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 March 31, 1999
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, Mezzanine, 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
MARCH 31, 1999 (UNAUDITED) AND DECEMBER 31, 1998 (AUDITED)
<TABLE>
<CAPTION>
ASSETS March 31, 1999 December 31, 1998
- ------------------------------------------------------- ----------------------- --------------------
<S> <C> <C>
Cash and cash equivalents $ 695,000 $ 291,000
Securities available-for-sale, at fair value 22,247,000 25,982,000
Investment in limited partnerships
that invest in securities 1,966,000 1,996,000
Other investments 500,000 500,000
Loans receivable, net 9,092,000 9,783,000
Accounts receivable 1,895,000 660,000
Income tax refunds receivable -- 260,000
Inventories 230,000 --
Accrued interest receivable 953,000 937,000
Real estate acquired through foreclosure -- 833,000
Telephone systems, net 350,000 392,000
Property and equipment, net 443,000 147,000
Goodwill, net 5,947,000 788,000
Other assets 431,000 28,000
======================= ====================
Total Assets $ 44,749,000 $ 42,597,000
======================= ====================
LIABILITIES AND
SHAREHOLDERS' EQUITY
- ------------------------------------------------------- ----------------------- --------------------
LIABILITIES:
Accounts payable $ 1,463,000 $ 409,000
Accrued expenses 2,295,000 2,091,000
Obligations under capital leases 266,000 101,000
Deferred income taxes 8,096,000 8,006,000
Minority interests 280,000 143,000
----------------------- --------------------
Total Liabilities 12,400,000 10,750,000
----------------------- --------------------
SHAREHOLDERS' EQUITY:
Common stock, $1 par value: 30,000,000 shares
authorized: 7,835,000 shares issued and
outstanding in 1999 and 1998 7,835,000 7,835,000
Capital in excess of par value 55,943,000 55,943,000
Accumulated deficit (31,594,000) (31,996,000)
Accumulated other comprehensive income 165,000 65,000
----------------------- --------------------
Total Shareholders' Equity 32,349,000 31,847,000
----------------------- --------------------
Total Liabilities and Shareholders' Equity $ 44,749,000 $ 42,597,000
======================= ====================
</TABLE>
See accompanying notes to consolidated financial statements.
2
<PAGE>
<TABLE>
<CAPTION>
WESTMINSTER CAPITAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
THREE MONTHS THREE MONTHS
REVENUES: ENDED 3/31/99 ENDED 3/31/98
------------- -------------
<S> <C> <C>
Interest on loans $ 261,000 $ 242,000
Interest on securities available-for-
sale and money market funds 296,000 254,000
Unrealized gains on limited partnerships that
invest in securities 211,000 43,000
Gain on sale of securities available-for-
sale 178,000 12,000
Sales to packaging customers 2,023,000 --
Telephone system revenue 235,000 352,000
Sales to auto dealers 3,682,000 5,062,000
Loss from equity investment (19,000) --
Interest on tax refund -- 2,644,000
Other 132,000 (32,000)
----------- -----------
Total Revenues 6,999,000 8,577,000
----------- -----------
EXPENSES:
Telephone time charges 123,000 183,000
Cost of sales to auto dealers 3,437,000 4,841,000
Cost of sales-packaging 1,339,000 --
Other telephone system charges 124,000 178,000
General and administrative 1,259,000 871,000
----------- -----------
Total Expenses 6,282,000 6,073,000
----------- -----------
INCOME BEFORE INCOME TAXES
AND MINORITY INTERESTS 717,000 2,504,000
INCOME TAX BENEFIT (PROVISION) (279,000) 5,000
MINORITY INTERESTS SHARE OF
(INCOME)/LOSS OF SUBSIDIARIES (36,000) 2,000
----------- -----------
NET INCOME $ 402,000 $ 2,511,000
=========== ===========
Net Income Per Common Share:
Basic $ .05 $ .32
Diluted .05 .32
Weighted Average Shares Outstanding:
Basic 7,835,000 7,835,000
Diluted 7,948,000 7,948,000
</TABLE>
See accompanying notes to consolidated financial statements
3
<PAGE>
<TABLE>
<CAPTION>
WESTMINSTER CAPITAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
THREE MONTHS THREE MONTHS
ENDED 3/31/99 ENDED 3/31/98
------------- -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 402,000 $ 2,511,000
Adjustments to reconcile net income to net
cash provided by (used in) by operating activities:
Provision for loan losses and doubtful receivables -- 55,000
Depreciation, amortization, and accretion, net 130,000 108,000
Gain on sales of securities available-for-sale (178,000) (12,000)
Unrealized gains on limited partnerships that
invest in securities (211,000) (43,000)
Gains on sale of real estate acquired through foreclosure (112,000) --
Loss from equity investment 19,000 --
Loss on sale of property and equipment -- 43,000
Increase in accounts receivable (306,000) (56,000)
Decrease (increase) in accrued interest receivable (73,000) 167,000
Net change in inventories (126,000) --
Net change in income taxes 284,000 1,669,000
Net change in income tax refund receivable, net -- (4,329,000)
Decrease in other assets 9,000 4,000
Net change in accounts payable 556,000 (14,000)
Net change in accrued expenses (5,000) (53,000)
Net change in mortgage payable -- (655,000)
Net change in minority interests 26,000 (22,000)
------------ ------------
Net cash provided by (used in) operating activities 415,000 (627,000)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of One Source Industries, LLC
net of cash acquired (5,125,000) --
Purchase of securities (7,051,000) (3,331,000)
Proceeds from sales of securities 11,128,000 2,574,000
Loan originations and purchases (64,000) (778,000)
Proceeds from sale of real estate acquired through foreclosure 945,000 --
Proceeds from liquidation of limited partnership interest 241,000 --
Principal collected on loans receivable -- 298,000
Proceeds from sale of property and equipment -- 606,000
Purchase of telephone systems and office equipment (45,000) (4,000)
------------ ------------
Net cash provided by (used in) investing activities 29,000 (635,000)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of capital leases (40,000) --
------------ ------------
Net cash used in financing activities (40,000) --
------------ ------------
Net change in cash and cash equivalents 404,000 (1,262,000)
Cash and cash equivalents, beginning of period 291,000 1,738,000
------------ ------------
Cash and cash equivalents, end of period $ 695,000 $ 476,000
============ ============
Supplemental schedule of non cash investing and financing activities:
Conversion of note receivable inclusive of $57,000
of accrued interest into a 50% equity investment $ 857,000 $ --
============ ============
Tax effect of reduced unrealized gains
on securities available-for-sale $ 66,000 $ 6,000
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
<TABLE>
<CAPTION>
WESTMINSTER CAPITAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
THREE MONTHS THREE MONTHS
ENDED 3/31/99 ENDED 3/31/98
------------- -------------
<S> <C> <C>
Net income $ 402,000 $ 2,511,000
----------- -----------
Other comprehensive income, net of tax:
Unrealized gains on securities:
Unrealized holding gains/(losses) arising
during period 207,000 14,000
Less: reclassification adjustment for gains
included in net income (107,000) (6,000)
----------- -----------
Other comprehensive income 100,000 8,000
----------- -----------
Comprehensive income $ 502,000 $ 2,519,000
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements
5
<PAGE>
WESTMINSTER CAPITAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999
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 March 31,
1999 and December 31, 1998, and the results of operations, statements of
cash flows and statements of comprehensive income for the periods ended
March 31, 1999 and 1998.
The consolidated financial statements include the accounts of Westminster
Capital, Inc. and its subsidiaries including a 100% interest in Westland
Associates, Inc. ("Westland"), an 80% interest in One Source Industries,
LLC ("One Source") effective January 12, 1999 (see below), and a 75%
interest in Global Telecommunications Systems, LTD ("Global
Telecommunications"), a limited partnership.
On January 11, 1999, the Corporation acquired an 80% interest in One Source
Industries, LLC ("One Source") from One Source Industries, Inc. for cash
consideration of $4.8 million paid at closing, deferred consideration of
$196,000, plus up to an additional $2.15 million in deferred contingent
cash consideration that may be paid over the next four years based on the
performance of One Source during such period. One Source provides turn-key
packaging and point-of-sale displays for a broad spectrum of consumer
products ranging from computer software to food products.
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 material set forth below 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, 1998 and for the year then ended.
6
<PAGE>
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
March 31, 1999 and December 31, 1998 are as follows (in thousands):
<TABLE>
<CAPTION>
Gross Gross
Unrealized Unrealized Estimated
Amortized Cost Gains Losses Fair Value
--------------------- ------------------ ------------------ ------------------
<S> <C> <C> <C> <C>
March 31, 1999:
U.S. Treasury and Agency
Securities $ 21,794 $ -- $ (23) $ 21,771
Equity and Debt Securities 171 318 (13) 476
===================== ================== ================== ==================
Total $ 21,965 $ 318 $ (36) $ 22,247
===================== ================== ================== ==================
December 31, 1998
U.S. Treasury and Agency
Securities $ 25,638 $ 90 -- $ 25,728
Equity and Debt Securities 241 65 (52) 254
===================== ================== ================== ==================
Total $ 25,879 $ 155 $ (52) $ 25,982
===================== ================== ================== ==================
</TABLE>
Maturities of U.S. Treasury and Agency Securities were as follows at March
31, 1999 (in thousands):
Amortized Fair
Cost Value
--------------------- --------------------
Due within one year $ 2,621 $ 2,619
Due after one year through
five years 19,173 19,152
===================== ====================
$ 21,794 $ 21,771
===================== ====================
Gross unrealized gains include the value ascribed to warrants which have a
readily determinable value, whether detached or attached to securities.
7
<PAGE>
3. LOANS RECEIVABLE
The Corporation's loans receivable outstanding at March 31, 1999 and
December 31, 1998 were comprised of the following (in thousands):
<TABLE>
<CAPTION>
March 31, 1999 December 31, 1998
----------------------- -----------------------
<S> <C> <C>
Loans, net of loan fees,
Secured by trust
deeds or mortgages 2,643 2,643
Loans secured by other
Collateral 6,449 7,140
----------------------- -----------------------
Total $ 9,092 $ 9,783
======================= =======================
</TABLE>
4. GOODWILL
The Corporation's investments in operating businesses include purchased
goodwill recorded as follows (in thousands):
<TABLE>
<CAPTION>
Accumulated Amortization Net
Purchased Amortization for 3 months Unamortized
Goodwill at 12/31/98 ended 3/31/99 cost @ 3/31/99
------------------- ------------------ ------------------ ------------------
<S> <C> <C> <C> <C>
March 31, 1999:
One Source Industries $ 4,796 $ -- $ (60) $ 4,736
Westland Associates 888 (100) (22) 766
Touch Controls 456 -- (11) 445
=================== ================== ================== ==================
Total $ 6,140 $ (100) $ (93) $ 5,947
=================== ================== ================== ==================
<CAPTION>
Accumulated Amortization Net
Purchased Amortization for 12 months Unamortized
Goodwill 1/1/98 ended 12/31/98 cost @12/31/98
------------------- ------------------ ------------------ ------------------
<S> <C> <C> <C> <C>
December 31, 1998:
Westland Associates $ 888 $ (8) $ (92) 788
=================== ================== ================== ==================
Total $ 888 $ (8) $ (92) $ 788
=================== ================== ================== ==================
</TABLE>
Purchased goodwill arising during the current quarter is discussed in notes 5
and 6 below.
8
<PAGE>
5. ACQUISITION OF SUBSIDIARY
As discussed in Note 1, the Corporation acquired an 80% interest in One
Source Industries, LLC ("One Source") from One Source Industries, Inc. on
January 11, 1999. The acquisition was accounted for under the purchase
method of accounting. The following table summarizes the fair value of
assets and liabilities of One Source as of the date of the acquisition and
the computation of the excess of the purchase price over the fair value of
the net assets acquired (in thousands):
Fair Value of
Assets Acquired
and Liabilities
Assumed
------------------
Cash $ 117
Accounts receivable, net 929
Inventories 104
Property and equipment, net 193
Other assets 41
-----------------
Total assets 1,384
-----------------
Accounts payable 498
Accrued expenses and other liabilities 208
Capitalized lease obligation 120
-----------------
Total liabilities 826
-----------------
Fair value of net assets at 100% 558
-----------------
Fair value of 80% of net assets 446
Purchase price including closing costs of $ 246 5,242
-----------------
Excess of purchase price over the fair value
of net assets acquired $4,796
=================
The excess of the purchase price over the fair value of the net assets acquired,
goodwill, is being amortized using the straight-line method over 20 years.
6. EQUITY INVESTMENT
On January 1, 1999, the Corporation acquired a 50% interest in Touch
Controls Inc., by exercising its option to convert a convertible debt
obligation of $857,000, which includes $57,000 of accrued interest into
ownership of common stock. The excess of investment cost of $456,000 over
50% of equity at the date of investment has been recorded as goodwill and
is being amortized over a ten year period. The Corporation's proportionate
share of results of operations for Touch Controls is included under the
caption "Loss From Equity Investment" in the Consolidated Statements of
Income since the date of the investment. The equity investment, net of
current period losses of $19,000, is included in other assets in the
Consolidated Statements of Financial Condition.
9
<PAGE>
The summarized assets and liabilities of Touch Controls on January 1, 1999
post debt conversion, and March 31, 1999 were as follows (in thousands):
January 1, 1999 March 31, 1999
------------------- ------------------
Total Assets $1,595 $1,502
------------------- ------------------
Total Liabilities 850 739
------------------- ------------------
Total Liabilities and
Shareholders' Equity $1,595 $1,502
------------------- ------------------
7. SEGMENT INFORMATION
Revenues, gross profit and other financial data of the Corporation's
industry segments for the quarters ended March 31, 1999 and 1998, are set
forth below. All revenues are earned in the United States of America.
(Dollars in thousands)
<TABLE>
<CAPTION>
Finance Group Packaging
and Secured Purchasing Design and Other
Lending Services Manufacturing Business Total
----------- ---------- ------------- ---------- ---------
<S> <C> <C> <C> <C> <C>
1999
Revenues $ 1,059 $ 3,682 $ 2,023 $ 235 $ 6,999
Gross profit 1,059 245 684 (12) 1,976
General and administrative 417 351 491 0 1,259
Depreciation, amortization
and accretion, net (26) 34 80 42 130
Interest expense 0 9 3 0 12
Income(loss) before taxes 642 (106) 193 (12) 717
Identifiable assets 36,160 1,432 6,592 565 44,749
1998
Revenues $ 519 $ 5,062 $ 0 $ 2,996 $ 8,577
Gross profit 519 221 0 2,635 3,375
General and administrative 429 442 0 0 871
Depreciation, amortization
and accretion, net 21 25 0 62 108
Interest expense 0 7 0 0 7
Income(loss) before taxes 90 (221) 0 2,635 2,504
Identifiable assets 41,088 2,068 0 1,164 44,320
</TABLE>
General and administrative expenses includes interest expense and the net
effects of depreciation, amortization and accretion in the Consolidated
Statement of Operations.
Income (loss) before taxes represents income before taxes and minority
interests.
The packaging design and manufacturing segment reflects results of
operations of One Source from January 12, 1999.
10
<PAGE>
Other business consists of the operations of Global Telecommunications for
the quarter ended March 31, 1999 and 1998. The quarter ended March 31, 1998
also includes interest on the Franchise Tax Board settlement.
8. NET INCOME PER COMMON SHARE
Net income per common share is computed in accordance with Statement of
Financial Accounting Standards No. 128, Earning 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.
11
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
This report contains forward looking statements regarding various aspects
of the Corporation's business and affairs, including statements about the
adequacy of collateral for loans in default, the future cash needs of the
Corporation and Year 2000 compliance of the Corporation's computer systems. The
words "expect," estimate," "believe" and similar expressions and variations are
intended to identify forward looking statements. 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 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. Statements about
Year 2000 compliance are in part dependent upon performance by third parties
over whom the Corporation does not have control. Readers are cautioned not to
put undue reliance on such forward looking statements. The Corporation
undertakes no obligation to publicly revise these forward looking statements to
reflect events or circumstances that arise after the date hereof.
Results of Operations
Revenues for the quarter ended March 31, 1999 were $6,999,000 as compared
to $8,577,000 for the quarter ended March 31, 1998. The decrease in revenues
resulted in part from a decrease in revenues at Westland Associates of
$1,380,000 for the quarter ended March 31, 1999, from $5,062,000 during the
quarter ended March 31, 1998 to $3,682,000 during the quarter ended March 31,
1999. The decline in revenues of Westland Associates was due in large measure to
the loss of a significant parts vendor, declines in sales of certain other
product lines and to a decline in sales volume attributable to the decline in
the dealer membership base. Additionally, interest of $2,644,000 related to a
franchise tax claim was recorded in the quarter ended March 31, 1998, with no
such amount recorded in the quarter ended March 31, 1999. These reductions in
revenues were offset by the inclusion in revenues of $2,023,000 related to the
operations of One Source, which became an 80% owned subsidiary of the
Corporation on January 11, 1999.
Interest on loans was $261,000 during the quarter ended March 31, 1999 as
compared to $242,000 during the quarter ended March 31, 1998. Interest on
securities available-for-sale and money market funds was $296,000 during the
quarter ended March 31, 1999 as compared to $254,000 during the quarter ended
March 31, 1998.
During the quarter ended March 31, 1999, the Corporation recorded gains of
$178,000 on the sale of securities available-for-sale compared to $12,000 during
the quarter ended March 31, 1998. During the quarter ended March 31, 1999, the
Corporation recorded unrealized gains on limited partnerships that invest in
securities of $211,000 compared to $43,000 during the quarter ended March 31,
1998. 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.
Other revenues of $132,000 includes a gain of $112,000 from the sale of
real estate acquired through foreclosure during 1997 and sold during the quarter
ended March 31, 1999.
12
<PAGE>
Telephone system revenues decreased from $352,000 during the quarter ended
March 31, 1998 to $235,000 during the quarter ended March 31, 1999. This
reduction in revenues is primarily attributable to the disposition of the
contract for the Miramar base effective June 30, 1998. For the quarter ended
March 31, 1998, revenues for the Miramar base were $132,000 and income before
taxes was $3,000.
The revenues of $3,682,000 generated by Westland Associates, reported under
the caption "Sales to auto dealers" in the consolidated financial statements,
were offset by direct costs of $3,437,000, reported under the caption "Cost of
sales to auto dealers". As a result, Westland Associates generated gross profit
before operating expenses of $245,000, compared to $221,000 in the quarter ended
March 31, 1998. The improved gross profit has occurred despite a decline in
sales revenues due to improved margins, which have resulted from the change in
product sales mix toward higher margin business for the quarter ended March 31,
1999. Operating expenses were $351,000 and are included in general and
administrative expenses (See below).
The Corporation recorded a loss of $19,000 during the quarter ended March
31, 1998 in connection with its equity investment in Touch Controls, which was
made on January 1, 1999.
Global Telecommunication's expenses decreased from $361,000 during the
quarter ended March 31, 1998 to $247,000 during the quarter ended March 31,
1999, consistent with the decline in revenues, primarily attributable to the
disposition of the Miramar contract.
General and administrative expenses increased $388,000 from $871,000
for the quarter ended March 31, 1998 to $1,259,000 for the quarter ended March
31, 1999. This increase results from general and administrative expenses of
$491,000 attributable to One Source, which were offset in part by reductions in
general and administrative expenses at Westland Associates of $91,000
attributable to cost saving initiatives and other corporate savings of $12,000.
An income tax provision of $279,000 was recorded for the quarter ended
March 31, 1999. This provision represents a combined federal and state effective
tax rate of 40.9%, net of income attributable to minority interests.
Net income for the quarter ended March 31, 1999 was $402,000, as
compared to $2,511,000 for the quarter ended March 31, 1998. Basic and diluted
earnings per share were $0.05 in 1999 versus $0.32 in 1998. Weighted average
basic shares outstanding were 7,835,000 in both 1998 and 1997. Weighted average
diluted shares outstanding were 7,948,000 in both 1999 and 1998.
Loans Receivable
The Corporation's loans receivable at March 31, 1999 were $9,092,000 as
compared to $9,783,000 at December 31, 1998. During the quarter ended March 31,
1999, an advance of $64,000 was made on an existing loan commitment.
On January 1, 1999, the Corporation converted a note receivable in the
principal amount of $800,000, together with accrued interest of $57,000, into a
50% equity interest in Touch Controls, Inc.
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
13
<PAGE>
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 March 31, 1999, 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. No interest income has been
recorded in revenues since the respective foreclosure proceedings were
commenced. On April 12, 1999, the Corporation received $648,000 in full
settlement of the loan of $520,000 including accrued interest, late charges and
a recovery of legal fees and expenses in connection with this transaction.
Management believes that the real estate collateral for the remaining loan in
default will be sufficient to cover the principal and interest owing on this
loan.
The existing loan commitment to Physician Advantage LLC ("Physician
Advantage") provides for a partially secured convertible loan of up to
$2,000,000 of which $270,000 is convertible into a 55% ownership interest in
Physician Advantage. The loan bears interest at a variable rate equal to the
"prime rate" plus one percent per annum, compounded monthly. The principal
balance and all unpaid accrued interest are due in twenty-four equal monthly
installments beginning November 20, 2000. The loan is secured by a security
interest in all tangible and intangible assets of Physician Advantage.
The Corporation's obligation to make advances on the loan is conditioned on
Physician Advantage's ability to achieve enrollment of prescribed numbers of
physicians and certain levels of net income before taxes as of the close of each
calendar quarter. As of March 31, 1999, Physician Advantage had enrolled the
prescribed number of physicians, but had not satisfied the required levels of
net income before taxes at that date or as of the close of any calendar quarter
prior to this date. From inception to March 31, 1999, Physician Advantage has
incurred unaudited net losses of $1,258,000 versus a required milestone net
income before taxes of $375,000. Notwithstanding the losses incurred by
Physician Advantage, the Corporation has continued to make advances to that
company and had advanced $1,506,000 at March 31, 1999. On May 6, 1999 advances
to Physician Advantage totaled $ 1,549,000.
On March 1, 1999, the Corporation granted Physician Advantage and its two
shareholders an option to purchase the Corporation's convertible secured note at
any time prior to May 17, 1999, for a purchase price equal to the then
outstanding principal and accrued interest plus $600,000. As consideration for
granting the option, the shareholders of Physician Advantage have agreed to
transfer 15% of their equity interest in Physician Advantage to the Corporation
effective May 17, 1999, in the event that the option is not exercised by that
date. On May 11, 1999, the Corporation received notification that the option
would not be exercised.
Liquidity
The Corporation's cash and cash equivalents increased by $404,000 during
the quarter ended March 31, 1999. The Corporation's sources of cash during the
quarter were $11,128,000 from the sale of investment securities, $945,000 from
the sale of real estate acquired through foreclosure and $241,000 from
liquidation of an investment. The Corporation's uses of cash during the quarter
14
<PAGE>
included $7,051,000 from the purchase of securities available for sale,
$5,125,000 for the acquisition of One Source, $64,000 in advances on existing
loan commitments, and $45,000 for purchases of office equipment. The Corporation
held U.S. government and agency securities with a market value of $21,771,000 at
March 31, 1999.
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.
Market Risk
The Corporation is exposed to certain market risks, which are inherent in
the Corporation's financial instruments and arise from transactions entered into
in the normal course of business. The Corporation has not entered into and does
not enter into derivative financial instruments for speculative purposes. A
discussion of the Corporation's primary market risk disclosure in financial
instruments is presented below and should be read in conjunction with the
forward-looking statement included herein.
The Corporation is subject to interest rate risk on its marketable
securities portfolio and loans receivable. The marketable securities portfolio
matures in less than two years. The loan receivable portfolio comprises both
variable and fixed rate loans, with all fixed rate loans being of a short-term
nature. The Corporation is subject to equity price risk on its investments in
limited partnerships that invest in securities. At March 31, 1999, these
investments represent less than 5% of total assets.
Year 2000 Compliance
The inability of computers, software and other equipment utilizing
microprocessors to recognize and process data fields containing a two digit year
is commonly referred to as the Year 2000 ("Y2K") issue. As Y2K approaches, some
systems may be unable to accurately process certain information because some
computer programs have time-sensitive software that recognizes a date using "00"
as the year 1900 rather than the year 2000. This software could cause a system
failure or miscalculations causing disruptions of operation, including, among
other things, a temporary inability to process transactions, send invoices, or
engage in similar normal business activities.
The Corporation has completed an assessment of its existing hardware and
software systems and after a review of all material issues, one of which being
the year 2000 issue, has determined which systems need to be replaced or
upgraded. The Corporation has through March 31, 1999 contracted to spend
approximately $180,000 in system replacements and upgrades, most of which was
incurred in the ordinary course of business.
The remaining upgrades are expected to be completed not later than June 30,
1999, at an estimated cost of $35,000. The Corporation believes that with
conversions to new software, the year 2000 issue will not pose significant
operational problems for its computer systems.
15
<PAGE>
The cost of the Y2K project and the date on which the Corporation will
complete the conversion are based on management's best estimates, which are
derived utilizing numerous assumptions of future events, including the continued
availability of certain resources and other factors. However, there can be no
guarantee that these estimates will be achieved and actual results could differ
materially from those anticipated.
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 with which the Corporation deals 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. The Corporation is
developing contingency plans to alter business relationships in the event
certain third parties fail to become Y2K compliant.
While the Corporation believes that it will be able to manage its Y2K
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 Y2K compliant, or that the impact of any failure
to achieve substantial Y2K compliance will not have a material adverse effect on
the Corporation's financial condition, results of operations or cash flows.
With the exception of the historical information, the matters discussed
above include forward-looking statements that involve risks and uncertainties. A
delay in specific factors that might cause differences between the estimates and
actual results include, but are not limited to, the availability and cost of
personnel trained in these areas, the ability of locating correct all relevant
computer code, timely responses to and corrections by third parties and
suppliers, the ability to implement interfaces between the new systems and the
systems not being replaced, and similar uncertainties. Due to the general
uncertainty inherent in the Year 2000 problem, resulting in part from the
uncertainty of the Year 2000 readiness of third parties and the inter-connection
of businesses, the Company cannot ensure that its ability to timely and cost
effectively resolve problems associated with the Year 2000 issue that may effect
its operations and business, or expose it to third party liability.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
The information required by this item is incorporated herein by reference to the
section entitled "Market Risk" in Management's Discussion and Analysis of
Results of Operations and Financial Condition (Part 1, Item 2).
16
<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 and Form 8-K/A
Reports on Form 8-K and Form 8-K/A were filed on January 11, 1999
and March 26, 1999, respectively, reporting under Item 2.
Acquisition or Disposition of Assets, and Item 7. Financial
Statements and Exhibits.
17
<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: May 14, 1999 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
18
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Consolidated Statements of Financial Condition of Registrant as of March 31,
1999 (Unaudited) and the Consolidated Statements of Operations of Registrant for
the three months ended March 31, 1999 (Unaudited) and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> MAR-31-1999
<CASH> 695,000
<SECURITIES> 22,247,000
<RECEIVABLES> 11,003,000
<ALLOWANCES> 16,000
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 1,765,000
<DEPRECIATION> 972,000
<TOTAL-ASSETS> 44,749,000
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 7,835,000
<OTHER-SE> 24,514,000
<TOTAL-LIABILITY-AND-EQUITY> 44,749,000
<SALES> 5,705,000
<TOTAL-REVENUES> 6,999,000
<CGS> 4,776,000
<TOTAL-COSTS> 6,282,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 12,000
<INCOME-PRETAX> 717,000
<INCOME-TAX> 279,000
<INCOME-CONTINUING> 402,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 402,000
<EPS-PRIMARY> .05
<EPS-DILUTED> .05
</TABLE>
