<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 June 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
---------
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
WESTMINSTER CAPITAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION AS OF
JUNE 30, 1998 (UNAUDITED) AND DECEMBER 31, 1997 (AUDITED)
<TABLE>
<CAPTION>
ASSETS JUNE 30, 1998 DECEMBER 31, 1997
- -----------------------------------------------------------------------------------
<S> <C> <C>
Cash and cash equivalents $ 877,000 $ 1,738,000
Securities available-for-sale, at fair value 28,902,000 18,405,000
Investment in limited partnerships
that invest in securities 2,336,000 2,314,000
Loans receivable, net 8,026,000 7,081,000
Accounts receivable 1,103,000 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 789,000 801,000
Real estate acquired through foreclosure 833,000 833,000
Telephone systems, net 481,000 834,000
Property and equipment, net 163,000 710,000
Goodwill, net 833,000 881,000
Other assets 81,000 271,000
--------------------------------
TOTAL ASSETS $44,424,000 $34,870,000
--------------------------------
--------------------------------
LIABILITIES AND
SHAREHOLDERS' EQUITY
- -----------------------------------------------------------------------------------
LIABILITIES:
Accounts payable $ 657,000 $ 669,000
Accrued expenses 2,425,000 1,915,000
Mortgage payable -- 655,000
Income taxes 9,040,000 5,366,000
Minority interest in limited partnership 262,000 297,000
--------------------------------
TOTAL LIABILITIES 12,384,000 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 (31,806,000) (37,823,000)
Accumulated other comprehensive income 68,000 13,000
--------------------------------
TOTAL SHAREHOLDERS' EQUITY 32,040,000 25,968,000
--------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $44,424,000 $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>
Six Months Six Months Three Months Three Months
REVENUES: Ended 6/30/98 Ended 6/30/97 Ended 6/30/98 Ended 6/30/97
- --------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Interest on loans $ 631,000 $ 576,000 $ 389,000 $ 325,000
Loan fees 27,000 200,000 27,000 --
Interest on securities available-for-
sale and money market funds 579,000 484,000 325,000 227,000
Unrealized gains (losses) on limited
partnerships that invest in securities 22,000 -- (23,000) --
Gain (loss) on sale of securities
Available-for-sale 12,000 18,000 -- (108,000)
Lawsuit settlement, net -- 522,000 -- --
Telephone system revenue 717,000 737,000 365,000 376,000
Sales to auto dealers 9,964,000 -- 4,902,000 --
Gain (loss) from equity investment 5,887,000 (122,000) 5,887,000 (51,000)
Interest on tax refund 2,644,000 -- -- --
Other income 22,000 97,000 56,000 62,000
----------------------------------------------------------
Total Revenues 20,505,000 2,512,000 11,928,000 831,000
----------------------------------------------------------
EXPENSES:
Telephone time charges 368,000 371,000 185,000 194,000
Cost of sales to auto dealers 9,498,000 -- 4,657,000 --
Other telephone system charges 329,000 308,000 151,000 164,000
General and administrative 2,120,000 741,000 1,249,000 336,000
----------------------------------------------------------
Total Expenses 12,315,000 1,420,000 6,242,000 694,000
----------------------------------------------------------
INCOME BEFORE INCOME TAXES
AND MINORITY INTEREST 8,190,000 1,092,000 5,686,000 137,000
INCOME TAX PROVISION (2,168,000) (445,000) (2,173,000) (55,000)
MINORITY INTEREST IN INCOME
OF CONSOLIDATED PARTNERSHIP (5,000) (14,000) (7,000) (4,000)
----------------------------------------------------------
NET INCOME $ 6,017,000 $ 633,000 $ 3,506,000 $ 78,000
----------------------------------------------------------
----------------------------------------------------------
Net income per common share:
Primary $ 0.77 $ 0.08 $ 0.45 $ 0.01
Fully Diluted 0.76 0.08 0.44 0.01
Weighted average shares outstanding:
Basic 7,835,000 7,835,000 7,835,000 7,835,000
Diluted 7,937,000 7,873,000 7,937,000 7,873,000
</TABLE>
See accompanying notes to consolidated financial statements
3
<PAGE>
WESTMINSTER CAPITAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS SIX MONTHS
ENDED 6/30/98 ENDED 6/30/97
------------- -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 6,017,000 $ 633,000
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for loan losses and doubtful receivables 101,000 --
Depreciation, amortization, and accretion, net 125,000 (40,000)
Gain on sales of securities available-for-sale (55,000) (218,000)
Unrealized gains on limited partnerships that
invest in securities (22,000) --
Loss from equity investment -- 122,000
Loss on sale of property and equipment 46,000 --
Increase in accounts receivable (101,000) (17,000)
Increase in accrued interest receivable (101,000) (38,000)
Net change in income taxes 3,638,000 507,000
Decrease in other assets 190,000 1,000
Net change in accounts payable (12,000) (44,000)
Net change in accrued expenses 510,000 11,000
Net change in mortgage payable (655,000) --
Net change in minority interest (35,000) (48,000)
----------------------------
NET CASH PROVIDED BY OPERATING
ACTIVITIES 9,646,000 869,000
----------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of securities (25,179,000) (27,237,000)
Proceeds from sales of securities 14,820,000 29,912,000
Loan originations and purchases (1,197,000) (5,019,000)
Principal collected on loans receivable 336,000 1,640,000
Net change in due to broker -- (1,200,000)
Proceeds from sale of property and equipment 835,000 --
Purchase of telephone systems and office equipment (122,000) --
----------------------------
NET CASH USED IN INVESTING ACTIVITIES (10,507,000) (1,904,000)
----------------------------
NET DECREASE IN CASH AND CASH
EQUIVALENTS (861,000) (1,035,000)
CASH AND CASH EQUIVALENTS, BEGINNING
OF PERIOD 1,738,000 2,310,000
----------------------------
CASH AND CASH EQUIVALENTS, END OF
PERIOD $ 877,000 $ 1,275,000
----------------------------
----------------------------
Supplemental schedule of non cash investing and financing activities:
Tax effect of increased (reduced) unrealized
gain on securities available-for-sale $ 36,000 $ (167,000)
----------------------------
----------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
WESTMINSTER CAPITAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS SIX MONTHS
ENDED 6/30/98 ENDED 6/30/97
------------- -------------
<S> <C> <C>
Net income $6,017,000 $ 633,000
------------- -------------
Other comprehensive income/(loss), net of tax:
Unrealized gains on securities:
Unrealized holding gains/(losses) arising
during period 62,000 (239,000)
Less: reclassification adjustment for gains
included in net income (7,000) (11,000)
------------- -------------
Other comprehensive income/(loss) 55,000 (250,000)
------------- -------------
Comprehensive income $6,072,000 $ 383,000
------------- -------------
------------- -------------
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE>
WESTMINSTER CAPITAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 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 June 30,
1998 and December 31, 1997, and the results of operations, statements of
cash flows and statement of comprehensive income for the periods ended
June 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
statement 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 December
31, 1997 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
June 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>
June 30, 1998:
U.S. Treasury and Agency
Securities $ 27,794 $ 100 $ -- $ 27,894
Equity and Debt Securities 991 61 (44) 1,008
--------------------------------------------------
Total $ 28,785 $ 161 $ (44) $ 28,902
--------------------------------------------------
--------------------------------------------------
</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 June
30, 1998 (in thousands):
<TABLE>
<CAPTION>
Amortized Fair
Cost Value
--------- ---------
<S> <C> <C>
Due within one year $ 5,632 $ 5,644
Due after one year through
five years 22,162 22,250
--------- ---------
$ 27,794 $ 27,894
--------- ---------
--------- ---------
</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 June 30, 1998 and
December 31, 1997 were comprised of the following (in thousands):
<TABLE>
<CAPTION>
June 30, 1998 December 31, 1997
------------- -----------------
<S> <C> <C>
Loans secured by
auto leases, net of
discount $ 45 $ 132
Loans, net of fees,
secured by trust
deeds or mortgages 1,543 1,543
Loans secured by other
collateral 6,438 5,306
Unsecured loans -- 100
------------- -----------------
Total $ 8,026 $ 7,081
------------- -----------------
------------- -----------------
</TABLE>
7
<PAGE>
4. INCOME TAXES
On February 23, 1998, the Franchise Tax Board of the State of California
("FTB") submitted a settlement agreement to the Corporation proposing a
settlement of the Corporation's claims for refund in the amounts of
$2,960,000 for the year ended December 31, 1987 and $412,000 for the year
ended December 31, 1988, and the Corporation signed the settlement
agreement, indicating its willingness to accept the proposed settlement.
Under the terms of the proposed settlement agreement, the State of
California would refund 50% of the amounts claimed for refund by the
Corporation plus interest on those amounts from the date the taxes were
originally paid.
On April 1, 1998, the FTB notified the Corporation that it had approved
refunds in the amounts of $3,834,000 including accrued interest of
$2,354,000 for the year ended December 31, 1987 and $495,000 including
accrued interest of $289,000 for the year ended December 31, 1988, and
subsequently paid those amounts on April 27, 1998.
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 six months ended June 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
the three months ended March 31, 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 $101,821 on June 2, 1998. The
Corporation deferred the recognition of any gain on the sale of Pink Dot
until the secured promissory note was paid.
Accordingly, the Corporation recorded a gain of $5,887,000 during the three
month period ended June 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.
8
<PAGE>
6. TELEPHONE SYSTEMS
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 $348,600 and will receive additional
sums from liquidation of the receivables associated with this contract
through August 1, 1998.
The amount of $348,600 was received prior to June 30, 1998, and is included
in cash and cash equivalents. The corporation expects to record a nominal
gain from this settlement but has deferred any profit recognition until all
amounts are reasonably determinable upon liquidation of the receivables.
7. NET INCOME PER COMMON SHARE
Net income 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.
9
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
FOR THE THREE MONTHS ENDED JUNE 30, 1998 AND 1997
Revenues for the three months ended June 30, 1998 were $11,928,000 as
compared to $831,000 for the three months ended June 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 $4,902,000 during the three month ended June 30, 1998, and the
sale of the Corporation's equity interest in Pink Dot which resulted in a
gain for the period of $5,887,000.
Interest on loans was $389,000 during the three months ended June 30,
1998 as compared to $325,000 during the three months ended June 30, 1997.
Interest on loans increased during the current period due to higher average
loans receivable balances outstanding as compared to the prior year period.
Interest on securities available-for-sale and money market funds was $325,000
during the three months ended June 30, 1998 as compared to $227,000 during
the three months ended June 30, 1997 due to the higher average invested funds
during the current three month period.
Telephone system revenues decreased from $376,000 during the three
months ended June 30, 1997 to $365,000 during the three months ended June 30,
1998 due to lower long distance usage during the current period. Operating
expenses decreased from $358,000 during the three months ended June 30, 1997
to $336,000 during the three months ended June 30, 1998, due to decreases in
repair charges and personnel costs. Future revenues and income realized by
the Corporation in connection with its 75% interest in Global
Telecommunications will be reduced because Global Telecommunications has lost
the service contract for the Miramar naval base effective June 30, 1998.
Although the Marines will be occupying the Miramar base, that service branch
has decided to use the services of another long distance telephone carrier.
The Corporation reached a settlement with the Navy for compensation for
discontinuance of business and transfer of assets relating to Miramar (See
Note 6 to the Notes to Consolidated Financial Statements). Revenues for the
Miramar base were $139,000 and $122,000 for the three months ended June 30,
1998 and 1997, respectively. Income before taxes for the Miramar base was
$17,000 and $16,000 for the three months ended June 30, 1998 and 1997,
respectively.
Revenues of $4,902,000 generated by Westland Associates, reported under
the caption "Sales to auto dealers" in the consolidated financial statements,
were offset by direct costs of $4,657,000, reported under the caption "Cost
of sales to auto dealers". As a result, Westland Associates generated gross
profit before operating expenses of $245,000. Operating expenses were
$460,000 and are included in general and administrative expenses (See below).
The net operating loss of $215,000 is attributable to operating costs
associated with the introduction of a new product line and the increased
payroll costs from an added management executive.
The Corporation recorded a loss of $51,000 during the three months ended
June 30, 1997 in connection with its equity investment in Pink Dot, Inc.
("Pink Dot"). On February 26, 1998, the Corporation sold its 40% 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 represented by a secured promissory note. The
Corporation
10
<PAGE>
recognized a gain of $5,887,000 from the sale of this equity investment
during the quarter ended June 30, 1998 upon payment in full of the secured
promissory note.
General and administrative expenses increased $913,000 from $336,000
during the three months ended June 30, 1997 to $1,249,000 during the three
months ended June 30, 1998. A significant portion of this increase, or
$460,000, 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, represented $283,000 of the increase, recruitment expense and
personnel costs related to the addition of a financial executive totaling
$44,000 and bad debt expense in the amount of $59,000, contributed toward
this increase. The balance related to the Corporation's expanded business
activities.
Net income for the three months ended June 30, 1998 was $3,506,000, as
compared to $78,000 for the three months ended June 30, 1997. Basic earnings
per share were $0.45 in 1998 versus $0.01 in 1997. Diluted earnings per
share were $0.44 in 1998 as compared to $0.01 in 1997. Weighted average
basic shares outstanding were 7,835,000 in both 1998 and 1997. Weighted
average diluted shares outstanding were 7,937,000 in 1998, as compared to
7,873,000 in 1997.
FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND 1997
Revenues were $20,505,000 for the six months ended June 30, 1998
compared to $2,512,000 for the six months ended June 30, 1997. The increase
in revenues of $17,993,000 is due to several factors, including the
acquisition of Westland Associates on November 12, 1997 which generated
revenues of $9,964,000 for the current period, gain from the sale of the
Corporation's equity interest in Pink Dot in the amount of $5,887,000 and
interest received in connection with the Franchise Tax Board settlement of
$2,644,000.
Revenues for the six month period ended June 30, 1997 included a
recovery net of court directed attorney's fees of $522,000 received from the
Drexel, Milken litigation. No such recoveries were received during the six
months ended June 30, 1998. While additional settlement payments may be
received in the Drexel, Milken litigation over time, the timing of payments
is not determinable and amounts that might be received are not expected to be
as great as amounts previously received.
Interest on loans was $631,000 during the six months ended June 30, 1998
compared to $576,000 during the six months ended June 30, 1997. Interest on
loans increased during the current period due to higher average loans
receivable balances outstanding as compared to the prior year period.
Interest on securities available-for-sale and money market funds was $579,000
for the six months ended June 30, 1998 compared to $484,000 for the
corresponding prior year period due to the higher average invested funds
during the current six months. Loan fee revenue was $27,000 during the six
months ended June 30, 1998 compared to $200,000 in the period ended June 30,
1997.
Telephone system revenues decreased from $737,000 for the six months
ended June 30, 1997 to $717,000 for the six months ended June 30, 1998 due to
lower long distance usage in the current period, while operating expenses
increased from $679,000 for the six months ended June 30, 1997 to $697,000
for the six-month period ended June 30, 1998, due to higher repair costs,
professional fees and increased FCC taxes during the period ended June 30,
1998.
11
<PAGE>
Revenues of $9,964,000 generated by Westland Associates for six months
ended June 30, 1998 were offset by direct costs of $9,498,000, resulting in
gross profit before operating expenses of $466,000. Westland Associates'
operating expenses for the six-month period were $880,000 and are included in
general and administrative expenses (see below). The net operating loss of
$414,000 is attributable to operating costs associated with the introduction
of a new product line and the increased payroll costs from an added
management executive.
General and administrative expenses increased $1,379,000 from $741,000
during the six months ended June 30, 1997 to $2,120,000 during the six months
ended June 30, 1998. A significant portion of this increase, or $880,000,
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, represented $283,000 of the increase, recruitment expense and
personnel costs related to the addition of a financial executive totaling
$44,000 and bad debt expense in the amount of $113,000, contributed toward
this increase. The balance related to the Corporation's expanded business
activities.
Although the Corporation had income before taxes of $8,190,000 during
the six-months ended June 30, 1998, an income tax provision of $2,168,000 was
recorded for this period, representing a 26.5% 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.
Net income for the six months ended June 30, 1998 was $ 6,017,000
compared to $633,000 for the period ended June 30, 1997. Basic earnings per
share were $0.77 for the six months ended June 30, 1998 compared to $0.08 in
1997. Diluted earnings per share were $0.76 in 1998 versus $0.08 in 1997.
Weighted average basic shares were 7,835,000 for both 1998 and 1997. The
weighted average diluted shares outstanding were 7,937,000 for the six months
ended June 30, 1998 compared to 7,873,000 for the corresponding year earlier
period.
LOANS RECEIVABLE
The Corporation's loans receivable at June 30, 1998 were $8,026,000 as
compared to $7,081,000 at December 31, 1997. During the three and six months
ended June 30, 1998, advances of $420,000 and $1,197,000, respectively, were
made on existing loan commitments.
On February 26, 1998, the Corporation received a secured promissory note
in the amount of $6,000,000 as consideration for the sale of its 40% equity
interest in Pink Dot. The note which was secured by a pledge of 100% of the
issued and outstanding stock of Pink Dot, was paid in full on June 2, 1998
together with accrued interest. Additionally, 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
12
<PAGE>
the Corporation's loans receivable portfolio, were loan payoffs of $233,000
and paydowns of $103,000 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 June 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.
LIQUIDITY
The Corporation's cash and cash equivalents decreased by $861,000 during
the six months ended June 30, 1998. The Corporation's sources of cash during
the three month period were $14,820,000 from the sale of investment
securities, $9,646,000 from operating activities, $835,000 from the sale of
property and equipment including $606,000 from the sale of Westland
Associates' land and building, and $336,000 from principal collected on loans
receivable. The Corporation's uses of cash during the six month period
included $25,179,000 for the purchase of securities available for sale,
$1,197,000 in loan originations and advances, and $122,000 for the purchase
of telephone systems and office equipment. The Corporation held U.S.
government and agency securities with a market value of $27,894,000 at June
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.
13
<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
Report on Form 8-K was filed on April 6, 1998 reporting
under Item 5. Other Events.
14
<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: August 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
15
<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 JUNE 30, 1998
(UNAUDITED AND THE CONSOLIDATED STATEMENTS OF OPERATIONS OF REGISTRANT FOR THE
SIX MONTHS ENDED JUNE 30, 1998 (UNAUDITED) AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 877,000
<SECURITIES> 28,902,000
<RECEIVABLES> 9,172,000
<ALLOWANCES> 43,000
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 1,522,000
<DEPRECIATION> 878,000
<TOTAL-ASSETS> 44,424,000
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 7,835,000
<OTHER-SE> 24,205,000
<TOTAL-LIABILITY-AND-EQUITY> 44,424,000
<SALES> 9,964,000
<TOTAL-REVENUES> 20,505,000
<CGS> 9,498,000
<TOTAL-COSTS> 12,315,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 113,000
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 8,190,000
<INCOME-TAX> 2,168,000
<INCOME-CONTINUING> 6,017,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,017,000
<EPS-PRIMARY> .77
<EPS-DILUTED> .76
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