<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
------------
FORM 10-Q
(Mark One)
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 1-4923
WESTMINSTER CAPITAL, INC.
(Exact name of registrant as specified in its charter)
Delaware 95-2157201
- ------------------------------- ----------------------------------
(State or other jurisdiction of (IRS. Employer Identification No.)
incorporation or organization)
9665 Wilshire Boulevard, Suite M-10, Beverly Hills, CA 90212
--------------------------------------------------------------
(Address of principal executive office) (Zip Code)
310 278-1930
------------
(Registrant's Telephone Number, Including Area Code)
____________________________________________________
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. X Yes No
--- ---
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date: 7,834,607 shares
of common stock outstanding at November 10, 1998.
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
WESTMINSTER CAPITAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION AS OF
SEPTEMBER 30, 1998 (UNAUDITED) AND DECEMBER 31, 1997 (AUDITED)
<TABLE>
<CAPTION>
ASSETS SEPTEMBER 30, 1998 DECEMBER 31, 1997
- -----------------------------------------------------------------------------------
<S> <C> <C>
Cash and cash equivalents $ 403,000 $ 1,738,000
Securities available-for-sale, at fair
value 27,234,000 18,405,000
Investment in limited partnerships
that invest in securities 1,953,000 2,314,000
Loans receivable, net 9,525,000 7,081,000
Accounts receivable 857,000 1,002,000
Income tax refunds receivable -- 1,954,000
Less: allowance for doubtful
receivable -- (1,954,000)
-------------------------------------------
Income tax refunds receivable, net -- --
Accrued interest receivable 997,000 801,000
Real estate acquired through
foreclosure 833,000 833,000
Telephone systems, net 434,000 834,000
Property and equipment, net 156,000 710,000
Goodwill, net 811,000 881,000
Other assets 91,000 271,000
-------------------------------------------
TOTAL ASSETS $ 43,294,000 $ 34,870,000
-------------------------------------------
-------------------------------------------
LIABILITIES AND
SHAREHOLDERS' EQUITY
- -----------------------------------------------------------------------------------
LIABILITIES:
Accounts payable $ 569,000 $ 669,000
Accrued expenses 2,102,000 1,915,000
Mortgage payable -- 655,000
Income taxes 8,564,000 5,366,000
Minority interest in limited
partnership 168,000 297,000
-------------------------------------------
TOTAL LIABILITIES 11,403,000 8,902,000
-------------------------------------------
SHAREHOLDERS' EQUITY:
Common stock, $1 par value: 30,000,000
shares authorized: 7,835,000 shares
issued and outstanding in 1998 and
1997 7,835,000 7,835,000
Capital in excess of par value 55,943,000 55,943,000
Accumulated deficit (32,036,000) (37,823,000)
Accumulated other comprehensive income 149,000 13,000
-------------------------------------------
TOTAL SHAREHOLDERS' EQUITY 31,891,000 25,968,000
-------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY $ 43,294,000 $ 34,870,000
-------------------------------------------
-------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
2
<PAGE>
WESTMINSTER CAPITAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Nine Months Three Months Three Months
Ended Ended Ended Ended
REVENUES: 9/30/98 9/30/97 9/30/98 9/30/97
- --------- ----------- ----------- ------------ ------------
<S> <C> <C> <C> <C>
Interest on loans $ 888,000 $ 902,000 $ 257,000 $ 326,000
Loan fees 49,000 200,000 22,000 --
Interest on securities
available-for-sale and
money market funds 969,000 689,000 390,000 205,000
Unrealized gains (losses) on
limited partnerships that
invest in securities (342,000) -- (364,000) --
Gain (loss) on sale of
securities available-for-
sale (234,000) 182,000 (246,000) 164,000
Lawsuit settlement, net -- 522,000 -- --
Telephone system revenue 1,181,000 1,107,000 464,000 370,000
Sales to auto dealers 15,017,000 -- 5,053,000 --
Gain (loss) from equity
investment 5,887,000 (129,000) -- (7,000)
Interest on tax refund 2,644,000 -- -- --
Other income 27,000 151,000 5,000 54,000
-------------------------------------------------------
Total Revenues 26,086,000 3,624,000 5,581,000 1,112,000
-------------------------------------------------------
EXPENSES:
Telephone time charges 489,000 556,000 121,000 185,000
Cost of sales to auto
dealers 14,221,000 -- 4,723,000 --
Other telephone system
charges 439,000 454,000 110,000 146,000
General and administrative 3,086,000 1,088,000 966,000 347,000
-------------------------------------------------------
Total Expenses 18,235,000 2,098,000 5,920,000 678,000
-------------------------------------------------------
INCOME (LOSS) BEFORE INCOME
TAXES AND MINORITY INTEREST 7,851,000 1,526,000 (339,000) 434,000
INCOME TAX PROVISION (2,013,000) (625,000) 155,000 (180,000)
MINORITY INTEREST IN INCOME
OF CONSOLIDATED PARTNERSHIP (50,000) (24,000) (45,000) (10,000)
-------------------------------------------------------
NET INCOME (LOSS) $ 5,788,000 $ 877,000 $ (229,000) $ 244,000
-------------------------------------------------------
-------------------------------------------------------
Net income (loss) per common
share:
Primary $ 0.74 $ 0.11 $ (0.03) $ 0.03
Fully Diluted 0.73 0.11 (0.03) 0.03
Weighted average shares
outstanding:
Basic 7,835,000 7,835,000 7,835,000 7,835,000
Diluted 7,937,000 7,865,000 7,835,000 7,880,000
</TABLE>
See accompanying notes to consolidated financial statements
3
<PAGE>
WESTMINSTER CAPITAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS NINE MONTHS
ENDED 9/30/98 ENDED 9/30/97
------------- -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 5,788,000 $ 877,000
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for loan losses and doubtful
receivables 85,000 --
Depreciation, amortization, and accretion,
net 154,000 (38,000)
Loss (gain) on sales of securities
available-for-sale 173,000 (309,000)
Unrealized losses on limited partnerships
that invest in securities 360,000 --
Loss from equity investment -- 129,000
Gain on sale of property and equipment (183,000) --
Decrease (increase) in accounts receivable 145,000 (44,000)
Increase in accrued interest receivable (293,000) (224,000)
Net change in income taxes 3,108,000 761,000
Decrease (increase) in other assets 180,000 (33,000)
Net change in accounts payable (100,000) (69,000)
Net change in accrued expenses 187,000 12,000
Net change in mortgage payable (655,000) --
Net change in minority interest (129,000) (49,000)
----------------------------
NET CASH PROVIDED BY OPERATING
ACTIVITIES 8,820,000 1,013,000
----------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of securities (32,773,000) (38,389,000)
Proceeds from sales of securities 23,989,000 41,437,000
Loan originations and purchases (2,684,000) (7,384,000)
Principal collected on loans receivable 372,000 2,907,000
Net change in due to broker -- (1,200,000)
Proceeds from sale of property and
equipment 1,070,000 --
Purchase of property & equipment (129,000) --
----------------------------
NET CASH USED IN INVESTING
ACTIVITIES (10,155,000) (2,629,000)
----------------------------
NET DECREASE IN CASH AND CASH
EQUIVALENTS (1,335,000) (1,616,000)
CASH AND CASH EQUIVALENTS, BEGINNING
OF PERIOD 1,738,000 2,310,000
----------------------------
CASH AND CASH EQUIVALENTS, END OF
PERIOD $ 403,000 $ 694,000
----------------------------
----------------------------
Supplemental schedule of non cash investing
and financing activities:
Tax effect of increased (reduced)
unrealized gain on securities
available-for-sale $ 90,000 $ (255,000)
----------------------------
----------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
WESTMINSTER CAPITAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS NINE MONTHS
ENDED 9/30/98 ENDED 9/30/97
------------- -------------
<S> <C> <C>
Net income $ 5,788,000 $ 877,000
------------- -------------
Other comprehensive income/(loss), net
of tax:
Unrealized gains on securities:
Unrealized holding gains/(losses)
arising during period 146,000 (272,000)
Less: reclassification adjustment
for gains included in net income (10,000) (109,000)
------------- -------------
Other comprehensive income/(loss) 136,000 (381,000)
------------- -------------
Comprehensive income $ 5,924,000 $ 496,000
------------- -------------
------------- -------------
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE>
WESTMINSTER CAPITAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998
1. BASIS OF PRESENTATION
In the opinion of Westminster Capital, Inc. and consolidated entities
(the "Corporation"), the accompanying unaudited consolidated financial
statements, prepared from the Corporation's books and records, contain
all adjustments (consisting of only normal recurring accruals) necessary
for a fair presentation of the Corporation's financial condition as of
September 30, 1998 and December 31, 1997, and the results of operations,
statements of cash flows and statements of comprehensive income for the
periods ended September 30, 1998 and 1997.
The consolidated financial statements include the accounts of
Westminster Capital, Inc., its wholly owned subsidiaries and a 75%
interest in a limited partnership, Global Telecommunications Systems,
LTD ("Global Telecommunications").
The accompanying unaudited consolidated financial statements have been
prepared in accordance with the instructions to Form 10-Q and therefore
do not include all information and footnotes necessary to present the
financial position, results of operations, statements of cash flows and
statements of comprehensive income in conformity with generally accepted
accounting principles. The following material under the heading
"Management's Discussion and Analysis of Financial Condition and Results
of Operations" is written with the presumption that the users of the
interim financial statements have read or have access to the most recent
report on Form 10-K which contains the latest audited consolidated
financial statements and notes thereto, together with Management's
Discussion and Analysis of Financial Condition and Results of Operations
as of September 30, 1998 and for the year then ended.
2. SECURITIES AVAILABLE-FOR-SALE
Securities available-for-sale are carried at estimated fair value. The
amortized cost and estimated fair value of securities available for sale
at September 30, 1998 and December 31, 1997 are as follows (in
thousands):
<TABLE>
<CAPTION>
Gross Gross
Unrealized Unrealized Estimated
Amortized Cost Gains Losses Fair Value
-------------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
September 30, 1998:
U.S. Treasury and Agency
Securities $ 26,245 $ 294 $ -- $ 26,539
Equity and Debt Securities 737 50 (92) 695
-------- -------- ------ --------
Total $ 26,982 $ 344 $ (92) $ 27,234
-------- -------- ------ --------
-------- -------- ------ --------
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
Gross Gross
Unrealized Unrealized Estimated
Amortized Cost Gains Losses Fair Value
-------------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
December 31, 1997:
U.S. Treasury and Agency
Securities $ 17,387 $ 20 $ -- $ 17,407
Equity and Debt Securities 991 52 (45) 998
-------------- ---------- ---------- ----------
Total $ 18,378 $ 72 $ (45) $ 18,405
-------------- ---------- ---------- ----------
-------------- ---------- ---------- ----------
</TABLE>
Maturities of U.S. Treasury and Agency Securities were as follows at
September 30, 1998 (in thousands):
<TABLE>
<CAPTION>
Amortized Fair
Cost Value
--------- -------
<S> <C> <C>
Due within one year $ 6,997 $ 7,079
Due after one year through
five years 19,248 19,460
--------- -------
$ 26,245 $26,539
--------- -------
--------- -------
</TABLE>
Gross unrealized gains include the value ascribed to warrants which have
a readily determinable value, whether detached or attached to securities.
3. LOANS RECEIVABLE
The Corporation's loans receivable outstanding at September 30, 1998 and
December 31, 1997 were comprised of the following (in thousands):
<TABLE>
<CAPTION>
September, 1998 December 31, 1997
--------------- -----------------
<S> <C> <C>
Loans secured by
auto leases, net of
discount $ 16 $ 132
Loans, net of fees,
secured by trust
deeds or mortgages 2,643 1,543
Loans secured by other
collateral 6,866 5,306
Unsecured loans -- 100
------ --------
Total $9,525 $ 7,081
------ --------
------ --------
</TABLE>
7
<PAGE>
4. INCOME TAXES
Effective April 1, 1998, the Franchise Tax Board ("FTB") and the
Corporation entered into a settlement pursuant to which the State of
California refunded 50% of the amounts claimed for refund by the
Corporation for the years ended December 31, 1987 and 1988, plus
interest on those amounts from the date the taxes were originally paid.
As a result, the Corporation received refunds in the amounts of
$3,834,000 including accrued interest of $2,355,000 for the year ended
December 31, 1987 and $495,000 including accrued interest of $289,000
for the year ended December 31, 1988.
Since the Corporation's original claims for refund were initially
established as receivables due from the FTB but were subsequently fully
reserved for due to uncertainty as to collectability, the combined
refunds from the FTB in the amount of $1,686,000 have been recorded as a
reduction of the Corporation's provision for income taxes and the
accrued interest from the FTB in the amount of $2,644,000 has been
recorded as interest income during the nine months ended September 30,
1998.
5. GAIN ON SALE OF EQUITY INVESTMENT
On September 23, 1996, the Corporation acquired a 40% interest in Pink
Dot, Inc. ("Pink Dot"), a home delivery shopping company, for $500,000.
The excess of the cost of the investment over 40% of the equity at the
date of investment was recorded as goodwill and was amortized over a 10
year period. The Corporation recorded a loss of $686,000 in 1997 in
connection with its 40% equity investment in Pink Dot. As this loss
exceeded the carrying amount of the Corporation's investment account and
goodwill related to Pink Dot, the carrying amount of loans receivable
from Pink Dot was reduced by $391,000. No losses were recorded by the
Corporation during 1998.
On February 26, 1998, the Corporation sold its 40% equity investment in
Pink Dot to the owner of the other 60% of the common stock of Pink Dot
for a purchase price of $6,000,000. The purchase price originally
evidenced by a secured promissory note in the amount of $6,000,000, was
paid in full together with accrued interest of $102,000 on June 2, 1998.
Accordingly, the Corporation recorded a gain of $5,887,000 during the
nine months ended September 30, 1998. The gain includes the
reinstatement of the previous write-down of the carrying value of the
loans receivable from Pink Dot in the amount of $391,000, net of various
closing costs associated with this sale in the amount of $126,000, and
net of imputed interest of $378,000. This imputed interest reflects an
adjustment to the interest rate on two loans receivable from Pink Dot
based on the increased risk associated with those loans, arising from
this recent change in contractual relationship between the Corporation
and Pink Dot. The resulting yield on the loans of 15% is deemed by
management to be a market rate for loans with similar characteristics.
6. TELEPHONE SYSTEM REVENUE
On May 27, 1998, Global Telecommunications Systems, LTD. reached a
settlement with the Navy for the cancellation of the service contract at
the Miramar naval base to take effect on June 30, 1998. Under this
settlement agreement, Global received a settlement payment of $349,000
and additional sums from liquidation of the receivables associated with
this contract through August 1, 1998.
8
<PAGE>
The Corporation recorded a gain of $229,000 from the settlement of the
Miramar contract, which amount is included in Telephone Systems Revenue
for the three and nine month periods ended September 30, 1998.
7. NET INCOME (LOSS) PER COMMON SHARE
Net income (loss) per common share is computed in accordance with
Statement of Financial Accounting Standards No. 128, EARNINGS PER SHARE,
and is calculated on the basis of the weighted average number of common
shares outstanding during each period plus the additional dilutive
effect of common stock equivalents. The dilutive effect of outstanding
stock options is calculated using the treasury stock method. Common
stock equivalents have been excluded from the computation of net loss
per common share for the three months ended September 30, 1998, because
their effect is anti-dilutive.
9
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
THROUGHOUT THIS QUARTERLY REPORT ON FORM 10-Q, THE CORPORATION MAKES
FORWARD LOOKING STATEMENTS REGARDING VARIOUS ASPECTS OF ITS BUSINESS AND
AFFAIRS, INCLUDING STATEMENTS ABOUT FUTURE REVENUES AND INCOME OF GLOBAL
TELECOMMUNICATIONS, THE ADEQUACY OF COLLATERAL FOR TWO LOANS IN DEFAULT,
DISCLOSURES CONCERNING INFORMATION SYSTEMS AND "YEAR 2000" COMPLIANCE, AND
THE FUTURE CASH NEEDS OF THE CORPORATION. THESE FORWARD LOOKING STATEMENTS
INVOLVE SUBSTANTIAL RISKS AND UNCERTAINTIES. THE ACTUAL RESULTS COULD DIFFER
MATERIALLY FROM THOSE DISCUSSED IN THE FORWARD LOOKING STATEMENTS.
STATEMENTS ABOUT CLAIMS AND DEFENSES IN LITIGATION MAY TURN OUT TO BE
INCORRECT BECAUSE ALL OF THE FACTS THAT WILL BE PRESENTED AT TRIAL ARE NOT
KNOWN NOW, CERTAIN ASPECTS OF THE APPLICABLE LAW MAY BE UNCERTAIN AND THE
JUDGEMENT OF THE JUDGE OR JURY IS SUBJECTIVE AND INCAPABLE OF BEING PREDICTED
ACCURATELY. STATEMENTS ABOUT FUTURE EARNINGS AND REVENUES AND THE ADEQUACY
OF CASH RESOURCES FOR FUTURE NEEDS ARE UNCERTAIN BECAUSE OF THE
UNPREDICTABILITY OF FUTURE EVENTS AFFECTING SUCH STATEMENTS. STATEMENTS
ABOUT THE ADEQUACY OF REAL ESTATE COLLATERAL INVOLVE PREDICTIONS AS TO WHAT A
BUYER WILL BE WILLING TO PAY FOR THE PROPERTY IN THE FUTURE, WHICH CANNOT BE
KNOWN WITH CERTAINTY.
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
Revenues for the three months ended September 30, 1998 were $5,581,000
as compared to $1,112,000 for the three months ended September 30, 1997. The
increase in revenues was primarily attributable to the acquisition of
Westland Associates, which was acquired on November 12, 1997 and which
generated revenues of $5,053,000 during the three months ended September 30,
1998.
Interest on loans was $257,000 during the three months ended September
30, 1998 as compared to $326,000 during the three months ended September 30,
1997. Interest on loans decreased despite the increase in average notes
receivable during the current period compared to the prior year period, due
principally to the non-accrual of interest on certain non-performing loans
(see below). Interest on securities available-for-sale and money market funds
was $390,000 during the three months ended September 30, 1998 as compared to
$205,000 during the three months ended September 30, 1997 due to the higher
average invested funds during the current three month period.
During the three months ended September 30, 1998, the Corporation
recorded unrealized losses on limited partnerships that invest in securities
of $364,000, with no such losses recorded during the three months ended
September 30, 1997. The limited partnerships invest in equity and debt
securities and the Corporation records gains and losses on these investments
based upon the equity method of accounting.
For the three months ended September 30, 1998, the Corporation incurred
a loss on sale of securities of $246,000 compared to a gain of $164,000 in
the previous year period. During the quarter ended September 30, 1998, the
Corporation recorded a permanent impairment write-down of $250,000 on an
equity security, which amount is included in loss on sale of securities
available-for-sale in the Consolidated Statements of Operations.
Telephone system revenues increased from $370,000 during the three
months ended September 30, 1997 to $464,000 during the three months ended
September 30, 1998, due to a gain of $229,000 arising from receipt of a
settlement payment on cancellation of the service contract for the Miramar
Naval Air
10
<PAGE>
Station effective June 30, 1998. Excluding this settlement, telephone system
revenues declined by 36.5% to $235,000, due principally to the loss of the
Miramar contract. Operating expenses decreased from $331,000 during the three
months ended September 30, 1997 to $231,000 during the three months ended
September 30, 1998, due to the loss of the Miramar contract. Future revenues
and income realized by the Corporation in connection with its 75% interest in
Global Telecommunications will be reduced because Global Telecommunications
lost the contract for the Miramar naval base effective June 30, 1998.
Revenues of $5,053,000 generated by Westland Associates, reported under
the caption "Sales to auto dealers" in the consolidated financial statements
were offset by direct costs of $4,723,000 reported under the caption "Cost of
sales to auto dealers", resulting in gross profit before operating expenses
of $330,000. Operating expenses were $403,000 and are included in general
and administrative expenses (see below). The net operating loss of $73,000
is attributable to operating costs associated with the introduction of a new
product line, increased payroll costs from an added management executive and
amortization of goodwill in connection with the purchase of Westland
Associates.
General and administrative expenses increased $619,000 from $347,000
during the three months ended September 30, 1997 to $966,000 during the three
months ended September 30, 1998. A significant portion of this increase, or
$403,000, was attributable to Westland Associates, which was acquired by the
Corporation in November 1997. Increased payroll expense of $122,000 and
legal expenses of $74,000 comprise the bulk of additional general and
administrative expense. Payroll expenses have risen due to increases in
compensation and the addition of a financial executive. Legal expenses have
risen due to litigation expenses in connection with recovery efforts on two
loans receivable which are in default, and increased transactional activity.
The Corporation incurred a net loss of $229,000 for the three months
ended September 30, 1998, as compared to net income of $244,000 for the three
months ended September 30, 1997. Basic earnings (loss) per share were
($0.03) for the three months ended September 30, 1998 versus $0.03 for the
three months ended September 30, 1997. Diluted earnings (loss) per share
were ($0.03) for the three months ended September 30, 1998 as compared to
$0.03 for the three months ended September 30, 1997. Weighted average basic
shares outstanding were 7,835,000 at both September 30, 1998 and at September
30,1997. Weighted average diluted shares outstanding were 7,835,000 at
September 30,1998, as compared to 7,880,000 at September 30,1997.
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
Revenues were $26,086,000 for the nine months ended September 30, 1998
compared to $3,624,000 for the nine months ended September 30, 1997. The
increase in revenues of $22,462,000 is due to several factors, including the
acquisition of Westland Associates on November 12, 1997 which generated
revenues of $15,017,000 for the current period, gain in the amount of
$5,887,000 from the sale of the Corporation's equity interest in Pink Dot,
and interest received of $2,644,000 in connection with the Franchise Tax
Board settlement.
Revenues for the nine month period ended September 30, 1997 included
recoveries net of court directed attorney's fees of $522,000 received from
the Drexel, Milken litigation. No such recoveries were received during the
nine months ended September 30, 1998. While additional settlement payments
may be received in the Drexel, Milken litigation over time, there is
diminishing likelihood that any such payments will be received and if
received, that the amounts received will be as great as amounts previously
received.
Interest on loans was $888,000 during the nine months ended September
30, 1998 compared to $902,000 during the nine months ended September 30,
1997. Interest on loans decreased despite the
11
<PAGE>
increase in average notes receivable during the current period compared to
the prior year period, due principally to the non-accrual of interest on
certain non-performing loans (see below). Interest on securities
available-for-sale and money market funds was $969,000 for the nine months
ended September 30, 1998 compared to $689,000 for the corresponding prior
year period due to the higher average invested funds during the current nine
months. Loan fee revenue was $49,000 during the nine months ended September
30, 1998 compared to $200,000 during the period ended September 30, 1997.
During the nine months ended September 30, 1998, the Corporation
recorded unrealized losses on limited partnerships that invest in securities
of $342,000, with no such losses recorded during the nine months ended
September 30, 1997. These limited partnerships invest in equity and debt
securities and the Corporation records gains and losses on these investments
based upon the equity method of accounting.
The loss on sale of securities was $234,000 compared to a gain of
$182,000 in the previous year to date period. During the nine months ended
September 30, 1998, the Corporation recorded a permanent impairment
write-down of $250,000 on an equity security, which amount is included in
loss on sale of securities available-for-sale in the Consolidated Statements
of Operations.
Telephone system revenues increased from $1,107,000 for the nine months
ended September 30, 1997 to $1,181,000 for the nine months ended September
30, 1998 due to a gain of $229,000 arising from receipt of a settlement
payment on cancellation of the service contract for the Miramar Naval Air
Station effective June 30, 1998. Excluding this settlement, telephone system
revenues declined by 14% to $952,000, due principally to the loss of the
Miramar contract. Operating expenses decreased from $1,010,000 for the nine
months ended September 30, 1997 to $928,000 for the nine months ended
September 30, 1998, due to the loss of the Miramar contract. Future revenues
and income realized by the Corporation in connection with its 75% interest in
Global Telecommunications will be reduced because Global Telecommunications
lost the contract for the Miramar base effective June 30, 1998.
Revenues of $15,017,000 generated by Westland Associates for the nine
months ended September 30, 1998 were offset by direct costs of $14,221,000,
resulting in gross profit before operating expenses of $796,000. Operating
expenses for the nine months were $1,331,000 and are included in general and
administrative expenses (see below). The net operating loss of $535,000 is
attributable to operating costs associated with the introduction of a new
product line, increased payroll costs from an added management executive and
amortization of goodwill in connection with the purchase of Westland
Associates.
General and administrative expenses increased $1,998,000 from $1,088,000
during the nine months ended September 30, 1997 to $3,086,000 during the nine
months ended September 30, 1998. A significant portion of this increase, or
$1,331,000, was attributable to Westland Associates, which was acquired by
the Corporation in November 1997. Legal, accounting and tax advice relating
to the sale of the Corporation's interest in Pink Dot, collection of the
promissory note evidencing the purchase price, possible business transactions
and planning, totaling $286,000, increased payroll costs of $109,000 due to
increases in compensation and the addition of a financial executive, and bad
debt expense in the amount of $120,000, contributed toward this increase.
The balance related to the Corporation's expanded business activities.
Although the Corporation had income before taxes of $7,851,000 during
the nine-months ended September 30, 1998, an income tax provision of
$2,013,000 was recorded for this period, representing a 25.6% effective tax
rate. The difference between the tax provision recorded and the amount based
on statutory rates is primarily due to the $1,686,000 tax refund received
from the California Franchise Tax Board which was recorded as a reduction to
the income tax provision.
12
<PAGE>
Net income for the nine months ended September 30, 1998 was $5,788,000
compared to $877,000 for the period ended September 30, 1997. Basic earnings
per share were $0.74 for the nine months ended September 30, 1998 compared to
$0.11 for the nine months ended September 30, 1997. Diluted earnings per
share were $0.73 for the nine months ended September 30, 1998 versus $0.11
for the nine months ended September 30, 1997. Weighted average basic shares
were 7,835,000 for both the nine months ended September 30, 1998 and 1997.
The weighted average diluted shares outstanding were 7,937,000 for the nine
months ended September 30, 1998 compared to 7,865,000 for the corresponding
year earlier period.
LOANS RECEIVABLE
The Corporation's loans receivable at September 30, 1998 were $9,525,000
as compared to $7,081,000 at December 31, 1997. During the three and nine
months ended September 30, 1998, advances of $387,000 and $1,584,000,
respectively, were made on existing loan commitments. Additionally on August
6, 1998, the Corporation made a loan of $1,100,000, secured both by a second
trust deed on certain real estate in Las Vegas, Nevada, and by certain other
collateral. The loan requires monthly payments of interest only at 15% per
annum beginning September 5, 1998, and the repayment of principal on August
1, 1999.
In connection with the sale of the Corporation's Pink Dot stock, on
February 26, 1998 two outstanding promissory notes payable to the Corporation
by Pink Dot were replaced by two new promissory notes ("Replacement Notes").
One promissory note in the original principal amount of $2,500,000 together
with accrued but unpaid interest through February 26, 1998 in the amount of
$303,000, was replaced by a Replacement Note in the principal amount of
$2,803,000. The second promissory note in the nominal original principal
amount of $1,000,000, of which $415,000 had been advanced through February
26, 1998, together with accrued but unpaid interest in the amount of $21,000,
was replaced with a Replacement Note in the principal amount of $436,000.
Both Replacement Notes are secured by all tangible and intangible assets of
Pink Dot.
Partially offsetting these increases in the Corporation's loans
receivable portfolio, were loan payoffs of $233,000 and paydowns of $139,000
on the Corporation's loans secured by auto leases.
The Corporation originates and, from time to time, purchases loans that
are secured by real estate, personal property or other collateral. In
connection with each loan proposal, the Corporation considers the value and
quality of the real estate or other collateral available to secure the loan
compared to the loan amount requested, the proposed interest rate and
repayment terms and the quality of the borrower. Loan originations occur as
opportunities arise which management believes to be attractive. As a result,
the volume of loans originated may vary from quarter to quarter, and new loan
originations may not occur in every quarter.
At September 30, 1998, two loans secured by trust deeds or mortgages in
the principal amounts of $1,050,000 and $520,000 were in default. The
Corporation commenced foreclosure proceedings in October 1997 on the loan in
the principal amount of $1,050,000, and commenced foreclosure proceedings in
February 1998 on the loan in the principal amount of $520,000. The
Corporation has discontinued the accrual of interest on these loans since the
respective foreclosures were commenced. Management believes that the real
estate collateral for the respective loans will be sufficient to cover the
Corporation's recorded investment on each loan.
13
<PAGE>
LIQUIDITY
The Corporation's cash and cash equivalents decreased by $1,335,000
during the nine months ended September 30, 1998. The Corporation's sources
of cash during the three month period were $23,989,000 from the sale of
investment securities, $8,820,000 from operating activities, $1,070,000 from
the sale of property and equipment including $606,000 from the sale of a
building owned by Westland Associates and $464,000 from the termination and
settlement of the service contract for the Miramar Naval Air Station, and
$372,000 from principal collected on loans receivable. The Corporation's
uses of cash during the nine month period included $32,773,000 for the
purchase of securities available for sale, $2,684,000 for loan originations
and advances, and $129,000 for the purchase of property and equipment. The
Corporation held U.S. government and agency securities with a market value of
$27,234,000 at September 30, 1998.
The Corporation intends to pursue the acquisition of one hundred percent
or substantial interests in additional operating businesses. However, no
assurances can be given that the Corporation will be able to identify
attractive opportunities, or if it does, that it will be able to complete
acquisitions on acceptable terms. As the Corporation acquires interests in
other operating businesses, it intends to liquidate securities
available-for-sale as may be necessary to consummate acquisitions.
In the opinion of management, the Corporation has sufficient cash and
liquid assets to fund its growth and operating plans for the foreseeable
future.
INFORMATION SYSTEMS AND "YEAR 2000" COMPLIANCE
The Corporation has taken actions to understand the nature, extent and
cost of the work required to make its systems and infrastructure Year 2000
complaint, but has not yet completed this assessment. To the extent
necessary to address material Year 2000 issues, the Corporation plans to
obtain current release or upgrades from software vendors prior to the end of
1998. The Corporation continues to evaluate the estimated costs associated
with this work as actual information becomes available.
The Corporation has not fully determined the extent to which its
customers and vendors systems may not be compliant. There can be no
assurance that the systems of other companies which the Corporation deals
with will be timely converted or that such failure to convert by another
company would not have an adverse effect on the Corporation's financial
position. While the Corporation believes that it will be able to manage its
total Year 2000 program without any material adverse effect on its financial
condition, results of operations or cash flows, no assurance can be given
that any or all of the Corporation's systems will be Year 2000 compliant, or
that the impact of any failure to achieve substantial Year 2000 compliance
will not have a material adverse effect on the Corporation's financial
condition, results of operations or cash flows.
The Corporation is developing contingency plans to alter business
relationships in the event certain third parties fail to become Year 2000
compliant.
14
<PAGE>
PART II-OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
27 - Financial Data Schedule
(b) Reports on Form 8-K
None
15
<PAGE>
SIGNATURES
Pursuant to the requirements 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.
Dated: November 13, 1998 WESTMINSTER CAPITAL, INC.
(Registrant)
By /s/ William Belzberg
-----------------------
William Belzberg,
Chairman of the Board of
Directors and Chief
Executive Officer
By /s/ Keenan Behrle
-----------------------
Keenan Behrle
Executive Vice President and
Chief Financial Officer
16
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION OF REGISTRANT AS OF SEPTEMBER 30,
1998 (UNAUDITED) AND THE CONSOLIDATED STATEMENTS OF OPERATIONS OF
REGISTRANT FOR THE NINE MONTH PERIOD ENDED SEPTEMBER 30, 1998 (UNAUDITED) AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 403,000
<SECURITIES> 27,234,000
<RECEIVABLES> 11,521,000
<ALLOWANCES> 43,000
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 1,522,000
<DEPRECIATION> 932,000
<TOTAL-ASSETS> 43,294,000
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 7,835,000
<OTHER-SE> 24,056,000
<TOTAL-LIABILITY-AND-EQUITY> 43,294,000
<SALES> 15,017,000
<TOTAL-REVENUES> 26,086,000
<CGS> 14,221,000
<TOTAL-COSTS> 18,235,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 120,000
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 7,851,000
<INCOME-TAX> 2,013,000
<INCOME-CONTINUING> 5,788,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,788,000
<EPS-PRIMARY> .74
<EPS-DILUTED> .73
</TABLE>
