<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
---------
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
-
For the quarterly period ended June 30, 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
JUNE 30, 2000 (UNAUDITED) AND DECEMBER 31, 1999 (AUDITED)
<TABLE>
<CAPTION>
ASSETS JUNE 30, 2000 DECEMBER 31, 1999
------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash and cash equivalents $ 6,253,000 $ 1,406,000
Securities available-for-sale, at fair value 16,329,000 21,677,000
Investment in limited partnerships
that invest in securities 2,230,000 2,218,000
Other investments 400,000 748,000
Loans receivable, net 5,744,000 5,744,000
Accounts receivable, net of reserve
of $253,000 in 2000 and $127,000 in 1999 4,325,000 3,565,000
Inventories 432,000 183,000
Accrued interest receivable 446,000 398,000
Telephone systems, net -- 269,000
Property and equipment, net 4,265,000 3,397,000
Goodwill, net 10,655,000 11,027,000
Other assets 891,000 508,000
------------------------------ -------------------------------
TOTAL ASSETS $ 51,970,000 $ 51,140,000
============================== ===============================
LIABILITIES AND
SHAREHOLDERS' EQUITY
------------------------------------------------------------------------------------------------------------------------------
LIABILITIES:
Accounts payable 2,428,000 2,140,000
Accrued expenses 2,701,000 2,434,000
Due to sellers -- 1,749,000
Other borrowings 2,291,000 808,000
Deferred income taxes 8,095,000 8,828,000
Minority interests 1,136,000 1,204,000
------------------------------ -------------------------------
TOTAL LIABILITIES 16,651,000 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 (28,966,000) (29,673,000)
Accumulated other comprehensive loss (63,000) (128,000)
------------------------------ -------------------------------
TOTAL SHAREHOLDERS' EQUITY 35,319,000 33,977,000
------------------------------ -------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 51,970,000 $ 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>
Six Months Six Months Three Months Three Months
Revenues: Ended 6/30/00 Ended 6/30/99 Ended 6/30/00 Ended 6/30/99
--------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Interest on loans $ 360,000 $ 621,000 $ 177,000 $ 360,000
Loan fees 63,000 -- 31,000 --
Interest on securities available-for-
sale and money market funds 602,000 598,000 314,000 302,000
Unrealized gains (losses) on limited partnerships
that invest in securities 136,000 588,000 (110,000) 377,000
Gain (loss) on sale of securities available-for-sale (27,000) 767,000 (24,000) 589,000
Sales to auto dealers 7,808,000 7,121,000 3,896,000 3,439,000
Sales to packaging customers 5,573,000 5,438,000 2,766,000 3,415,000
Equipment rental and sales 5,468,000 -- 3,193,000 --
Gain from equity investment 209,000 3,000 142,000 22,000
Other income 660,000 381,000 133,000 249,000
-------------------- ----------------- ------------------ ----------------
Total Revenues 20,852,000 15,517,000 10,518,000 8,753,000
-------------------- ----------------- ------------------ ----------------
COSTS AND EXPENSES:
Cost of sales 13,723,000 10,030,000 7,372,000 5,254,000
General and administrative 5,518,000 2,562,000 2,504,000 1,403,000
Depreciation and amortization 937,000 175,000 499,000 87,000
Interest expense 96,000 26,000 74,000 14,000
-------------------- ----------------- ------------------ ----------------
Total Expenses 20,274,000 12,793,000 10,449,000 6,758,000
-------------------- ----------------- ------------------ ----------------
INCOME FROM CONTINUING
OPERATIONS BEFORE INCOME
TAXES & MINORITY INTERESTS 578,000 2,724,000 69,000 1,995,000
INCOME TAX PROVISION (391,000) (1,066,000) (87,000) (783,000)
MINORITY INTERESTS, NET (173,000) (193,000) (90,000) (154,000)
-------------------- ----------------- ------------------ ----------------
INCOME (LOSS) FROM CONTINUING
OPERATIONS 14,000 1,465,000 (108,000) 1,058,000
DISCONTINUED OPERATIONS:
Loss from operations, net -- (8,000) -- (3,000)
Gain on sale of subsidiary, net 693,000 -- -- --
-------------------- ----------------- ------------------ ----------------
NET INCOME (LOSS) $ 707,000 $ 1,457,000 $ (108,000) $ 1,055,000
==================== ================= ================== ================
</TABLE>
See accompanying notes to consolidated financial statements
3
<PAGE>
WESTMINSTER CAPITAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
Six Months Six Months
Ended 6/30/00 Ended 6/30/99
------------------ ------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Income from continuing operations $ 14,000 $ 1,465,000
Adjustments to reconcile income from continuing operations to
net cash (used in) provided by operating activities:
Depreciation, amortization, and accretion, net 937,000 259,000
Loss (gain) on sales of securities available-for-sale 27,000 (767,000)
Unrealized gains on limited partnerships that
invest in securities (136,000) (588,000)
Gain on sale of real estate acquired through foreclosure -- (112,000)
Gain on sale of other investments (450,000) --
Gain from equity investment (209,000) (3,000)
Loss from write-down of investment 48,000 --
Increase in accounts receivable (871,000) (704,000)
Increase in accrued interest receivable (48,000) (57,000)
Net change in inventories (249,000) (80,000)
Net change in income taxes (780,000) 988,000
Net change in other assets (175,000) (117,000)
Net change in accounts payable 316,000 573,000
Net change in accrued expenses 267,000 (102,000)
Net change in minority interests 20,000 158,000
------------------------- ------------------------
NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES (1,289,000) 913,000
------------------------- ------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of subsidiaries net of cash acquired -- (5,323,000)
Purchase of securities (22,388,000) (13,205,000)
Proceeds from sales of securities 27,827,000 16,773,000
Loan originations and purchases -- (164,000)
Proceeds from sale of real estate acquired through foreclosure -- 945,000
Proceeds from liquidation of limited partnership interest 125,000 241,000
Principal collected on loans receivable -- 520,000
Proceeds from liquidation of other investments 750,000 --
Purchases of property and equipment (1,439,000) (145,000)
------------------------- ------------------------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES 4,875,000 (358,000)
------------------------- ------------------------
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 2,177,000 124,000
Repayment of installment and bank debt (694,000) (54,000)
------------------------- ------------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 304,000 70,000
------------------------- ------------------------
NET CASH PROVIDED BY CONTINUING OPERATIONS 3,890,000 625,000
NET CASH PROVIDED BY (USED IN) DISCONTINUED OPERATIONS 957,000 (8,000)
------------------------- ------------------------
NET CHANGE IN CASH AND CASH EQUIVALENTS 4,847,000 617,000
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 1,406,000 291,000
------------------------- ------------------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 6,253,000 $ 908,000
========================= ========================
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
WESTMINSTER CAPITAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS SIX MONTHS
ENDED 6/30/00 ENDED 6/30/99
<S> <C> <C>
Net income $ 707,000 $ 1,457,000
-------------------------- ------------------------
Other comprehensive income, net of tax:
Unrealized gains on securities:
Unrealized holding gains arising
during period 66,000 122,000
Less: reclassification adjustment for gains
included in net income (1,000) (256,000)
-------------------------- ------------------------
Other comprehensive income (loss) 65,000 (134,000)
-------------------------- ------------------------
Comprehensive income (loss) $ 772,000 $ 1,323,000
========================== ========================
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE>
WESTMINSTER CAPITAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 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 June 30,
2000 and December 31, 1999, and the results of operations, statements of
cash flows and statements of comprehensive income for the periods ended
June 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"), 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 statements of consolidated income, cash flows, and
related notes to consolidated financial statements have been restated to
conform to the discontinued operations presentation (Note 6).
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, 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 Company has evaluated the provisions of SAB 101 and
believes its impact on their 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 June 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>
June 30, 2000:
U.S. Treasury and Agency
Securities $ 16,389 $ -- $ (95) $16,294
Equity and Debt Securities 34 32 (31) 35
---------------------- ------------------- ------------------ -------------------
Total $16,423 $ 32 $ (126) $16,329
====================== =================== ================== ===================
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 June
30, 2000 (in thousands):
<TABLE>
<CAPTION>
Amortized Fair
Cost Value
---------------------- ---------------------
<S> <C> <C>
Due within one year $ 15,389 $ 15,303
Due after one year through
five years 1,000 991
---------------------- ---------------------
$ 16,389 $ 16,294
====================== =====================
</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 June 30, 2000 and
December 31, 1999 were comprised of the following (in thousands):
<TABLE>
<CAPTION>
June 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 500 500
-------------------------- --------------------------
Total $ 5,744 $ 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 6 months Unamortized
Goodwill at 1/1/00 ended 6/30/00 cost at 6/30/00
------------------ --------------------- ------------------ ------------------
<S> <C> <C> <C> <C>
June 30, 2000:
One Source Industries $ 5,315 $ (240) $ (147) $ 4,928
Matrix Visual Solutions 3,391 (18) (90) 3,283
Physician Advantage 1,577 (99) (78) 1,400
Westland Associates 888 (188) (44) 656
Touch Controls 456 (46) (22) 388
------------------ --------------------- ------------------ ------------------
Total $11,627 $ (591) $ (381) $ 10,655
================== ===================== ================== ==================
Accumulated Amortization Net
Purchased Amortization for 12 months Unamortized
Goodwill at 1/1/99 Ended 12/31/99 cost at 12/31/99
------------------ --------------------- ------------------ ------------------
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>
5. OTHER BORROWINGS
Other borrowings include newly established credit facilities by Matrix,
comprised of two lines of credit and a term loan from a bank. The term loan
in the principal amount of $750,000 requires monthly principal and interest
payments amortizing over a five-year term beginning April 2000. The
outstanding principal balance at June 30, 2000 was $703,000. 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 June 30, 2000 the outstanding principal balance was
$432,000. The revolving line of credit for equipment purchases in the
nominal amount of $1,000,000 has a maturity of April 2005, and requires
monthly payments of interest only through March 2001, and thereafter
amortized in 48 equal monthly payments of principal plus accrued interest.
At June 30, 2000 principal of $593,000 was owed on the equipment line of
credit. Each loan is secured by Matrix' assets and bears interest at the
bank's prime rate (currently 9.50%).
The loans require compliance with certain loan covenants, all of which were
in compliance at June 30, 2000. Total outstanding principal on these credit
facilities at June 30, 2000 was $1,728,000. 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 $1,728,000, other borrowings
comprise of various capitalized leases and other installment debt of
$563,000.
9
<PAGE>
6. 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 Global Telecommunications are reported as a discontinued
operation for all periods presented. The statements of consolidated income,
cash flows, and related notes to consolidated financial statements have
been restated to conform to the discontinued operations presentation.
No telephone systems revenues were earned in the current year beginning
January 1, 2000 through the date of disposition on January 31, 2000.
Telephone systems revenues were $235,000 for the quarter ended June 30,
1999. The discontinued operations incurred losses for the six months and
quarter ended June 30, 1999 of $8,000 and $5,000 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
disposition costs 1,418
------------------
Gain on sale of 75% interest in Global $1,154
Applicable income taxes on gain on sale 461
------------------
Gain on sale, net of income taxes $ 693
==================
</TABLE>
10
7. SEGMENT INFORMATION
Revenues, gross profit and other financial data for continuing operations
of the Corporation's industry segments for the quarters ended June 30, 2000
and 1999, are set forth below. All revenues are earned in the United States
of America. (Dollars in thousands)
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------
SIX MONTHS ENDED JUNE 30 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>
2000
Revenues $ 1,799 $ 8,012 $ 5,573 $ 5,468 $ 0 $20,852
Gross Profit 1,799 650 2,076 2,604 0 7,129
General and administrative 1,143 1,316 1,723 1,336 0 5,518
EBITDA (1) 656 (666) 353 1,268 0 1,611
Depreciation, amortization, accretion, net 16 164 216 541 0 937
Interest expense 0 11 12 73 0 96
Income (loss) before income taxes (2) 640 (841) 125 654 0 578
Total assets 34,344 3,080 8,587 5,959 0 51,970
1999
Revenues $ 2,743 $ 7,144 $ 5,438 $ 0 $192 $ 5,517
Gross Profit 2,743 491 2,061 0 192 5,487
General and administrative 908 705 949 0 0 2,562
EBITDA (1) 1,835 (214) 1,112 0 192 2,925
Depreciation, amortization, accretion, net (56) 90 141 0 0 175
Interest expense 0 18 8 0 0 26
Income (loss) before income taxes (2) 1,891 (322) 963 0 192 2,724
Total assets 34,660 3,408 7,927 0 0 45,995
THREE MONTHS ENDED JUNE 30
2000
Revenues $ 529 $ 4,027 $ 2,767 $ 3,195 $ 0 $10,518
Gross Profit 529 349 930 1,338 0 3,146
General and administrative 522 526 959 497 0 2,504
EBITDA (1) 7 (177) (29) 841 0 642
Depreciation, amortization, accretion, net (5) 80 114 310 0 499
Interest expense 0 7 7 60 0 74
Income (loss) before income taxes (2) 12 (264) (150) 471 0 69
Total assets 34,344 3,080 8,587 5,959 0 51,970
1999
Revenues $ 1,684 $ 3,462 $ 3,415 $ 0 $192 $ 8,753
Gross Profit 1,684 246 1,377 0 192 3,499
General and administrative 465 397 541 0 0 1,403
EBITDA (1) 1,219 (151) 836 0 192 2,096
Depreciation, amortization, accretion, net (30) 56 61 0 0 87
Interest expense 0 9 5 0 0 14
Income (loss) before income taxes (2) 1,249 (216) 770 0 192 1,995
Total assets 34,660 3,408 7,927 0 0 45,995
</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
11
<PAGE>
8. SUPPLEMENTAL CASH FLOW INFORMATION
<TABLE>
<CAPTION>
Six months ended Six months ended
June 30, 2000 June 30, 1999
------------------------- ------------------------
<S> <C> <C>
Supplemental schedule of cash flow information:
Interest paid $ 96,000 $ 12,000
========================= ========================
Income taxes paid $ 1,582,000 $ --
========================= ========================
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 $ 47,000 $ 66,000
========================= ========================
</TABLE>
9. 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.
<TABLE>
<CAPTION>
Three months Three months Six months Six months
ended ended ended ended
June 30, 2000 June 30, 1999 June 30, 2000 June 30, 1999
------------------- ----------------- ---------------- -----------------
<S> <C> <C> <C> <C>
Net Income Per Common Share:
Basic:
Income from continuing operations $ ( .01) $ .14 -- $ .19
Income from discontinued operations -- -- $ .09 --
------------------- ----------------- ---------------- -----------------
Net income $ (.01) $ .14 $ .09 $ .19
=================== ================= ================ =================
Diluted:
Income from continuing operations $ ( .01) $ .13 -- $ .18
Income from discontinued operations -- -- $ .09 --
------------------- ----------------- ---------------- -----------------
Net income $ ( .01) $ .13 $ .09 $ .18
=================== ================= ================ =================
Weighted Average Shares Outstanding:
Basic 8,125,000 7,835,000 7,980,000 7,835,000
Diluted 8,132,000 7,950,000 8,035,000 7,950,000
</TABLE>
12
<PAGE>
10. 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.
On March 24, 2000, the corporation established a revolving credit
line in the amount of $5,000,000, due on maturity on March 30, 2001. Any
amount outstanding under this facility 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 Prime Rate.
At June 30, 2000, no amounts had been drawn against this facility.
13
<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. 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. 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
FOR THE THREE MONTHS ENDED JUNE 30, 2000 AND 1999
REVENUES
Our Revenues were $10,518,000 for the quarter ended June 30, 2000
compared to $8,753,000 for the quarter ended June 30, 1999. This increase in
revenues of $1,765,000 was related to several factors: the operations of
Matrix, acquired in November 1999, accounted for $3,193,000 in revenues
during the current quarter; sales to auto dealers increased by $457,000 as
compared to the corresponding prior year quarter; revenues of $130,000 of
Physician Advantage, which we acquired in May 1999; a gain on our equity
interest in Touch Controls of $142,000, compared to a gain of $22,000 in the
quarter ended June 30, 1999. Offsetting these increases in revenues was a
decline in revenues from packaging customers of $649,000; losses from the
sale of securities available-for-sale of $24,000 compared to gains of
$589,000 in the quarter ended June 30, 1999; unrealized losses from
partnerships that invest in securities of $110,000 compared to gains of
$377,000 in the quarter ended June 30, 1999 and lower interest income on
loans of $183,000, compared to the corresponding quarter of the prior year.
The quarter ended June 30, 1999 included $192,000 in settlement revenues with
no such revenues in the quarter ended June 30, 2000.
Revenues of One Source were $2,766,000 during the quarter ended June
30, 2000, compared to $3,415,000 during the quarter ended June 30, 1999. This
decrease in revenues of $649,000 was attributable to the loss of two
customers contributing $497,000 in the quarter ending June 30, 1999 with the
balance comprising a decline in clamshell sales volume during the quarter
ended June 30, 2000.
Revenues of Westland were $3,896,000 during the quarter ended June
30, 2000 compared to $3,439,000 during the quarter ended June 30, 1999. This
increase in revenues of $457,000 is due to increased sales volume
attributable to new and existing vendor relationships.
Interest on loans was $177,000 during the quarter ended June 30,
2000 as compared to $360,000 during the quarter ended June 30, 1999, due to a
decrease in average loans outstanding.
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Interest on securities available-for-sale and money market funds was $314,000
during the quarter ended June 30, 2000 as compared to $302,000 during the
quarter ended June 30, 1999.
During the quarter ended June 30, 2000, we recorded a loss of
$24,000 on the sale of securities available-for-sale compared to gains of
$589,000 during the quarter ended June 30, 1999, and we recorded unrealized
losses on limited partnerships that invest in securities of $110,000 compared
to unrealized gains of $377,000 during the quarter ended June 30, 1999. 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.
GROSS PROFIT
The revenues of $3,896,000 generated by Westland Associates,
reported under the caption "Sales to auto dealers" in the consolidated
financial statements, were offset by direct costs of $3,678,000, included
under the caption "Cost of sales." As a result, Westland Associates generated
gross profit before operating expenses of $218,000, compared to $223,000 in
the quarter ended June 30, 1999. Gross profit was lower despite an increase
in sales revenues, and is due to a change in product mix weighted toward
lower margin products in the quarter ended June 30, 2000.
The revenues of $2,766,000 generated by One Source, reported under
the caption "Sales to packaging customers" in the consolidated financial
statements, were offset by direct costs of $1,837,000, included under the
caption "Cost of sales." As a result, One Source generated gross profit
before operating expenses of $929,000, compared to $1,377,000 in the quarter
ended June 30, 1999. The gross profit as a percentage of revenues decreased
from 40.3% to 33.6% over the corresponding period of the prior year due
mainly to higher material costs and the loss of a significant customer that
contributed a higher than average gross profit in the quarter ended June 30,
1999.
The revenues of $3,193,000 generated by Matrix, reported under the
caption "Equipment rental and sales" in the consolidated financial
statements, were offset by direct costs of $1,649,000, included under the
caption "Cost of sales." As a result, Matrix generated gross profit before
operating expenses of $1,544,000 for the quarter ended June 30, 2000.
The revenues of $130,000 generated by Physician Advantage and
included in other income in the consolidated financial statements represent
net revenues earned from third party distributors, and as such also represent
the gross profit of Physician Advantage for the quarter ended June 30, 2000.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses increased by $1,101,000, from
$1,403,000 for the quarter ended June 30, 1999 to $2,504,000 for the quarter
ended June 30, 2000. This increase resulted in part from general and
administrative expenses of $497,000 and $334,000 attributable to Matrix and
Physician Advantage, respectively. Matrix was acquired on November 22, 1999,
and Physician Advantage was acquired on May 18, 1999. In the quarter ended
June 30, 1999, Physician Advantage had general and administrative expenses of
$100,000. General and administrative expenses for One Source were $959,000
for the quarter ended June 30, 2000, compared to $541,000 for the quarter
ended June 30, 1999. The increase in One Source's 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 general and administrative expenses for the finance and secured lending
segment were $522,000 in the quarter ended June 30, 2000 compared to $465,000
in the quarter ended June 30, 1999. This increase relates mainly to increases
in business consulting expenses and legal expenses, and increases in employee
compensation. The increases in general and administrative expenses were
offset by a reduction in general and administrative expenses of $105,000
attributable to Westland Associates. Westland Associates general and
administrative expenses were $192,000 for the quarter ended June 30, 2000,
compared to $297,000 for the quarter ended June 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 $87,000 for the quarter
ended June 30, 1999 to $499,000 for the quarter ended June 30, 2000. The
increase is attributable to depreciation and amortization of $265,000 related
to the operations of Matrix, $79,000 relating to increased acquisition
goodwill amortization, with the balance consisting primarily of depreciation
and amortization on operating assets.
INCOME TAX
An income tax provision of $87,000 was recorded for the quarter
ended June 30, 2000. This provision represents a combined federal and state
effective tax rate of 126%. For the quarter ended June 30, 1999 an income tax
provision of $783,000 was recorded, representing a 39.2% effective tax rate.
The current year quarter 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 $154,000 for the
quarter ended June 30, 1999 to $90,000 for the quarter ended June 30, 2000,
due primarily to lower net income from One Source attributable to the
minority shareholder.
DISCONTINUED OPERATIONS
On January 31, 2000 we sold Global Telecommunications - see below.
The loss from this discontinued operation for the quarter ended June 30, 1999
of $3,000 is net of income tax benefits of $1,000 and net of minority
interests of $2,000.
NET INCOME/(LOSS)
During the quarter ended June 30, 2000 we incurred a net loss of
$108,000, as compared to net income of $1,058,000 for the quarter ended June
30, 1999. Basic and earnings/(loss) per share were $(0.01) in 2000 versus
$0.14 in 1999. Basic earnings/(loss) per share from continuing operations
were $(0.01) in 2000 versus $0.14 in 1999. Diluted earnings/(loss) per share
were $(0.01) in 2000 versus $0.13 in 1999.
Weighted average basic shares outstanding were 8,125,000 in 2000
and 7,835,000 in 1999. Weighted average diluted shares outstanding were
8,132,000 in 2000 and 7,950,000 in 1999.
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FOR THE SIX MONTHS ENDED JUNE 30, 2000 AND 1999
REVENUES
Our Revenues were $20,852,000 for the six months ended June 30, 2000
compared to $15,517,000 for the six months ended June 30, 1999. This increase
in revenues of $5,335,000 was related to several factors: the operations of
Matrix, acquired in November 1999, accounted for $5,468,000 in revenues
during the current year to date period; sales to auto dealers increased by
$687,000 as compared to the corresponding prior year period; revenues of
$205,000 of Physician Advantage, which we acquired in May 1999; a gain on our
equity interest in Touch Controls of $209,000, compared to a gain of $3,000
in the six months ended June 30, 1999; and increased revenues at One Source
over the corresponding prior year period. Offsetting these increases were
losses from the sale of securities available-for-sale of $27,000 compared to
gains of $767,000 in the six months ended June 30, 1999; unrealized gains
from partnerships that invest in securities were $136,000 compared to gains
of $588,000 in the six months ended June 30, 1999; and lower interest income
on loans of $261,000, compared to the corresponding six months of the prior
year. The six months ended June 30, 1999 included $192,000 in settlement
revenues with no such revenues in the six months ended June 30, 2000.
Revenues of Westland were $7,808,000 during the six months ended
June 30, 2000 compared to $7,121,000 during the six months ended June 30,
1999. This increase in revenues of $687,000 is due to increased sales volume
attributable to new and existing vendor relationships.
Interest on loans was $360,000 during the six months ended June 30,
2000 as compared to $621,000 during the six months ended June 30, 1999, due
to a decrease in average loans outstanding. Interest on securities
available-for-sale and money market funds was $602,000 during the six months
ended June 30, 2000 as compared to $598,000 during the quarter ended June 30,
1999.
During the six months ended June 30, 2000, we recorded a loss of
$27,000 on the sale of securities available-for-sale compared to gains of
$767,000 during the quarter ended June 30, 1999 and we recorded unrealized
gains on limited partnerships that invest in securities of $136,000 compared
to unrealized gains of $588,000 during the six months ended June 30, 1999.
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.
GROSS PROFIT
The revenues of $7,808,000 generated by Westland Associates,
reported under the caption "Sales to auto dealers" in the consolidated
financial statements, were offset by direct costs of $7,362,000, included
under the caption "Cost of sales." As a result, Westland Associates generated
gross profit before operating expenses of $446,000, compared to $468,000 in
the six months ended June 30, 1999. Gross profit was lower despite an
increase in sales revenues, and is due to a change in product mix weighted
toward lower margin products in the six months ended June 30, 2000.
The revenues of $5,573,000 generated by One Source, reported under
the caption "Sales to packaging customers" in the consolidated financial
statements, were offset by direct costs of
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<PAGE>
$3,497,000, included under the caption "Cost of sales." As a result, One
Source generated gross profit before operating expenses of $2,076,000,
compared to $2,061,000 in the six months ended June 30, 1999. The gross
profit remained relatively constant as a percentage of revenues, decreasing
slightly from 37.9% to 37.3% over the corresponding period of the prior year,
due mainly to higher material costs compared to the same period in the prior
year.
The revenues of $5,468,000 generated by Matrix, reported under the
caption "Equipment rental and sales" in the consolidated financial
statements, were offset by direct costs of $2,864,000, included under the
caption "Cost of sales." As a result, Matrix generated gross profit before
operating expenses of $2,604,000 for the six months ended June 30, 2000.
The revenues of $205,000 generated by Physician Advantage and
included in other income in the consolidated financial statements represent
net revenues earned from third party distributors, and as such also represent
the gross profit of Physician Advantage for the six months ended June 30,
2000.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses increased by $2,956,000, from
$2,562,000 for the six months ended June 30, 1999 to $5,518,000 for the six
months ended June 30, 2000. This increase resulted in part from general and
administrative expenses of $1,336,000 and $851,000 attributable to Matrix and
Physician Advantage, respectively. Matrix was acquired on November 22, 1999,
and Physician Advantage was acquired on May 18, 1999. In the six months ended
June 30, 1999, Physician Advantage had general and administrative expenses of
$100,000. General and administrative expenses for One Source were $1,723,000
for the six months ended June 30, 2000, compared to $949,000 for the six
months ended June 30, 1999. The increase in One Source's 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. The general and administrative expenses for the
finance and secured lending segment were $1,143,000 in the six months ended
June 30, 2000 compared to $908,000 in the six months ended June 30, 1999.
This increase relates mainly to increases in business consulting expenses and
legal expenses, and increases in employee compensation. The increases in
general and administrative expenses were offset by a reduction in general and
administrative expenses of $39,000 attributable to Westland Associates.
Westland Associates general and administrative expenses were $465,000 for the
six months ended June 30, 2000, compared to $503,000 for the six months ended
June 30, 1999, due to the benefit of various cost saving initiatives.
DEPRECIATION AND AMORTIZATION
Depreciation and amortization increased from $175,000 for the six
months ended June 30, 1999 to $937,000 for the six months ended June 30,
2000. The increase is attributable to depreciation and amortization of
$451,000 related to the operations of Matrix, $175,000 relating to increased
acquisition goodwill amortization, with the balance consisting primarily of
depreciation and amortization on operating assets.
INCOME TAX
An income tax provision of $391,000 was recorded for the six months
ended June 30, 2000. This provision represents a combined federal and state
effective tax rate of 67.7%. For the six months
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ended June 30, 1999 an income tax provision of $1,066,000 was recorded,
representing a 39.1% effective tax rate. The current year quarter 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 $193,000 for the
six months ended June 30, 1999 to $173,000 for the six months ended June 30,
2000. The net decrease is represented by lower net income attributable to the
minority shareholders of One Source of $162,000, offset by the share of net
income contributed by Matrix and attributable to the minority shareholder of
$142,000.
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. No income
or loss was recorded from this discontinued operation in the current year.
The loss from this discontinued operation for the six months ended June 30,
1999 of $8,000 is net of income tax benefits of $5,000 and net of minority
interests of $5,000.
NET INCOME
Net income for the six months ended June 30, 2000 was $707,000, as
compared to $1,457,000 for the six months ended June 30, 1999. Basic earnings
per share were $0.09 in 2000 versus $0.19 in 1999. Basic earnings per share
from continuing operations were $0.00 in 2000 versus $0.19 in 1999. Basic
earnings per share from discontinued operations were $0.09 in 2000 versus
$0.00 in 1999. Diluted earnings per share were $0.09 in 2000 versus $0.18 in
1999. Weighted average basic shares outstanding were 7,980,000 in 2000 and
7,835,000 in 1999. Weighted average diluted shares outstanding were 8,035,000
in 2000 and 7,950,000 in 1999.
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FINANCIAL CONDITION
LOANS RECEIVABLE AND PAST DUE LOANS
LOANS RECEIVABLE
The Corporation's loans receivable were $5,744,000 at June 30, 2000
and December 31, 1999. No advances or principal repayments occurred during
the quarter ended June 30, 2000.
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
At June 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. Management believes that the real estate collateral
for this loan will be sufficient to cover the principal and interest owing.
LIQUIDITY
The Corporation's cash and cash equivalents increased by $4,847,000
during the six months ended June 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 June 2000.
As such, the Corporation held investments in commercial paper (a cash
equivalent) in the amount of $5,202,000 at June 30, 2000. The Corporation's
sources of cash during the quarter were $27,827,000 from the sale of
investment securities, $2,177,000 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 quarter included $22,388,000 for the purchase of
securities available for sale, $1,749,000 in seller financing repayments,
$1,439,000 for purchases of property and equipment, $1,289,000 for cash used
in operating activities and $694,000 in other debt repayments. The
Corporation held U.S. government and agency securities with a fair value of $
16,294,000 at June 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.
20
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 June
30, 2000, these investments represent 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: August 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
24
