<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, 2000
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 8,124,607
---------------------------
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
WESTMINSTER CAPITAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION AS OF
SEPTEMBER 30, 2000 (UNAUDITED) AND DECEMBER 31, 1999 (AUDITED)
<TABLE>
<CAPTION>
ASSETS SEPTEMBER 30, 2000 DECEMBER 31, 1999
------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash and cash equivalents $ 4,262,000 $ 1,406,000
Securities available-for-sale, at fair value 19,077,000 21,677,000
Investment in limited partnerships
that invest in securities 2,180,000 2,218,000
Other investments 524,000 748,000
Loans receivable, net 5,244,000 5,744,000
Accounts receivable, net of reserve
of $336,000 in 2000 and $127,000 in 1999 4,724,000 3,565,000
Inventories 1,115,000 183,000
Accrued interest receivable 207,000 398,000
Property and equipment, net 5,194,000 3,666,000
Goodwill, net 9,122,000 11,027,000
Other assets 808,000 508,000
-----------------------------------------------
TOTAL ASSETS $ 52,457,000 $ 51,140,000
===============================================
LIABILITIES AND
SHAREHOLDERS' EQUITY
------------------------------------------------------------------------------------------------------------------------------
LIABILITIES:
Accounts payable 3,788,000 2,140,000
Accrued expenses 1,328,000 2,434,000
Due to sellers -- 1,749,000
Other borrowings 2,957,000 808,000
Income taxes, net 1,126,000 8,828,000
Minority interests 1,142,000 1,204,000
-----------------------------------------------
TOTAL LIABILITIES $ 10,341,000 $ 17,163,000
-----------------------------------------------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Common stock, $1 par value: 30,000,000 shares
authorized: 8,125,000 shares issued and
outstanding in 2000 and 7,835,000 in 1999 8,125,000 7,835,000
Capital in excess of par value 56,223,000 55,943,000
Accumulated deficit (22,371,000) (29,673,000)
Accumulated other comprehensive loss 139,000 (128,000)
-----------------------------------------------
TOTAL SHAREHOLDERS' EQUITY 42,116,000 33,977,000
-----------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 52,457,000 $ 51,140,000
===============================================
</TABLE>
See accompanying notes to consolidated financial statements.
2
<PAGE>
WESTMINSTER CAPITAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
<TABLE>
<CAPTION>
Nine months Nine months Three months Three months
REVENUES: Ended 9/30/00 Ended 9/30/99 Ended 9/30/00 Ended 9/30/99
--------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Interest on loans $ 531,000 $ 954,000 $ 171,000 $ 333,000
Loan fees 95,000 -- 32,000 --
Interest on securities available-for-
sale and money market funds 932,000 918,000 330,000 320,000
Unrealized gains (losses) on limited partnerships
that invest in securities 87,000 666,000 (49,000) 78,000
Gain (loss) on sale of securities available-for-sale (44,000) 766,000 (17,000) (1,000)
Sales to auto dealers 12,006,000 11,055,000 4,198,000 3,934,000
Sales to packaging customers 9,294,000 8,289,000 3,721,000 2,851,000
Equipment rental and sales 7,731,000 -- 2,263,000 --
Gain from equity investment 264,000 52,000 55,000 49,000
Lawsuit settlement, net -- 192,000 -- --
Other income 800,000 274,000 140,000 85,000
--------------------------------------------------------------------
Total Revenues 31,696,000 23,166,000 10,844,000 7,649,000
--------------------------------------------------------------------
COSTS AND EXPENSES:
Cost of sales 21,391,000 15,615,000 7,715,000 5,585,000
Selling, general and administrative 7,193,000 4,289,000 1,628,000 1,749,000
Depreciation and amortization 2,673,000 342,000 1,736,000 145,000
Interest expense 163,000 37,000 67,000 11,000
--------------------------------------------------------------------
Total Expenses 31,420,000 20,283,000 11,146,000 7,490,000
--------------------------------------------------------------------
INCOME (LOSS) FROM CONTINUING
OPERATIONS BEFORE INCOME
TAXES & MINORITY INTERESTS 276,000 2,883,000 (302,000) 159,000
INCOME TAX BENEFIT (PROVISION) 6,513,000 (1,107,000) 6,904,000 (46,000)
MINORITY INTERESTS, NET (180,000) (225,000) (7,000) (37,000)
--------------------------------------------------------------------
INCOME FROM CONTINUING
OPERATIONS 6,609,000 1,551,000 6,595,000 76,000
DISCONTINUED OPERATIONS:
Loss from operations, net -- (41,000) -- (23,000)
Gain on sale of subsidiary, net 693,000 -- -- --
--------------------------------------------------------------------
NET INCOME $ 7,302,000 $ 1,510,000 $ 6,595,000 $ 53,000
====================================================================
</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 9/30/00 Ended 9/30/99
------------- -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Income from continuing operations $ 6,609,000 $ 1,551,000
Adjustments to reconcile income from continuing operations to
net cash (used in) provided by operating activities:
Provision for loan losses and doubtful accounts (209,000) (2,000)
Depreciation, amortization, and accretion, net 2,673,000 468,000
Accumulated depreciation on disposal of rental assets 602,000 --
Loss (gain) on sales of securities available-for-sale 44,000 (766,000)
Unrealized gains on limited partnerships that
invest in securities (87,000) (666,000)
Gain on sale of real estate acquired through foreclosure -- (112,000)
Gain on sale of other investments (450,000) --
Gain on sale of property and equipment -- (5,000)
Gain from equity investment (264,000) (52,000)
Loss from write-down of investment 48,000 --
Increase in accounts receivable (1,061,000) (861,000)
Decrease in accrued interest receivable 191,000 2,000
Net change in inventories (932,000) (124,000)
Net change in income taxes (7,896,000) 496,000
Net change in other assets (35,000) (91,000)
Net change in accounts payable 1,676,000 924,000
Net change in accrued expenses (1,106,000) (42,000)
Net change in minority interests 26,000 92,000
----------------------------------------
NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES (171,000) 812,000
----------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of subsidiaries net of cash acquired -- (5,318,000)
Purchase of securities (40,868,000) (21,807,000)
Purchase of other investments (124,000) --
Proceeds from sales of securities 43,923,000 22,481,000
Loan originations and purchases -- (264,000)
Proceeds from sale of real estate acquired through foreclosure -- 945,000
Proceeds from sale of property and equipment -- 7,000
Proceeds from liquidation of limited partnership interest 125,000 240,000
Principal collected on loans receivable 500,000 3,759,000
Proceeds from liquidation of other investments 750,000 --
Purchases of property and equipment (3,206,000) (171,000)
----------------------------------------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES 1,100,000 (128,000)
----------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Reduction in seller financing obligations (1,749,000) --
Proceeds from exercise of stock options 570,000 --
Installment and bank debt proceeds 2,978,000 24,000
Repayment of installment and bank debt (829,000) (82,000)
----------------------------------------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 970,000 (58,000)
----------------------------------------
NET CASH PROVIDED BY CONTINUING OPERATIONS 1,899,000 626,000
NET CASH PROVIDED BY (USED IN) DISCONTINUED OPERATIONS 957,000 (41,000)
----------------------------------------
NET CHANGE IN CASH AND CASH EQUIVALENTS 2,856,000 585,000
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 1,406,000 291,000
----------------------------------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 4,262,000 $ 876,000
========================================
</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 9/30/00 ENDED 9/30/99
<S> <C> <C>
Net income $ 7,302,000 $ 1,510,000
----------- -----------
Other comprehensive income (loss), net of tax:
Unrealized gains on securities:
Unrealized holding gains arising
during period 277,000 240,000
Less: reclassification adjustment for gains
included in net income (10,000) (460,000)
----------- -----------
Other comprehensive income (loss) 267,000 (220,000)
----------- -----------
Comprehensive income $ 7,569,000 $ 1,290,000
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE>
WESTMINSTER CAPITAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000
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, 2000 and December 31, 1999, and the results of operations, statements
of cash flows and statements of comprehensive income for the periods ended
September 30, 2000 and 1999.
The consolidated financial statements include the accounts of Westminster
Capital, Inc. and its subsidiaries including a 100% interest in Westland
Associates, Inc. ("Westland Associates"), an 80% interest in One Source
Industries, LLC ("One Source"), a 70% interest in Physician Advantage, LLC
("Physician Advantage") and a 68% interest in Logic Technology Group, Inc.,
dba Matrix Visual Solutions ("Matrix").
The Corporation disposed of its assets in Global Telecommunications on
January 31, 2000. The 1999 statements of consolidated income, cash flows,
and related notes to consolidated financial statements have been restated
to conform to the discontinued operations presentation (Note 7).
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 accounting principles
generally accepted in the United States of America. 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, 1999 and for the year then ended.
In June 1999, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 137, which delays the effective date of
Statement of Financial Accounting Standards No. 133, "Accounting for
Derivative Instruments and Hedging Activities" (SFAS No. 133). SFAS No.
133, which requires that all derivatives be recognized as assets or
liabilities in the consolidated balance sheet measured at fair value, is
effective for the Corporation starting in its fiscal year 2001, but is
currently not expected to have a significant impact.
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements"
(SAB 101), which provides additional guidance in applying generally
accepted accounting principles to revenue recognition in the financial
statements. The Corporation has evaluated the provisions of SAB 101 and
believes the impact on its revenue recognition policy is immaterial.
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
September 30, 2000 and December 31, 1999 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, 2000:
U.S. Treasury and Agency Securities $ 18,789 $ -- $ (39) $ 18,750
Equity and Debt Securities 34 326 (33) 327
-----------------------------------------------------------------------
Total $ 18,823 $ 326 $ (72) $ 19,077
=======================================================================
December 31, 1999:
U.S. Treasury and Agency Securities $ 21,850 $ -- $ (210) $ 21,640
Equity and Debt Securities 34 27 (24) 37
-----------------------------------------------------------------------
Total $ 21,884 $ 27 $ (234) $ 21,677
=======================================================================
</TABLE>
Maturities of U.S. Treasury and Agency Securities were as follows at
September 30, 2000 (in thousands):
<TABLE>
<CAPTION>
Amortized Fair
Cost Value
--------- -------
<S> <C> <C>
Due within one year $18,789 $18,750
Due after one year through
five years -- --
--------- -------
$18,789 $18,750
========= =======
</TABLE>
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 September 30, 2000 and
December 31, 1999 were comprised of the following (in thousands):
<TABLE>
<CAPTION>
September 30, 2000 December 31, 1999
------------------ -----------------
<S> <C> <C>
Loans, net of loan fees,
secured by trust
deeds or mortgages $5,244 $5,244
Loans secured by other
collateral -- 500
------------------ -----------------
Total $5,244 $5,744
================== =================
</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 9 months Unamortized
Goodwill at 1/1/00 ended 9/30/00 cost at 9/30/00
------------------ --------------------- ------------------ ------------------
<S> <C> <C> <C> <C>
September 30, 2000:
One Source Industries $ 5,315 $ (240) $ (228) $ 4,847
Matrix Visual Solutions 3,409 (18) (125) 3,266
Physician Advantage 1,577 (99) (1,478) --
Westland Associates 888 (188) (67) 633
Touch Controls 456 (46) (34) 376
------------------------------------------------------------------------------
Total $ 11,645 $ (591) $ (1,932) $ 9,122
==============================================================================
</TABLE>
<TABLE>
<CAPTION>
Accumulated Amortization Net
Purchased Amortization for 12 months Unamortized
Goodwill at 1/1/99 ended 12/31/99 cost at 12/31/99
------------------ --------------------- ------------------ ------------------
<S> <C> <C> <C> <C>
December 31, 1999:
One Source Industries $ 5,306 $ - $ (240) $ 5,066
Matrix Visual Solutions 3,391 - (18) 3,373
Physician Advantage 1,577 - (99) 1,478
Westland Associates 888 (100) (88) 700
Touch Controls 456 - (46) 410
------------------------------------------------------------------------------
Total $11,618 $ (100) $ (491) $ 11,027
==============================================================================
</TABLE>
8
<PAGE>
At September 30, 2000, the Corporation recorded a permanent impairment
write-down of the entire unamortized purchased goodwill related to
Physician Advantage in the amount of $1,360,000, which amount is included
in the goodwill amortization of $1,932,000 for the nine months ended
September 30, 2000. The permanent impairment write-down was made after
consideration of all factors related to the business of Physician
Advantage, including the mounting operating losses for this business, the
inability of Physician Advantage to achieve its revised business plan and
recent negative market conditions which have further undermined the ability
of Physician Advantage to succeed as a viable entity in its industry,
evidenced by its inability to raise additional capital and, therefore,
compete effectively with other companies in its industry.
Hence, in accordance with SFAS 121, the Corporation has evaluated the
carrying value of these assets in relation to their estimated market value.
The impairment loss reflects managements' evaluation of the estimated
market value of Physician Advantage as compared to its carrying value at
September 30, 2000.
9
<PAGE>
5. OTHER BORROWINGS
Other borrowings include bank credit facilities, comprised of a term
loan and two revolving lines of credit. The term loan is in the
principal amount of $750,000 and requires monthly principal and interest
payments amortizing over a five-year term beginning April 2000. The
outstanding principal balance at September 30, 2000 was $656,000. The
revolving line of credit for working capital purposes in the nominal
principal amount of $750,000 has a maturity date of March 2004 and
requires monthly payments of interest only. At September 30, 2000 the
outstanding principal balance was $750,000. The revolving line of credit
for equipment purchases in the nominal amount of $2,200,000 has a
maturity of April 2005, and requires monthly payments of interest only
through March 2001, and thereafter amortizes in 48 equal monthly
payments of principal plus accrued interest. At September 30, 2000, the
outstanding principal balance on the equipment line of credit was
$898,000. Each loan is secured by Matrix' assets and bears interest at
the bank's prime rate (9.50% at September 30, 2000).
The Corporation believes it is in compliance with the required loan
covenants at September 30, 2000. Total outstanding principal on these
credit facilities at September 30, 2000 was $2,304,000. The loan proceeds
were used in part to repay certain credit lines of approximately $585,000
owed to another bank in April 2000.
In addition to the Matrix' bank lines of $2,304,000, other borrowings are
comprised of various capitalized leases and other installment debt of
$653,000.
6. INCOME TAXES
During the quarter ended September 30, 2000, certain provisions
previously established as deferred tax liabilities were reversed, based
on the expiration of the periods for potential assessment for such
taxes. These provisions relate to legal settlement revenues received by
the Corporation in prior years. The current year reversal of $6,699,000
represents the majority of the established liability for deferred taxes
on the legal settlement revenues. The remaining deferred tax liability
of $2,686,000 will be evaluated for reversal in future years on the same
basis as the current year reversal.
10
<PAGE>
7. DISCONTINUED OPERATIONS
On January 31, 2000, Global Telecommunications sold substantially all of
its assets for cash consideration of $1,900,000. The Corporation received
$1,418,000, net of closing costs, on account of its 75% interest. In
connection with this sale, the Corporation recorded a gain on disposal of
$693,000, net of estimated income taxes of $461,000.
The results of operations of Global Telecommunications are reported as a
discontinued operation for all periods presented. The 1999 statements of
consolidated income, cash flows, and related notes to consolidated
financial statements have been restated to conform to the discontinued
operations presentation.
No Global Telecommunications revenues were earned in the current year
beginning January 1, 2000 through the date of disposition on January 31,
2000. Global Telecommunications revenues were $677,000 and $219,000 for
the nine months and three months ended September 30, 1999, respectively.
The discontinued operations incurred losses for the nine months and
three months ended September 30, 1999 of $41,000 and $23,000,
respectively, net of income taxes and minority interests.
The following table summarizes the disposition of Global Telecommunications
at January 31, 2000 (in thousands):
<TABLE>
<CAPTION>
Approximate
book value
of net assets
sold
-------------
<S> <C>
Accounts receivable, net $ 111
Property and equipment, net 269
-------------
Total assets 380
-------------
Accounts payable 28
-------------
Total liabilities 28
-------------
Book value of assets sold 352
-------------
Westminster Capital's 75% share of
net assets sold 264
Distribution to Westminster Capital net of
closing costs 1,418
-------------
Gain on sale of 75% interest 1,154
Applicable income taxes on gain on sale 461
-------------
Gain on sale, net of income taxes $ 693
=============
</TABLE>
11
<PAGE>
8. SEGMENT INFORMATION
Revenues, gross profit and other financial data for continuing operations
of the Corporation's industry segments for the nine months and three months
ended September 30, 2000 and 1999, are set forth below (dollars in
thousands). All revenues are earned in the United States of America.
<TABLE>
<CAPTION>
----------------------------------------------------------------------------
FINANCE AND GROUP PACKAGING- EQUIPMENT
SECURED PURCHASING DESIGN AND RENTAL AND OTHER
LENDING SERVICES MANUFACTURE SALES BUSINESS (3) TOTAL
----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
NINE MONTHS ENDED SEPTEMBER 30
2000
Revenues $ 2,329 $ 12,342 $ 9,294 $ 7,731 $ 0 $ 31,696
Gross profit 2,329 1,077 3,564 3,335 0 10,305
Selling, general and administrative 492 1,939 2,551 2,211 0 7,193
EBITDA (1) 1,837 (862) 1,013 1,124 0 3,112
Depreciation, amortization, accretion, net (1) 1,605 313 756 0 2,673
Interest expense (1) 12 28 124 0 163
Income (loss) before income taxes (2) 1,839 (2,479) 672 244 0 276
Total assets 31,523 1,590 9,570 9,774 0 52,457
1999
Revenues $ 3,529 $ 11,156 $ 8,289 $ 0 $ 192 $ 23,166
Gross profit 3,529 803 3,027 0 192 7,551
Selling, general and administrative 1,342 1,327 1,620 0 0 4,289
EBITDA (1) 2,187 (524) 1,407 0 192 3,262
Depreciation, amortization, accretion, net (45) 170 217 0 0 342
Interest expense 0 23 14 0 0 37
Income (loss) before income taxes (2) 2,232 (717) 1,176 0 192 2,883
Total assets 34,386 3,301 7,918 0 0 45,603
THREE MONTHS ENDED SEPTEMBER 30
2000
Revenues $ 530 $ 4,330 $ 3,721 $ 2,263 $ 0 $ 10,844
Gross profit 530 380 1,488 731 0 3,129
Selling, general and administrative (651) 576 828 875 0 1,628
EBITDA (1) 1,181 (196) 660 (144) 0 1,501
Depreciation, amortization, accretion, net (17) 1,441 97 215 0 1,736
Interest expense (1) 1 16 51 0 67
Income (loss) before income taxes (2) 1,199 (1,638) 547 (410) 0 (302)
Total assets 31,523 1,590 9,570 9,774 0 52,457
1999
Revenues $ 785 $ 4,013 $ 2,851 $ 0 $ 0 $ 7,649
Gross profit 785 313 966 0 0 2,064
Selling, general and administrative 460 618 671 0 0 1,749
EBITDA (1) 325 (305) 295 0 0 315
Depreciation, amortization, accretion, net (11) 80 76 0 0 145
Interest expense 0 5 6 0 0 11
Income (loss) before income taxes (2) 336 (390) 213 0 0 159
Total assets 34,384 3,301 7,918 0 0 45,603
</TABLE>
----------------------------------------------
(1) EBITDA represents earnings before interest, income taxes, depreciation and
amortization, and minority interests
(2) Income (loss) before income taxes represents income before income taxes and
minority interests
(3) Other business comprises settlement recoveries in the Drexel Burnham
Lambert, Inc. class action lawsuit
12
<PAGE>
9. SUPPLEMENTAL CASH FLOW INFORMATION
<TABLE>
<CAPTION>
Nine months ended Nine months ended
September 30, 2000 September 30, 1999
------------------------------------------
<S> <C> <C>
Supplemental schedule of cash flow information:
Interest paid $ 163,000 $ 37,000
Income taxes paid $ 1,812,000 $ 610,000
==========================================
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 unrealized gains
on securities available-for-sale $ 194,000 $ (148,000)
==========================================
</TABLE>
10. 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.
<TABLE>
<CAPTION>
Nine months Nine months Three months Three months
ended ended ended ended
September 30, September 30, September30, September 30,
2000 1999 2000 1999
---------------------------------------------------------------
<S> <C> <C> <C> <C>
Net Income Per Common Share:
Basic:
Income from continuing operations $ .82 $ .20 $ .81 $ .01
Income from discontinued operations .09 (.01) -- --
---------------------------------------------------------------
Net income $ .91 $ .19 $ .81 $ .01
===============================================================
Diluted:
Income from continuing operations $ .81 $ .19 $ .81 $ .01
Income from discontinued operations .09 (.01) -- --
---------------------------------------------------------------
Net income $ .90 $ .18 $ .81 $ .01
===============================================================
Weighted Average Shares Outstanding:
Basic 8,036,000 7,835,000 8,125,000 7,835,000
Diluted 8,083,000 7,967,000 8,127,000 7,967,000
</TABLE>
13
<PAGE>
11. COMMITMENTS AND CONTINGENCIES
On February 15, 2000, the Corporation and certain officers and directors
received subpoenas from the Securities and Exchange Commission, requesting
information concerning reporting of certain business transactions. The
Corporation and its officers and directors complied with this request. On
August 2, 2000, the Corporation received a letter from the Securities and
Exchange Commission notifying it that the investigation had been terminated
with no enforcement action recommended.
In March 2000, the Corporation established a revolving credit line in the
amount of $5,000,000, due on March 30, 2001. Any amount outstanding under
this credit line is collateralized by certain securities available for sale
and cash equivalents. Advances under this facility will bear interest
either at LIBOR plus 1/2%, or at the bank's prime rate. At September 30,
2000, no amounts had been drawn against this credit line.
14
<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 AND THE FUTURE CASH NEEDS OF THE
CORPORATION. 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.
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. 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.
INTRODUCTION
We are a diversified holding company operating in a variety of businesses
including group purchasing activities, promotional packaging, design and
fulfillment services, and sales and rental of audiovisual and computer
equipment. We also invest in other companies through secured and unsecured loans
and equity investments. Our strategy is to acquire a hundred percent or
substantial interests in additional operating businesses which we believe will
enhance shareholder value.
We have two businesses which engage in group purchasing activities.
Westland Associate, Inc ("Westland Associates"), a wholly owned subsidiary based
in Anaheim, California, provides group purchasing of goods and services for new
car dealers. Physician Advantage, L.L.C. ("Physician Advantage"), a 70% owned
subsidiary based in Encino, California, provides group purchasing of medical,
surgical, pharmaceutical and office equipment and supplies to health care
providers including physicians, surgical centers and other outpatient clinics.
We engage in the promotional packaging business through One Source
Industries, L.L.C. ("One Source"), consumer product manufacturers an 80%
owned subsidiary based in Irvine, California. One Source assists consumer
products manufacturers in the creation of displays, packaging, point of
purchase materials and promotional and media kits, including the design and
assembly of these materials and product fulfillment services.
We own a 68% interest in Logic Technology Group, Inc., dba Matrix Visual
Solutions, ("Matrix") based in Santa Ana, California. Matrix rents and sells a
wide range of audio-visual and computer equipment to trade show and exhibition
customers, the hospitality industry and other corporate customers throughout the
United States.
Our financing activities include secured and unsecured loans and equity
investments. Collateral for secured loans may include real estate and/or
personal property. We also invest in securities-available-for sale and limited
partnerships that invest in securities.
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RESULTS OF OPERATIONS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
REVENUES
Our revenues were $10,844,000 for the quarter ended September 30, 2000
compared to $7,649,000 for the quarter ended September 30, 1999. This net
increase in revenues of $3,195,000 was related to several factors:
- The operations of Matrix, acquired in November 1999, accounted for
$2,263,000 in revenues during the current quarter.
- Sales to packaging customers increased by $870,000 as compared to the
corresponding prior year quarter.
- Sales to auto dealers increased by $264,000 as compared to the
corresponding prior year quarter.
- Revenues earned from Physician Advantage increased by $53,000 as
compared to the corresponding prior year quarter.
- We recorded a gain on our equity interest in Touch Controls of
$55,000, compared to a gain of $49,000 in the quarter ended September
30, 1999.
- We earned loan fees of $32,000 in the quarter with no such fees earned
in the corresponding prior year quarter.
- Interest on securities available for sale increased by $10,000 over
the corresponding prior year quarter.
- A reduction in interest on loans of $162,000 compared to the year
earlier quarter.
- Unrealized losses from partnerships that invest in securities were
$50,000 compared to gains of $78,000 in the quarter ended September
30, 1999
- Losses from the sale of securities available-for-sale were $17,000
compared to losses of $1,000 in the quarter ended September 30, 1999.
Revenues of One Source (reported under "Sales to packaging customers" in
the Consolidated Statements of Income) were $3,721,000 during the quarter ended
September 30, 2000, compared to $2,851,000 during the quarter ended September
30, 1999. This increase in revenues of $870,000 was attributable to the net
addition of new customers and increased sales to key existing customers.
Revenues of Westland Associates (reported under "Sales to auto dealers" in
the Consolidated Statements of Income) were $4,198,000 during the quarter ended
September 30, 2000 compared to $3,934,000 during the quarter ended September 30,
1999. This increase in revenues of $264,000 was due to increased sales volume
attributable to new and existing vendor relationships.
Revenues of Physician Advantage (reported under "Other income" in the
Consolidated Statements of Income) were $132,000 during the quarter ended
September 30, 2000, compared to $79,000 during the quarter ended September 30,
1999. These revenues increased due to an increase in commissions earned from
third party distributors as a result of increased sales to physicians.
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Interest on loans was $171,000 during the quarter ended September 30, 2000
as compared to $333,000 during the quarter ended September 30, 1999, due to a
decrease in average loans outstanding. Interest on securities available-for-sale
and money market funds was $330,000 during the quarter ended September 30, 2000
as compared to $320,000 during the quarter ended September 30, 1999. Interest on
securities available-for-sale and money market funds was higher in this quarter
despite the lower average invested funds due to the higher interest rate
environment compared to the corresponding prior year quarter.
During the quarter ended September 30, 2000, we recorded a loss of $17,000
on the sale of securities available-for-sale compared to a loss of $1,000 during
the quarter ended September 30, 1999, and we recorded unrealized losses on
limited partnerships that invest in securities of $49,000 compared to unrealized
gains of $78,000 during the quarter ended September 30, 1999. These limited
partnerships invest in equity and debt securities and we record gains and losses
on these investments based upon the equity method of accounting. During the
quarter ended September 30, 2000, we recorded a permanent impairment write-down
of $144,000 on one of these limited partnerships, representing an impairment
write-down of 50% of our remaining equity position in this partnership. We
elected to withdraw our investment from this partnership at September 30, 1999
but to date have received only a partial return of our equity.
GROSS PROFIT
The revenues of $4,198,000 generated by Westland Associates were offset by
cost of sales of $3,903,000, included under the caption "Cost of sales." As a
result, Westland Associates generated gross profit before operating expenses of
$295,000, compared to $234,000 in the quarter ended September 30, 1999, or 5.91%
during the quarter ended September 30, 2000, compared to 5.95% during the
quarter ended September 30, 1999.
The revenues of $3,721,000 generated by One Source were offset by cost of
sales of $2,233,000, included under the caption "Cost of sales." As a result,
One Source generated gross profit before operating expenses of $1,488,000,
compared to $966,000 in the quarter ended September 30, 1999. Gross profit
as a percentage of revenues increased from 33.88% to 39.99% over the
corresponding quarter of the prior year due mainly to higher margin product
sales during the quarter ended September 30, 2000.
The revenues of $2,263,000 generated by Matrix were offset by cost of sales
of $1,532,000, included under the caption "Cost of sales." As a result, Matrix
generated gross profit before operating expenses of $731,000 for the quarter
ended September 30, 2000.
The revenues of $132,000 generated by Physician Advantage represent net
revenues earned from third party distributors, and as such also represent the
gross profit of Physician Advantage for the quarter ended September 30, 2000.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses decreased by $121,000, from
$1,749,000 for the quarter ended September 30, 1999 to $1,628,000 for the
quarter ended September 30, 2000. This decrease reflects a reversal of accrued
expenses of $1,123,000 related to the current quarter reversal of
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deferred taxes in connection with legal settlement revenues received in prior
years. Excluding this amount, selling, general and administrative expenses
increased by $1,002,000 during the quarter ended September 30, 2000.
Selling, general and administrative expenses of $875,000 were attributable
to Matrix, which was acquired in November 1999. Selling, general and
administrative expenses for One Source were $828,000 for the quarter ended
September 30, 2000, compared to $671,000 for the quarter ended September 30,
1999. The increase in One Source's selling, general and administrative expenses
is attributable to business expansion initiatives, including compensation for
additional staff, expenses attributable to a new sales office, and increased
marketing expenses. In the quarter ended September 30, 2000, Physician Advantage
had selling, general and administrative expenses of $361,000 compared to
$266,000 in the corresponding prior year quarter, due to increases in
business development expenses including web development costs.
The selling, general and administrative expenses for the finance and
secured lending segment were $472,000 in the quarter ended September 30, 2000
before reversal of accrued expenses described above, compared to $460,000 in the
quarter ended September 30, 1999. This increase relates mainly to increases in
business consulting expenses and legal expenses. The increases in selling,
general and administrative expenses were offset by a reduction in selling,
general and administrative expenses of $137,000 attributable to Westland
Associates. Westland Associates selling, general and administrative expenses
were $215,000 for the quarter ended September 30, 2000, compared to $352,000 for
the quarter ended September 30, 1999, due to the savings from the reorganization
of staffing and the benefit of various other cost saving initiatives.
DEPRECIATION AND AMORTIZATION
Depreciation and amortization increased from $145,000 for the quarter ended
September 30, 1999 to $1,736,000 for the quarter ended September 30, 2000. The
increase is attributable to depreciation and amortization of $173,000 related to
the operations of Matrix, with the balance attributable to an increase in
goodwill amortization, which includes a one-time charge of $1,360,000,
representing a permanent impairment write-down of Physician Advantage's
goodwill.
INCOME TAX
An income tax benefit of $6,904,000 was recorded for the quarter ended
September 30, 2000. This benefit includes a reversal of $6,699,000 in
deferred tax liabilities related to a previously established liability for
deferred taxes on the legal settlement revenues (see Note 6 of Notes to
Consolidated Financial Statements), and a benefit of $205,000 on the loss
before taxes for the quarter ended September 30, 2000. For the quarter ended
September 30, 1999 an income tax provision of $46,000 was recorded.
MINORITY INTERESTS
The minority interests in net income decreased from $37,000 for the quarter
ended September 30, 1999 to $7,000 for the quarter ended September 30, 2000, due
primarily to losses attributable to the minority shareholder in Matrix of
$67,000, offset by increased net income from One Source attributable to the
minority shareholder of $37,000.
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DISCONTINUED OPERATIONS
On January 31, 2000 we sold Global Telecommunications (see Note 7 of Notes
to Consolidated Financial Statements). The loss from this discontinued operation
for the quarter ended September 30, 1999 of $23,000 was net of income tax
benefits of $19,000 and net of minority interests of $6,000.
NET INCOME
During the quarter ended September 30, 2000 we earned net income of
$6,595,000, as compared to net income of $53,000 for the quarter ended September
30, 1999. Basic and diluted earnings per share were $0.81 in 2000 versus $0.01
in 1999. Basic earnings per share from continuing operations were $0.81 in 2000
versus $0.01 in 1999.
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
REVENUES
Our revenues were $31,696,000 for the nine months ended September 30, 2000
compared to $23,166,000 for the nine months ended September 30, 1999. This net
increase in revenues of $8,530,000 was related to several factors:
- The operations of Matrix, acquired in November 1999, accounted for
$7,731,000 in revenues during the current year to date period.
- Sales to packaging customers increased by $1,005,000 as compared to
the corresponding prior year to date period.
- Sales to auto dealers increased by $951,000 as compared to the
corresponding prior year to date period.
- We recorded a gain of $450,000 resulting from liquidation of an
investment (included in "Other income").
- Revenues earned from Physician Advantage increased by $236,000 as
compared to the corresponding prior year to date period.
- We recorded a gain on our equity interest in Touch Controls of
$264,000, compared to a gain of $52,000 in the nine months ended
September 30, 1999.
- Loan fees of $95,000 were earned in the current year to date period
with no such fees earned in the corresponding prior year to date
period.
- Interest on securities available for sale increased by $14,000 over
the corresponding prior year to date period.
- Losses from the sale of securities available-for-sale were $44,000
compared to gains of $766,000 in the nine months ended September 30,
1999.
- Unrealized gains from partnerships that invest in securities were
$87,000 compared to gains of $666,000 in the nine months ended
September 30, 1999.
- Interest income on loans decreased by $423,000 compared to the
corresponding nine months of the prior year.
- The nine months ended September 30, 1999 included $192,000 in
legal settlement revenues with no such revenues in the nine months
ended September 30, 2000.
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Revenues of Westland Associates (reported under "Sales to auto dealers" in
the Consolidated Statements of Income) were $12,006,000 during the nine months
ended September 30, 2000 compared to $11,055,000 during the nine months ended
September 30, 1999. This increase in revenues of $951,000 was due to increased
sales volume attributable to new and existing vendor relationships.
Revenues of One Source (reported under "Sales to packaging customers" in
the Consolidated Statements of Income) were $9,294,000 during the nine months
ended September 30, 2000, compared to $8,289,000 during the nine months ended
September 30, 1999. This increase in revenues of $1,005,000 was attributable to
the net addition of new customers and increased sales from key existing
customers.
Revenues of Physician Advantage (reported under "Other income" in the
Consolidated Statements of Income) were $336,000 during the nine months ended
September 30, 2000, compared to $101,000 for the period May 18, 1999
(acquisition date) to September 30, 1999 1999. These revenues, increased due to
an increase in commissions earned from third party distributors as a result of
increased sales to physicians.
Interest on loans was $531,000 during the nine months ended September 30,
2000 as compared to $954,000 during the nine months ended September 30, 1999,
due to a decrease in average loans outstanding. Interest on securities
available-for-sale and money market funds was $932,000 during the nine months
ended September 30, 2000 as compared to $918,000 during the nine months ended
September 30, 1999. Interest on securities available-for-sale and money market
funds was higher in the current year to date period despite the lower average
invested funds due to the higher interest rate environment compared to the
corresponding prior year-to-date period.
During the nine months ended September 30, 2000, we recorded a loss of
$44,000 on the sale of securities available-for-sale compared to gains of
$766,000 during the quarter ended September 30, 1999 and we recorded unrealized
gains on limited partnerships that invest in securities of $87,000 compared to
unrealized gains of $666,000 during the nine months ended September 30, 1999.
These limited partnerships invest in equity and debt securities and we record
gains and losses on these investments based upon the equity method of
accounting. During the nine months ended September 30, 2000, we recorded a
permanent impairment write-down of $144,000 on one of these limited
partnerships, representing an impairment write-down of 50% of our remaining
equity position in this partnership. We elected to withdraw our investment from
this partnership at September 30, 1999 but to date have received only a partial
return of our equity.
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GROSS PROFIT
The revenues of $12,006,000 generated by Westland Associates were offset by
direct costs of $11,265,000, included under the caption "Cost of sales." As a
result, Westland Associates generated gross profit before operating expenses of
$741,000, compared to $702,000 in the nine months ended September 30, 1999, or
6.17% during the nine months ended September 30, 2000, compared to 6.35% during
the quarter ended September 30, 1999. The change in gross profit percentage
reflects a shift in product mix toward products with lower margins.
The revenues of $9,294,000 generated by One Source were offset by direct
costs of $5,730,000, included under the caption "Cost of sales." As a result,
One Source generated gross profit before operating expenses of $3,564,000,
compared to $3,027,000 in the nine months ended September 30, 1999. The gross
profit as a percentage of revenues increased from 36.5% to 38.4% over the
corresponding period of the prior year due mainly to a change in product mix
toward products with higher margins.
The revenues of $7,731,000 generated by Matrix were offset by direct costs
of $4,396,000, included under the caption "Cost of sales." As a result, Matrix
generated gross profit before operating expenses of $3,335,000 for the nine
months ended September 30, 2000.
The revenues of $336,000 generated by Physician Advantage represent net
revenues earned from third party distributors, and as such also represent the
gross profit of Physician Advantage for the nine months ended September 30,
2000.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses increased by $2,904,000,
from $4,289,000 for the nine months ended September 30, 1999 to $7,193,000
for the nine months ended September 30, 2000. This increase reflects a
reversal of accrued expenses of $1,123,000 in the current year related to the
reversal of deferred taxes in connection with legal settlement revenues
received in prior years. Excluding this amount, selling, general and
administrative expenses actually increased by $4,027,000 during the nine
months ended September 30, 2000. This increase resulted in part from selling,
general and administrative expenses of $2,211,000 and $1,174,000 attributable
to Matrix and Physician Advantage, respectively. Matrix was acquired in
November 1999 and Physician Advantage was acquired in May 1999. Physician
Advantage had selling, general and administrative expenses of $343,000 for
the period from acquisition to September 30, 1999. The increase in Physician
Advantage's selling, general and administrative expenses is due to increased
business development expenses including web development costs. Selling,
general and administrative expenses for One Source were $2,551,000 for the
nine months ended September 30, 2000, compared to $1,620,000 for the nine
months ended September 30, 1999. The increase in One Source selling, general
and administrative expenses is attributable to business expansion
initiatives, including compensation for additional staff, expenses
attributable to a new sales office and expenses incurred in connection with
the relocation of the corporate headquarters.
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The selling, general and administrative expenses for the finance and
secured lending segment were $1,615,000 in the nine months ended September 30,
2000 before reversal of accrued expenses described above, compared to $1,342,000
in the nine months ended September 30, 1999. This increase relates mainly to
increases in business consulting expenses and legal expenses. The increases in
selling, general and administrative expenses were offset by a reduction in
selling, general and administrative expenses of $219,000 attributable to
Westland Associates. Westland Associates selling, general and administrative
expenses were $765,000 for the nine months ended September 30, 2000, compared to
$984,000 for the nine months ended September 30, 1999, due to the benefit of
various cost saving initiatives.
DEPRECIATION AND AMORTIZATION
Depreciation and amortization increased from $342,000 for the nine
months ended September 30, 1999 to $2,673,000 for the nine months ended
September 30, 2000. The increase was attributable to depreciation and
amortization of $631,000 related to the operations of Matrix, $1,594,000
related to increased amortization of goodwill, which included a one-time
charge of $1,360,000, representing a permanent impairment write-down of
Physician Advantage's goodwill, with the balance consisting primarily of
depreciation and amortization on operating assets.
INCOME TAX
An income tax benefit of $6,513,000 was recorded for the nine months ended
September 30, 2000. This benefit includes a year to date reversal of $6,699,000
in deferred tax liabilities related to a previously established liability for
deferred taxes on the legal settlement revenues (see Note 6 of Notes to
Consolidated Financial Statements), and an income tax provision of $186,000 on
year to date income before taxes representing a combined federal and state
effective tax rate of 67.4%. For the nine months ended September 30, 1999 an
income tax provision of $1,107,000 was recorded, representing a 38.4% effective
tax rate. The current year reflects a higher effective tax rate due to an
increase in permanent differences between book income and taxable income
resulting from non-deductible goodwill and non-deductible operating losses.
MINORITY INTERESTS
The minority interests in net income decreased from $225,000 for the nine
months ended September 30, 1999 to $180,000 for the nine months ended September
30, 2000. The net decrease is represented by lower net income attributable to
the minority shareholder of One Source of $120,000, offset by the share of net
income contributed by Matrix and attributable to the minority shareholder of
$75,000.
DISCONTINUED OPERATIONS
On January 31, 2000 we sold Global Telecommunications and recorded a gain
from this sale of $693,000, net of income taxes of $461,000 (see Note 7 of Notes
to Consolidated Financial Statements). No income or loss was recorded from this
discontinued operation in the current year. The loss from this discontinued
operation for the nine months ended September 30, 1999 of $41,000 was net of
income tax benefits of $34,000 and net of minority interests of $10,000.
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NET INCOME
Net income for the nine months ended September 30, 2000 was $7,302,000, as
compared to $1,510,000 for the nine months ended September 30, 1999. Basic
earnings per share were $0.91 in 2000 versus $0.19 in 1999. Basic earnings per
share from continuing operations were $0.82 in 2000 versus $0.20 in 1999.
FINANCIAL CONDITION
LOANS RECEIVABLE
The Corporation's loans receivable were $5,244,000 at September 30, 2000
and $5,744,000 at December 31, 1999. During the quarter ended September 30,
2000, we received $500,000 in principal repayments representing payment in full
on a loan.
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.
PAST DUE LOANS
Prior to September 30, 2000, a loan secured by a mortgage of $1,025,000,
net of discount of $25,000 was in default. The loan was originated in 1996 and
was originally due in 1998. On September 29, 2000, we entered into a settlement
agreement with the debtor that provides for the payment of $1,250,000 from the
proceeds of sale of the underlying property securing this loan plus interest of
8.75% from November 30, 2000, if the settlement sum is not paid by that date.
Management believes that the real estate collateral for this loan will be
sufficient to cover the settlement amount.
BORROWINGS
At September 30, 2000 we owed $2,957,000 under various debt agreements. See
Notes 5 and 11 of Notes to Consolidated Financial Statements for details
on the amounts owing and amounts available pursuant to the various credit lines.
DEFERRED TAXES AND SHAREHOLDERS' EQUITY
During the quarter ended September 30, 2000, certain provisions previously
established as deferred tax liabilities of $6,699,000 were reversed to earnings
contributing to an increase to shareholders' equity. These provisions relate to
legal settlement revenues received by the Corporation in prior years. The
$2,686,000 remaining liability for deferred taxes on the legal settlement
revenues will be evaluated for reversal in future years on the same basis as the
current year reversal.
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LIQUIDITY
The Corporation's cash and cash equivalents increased by $2,856,000 during
the nine months ended September 30, 2000. The increase in cash and cash
equivalents was due mainly to a repositioning of the investment portfolio
because of the inverted yield curve that existed toward the end of September
2000. As such, the Corporation held investments in commercial paper (a cash
equivalent) in the amount of $3,200,000 at September 30, 2000. The Corporation's
sources of cash during the nine months were $43,923,000 from the sale of
investment securities, $2,978,000 in debt financings from banking sources,
$957,000 from the sale of discontinued operations, $750,000 from liquidation of
an investment, $570,000 in proceeds from the exercise of stock options and
$125,000 from the liquidation of a partnership interest. The Corporation's uses
of cash during the nine months included $40,868,000 for the purchase of
securities available for sale, $1,749,000 in seller financing repayments,
$3,206,000 for purchases of property and equipment, $171,000 for cash used in
operating activities and $829,000 in other debt repayments. The Corporation held
U.S. government and agency securities with a fair value of $18,750,000 at
September 30, 2000.
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
presently does intend to 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 loans receivable portfolio consists of 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 September 30, 2000, these
investments represented less than 5% of total assets.
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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).
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PART II-OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
27. Financial Data Schedule
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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 14, 2000 WESTMINSTER CAPITAL, INC.
(Registrant)
By /s/ WILLIAM BELZBERG
--------------------------------------
William Belzberg,
Chairman of the Board of
Directors and Chief
Executive Officer
By /s/ RUI GUIMARAIS
--------------------------------------
Rui Guimarais
Chief Financial Officer
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