<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM __________________ TO ___________________
COMMISSION FILE NUMBER: 0-1590
THE WESTWOOD GROUP, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 04-1983910
(STATE OR OTHER JURISDICTION OF (IRS EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
190 V.F.W. PARKWAY, REVERE, MASSACHUSETTS 02151
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
781-284-2600
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
NOT APPLICABLE
(FORMER NAME, FORMER ADDRESS AND FORMER
FISCAL YEAR, IF CHANGED SINCE LAST REPORT)
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (L) HAS FILED ALL REPORTS REQUIRED
TO BE FILED BY SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 DURING
THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE REGISTRANT WAS
REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH FILING
REQUIREMENTS FOR THE PAST 90 DAYS. YES X NO
AS OF NOVEMBER 12, 1998 351,210 SHARES OF THE REGISTRANT'S COMMON STOCK, PAR
VALUE $.01 PER SHARE AND 912,015 SHARES OF THE REGISTRANT'S CLASS B COMMON
STOCK, PAR VALUE $.01 PER SHARE, WERE OUTSTANDING.
Page 1 of 22
<PAGE> 2
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
THE WESTWOOD GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
----------- -----------
(Unaudited)
CURRENT ASSETS:
<S> <C> <C>
Cash and cash equivalents $ 317,499 $ 374,292
Restricted cash 1,015,339 612,037
Accounts receivable 304,858 629,204
Prepaid expenses and other current assets 344,077 161,502
----------- -----------
Total current assets 1,981,773 1,777,035
PROPERTY, PLANT AND EQUIPMENT:
Land 348,066 348,066
Building and building improvements 18,346,687 17,830,342
Machinery and equipment 4,496,720 4,441,026
----------- -----------
23,191,473 22,619,434
Less accumulated depreciation and amortization 17,276,890 16,913,769
----------- -----------
Net property, plant and equipment 5,914,583 5,705,665
----------- -----------
OTHER ASSETS:
Goodwill, less accumulated
amortization of $636,000 and $528,000 84,000 192,000
Investments 5,641,022 5,324,522
Notes receivable from officer 384,375 369,375
Other assets 176,063 212,875
----------- -----------
Total other assets 6,285,460 6,098,772
----------- -----------
Total assets $14,181,816 $13,581,472
=========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated condensed
financial statements.
Page 2 of 22
<PAGE> 3
THE WESTWOOD GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
------------ ------------
(Unaudited)
CURRENT LIABILITIES:
<S> <C> <C>
Accounts payable and other accrued liabilities $ 3,300,102 $ 3,986,852
Outstanding pari-mutuel tickets 1,162,705 1,089,658
Net liabilities of discontinued operations 704,420 1,280,620
Current maturities of long-term debt 342,645 139,022
Short-term borrowings -- 355,539
Debt obligations in default -- 4,234,286
------------ ------------
Total current liabilities 5,509,872 11,085,977
------------ ------------
LONG-TERM DEBT, less current maturities 5,631,849 996,671
OTHER LONG-TERM LIABILITIES 2,747,865 3,049,452
------------ ------------
Total liabilities 13,889,586 15,132,100
------------ ------------
COMMITMENTS AND CONTINGENCIES:
STOCKHOLDERS' EQUITY (DEFICIT):
Common stock, $.01 par value; authorized
3,000,000 shares, 1,944,409 and 1,936,409 shares
issued and outstanding 19,444 19,364
Class B Common stock, $.01 par value; authorized
1,000,000 shares; 912,615 shares issued and outstanding 9,126 9,126
Additional paid-in capital 13,379,275 13,355,355
Accumulated deficit (4,775,715) (6,538,493)
Note receivable from related party (375,118) (345,119)
Minimum pension liability adjustment -- (86,079)
Less cost of 1,593,199 common and 600 Class B
common shares in treasury (7,964,782) (7,964,782)
------------ ------------
Total stockholders' equity (deficit) 292,230 (1,550,628)
------------ ------------
Total liabilities and stockholders' equity (deficit) $ 14,181,816 $ 13,581,472
============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated condensed
financial statements.
Page 3 of 22
<PAGE> 4
THE WESTWOOD GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
For The
Three Months Ended
September 30,
1998 1997
----------- -----------
OPERATING REVENUE:
<S> <C> <C>
Pari-mutuel commissions $ 3,899,013 $ 4,601,892
Concessions and other 1,050,357 1,035,070
----------- -----------
Total operating revenue 4,949,370 5,636,962
----------- -----------
OPERATING EXPENSES:
Wages, taxes and benefits 1,886,374 1,704,080
Purses 1,038,146 1,461,567
Administrative and general 1,327,735 1,351,157
Cost of food and beverage 142,693 154,584
Depreciation and amortization 166,625 127,948
----------- -----------
Total operating expenses 4,561,573 4,799,336
----------- -----------
Income from operations 387,797 837,626
----------- -----------
OTHER INCOME (EXPENSE):
Interest expense, net (68,358) (135,542)
Equity income in investments 101,000 80,340
Other income, net 3,362 44,167
----------- -----------
Total other income (expense) 36,004 (11,035)
----------- -----------
INCOME FROM CONTINUING OPERATIONS BEFORE
PROVISION FOR INCOME TAXES 423,801 826,591
PROVISION FOR INCOME TAX -- --
----------- -----------
INCOME FROM CONTINUING OPERATIONS 423,801 826,591
GAIN FROM DISCONTINUED HARNESS
RACING SUBSIDIARY, NET -- 1,775,935
----------- -----------
NET INCOME $ 423,801 $ 2,602,526
=========== ===========
BASIC AND DILUTED PER SHARE DATA:
Income from continuing operations per share $ .34 $ .66
=========== ===========
Gain from discontinued operations, net per share $ .00 $ 1.41
=========== ===========
Net income per share $ .34 $ 2.07
=========== ===========
BASIC AND DILUTED WEIGHTED AVERAGE
COMMON SHARES OUTSTANDING 1,263,225 1,255,225
=========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated condensed
financial statements.
Page 4 of 22
<PAGE> 5
THE WESTWOOD GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
For The
Nine Months Ended
September 30,
1998 1997
------------ ------------
OPERATING REVENUE:
<S> <C> <C>
Pari-mutuel commissions $ 12,093,119 $ 13,311,354
Concessions and other 2,733,486 3,038,424
------------ ------------
Total operating revenue 14,826,605 16,349,778
------------ ------------
OPERATING EXPENSES:
Wages, taxes and benefits 5,292,326 5,015,601
Purses 3,634,365 4,124,731
Administrative and general 3,942,703 4,128,079
Cost of food and beverage 407,810 425,252
Depreciation and amortization 469,706 388,394
------------ ------------
Total operating expenses 13,746,910 14,082,057
------------ ------------
Income from operations 1,079,695 2,267,721
------------ ------------
OTHER INCOME (EXPENSE):
Interest expense, net (286,417) (427,048)
Equity income in investments 316,500 178,000
Other income, net 102,800 132,500
------------ ------------
Total other income (expense) 132,883 (116,548)
------------ ------------
INCOME FROM CONTINUING OPERATIONS BEFORE
PROVISION FOR INCOME TAXES 1,212,578 2,151,173
PROVISION FOR INCOME TAX 26,000 10,000
------------ ------------
INCOME FROM CONTINUING OPERATIONS 1,186,578 2,141,173
GAIN FROM DISCONTINUED HARNESS
RACING SUBSIDIARY, NET 576,200 168,889
------------ ------------
NET INCOME $ 1,762,778 $ 2,310,062
============ ============
BASIC AND DILUTED PER SHARE DATA:
Income from continuing operations per share $ .94 $ 1.71
============ ============
Gain from discontinued operations, net per share $ .46 $ .13
============ ============
Net income per share $ 1.40 $ 1.84
============ ============
BASIC AND DILUTED WEIGHTED AVERAGE
COMMON SHARES OUTSTANDING 1,263,225 1,255,225
============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated condensed
financial statements.
Page 5 of 22
<PAGE> 6
THE WESTWOOD GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
For The
Nine Months Ended
September 30,
1998 1997
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net income $ 1,762,778 $ 2,310,062
----------- -----------
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 469,706 388,394
Equity in income from investments (316,500) (178,000)
Other income -- (132,500)
Gain from discontinued operations, net (576,200) (2,580,676)
Changes in operating assets and liabilities:
Restricted cash (403,302) 738,075
Accounts receivables 324,346 464,235
Prepaid expenses and other current assets (182,575) 136,796
Other assets 79,307 (13,638)
Accounts payable
and other accrued liabilities (686,750) (2,016,518)
Outstanding pari-mutuel tickets 73,047 (134,490)
Other long-term liabilities (301,587) 1,529,990
----------- -----------
Total adjustments (1,520,508) (1,798,332)
----------- -----------
Net cash provided by operating activities 242,270 511,730
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment (572,039) (272,435)
----------- -----------
Net cash used in investing activities (572,039) (272,435)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt 5,006,109 2,811
Principal payments of debt (4,757,133) (957,826)
Issuance of common stock 24,000 --
----------- -----------
Net cash provided by (used in) in financing activities 272,976 (955,015)
----------- -----------
NET DECREASE IN CASH EQUIVALENTS (56,793) (715,720)
CASH AND CASH EQUIVALENTS, beginning of period 374,292 1,033,911
----------- -----------
CASH AND CASH EQUIVALENTS, end of period $ 317,499 $ 318,191
=========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 305,947 $ 366,630
Income taxes $ 56,113 $ 19,462
</TABLE>
The accompanying notes are an integral part of these consolidated condensed
financial statements.
Page 6 of 22
<PAGE> 7
THE WESTWOOD GROUP, INC. AND SUBSIDIARIES
SEPTEMBER 30, 1998
(Unaudited)
1. Summary of Significant Accounting Policies
Interim Results
The accompanying unaudited condensed consolidated financial statements
have been prepared by The Westwood Group, Inc. (the "Company") pursuant to the
rules and regulations of the Securities and Exchange Commission regarding
interim financial reporting. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements and should be read in conjunction with the
financial statements and notes thereto for the year ended December 31, 1997
included in the Company's Form 10-K. The accompanying condensed consolidated
financial statements reflect all adjustments (consisting of normal, recurring
adjustments) which are, in the opinion of management, necessary for a fair
presentation of results for the interim periods presented.
Principles of Consolidation
The accompanying consolidated condensed financial statements as of
September 30, 1998 and December 31, 1997 and for the three and nine month
periods ended September 30, 1998 and 1997 include the accounts of the Company
and its wholly-owned subsidiaries. All material intercompany accounts and
transactions have been eliminated in consolidation.
Reclassifications
Certain reclassifications were made to the 1997 financial statement
amounts to conform with the 1998 presentation.
Financial Statements for the Year Ended December 31, 1997
The consolidated balance sheet at December 31, 1997 is presented for
comparative purposes and was taken from the audited consolidated financial
statements for the year ended December 31, 1997.
Debt
Long-term obligations which were in default at December 31, 1997 were
classified as current liabilities at December 31, 1997.
Page 7 of 22
<PAGE> 8
THE WESTWOOD GROUP, INC. AND SUBSIDIARIES
SEPTEMBER 30, 1998
(Unaudited)
1. Summary of Significant Accounting Policies (continued)
Income (Loss) per common share
The Company follows Statement of Financial Accounting Standards (SFAS)
No. 128, Earnings per Share, issued by the Financial Accounting Standards Board.
Under SFAS No. 128, the basic and diluted net income (loss) per share of common
stock is computed by dividing the net income (loss) by the weighted average
number of common shares outstanding during the period, including potentially
dilutive stock options.
The Company's stock options did not have a dilutive effect in 1998 and
1997 since the option prices per share were deemed to be equal to or higher than
the estimated average per share market price of the company's common stock.
The amount of potentially dilutive common shares issuable under the
Company's stock options, if any, are determined based on the treasury stock
method.
2. Discontinued Operations
The accompanying condensed statements of operations for the three and
nine month periods ended September 30, 1997 have been restated to present the
Foxboro Harness racing business as a discontinued operation. During July 1997,
the Company's harness racing subsidiary, Foxboro Park, Inc. (including wholly
owned subsidiaries), was evicted from Foxboro Raceway (see Legal Proceedings at
Part II Item 1).
The gain from discontinued harness racing subsidiary, net for the
three and nine month periods ended September 30, 1997 is summarized as follows:
<TABLE>
<CAPTION>
3 Months 9 Months
----------- -----------
<S> <C> <C>
Operating revenues $ 1,033,530 $ 6,564,416
Operating expenses (1,838,271) (8,976,203)
----------- -----------
Loss from operations of discontinued
harness racing subsidiary (804,741) (2,411,787)
Gain from discontinuance of harness
racing subsidiary 2,580,676 2,580,676
----------- -----------
Gain from discontinued harness racing
subsidiary, net $ 1,775,935 $ 168,889
=========== ===========
</TABLE>
In February 1998 the Company executed an Assignment for the Benefit of
Creditors ("AFBC") for Foxboro Park, Inc., Foxboro Harness, Inc. and Foxboro
Thoroughbred, Inc. (collectively, the "Foxboro Entities"). The AFBC was executed
to provide a mechanism for the liquidation of its assets and the distribution of
proceeds to its creditors. Provided that 70% in amount and 50% in number of the
Foxboro Entities creditors become Assenting Creditors, the Company shall
partially subordinate its claims. The assets of the Foxboro Entities have been
distributed to the trustee in connection with the execution of the AFBC.
Page 8 of 22
<PAGE> 9
THE WESTWOOD GROUP, INC. AND SUBSIDIARIES
SEPTEMBER 30, 1998
(Unaudited)
2. Discontinued operations (continued)
Net liabilities of discontinued operations consist of assets distributed to the
trustee of approximately $475,000 net of amounts due creditors. During the nine
months ended September 30, 1998 creditors with amounts due of approximately
$820,000 assented to the AFBC. The Company has reduced its Net liability of
discontinued operations to reflect these assents and has recorded a gain from
discontinued operations of $576,200 for the nine month period ended September
30, 1998.
3. Debt
Long-term debt consisted of the following:
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
------------- ----------
<S> <C> <C>
9.5% Term Loan requiring monthly payments of principal and interest of
approximately $58,300 until maturity in June 2003, collateralized by
a mortgage and security interest in all real estate and personal
property located at Wonderland Park and is guaranteed by the Company $ 4,962,381 --
8-3/4% MSCGAF Trust term loan requiring monthly payments of principal
and interest of $42,298 until maturity in January 1998,
collateralized by a mortgage and security interest in all real estate
and personal property located at Wonderland Park, by all of the stock
of Wonderland Park, and guaranteed by three subsidiaries of the
Company, including Wonderland Park -- $2,381,286
Line of credit, interest at 10% requiring monthly payments of interest
plus $16,000 principal until maturity at February 1, 1998
collateralized by a second mortgage and security interest in all real
estate and personal property located at Wonderland Park and by
approximately 401,000 shares of BBRG common stock held by the Company. -- 1,568,000
</TABLE>
Page 9 of 22
<PAGE> 10
THE WESTWOOD GROUP, INC. AND SUBSIDIARIES
SEPTEMBER 30, 1998
(Unaudited)
3. Debt (continued)
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
---------- ------------
<S> <C> <C>
6%BBRG Term Note, payable in equal quarterly payments of principal and
interest of approximately $36,000 beginning April 1, 1999,
collateralized by certain tangible personal
property and licenses. 970,000 970,000
14.25% Subordinated Notes due August, 1997. 10,000 285,000
Margin agreement due on demand collateralized by
88,000 shares of BBRG stock held by the Company. -- 117,855
7.5% Promissory Note, payable in 60 monthly payments of principal and
interest of $2,003, commencing April, 1995. 32,113 47,838
---------- ----------
Total 5,974,494 5,369,979
Less:
Current maturities 332,645 139,022
Debt obligations in default 10,000 4,234,286
---------- ----------
Long-term debt $5,631,849 $ 996,671
========== ==========
</TABLE>
On June 30, 1998 Wonderland Greyhound Park, Inc. completed a refinancing with
a bank. The bank provided a $5 million Term Loan ("Term Loan") bearing
interest at 9.5 % per annum and requiring monthly principal and interest
payments of approximately $58,300 commencing August 1, 1998 until maturity on
June 30, 2003. The Term Loan is secured by a mortgage and security interest
in all real estate and personal property located at Wonderland Park and is
guaranteed by the Company.
The proceeds of the Term Loan were used to retire approximately $4
million of existing debt obligations including the MSCGAF Trust Term Loan, $1.5
million Line of Credit and margin agreement.
In connection with the refinancing Wonderland established a $500,000.00
cash collateral account to be used to satisfy simulcast out-ticket obligations.
During November, 1998, this account was liquidated to extinguish simulcast
out-ticket obligations due.
In May 1994, holders of approximately $19,300,000 of the Company's
14.25% Subordinated Notes (the "Notes") exchanged them for approximately 887,000
shares of BBRG common stock. The shares were exchanged in full settlement of
principal, accumulated interest and default premiums due in respect of such
Notes. Holders of approximately $285,000 of the Notes elected not to participate
in the exchange. During the second quarter of 1998, the Company retired in full
settlement of principal, accumulated interest and default premiums due in
respect to $275,000 of these Notes with payments totalling $425,000. The
remaining $10,000 Note continues to be in default.
Page 10 of 22
<PAGE> 11
THE WESTWOOD GROUP, INC. AND SUBSIDIARIES
SEPTEMBER 30, 1998
(Unaudited)
3. Debt (continued)
In May 1994, the Company entered into an agreement with BBRG to
transfer the operations under the Concessions Agreement and the Management
Agreement to the Company in return for a six year term note in the amount of
$970,000. On January 5, 1998 the Note was amended requiring equal quarterly
payments of principal and interest beginning April 1, 1999 of approximately
$36,000 with interest at 6%.
4. Short-term borrowings
The Company had $355,539 outstanding at December 31, 1997, under a
short-term borrowing arrangement. The note required weekly principal and
interest payments of $12,000 with interest accruing at 12% per annum and a
maturity date of August 7, 1998. The Company retired this obligation in July
1998 in connection with the refinancing discussed in Note 3 above.
5. Investments
During 1994, the Company and BBRG jointly pursued a series of
transactions, the effect of which resulted in the control of BBRG no longer
resting with the Company. Accordingly, the Company's investment in BBRG has been
accounted for under the equity method.
The following unaudited financial information summarizes the financial
position and results of operations of BBRG:
<TABLE>
<CAPTION>
September 27, December 28,
1998 1997
------- -------
(In thousands)
Balance sheet data:
<S> <C> <C>
Current assets $ 2,566 $ 4,050
Noncurrent assets 41,106 39,022
Current liabilities 10,579 11,786
Noncurrent liabilities 4,280 4,274
Net equity $28,813 $27,012
</TABLE>
<TABLE>
<CAPTION>
Thirty-nine Weeks Ended
September 27, September 28,
1998 1997
------- -------
(In thousands)
Earnings data:
<S> <C> <C>
Net sales $72,305 $69,877
Income from restaurant operations 9,254 8,337
Net income 1,693 890
Company's equity in net income $ 317 $ 178
</TABLE>
Page 11 of 22
<PAGE> 12
THE WESTWOOD GROUP, INC. AND SUBSIDIARIES
SEPTEMBER 30, 1998
(Unaudited)
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Three months ended September 30, 1998 compared to three months ended September
30, 1997.
The table below illustrates certain key statistics for Wonderland
Park, the Company's greyhound racing operation, for the three months ended
September 30, 1998 and 1997.
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
Performances 105 119
Simulcast days 92 92
Pari-mutuel handle (thousands)
Live-on track $ 8,186 $ 11,146
Live-simulcast 10,561 9,321
Guest-simulcast 12,352 13,453
-------- --------
Total $ 31,099 $ 33,920
======== ========
Total attendance 108,415 134,310
======== ========
Average per capita on site wagering $ 189 $ 183
======== ========
</TABLE>
Operating revenue
The Company is still experiencing a decline in total attendance
caused by a variety of factors. These include a general decline in the
pari-mutuel racing industry, a strong competition for the wagered dollar from
the Massachusetts State Lottery, and from casino gambling and slot machines in
neighboring states.
Total operating revenue decreased to approximately $4.9 million in
the quarter ended September 30, 1998 as compared to approximately $5.6 million
in the same period of 1997. Pari-mutuel commissions decreased by approximately
$703,000 or 15% to approximately $3.9 million for the three months ended
September 30, 1998 from approximately $4.6 million in 1997. Total handle in
third quarter of 1998 was approximately $31.1 million as compared to $33.9
million in 1997. Guest-simulcast handle decreased by approximately $1.1 million
or 8% from approximately $13.5 million in the third quarter of 1997 to
approximately $12.4 million in the corresponding period in 1998. Live-on track
handle decreased by approximately $2.96 million or 27% in 1998 as compared to
1997, while Live-simulcast handle increased by approximately $1.2 million or
13%.
The decrease in pari-mutuel commission revenue is attributable to
the decrease in Live-on track and Guest-simulcast handle which was partially
offset by an increase in Live-simulcast handle as well as an increase in the
commission rate earned on certain wagers. Wonderland had fourteen fewer live
racing performances in the third quarter of 1998 as compared to the
corresponding period in 1997, with an average attendance of approximately 1,033
persons and 1,129 persons in 1998 and 1997, respectively.
Pari-mutuel commission for the three months ended September 30,
1998 included approximately $71,400 deposited into both the Greyhound
Promotional Trust Fund and the Greyhound Capital Improvements Trust Fund.
Page 12 of 22
<PAGE> 13
THE WESTWOOD GROUP, INC. AND SUBSIDIARIES
SEPTEMBER 30, 1998
(Unaudited)
Operating revenue (continued)
Concessions and other operating revenue increased by approximately
$15,000 or 1% to approximately $1.05 million during the three months ended
September 30, 1998 as compared to approximately $1.04 million during the
corresponding period in 1997. Other operating revenue consists of program sales,
admissions, parking and gift shop sales.
The Company experienced declines in concession sales, program
sales, admissions and lottery commissions that were offset by increased parking
lot revenues. The revenue declines are attributable to lower attendance during
the three months ended September 30, 1998 as compared to the corresponding
period in 1997. Parking lot revenues have increased due to a change in pricing.
Operating expenses
Operating expenses, excluding depreciation and amortization, of
approximately $4.4 million for the three months ended September 30 1998
decreased by approximately $276,000 or 6% as compared to the three months ended
September 30, 1997.
The Company incurred lower purse expense due to the decrease in
on-track handle. The Company also realized savings in general operating expenses
due to lower audio-visual, utility and occupancy costs which were partially
offset by increased administrative costs. These cost savings were partially
offset by increased expenses associated with wages.
Depreciation and amortization
Depreciation and amortization increased approximately $39,000 to
$167,000 in the three months ended September 30, 1998, from $128,000 in the
comparable period in 1997. Depreciation and amortization are expensed on a
straight-line basis over the estimated life of the asset. Depreciation has
increased as additions have been made to fixed assets.
Interest expense, net
Interest expense, net decreased by approximately $67,000 for the
three months ended September 30, 1998, from approximately $136,000 in the three
months ended September 30, 1997 to approximately $68,000. The decrease is due to
the reduction of outstanding debt. (See Liquidity and Capital Resources).
Page 13 of 22
<PAGE> 14
THE WESTWOOD GROUP, INC. AND SUBSIDIARIES
SEPTEMBER 30, 1998
(Unaudited)
Nine months ended September 30, 1998 compared to nine months ended September 30,
1997
The table below illustrates certain key statistics for Wonderland Park, the
Company's greyhound racing operation, for the nine months ended September 30,
1998 and 1997.
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
Performances 314 346
Simulcast days 273 272
Pari-mutuel handle (thousands)
Live-on track $ 25,067 $ 32,059
Live-simulcast 29,268 25,246
Guest-simulcast 38,718 39,553
-------- --------
Total $ 93,053 $ 96,858
======== ========
Total attendance 322,055 387,621
======== ========
Average per capita on site wagering $ 198 $ 185
======== ========
</TABLE>
Operating revenue
Total operating revenue decreased to approximately $14.8 million
in the nine months ended September 30, 1998 as compared to approximately $16.3
million in the same period of 1997. Pari-mutuel commissions decreased by
approximately $1.2 or 9% to approximately $12.1 million for the nine months
ended September 30, 1998 from approximately $13.3 million in 1997. Total handle
in the first nine months of 1998 was approximately $93.1 million as compared to
approximately $98.9 million in 1997. Guest-simulcast handle decreased by
approximately $835,000 or 2% from $39.6 million in 1997 to approximately $38.7
million in the corresponding period in 1998. Live-on track handle decreased by
approximately $7.0 million or 22% in 1998 as compared to 1997, while
Live-simulcast handle increased by approximately $4.0 million or 16%
The decrease in pari-mutuel commission revenue is attributable to
the decrease in Live-on track and Guest Simulcast handles which were partially
offset by increased in Live-simulcast handle as well as an increase in the
commission rate earned on certain wagers. Wonderland had thirty two fewer live
racing performances in 1998 as compared to 1997, with an average attendance of
approximately 1,026 persons, while average attendance was approximately 1,120
persons in 1997.
Pari-mutuel commissions for the nine months ended September 30,
1998 included approximately $214,000 deposited into both the Greyhound
Promotional Trust Fund and the Greyhound Capital Improvements Trust Fund.
Concessions and other operating revenue decreased by approximately
$305,000 or 10% to approximately $2.7 million in the nine month period ended
September 30, 1998 from approximately $3.0 million in the corresponding period
in 1997. Other operating revenue consists of program sales, admissions, parking
and gift shop sales.
Page 14 of 22
<PAGE> 15
THE WESTWOOD GROUP, INC. AND SUBSIDIARIES
SEPTEMBER 30, 1998
(Unaudited)
Operating revenue (continued)
The Company experienced declines in concession sales, program sales, admissions
and lottery commissions that were partially offset by increased parking lot
revenues. The revenue declines are attributable to lower attendance during the
nine months ended September 30, 1998 as compared to the corresponding period in
1997. Parking lot revenues have increased due to a change in pricing.
Operating expenses
Operating expenses, excluding depreciation and amortization, of
approximately $13.3 million for the nine months ended September 30, 1998
decreased by approximately $416,000 from approximately $13.7 million for the
nine months ended September 30, 1997.
The Company incurred lower purse expense due to the decrease in
on-track handle. The Company also realized savings in general operating expenses
due to lower audio-visual, utility and occupancy costs. These cost savings were
partially offset by increased expenses associated with wages.
Depreciation and amortization
Depreciation and amortization increased approximately $81,000 to
approximately $470,000 in the nine months ended September 30, 1998 from
approximately $388,000 in the comparable period in 1997. Depreciation and
amortization are expensed on a straight-line basis over the estimated life of
the asset. Depreciation has increased as additions have been made to fixed
assets.
Interest expense, net
Interest expense, net decreased by approximately $141,000 for the
nine months ended September 30, 1998, from $427,000 in the nine months ended
September 30, 1997 to approximately $286,000 in the nine months ended September
30, 1998. The decrease is due to the reduction of outstanding debt. (See
Liquidity and Capital Resources).
Other income - net
Other income, net decreased by approximately $30,000 to
approximately $103,000 during the nine months ended September 30, 1998 as
compared to approximately $133,000 for the corresponding period in 1997. The
decrease is attributable to the realization of asset recovery proceeds in the
first quarter of 1997.
Page 15 of 22
<PAGE> 16
THE WESTWOOD GROUP, INC. AND SUBSIDIARIES
SEPTEMBER 30, 1998
(Unaudited)
Equity income (loss) in investments
The Company owns approximately 673,000 or 19% of the outstanding
shares of the Back Bay Restaurant Group, Inc. ("BBRG"). During 1994, the Company
and BBRG jointly pursued a series of transactions, the effect of which resulted
in the control of BBRG no longer resting with the Company. Accordingly, the
Company's investment in BBRG for the three and nine month periods ended
September 30, 1998 and 1997 has been accounted for under the equity method. The
equity income in investments represents the Company's proportionate share of
BBRG's net earnings.
Income tax provision
The Company's provision for income taxes is less than the
statutory federal tax rate of 34% during the first nine months of 1998 and 1997
primarily due to the utilization of available net operating loss carryforwards.
The provision for taxes of $26,000 and $10,000 in 1998 and 1997 respectively,
represents estimated state taxes and federal alternative minimum tax.
Liquidity and Capital Resources
At December 31, 1997 the Company had a working capital deficit of
approximately $9.3 million and a stockholders' deficit of approximately $1.6
million. As a result, the Report of Independent Accountants for the year ended
December 31, 1997 contained an explanatory paragraph regarding the Company's
ability to continue as a going concern. In 1998 the Company has retired
substantially all of its long-term debt obligations which were previously in
default (see Note 3). During the nine months ended September 30, 1998 the
Company eliminated shareholders' deficit and improved its working capital
position by approximately $5.8 million. At September 30, 1998, the Company has a
working capital deficit of approximately $3.5 million and a stockholders' equity
of approximately $292,000.
Historically, the Company's primary sources of capital to finance
its businesses have been its cash flow from operations and credit facilities.
The Company's capital needs are primarily for maintenance and enhancement of the
racing facility at Wonderland and for debt service requirements. Based upon
current operations, the Company believes its cash flow from operations will be
adequate to meet its anticipated requirements for working capital, capital
expenditures and scheduled principal and interest payments for fiscal 1998.
The Company's cash and cash equivalents totaled approximately
$318,000 at September 30, 1998, compared with approximately $374,000 at December
31, 1997. The Company generated cash flows from operations of approximately
$242,000 during the first nine months of 1998, as compared to $512,000 during
the corresponding period in 1997. Non cash items included in the Company's net
income in 1998 consist of depreciation and amortization expense of approximately
$470,000, equity in income from investments of $317,000 and gain from
discontinued operations of $576,000. Changes in working capital and other
accounts including restricted cash, accounts payable and other accrued
liabilities used approximately $1.1 million of cash in the first nine months of
1998. Net cash used in investing activities in the first nine months of 1998 of
$572,000 represents investments and additions to the property, plant and
equipment. Financing activities in the first nine months of 1998 include the
receipt of $5 million of proceeds in connection with a bank refinancing and the
use of approximately $4.8 million of funds to reduce outstanding balances on
debt.
Page 16 of 22
<PAGE> 17
THE WESTWOOD GROUP, INC. AND SUBSIDIARIES
SEPTEMBER 30, 1998
(Unaudited)
General
In June 1998 the Company, through its wholly owned subsidiary
Wonderland Greyhound Park, Inc., completed a refinancing with a bank which
provided a $5 million Term Loan bearing interest at 9.5% per annum and requiring
monthly principal and interest payments at approximately $58,300 commencing
August 1998 until maturity on June 30, 2003.
Racing operations
In order that the Massachusetts State Racing Commission grant a
racing license for 1999, the Company's racing subsidiary must satisfy seven
statutory requirements, which include that the applicant demonstrate its
financial ability to operate. Wonderland has continuously satisfied these
statutory requirements each year since 1935. Although management is confident
that it will be able to satisfy all statutory requirements in its application
for the 1999 racing license, there can be no assurance that the Racing
Commission will continue to grant a license to conduct racing on the schedule
presently maintained at Wonderland.
Year 2000 Disclosure
The Company is aware of the potential for industry wide business
disruption which could occur due to problems related to the "Year 2000 issue."
It is the belief of the Company that the Company has a prudent plan in place to
address these issues. The Components of our plan include: an assessment of
internal systems for modification and/or replacement; communication with
external vendors and simulcast wagering sites to determine their state of
readiness to maintain an uninterrupted supply of goods and services to the
Company; an evaluation of our equipment as to its ability to function properly
after the turn of the century; an evaluation of facility related issues; and the
development of a contingency plan.
State of readiness
The Company has developed a comprehensive plan to reduce the
probability of operational difficulties due to Year 2000 related failures. While
there is still a significant amount of work to do, the Company believes that it
is on track towards a timely completion. Overall, the Company estimates the
organization to be approximately 50% complete in regard to the identification
and remediation of Year 2000 issues.
Internal systems
The process the Company is following to achieve Year 2000
compliance for internal systems is as follows: The Company expects to have all
of its financial accounting software and hardware components to be year 2000
compliant by the end of 1998. The Company has point of sales cash register
systems throughout the facility. At this time the Company believes its cash
register system will not be affected by the Year 2000 issue.
Page 17 of 22
<PAGE> 18
THE WESTWOOD GROUP, INC. AND SUBSIDIARIES
SEPTEMBER 30, 1998
(Unaudited)
Suppliers
The Company is in the process of communicating with its external
vendors to gain an understanding of their state of readiness to maintain an
uninterrupted supply of goods and services to the Company. The Company has been
assured by its major suppliers that there will be no interruption of the
delivery of goods and services.
Equipment
The Company is in the process of completing an inventory of
currently used equipment at the Company. The Company will determine the Year
2000 readiness through a system upgrade review currently in process and expected
to be complete by December 31, 1998. At this time the Company is not aware of
any equipment which is affected by the Year 2000 issue that will not be repaired
or replaced prior to operating problems. The Company, like most companies,
remains aware of the potential for imbedded logic within microchips to cause
equipment failure. The Company believes that its action plan provides a prudent
approach towards evaluating equipment, however, some equipment may prove not
feasible or impossible to test.
Facility related issues
The Company is in the process of completing an inventory and
evaluating facilities related equipment with the potential for Year 2000 related
failures. The Company will determine the Year 2000 readiness through
communication with the equipment manufactures, and service providers, and
testing where appropriate. At this time the Company is not aware of any
facilities related equipment which is affected by the Year 2000 issue that will
not be repaired or replaced prior to operating problems. The Company, like most
companies, remains aware of the potential for imbedded logic within microchips
to cause equipment failure. The Company believes that our action plan provides a
prudent approach towards evaluating production equipment, however, some
equipment may provide not feasible or impossible to test.
Costs
The Company is evaluating the total cost of Year 2000 compliance.
At this time the Company estimates the total cost of Year 2000 related
activities to be less than $100,000.
Contingency plan
At this time the Company is not aware of any internal systems or
external vendors issues related to the Year 2000 which would prevent, or
seriously impact the Company from continuing operations before, during, or after
the turn of the century.
Although the Company believes that it is taking prudent action
related to the identification and resolution of issues related to the Year 2000
our assessment is still in progress. The Company may never be able to know with
certainty whether certain key vendors, simulcast sites, or other race tracks,
are compliant, especially those outside the United States. There are also
technical vagaries to logic imbedded within microchips which may prove not
feasible or impossible to test.
Page 18 of 22
<PAGE> 19
THE WESTWOOD GROUP, INC. AND SUBSIDIARIES
SEPTEMBER 30, 1998
(Unaudited)
Contingency plan (continued)
The Company continues to evaluate the risks associated with
potential Year 2000 related failures. As the Company better understands the
risks within our unique set of business partners, production processes, and
internal systems, the Company will develop a formal contingency plan to
alleviate the impact of high potential or serious failures. The Company
anticipates having this contingency plan outlined by the end of the second
quarter of 1999.
Risks
The failure to correct a material Year 2000 problem could result
in an interruption in, or a failure of, certain normal business activities or
operations. Such failures could materially and adversely affect the Company's
results of operations, liquidity and financial condition. Due to the general
uncertainty inherent in the year 2000 problem, resulting in part from the
uncertainty of the Year 2000 readiness of third-party supplies, the Company is
unable to determine at this time whether the consequences of Year 2000 failures
will have a material impact on the Company's results of operations, liquidity or
financial condition. The Year 2000 Project is expected to significantly reduce
the Company's level of uncertainty about the Year 2000 problem and, in
particular, about the Year 2000 compliance and readiness of its material
external agents. The Company believes that, with the implementation of new
business systems and completion of the Project as scheduled, the possibility of
significant interruptions of normal operations should be reduced. Readers are
cautioned that forward-looking statements contained in the Year 2000 Update
should be read in conjunction with the Company's disclosures under the heading:
"CAUTIONARY STATEMENT."
Cautionary statement
The foregoing Form 10Q contains various "forward-looking
statements" within the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as amended.
Forward-looking statements represent the Company's expectations or belief
concerning future events, including the following: any statements regarding
future revenues and profits, any statements regarding the continuation of
historical trends, and any statements regarding the sufficiency of the Company's
cash balances and cash generated from operating and financing activities for the
Company's future liquidity and capital resource needs. Without limiting the
foregoing, the words "believes," anticipates," "plans," "expects," and similar
expressions are intended to identify forward-looking statements. The Company
cautions that these statements are further qualified by important economic and
competitive factors that could cause actual results to differ materially from
those in the forward-looking statements. These include, without limitation,
risks of the pari-mutuel racing industry, a highly competitive environment for
the wagering dollar, and the impact of changes in consumer tastes, local,
regional and national economic conditions, demographic trends, employee
availability and cost increases. In addition, the Company's ability to expand is
dependent upon various factors, such as the enactment of legislation allowing
the Company to offer expanded gaming opportunities. Accordingly, such
forward-looking statements do not purport to be predictions of future events or
circumstances and may not be realized.
Page 19 of 22
<PAGE> 20
THE WESTWOOD GROUP, INC. AND SUBSIDIARIES
SEPTEMBER 30, 1998
(Unaudited)
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
In 1996 litigation ensured between Foxboro Realty Associates, LLC,
ET AL. ("FRA") and the Company, its subsidiary Foxboro Park, Inc.,
ET AL., over Foxboro's right to occupy Foxboro Raceway. The Court
issued an execution pursuant to which Foxboro was evicted from the
racetrack on July 31, 1997. The parties appealed. The Company
expects the appeals to be decided sometime during calendar year
1999.
On July 8, 1998, Foxboro Route 1 Limited Partnership, ET AL.,
filed a civil action against The Westwood Group, Inc., Wonderland
Greyhound Park, Inc., ET AL., seeking payment for use and
occupancy of Foxboro Raceway, and other damages, from 1992 through
July 1997.
The Company can not estimate the effect that these matters will
have on the financial statements, if any, at this time.
Item 2. Changes in Securities
None.
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27.00 Financial data schedule
(b) Reports on Form 8-K
None
Page 20 of 22
<PAGE> 21
THE WESTWOOD GROUP, INC. AND SUBSIDIARIES
SEPTEMBER 30, 1998
(Unaudited)
Pursuant to the requirement of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
THE WESTWOOD GROUP, INC.
Date November 13, 1998 /s/ Richard P. Dalton
--------------------------------
Richard P. Dalton
President
Date November 13, 1998 /s/ Richard G. Egan, Jr..
--------------------------------
Richard G. Egan, Jr.
Chief Financial Officer,
Treasurer
Page 21 of 22
<PAGE> 22
THE WESTWOOD GROUP, INC. AND SUBSIDIARIES
SEPTEMBER 30, 1998
(Unaudited)
Exhibit Index
Exhibit No. Description
27.00 Financial Data Schedule
Page 22 of 22
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