Mr. Redstone and National Amusements, Inc., a Maryland
corporation, reported beneficial ownership of and sole investment power
with respect to 858,450 and 870,975 shares, respectively, of the
Company's Common Stock and that Mr. Redstone is the beneficial owner of
75% of the issued and outstanding shares of the common stock of National
Amusements, Inc.
(4) On July 31, 1997, Mr. Nicastro acquired 300,000 shares of the Company's
Series B Preferred Stock, par value $.01 per share (the "Preferred
Stock") which shares entitle him to five votes per share of Preferred
Stock and, thus, represent voting power of the equivalent of 1,500,000
shares of Common Stock. The 300,000 shares of Preferred owned by Mr.
Nicastro represent 100% of the shares of such class. In addition, Mr.
Nicastro holds a currently exercisable stock option to purchase 150,000
shares of Common Stock and owns directly 1,158 shares of Common Stock.
Mr. Nicastro has sole voting power with respect to such 1,651,158 shares
and sole dispositive power with respect to 484,491 shares of Common
Stock consisting of the 1,158 shares of Common Stock owned directly by
him, the 150,000 shares of Common Stock issuable pursuant to currently
exercisable stock options and 333,333 shares of Common Stock issuable
upon conversion of the Preferred Stock.
(5) The number of shares reported is based upon information contained in
Amendment No. 1 to the Schedule 13D dated July 3, 1997 filed by Libra
Fund, L.P., Libra Advisors, Inc., Mr. Ranjan Tandon and Ms. Chandrika
Tandon with the Commission. Pursuant to such Amendment, the Libra Fund,
L.P. reported beneficial ownership of 256,450 shares of Common Stock,
and reported that Libra Advisors, Inc., as general partner to Libra
Fund, L.P., has the power to vote and to direct the voting of and the
power to dispose and direct the disposition of the 256,450 shares of
Common Stock owned by Libra Fund, L.P. The Amendment reported that Mr.
Tandon is the sole shareholder and president of Libra Advisors, Inc.
Also pursuant to such Amendment, Ms. Tandon reported beneficial
ownership of 223,100 shares of Common Stock, and that she has the sole
power to vote and to direct the voting of and the sole power to dispose
and direct the disposition of the 223,100 shares of Common Stock owned
by her.
(6) The number of shares reported is based upon information contained in a
letter dated June 27, 1997 from FMR Corp. to counsel for the Company
with respect to the Company's Common Stock. Pursuant to such letter, FMR
Corp. reported that Fidelity Management & Research Company, a
wholly-owned subsidiary of FMR Corp. and an investment adviser
registered under Section 203 of the Investment Advisers Act of 1940, as
amended, is the beneficial owner of 409,900 shares of Company Common
Stock as a result of acting as investment adviser to
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<PAGE> 27
various investment companies registered under Section 8 of the
Investment Company Act of 1940, as amended. Additionally, pursuant to
such letter, FMR Corp. reported that Fidelity Management Trust Company,
a wholly-owned subsidiary of FMR Corp. and a bank as defined in Section
3(a)(6) of the Exchange Act, is the beneficial owner of 4,025 shares of
Company Common Stock as a result of its serving as investment manager of
the institutional account(s). FMR Corp. reported it has sole power to
dispose of or direct the disposition of all such shares and sole power
to vote 4,025 of shares.
(7) The number of shares reported is based upon information contained in a
Schedule 13D dated September 12, 1997 filed by Waveland Partners, L.P.,
an Illinois limited partnership ("Waveland"), Waveland Capital
Management, L.P., an Illinois limited partnership ("Waveland Capital")
and Clincher Capital Corporation, an Illinois corporation ("Clincher").
Pursuant to such Schedule, Waveland, Waveland Capital and Clincher,
reported shared voting and dispositive power with respect to the 350,100
shares of Common Stock owned.
(8) Includes 453,000 shares of Common Stock which directors and executive
officers have the right to acquire upon the exercise of stock options
and voting power equivalent to 1,500,000 shares of Common Stock with
respect to the 300,000 shares of Preferred Stock held by Mr. Louis J.
Nicastro -- see footnote 4 above. Mr. R. F. Johnson owns no shares of
Common Stock and holds no exercisable stock options.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
RELATIONSHIP WITH LOUIS J. NICASTRO
The Company entered into a Put Option and Call Option Agreement dated April
21, 1997 (the "Put and Call Agreement") with Mr. Louis J. Nicastro which
provided that at any time prior to December 31, 1999, the Company would have the
right to require (the "Put Option") Mr. Nicastro to purchase 300,000 shares of
Series B Preferred Stock for an aggregate purchase price of $3,000,000. Mr.
Nicastro also had the right to purchase (the "Call Option") 300,000 shares of
Series B Preferred Stock for an aggregate purchase price of $3,300,000 which
right also would have to be exercised prior to December 31, 1999 but only in the
event that any non-exempt person or entity or group of persons or entities
acting in concert, thereafter acquired or announced the intention to acquire
beneficial ownership of 10% or more of the Company Common Stock. The Put and
Call Agreement also provided that so long as the Put Option and Call Option
remained outstanding, the Company would not increase the number of or change,
alter or otherwise impair the relative rights preferences or other provisions of
the Series B Preferred Stock nor would the Company except with the consent of
two-thirds of the Company Board authorize the issuance of or become bound to
issue any shares of capital stock having voting rights other than the 12,000,000
authorized shares of Company Common Stock and such limited voting rights as may
be required by law. The Series B Preferred Stock entitles the holder to five
votes for each share of Series B Preferred Stock on all matters to be voted upon
by the holders of Company Common Stock including the election of the Company
Board, prohibits the issuance of any capital stock having voting rights other
than the 12,000,000 authorized shares of Company Common Stock (or such greater
number of shares of Company Common Stock or other voting stock as may have been
actually issued or which the Company may be bound to issue as of the date of
first issuance of shares of Series B Preferred Stock) and such limited voting
rights as
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<PAGE> 28
may be required by law without the affirmative vote of holders of 70% of the
outstanding Series B Preferred Stock voting separately as a single class,
provides for cumulative quarterly dividends at the rate of prime plus one half
percent on the liquidation value of $3,000,000, is redeemable at the option of
the holder at any time commencing three years following the date of issuance or
earlier at any time that there shall exist two unpaid quarterly dividends and is
convertible into shares of Company Common Stock at a conversion price equal to
the lower of the closing price of Company Common Stock on the first day of
trading of such Company Common Stock (on a when-issued basis or otherwise) on
the New York Stock Exchange (which was $9.00) or the closing price on the New
York Stock Exchange (or other recognized trading market for the Common Stock) on
the business day immediately prior to the date of issuance of the Series B
Preferred Stock (which was $12.50). Mr. Nicastro also has registration rights
with respect to any shares of Company Common Stock issued upon conversion of the
Series B Preferred Stock. The Put Option and Call Option were not transferable
and were to terminate on the earlier to occur of December 31, 1999 or the death
of Mr. Nicastro. The Put and Call Agreement was designed to enable the Company
to raise additional capital and to provide Mr. Nicastro a sufficient equity
interest in the Company to induce Mr. Nicastro to continue as Chairman and Chief
Executive Officer of Williams Hospitality so as to prevent the premature
imposition of super majority voting requirements at Williams Hospitality. The
Company exercised the Put Option on July 23, 1997 and Mr. Nicastro paid the
exercise price and was issued 300,000 shares of the Series B Preferred Stock on
July 31, 1997.
RELATIONSHIP WITH WMS
For the purpose of governing certain of the ongoing relationships between
the Company and WMS after the Distribution and to provide mechanisms for an
orderly transition, the Company and WMS entered into a Plan of Reorganization
and Distribution Agreement (the "Distribution Agreement") and a tax sharing
agreement, as amended (the "Tax Sharing Agreement").
Distribution Agreement: The Distribution Agreement provides for, among other
things: (i) the Distribution; (ii) cross-indemnification between the Company and
WMS with respect to the respective businesses of the Company and WMS; and (iii)
certain other arrangements for the furnishing of certain financial, legal and
corporate secretary functions for a transitional period following the
Distribution.
Subject to certain exceptions, the Distribution Agreement provides for
cross-indemnities designed to allocate, effective as of April 21, 1997,
financial responsibility for the liabilities arising out of or in connection
with the business of the Company and financial responsibility for the
liabilities arising out of or in connection with WMS and its subsidiaries
remaining businesses.
The Distribution Agreement provides for the Company to indemnify WMS in
respect of certain limited guarantees provided by WMS in respect of the El
Conquistador, and for WMS to provide, following April 21, 1997, certain
financial, legal and corporate services to the Company on a transitional basis.
With respect to any services provided by WMS to the Company, the Company will
reimburse WMS for the estimated cost of such services based upon an hourly rate
for employees furnishing the services calculated using the individual's base
salary. The Company anticipates that costs associated with the aforementioned
services will not exceed $200,000.
28
<PAGE> 29
WMS has a registered trademark of the name "Williams" for video game
machines, coin-operated video games, video game cartridges and disks, computer
video game software and coin-operated pinball machines. The Distribution
Agreement provides that following the Distribution, the Company will continue to
be able to use the "Williams" name in the ownership and management of hotels and
casinos but will not use the "Williams" name as a corporate name, except in the
corporate name Williams Hospitality, and will not use the "Williams" name
outside its business of owning and managing hotels and casinos. WMS has agreed
not to use the "Williams" name in the future in connection with the ownership
and management of hotels and casinos.
The Distribution Agreement provides that, except as otherwise set forth
therein or in any related agreement, all costs and expenses in connection with
the Distribution will be borne by WMS.
Tax Sharing Agreement. The Tax Sharing Agreement defines the parties' rights
and obligations with respect to deficiencies and refunds of Federal, state,
Puerto Rico and other income or franchise taxes relating to the Company's
business for tax years prior to the Distribution and with respect to certain tax
attributes of the Company after the Distribution. In general, with respect to
periods ending on or before the last day of 1997, the year in which the
Distribution occurred, WMS is responsible for (i) filing both consolidated
Federal tax returns for the WMS affiliated group and combined or consolidated
state tax returns for any group that includes a member of the WMS affiliated
group, including in each case the Company (including its subsidiaries) for the
relevant periods of time that such companies were members of the applicable
group; and (ii) paying the taxes relating to such returns (including any
subsequent adjustments resulting from the redetermination of such tax
liabilities by the applicable taxing authorities. The Company will reimburse WMS
for a defined portion of such taxes relating to its business and is responsible
for filing returns and paying taxes related to its business for subsequent
periods. The Company and WMS have agreed to cooperate with each other and to
share information in preparing such tax returns and in dealing with other tax
matters.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) (1) Financial Statements of Registrant. All financial
statements of the Registrant required to be disclosed in
this Item 14(a)(1) appear in the Financial Statements in
the 1997 Annual Report. Such Financial Statements are
incorporated by reference herein.
(2) Financial Statement Schedule of Registrant. See "Index
to Financial Information" on page F-1.
(3) Exhibits
+2.1 Plan of Reorganization and Distribution Agreement dated as of
March 20,1997 among WMS Industries Inc. ("WMS"), Williams Hotel
Corporation and WHG Resorts & Casinos Inc. (the "Company")
+3.1 Amended and Restated Certificate of Incorporation of the Company
+3.2 Amended and Restated Bylaws of the Company
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<PAGE> 30
+4.1 Specimen of Common Stock Certificate of the Company
+4.2 Rights Agreement dated as of April 21, 1997 between the Company
and The Bank of New York
+4.3 Form of Certificate of Designation of Series A Preferred Stock
(included as Exhibit A to Exhibit 4.2 hereof)
+4.4 Specimen Form of Rights Certificate (included as Exhibit B to
Exhibit 4.2 hereof)
+4.5 Summary of Rights Plan (included as Exhibit C to Exhibit 4.2
hereof)
+4.6 Certificate of Designation of Series B Preferred Stock
+4.7 Put and Call Agreement dated as of April 21, 1997 between the
Company and Louis J. Nicastro
#10.1 Tax Sharing Agreement dated as of March 20, 1997 among WMS, the
Company, ESJ Hotel Corporation, WMS El Con Corp., WMS Property
Inc. and Williams Hotel Corporation, as amended as of April 15,
1997
+10.2 Employment Agreement dated as of April 21, 1997 between the
Company and Louis J. Nicastro
+10.3 Employment Agreement dated October 27, 1996 between Williams
Hospitality Group Inc.("WHGI") and Brian R. Gamache
*10.4 Employment Agreement dated April 21, 1997 between the Company
and Brian R. Gamache
+10.5 Employment Agreement dated as of April 21, 1997 between the
Company and George R. Baker
+10.6 Employment Agreement dated February 11, 1997 between WHGI and
Richard F. Johnson
+10.7 1997 Stock Option Plan
+10.8 Form of Indemnity Agreement authorized to be entered into
between the Company and each officer and director of the Company
+10.9 Operating and Management Agreement dated as of September 23,1983
between Posadas de Puerto Rico Associates, Incorporated ("PPRA")
and Posadas de America Central, Inc. (now known as WHGI)
+10.10 Operating Credit and Term Loan Agreement ("Operating Credit
Agreement") dated August 30, 1988 between PPRA and Scotiabank de
Puerto Rico, as amended June 12, 1989, September 28, 1990 and
April 26, 1991
+10.11 Subordination Agreement dated August 30, 1988 between Williams
Hospitality Management Corporation (now known as WHGI), PPRA and
Scotiabank de Puerto Rico
+10.12 Posadas de San Juan Associates Joint Venture Agreement dated
July 27, 1984 among ESJ Hotel Corporation, Great American
Industries, Inc., IHS Associates, Ltd. and MILTK Inc., as
amended as of October 15, 1984, September 30, 1986, December 30,
1989 and August 13, 1992
+10.13 Deed of Lease dated September 23, 1983 between Posadas de
Flamboyan Associates, L.P. and PPRA as amended September 23,
1983
+10.14 Deed of Subordination of Lease dated May 5, 1995 among Posadas
de Flamboyan Associates, L.P., PPRA and Scotiabank de Puerto
Rico
+10.15 Option Agreement dated May 4, 1995 between PPRA and Posadas de
Flamboyan Associates, L.P. and Letter Agreement dated May 5,
1995 between PPRA and Scotiabank de Puerto Rico related thereto
+10.16 Guaranty of Payment and Performance in favor of PPRA made by
Burton I. Koffman and Richard E. Koffman dated May 5, 1995
+10.17 Operating and Management Agreement dated as of July 31, 1984
between Posadas de San Juan Associates ("PSJA") and
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<PAGE> 31
Williams Hospitality Management Corporation (now known as WHGI),
as amended October 25, 1984 and October 1, 1986
+10.18 Credit Agreement dated as of January 20, 1993 between PSJA and
The Bank of Nova Scotia
+10.19 Subordination Agreement dated January 20, 1993 between Williams
Hospitality Management Corporation (now known as WHGI), PSJA and
The Bank of Nova Scotia
+10.20 WKA El Con Associates Joint Venture Agreement dated January 9,
1990 among WMS El Con Corp. (now known as WHG El Con Corp.),
International Textile Products of Puerto Rico, Inc., KMA
Associates of Puerto Rico, Inc. and Hospitality Investor Group,
S.E. as amended as of January 31, 1990, January 18, 1991 and
April 20, 1992
+10.21 El Conquistador Partnership L.P. Venture Agreement dated January
12, 1990 between Kumagai Caribbean, Inc. ("Kumagai") and WKA El
Con Associates ("WKA"), as amended May 4, 1992
+10.22 El Conquistador Partnership L.P. Development Services and
Management Agreement dated January 12, 1990 between El
Conquistador Partnership L.P. (the "Partnership") and Williams
Hospitality Management Corporation (now known as WHGI), as
amended as of September 30, 1990 and January 31, 1991
+10.23 Loan Agreement dated February 7, 1991 between Puerto Rico
Industrial, Medical, Educational and Environmental Pollution
Control Facilities Financing Authority ("AFICA") and the
Partnership
+10.24 Trust Agreement dated February 7, 1991 between AFICA and Banco
Popular de Puerto Rico, as Trustee
+10.25 Letter of Credit and Reimbursement Agreement dated as of
February 7, 1991 between the Partnership and The Mitsubishi
Bank, Limited, acting through its New York Branch (now known as
The Bank of Tokyo-Mitsubishi, Ltd.) (the "Bank") and the
Irrevocable Transferable Standby Letter of Credit dated February
7, 1991 issued pursuant thereto
+10.26 First Amendment to the Letter of Credit and Reimbursement
Agreement dated as of May 5, 1992 between the Partnership, WKA,
Kumagai and the Bank
+10.27 Loan Agreement dated February 7, 1991 between The Government
Development Bank for Puerto Rico ("GDB") and the Partnership
+10.28 First Amendment to GDB Loan Agreement dated May 5, 1992 between
GDB and the Partnership
+10.29 Second Amendment to GDB Loan Agreement dated as of October 4,
1996 between GDB and the Partnership
+10.30 Management Agreement Subordination and Attornment Agreement
dated as of February 7, 1991 between Williams Hospitality
Management Corporation (now known as WHGI) and the Bank
+10.31 Interest Rate and Currency Exchange Agreement dated as of
February 7, 1991 between the Bank and the Partnership
+10.32 Guaranty dated as of February 7, 1991 made by Kumagai and
Williams Hospitality Management Corporation (now known as WHGI)
in favor of the Bank
+10.33 Collateral Pledge Agreement dated as of February 7, 1991 among
the Partnership, AFICA and the Bank
+10.34 Mortgage dated February 7, 1991 by the Partnership in favor of
AFICA
+10.35 Deed of Mortgage dated February 7, 1991 by the Partnership in
favor of GDB
+10.36 Deed of Lease dated December 15, 1990 by Alberto Bachman
Umpierre and Lilliam Bachman Umpierre to the Partnership
31
<PAGE> 32
+10.37 Leasehold Mortgage dated February 7, 1991 by the Partnership in
favor of AFICA
+10.38 Deed of Leasehold Mortgage dated February 7, 1991 by the
Partnership in favor of GDB
+10.39 Credit Facility Agreement dated as of May 5, 1992 between GDB,
Kumagai and WKA
+10.40 Deed of Mortgage dated May 5, 1992 by the Partnership in favor
of GDB
+10.41 Partnership Loan Agreement dated as of May 5, 1992 among
Kumagai, WKA and the Partnership
+10.42 Williams Hospitality Management Corporation (now known as WHGI)
Amended and Restated Stockholders Agreement dated as of April
30, 1992 among the Company, Burton I. Koffman, as nominee, Hugh
A. Andrews and Williams Hospitality Management Corporation (now
known as WHGI)
+10.43 Posadas de Puerto Rico Associates, Incorporated Stockholders'
Agreement dated September 23, 1983 among Williams Hotel
Corporation, Burton I. Koffman, as nominee, Hugh A. Andrews and
PPRA, as amended April 20, 1992
+10.44 Put Option Agreement dated as of April 30, 1993, as extended,
among American National Bank and Trust Company of Chicago, WMS,
Burton I. Koffman and Empire Hotel Corp.
+10.45 Loan Agreement dated as of October 21, 1993 between the
Partnership and General Electric Capital Corporation of Puerto
Rico ("GECCPR"), as amended June 30, 1994
+10.46 Corporate Guaranty dated October 21, 1993 by WHGI in favor of
GECCPR and related Guarantor's Consent dated as of June 30, 1994
by WHGI
+10.47 Registration Rights Agreement dated as of April 21, 1997 between
the Company and Louis J. Nicastro
+10.48 Guaranty dated as of May 5, 1992 by WMS, Hugh A. Andrews, Burton
I. Koffman and Richard E. Koffman in favor of the Bank
*10.49 Guaranty dated as of April 21, 1997 by the Company in favor of
the Bank
*10.50 Employment Agreement dated as of June 16, 1997 between the
Company and Barbara M. Norman
*10.51 Amendment dated May 23, 1997 to Operating Credit Agreement
referred to in Exhibit 10.10 above.
*13 1997 Annual Report to Stockholders
*21 Subsidiaries of the Registrant
*23 Consent of Ernst & Young LLP
*27 Financial Data Schedule (filed with EDGAR version only)
- --------------------
* Filed Herewith
+ Incorporated by reference herein to the same exhibit number included in
the Registrant's Registration Statement on Form 10, Registration No.
1-12783, filed with the Securities and Exchange Commission on February
28, 1997, and all the amendments thereto.
# Incorporated by reference herein to an exhibit included in the WMS
Industries Inc. Registration Statement on Form 8-K, Registration No.
1-8300, filed with the Securities and Exchange Commission on May 5,
1997.
(b) Reports on Form 8-K.
NONE
32
<PAGE> 33
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the Registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized, on the
26th day of September, 1997.
WHG RESORTS & CASINOS INC.
By:/s/Louis J. Nicastro
--------------------
(Louis J. Nicastro)
Chairman and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this report has been signed by the following persons on behalf of
the Registrant in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
<S> <C> <C>
/s/ Louis J. Nicastro Chairman of the Board, September 26,1997
- --------------------- Chief Executive Officer
(Louis J. Nicastro) and Director
(Principal Executive Officer)
/s/ Brian R. Gamache President, Chief Operating September 26,1997
- -------------------- Officer and Director
(Brian R. Gamache)
/s/ Richard F. Johnson Treasurer & Chief September 26,1997
- ---------------------- Financial Officer
(Richard F. Johnson) (Principal Financial &
Principal Accounting Officer)
/s/ George R. Baker Vice Chairman and Director September 26, 1997
- -------------------
(George R. Baker)
/s/ Barbara M. Norman Vice President, Secretary, September 26, 1997
- --------------------- General Counsel and Director
(Barbara M. Norman)
/s/ Joseph A.Lamendella Director September 26, 1997
- -----------------------
(Joseph A. Lamendella)
/s/ David M. Satz,Jr. Director September 26, 1997
- ---------------------
(David M. Satz, Jr.)
</TABLE>
33
<PAGE> 34
WHG RESORTS & CASINOS INC.
INDEX TO FINANCIAL INFORMATION
<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C>
WHG RESORTS & CASINOS INC.
Report of independent auditors F-2
Consolidated balance sheets at June 30, 1997 and June 30, 1996 *
Consolidated statements of income for the years ended June 30, 1997, *
1996 and 1995
Consolidated statements of changes in stockholders' equity for the years
ended June 30, 1997, 1996 and 1995 *
Consolidated statements of cash flows for the years ended June 30, 1997,
1996 and 1995 *
Notes to consolidated financial statements *
Financial statements schedule II -- Valuation and qualifying accounts
for the years ended June 30, 1997, 1996 and 1995 F-3
POSADAS DE SAN JUAN ASSOCIATES, a significant nonconsolidated affiliate of registrant
Financial statements Schedule II -- Valuation and qualifying accounts for the
years ended June 30, 1997, 1996 and 1995 F-3
Report of Independent Auditors F-4
Balance Sheets at June 30, 1997 and 1996 F-5
Statements of Operations and Deficit for Years Ended June 30, 1997, 1996 and 1995 F-7
Statements of Cash Flows for Years Ended June 30, 1997, 1996 and 1995 F-8
Notes to Financial Statements F-9
WKA EL CON ASSOCIATES, a significant nonconsolidated affiliate of registrant
Report of Independent Auditors F-15
Balance Sheets at June 30, 1997 and 1996 F-16
Statements of Operations and Deficit for Years Ended June 30, 1997, 1996 and 1995 F-17
Statements of Cash Flows for Years Ended June 30, 1997, 1996 and 1995 F-18
Notes to Financial Statements F-19
EL CONQUISTADOR PARTNERSHIP L.P., a significant nonconsolidated affiliate of registrant
Report of Independent Auditors F-23
Balance Sheets at March 31, 1997 and 1996 F-24
Statements of Operations and (Deficiency in) Partners' Capital for Years Ended
March 31, 1997, 1996 and 1995 F-26
Statements of Cash Flows for Years Ended March 31, 1997, 1996 and 1995 F-27
Notes to Financial Statements F-28
</TABLE>
- --------------------------------
*Incorporated by reference to the 1997 Annual Report filed as Exhibit 13 to this
Form 10-K.
All other schedules are omitted since the required information is not present in
amounts sufficient to require submission of the schedule, or because the
information required is included in the consolidated financial statements and
notes thereto.
F-1
<PAGE> 35
REPORT OF INDEPENDENT AUDITORS
TO THE STOCKHOLDERS AND BOARD OF DIRECTORS
WHG RESORTS & CASINOS INC.
We have audited the consolidated financial statements of WHG
Resorts & Casinos Inc. and subsidiaries listed in Item 14(a)(1) of the Annual
Report on Form 10-K of WHG Resorts & Casinos Inc. for the year ended June 30,
1997. Our audits also included the financial statement schedule listed in the
Index at Item 14(a)(2). These financial statements and related schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements and related schedule 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 about whether the financial statements and
related schedule 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 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 WHG Resorts & Casinos Inc. and subsidiaries at June 30, 1997 and
1996, and the consolidated results of their operations and their cash flows for
each of the three years in the period ended June 30, 1997, in conformity with
generally accepted accounting principles. Also, in our opinion, the related
financial statement schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.
/s/ Ernst & Young LLP
San Juan, Puerto Rico
August 7, 1997, except
for Note 18 as to
which the date is
September 17, 1997
F-2
<PAGE> 36
SCHEDULE II
WHG RESORTS & CASINOS INC.
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED JUNE 30, 1997, 1996, AND 1995
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
BALANCE AT CHARGED TO CHARGED TO DEDUCTIONS- BALANCE AT
BEGINNING OF COSTS AND OTHER AMOUNTS END OF
DESCRIPTION PERIOD EXPENSES ACCOUNTS WRITTEN OFF PERIOD
----------- ------ -------- -------- ----------- ------
<S> <C> <C> <C> <C> <C>
Allowance for receivables:
1997 $ 474,000 $ 366,000 $ --------- $ 181,000 $ 649,000
=========== ========== =========== =========== ===========
1996 $ 399,000 $1,457,000 $ --------- $1,382,000 $ 474,000
=========== ========== =========== ========== ===========
1995 $ 755,000 $1,842,000 $ --------- $2,198,000 $ 399,000
=========== ========== =========== ========== ===========
Unrealized holding loss on
noncurrent marketable
equity securities:
1997 $ ---------- $ -------- $ -------- $ --------- $ ------------
============ ========== ========== =========== ==============
1996 $ ---------- $ -------- $ -------- $ --------- $ ------------
============ ========== ========== =========== ==============
1995 $ ---------- $ ------- $ -------- $ --------- $ ------------
============ ========== =========== =========== ==============
</TABLE>
(1) Included as a direct reduction of stockholders' equity.
POSADAS DE SAN JUAN ASSOCIATES
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED JUNE 30, 1997, 1996, AND 1995
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
BALANCE AT CHARGED TO CHARGED TO DEDUCTIONS- BALANCE AT
BEGINNING OF COSTS AND OTHER AMOUNTS END OF
DESCRIPTION PERIOD EXPENSES ACCOUNTS WRITTEN OFF PERIOD
----------- ------ -------- -------- ----------- ------
<S> <C> <C> <C> <C> <C>
Allowance for receivables:
1997 $ 357,100 $ 150,600 $ --------- $ (98,599) $ 606,299
=========== ========== =========== =========== ===========
1996 $ 434,546 $1,278,200 $ --------- $1,355,646 $ 357,100
=========== ========== =========== ========== ===========
1995 $ 1,290,819 $3,880,413 $ --------- $4,736,686 $ 434,546
=========== ========== =========== ========== ===========
</TABLE>
F-3
<PAGE> 37
Report of Independent Auditors
The Partners
Posadas de San Juan Associates
We have audited the accompanying balance sheets of Posadas de San Juan
Associates as of June 30, 1997 and 1996, and the related statements of
operations and deficit, and cash flows for each of the three years in the period
ended June 30, 1997. Our audits also included the financial statement schedule
listed in Item 14(a)(3) of the annual report on Form 10-K of WHG Resorts &
Casinos Inc. for the year ended June 30, 1997. These financial statements and
schedule are the responsibility of the Partnership's management. Our
responsibility is to express an opinion on these financial statements and
schedule based on our 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 about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Posadas de San Juan Associates
at June 30, 1997 and 1996, and the results of its operations and its cash flows
for each of the three years in the period ended June 30, 1997, in conformity
with generally accepted accounting principles. Also, in our opinion, the related
financial statement schedule, when considered in relation to the basic financial
statements taken as a whole, present fairly in all material respects the
information set forth therein.
San Juan, Puerto Rico
August 7, 1997
/s/ Ernst & Young LLP
F-4
<PAGE> 38
Posadas de San Juan Associates
Balance Sheets
<TABLE>
<CAPTION>
JUNE 30
1997 1996
----------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 2,681,100 $ 2,443,700
Trade accounts receivable, less allowance for
doubtful accounts of $606,300 in 1997 and
$357,100 in 1996 3,692,000 2,370,700
Inventories 969,500 906,400
Prepaid expenses 790,400 837,100
----------- -----------
Total current assets 8,132,900 6,557,900
Land, building and equipment:
Land 3,300,000 3,300,000
Building 14,350,700 14,350,700
Building improvements 14,285,400 12,439,600
Furniture, fixtures and equipment 36,114,600 33,814,000
Construction in progress 113,400 --
----------- -----------
68,164,100 63,904,300
Less accumulated depreciation 33,353,000 30,080,700
----------- -----------
34,811,100 33,823,600
Operating equipment, net 523,000 570,700
Deferred financing costs, less accumulated
amortization of $662,400 in 1997 and
$530,900 in 1996 402,000 533,500
Other assets 68,300 270,500
----------- -----------
Total assets $43,937,300 $41,756,200
=========== ===========
</TABLE>
F-5
<PAGE> 39
<TABLE>
<CAPTION>
JUNE 30
1997 1996
------------ ------------
<S> <C> <C>
LIABILITIES AND DEFICIENCY IN PARTNERSHIP CAPITAL
Current liabilities:
Trade accounts payable $ 4,078,700 $ 4,039,900
Accrued compensation and related benefits 1,376,600 1,139,300
Other accrued liabilities 2,032,600 1,458,700
Due to affiliated companies 237,600 11,600
Note payable to bank -- 300,000
Current portion of long-term debt 3,170,600 3,152,000
------------ ------------
Total current liabilities 10,896,100 10,101,500
Long-term debt, net of current portion 20,831,400 23,805,000
Due to Williams Hospitality Group Inc. 25,590,800 23,206,700
Deficiency in partnership capital:
Capital contribution 7,000,000 7,000,000
Deficit (20,381,000) (22,357,000)
------------ ------------
Total deficiency in partnership capital (13,381,000) (15,357,000)
Total liabilities and deficiency in
partnership capital
------------ ------------
$ 43,937,300 $ 41,756,200
============ ============
</TABLE>
See accompanying notes.
F-6
<PAGE> 40
Posadas de San Juan Associates
Statements of Operations and Deficit
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Revenues:
Rooms $ 22,588,800 $ 22,016,700 $ 22,517,300
Food and beverage 13,218,000 13,424,400 12,688,200
Casino 19,582,200 18,117,600 22,575,400
Rental and other income 3,255,800 3,503,000 2,852,400
Less casino promotional allowances (6,905,300) (6,937,900) (7,836,300)
------------ ------------ ------------
Net revenues 51,739,500 50,123,800 51,797,000
Costs and expenses:
Rooms 6,764,600 6,891,000 6,775,000
Food and beverage 9,297,400 9,506,100 9,340,600
Casino 9,729,000 10,716,800 14,027,100
Selling, general and administrative 8,803,200 9,094,000 8,953,700
Management and incentive
management fees 4,336,700 3,850,100 3,893,000
Property operation, maintenance
and energy costs 4,509,700 4,803,200 4,416,800
Depreciation and amortization 3,438,800 3,595,300 3,617,300
------------ ------------ ------------
46,879,400 48,456,500 51,023,500
------------ ------------ ------------
Income from operations 4,860,100 1,667,300 773,500
Interest income -- -- 2,500
Interest expense (2,884,100) (3,026,800) (3,176,800)
------------ ------------ ------------
Net income (loss) 1,976,000 (1,359,500) (2,400,800)
Deficit at beginning of year (22,357,000) (20,997,500) (18,596,700)
------------ ------------ ------------
Deficit at end of year $(20,381,000) $(22,357,000) $(20,997,500)
============ ============ ============
</TABLE>
See accompanying notes.
F-7
<PAGE> 41
Posadas de San Juan Associates
Statements of Cash Flows
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss) $ 1,976,000 $(1,359,500) $(2,400,800)
Adjustments to reconcile net income (loss)
to net cash provided by operating activities:
Depreciation and amortization 3,438,800 3,595,300 3,617,300
Provision for losses on accounts receivable 150,600 1,278,200 3,880,400
Gain or sale of equipment -- (46,600) --
Changes in operating assets and liabilities:
Amounts due to/from affiliated companies 2,610,100 2,086,700 639,600
Trade accounts receivable (1,471,900) 503,900 833,200
Inventories and prepaid expenses (16,400) 193,600 21,600
Other assets 167,200 (10,500) (125,600)
Trade accounts payable, accrued expenses
and other accrued liabilities 850,000 (990,600) (2,493,100)
----------- ----------- -----------
Net cash provided by operating activities 7,704,400 5,250,500 3,972,600
INVESTING ACTIVITIES
Proceeds from sale of equipment -- 119,300 --
Purchases of property and equipment (4,059,700) (2,502,800) (3,310,000)
Purchases of operating equipment - net 47,700 78,800 635,900
----------- ----------- -----------
Net cash used in investing activities (4,012,000) (2,304,700) (2,674,100)
FINANCING ACTIVITIES
Proceeds from long-term debt -- -- 156,200
Proceeds from short-term borrowings -- 300,000 --
Payment of short-term borrowings (300,000) -- --
Payments of long-term debt (3,155,000) (2,326,400) (2,046,800)
----------- ----------- -----------
Net cash used in financing activities (3,455,000) (2,026,400) (1,890,600)
----------- ----------- -----------
Net increase (decrease) in cash and
cash equivalents 237,400 919,400 (592,100)
Cash at beginning of year 2,443,700 1,524,300 2,116,400
----------- ----------- -----------
Cash and cash equivalents at end of year $ 2,681,100 $ 2,443,700 $ 1,524,300
=========== =========== ===========
Included in cash provided by operating activities above:
Interest paid $ 2,887,600 $ 3,031,400 $ 3,232,500
=========== =========== ===========
</TABLE>
See accompanying notes.
F-8
<PAGE> 42
Posadas de San Juan Associates
Notes to Financial Statements
June 30, 1997
1. ORGANIZATION AND PRINCIPAL ACCOUNTING POLICIES
ORGANIZATION
Posadas de San Juan Associates (the Partnership), is a joint venture organized
under the General Partnership Laws of the State of New York, pursuant to a Joint
Venture Agreement dated July 27, 1984, as amended (the Agreement). The
Partnership is 50% owned by ESJ Hotel Corporation, a wholly-owned subsidiary of
Posadas de Puerto Rico Associates, Incorporated (Posadas de Puerto Rico), with
the remainder owned by entities owned by individual investors (collectively, the
Partners). Posadas de Puerto Rico is 100% owned by WHG Resorts & Casinos Inc., a
publicly-held corporation. The Partnership shall continue to exist until July
27, 2024, unless terminated earlier by mutual agreement of the Partners pursuant
to the Agreement. The Agreement provides that the net profits or losses of the
Partnership shall be allocated to the Partners in the same proportion as their
capital contributions.
The Partnership owns and operates the El San Juan Hotel & Casino (the "Hotel"),
a luxury resort hotel and casino property in San Juan, Puerto Rico.
BASIS OF PRESENTATION
The financial statements have been prepared in conformity with generally
accepted accounting principles which require management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
CASH EQUIVALENTS
The Partnership considers all highly liquid investments with a maturity of three
months or less when purchased as cash equivalents.
INVENTORIES
Inventories, which consist mainly of food, beverages and supplies, are valued at
the lower of cost (first-in, first-out method) or market.
LAND, BUILDING AND EQUIPMENT
Land, building and equipment are stated on the basis of cost. Building and
equipment are depreciated by the straight-line method over their estimated
useful lives.
DEFERRED FINANCING COSTS
Deferred financing costs are being amortized over the maturities of the related
debt.
F-9
<PAGE> 43
Posadas de San Juan Associates
Notes to Financial Statements (continued)
1. ORGANIZATION AND PRINCIPAL ACCOUNTING POLICIES (CONTINUED)
CASINO REVENUES
Casino revenues are the net win from gaming activities, which is the difference
between gaming wins and losses.
PROMOTIONAL ALLOWANCES
Casino promotional allowances represent the retail value of complimentary food,
beverage and hotel services furnished to patrons, commissions and transportation
costs.
ADVERTISING COSTS
Advertising costs are charged to operations as incurred. Advertising costs for
fiscal years 1997, 1996 and 1995 amounted to approximately $1,388,000,
$1,394,000 and $1,299,000, respectively.
FAIR VALUES OF FINANCIAL INSTRUMENTS
The methods and assumptions used to estimate the fair value of the different
classes of financial instruments were as follows:
Long-term debt: The carrying amount of the long-term borrowings at June 30, 1997
approximates fair value. The fair values were estimated using discounted cash
flows, based on the current borrowing rates for similar types of borrowing
arrangements.
2. FURNITURE, FIXTURES AND EQUIPMENT FUND
In accordance with the terms of the Management Agreement and a certain loan
agreement (see Note 6), the Partnership is required to deposit cash equal to 4%
of hotel gross revenues each month into a furniture, fixtures and equipment
fund.
Williams Hospitality Group Inc. (Williams Hospitality), a hotel/casino
management company that is an affiliated company, (on behalf of the Partnership)
withdraws from the fund amounts required to pay the cost of replacements of, and
additions to, furniture, fixtures and equipment at the Hotel. At June 30, 1997
and 1996, there were no unexpended funds available.
F-10
<PAGE> 44
Posadas de San Juan Associates
Notes to Financial Statements (continued)
3. TRADE ACCOUNTS RECEIVABLE
At June 30, 1997 and 1996 trade accounts receivable consisted of the
following:
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Trade accounts receivable-casino $2,001,600 $1,045,100
Less allowance for doubtful accounts 516,100 266,100
---------- ----------
1,485,500 779,000
Trade accounts receivable-hotel 2,296,700 1,682,700
Less allowance for doubtful accounts 90,200 91,000
---------- ----------
2,206,500 1,591,700
---------- ----------
$3,692,000 $2,370,700
========== ==========
</TABLE>
Approximately 51% and 31% of the trade accounts receivable-casino, as of June
30, 1997 and 1996, respectively, are from customers in Latin America.
4. DUE TO AFFILIATED COMPANY
Amounts due to affiliated company consist of fees earned by Williams Hospitality
and other payments made by Williams Hospitality for services rendered on behalf
of the Partnership. At June 30, 1997 and 1996 amounts due to an affiliated
company consisted of the following:
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Due to Williams Hospitality - noncurrent:
Incentive management fees $11,283,400 $ 9,878,900
Interest on incentive management fees 5,506,400 4,526,800
Basic management fees 8,801,000 8,801,000
----------- -----------
$25,590,800 $23,206,700
=========== ===========
</TABLE>
Payment of substantially all the noncurrent amounts due to Williams Hospitality
are restricted under the terms of the Loan Agreement (see Note 6).
F-11
<PAGE> 45
Posadas de San Juan Associates
Notes to Financial Statements (continued)
5. LINE OF CREDIT
The Partnership has available a $1,000,000 revolving line of credit with a bank,
which is payable on demand, bearing interest at one percentage over the prime
rate. The line of credit is collateralized by substantially all trade accounts
receivable and leases with concessionaires as well as the mortgage covering
long-term debt. As of June 30, 1997, there was no balance outstanding under the
line of credit.
6. LONG-TERM DEBT
Long-term debt at June 30, 1997 and 1996 consisted of the following:
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Mortgage note payable to bank $23,250,000 $26,250,000
Capital lease obligation bearing interest at
11.18% payable in monthly installments of
$3,450, including interest through 1999 70,000 109,600
Capital lease obligation bearing interest at
9.5% payable in monthly installments of
$10,413, including interest through 2001 396,100 480,700
Chattel mortgage note payable bearing interest
at 9%, payable in monthly installments of
$3,900, including interest through 1998,
collateralized with personal property 85,900 116,700
Note payable to a non-related party,non-
interest bearing, payable in two annual
installments of $100,000 beginning on
October 1, 1998 200,000 --
----------- -----------
24,002,000 26,957,000
Less current portion 3,170,600 3,152,000
----------- -----------
$20,831,400 $23,805,000
=========== ===========
</TABLE>
The mortgage note payable to bank is collateralized by all the Partnership's
real and personal property. The note is payable in accelerating monthly
installments with a final installment of $7,500,000 due in fiscal 2003. Interest
is payable at rates from 6.7% to 7.3% on $18,250,000 of the note. Interest rates
have not been fixed on $5,000,000 of the note, which at June 30, 1997 was at an
interest rate of 7.97%, which is reset every seven days. Under the terms of the
loan
F-12
<PAGE> 46
Posadas de San Juan Associates
Notes to Financial Statements (continued)
6. LONG-TERM DEBT (CONTINUED)
agreement, 50% of the excess net free cash flow, as defined, each year is
required to be used to prepay the final installment of the note until it is
reduced to $3,000,000. Further, distributions to the partners and payment of
basic and incentive management fees and accrued interest thereon outstanding at
the date of the borrowing may only be paid to the extent of the remaining 50% of
the excess net free cash flow. Excess net free cash flow, as defined, amounted
to $648,000 at June 30, 1997.
Maturities of long-term debt are as follows:
Fiscal year ending in:
<TABLE>
<S> <C>
1998 $ 3,170,600
1999 3,392,000
2000 3,726,000
2001 3,588,400
2002 2,625,000
Thereafter 7,500,000
------------
$24,002,000
============
</TABLE>
7. INCOME TAXES
The Partnership operated under the provisions of the Puerto Rico Tourism
Incentives Act of 1993 (the 1993 Act). The 1993 Act provides for a ten-year
grant which may be extended for an additional ten-year term. Major benefits of
this grant are: a 90% exemption from income taxes on hotel income through the
entire term of the grant, and a 90% exemption from municipal real and personal
property taxes for the first five years. The Partnership's casino operations are
not covered by the tax exemption grant and are fully taxable.
As of June 30, 1997, the Partnership had net operating loss carryforwards of
approximately $20,391,600, net of approximately $1,600,000 used to offset 1997
taxable income for Puerto Rico income tax purposes from its combined hotel and
casino operations and, accordingly, no Puerto Rico taxes have been provided in
the accompanying financial statements. Such losses may be utilized to offset
future Puerto Rico taxable income through June 30, 2001 as follows: 1998,
$2,064,000; 1999, $3,271,000; 2000, $3,896,600; 2001, $6,046,000 and 2002,
$5,114,000.
F-13
<PAGE> 47
Posadas de San Juan Associates
Notes to Financial Statements (continued)
7. INCOME TAXES (CONTINUED)
Following the provisions of SFAS No. 109, the deferred tax asset that results
from the cumulative net operating loss carryforwards has been fully reserved.
For Puerto Rico income tax purposes the Partnership is taxed as if it were a
corporation. Income of the Partnership for federal income tax purposes is
taxable to the Partners.
8. TRANSACTIONS WITH RELATED PARTIES
The Partnership has an Operating and Management Agreement (the Management
Agreement) dated October 2, 1986 with Williams Hospitality. The Management
Agreement provides that Williams Hospitality is to manage the Hotel until the
year 2005 for a basic management fee of 5% of the Hotel's gross revenues (as
defined in the Management Agreement) and an incentive management fee of 12% of
the Hotel's gross operating profits (as defined in the Management Agreement). In
addition, the Partnership is required to pay certain administrative expenses
incurred by Williams Hospitality in connection with management of the Hotel.
During fiscal years 1997, 1996 and 1995 basic management fees amounted to
$2,932,200, $2,852,500 and $2,981,600, respectively. Incentive management fees
amounted to $1,404,500, $997,600 and $911,500, respectively, for the same fiscal
years. Administrative costs and service fees charged by Williams Hospitality
during fiscal years 1997, 1996 and 1995, amounted to $1,422,600, $1,446,700 and
$1,844,000, respectively.
During fiscal years 1997, 1996 and 1995, interest at 10% charged to the
Partnership by Williams Hospitality amounted to $987,900, $888,100 and $797,000,
respectively.
During fiscal years 1997, 1996 and 1995, the Partnership was charged by Posadas
de Puerto Rico $338,100, $243,600 and $92,800, respectively, for certain
services provided.
During fiscal years 1997, 1996 and 1995, the Partnership charged Posadas de
Puerto Rico $337,400, $256,100 and $191,500, respectively, for certain services
rendered.
F-14
<PAGE> 48
Report of Independent Auditors
The Partners
WKA El Con Associates
We have audited the accompanying balance sheets of WKA El Con Associates (a
joint venture partnership) as of June 30, 1997 and 1996, and the related
statements of operations and deficit, and cash flows for each of the three years
in the period ended June 30, 1997. These financial statements are the
responsibility of the Partnership'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 about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of WKA El Con Associates as of
June 30, 1997 and 1996, and the results of its operations and its cash flows for
each of the three years in the period ended June 30, 1997, in conformity with
generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that WKA El
Con Associates will continue as a going-concern. As more fully described in Note
7 , El Conquistador Partnership L.P., a 50% owned partnership, has not renewed
or replaced a letter of credit collaterizing a $120,000,000 of indebtedness. In
the event that the letter of credit is not renewed or replaced prior to November
9, 1997 the debt will be required to be repaid on February 1, 1998. This
condition raises substantial doubt about the Partnership's ability to continue
as a going concern. The financial statements do not include any adjustments to
reflect the possible future effects on the recoverability and classification of
assets or the amounts and classifications of liabilities that may result from
the outcome of this uncertainty.
/s/ ERNST & YOUNG LLP
San Juan, Puerto Rico
August 11, 1997
F-15
<PAGE> 49
WKA El Con Associates
Balance Sheets
<TABLE>
<CAPTION>
JUNE 30
1997 1996
------------ ------------
<S> <C> <C>
ASSETS
Cash $ 3,600 $ 3,200
Notes receivable from affiliated company 18,343,200 16,116,000
Investment in Las Casitas Development Company 242,600 1,292,600
Capitalized interest, less accumulated amortization
of $100,400 in 1997 and $71,000 in 1996 1,368,100 1,397,500
Deferred debt issuance costs and other assets,
less accumulated amortization of $598,600
in 1997 and $496,200 in 1996 769,800 872,200
------------ ------------
Total assets $ 20,727,300 $ 19,681,500
============ ============
LIABILITIES AND DEFICIENCY IN PARTNERS' CAPITAL
Liabilities:
Long-term note payable $ 5,527,400 $ 5,197,000
Due to affiliated company 85,100 64,200
Due to partners 10,475,100 9,790,700
Losses in excess of equity investment in
El Conquistador Partnership L. P 12,464,200 7,762,600
------------ ------------
Total liabilities 28,551,800 22,814,500
Deficiency in partners' capital:
Contributed 20,286,200 20,286,200
Deficit (28,110,700) (23,419,200)
------------ ------------
Total deficiency in partners' capital (7,824,500) (3,133,000)
------------ ------------
Total liabilities and deficiency in partners' capital $ 20,727,300 $ 19,681,500
============ ============
</TABLE>
See accompanying notes.
F-16
<PAGE> 50
WKA El Con Associates
Statements of Operations and Deficit
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Interest income $ 1,241,100 $ 1,150,100 $ 1,027,600
Costs and expenses:
Interest 1,078,400 1,145,800 1,137,600
Professional fees 20,900 40,100 83,400
Amortization 131,800 142,000 163,200
------------ ------------ ------------
1,231,100 1,327,900 1,384,200
------------ ------------ ------------
Income (loss) before equity in operations
of investees 10,000 (177,800) (356,600)
Equity in operations of investees:
El Conquistador Partnership L.P. (4,701,500) (6,120,500) (13,738,400)
Las Casitas Development Company -- 313,200 1,627,100
------------ ------------ ------------
(4,701,500) (5,807,300) (12,111,300)
------------ ------------ ------------
Net loss (4,691,500) (5,985,100) (12,467,900)
Accumulated deficit at beginning of year (23,419,200) (17,434,100) (4,966,200)
------------ ------------ ------------
Accumulated deficit at end of year $(28,110,700) $(23,419,200) $(17,434,100)
============ ============ ============
</TABLE>
See accompanying notes.
F-17
<PAGE> 51
WKA El Con Associates
Statements of Cash Flows
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30
1997 1996 1995
----------- ----------- ------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net loss $(4,691,500) $(5,985,100) $(12,467,900)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Amortization 131,800 142,000 163,200
Equity in operations of affiliates including
$1,050,000 in 1997 and $950,000 in 1996 5,751,600 6,757,300 12,111,300
in cash distributions received
Changes in operating assets and liabilities:
Accrued interest income added to
notes receivable (1,177,200) (1,122,800) (1,000,600)
Other receivables -- -- 13,200
Accrued interest expense added to
long-term liabilities 330,400 1,102,900 974,500
Accounts payable -- -- (36,700)
Due to affiliated company -- 58,900 --
----------- ----------- ------------
Net cash provided by (used in) operating
activities 345,100 953,200 (243,000)
INVESTING ACTIVITIES
Sale of certificate of deposit held in escrow -- 682,500 100,000
Increase on deferred debt issuance costs and
other assets -- -- (230,400)
Increase in notes receivable from affiliated
company (1,050,000) (950,000) (423,500)
----------- ----------- ------------
Net cash used in investing activities (1,050,000) (267,500) (553,900)
FINANCING ACTIVITIES
Partners' contributed capital -- 1,295,700 1,870,500
Partners' loans-net 684,400 (852,900) 323,500
Payments to affiliated company 20,900 (1,125,300) (1,397,100)
----------- ----------- ------------
Net cash provided by (used in) financing
activities 705,300 (682,500) 796,900
----------- ----------- ------------
Net increase in cash 400 3,200 --
Cash at beginning of year 3,200 -- --
----------- ----------- ------------
Cash at end of year $ 3,600 $ 3,200 $ --
=========== =========== ============
</TABLE>
See accompanying notes.
F-18
<PAGE> 52
WKA El Con Associates
Notes to Financial Statements
June 30, 1997
1. ORGANIZATION AND PRINCIPAL ACCOUNTING POLICIES
ORGANIZATION
WKA El Con Associates (the Partnership) is a joint venture organized under the
General Partnership Law of the State of New York, pursuant to a Joint Venture
Agreement (the Agreement) dated January 9, 1990, as amended, for the purpose of
becoming a general and limited partner of El Conquistador Partnership L.P. (El
Con). The Partnership is owned 46.54% by WHG El Con Corp. (formerly known as WMS
El Con Corp.), which is wholly-owned by WHG Resorts & Casino Inc., 37.23% by AMK
Conquistador, S.E. and 16.23% by Hospitality Investor Group, S.E. The
Partnership shall continue to exist until January 9, 2040, unless terminated
earlier pursuant to the Agreement. Net profits or losses of the Partnership will
be allocated to the partners in accordance with the terms of the Agreement.
The Partnership is a 50% limited partner in Las Casitas Development Company I, S
en C (S.E.) ("Las Casitas"), a joint venture constructing and selling
condominiums on property adjacent to El Con.
BASIS OF PRESENTATION
The financial statements have been prepared in conformity with generally
accepted accounting principles which require management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
INVESTMENTS IN AFFILIATED COMPANIES
The investments in affiliated companies are accounted for under the equity
method. El Con equity is recorded by the Partnership based on El Con's fiscal
year of March 31. Las Casitas equity is recorded by the Partnership based on Las
Casitas' fiscal year of June 30. Capitalized interest is being amortized by the
straight-line method over the estimated useful life of the El Conquistador
property.
DEFERRED DEBT ISSUANCE COSTS AND OTHER ASSETS
Deferred debt issuance costs include legal and bank fees incurred in connection
with the issuance of the debt, and are being amortized over the maturity of the
related debt. Certain other capital and pre-opening costs relating to El Con
were incurred by the Partnership and are being amortized over 5 to 50 years.
F-19
<PAGE> 53
WKA El Con Associates
Notes to Financial Statements (continued)
1. ORGANIZATION AND PRINCIPAL ACCOUNTING POLICIES (CONTINUED)
FAIR VALUES OF FINANCIAL INSTRUMENTS
Note payable: The carrying amount of the note payable at June 30, 1997
approximates fair value. The fair value was estimated using discounted cash
flows, based on the current borrowing rates for similar types of borrowing
arrangements.
2. NOTES RECEIVABLE FROM AFFILIATED COMPANY
At June 30, 1997 and 1996 notes receivable from El Con consisted of the
following:
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Note receivable due on demand $ 136,000 $ 136,000
Note receivable due through May, 2002 (See Note 5) 4,000,000 4,000,000
Subordinated notes receivable due in 2003 to 2005
(See Note 4) 8,229,700 8,229,700
Accrued interest receivable 3,977,500 2,800,300
Deficiency loan participation 2,000,000 950,000
----------- -----------
$18,343,200 $16,116,000
=========== ===========
</TABLE>
Repayment of the notes, including accrued interest, is subordinated to other
long-term debt of El Con.
3. INVESTMENT IN AFFILIATED COMPANIES
In 1991, the Partnership borrowed $9,000,000 from Williams Hospitality Group
Inc. (Williams Hospitality), a hotel/casino management company that is an
affiliated company, and invested the proceeds in the partnership capital of El
Con, a joint venture organized to acquire the El Conquistador property. The
Partnership owns a 50% interest, as both a general and limited partner, of El
Con (See Note 4).
Summarized financial information for El Con as of March 31, 1997 and 1996 and
for the years then is as follows:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Total assets $205,430,000 $211,691,000
Total liabilities 218,359,000 215,216,000
Deficiency in partners capital 12,929,000 3,525,000
Revenues 92,958,000 89,214,000
Net loss 9,403,000 12,241,000
</TABLE>
The Partnership's investment in Las Casitas amounts to $5,000.
F-20
<PAGE> 54
WKA El Con Associates
Notes to Financial Statements (continued)
4. DUE TO AFFILIATED COMPANY AND PARTNERS
At various times, the partners loaned the Partnership $8,229,700 under the terms
of loan agreements. The notes are payable in 2003 to 2005 and bear interest at
the prime rate commencing on various dates. The Partnership has advanced the
same amount under a subordinated note to El Con under the same terms as the
borrowing from the partners. (See Note 2).
In November 1993, the partners advanced $782,500 to the Partnership that was
invested in a bank certificate of deposit. During fiscal year 1996 the remaining
balance of $682,500 was withdrawn from the certificate and distributed to the
partners. The certificate of deposit was held in escrow and was pledged as
collateral to the bank for a bank loan of an equal amount to El Con. Interest
accrued on the partners' advances at the same interest rate earned on the
certificate of deposit.
During fiscal year 1997 and 1996, respectively, the Partnership purchased from
Williams Hospitality $1,050,000 and $950,000, respectively, of participation in
a deficiency loan to El Con. The loan and interest at 9.16% are payable from
specified future cash flow of El Con. The partnership guarantees a revolving
credit facility with a bank in the aggregate amount of up to $4,000,000 of El
Conquistador.
5. LONG-TERM NOTE PAYABLE
The long-term note payable to a bank includes accrued interest of $1,527,400 and
$1,197,000 at June 30, 1997 and 1996, respectively. The note is payable in
quarterly installments of $250,000 commencing in May 2000. Any unpaid principal
and interest is payable in May 2002. The note bears interest at a variable rate,
computed quarterly, equal to LIBOR, plus 1.75%. Under the terms of the Credit
Facility Agreement dated May 5, 1992, interest payments are deferred during the
first five years. The $4,000,000 borrowing was loaned to El Conquistador under
similar terms. (See Note 2).
The note is collateralized by second mortgages on parcels of land owned by
Williams Hospitality and Posadas de Puerto Rico Associates, Incorporated,
affiliated companies through common ownership, with a cost of approximately
$3,761,000, and a guarantee of $1,000,000 by WHG Resorts & Casino Inc., the
ultimate owner of WHG El Con Corp.
F-21
<PAGE> 55
WKA El Con Associates
Notes to Financial Statements (continued)
6. INCOME TAXES
The Partnership is not taxable for Puerto Rico income tax purposes pursuant to
an election submitted to the Puerto Rico Treasury Department. Instead, each
partner reports their distributive share of the Partnership's profit or losses
in their respective income tax returns and, therefore, no provision for income
taxes has been made in the accompanying financial statements. Income or loss of
the Partnership for Federal income tax purposes is reported by the partners.
7. REFINANCING
El Con, a partnership 50% owned by the Partnership, has not renewed or replaced
a letter of credit collaterizing $120,000,000 of Industrial Revenue Bonds, which
expires on March 9, 1998. The debt is required to be repaid on February 1, 1998
in the event the letter of credit is not renewed or replaced prior to November
9, 1997. El Con has retained an investment banking firm to assist in structuring
the refinancing of El Con's debt. Based on operating history of the El Con
resort, El Con's management believes such refinancing will be achieved, but
there can be no assurance thereof. If such refinancing is not renewed or
replaced, it raises substantial doubt about El Con's and the Partnership's
ability to continue as going-concerns.
F-22
<PAGE> 56
REPORT OF INDEPENDENT AUDITORS
The Partners
El Conquistador Partnership L.P.
We have audited the accompanying balance sheets of El Conquistador Partnership
L.P. as of March 31, 1997 and 1996, and the related statements of operations and
(deficiency in) partners' capital, and cash flows for each of the three years in
the period ended March 31, 1997. These financial statements are the
responsibility of the Partnership'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 about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of El Conquistador Partnership
L.P. at March 31, 1997 and 1996, and the results of its operations and its cash
flows for each of the three years in the period ended March 31, 1997, in
conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that El
Conquistador Partnership L.P. will continue as a going-concern. As more fully
described in Note 13, to date El Conquistador Partnership L.P. has not renewed
or replaced a letter of credit collateralizing $120,000,000 of indebtedness. In
the event that the letter of credit is not renewed or replaced prior to November
9, 1997 the debt will be required to be repaid on February 1, 1998. This
condition raises substantial doubt about the El Conquistador Partnership L.P.'s
ability to continue as a going concern. The financial statements do not include
any adjustments to reflect the possible future effects on the recoverability and
classifications of assets or the amounts and classifications of liabilities that
may result from the outcome of this uncertainty.
San Juan, Puerto Rico
May 2, 1997
/s/ ERNST & YOUNG LLP
F-23
<PAGE> 57
EL CONQUISTADOR PARTNERSHIP L.P.
BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31
1997 1996
---------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash $ 2,380,218 $ 856,983
Restricted cash and investments held by bank 3,360,607 2,879,355
Trade accounts receivable, less allowance for
doubtful accounts of $269,115 in 1997
and $301,765 in 1996 4,764,607 5,302,884
Due from affiliated companies 428,987 314,999
Inventories 1,662,877 1,522,463
Prepaid expenses and other current assets 1,020,716 945,905
---------------------------
Total current assets 13,618,012 11,822,589
Due from affiliated company 418,957 817,868
Land, building and equipment:
Land 14,372,707 14,372,707
Building 158,039,190 158,039,190
Furniture, fixture and equipment 32,664,796 31,359,202
---------------------------
205,076,693 203,771,099
Less accumulated depreciation 21,116,551 14,777,283
---------------------------
183,960,142 188,993,816
Operating equipment, net 1,592,219 1,469,350
Deferred debt issuance costs, net of accumulated
amortization of $5,709,747 in 1997
and $4,731,745 in 1996 2,980,622 3,958,624
Deferred pre-opening costs, net of accumulated
amortization of $10,519,175 in 1997
and $8,751,425 in 1996 2,860,504 4,628,254
---------------------------
Total assets $205,430,456 $211,690,501
===========================
</TABLE>
F-24
<PAGE> 58
<TABLE>
<CAPTION>
MARCH 31
1997 1996
---------------------------
<S> <C> <C>
LIABILITIES AND DEFICIENCY IN PARTNERS' CAPITAL
Current liabilities:
Trade accounts payable $ 5,474,496 $ 7,657,546
Advance deposits 5,572,317 3,568,390
Accrued interest 1,785,687 1,510,080
Other accrued liabilities 5,271,335 4,673,189
Due to affiliated companies 545,824 652,896
Note payable to bank 1,500,000 2,773,359
Current portion of long-term debt 120,000,000 --
Current portion of chattel mortgages
and capital lease obligations 2,679,819 2,444,993
----------------------------
Total current liabilities 142,829,478 23,280,453
Long-term debt 25,000,000 145,000,000
Chattel mortgages and capital lease
obligations, net of current portion 1,660,040 4,324,358
Due to affiliated companies 11,491,977 8,531,671
Due to partners 37,377,424 34,079,309
Deficiency in partners' capital:
Limited partners (10,989,193) (2,996,497)
General partners (1,939,270) (528,793)
----------------------------
Total deficiency in partners' capital (12,928,463) (3,525,290)
----------------------------
Total liabilities and deficiency in
partners' capital $205,430,456 $211,690,501
============================
See accompanying notes.
</TABLE>
F-25
<PAGE> 59
EL CONQUISTADOR PARTNERSHIP L.P.
STATEMENTS OF OPERATIONS AND (DEFICIENCY IN) PARTNERS' CAPITAL
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31
1997 1996 1995
------------ ------------ -----------
<S> <C> <C> <C>
Revenues:
Rooms...................................... $ 40,023,903 $ 38,817,160 $ 37,942,821
Food and beverage.......................... 26,235,365 26,188,693 27,298,340
Casino..................................... 6,005,242 6,179,133 6,054,569
Rental and other income.................... 21,959,328 19,165,969 14,652,328
------------ ------------ ------------
94,223,838 90,350,955 85,948,058
Less casino promotional allowances......... (1,265,710) (1,136,499) (1,205,380)
------------ ------------ ------------
Net revenues................................. 92,958,128 89,214,456 84,742,678
Costs and expenses:
Rooms...................................... 12,377,694 12,853,157 14,755,239
Food and beverage.......................... 17,602,484 17,638,186 20,797,173
Casino..................................... 3,848,981 3,686,904 3,923,817
Selling, general and administrative........ 14,657,312 12,992,841 18,115,433
Management and incentive
management fees.......................... 5,680,355 5,394,675 3,703,819
Property operation, maintenance and
energy costs.............................. 12,382,577 12,396,063 14,408,347
Depreciation and amortization............... 9,146,664 10,499,296 11,124,075
Other expenses.............................. 9,702,212 9,201,228 9,722,662
------------ ------------ ------------
85,398,279 84,662,350 96,550,565
------------ ------------ ------------
Income (loss) from operations................. 7,559,849 4,552,106 (11,807,887)
Interest income............................... 199,110 228,625 467,922
Interest expense.............................. 17,162,132 17,021,764 16,136,755
------------ ------------ ------------
Net loss...................................... (9,403,173) (12,241,033) (27,476,720)
(Deficiency in) partners' capital
at beginning of year........................ (3,525,290) 8,715,743 36,191,325
Partners' capital contribution................ -- -- 1,138
------------ ------------ ------------
(Deficiency in) partners' capital
at end of year.............................. $(12,928,463) $ (3,525,290) $ 8,715,743
============ ============ ============
</TABLE>
See accompanying notes.
F-26
<PAGE> 60
EL CONQUISTADOR PARTNERSHIP L.P.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31
1997 1996 1995
-------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net loss $ (9,403,173) $(12,241,033) $(27,476,720)
Adjustments to reconcile net loss to net
cash provided by (used in) operating activities:
Depreciation and amortization 9,146,664 10,499,296 11,124,075
Provision for losses on accounts receivable 205,400 363,245 1,808,641
Incentive management fees 2,375,526 2,224,381 679,259
Deferred interest expense to partners and affiliates 3,100,085 2,995,431 2,063,981
Changes in operating assets and liabilities:
Restricted cash and investments held by bank (481,252) 503,353 2,549,446
Trade accounts receivable 332,877 1,987,789 2,187,211
Inventories (140,414) 529,503 61,249
Prepaid expenses and other current assets (74,811) 26,105 491,032
Trade accounts payable and advance deposits (179,123) (3,663,803) (1,323,693)
Accrued interest and other accrued liabilities 873,753 (1,220,058) 1,156,483
Affiliated companies, net 99,017 (97,985) 1,967,073
-------------------------------------------
Net cash provided by (used in) operating activities 5,854,549 1,906,224 (4,711,963)
INVESTING ACTIVITIES
Purchases of property and equipment (1,305,594) (826,611) (3,525,762)
Usage of operating equipment, net (122,869) (37,454) 523,641
-------------------------------------------
Net cash used in investing activities (1,428,463) (864,065) (3,002,121)
FINANCING ACTIVITIES
Payments of principal on long-term debt (2,429,492) (2,198,146) (1,976,625)
Proceeds from long-term debt - - 776,000
Proceeds from notes payable to bank 9,500,000 7,684,685 -
Payments of principal on notes payable to bank (10,773,359) (6,549,685) (200,000)
Proceeds from partners' and affiliated loans,
and capital contributions 800,000 - 8,698,134
-------------------------------------------
Net cash used in financing activities (2,902,851) (1,063,146) 7,293,509
-------------------------------------------
Net increase (decrease) in cash 1,523,235 (20,987) (420,575)
Cash at beginning of year 856,983 877,970 1,298,545
-------------------------------------------
Cash at end of year $ 2,380,218 $ 856,983 $ 877,970
===========================================
Supplemental disclosure of cash flow information:
Interest paid $ 13,789,097 $14,026,453 $14,314,600
===========================================
</TABLE>
See accompanying notes.
F-27
<PAGE> 61
EL CONQUISTADOR PARTNERSHIP L.P.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1997
1. ORGANIZATION AND PRINCIPAL ACCOUNTING POLICIES
ORGANIZATION
El Conquistador Partnership L.P. (the Partnership), is a limited partnership
organized under the laws of Delaware, pursuant to a Joint Venture Agreement
dated January 12, 1990 (the Agreement). The Partnership is 50% owned by WKA El
Con Associates (WKA El Con), a partnership owned by several partners affiliated
with Williams Hospitality Group Inc. (Williams Hospitality), and 50% by Kumagai
Caribbean, Inc. (Kumagai), a wholly-owned subsidiary of Kumagai International
USA, Inc. The joint venture partners (Partners) are both General Partners and
Limited Partners in the Partnership. The Partnership shall continue to exist
until March 31, 2030, unless terminated earlier by mutual agreement of the
General Partners. The Agreement provides that net profits or losses of the
Partnership after deducting a preferred cumulative annual return of 8.5% on the
Partners unrecovered capital accounts, as defined, will be allocated to the
Partners on a 50-50 ratio subject to certain exceptions, as defined.
The Partnership owns and operates a luxury resort hotel and casino in Las
Croabas, Puerto Rico (the Resort).
BASIS OF PRESENTATION
The financial statements have been prepared in conformity with generally
accepted accounting principles which requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
INVENTORIES
Inventories, which consist mainly of food, beverages and supplies, are valued at
the lower of cost (first-in, first-out method) or market.
LAND, BUILDING AND EQUIPMENT
Land, building and equipment are stated on the basis of cost. Building and
equipment are depreciated by the straight-line method over their estimated
useful lives.
DEFERRED DEBT ISSUANCE COSTS
Debt issuance costs include legal and underwriting fees, other fees incurred in
connection with the financing and other costs. These costs are being amortized
on a straight-line basis over the term of the debt.
F-28
<PAGE> 62
EL CONQUISTADOR PARTNERSHIP L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
1. ORGANIZATION AND PRINCIPAL ACCOUNTING POLICIES (CONTINUED)
DEFERRED PRE-OPENING COSTS
Pre-opening costs consist of amounts incurred in connection with the marketing,
organization, planning and development of the Resort. Such costs include
staffing, marketing, legal and other costs incurred prior to the commencement of
operations of the Resort. The costs are being amortized on a straight-line basis
over a five year period through November 1998.
CASINO REVENUES
Casino revenues are the net win from gaming activities, which is the difference
between gaming wins and losses.
CASINO PROMOTIONAL ALLOWANCES
Casino promotional allowances represent the retail value of complimentary
rooms, food, beverage and hotel services furnished to patrons.
2. RESTRICTED CASH AND INVESTMENTS HELD BY BANK
Pursuant to the terms of the bond agreement (see Note 8), the Partnership had
cash and investments on deposit with the trustee for the following:
<TABLE>
<CAPTION>
MARCH 31
1997 1996
------------------------
<S> <C> <C>
Interest due May 1 $1,778,961 $1,584,000
Interest due August 1 1,581,646 1,295,355
------------------------
$3,360,607 $2,879,355
========================
</TABLE>
F-29
<PAGE> 63
EL CONQUISTADOR PARTNERSHIP L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
3. TRADE ACCOUNTS RECEIVABLE
Trade accounts receivable consisted of the following:
<TABLE>
<CAPTION>
MARCH 31
1997 1996
------------------------
<S> <C> <C>
Trade accounts receivable - hotel $4,559,108 $5,259,478
Less allowance for doubtful accounts 144,615 217,362
------------------------
4,414,493 5,042,116
Trade accounts receivable - casino 474,614 345,171
Less allowance for doubtful accounts 124,500 84,403
------------------------
350,114 260,768
------------------------
Trade accounts receivable, net $4,764,607 $5,302,884
========================
</TABLE>
4. TRANSACTIONS WITH RELATED PARTIES
The Partnership has an Operating and Management Agreement (the Management
Agreement) with Williams Hospitality. The Management Agreement provides that
Williams Hospitality will manage the Resort for a period of 20 years for a
basic management fee of 3.5% of the Resorts' gross revenues, as defined, and an
incentive management fee of 10% of the Resorts' operating profit, as defined.
Incentive management fees accrued each year are not payable until significant
cash flows levels are achieved. In addition, the Partnership is required to pay
certain administrative expenses incurred by Williams Hospitality in connection
with management of the Resort.
During fiscal years 1997 and 1996, basic management fees amounted to $3,305,000
and $3,170,000, respectively. Incentive management fees amounted to
approximately $2,376,000 and $2,224,000 during fiscal years 1997 and 1996,
respectively. In addition, Williams Hospitality charged the Partnership
approximately $3,258,000 and $2,728,000 in fiscal years 1997 and 1996,
respectively, for services provided to the Resort.
In addition, the Partnership was charged by Posadas de Puerto Rico Associates,
Incorporated (Posadas de Puerto Rico), hotel and casino operations affiliated
through common ownership, approximately $410,000 and $437,000 in fiscal years
1997 and 1996, respectively, for services provided to the Resort.
F-30
<PAGE> 64
EL CONQUISTADOR PARTNERSHIP L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
4. TRANSACTIONS WITH RELATED PARTIES (CONTINUED)
As of March 31, 1997 each partner had advanced $8,365,685 to the Partnership
under notes that are due for various periods up to ten years with interest at
the Citibank, N.A. in New York base rate. Repayment of interest and principal
is subordinated to other long-term debt. In addition, each partner had advanced
to the Partnership $4,000,000 under a May 5, 1992 loan agreement. The loan
agreement provides for the payment of interest at a variable rate, computed
quarterly, equal to LIBOR plus 1.75%. Interest payments will be deferred during
the first five years. The principal and deferred interest accrued at March 31,
1997 is payable in quarterly installments of $250,000 commencing in March 2000
and a final lump-sum payment in February 2002. The loan is collateralized by a
subordinated pledge of the Partnership's assets.
As of March 31, 1997 each partner had provided $3,800,000 to cover cash flow
deficiency in the Partnership's operations as provided by the Agreement. The
deficiency loans consist of $3,800,000 in cash by Kumagai, and the conversion
of amounts due from the Partnership to Williams Hospitality to loans for WKA El
Con. The deficiency loans bear interest at 9.16%. Repayment of interest and
principal is subordinated to other long-term debt.
As of March 31, 1997, the outstanding balance of advances made by the
Partnership to Williams Hospitality for the purchase of transportation
equipment leased to the Partnership under a five year service agreement
amounted to $727,200. Service agreement payments by the Partnership are equal
to the $39,819 monthly amounts receivable under the advance. Repayment of the
advances by Williams Hospitality are limited to amounts payable under the
service agreement. This transportation equipment is pledged as collateral by
Williams Hospitality to the Partnership's chattel mortgage notes.
In addition, a subsidiary of Williams Hospitality financed other transportation
equipment from an external borrowing amounting to $441,000 repayable over five
years. Monthly payments amount to $9,699. Also, in February 1997, a subsidiary
of Williams Hospitality financed a ferryboat from an external borrowing
amounting to $456,000, repayable over seven years. Monthly payments amount to
$7,561. The Partnership chartered the transportation equipment and ferryboat
under terms similar to the transaction described in the preceding paragraph.
In October 1996, each partner advanced $400,000 as required by a loan agreement
(see Note 6). The notes bear interest at the prime rate at the Chase Bank in
the New York base rate. Repayment of principal are subordinated to other debt.
The chattel mortgage notes payable (see Note 7) are collateralized by a bank
standby letter of credit of $3,423,000. The letter of credit is collateralized
by certificates of deposit for $2,000,000 issued by the bank in equal amounts
to Williams Hospitality and Kumagai. The chattel mortgage notes, and capital
leases are guaranteed by Williams Hospitality and Kumagai.
F-31
<PAGE> 65
EL CONQUISTADOR PARTNERSHIP L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
5. NOTES PAYABLE TO BANK
On October 4, 1996 the Partnership entered into an amendment to a loan
agreement whereby the Government Development Bank for Puerto Rico (GDB)
extended the Partnership a $6,000,000 credit facility. The notes issued under
the credit facility will bear interest at 1% over LIBOR, and are secured by a
mortgage note on the Partnership's real property and a leasehold mortgage note
on leased land of $120,000. At March 31, 1997 the Partnership had outstanding
borrowings of $1,500,000 with an interest rate at March 31, 1997 of 6.56%.
As of March 31, 1996, the Partnership's borrowings of $2,500,000 with a bank
were repaid during fiscal year 1997.
6. DUE TO AFFILIATED COMPANIES AND PARTNERS
Amounts due to affiliated companies consist of fees earned by Williams
Hospitality, funds advanced to the Partnership and other payments made by
Williams Hospitality, and for services rendered by Posadas de Puerto Rico and
Posadas de San Juan. Amounts due to affiliated companies consisted of the
following:
<TABLE>
<CAPTION>
MARCH 31
1997 1996
------------------------
<S> <C> <C>
Current:
Due to Williams Hospitality:
Basic management fees $435,309 $414,718
Other 83,891 195,523
Due to Posadas de Puerto Rico 26,624 37,380
Due to Posadas de San Juan - 5,275
------------------------
$545,824 $652,896
========================
Non current:
Affiliate:
Due to Williams Hospitality:
Incentive management fees $ 5,542,528 $3,167,002
Interest at 10% on incentive management fees 338,405 89,350
Advances 3,800,000 3,800,000
Interest on advances 856,282 503,368
Other 375,528 375,528
------------------------
10,912,743 7,935,248
Due to KG Caribbean 579,234 596,423
------------------------
$11,491,977 $8,531,671
========================
</TABLE>
F-32
<PAGE> 66
EL CONQUISTADOR PARTNERSHIP L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
6. DUE TO AFFILIATED COMPANIES AND PARTNERS (CONTINUED)
<TABLE>
<CAPTION>
MARCH 31
1997 1996
------------------------
<S> <C> <C>
Partners:
Due to WKA El Con:
Advances $12,765,685 $12,365,685
Interest on advances 3,594,886 2,522,285
Due to Kumagai:
Advances 16,565,685 16,165,685
Interest on advances 4,451,168 3,025,654
------------------------
$37,377,424 $34,079,309
========================
</TABLE>
7. CHATTEL MORTGAGES AND CAPITAL LEASE OBLIGATIONS
Chattel mortgages and capital lease obligations on equipment consisted of the
following:
<TABLE>
<CAPTION>
MARCH 31
1997 1996
-----------------------
<S> <C> <C>
Chattel mortgage notes payable bearing interest at 9%,
payable in monthly installments of $215,784, including
interest, through 1998, collateralized with personal property $3,868,202 $6,023,820
Capital lease obligations bearing interest at 11.5%, payable in
monthly installments of $28,335, including interest,
through 1998, collateralized with personal property, net of
$48,307 in 1997 and $121,571 in 1996 representing interest 471,657 745,531
-----------------------
4,339,859 6,769,351
Less current portion 2,679,819 2,444,993
-----------------------
$1,660,040 $4,324,358
=======================
</TABLE>
Maturities of chattel mortgages and capital lease obligations are as follows:
<TABLE>
<S> <C>
1998 $2,679,819
1999 1,660,040
----------
$4,339,859
==========
</TABLE>
See Note 4 for additional collateral and guarantees.
F-33
<PAGE> 67
EL CONQUISTADOR PARTNERSHIP L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
7. CHATTEL MORTGAGES AND CAPITAL LEASE OBLIGATIONS (CONTINUED)
Assets and accumulated depreciation recorded under capital lease obligations
are included in land, building and equipment as follows:
<TABLE>
<CAPTION>
MARCH 31
1997 1996
-----------------------
<S> <C> <C>
Equipment $1,288,373 $1,288,373
Less accumulated depreciation 880,393 622,717
-----------------------
$ 407,980 $ 665,656
=======================
</TABLE>
8. LONG-TERM DEBT
At March 31, 1997 and 1996, long-term debt consisted of the following:
<TABLE>
<CAPTION>
MARCH 31
1997 1996
---------------------------
<S> <C> <C>
Industrial Revenue Bonds Series A $ 90,000,000 $ 90,000,000
Industrial Revenue Bonds Series B 30,000,000 30,000,000
Government Development Bank of Puerto Rico 25,000,000 25,000,000
---------------------------
145,000,000 145,000,000
Less current portion 120,000,000 -
---------------------------
$ 25,000,000 $145,000,000
===========================
</TABLE>
On February 7, 1991 the Puerto Rico Industrial, Medical, Educational and
Environmental Pollution Control Facilities Financing Authority (the Authority)
sold industrial revenue bonds (Bonds) for $120,000,000 and loaned the proceeds
to the Partnership to be used for the payment of project costs pursuant to a
Loan Agreement. The Loan Agreement provides that the Partnership will pay all
interest and principal on the Bonds.
The Authority issued 1991 Series A, Industrial Revenue Bonds for $90,000,000
and 1991 Series B, Industrial Revenue Bonds for $30,000,000.
Commencing on May 1, 1996, the Bonds are subject to redemption at the
Partnership's option at par plus accrued interest, if any. The Bonds are due on
November 1, 1999 and interest is payable quarterly. The 1991 Series A Bonds and
the 1991 Series B Bonds bear interest at a variable rate, computed quarterly,
equal to 100% and 94%, respectively, of a LIBOR rate minus 1/8th of 1%.
Effective November 1, 1996, the interest rate on the 1991 Series A Bonds
increased to 100% of the LIBOR rate. On February 7, 1991 the Partnership
entered into an Interest Swap Agreement that expires on March 8, 1998 by which
the Partnership agrees to pay, effective May 1, 1991, a fixed rate of 7.55% on
the outstanding principal of $120,000,000 in exchange for the counterparty's
obligation to pay the variable interest rate described above.
F-34
<PAGE> 68
EL CONQUISTADOR PARTNERSHIP L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
8. LONG-TERM DEBT (CONTINUED)
The Loan Agreement provides that the Partnership will deposit with the trustee
all interest which will become due not later than the 124th day preceding the
date of payment. The Bonds are collateralized by a letter of credit, that
terminates on February 7, 1998, issued by the Mitsubishi Bank, Limited.
The Partnership pays an annual letter of credit fee of approximately 1.25% of
the Bond principal except under certain circumstances the rate may be reduced
to 1.2%. In addition, in connection with the letter of credit the Partnership
pays an annual agent's fee of approximately .25% of the Initial Stated Amount,
as defined.
Under the provisions of a term loan agreement with the GDB, the Partnership
borrowed $25,000,000 for the payment of project costs. The loan is due on
February 7, 2006. The loan agreement provides for a variable interest rate
equivalent to a LIBOR rate minus .5% plus an add-on margin as provided in the
loan agreement. Interest is payable quarterly in arrears.
Commencing on April 1, 1993, the Partnership is required to deposit annually
with an escrow agent 50% of the Available Cash Flow, as defined in the Loan
Agreement with GDB, up to a maximum of $1,666,700 plus any prior year
requirement in arrears. Through March 31, 1997, there had been no amounts
deposited in escrow under this provision.
The Bonds and the term loan with GDB are collateralized by a first and second
mortgage lien on the Resort, a chattel mortgage on personal property, and an
assignment of various contracts and a management agreement with a related
party. The collateral is subject to a subordination agreement in favor of the
Mitsubishi Bank, Limited.
9. FAIR VALUE OF FINANCIAL INSTRUMENTS
Financial Accounting Standards Board Statement No. 107 "Disclosures About Fair
Value of Financial Instruments", requires the disclosure of the fair value of
the Partnership's financial instruments at March 31, 1997 and 1996. The
carrying amount of cash and investments, notes payable to bank, chattel
mortgage notes and capitalized leases approximates fair value because of the
short maturity of the instruments or recent issuance. The fair value of the
Partnership's long-term debt has not been determined because similar terms and
conditions may no longer be available.
F-35
<PAGE> 69
EL CONQUISTADOR PARTNERSHIP L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
10. INCOME TAXES
The Partnership is not taxable for Puerto Rico income tax purposes pursuant to
an election submitted to the Puerto Rico Treasury Department. Instead, each
Partner reports their distributive share of the Partnership's profit and losses
in their respective income tax returns and, therefore, no provision for income
taxes has been made in the accompanying financial statements.
During 1997, the Partnership was granted a tax exemption grant under the
provisions of the Puerto Rico Tourism Incentives Act of 1993 (the Tourism Act).
The Tourism Act provides for a ten-year grant which may be extended for an
additional ten-year term. Major benefits of this Act are: a 90% exemption from
income taxes on hotel income, and a 90% exemption from municipal real and
personal property taxes through the entire term of the grant. The Partnership's
casino operations are not covered by the tax exemption grant and are fully
taxable.
11. ADVERTISING COSTS
The Partnership recognizes the costs of advertising as expense in the year in
which they are incurred. Advertising costs amounted to approximately $1,446,000
and $847,000 for fiscal years 1997 and 1996, respectively.
12. COMMITMENTS
The Partnership leases land under an operating lease agreement for thirty-one
years with renewal options for two five-year periods. Following are the minimum
annual rental payments on the operating lease subsequent to March 31, 1997:
<TABLE>
<S> <C>
1998 $ 190,000
1999 210,000
2000 210,000
2001 210,000
2002 210,000
Thereafter 5,840,000
----------
$6,870,000
==========
</TABLE>
Total rent expense for fiscal years 1997, and 1996 amounted to approximately
$1,391,000 and $985,000, respectively.
F-36
<PAGE> 70
EL CONQUISTADOR PARTNERSHIP L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
13. REFINANCING
The Industrial Revenues Bonds amounting to $120,000,000 at March 31, 1997 are
collateralized by a letter of credit which expires on March 9, 1998. Under the
terms of the loan agreement, such debt is required to be repaid on February 1,
1998 in the event the letter of credit is not renewed or replaced prior to
November 9, 1997 (See Note 8). El Conquistador Partnership L.P. has engaged an
investment banking firm to assist in structuring the refinancing of El
Conquistador Partnership L.P.'s debt. Based on operating history of the Resort,
El Conquistador Partnership L.P.'s management believes such refinancing will be
achieved, but there can be no assurance thereof. If such refinancing is not
renewed or replaced, it raises substantial doubt about El Conquistador
Partnership L.P.'s ability to continue as a going-concern.
F-37
<PAGE> 71
EXHIBIT INDEX
EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K. Page
(a) (1) Financial Statements of Registrant. All financial
statements of the Registrant required to be disclosed
in this Item 14(a)(1) appear in the Financial Statements
in the 1997 Annual Report. Such Financial Statements are
incorporated by reference herein.
(2) Financial Statement Schedule of Registrant. See "Index
to Financial Information" on page F-1.
(3) Exhibits
+2.1 Plan of Reorganization and Distribution Agreement dated as of
March 20, 1997 among WMS Industries Inc. ("WMS"), Williams Hotel
Corporation and WHG Resorts & Casinos Inc. (the "Company")
+3.1 Amended and Restated Certificate of Incorporation of the Company
+3.2 Amended and Restated Bylaws of the Company
+4.1 Specimen of Common Stock Certificate of the Company
+4.2 Rights Agreement dated as of April 21, 1997 between the Company
and The Bank of New York
+4.3 Form of Certificate of Designation of Series A Preferred Stock
(included as Exhibit A to Exhibit 4.2 hereof)
+4.4 Specimen Form of Rights Certificate (included as Exhibit B to
Exhibit 4.2 hereof)
+4.5 Summary of Rights Plan (included as Exhibit C to Exhibit 4.2
hereof)
+4.6 Certificate of Designation of Series B Preferred Stock
+4.7 Put and Call Agreement dated as of April 21, 1997 between the
Company and Louis J. Nicastro
#10.1 Tax Sharing Agreement dated as of March 20, 1997 among WMS,
the Company, ESJ Hotel Corporation, WMS El Con Corp., WMS
Property Inc. and Williams Hotel Corporation, as amended as
of April 15, 1997
+10.2 Employment Agreement dated as of April 21, 1997 between the
Company and Louis J. Nicastro
+10.3 Employment Agreement dated October 27, 1996 between Williams
Hospitality Group Inc.("WHGI") and Brian R. Gamache
*10.4 Employment Agreement dated April 21, 1997 between the Company
and Brian R. Gamache
+10.5 Employment Agreement dated as of April 21, 1997 between the
Company and George R. Baker
+10.6 Employment Agreement dated February 11, 1997 between WHGI and
Richard F. Johnson
+10.7 1997 Stock Option Plan
+10.8 Form of Indemnity Agreement authorized to be entered into
between the Company and each officer and director of the
Company
+10.9 Operating and Management Agreement dated as of September 23,
1983 between Posadas de Puerto Rico Associates, Incorporated
("PPRA") and Posadas de America Central, Inc. (now known as
WHGI)
+10.10 Operating Credit and Term Loan Agreement ("Operating Credit
Agreement") dated August 30, 1988 between PPRA and Scotiabank
de Puerto Rico, as amended June 12, 1989, September 28, 1990
and April 26, 1991
+10.11 Subordination Agreement dated August 30, 1988 between Williams
Hospitality Management Corporation (now known as WHGI), PPRA
and Scotiabank de Puerto Rico
<PAGE> 72
Page
+10.12 Posadas de San Juan Associates Joint Venture Agreement dated
July 27, 1984 among ESJ Hotel Corporation, Great American
Industries, Inc., IHS Associates, Ltd. and MILTK Inc., as
amended as of October 15, 1984, September 30, 1986, December 30,
1989 and August 13, 1992
+10.13 Deed of Lease dated September 23, 1983 between Posadas de
Flamboyan Associates, L.P. and PPRA as amended September 23,
1983
+10.14 Deed of Subordination of Lease dated May 5, 1995 among Posadas
de Flamboyan Associates, L.P., PPRA and Scotiabank de Puerto
Rico
+10.15 Option Agreement dated May 4, 1995 between PPRA and Posadas de
Flamboyan Associates, L.P. and Letter Agreement dated May 5,
1995 between PPRA and Scotiabank de Puerto Rico related thereto
+10.16 Guaranty of Payment and Performance in favor of PPRA made by
Burton I. Koffman and Richard E. Koffman dated May 5, 1995
+10.17 Operating and Management Agreement dated as of July 31, 1984
between Posadas de San Juan Associates ("PSJA") and Williams
Hospitality Management Corporation (now known as WHGI), as
amended October 25, 1984 and October 1, 1986
+10.18 Credit Agreement dated as of January 20, 1993 between PSJA and
The Bank of Nova Scotia
+10.19 Subordination Agreement dated January 20, 1993 between Williams
Hospitality Management Corporation (now known as WHGI), PSJA and
The Bank of Nova Scotia
+10.20 WKA El Con Associates Joint Venture Agreement dated January 9,
1990 among WMS El Con Corp. (now known as WHG El Con Corp.),
International Textile Products of Puerto Rico, Inc., KMA
Associates of Puerto Rico, Inc. and Hospitality Investor Group,
S.E. as amended as of January 31, 1990, January 18, 1991 and
April 20, 1992
+10.21 El Conquistador Partnership L.P. Venture Agreement dated January
12, 1990 between Kumagai Caribbean, Inc. ("Kumagai") and WKA El
Con Associates ("WKA"), as amended May 4, 1992
+10.22 El Conquistador Partnership L.P. Development Services and
Management Agreement dated January 12, 1990 between El
Conquistador Partnership L.P. (the "Partnership") and Williams
Hospitality Management Corporation (now known as WHGI), as
amended as of September 30, 1990 and January 31, 1991
+10.23 Loan Agreement dated February 7, 1991 between Puerto Rico
Industrial, Medical, Educational and Environmental Pollution
Control Facilities Financing Authority ("AFICA") and the
Partnership
+10.24 Trust Agreement dated February 7, 1991 between AFICA and Banco
Popular de Puerto Rico, as Trustee
+10.25 Letter of Credit and Reimbursement Agreement dated as of
February 7, 1991 between the Partnership and The Mitsubishi
Bank, Limited, acting through its New York Branch (now known as
The Bank of Tokyo-Mitsubishi, Ltd.) (the "Bank") and the
Irrevocable Transferable Standby Letter of Credit dated February
7, 1991 issued pursuant thereto
+10.26 First Amendment to the Letter of Credit and Reimbursement
Agreement dated as of May 5, 1992 between the Partnership, WKA,
Kumagai and the Bank
+10.27 Loan Agreement dated February 7, 1991 between The Government
Development Bank for Puerto Rico ("GDB") and the Partnership
+10.28 First Amendment to GDB Loan Agreement dated May 5, 1992 between
GDB and the Partnership
+10.29 Second Amendment to GDB Loan Agreement dated as of October 4,
1996 between GDB and the Partnership
+10.30 Management Agreement Subordination and Attornment Agreement
dated as of February 7, 1991 between Williams Hospitality
Management Corporation (now known as WHGI) and the Bank
+10.31 Interest Rate and Currency Exchange Agreement dated as of
February 7, 1991 between the Bank and the Partnership
+10.32 Guaranty dated as of February 7, 1991 made by Kumagai and
Williams Hospitality Management Corporation (now known as WHGI)
in favor of the Bank
+10.33 Collateral Pledge Agreement dated as of February 7, 1991 among
the Partnership, AFICA and the Bank
<PAGE> 73
Page
+10.34 Mortgage dated February 7, 1991 by the Partnership in favor of
AFICA
+10.35 Deed of Mortgage dated February 7, 1991 by the Partnership in
favor of GDB
+10.36 Deed of Lease dated December 15, 1990 by Alberto Bachman
Umpierre and Lilliam Bachman Umpierre to the Partnership
+10.37 Leasehold Mortgage dated February 7, 1991 by the Partnership in
favor of AFICA
+10.38 Deed of Leasehold Mortgage dated February 7, 1991 by the
Partnership in favor of GDB
+10.39 Credit Facility Agreement dated as of May 5, 1992 between GDB,
Kumagai and WKA
+10.40 Deed of Mortgage dated May 5, 1992 by the Partnership in favor
of GDB
+10.41 Partnership Loan Agreement dated as of May 5, 1992 among
Kumagai, WKA and the Partnership
+10.42 Williams Hospitality Management Corporation (now known as WHGI)
Amended and Restated Stockholders Agreement dated as of April
30, 1992 among the Company, Burton I. Koffman, as nominee, Hugh
A. Andrews and Williams Hospitality Management Corporation (now
known as WHGI)
+10.43 Posadas de Puerto Rico Associates, Incorporated Stockholders'
Agreement dated September 23, 1983 among Williams Hotel
Corporation, Burton I. Koffman, as nominee, Hugh A. Andrews and
PPRA, as amended April 20, 1992
+10.44 Put Option Agreement dated as of April 30, 1993, as extended,
among American National Bank and Trust Company of Chicago, WMS,
Burton I. Koffman and Empire Hotel Corp.
+10.45 Loan Agreement dated as of October 21, 1993 between the
Partnership and General Electric Capital Corporation of Puerto
Rico ("GECCPR"), as amended June 30, 1994
+10.46 Corporate Guaranty dated October 21, 1993 by WHGI in favor of
GECCPR and related Guarantor's Consent dated as of June 30, 1994
by WHGI
+10.47 Registration Rights Agreement dated as of April 21, 1997 between
the Company and Louis J. Nicastro
+10.48 Guaranty dated as of May 5, 1992 by WMS, Hugh A. Andrews, Burton
I. Koffman and Richard E. Koffman in favor of the Bank
*10.49 Guaranty dated as of April 21, 1997 by the Company in favor of
the Bank
*10.50 Employment Agreement dated as of June 16, 1997 between the
Company and Barbara M. Norman
*10.51 Amendment dated May 23, 1997 to Operating Credit Agreement
referred to in Exhibit 10.10 above.
*13 1997 Annual Report to Stockholders
*21 Subsidiaries of the Registrant
*23 Consent of Ernst & Young LLP
*27 Financial Data Schedule (filed with EDGAR version only)
- --------------------
* Filed Herewith
+ Incorporated by reference herein to the same exhibit number included in
the Registrant's Registration Statement on Form 10, Registration No.
1-12783, filed with the Securities and Exchange Commission on February
28, 1997, and all the amendments thereto.
# Incorporated by reference herein to an exhibit included in the WMS
Industries Inc. Registration Statement on Form 8-K, Registration No.
1-8300, filed with the Securities and Exchange Commission on May 5,
1997.
(b) Reports on Form 8-K.
NONE
<PAGE> 1
EXHIBIT 10.4
WHG RESORTS & CASINOS INC.
6063 East Isla Verde Avenue
Carolina, Puerto Rico 00979
April 21, 1997
Mr. Brian R. Gamache
7 Candida Street
Condado, Santurce
Puerto Rico 00907
Dear Mr. Gamache:
Reference is made to your employment agreement dated October 27, 1996 with
Williams Hospitality Group Inc. ("WHGI"). As you are aware, our parent
corporation, WMS Industries Inc., has announced its intention to spin off its
hotel & casino business to the stockholders of WMS Industries Inc., a
transaction which we expect to occur on or about April 21, 1997 (the
"Distribution Date").
This letter will confirm that it is our mutual intention that you will
serve as President and Chief Operating Officer of WHG Resorts & Casinos Inc.
(the "Company"), the new public company which results from the spin off
transaction, effective on the Distribution Date. In connection therewith, the
Company will pay you a salary at the rate of $50,000 per annum, payable in
accordance with the Company's customary payroll practices. You agree to devote
such time to the business of the Company that is reasonable to perform the
duties as its President and Chief Operating Officer. The term of your employment
by the Company pursuant to this letter shall coincide with the term of your
employment with WHGI under your existing employment agreement.
Very truly yours,
WHG RESORTS & CASINOS INC.
By: /s/ Louis J. Nicastro
____________________________
Name: Louis J. Nicastro
Title: Chairman of the Board
ACCEPTED AND AGREED TO
this 21st day of April, 1997
/s/ Brian R. Gamache
______________________
BRIAN R. GAMACHE
<PAGE> 1
EXHIBIT 10.49
GUARANTY
GUARANTY, dated as of April 21, 1997 made by WHG RESORTS & CASINOS INC.,
formerly known as WMS Hotel Corporation, a Delaware corporation ("WHG"), in
favor of The Bank of Tokyo-Mitsubishi, Ltd. (formerly known as The Mitsubishi
Bank, Limited), a banking corporation organized under the laws of Japan, acting
through its New York Branch (the "Bank").
WMS Industries Inc. ("WMS"), Hugh A. Andrews ("Andrews"), Burton I.
Koffman and Richard E. Koffman (collectively, the "Koffmans")(WMS, Andrews and
the Koffmans are collectively referred to herein as the Guarantors) have entered
into a Guaranty, dated as of May 5, 1992 (the "Guaranty") in favor of the Bank
pursuant to which the Guarantors issued their unconditional guaranty of due and
punctual payment and performance of the "Guaranteed Obligations". Capitalized
terms used but not defined herein shall have the meanings given such terms in
the Guaranty.
The Guaranteed Obligations relate to obligations of WKA to make
additional loans to El Conquistador Partnership L.P. ("El Con LP") under
Paragraph 4 of the First Amendment (the "Amendment") dated May 5, 1992 to the
Letter of Credit and Reimbursement Agreement, dated as of February 7, 1991 (as
amended to date, and as the same may be further amended, modified, restated or
supplemented, the "Letter of Credit Agreement").
The Bank is entering into a Consent and Waiver Agreement, dated as of
April __, 1997 (the "Waiver Agreement") relating to the Letter of Credit
Agreement. It is a condition precedent to the effectiveness of the Waiver
Agreement that WHG shall have executed and delivered this Guaranty to the Bank.
WHG hereby acknowledges that it will materially benefit from the Waiver
Agreement.
Intending to be legally bound, WHG hereby agrees with the Bank as
follows:
1. (a) WHG hereby absolutely and unconditionally guarantees the due and
punctual payment and performance of the obligations of WKA to make additional
loans pursuant to Paragraph 4 of the Amendment (the "Guaranteed Obligations")
to the extent provided in Section 1(c) hereof. WHG hereby agrees that if WKA
fails to perform the Guaranteed Obligations when and as the same shall be
required in accordance with the terms
<PAGE> 2
of the Amendment, on receipt of demand from the Bank, WHG will forthwith
perform the Guaranteed Obligations which are the subject of such demand to the
extent provided in Section 1(c) hereof.
(b) WHG hereby agrees that, notwithstanding any provision to the
contrary in the Letter of Credit Agreement or the Operative Documents limiting
the recourse of the Bank to assets of the Company, WHG shall be fully and
personally liable with respect to its covenants, representations, warranties and
agreements under this Guaranty.
(c) The obligations of WHG hereunder with respect to the Guaranteed
Obligations shall be joint and several with the obligations of WMS under the
Guaranty and shall be subject to the same limitations as are the obligations of
WMS under the Guaranty.
(d) The obligations of WHG hereunder shall terminate upon the earliest
to occur of (i) termination of the Letter of Credit Agreement and the actual
and irrevocable receipt by the Bank of payment in full of any amounts which may
have become due and payable, (ii) the advance by WKA of additional loans to the
Company, pursuant to Paragraph 4 of the Amendment, in the aggregate amount of
$3,000,000, and (iii) the Coverage Date.
2. Sections 2 through 15 of the Guaranty are incorporated herein by
reference and the Guarantor hereby agrees to be bound by the terms contained
therein, makes the representations and warranties to the Bank contained
therein, and make each of the covenants to the Bank contained therein, in each
case, mutatia mutandis, as if all such provisions were set forth herein in
full. Notices to WHG shall be addressed as follows: WHG Resorts & Casinos Inc.,
6063 East Isle Verde Avenue, Carolina, Puerto Rico 00979, Telecopy:
787-791-2576.
3. From time to time, at the request of the Bank, WHG shall execute and
deliver all such further instruments and take all such further actions as may
be reasonably necessary or appropriate in order to carry out the provisions of
this Guaranty.
WHG RESORTS & CASINOS INC.
By: /s/ Louis J. Nicastro
---------------------------
Name: Louis J. Nicastro
Title: Chairman
2
<PAGE> 3
The undersigned hereby consents to the foregoing guaranty by WHG,
ratifies and confirms its Guaranty in all respects and confirms that its
Guaranty remains in full force and effect in accordance with its terms.
WMS INDUSTRIES INC.
By: /s/ Neil D. Nicastro
--------------------------
Name: Neil D. Nicastro
Title: President
3
<PAGE> 1
EXHIBIT 10.50
EMPLOYMENT AGREEMENT
AGREEMENT made as of the 16th day of June, 1997 by and between
WHG RESORTS & CASINOS INC., a Delaware corporation (the "Company"), with its
principal place of business at c/o El San Juan Hotel & Casino, 6063 East Isla
Verde Avenue, Carolina, Puerto Rico 00979 and BARBARA M. NORMAN ("Executive")
residing at Galaxy Condominium #1204, 3205 Isla Verde Avenue, Carolina, Puerto
Rico 00979.
W I T N E S S E T H :
WHEREAS, the Company and Executive desire to enter into an
employment agreement on the terms and subject to the conditions hereinafter set
forth.
NOW, THEREFORE, in consideration of the mutual covenants
hereinafter set forth, the parties hereto agree as follows:
1. DUTIES.
1.1. The Company hereby employs Executive as an
executive of the Company to perform services as Vice President, Secretary and
General Counsel and the duties associated therewith, subject to the control and
direction of the Company's Board of Directors or the Chairman of the Board and
Chief Executive Officer of the Company.
1.2. Executive hereby accepts such employment.
Throughout the period of her employment by the Company, Executive will devote
such time, attention, knowledge and skills, faithfully, diligently and to the
best of her judgment and ability as is reasonably necessary for the performance
of her duties under Section 1.1 hereof and in furtherance of the business of
the Company and will observe and carry out such rules, regulations, policies,
directions and restrictions as the Company shall from time to time establish.
It is expected that Executive will be required to render services during normal
business hours and do such traveling as may be reasonably required in the
performance of her duties hereunder. At the Company's request, Executive shall
serve as an officer or director of any affiliate of the Company without
additional compensation.
2. TERM OF EMPLOYMENT. Executive shall be employed under this
agreement for an initial term commencing on June 16, 1997 and ending December
31, 1998.
3. BASE SALARY. As base compensation for the performance by
Executive of her obligations under Section 1 hereof, the Company shall pay
Executive a base salary at the rate of
<PAGE> 2
not less than $175,000 per year, payable in accordance with the Company's
customary payroll practices for senior executives.
4. ADDITIONAL BENEFITS. In addition to her base salary,
Executive shall be entitled to the following benefits:
(i) Executive shall be entitled to participate
in bonus and incentive plans, including stock option plans, generally available
to senior executives of the Company which may be in effect from time to time
during the period of her employment hereunder. The Company shall be under no
obligation to institute or continue the existence of any such plans.
(ii) Executive shall be entitled to
participate, to the extent she is eligible under the terms and conditions
thereof, in any health and life insurance plans generally available to the
executives of the Company which may be in effect from time to time during the
period of her employment hereunder. The Company shall be under no obligation
to institute or continue the existence of any such plans.
(iii) The Company shall reimburse Executive
for reasonable and necessary expenses incurred by her in connection with the
business of the Company, including, but not limited to, such items as
entertainment, travel and lodging, gifts and similar items as shall be deemed
necessary and commensurate with her position as Vice President, Secretary and
General Counsel in accordance with the reimbursement policy followed by the
Company with respect to its executives. Executive will present receipts or
vouchers for any requested reimbursements in accordance with the Company's
policies.
(iv) Executive shall be entitled to paid
vacation each year during the period of her employment hereunder in accordance
with the Company's customary practices, such vacations to be taken at times
mutually agreeable to Executive and the Board of Directors of the Company.
5. TERMINATION BENEFITS.
5.1. If (A) the Company terminates Executive's
employment in violation of this Agreement or otherwise breaches its obligations
to Executive under this Agreement; (B) the Company is deemed to terminate
Executive's employment in violation of this Agreement, as provided in Section
5.3, and Executive gives the written notice to the Company provided for in such
Section; or (C) at any time during the term of this Agreement individuals who
presently constitute the Board of Directors of the Company, or who have been
recommended for election to the Board by two-thirds of the Board consisting of
individuals who are either presently on the Board or such recommended
successors (such present directors or recommended directors being hereafter
referred to as "Acceptable Directors"), cease for any reason to constitute at
least a majority of such Board, and Executive gives the written notice to the
Company provided for in Section 5.4 hereof; then, upon the happening of any
such events, (i) the Company shall pay to
2
<PAGE> 3
Executive within fifteen (15) days after such termination or breach (as
severance pay and liquidated damages, in lieu of any other rights or remedies
which might otherwise be available to her under this Agreement, and without
mitigation of any kind or amount, whether or not Executive shall seek or accept
other employment), a lump sum payment equal in amount to the aggregate base
salary which would have been payable to Executive pursuant to Section 3 of this
Agreement during the remaining term hereof (for purposes of this Section 5.1,
the rate of Executive's base salary shall be deemed to be Executive's base
salary at the highest annual rate in effect during the one-year period
immediately preceding termination or breach); and (ii) Executive shall have the
right, exercisable within thirty (30) days after such termination or breach to
sell to the Company any or all options held by Executive to purchase the
Company common stock and options to purchase the securities of any other
company at least 20% of the voting securities of which are owned by the Company
("Related Company") at a price per share equal to the amount by which (i) the
average closing price of the Company common stock or the securities of such
Related Company, as the case may be, on the New York Stock Exchange (or other
applicable trading market if not listed on the New York Stock Exchange) during
the thirty-day period immediately preceding the date on which she notifies the
Company of her election to sell such options plus the fair market value per
share of other securities or assets which Executive would be entitled to
receive upon exercise of such options exceeds (ii) the option exercise price
for each such share. All options not yet fully exercisable shall be deemed
fully exercisable for purposes of the foregoing computation. Such payments
shall be made by the Company within fifteen (15) days after Executive has
notified the Company of the exercise of her right to sell such options and
shall not require any further authorization or approval of the Board of
Directors of the Company. In addition to the foregoing, the obligations of the
Company to pay for the benefits provided in Section 4 hereof shall remain in
full force and effect. Additionally, in the event Executive's employment
terminates pursuant to this Section 5.1, then the Company shall (i) reimburse
Executive for all reasonable costs and expenses for relocating her personal
belongings to the New York area up to a maximum of $10,000 and (ii) either (a)
pay Executive for any financial loss she may suffer as a result of the sale
within three (3) months following the termination of her employment of her
Galaxy Condominium #1204, located at the address set forth above (the
"Condominium"), which loss shall be equal to the difference between her
purchase price including closing costs for the Condominium of $275,202 (the
"Purchase Price") and the net proceeds of the sale of the Condominium by
Executive after payment of closing costs and brokerage commissions up to a
maximum loss of $25,000 or (b) if Executive is unable to sell the Condominium
for a period of 3 months after such termination, purchase the Condominium from
Executive for a price equal to the Purchase Price.
5.2. If it shall be determined that any amount
payable by the Company under this Section 5 to or for the benefit of Executive
(a "Base Payment") would be subject to the excise tax (the "Excise Tax")
imposed by Section 4999 of the Internal Revenue Code of 1986, as amended (the
"Code"), then Executive shall be entitled to receive an additional payment (the
"Gross-Up Payment") in an amount such that the net amount retained by
Executive, after the calculation and deduction of any Excise Tax on the Base
Payment and any federal, state and local
3
<PAGE> 4
income taxes and Excise Tax on the Gross-Up Payment, shall be equal to the Base
Payment. In determining this amount, the amount of the Gross- Up Payment
attributable to federal income taxes shall be reduced by the maximum reduction
in federal income taxes that could be obtained by the deduction of the portion
of the Gross-Up Payment attributable to state and local income taxes. Finally,
the Gross-Up Payment shall be reduced by income or Excise Tax withholding
payments made by the Company to any federal, state or local taxing authority
with respect to the Gross-Up Payment that was not deducted from compensation
payable to Executive. All determinations required to be made under this
Section, including whether and when a Gross-Up Payment is required, the amount
of such Gross-Up Payment, and the assumptions to be utilized in arriving at
such determination, except as specified above, shall be made by the Company's
independent auditors (the "Accounting Firm"), which shall provide detailed
supporting calculations both to the Company and Executive within fifteen (15)
business days after the receipt of notice from Executive that there should be a
Gross-Up Payment. The determination of tax liability made by the Accounting
Firm shall be subject to review by Executive's tax advisor, and, if Executive's
tax advisor does not agree with the determination reached by the Accounting
Firm, then the Accounting Firm and Executive's tax advisor shall jointly
designate a nationally recognized public accounting firm, which shall make the
determination. All fees and expenses of the accountants and tax advisors
retained by either Executive or the Company shall be borne by the Company. Any
Gross-Up Payment shall be paid by the Company to Executive within five (5) days
after the receipt of the determination. Any determination by a jointly
designated public accounting firm shall be binding upon the Company and
Executive.
5.3. The Company shall be deemed to have terminated
Executive's employment in violation of this Agreement for all purposes
hereunder, if, among other things, without her prior written consent,
5.3.1. Executive is placed in any position of
lesser stature than that of Vice President, Secretary and General Counsel of
the Company; is assigned duties inconsistent with such position or duties
which, if performed, would result in a significant change in the nature or
scope of powers, authority, functions or duties inherent in such position on
the date hereof; is assigned performance requirements or working conditions
which are at variance with the performance requirements and working conditions
in effect on the date hereof; or is accorded treatment on a general basis which
is in derogation of her status as Vice President, Secretary and General
Counsel;
5.3.2. Executive ceases to serve as a member
of the Board of Directors of the Company;
5.3.3. The Company discontinues or reduces
(from the highest level in effect during the term of this Agreement) the amount
of base salary payable to Executive pursuant to this Agreement; or
4
<PAGE> 5
5.3.4. The Company discontinues or reduces
(from the level in effect on the date hereof) the perquisites or fringe
benefits inherent in Executive's position on the date hereof;
and Executive gives written notice of her election to deem such act to
constitute termination, in which event termination pursuant to this Section
5.3, shall be deemed to have occurred upon the date of the giving of such
notice.
5.4. In the event of a change in the constitution of
the Board of Directors of the Company such that it does not include a majority
of Acceptable Directors as provided in clause (C) of Section 5.1 hereof, and in
the further event that at any time thereafter, Executive gives written notice
of the election to terminate this Agreement, termination pursuant to this
Section 5 shall be deemed to have occurred upon the date of the giving of such
notice.
6. ENTIRE AGREEMENT. This agreement supersedes any prior
agreement or understanding with respect to the subject matter hereof and
constitutes the entire agreement of the parties hereto. No amendment or
modification hereof shall be valid or binding unless made in writing and signed
by the party against whom enforcement thereof is sought.
7. NOTICES. Any notice required, permitted or desired to be
given pursuant to any of the provisions of this agreement shall be deemed to
have been sufficiently given or served for all purposes if delivered in person
or sent by certified mail, return receipt requested, postage and fees prepaid,
or sent by responsible overnight delivery service or transmitted by telephone
facsimile to either of the parties at such party's address set forth below, or
to such other address as such party may specify from time to time by notice to
the other given in accordance with the provisions hereof:
If to the Company:
WHG Resorts & Casinos Inc.
6063 East Isla Verde Avenue
Carolina, Puerto Rico 00979
Attention: President
If to Executive:
Barbara M. Norman
Galaxy Condominium #1204
3205 Isla Verde Avenue
Carolina, Puerto Rico 00979
5
<PAGE> 6
The date of the giving of any notice sent by mail shall be the date two days
after the posting of the mail.
8. NO ASSIGNMENT. Neither this agreement nor the right to
receive any payments hereunder may be assigned by Executive. Neither this
agreement nor the right to Executive's services hereunder may be assigned by
the Company. This agreement shall be binding upon and shall inure to the
benefit of Executive, her heirs, executors and administrators and the Company,
its successors and assigns.
9. NO WAIVER. No course of dealing nor any delay on the part
of the Company or Executive in exercising any rights hereunder shall operate as
a waiver of any such rights hereunder shall operate as a waiver of any such
rights. No waiver of any default or breach of this agreement shall be deemed a
continuing waiver or a waiver of any other breach or default.
10. GOVERNING LAW. This agreement shall be governed,
interpreted and construed in accordance with the laws of the State of New York
applicable to agreements entered into and to be performed entirely therein.
IN WITNESS WHEREOF, the parties hereto have caused this
agreement to be duly executed on the day and year first above written.
WHG RESORTS & CASINOS INC.
By: /s/ Louis J. Nicastro
---------------------------
Louis J. Nicastro, Chairman
/s/ Barbara M. Norman
---------------------------
BARBARA M. NORMAN
6
<PAGE> 1
EXHIBIT 10.51
AMENDMENT TO OPERATING CREDIT AND TERM LOAN AGREEMENT
In San Juan, Puerto Rico, this 23rd day of May, 1997 , appear
AS PARTY OF THE FIRST PART: POSADAS DE PUERTO RICO ASSOCIATES,
INCORPORATED, corporation duly organized and existing under the laws of the
state of Delaware (the "BORROWER").
AS PARTY OF THE SECOND PART: SCOTIABANK DE PUERTO RICO, a banking
institution organized and existing under the Commonwealth of Puerto Rico, with
offices at Hato Rey, San Juan, Puerto Rico (the "BANK" or the "LENDER").
WITNESSETH:
WHEREAS, on August 30, 1988, the Borrower and the Bank entered into
certain Operating Credit and Term Loan Agreement whereby the Bank granted the
Borrower certain credit facilities more fully described therein;
WHEREAS, the Operating Credit and Term Loan Agreement was further
amended on June 12, 1989; September 28, 1990; and April 26, 1991 (as amended,
the "CREDIT AGREEMENT");
WHEREAS, the Borrower and its affiliates are contemplating a corporate
reorganization as a result of which the Borrower intends to acquire direct or
indirect ownership interest in the following entities (collectively, the
"Subsidiaries"), ESJ Hotel Corporation, Posadas de San Juan Associates,
Williams Hospitality Group Inc., Isla Verde Parking Corporation, Posadas
Finance Corporation, El Conquistador Ferryboat, Inc., and WKA Development,
S.E.;
WHEREAS, in connection with the foregoing, the Borrower has requested
certain consents from the Bank as well as certain amendments to the terms of
the Credit Agreement;
WHEREAS, the Bank has agreed to grant the requested consents, and to
make the requested amendments subject to the terms and conditions set forth in
this Amendment.
NOW THEREFORE, the parties amend the credit Agreement under the
following:
TERMS AND CONDITIONS
1. Section 6.06 of the Credit Agreement is hereby amended to
incorporate the following additional sentence:
<PAGE> 2
"Nevertheless, the Borrower may invest in, purchase or hold any stock,
other securities or any other evidence of indebtedness of, lend or
advance monies or credit, in any of its Subsidiaries, provided at all
times the Borrower maintains compliance with the provisions of Section
2.04 and 2.06 hereof."
2. Section 6.10. ADDITIONAL DEBT. is hereby incorporated.
"Section 6.10. ADDITIONAL DEBT. Incur in any debt as a result of the
corporate reorganization whereby the Borrower shall acquire direct or
indirect ownership interest in the Subsidiaries.
3. Section 2.06 is hereby amended to incorporate the following additional
sentence:
"All determinations as to the Borrower's annual revenues and Excess Net
Free Cash Flow pursuant to this section shall be based on the Borrower's
unconsolidated financial statements, without reference to the
Subsidiaries".
4. Section 7.03 (a) BORROWER'S MANDATORY NOTICES AND/OR COMMUNICATIONS. is
hereby amended to read:
"a. Furnish to the Lender not later than 90 days after the end of
Borrower's fiscal year (currently, June 30th of each year), an audited
unconsolidated financial statement, including a balance sheet, a
statement of income and auditor's report, covering the operations of
the Condado Plaza Hotel & Casino, as well as consolidated financial
statements of the Borrower with its Subsidiaries, and separate
statements of each of the Subsidiaries".
5. All references to the Borrower's accounting records and quarterly
financial statements in Section 7.03 (b) and 7.03 (c) shall be deemed to refer
solely to the Borrower's operations, without regard to the Subsidiaries.
6. All TERMS INCORPORATED
The parties agree that all the covenants, terms and conditions of the
Credit Agreement not expressly amended, substituted or otherwise revoked herein
shall remain in full force and effect. Without limiting the foregoing,
references in the Credit Agreement to "Loan Documents" shall be deemed to
include this Amendment. All capitalized terms not otherwise defined herein
shall have the definitions set forth in the Credit Agreement.
<PAGE> 3
7. CROSS DEFAULT.
The parties hereto agree that a Default under the Credit Agreement
shall constitute a default under the terms hereof and vice versa.
8. NO NOVATION.
The parties hereto agree that the foregoing amendments shall not be
construed nor do they constitute a novation of the obligations contained in the
Credit Agreement.
9. COSTS, FEES AND EXPENSES.
All costs, fees and expenses incidental to the drafting, execution
and/or delivery of this Amendment or to the taking of any action contemplated
herein shall be for the sole account of the Borrower.
IN WITNESS WHEREOF, the parties execute this Amendment to Operating
Credit and Term Loan Agreement in the place and on the date first above stated.
POSADAS DE PUERTO RICO SCOTIABANK DE PUERTO RICO
ASSOCIATES, INCORPORATED
By: /s/ Richard F. Johnson By: /s/ Roberto E. Cordova
---------------------- ----------------------
Richard F. Johnson Roberto E. Cordova
<PAGE> 1
WHG Resorts & Casinos Inc. Exhibit 13
Selected Financial Data:
<TABLE>
<CAPTION>
Years ended June 30,
1997 1996 1995 1994 1993
(In thousands)
<S> <C> <C> <C> <C> <C>
Selected Statement of Income Data:
Revenues $ 69,634 $ 68,694 $ 70,878 $ 75,480 $ 70,680
--------- --------- --------- --------- ---------
Operating income $ 17,087 $ 13,558 $ 7,624 $ 13,892 $ 14,162
Interest expense, net (931) (1,859) (1,752) (3,551) (3,873)
Equity in (loss) of nonconsolidated
affiliates (1,196) (3,465) (7,003) (3,534) (135)
--------- --------- --------- --------- ---------
Income (loss) before tax provision and
minority interests 14,960 8,234 (1,131) 6,807 10,154
Credit (provision) for income taxes (3,397) (1,645) 234 7 (1,050)
Minority interests in income (4,000) (3,636) (2,910) (4,597) (3,332)
Dividend on preferred stock of
Condado Plaza (246) (516) (557) -- --
--------- --------- --------- --------- ---------
Net income (loss) $ 7,317 $ 2,437 $ (4,364) $ 2,217 $ 5,772
========= ========= ========= ========= =========
Primary earnings (loss) per share $ 1.20 $ .40 $ (.72) $ .37 $ .95
--------- --------- --------- --------- ---------
Shares used in primary earnings per
share calculations 6,086,443 6,050,200 6,050,200 6,050,200 6,050,200
--------- --------- --------- --------- ---------
Fully diluted earnings (loss) per
share $ 1.17 $ .40 $ (.72) $ .37 $ .95
--------- --------- --------- --------- ---------
Shares used in fully diluted earnings
per share calculations 6,247,241 6,050,200 6,050,200 6,050,200 6,050,200
--------- --------- --------- --------- ---------
Pro forma net income (loss) reflecting
income taxes on a separate return
basis (unaudited)(1) $ 7,236 $ 1,537 $ (6,500) $ 1,257 $ 5,579
========= ========= ========= ========= =========
Selected Balance Sheet Data:
Investments in, receivables and
advances to nonconsolidated affiliates $ 31,708 $ 27,734 $ 29,696 $ 31,367 $ 28,018
Property and equipment, net 43,861 44,919 48,660 51,627 45,454
Total assets 117,473 104,734 111,306 116,144 103,276
Long-term debt, including current
maturities 23,549 26,854 30,741 30,309 36,069
Minority interests 19,990 18,810 16,363 16,387 14,229
Stockholders' equity 55,324 37,500 35,063 39,427 37,210
</TABLE>
(1) Pro forma net income (loss) reflecting income taxes on a separate return
basis (unaudited) reflects the provision for income taxes without the tax
benefits allocated to the Company from WMS Industries Inc. ("WMS") for
utilization of partnership losses in the WMS consolidated Federal income
tax return.
E13-1
<PAGE> 2
Management's Discussion and Analysis of Financial Condition
and Results of Operations
The discussion set forth below under "Management's Discussion and Analysis of
Financial Condition and Results of Operations" as well as the discussions
contained under "Item 1. Business", "Item 3. Legal Proceedings", and "Item 13.
Certain Relationships and Related Transactions -- Relationship with WMS" in the
Company's Annual Report on Form 10-K contain certain forward looking statements
that involve risks and uncertainties, including the outcome of refinancinc
certain debt and seasonality. The Company's actual results could differ
materially from those anticipated in the forward looking statements.
Financial Condition
Cash flows from consolidated operating, investing and financing activities of
the Company during fiscal 1997 resulted in net cash provided of $11,270,000
compared with net cash provided of $2,989,000 during fiscal 1996.
Cash provided by operating activities before changes in operating assets and
liabilities was $18,933,000 during fiscal 1997 compared with cash provided of
$19,664,000 for fiscal 1996. This decrease was primarily due to a decrease in
deferred tax expense and a lower loss from nonconsolidated affiliates included
in net income in fiscal 1997. This was offset by an increase in net income to
$7,317,000 in fiscal 1997 from $2,437,000 in fiscal 1996.
The changes in operating assets and liabilities, as shown in the consolidated
statements of cash flows, resulted in cash outflow of $4,243,000 during fiscal
1997 and $1,760,000 during fiscal 1996, due in both cases to the increase in net
amounts due from nonconsolidated affiliates.
Cash used by investing activities was $2,941,000 in fiscal 1997 and $164,000 in
fiscal 1996. Cash used for the purchase of property and equipment was $3,153,000
in fiscal 1997 and $1,149,000 in fiscal 1996.
Cash used by financing activities during fiscal 1997 was $527,000 compared with
cash used of $14,751,000 during fiscal 1996. Net payments of long-term debt were
$4,203,000 and $3,887,000 in fiscal 1997 and 1996, respectively. Net
intercompany transactions with WMS Industries Inc. (prior to the spin-off)
resulted in cash provided of $4,273,000 in fiscal 1997 compared to cash used of
$6,275,000 in fiscal 1996. During fiscal 1996 Posadas de Puerto Rico Associates,
Incorporated redeemed $3,400,000 of its preferred stock then owned by WMS
Industries.
See consolidated statements of cash flows on page 22 for further details on cash
flow items.
The three hotels and casinos and Williams Hospitality Group Inc. ("WHGI")
provide for their off-season cash needs through their own cash and from
individual short-term note arrangements. Annual capital expenditures are
provided for each year as part of the annual budgeting process. Capital
expenditures are approved taking into account available cash and available
financing, if necessary.
The Condado Plaza has a $2,000,000 bank line of credit available on which
$1,000,000 was borrowed at June 30, 1997. The El San Juan has a $1,000,000 bank
line of credit available of which none was borrowed at June 30, 1997. El San
Juan and El Conquistador long-term debt agreements provide that advances and
other payments to the owners are to be based on defined levels of cash flow from
the respective hotels and casinos which based on historical results limits and
prohibits, respectively, such transactions. The long-term debt agreements and
other agreements permit the payment to WHGI of certain management fees and
intercompany charges from the three hotels and casinos. There are no agreements
restricting WHGI from paying dividends or otherwise making advances and the
Company expects to receive dividends from WHGI cash flow to provide for its
operating expenses. Management believes that cash flow from the operations of
Condado Plaza and El San Juan will be adequate to pay or refinance its long-term
debt as it becomes due and provide for its normal planned capital additions for
the next twelve months.
In September, 1997, the Company executed an asset purchase agreement to acquire
an existing 127 room hotel and related land next to the Condado Plaza for
$9,600,000, subject to certain terms and conditions. If the agreement is
finalized, the Company intends to finance the purchase price through
long term financing and the use of excess cash currently available.
E13-2
<PAGE> 3
El Conquistador will have $120,000,000 of indebtedness due on February 1, 1998,
unless extended, which is secured by substantially all of the assets of the El
Conquistador. El Conquistador has retained investment advisors to assist in
structuring the refinancing of the El Conquistador debt. Based on operating
history of the El Conquistador, the Company believes such refinancing will be
achieved, but there can be no assurance thereof. If such financing is not
renewed or replaced and as a consequence thereof the existing lenders foreclose
on the El Conquistador, the Company would probably incur a loss on its
investment in and receivables from the El Conquistador which would adversely
affect the financial position of the Company. In addition, WHGI would, most
likely, cease to receive management fees from the El Conquistador. See Note 4 to
the consolidated financial statements of the Company included elsewhere herein.
FISCAL 1997 COMPARED WITH FISCAL 1996
Segment data discussed below is taken or derived from segment disclosure in Note
15 to the consolidated financial statements of the Company included elsewhere
herein.
Consolidated revenues increased by $940,000 or 1.4% in fiscal 1997 to
$69,634,000 from $68,694,000 in fiscal 1996. Both WHGI and Condado Plaza
revenues increased.
Operating income in the Condado Plaza segment was $6,348,000 in fiscal 1997
compared to $2,830,000 in fiscal 1996. The increase was primarily due to
reductions in costs and expenses in all departments resulting from cost
reduction efforts of management and reduced provision for doubtful accounts
receivable.
Operating income in the WHGI segment increased due to increased management fees
from the El San Juan and Condado Plaza because of their improved operations.
Consolidated operating income increased by 26% in fiscal 1997 to $17,087,000
from $13,558,000 in fiscal 1996 due primarily to cost reductions at the Condado
Plaza and increased management fees primarily from the El San Juan.
The equity in loss of nonconsolidated affiliates was ($1,196,000) for fiscal
1997 compared with a loss of ($3,465,000) for fiscal 1996. The 50% equity in
income of the El San Juan was $988,000 in fiscal 1997 compared with equity in
loss of ($679,000) in fiscal 1996. The improved results at the El San Juan were
due primarily to higher casino revenues resulting from a higher win percentage
and lower costs and expenses resulting from cost reduction efforts by management
and reduced provision for doubtful accounts receivable. The 23.3% equity in loss
of the El Conquistador was ($2,184,000) in fiscal 1997 compared with
($2,786,000) in fiscal 1996.
The income tax provision results primarily from Puerto Rico and Federal income
tax provisions for WHGI and Federal taxes or credit allocated from WMS
Industries Inc. (prior to the spin-off) primarily on the equity in the income or
loss of nonconsolidated affiliates. The income tax provision in fiscal 1997 was
$3,397,000 compared with $1,645,000 in fiscal 1996. The increase is primarily
due to higher Federal income taxes on WHGI income and a lower equity in loss on
nonconsolidated affiliates.
Net income in fiscal 1997 was $7,317,000 compared with net income of $2,437,000
in fiscal 1996. The net income increased by approximately 300% due primarily to
higher casino revenues at the El San Juan and cost reductions and reduced
provision for doubtful accounts receivable at all the hotels and casinos in
which the Company owns interests notwithstanding the higher income taxes.
FISCAL 1996 COMPARED TO FISCAL 1995
Consolidated revenues were $68,694,000 in fiscal 1996 representing a 3.1%
decrease from fiscal 1995 consolidated revenues of $70,878,000. The decrease was
due primarily to a reduction in net casino revenues (casino revenues minus
casino promotional allowances) at Condado Plaza from $17,712,000 in fiscal 1995
to $15,452,000 in fiscal 1996. The decrease in Condado Plaza net casino revenues
was due
E13-3
<PAGE> 4
primarily to a lower win percentage resulting in reduced revenues when casino
promotional allowances remained constant.
Consolidated operating income increased by 78% in fiscal 1996 to $13,558,000
from $7,624,000 in fiscal 1995 due primarily to cost reductions and lower
expenses at the Condado Plaza and increased management fee revenues at WHGI
primarily from the El Conquistador.
Operating income of the Condado Plaza segment was $2,830,000 in fiscal 1996
compared with an operating loss of ($1,465,000) in fiscal 1995. This improvement
in operating results was achieved by cost reductions initiated by management and
reduced provision for doubtful accounts receivable and insurance expense and the
incurrence in fiscal 1995 of approximately $450,000 of additional expenses
related to emergency water costs associated with the drought experienced in
Puerto Rico during that fiscal year.
Operating income of the WHGI segment increased to $10,837,000 or 18% in fiscal
1996 compared with $9,174,000 in fiscal 1995. In fiscal 1996 revenues from
central services declined by $2,151,000, and management fee revenues increased
by $1,739,000 in comparison to fiscal 1995. Operating income resulting from
lower revenue from central services is negligible in comparison to increased
operating income from incremental management fees.
Consolidated selling and administrative expenses decreased to $9,487,000 in
fiscal 1996 from $12,301,000 in fiscal 1995 primarily at the Condado Plaza due
to cost reductions initiated by management and reduced provision for doubtful
accounts receivable and insurance expense.
The equity in the loss of nonconsolidated affiliates was ($3,465,000) in fiscal
1996 compared with ($7,003,000) in fiscal 1995, representing a 50.5% improvement
in 1996 over 1995. The decrease in equity in loss was primarily due to lower
costs and expenses at the El Conquistador resulting from cost reduction
activities during the second full year of operation after opening in November
1993 and from increased revenues from hotel operations at the El San Juan with
only minor increases in hotel operating expenses. The 50% equity in loss of the
El San Juan was ($679,000) in fiscal 1996 compared with ($1,200,000) in fiscal
1995. The 23.3% equity in loss of the El Conquistador was ($2,786,000) in fiscal
1996 compared with ($5,803,000) in fiscal 1995.
The provision for income taxes in fiscal 1996 of $1,645,000 represents Federal
and Puerto Rico income taxes on WHGI reduced by the tax benefit allocated from
WMS Industries on the equity in loss of nonconsolidated affiliates. A net income
tax credit of $234,000 occurred in fiscal 1995 because the allocated tax benefit
from WMS Industries, due to the size of the equity in loss, exceeded the tax
provision for WHGI.
Consolidated net income was $2,437,000 in fiscal 1996 compared with the net loss
of ($4,364,000) in fiscal 1995. The improved results were attributable primarily
to cost reductions at the Condado Plaza increasing operating income and
decreased equity in loss of nonconsolidated affiliates partially offset by the
change in the provision for income taxes, as described above.
INFLATION
During the past three years, the level of inflation affecting the Company has
been relatively low. The ability of the Company to pass on future cost increases
in the form of higher room rates and other price increases will continue to be
dependent on the prevailing competitive environment and the acceptance of the
Company's services in the market place.
SEASONALITY
The hotel and casino business in Puerto Rico is highly seasonal. From December
through April the occupancies of the hotels are greater than other months and
the average room rates are higher than other months resulting in higher revenues
and net income primarily in the third quarter of the June 30 fiscal year. The
first quarter of the June 30 fiscal year normally has a net loss.
E13-4
<PAGE> 5
Market for the Company's Common Stock
and Related Security-Holder Matters
The Company's Common Stock, $.01 par value, is traded on the New York Stock
Exchange (ticker symbol WHG). The following table sets forth the high and low
sales prices of the Common stock since it began to be publicly traded on April
21, 1997:
<TABLE>
<CAPTION>
1997 Calendar Period High Low
<S> <C> <C>
Second quarter (April 21 to June 30) $11 3/4 $ 8 3/8
Third quarter (July 1 to September 19) $19 1/4 $11 1/4
</TABLE>
No cash dividends were declared or paid during 1997. The Company has no plans
to declare or pay any future cash dividends.
At September 19, 1997, there were approximately 2,000 holders of record of the
Common Stock.
Report of Independent Auditors
TO THE STOCKHOLDERS AND BOARD OF DIRECTORS
WHG RESORTS & CASINOS INC.
We have audited the accompanying consolidated balance sheets of WHG Resorts &
Casinos Inc. as of June 30, 1997 and 1996, and the related consolidated
statements of operations, cash flows and stockholders' equity for each of the
three years in the period ended June 30, 1997. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of WHG Resorts &
Casinos Inc. as of June 30, 1997 and 1996, and the results of their operations
and their cash flows for each of the three years in the period ended June 30,
1997 in conformity with generally accepted accounting principles.
/s/ Ernst & Young LLP
San Juan, Puerto Rico
August 7, 1997
except for Note 18, as to which
the date is September 17, 1997.
E13-5
<PAGE> 6
WHG Resorts & Casinos Inc.
Consolidated Balance Sheets
<TABLE>
<CAPTION>
June 30,
----------------------
1997 1996
----------------------
(Thousands of dollars)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 17,886 $ 6,616
Receivables, net of allowances of $649 in 1997 and $475 in 1996 3,477 2,534
Receivables from nonconsolidated affiliates 1,105 608
Inventories 590 651
Other current assets 791 689
--------------------
Total current assets 23,847 11,098
Investments in, receivables and advances to nonconsolidated affiliates 30,603 27,126
Property and equipment, net 43,861 44,919
Land held as investment 5,095 5,095
Excess of purchase cost over amount assigned to net assets acquired,
net of accumulated amortization of $3,739 in 1997 and $3,340 in 1996 8,710 9,109
Other assets 5,355 7,387
--------------------
$117,473 $104,734
====================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 3,760 $ 3,297
Accrued compensation and related benefits 2,855 2,128
Other accrued liabilities 3,723 2,721
Dividend payable on preferred stock of Condado Plaza -- 94
Notes payable 1,000 2,000
Current maturities of long-term debt 3,681 3,299
--------------------
Total current liabilities 15,019 13,539
Long-term debt, less current maturities 19,868 23,555
Deferred income taxes 2,638 2,291
Other noncurrent liabilities 4,532 4,542
Payable to WMS Industries Inc. 102 397
Minority interests 19,990 18,810
Preferred stock of Condado Plaza held by WMS Industries Inc. -- 4,100
Stockholders' equity:
Preferred stock, 2,000,000 shares authorized -- --
Common stock, class A, $.01 par value, non-voting, 3,000,000 shares authorized -- --
Common stock, no par value, 12,000,000 shares, $.01 par value, authorized,
6,050,200 shares outstanding in 1997 and 1,000 shares authorized and 100 shares
outstanding in 1996 61 1
Additional paid-in capital 14,296 3,849
Retained earnings 40,967 33,650
--------------------
Total stockholders' equity 55,324 37,500
--------------------
$117,473 $104,734
====================
</TABLE>
See Notes to Consolidated Financial Statements.
E13-6
<PAGE> 7
WHG Resorts & Casinos Inc.
Consolidated Statements of Operations
<TABLE>
<CAPTION>
Years Ended June 30,
-------------------------------------------
1997 1996 1995
-------------------------------------------
(Thousands of dollars)
<S> <C> <C> <C>
Revenues:
WHGI management fees from
nonconsolidated affiliates $ 13,937 $ 13,372 $ 13,348
Condado Plaza hotel/casino:
Casino 23,720 22,438 24,584
Casino promotional allowances (7,721) (6,986) (6,872)
Rooms 25,629 25,477 25,210
Food and beverages 11,034 11,478 11,412
Other 3,035 2,915 3,196
-------------------------------------------
55,697 55,322 57,530
-------------------------------------------
Total revenues 69,634 68,694 70,878
Costs and expenses:
WHGI operating expenses (excl. depreciation) 3,910 3,882 5,175
Condado Plaza operating expenses (excl. depreciation):
Casino 11,334 12,375 13,737
Rooms 7,639 8,593 9,081
Food and beverages 9,076 10,088 10,503
Other 4,968 5,281 6,463
-------------------------------------------
33,017 36,337 39,784
Selling and administrative 9,913 9,487 12,301
Depreciation and amortization 5,707 5,430 5,994
-------------------------------------------
Total costs and expenses 52,547 55,136 63,254
-------------------------------------------
Operating income 17,087 13,558 7,624
Interest income, primarily from nonconsolidated affiliates,
and other income 2,334 1,830 2,548
Interest expense (3,265) (3,689) (4,300)
Equity in loss of nonconsolidated affiliates (1,196) (3,465) (7,003)
-------------------------------------------
Income (loss) before tax credit (provision) and minority interests 14,960 8,234 (1,131)
Credit (provision) for income taxes (3,397) (1,645) 234
Minority interests in income (4,000) (3,636) (2,910)
Dividend on preferred stock of Condado Plaza (246) (516) (557)
-------------------------------------------
Net income (loss) $ 7,317 $ 2,437 $ (4,364)
===========================================
Primary earnings (loss) per share $ 1.20 $ .40 $ (.72)
===========================================
Shares used in primary earnings per share calculation 6,086,443 6,050,200 6,050,200
===========================================
Fully diluted earnings (loss) per share $ 1.17 $ .40 $ (.72)
===========================================
Shares used in fully diluted earnings per share calculation 6,247,241 6,050,200 6,050,200
===========================================
Pro forma information reflecting income taxes on a separate return basis
(unaudited):
Income (loss) before tax provision and minority interests $ 14,960 $ 8,234 $ (1,131)
Provision for income taxes (3,478) (2,545) (1,902)
Minority interests in income (4,000) (3,636) (2,910)
Dividend on preferred stock of Condado Plaza (246) (516) (557)
-------------------------------------------
Net income (loss) $ 7,236 $ 1,537 $ (6,500)
===========================================
</TABLE>
See Notes to Consolidated Financial Statements.
E13-7
<PAGE> 8
WHG Resorts & Casinos Inc.
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Years Ended June 30,
----------------------------------
1997 1996 1995
----------------------------------
(Thousands of dollars)
<S> <C> <C> <C>
Operating activities:
Net income (loss) $ 7,317 $ 2,437 $ (4,364)
Adjustments to reconcile net income (loss)
to net cash provided by operating activities:
Depreciation and amortization 5,707 5,430 5,994
Provision for loss on receivables 366 1,457 1,842
Undistributed loss of nonconsolidated affiliates 1,196 3,465 7,003
Deferred income taxes 347 3,239 (1,626)
Minority interests 4,000 3,636 2,910
Increase (decrease) resulting from changes in
operating assets and liabilities:
Receivables (1,309) 342 (541)
Other current assets 54 459 471
Accounts payable and accruals 2,192 (12) (1,152)
Net amounts due from nonconsolidated affiliates (5,170) (1,931) (5,906)
Other assets and liabilities not reflected
elsewhere (10) (618) 218
-----------------------------------
Net cash provided by operating activities 14,690 17,904 4,849
Investing activities:
Purchase of property and equipment (3,153) (1,149) (2,066)
Purchase of additional shares of subsidiaries (1,500) -- (3,925)
Investments in and advances to nonconsolidated affiliates -- -- (1,360)
Collections from nonconsolidated affiliates -- 985 2,010
Other investing 1,760 -- --
-----------------------------------
Net cash used in investing activities (2,893) (164) (5,341)
Financing activities:
Payment of long-term debt and notes payable (8,703) (3,887) (4,568)
Proceeds from short-term note 4,500
Capital contribution from WMS Industries Inc. 1,643
Net intercompany transactions with WMS Industries Inc. 4,273 (6,275) 3,125
Purchase of preferred stock of Condado Plaza
by WMS Industries Inc. -- -- 2,500
Redemption of preferred stock of Condado Plaza
from WMS Industries Inc. -- (3,400) --
Dividends paid to minority shareholders of subsidiary (2,240) (1,189) (783)
Net cash (used) provided by financing activities ------------------------------------
(527) (14,751) 274
Increase (decrease) in cash and cash equivalents ------------------------------------
11,270 2,989 (218)
Cash and cash equivalents at beginning of year 6,616 3,627 3,845
Cash and cash equivalents at end of year ------------------------------------
$ 17,886 $ 6,616 $ 3,627
------------------------------------
</TABLE>
See Notes to Consolidated Financial Statements.
E13-8
<PAGE> 9
WHG Resorts & Casinos Inc.
Consolidated Statements of Stockholders' Equity
<TABLE>
<CAPTION>
Additional Total
Common Paid-in Retained Stockholders'
Stock Capital Earnings Equity
----------------------------------------------------
(Thousands of dollars)
<S> <C> <C> <C> <C>
Balance as of June 30, 1994 $ 1 $ 3,849 $ 35,577 $ 39,427
Net loss -- -- (4,364) (4,364)
Balance as of June 30, 1995 -------- -------- -------- --------
1 3,849 31,213 35,063
Net income -- -- 2,437 2,437
Balance as of June 30, 1996 -------- -------- -------- --------
1 3,849 33,650 37,500
Net income -- -- 7,317 7,317
Capital contributions by WMS Industries Inc. -- 10,507 -- 10,507
6,050.2 for 1 stock split 60 (60) -- --
-------- -------- -------- --------
$ 61 $ 14,296 $ 40,967 $ 55,324
-------- -------- -------- --------
</TABLE>
See Notes to Consolidated Financial Statements.
E13-9
<PAGE> 10
WHG Resorts & Casinos Inc.
Notes to Consolidated Financial Statements
NOTE 1: BASIS OF PRESENTATION AND COMPANY OPERATIONS
BASIS OF PRESENTATION
WHG Resorts & Casinos Inc. ("WHG") was formerly known as WMS Hotel Corporation.
Prior to the April 21, 1997 spin-off, WHG was a wholly owned subsidiary of
Williams Hotel Corporation ("WHC"). WHC was a wholly-owned subsidiary of WMS
Industries Inc. ("WMS"). WMS merged WHC, just prior to the April 21, 1997
spin-off, into WHG at which time the predecessor financial statements of WHC
appearing herein became the financial statements of WHG.
The consolidated financial statements of WHG reflect results of operations, cash
flows, financial position and changes in stockholders' equity and have been
prepared using the historical basis in the assets and liabilities and historical
results of operations of WHG and subsidiaries and affiliates.
The pro forma information reflecting income taxes on a separate return basis
(unaudited), included with the consolidated statements of operations, reflects
the provision for income taxes without the tax benefits allocated to WHG from
WMS for utilization of partnership losses in the WMS consolidated Federal income
tax return, see Note 6 -- Income Taxes. WHG during the periods presented did not
have income subject to Federal income tax that could have been included in its
consolidated Federal income tax return or in the separate tax returns of certain
of its subsidiaries along with the partnership losses to be able to realize the
tax benefits.
COMPANY OPERATIONS
WHG through its subsidiaries and affiliates owns, operates and manages two of
the leading hotels and casinos located in San Juan, Puerto Rico, and through a
second affiliate, the El Conquistador Resort & Country Club, a destination
resort complex in Las Croabas, Puerto Rico. WHG's holdings include: a 100%
interest in Posadas de Puerto Rico Associates, Incorporated, the owner of the
Condado Plaza Hotel & Casino ("Condado Plaza"); a 50% interest in Posadas de San
Juan Associates, a partnership which owns the El San Juan Hotel & Casino ("El
San Juan"); a 23.3% indirect interest in El Conquistador Partnership L.P. which
owns the El Conquistador Resort & Country Club; and a 62% interest in Williams
Hospitality Group Inc. ("WHGI"), the management company for the above
properties.
WHG was a wholly owned subsidiary of WMS prior to April 21, 1997. On April 21,
1997 WMS distributed 100% of the outstanding voting common stock of WHG to WMS's
stockholders, thereby creating a new independent public corporation.
E13-10
<PAGE> 11
NOTE 2: PRINCIPAL ACCOUNTING POLICIES
CONSOLIDATION POLICY
The consolidated financial statements include the accounts of WHG and its
majority-owned subsidiaries (the "Company"). All significant intercompany
accounts and transactions have been eliminated. Investments in companies that
are 20% to 50% owned are accounted for by the equity method. WHG records its
equity in the results of operations of El Conquistador Partnership L.P., based
on that partnership's fiscal year end of March 31.
USE OF ESTIMATES
The preparation of the 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 revenue and expenses during the period reported. Actual results
could differ from those estimates.
CASH AND CASH EQUIVALENTS
All highly liquid investments with a maturity of three months or less when
purchased are considered to be cash equivalents.
INVENTORIES
Inventories, which consist mainly of food, beverages and supplies, are valued at
the lower of cost (determined by the first-in, first-out method) or market.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost and depreciated by the straight-line
method over their estimated useful lives.
EXCESS OF PURCHASE COST OVER AMOUNT ASSIGNED TO NET ASSETS ACQUIRED (GOODWILL)
Goodwill arising from acquisitions is being amortized by the straight-line
method over 20 to 40 years.
CASINO REVENUES
Casino revenues are the net win from gaming activities, which is the difference
between gaming wins and losses.
CASINO PROMOTIONAL ALLOWANCES
Casino promotional allowances represent the retail value of complimentary food,
beverages and hotel services furnished to patrons, commissions and
transportation costs.
E13-11
<PAGE> 12
ADVERTISING EXPENSE
The cost of advertising is charged to earnings as incurred and for fiscal 1997,
1996 and 1995 was $809,000, $988,000 and $1,103,000, respectively.
NOTE 3: ACQUISITIONS
In July 1994, the Company acquired 5% of Williams Hospitality increasing its
interest from 57% to 62%. In July 1994, the Company acquired 2.5% of Posadas de
Puerto Rico Associates, Incorporated increasing its interest from 92.5% to 95%.
In April 1997, the Company acquired the remaining 5% of Posadas de Puerto Rico
Associates, Incorporated increasing its interest from 95% to 100%.
NOTE 4: INVESTMENTS IN NONCONSOLIDATED AFFILIATES
Investments in nonconsolidated affiliates consist of a 50% interest in Posadas
de San Juan Associates, a partnership ("PSJA") and a 23.3% indirect interest in
El Conquistador Partnership L.P. ("El Conquistador") through a 46.5% interest in
WKA El Con Associates, a partnership ("WKA El Con").
Current receivables from nonconsolidated affiliates at June 30 were:
<TABLE>
<CAPTION>
1997 1996
(In thousands)
<S> <C> <C>
PSJA $ 252 $ 61
WKA El Con 85 64
El Conquistador 768 483
------ ------
$1,105 $ 608
====== ======
</TABLE>
Investments in and noncurrent receivables and advances to nonconsolidated
affiliates at June 30 were:
<TABLE>
<CAPTION>
1997 1996
(In thousands)
<S> <C> <C>
Investments:
PSJA $ (6,690) $ (7,678)
WKA El Con (2,813) (612)
Receivables and advances:
PSJA 25,541 23,148
WKA El Con 5,062 4,556
El Conquistador 9,503 7,712
-------- --------
$ 30,603 $ 27,126
======== ========
</TABLE>
E13-12
<PAGE> 13
PSJA operates as a partnership, therefore, 50% of its accumulated deficit is
recorded as an investment. Summarized financial data for PSJA's financial
position at June 30, 1997 and 1996 and PSJA's results of operations for fiscal
1997, 1996 and 1995 were:
<TABLE>
<CAPTION>
June 30, June 30, June 30,
1997 1996 1995
(In thousands)
<S> <C> <C> <C>
Current assets $ 8,133 $ 6,558
Noncurrent assets 35,804 35,198
Total assets $ 43,937 $ 41,756
Payable to affiliates $ 237 $ 61
Other current liabilities 10,659 10,101
Total current liabilities 10,896 10,162
Noncurrent payable to affiliates 25,591 23,148
Other noncurrent liabilities 20,831 23,803
Total noncurrent liabilities 46,422 46,951
Partners' capital deficiency (13,381) (15,357)
Total liabilities and partners' capital deficiency 43,937 $ 41,756
Revenues $ 51,732 $ 50,124 $ 51,797
Management fees and interest payable to WHGI 5,325 4,738 4,691
Other costs and expenses 44,431 46,746 $ 49,507
Net income (loss) $ 1,976 $ (1,360) $ (2,401)
</TABLE>
The Company has a 46.5% interest in WKA El Con which has a 50% interest in El
Conquistador. Summarized financial data for WKA El Con's financial position at
June 30, 1997 and 1996 and WKA El Con's results of operations for fiscal 1997,
1996 and 1995 were:
<TABLE>
<CAPTION>
June 30, June 30, June 30,
1997 1996 1995
(In thousands)
<S> <C> <C> <C>
Loans receivable from El Conquistador $ 18,343 $ 16,116
Investment in El Conquistador, net (12,464) (7,763)
Other assets, net 2,384 3,566
Total assets $ 8,263 $ 11,919
Current payable to WHGI $ 85 $ 64
Long-term note payable including interest 5,527 5,197
Long-term notes payable to partners including interest 10,475 9,791
Partners' (capital deficiency) (7,824) $ (3,133)
Total liabilities and partners' capital deficiency $ 8,263 $ 11,919
Net operating income (loss) $ 10 $ (178) $ (356)
Equity in net loss of El Conquistador for fiscal year (4,701) $ (6,120) (13,739)
ended March 31
Equity in income of Las Casitas -- 313 1,627
Net (loss) $ (4,691) $ (5,985) $(12,468)
</TABLE>
E13-13
<PAGE> 14
The WKA El Con's long-term note payable is collateralized by a pledge of a
second mortgage on land owned by the Company that cost $3,761,000 and a WMS
guarantee of $1,000,000 as to which WHG will indemnify WMS in the event of any
payments made on the guarantee. The other partners of WKA El Con have pledged
cash and a portion of their interest in WHGI stock, in proportion to their
interests in WKA El Con, to WHG to be used in the event the guarantee is drawn
on.
El Conquistador is a destination resort and casino which began operations in
November 1993. Summarized financial data for El Conquistador's financial
position at March 31, 1997 and 1996 (the partnership's fiscal year end) and El
Conquistador's results of operations for fiscal years ended March 31, 1997, 1996
and 1995 were:
<TABLE>
<CAPTION>
March 31, March 31, March 31,
1997 1996 1995
(In thousands)
<S> <C> <C> <C>
Current assets $ 13,618 $ 11,823
Land, building and equipment, net 185,552 190,463
Deferred debt issuance and pre-opening costs, net 5,841 8,587
Other assets 419 818
Total assets $ 205,430 $ 211,691
Current liabilities $ 22,829 $ 23,281
Debt due February 1, 1998 120,000 --
Long-term debt 26,660 149,324
Long-term due to partners and affiliates 48,869 42,611
Partners' (capital deficiency) (12,928) (3,525)
Total liabilities and capital deficiency $ 205,430 $ 211,691
Revenues $ 92,958 $ 89,214 $ 84,743
Management fees and interest payable to WHGI 6,282 5,820 3,874
Interest payable to partners 2,498 2,598 1,898
Other costs and expenses 84,434 82,538 95,324
Depreciation and amortization 9,147 10,499 11,124
Net (loss) $ (9,403) $ (12,241) $ (27,477)
</TABLE>
At March 31, 1997 WHGI has provided guarantees amounting to $2,170,000 in
connection with leasing and other financing transactions of El Conquistador.
Debt of the El Conquistador of $120,000,000 is collateralized by a letter of
credit which terminates on March 9, 1998. Under the terms of the loan agreement,
such debt is required to be repaid on February 1, 1998 in the event the letter
of credit is not renewed or replaced prior to November 9, 1997. El Conquistador
has engaged investment advisors to investigate obtaining an alternative letter
of credit or financing arrangement. If such an alternative is not found, the
Company's investment in, receivables from, advances to and potential payments on
guarantees for El Conquistador totaling $18,463,000 at June 30, 1997 may not be
recoverable. In the event this amount is not recovered the 38% minority interest
in WHGI would absorb approximately $5,900,000 of the charge. WHGI would also
incur a loss of future management fees from El Conquistador. For the years ended
June 30, 1997, 1996 and 1995, the Company accrued approximately $5,650,000,
$5,395,000 and $3,704,000, respectively, in management fee revenue from El
Conquistador. The Company also recorded equity in losses of El Conquistador of
$2,188,000, $2,786,000 and $5,803,000 in the years ending June 30, 1997, 1996
and 1995, respectively.
E13-14
<PAGE> 15
Consolidated retained earnings of the Company at June 30, 1997 is reduced by
$23,262,000 for the Company's ownership percentage in the accumulated deficit of
PSJA and WKA El Con which are accounted for under the equity method.
Interest earned by the Company from all the nonconsolidated affiliates for the
years ended June 30, 1997, 1996 and 1995 was $1,823,000, $1,650,000 and
$1,373,000, respectively.
NOTE 5: PROPERTY AND EQUIPMENT
At June 30 net property and equipment were:
<TABLE>
<CAPTION>
1997 1996
(In thousands)
<S> <C> <C>
Land $ 7,535 $ 7,535
Buildings and improvements 47,865 45,294
Furniture, fixtures and equipment 31,975 30,473
-------- --------
87,375 83,302
Less accumulated depreciation (43,514) (38,383)
-------- --------
Net property and equipment $ 43,861 $ 44,919
======== ========
</TABLE>
NOTE 6: INCOME TAXES
The Company's two operating subsidiaries and two nonconsolidated affiliates
operate under the provisions of the Puerto Rico Tourism Incentives Act of 1993
which provides a ten-year incentive grant which may be extended for ten years.
Major benefits include a 90% exemption from income taxes on income deemed to be
derived from tourism operations. The grant also provides a 90% exemption from
municipal real and personal property taxes. Income deemed to be derived from
casino operations are not covered by the grant.
The two operating subsidiaries, the Condado Plaza and WHGI elect to file income
tax returns under Section 936 of the United States Internal Revenue Code which
provides for total or, after 1994, partial exemption from Federal income taxes
on income from sources within Puerto Rico if certain conditions are met. The
portion of taxes that can be exempt under Section 936 is determined by the
calculation of certain limits prescribed by Section 936. These limits are either
based on certain costs and expenses ("economic activity method") or a fixed
percentage as prescribed in Section 936 ("percentage limitation method").
Corporations that operate under Section 936 cannot be members of a consolidated
Federal income tax return. The tax exemption under Section 936 generally
decreases each year until the benefits terminate in 2005.
The Condado Plaza elected the economic activity method which results in a 100%
exemption from Federal income taxes. WHGI elected the percentage limitation
method which resulted in a Federal tax provision of $2,793,000 in fiscal 1997,
$1,741,000 in fiscal 1996 and $1,149,000 in fiscal 1995.
Deferred income taxes reflect the net tax effects of temporary differences
between the amount of assets and liabilities for financial reporting purposes
and the amounts used for income taxes in the consolidated Federal income tax
return of WMS and allocated to the Company through April 22, 1997.
E13-15
<PAGE> 16
Significant components of the Company's deferred tax assets and liabilities at
June 30 were:
<TABLE>
<CAPTION>
1997 1996
(In thousands)
<S> <C> <C>
Deferred tax liabilities resulting from:
Tax over book deductions of WKA El Con $ 1,033 $ 686
Tax over book deductions of PSJA 1,605 1,605
------- -------
Deferred tax liability $(2,638) $(2,291)
======= =======
</TABLE>
The Company's provision for income taxes was calculated on a historical basis.
WHG and certain of its subsidiaries were members of the WMS consolidated Federal
income tax return since their inception until April 21, 1997, the effective date
of the spin off. Accordingly, losses for Federal income tax purposes which were
primarily generated by the Company's equity in loss of nonconsolidated
affiliates in the form of partnership losses were utilized by WMS in its
consolidated tax return and resulted in tax benefits. The Company received the
tax benefits of $428,000, $4,139,000 and $510,000 for usage of such losses
during the years ended June 30, 1997, 1996 and 1995, respectively.
Significant components of the (provision) credit for income taxes for the years
ended June 30, 1997, 1996 and 1995 were:
<TABLE>
<CAPTION>
1997 1996 1995
(In thousands)
<S> <C> <C> <C>
Current:
Federal:
Certain Puerto Rico corporate income subject to federal tax $(2,793) $(1,741) $(1,149)
U.S. subsidiaries -- primarily partnership losses of
nonconsolidated affiliates 428 4,139 510
------- ------- -------
Total federal (2,365) 2,398 (639)
Puerto Rico (685) (804) (753)
------- ------- -------
Total current (provision) credit 3,050 1,594 (1,392)
Deferred -- federal, primarily from book to tax differences
on partnership losses (347) (3,239) 1,626
------- ------- -------
(provision) Credit for income taxes $(3,397) $(1,645) $ 234
======= ======= =======
</TABLE>
For financial reporting purposes, income (loss) before income tax credit
(provision) and minority interests is comprised of the following components for
the years ended June 30:
<TABLE>
<CAPTION>
1997 1996 1995
(In thousands)
<S> <C> <C> <C>
Income (loss) before income tax credit (provision)
and minority interests:
Puerto Rico corporate income $ 16,908 $ 11,487 $ 5,652
U.S. subsidiaries-- primarily partnership losses of
nonconsolidated affiliates (1,948) (3,253) (6,783)
-------- -------- --------
$ 14,960 $ 8,234 $ (1,131)
======== ======== ========
</TABLE>
E13-16
<PAGE> 17
The provision (credit) for income taxes differs from the amount computed using
the statutory federal income tax rate as follows for the years ended June 30:
<TABLE>
<CAPTION>
1997 1996 1995
(In thousands)
<S> <C> <C> <C>
Statutory federal income tax at 35% $ 5,236 $ 2,882 $ (395)
Puerto Rico corporate loss resulting in no tax benefit -- 199 1,525
Puerto Rico corporate income taxed at lower rates (2,180) (1,671) (1,602)
Other, net 341 235 238
------- ------- -------
$ 3,397 $ 1,645 $ (234)
======= ======= =======
</TABLE>
Undistributed earnings of the Puerto Rico subsidiaries that operate as Section
936 corporations under Federal income tax regulations were approximately
$41,800,000 at June 30, 1997. Those earnings are considered indefinitely
reinvested and, accordingly, no provision for income or toll gate taxes has been
provided thereon. Upon distribution of those earnings in the form of dividends,
the Company would be subject to U.S. income tax of approximately $2,300,000 and
toll gate withholding taxes of approximately $750,000.
WHG and WMS have entered into a tax sharing agreement that provides for the
rights and obligations of each company regarding deficiencies and refunds, if
any, relating to Federal and Puerto Rico income taxes for tax years up to and
including fiscal 1997.
During fiscal 1997, 1996 and 1995 income taxes paid to taxing authorities were
$2,728,000, $2,289,000 and $1,549,000, respectively.
NOTE 7: NOTES PAYABLE AND LONG-TERM DEBT
The Condado Plaza has a $2,000,000 bank line of credit which is payable on
demand with interest at the prime rate plus 1 percentage point, 9.5% and 9.25%
at June 30, 1997 and 1996, respectively. Borrowings under the line was
$1,000,000 on June 30, 1997 and $2,000,000 on June 30, 1996. The line of credit
is collateralized by a mortgage on the Condado Plaza property and accounts
receivable.
Long-term debt at June 30 was:
<TABLE>
<CAPTION> 1997 1996
(In thousands)
<S> <C> <C>
Condado Plaza mortgage note, due in increasing semi-annual amounts
through 1999, 12% $ 21,900 $ 24,150
Other 1,649 2,704
-------- --------
23,549 26,854
Less current maturities (3,681) (3,299)
-------- --------
$ 19,868 $ 23,555
======== ========
</TABLE>
Scheduled payments by fiscal year on long-term debt are as follows: $3,681,000
in 1998 and $19,868,000 in 1999.
The amount of interest paid during fiscal 1997, 1996 and 1995 was $3,255,000,
$3,679,000 and $4,306,000, respectively.
E13-17
<PAGE> 18
NOTE 8: AUTHORIZED SHARES
At June 30, 1997 the authorized common stock of WHG consists of 12,000,000
shares of $.01 par value of which 6,050,200 shares were issued and outstanding.
The Company's capital structure at June 30, 1997 also consists of 3,000,000
shares of Class A non-voting common stock of which none are outstanding. The
Company also has 2,000,000 shares of authorized preferred stock, none were
issued at June 30, 1997. The preferred stock will be issuable in series, and the
relative rights and preferences and the number of shares in each series are
established by the Board of Directors. At June 30, 1997, 300,000 shares of the
Preferred Stock were designated as Series B Preferred Stock and reserved for
issuance. See Note 16. At June 30, 1996 the capital structure consisted of 1,000
shares of no par value common stock of which 100 were issued and outstanding.
NOTE 9: STOCK OPTION PLAN
The Company's stock option plan allows for the grant of both incentive stock
options and nonqualified options on shares of voting common stock through the
year 2007. The stock option plan allows for the grant of options on 900,000
shares of common stock to officers, directors, employees and under certain
conditions to consultants and advisers to the Company and its subsidiaries. The
stock option committee has the authority to fix the terms and conditions upon
which each option is granted, but in no event shall the term exceed ten years or
be granted at less than 100% of the fair market value of the stock at the date
of grant in the case of incentive stock options and 85% of the fair market value
of the stock on the date of grant in the case of non-qualified stock options.
The Company accounts for stock options for purposes of determining net income in
accordance with APB Opinion No. 25 "Accounting for Stock Issued to Employees."
SFAS No. 123 regarding stock option plans permits the use of APB No. 25 but
requires the inclusion of certain pro forma disclosures in the footnotes.
If the Company had adopted the expensing provisions of SFAs No. 125 the
Company's pro forma net income for fiscal 1997 would have been $5,876,000. Pro
forma primary and fully diluted earnings per share for fiscal 1997 would have
been $0.97 and $0.96, respectively. There is no effect on reported amounts for
fiscal 1996, since the options were not granted until fiscal 1997.
The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option-pricing model with the following weighted average
assumptions used for grants, all of which were in 1997: dividend yield 0%;
expected volatility 32%; risk free interest rates of 6.2%; and expected lives of
four years.
The Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options which have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions including the expected stock price volatility. Because
the Company's stock options have characteristics significantly different from
those of traded options, and because changes in the subjective input assumptions
can materially affect the fair value estimate, in management's opinion, the
existing models do not necessarily provide a reliable single measure of the fair
value of its stock options.
During fiscal 1997, there were 898,000 options granted, all of which were
outstanding on June 30, 1997 and have a weighted average exercise price of
$8.49, a weighted average fair market value of $2.94, a weighted average
contractual life of 9.8 years and exercise prices that range from $8.38 to
$11.00. At June 30, 1997, 472,000 options are exercisable with a weighted
average exercise price of $8.38.
E13-18
<PAGE> 19
NOTE 10: CONCENTRATION OF CREDIT AND MARKET RISK AND FAIR VALUE DISCLOSURES OF
FINANCIAL INSTRUMENTS
Financial instruments which potentially subject the Company to concentrations of
credit and market risk consist primarily of cash equivalents and accounts
receivable. By policy, the Company places its cash equivalents only in high
credit quality securities and limits the amounts invested in any one security.
At June 30, 1997, accounts receivable are from hotel and casino guests and
travel agents located throughout North America and Latin America and because of
the number and geographic distribution, concentration is limited.
The estimated fair value of financial instruments at June 30, 1997 has been
determined by the Company, using available market information and valuation
methodologies considered to be appropriate. The amounts reported for cash
equivalents and current notes payable are considered to be a reasonable estimate
of their fair value.
At June 30, 1997, the $21,900,000 Condado Plaza 12% mortgage note payable is
estimated to have a fair value of $22,781,000 using discounted cash flow
analysis based on an estimated interest rate of 8.25%. The mortgage note is
subject to a substantial prepayment penalty based on interest rate differentials
plus a fixed percentage.
NOTE 11: LEASE COMMITMENTS
Operating leases relate principally to hotel facilities and equipment. A portion
of the Condado Plaza hotel facilities are leased from a partnership owned by a
former minority shareholder of the Condado Plaza. The former minority
shareholder lease extends through 2008 at an annual rent of $684,000 through
September 30, 1998 with periodic escalations thereafter to an annual rent of
$827,000 in 2004. Rent expense for fiscal 1997, 1996 and 1995 was $760,000,
$1,027,000 and $1,077,000, respectively (including $684,000, paid in each fiscal
1997, 1996 and 1995, under the former minority shareholder lease at the Condado
Plaza). Total net future lease commitments for minimum rentals at June 30, 1998,
1999, 2000, 2001, 2002 and thereafter are $718,000, $769,000, $786,000,
$786,000, $786,000 and $1,490,000, respectively.
NOTE 12: TRANSACTIONS WITH WMS
The Company's two operating subsidiaries and two nonconsolidated affiliates have
each provided for its off-season cash needs through its own operating cash and
from individual short-term note arrangements. Plant and equipment additions at
each property have also generally been provided by its own cash from
E13-19
<PAGE> 20
operations or third party financing. Cash advances from WMS, for the periods
reported, have been used for investment purposes. A summary of advances and
repayments between WMS and the Company prior to the April 21, 1997 spin-off for
the years ended June 30, 1997, 1996 and 1995 were:
<TABLE>
<CAPTION>
1997 1996 1995
(In thousands)
<S> <C> <C> <C>
Advances from (repayments to) WMS by use or source:
Purchase of additional shares in subsidiaries -- -- 3,738
Investment in and advances to (repayments from) WKA El Con -- (546) 157
Cash primarily generated from Williams Hospitality
dividends -- (1,590) (260)
Cash received from WMS for cumulative tax benefits 4,357 -- --
Other, net 409 -- --
Income tax benefits from partnership losses utilized by
WMS -- see Note 6 (493) (4,139) (510)
------- ------- -------
$ 4,273 $(6,275) $ 3,125
======= ======= =======
</TABLE>
During fiscal 1995 the Condado Plaza sold to WMS 50 shares of 8% non-voting
preferred stock with a liquidation preference of $50,000 per share for
$2,500,000 bringing the total of such preferred stock held by WMS to 150 shares
and $7,500,000 at June 30, 1995. During fiscal 1996 the Condado Plaza redeemed
68 of those preferred shares at $50,000 per share for $3,400,000. During fiscal
1997 the remaining 82 preferred shares were contributed to the capital of WHG.
In April 1997, the Condado Plaza redeemed 41 of those preferred shares at
$50,000 per share for $2,050,000. Subsequent to June 30, 1997 (July and August
1997), an additional 24 shares were redeemed at $50,000 per share for
$1,200,000.
<TABLE>
<S> <C>
During fiscal 1997 WMS contributed the following to the capital of WHG (in thousands):
Net, intercompany payable to WMS $ 4,764
Cash contribution 1,643
82 preferred shares of PPRA, liquidation preference of $50,000 4,100
-------
Total contribution $10,507
=======
</TABLE>
NOTE 13: PENSION PLAN
Certain subsidiaries are required to make contributions on behalf of unionized
employees to defray part of the costs of the multi-employer pension plans
established by their respective labor unions. Such contributions are computed
using a fixed charge per employee. Contributions to the plans for fiscal 1997,
1996 and 1995 were $377,000, $340,000 and $352,000, respectively.
E13-20
<PAGE> 21
NOTE 14: QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
Summarized quarterly financial information for fiscal 1997 and 1996 are as
follows, in thousands except per share amounts:
<TABLE>
<CAPTION>
September 30, December 31, March 31, June 30,
1996 1996 1997 1997
<S> <C> <C> <C> <C>
Fiscal 1997 Quarters:
Revenues $ 12,879 $ 17,175 $ 21,592 $ 17,988
=========== =========== =========== ===========
Operating income $ 790 $ 4,312 $ 8,115 $ 3,870
Interest expense, net (301) (282) (263) (85)
Equity in income (loss) of nonconsolidated affiliates (1,289) (1,739) 633 1,199
Credit (provision) for income taxes 89 (313) (2,078) (1,095)
Minority interests (421) (841) (1,670) (1,068)
Dividend on preferred stock of subsidiary (82) (82) (82) --
----------- ----------- ----------- -----------
Net income (loss) $ (1,214) $ 1,055 $ 4,655 $ 2,821
=========== =========== =========== ===========
Primary earnings per share $ (.20) $ (.17) $ .77 $ .46
=========== =========== =========== ===========
Shares used in calculation 6,050,200 6,050,200 6,050,200 6,195,774
=========== =========== =========== ===========
Fully diluted earnings per share $ (.20) $ (.17) $ .77 $ .45
=========== =========== =========== ===========
Shares used in calculation 6,050,200 6,050,200 6,050,200 6,247,241
=========== =========== =========== ===========
Pro forma net income (loss) reflecting income taxes
on a separate return basis $ (1,675) $ 435 $ 5,121 $ 3,355
=========== =========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
September 30, December 31, March 31, June 30,
1995 1995 1996 1996
<S> <C> <C> <C> <C>
Fiscal 1996 Quarters:
Revenues $ 13,404 $ 17,452 $ 21,450 $ 16,388
=========== =========== =========== ===========
Operating income (loss) $ (226) $ 4,069 $ 7,248 $ 2,467
Interest expense, net (560) (493) (395) (411)
Equity in income (loss) of nonconsolidated affiliates (2,087) (1,510) (318) 450
Credit (provision) for income taxes 448 (153) (1,005) (935)
Minority interests (298) (896) (1,585) (857)
Dividend on preferred stock of subsidiary (150) (146) (126) (94)
----------- ----------- ----------- -----------
Net income (loss) $ (2,873) $ 871 $ 3,819 $ 620
=========== =========== =========== ===========
Earnings per share $ (.47) $ .14 $ .63 $ .10
=========== =========== =========== ===========
Shares used 6,050,200 6,050,200 6,050,200 6,050,200
=========== =========== =========== ===========
Pro forma net income (loss) reflecting
income taxes on a separate return basis $ (3,623) $ 361 $ 3,713 $ 1,086
=========== =========== =========== ===========
</TABLE>
For pro forma net income (loss), see Note 1 -- Basis of Presentation.
E13-21
<PAGE> 22
NOTE 15: SEGMENT INFORMATION
The Company's operations are conducted through two industry segments: the
operation of the Condado Plaza and the management of hotels/casinos. Industry
segment information for the fiscal years ended June 30 follows:
<TABLE>
<CAPTION>
1997 1996 1995
(in thousands)
<S> <C> <C> <C>
Revenues
Condado Plaza $ 55,697 $ 55,322 $ 57,530
WHGI 18,227 16,939 17,350
Intersegment revenues elimination -- WHGI
fees charged to Condado Plaza (4,290) (3,567) (4,002)
--------- --------- ---------
Total revenues $ 69,634 $ 68,694 $ 70,878
========= ========= =========
Operating income (loss)
Condado Plaza $ 6,348 $ 2,830 $ (1,465)
WHGI 11,923 10,837 9,174
General corporate administrative expenses (1,184) (109) (85)
--------- --------- ---------
Total operating income $ 17,087 $ 13,558 $ 7,624
========= ========= =========
Identifiable assets
Condado Plaza $ 55,385 $ 53,323 $ 57,879
WHGI 15,086 18,582 17,737
General investment and corporate 15,340 5,095 5,994
Investments in, receivables and advances to
nonconsolidated affiliates 31,708 27,734 29,696
--------- --------- ---------
Total identifiable assets $ 117,473 $ 104,734 $ 111,306
========= ========= =========
Depreciation of property and equipment
Condado Plaza $ 4,227 $ 4,120 $ 4,656
WHGI 777 769 681
--------- --------- ---------
Total depreciation of property
and equipment $ 5,004 $ 4,889 $ 5,337
========= ========= =========
Capital expenditures
Condado Plaza $ 3,181 $ 1,078 $ 2,030
WHGI 41 71 36
--------- --------- ---------
Total capital expenditures $ 3,222 $ 1,149 $ 2,066
========= ========= =========
</TABLE>
NOTE 16: CONTINGENT LIABILITIES
The Company is involved in various disputes arising in the ordinary course of
business, which may result in litigation. Management expects no material
adverse effect on the Company's financial condition as a result of these
matters.
NOTE 17: SALE OF PREFERRED STOCK SUBSEQUENT TO JUNE 30, 1997
The Board of Directors exercised the put provisions of a Put Option and Call
Option Agreement that was established on April 21, 1997 which resulted in the
Chairman of the Board purchasing on July 31, 1997, 300,000 shares of Series B
Preferred Stock for $3,000,000 in cash. Each share of Series B Preferred
Stock has 5 votes per share voting collectively with the common stockholders and
a liquidation preference of $10.00 per share plus accrued dividends, has a
quarterly dividend equal to the prime rate plus one half percent calculated on
the liquidation preference and the holder has a redemption right after three
years or earlier in the event of two unpaid quarterly dividends. The holder of
the Series B Preferred Stock can convert into shares of common stock. The
conversion price is $9.00, which is the lower of the closing price of the voting
common stock on its first day of official trading ($9.00) and the closing price
in the New York Stock Exchange at the close of business on the business day
immediately prior to the date of issuance of the Preferred Stock ($12.50).
NOTE 18: PROPOSED ACQUISITION SUBSEQUENT TO JUNE 30, 1997
On September 17, 1997, the Company executed an asset purchase agreement to
acquire an existing 127 room Hotel and related land next to the Condado Plaza
for $9,600,000, subject to certain terms and conditions, including satisfactory
due diligence. If the agreement is finalized, the Company intends to finance the
purchase price through long term financing and the use of excess cash currently
available.
E13-22
<PAGE> 1
EXHIBIT 21
WHG RESORTS & CASINOS INC.
SUBSIDIARIES & PARTNERSHIPS
<TABLE>
<CAPTION>
% Ownership
by WHG R&C Date and
(Unless otherwise Jurisdiction Jurisdictions
Name & Tax ID No. Type of Business noted) Organized Qualified
- ----------------- ---------------- ----------------- --------- ---------
<S> <C> <C> <C> <C>
SUBSIDIARIES
El Conquistador Ferryboat Shuttle 100% by WHGI 9/30/93 - -
Ferryboat Inc. Puerto Rico
66-0499293
ESJ Hotel Holding company 100% by 6/4/84 Puerto Rico
Corporation PPRA Delaware 4/14/97
13-3237264
Isla Verde Tourism Parking Lot 100% by 11/6/92 - -
Parking Corp. Concession Holder PPRA Puerto Rico
Posadas de Puerto Hotel and casino 100% 6/13/83 Puerto Rico
Rico Associates, ownership Delaware 7/15/83
Incorporated
66-0401424
Posadas Finance Holding company 100% by 8/12/88 - -
Corporation PPRA Delaware
52-1635050
WHG El Con Corp. Holding company 100% 10/11/89 - -
06-1288059 Delaware
(Name change 4/2/97
from WMS El Con Corp)
Williams Hotel management 62% 6/13/83 Puerto Rico
Hospitality Group Inc. by PPRA Delaware 7/5/83
66-0408507
PARTNERSHIPS:
El Conquistador Hotel and casino 50% 01/16/90
Partnership L.P. ownership by WKA Delaware
06-1288145 23.3% WHG R&C
Las Casitas El Conquistador 50% by 4/27/93 - -
Development Condominium WKA El Con Puerto Rico
Company I, S development Associates
en C (S.E.)
66-0494027
Posadas de San Hotel and casino 50% by 07/30/84
Juan Associates ownership ESJ Hotel New York
66-041121
WKA Development, Real Estate 98% WHGI 6/1/91 - -
S.E. Holding Company 2% WKA El Con Puerto Rico
66-0476163 Associates
WKA El Con Partner in El 46.54% by 01/09/90
Associates Conquistador L.P. WHG El Con New York
06-1288143 Corp.
</TABLE>
<PAGE> 1
EXHIBIT 23
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in Registration Statement
No. 333-29583 on Form S-8 filed June 19, 1997 and in the related Prospectus of
our reports with respect to the consolidated financial statements and schedule
of WHG Resorts & Casinos Inc., and subsidiaries included in the Annual Report
(Form 10-K) of WHG Resorts & Casinos Inc. for the year ended June 30, 1997.
/s/ Ernst & Young LLP
San Juan, Puerto Rico
September 29, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> JUN-30-1997
<CASH> 17,886,000
<SECURITIES> 0
<RECEIVABLES> 5,231,000
<ALLOWANCES> (649,000)
<INVENTORY> 590,000
<CURRENT-ASSETS> 23,847,000
<PP&E> 87,375,000
<DEPRECIATION> 43,514,000
<TOTAL-ASSETS> 117,473,000
<CURRENT-LIABILITIES> 15,019,000
<BONDS> 19,868,000
0
0
<COMMON> 61,000
<OTHER-SE> 55,263,000
<TOTAL-LIABILITY-AND-EQUITY> 117,473,000
<SALES> 0
<TOTAL-REVENUES> 69,634,000
<CGS> 0
<TOTAL-COSTS> 52,547,000
<OTHER-EXPENSES> 0
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</TABLE>
