Back to GetFilings.com

Table of Contents

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

Commission file number 1-4923

WESTMINSTER CAPITAL, INC.

(Exact Name of the Registrant as Specified in its Charter)

Registrant’s Telephone Number, Including Area Code: (310) 278-1930

Securities registered pursuant to Section 12(b) of the Act:

Common Stock, $1.00 Par Value Per Share

(Title of Each Class)

American Stock Exchange; Archipelago Exchange

(Name of Each Exchange on which Registered)

Securities registered pursuant to Section 12(g) of the Act:

NONE

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.  YES  x  NO  ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  x

Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2).  YES  ¨  NO  x

The aggregate market value of the voting stock held by nonaffiliates of the registrant, based upon the closing sale price on the American Stock Exchange of its common stock on June 28, 2002 was approximately $2,069,000. For purposes of the foregoing calculation, certain persons that have filed reports on Schedule 13D with the Securities and Exchange Commission with respect to the beneficial ownership of more than 5% of the registrant’s outstanding voting stock and directors and executive officers of the registrant have been excluded from the group of stockholders deemed to be nonaffiliates of the registrant.

The number of shares of the registrant’s common stock, $1.00 par value per share, outstanding as of March 21, 2003, was 5,058,429.

Table of Contents

WESTMINSTER CAPITAL, INC.

ANNUAL REPORT ON FORM 10-K

FOR THE YEAR ENDED DECEMBER 31, 2002

CONTENTS

2

Table of Contents

PART I

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS AND PROJECTIONS.

Throughout this Annual Report, Westminster Capital, Inc. (the “Corporation” or “Westminster”) makes forward-looking statements regarding various aspects of its business and affairs, including statements in Item 1—“Business” regarding business strategy; statements in Item 3—”Legal Proceedings” regarding the merits of claims and defenses in litigation; and statements in Item 7—”Management’s Discussion and Analysis of Financial Condition and Results of Operations” about 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. For example, 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. All 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.

ITEM 1. BUSINESS

INTRODUCTION

We are a diversified holding company operating in four business segments: (i) point-of-purchase display and packaging, (ii) audio-visual equipment rental and sales, (iii) group purchasing services and (iv) finance and secured lending. Our strategy is to acquire a majority or one hundred percent interests in operating businesses that we believe have growth potential through internal growth or through further acquisition.

Westminster is a Delaware corporation formed in 1959. Our executive offices are located at 9665 Wilshire Boulevard, Suite M-10, Beverly Hills, California 90212 and our telephone number is (310) 278-1930.

RECENT EVENTS

On January 7, 2003, a Stipulation of Settlement (“Settlement”) was filed with the Delaware Court of Chancery in a case entitled Barry Blank v. William Belzberg, et al, the lawsuit filed against the Corporation and all of its directors in connection with the tender offer commenced in April 2002 by Westminster to purchase any and all of its common stock at $2.80 per share (the “Offer”) (see Item 3. Legal Proceedings). On March 7, 2003, the Court of Chancery held a hearing to consider the Settlement. To date the Court of Chancery has not ruled on the Settlement.

The Settlement, if approved, would provide as follows: (i) Westminster would pay each shareholder that tendered common stock in the Offer an additional $0.20 per share (less a pro rata share of attorneys’ fees); (ii) Westminster would purchase the common stock owned by Barry Blank, which is represented to be approximately 349,300 shares, for $3.00 per share (less a

3

Table of Contents

pro rata share of attorneys’ fees); and (iii) William Belzberg, Hyman Belzberg, Greggory Belzberg and Keenan Behrle (“Continuing Shareholders”) would contribute their shares of common stock to a newly formed company which would then own in excess of 90% of Westminster’s outstanding common stock and the new company would then merge with and into Westminster, and each of the shareholders of Westminster (other than the new company) would be entitled to receive $3.00 per share for their shares of common stock (less a pro rata share of attorneys’ fees) and the shareholders of the new company would receive shares of stock of Westminster. Upon completion of the merger, Westminster would be privately held by the Continuing Shareholders. If any of Westminster’s shareholders entitled to receive cash for their shares in the merger object to the price, they may exercise appraisal rights as provided under the Delaware General Corporation Law.

BUSINESS SEGMENTS

Point-of-Purchase Display and Packaging

One Source Industries

Our point-of-purchase display and packaging business operates through One Source Industries, L.L.C. (“One Source”). One Source serves consumer product manufacturers seeking display and packaging solutions that enhance sales and brand recognition while satisfying the point-of-purchase requirements of mass merchandisers and specialty retailers. One Source designs, packs and ships clamshell packaging for products ranging from sunglasses to ink jet cartridges. One Source also designs, fabricates, assembles and fulfills temporary point-of-purchase displays for products ranging from computer software to toys. One Source offers attractive and cost effective solutions to complex packaging and promotional needs, combining interrelated disciplines of graphic and structural design, display construction and final assembly. It provides clamshell packaging and temporary point-of-purchase displays that offer high impact visual presentation but are easy to assemble, durable and stable.

In January 2002, One Source hired certain former employees and agreed to acquire certain assets, including inventory, software and a customer list, from a company engaged in the permanent point-of-purchase display business and the fulfillment business. With the additional personnel and customer list acquired, One Source was able to extend its operations from clamshell packaging and temporary display business into the permanent display and fulfillment business. The permanent display business consists of the design, fabrication and assembly of free-standing racks, stands and similar products or store-within-a-store units, generally constructed of wood, plastic and metal, that provide point-of-purchase display of branded consumer products in a variety of retail settings. The fulfillment business involves the design, sourcing, inventory management and shipping of premiums and promotional products bearing a client’s branded identity and printed promotional material for clients that use promotional products and materials to market themselves.

One Source’s business is affected by seasonal demand. Clamshell packaging serves manufacturers whose products are sold year-round but experience sales increases during the Christmas holiday season. Point-of-purchase displays are customarily used by consumer product manufacturers for promotional sales that are tied to product introductions, special sales, holiday periods, particularly the Christmas season, special events and co-marketing programs. Sales of temporary displays are, therefore, seasonal in nature with the greatest sales activity falling in the

4

Table of Contents

third quarter of the calendar year. Sales of permanent displays and fulfillment services are customarily less seasonal. During 2002, One Source did approximately 40% of its business with three customers. A loss of any one of these customers would negatively impact future revenues and profitability. Management of One Source is focused on diversifying both its customer base and the consumer product lines it packages in order to reduce seasonality and dependence on a few customers. Development of permanent display sales and fulfillment services are intended to further the effort to diversify One Source’s business.

While One Source’s revenues grew in the fiscal year ended December 31, 2002, One Source’s clamshell and temporary display business declined substantially as a result of declines in product sales and elimination of stock keeping units by clamshell customers and a decrease in orders for temporary displays from customers who had purchased temporary displays from One Source in prior years. The revenues produced by the new fulfillment and permanent display product lines resulted in growth in total revenues when compared to the prior fiscal year. New management personnel and the addition of employees related to the permanent display and fulfillment product lines during 2002 resulted in substantial increases in general and administrative expenses in anticipation of increases in sales and revenues, which did not occur to the extent management of One Source projected, particularly in the fourth quarter, traditionally One Source’s highest revenue quarter. Additionally, deliveries of defective permanent displays from a subcontractor and management’s failure to reach a financial settlement with the subcontractor adversely affected One Source’s gross margin in the fourth quarter of 2002. As a result, One Source incurred a substantial loss for 2002. In the first quarter of 2003, certain changes were made in the management of One Source and cost reductions to general and administrative expenses were initiated to bring costs to a level consistent with the business needs of One Source in light of actual sales levels and to improve management of relations with subcontractors.

One Source sells its principal products in a highly competitive market that is comprised of many participants. Although no single company is dominant, One Source does face significant competition in each of the consumer product segments it serves. One Source’s competitors include large, vertically integrated companies, as well as numerous smaller companies that broker packaging. In the clamshell business, One Source is aware of a substantial clamshell competitor headquartered in Southern California that has a substantial portion of the club store business. The market in which One Source competes has historically been sensitive to price fluctuations brought about by shifts in industry capacity and other cyclical industry conditions. Other competitive factors include design, quality and service, with varying emphasis depending on product line.

One Source, founded in 1985 as One Source Industries, Inc., was converted to a limited liability company in 1998 and became an 80% owned subsidiary of Westminster in January 1999. One Source is headquartered in Irvine, California, has a sales office in Bentonville, Arkansas, and has a production and assembly facility in Memphis, Tennessee.

5

Table of Contents

Equipment Rental and Sales

Matrix Visual Solutions

Logic Technology Group, Inc., dba Matrix Visual Solutions (“Matrix”), rents and sells a wide range of high-quality, state-of-the-art audio-visual equipment on the wholesale level to other audio-visual companies and presentation companies. Matrix also rents audio-visual equipment and provides related technical support, commonly referred to as “presentation services,” directly to end-users for entertainment, corporate and educational events, trade show exhibitions and hotel and hospitality venues. Rental of equipment generated approximately 84% of Matrix’ revenue for the year ended December 31, 2002, of which approximately 46% came from wholesale rental to other rental and presentation companies and the balance came from direct rental, presentation services for staged events and trade show exhibitions. Sales of new and used audio-visual equipment represented the balance of revenues for the year ended December 31, 2002. Matrix does not maintain an inventory of new equipment for sale and purchases and sells new equipment only when a customer indicates that it wishes to purchase rather than rent. Matrix sells used equipment as a method of disposing of rental equipment it no longer needs.

In 2000, Matrix began direct rental to end-users in order to diversify its rental business beyond rental to wholesale customers. Direct rentals often include value-added presentation services, as well as equipment, are less sensitive to pricing and provide the opportunity for customer loyalty and repeat business. In 2002, Matrix continued its efforts to grow this area of its business by marketing products and technical services to customers who stage events, either stand-alone or as part of conventions or trade shows, or who use equipment and technical services for trade show exhibits. This portion of Matrix’ business grew approximately 24% from 2001 to 2002. However, Matrix’ overall rental business declined 23% in 2002. Matrix believes this decline resulted from declines in rental prices due to greater competition, a decrease in rentals to competitors who will no longer sub-rent from Matrix due to competition from Matrix in the direct rental market and cutbacks in expenditures for corporate events and trade show exhibits as part of the economic slow-down during 2001 and 2002. Matrix intends to continue direct rental, including staging, trade show and corporate presentations. It will also continue to operate the wholesale segment of its business, which may continue to be impacted by customers who are resistant to sub-renting from a competitor.

The audio-visual rental and presentation services business is seasonal in nature, fluctuating with the annual calendar of trade shows, corporate meetings and similar events. These events are generally held in the periods from February through June and August through mid-November. During 2001 and 2002, this seasonal calendar was disrupted by the decline in travel and trade show attendance following the tragedy of September 11 and subsequent concerns over potential terrorist attacks and the threat of war. Matrix rents to a diversified customer base and does not depend on any single customer for more than 4% of its revenues. In the opinion of management of Matrix, the industry is driven by a trend among businesses toward outsourcing of meetings, events, training and communications. As demonstrated by the decline in travel and meetings in the fall of 2001 and in 2002, it also depends on the business community’s commitment to hold meetings, conventions, trade shows and staged events.

Matrix has not been able to obtain reliable data with respect to the size of the audio-visual rental market or the number and size of its competitors. Competitive factors in the direct rental market include breadth and quality of equipment, quality of technical support, price and

6

Table of Contents

geographic reach. Matrix is aware of a number of competitors that have greater inventory, more technical support and broader geographic reach than it has. However, in the experience of management of Matrix, the business is highly fragmented with no one participant or small number of participants dominant in the end-user market. Competition is generally greater among firms that specialize in wholesale rental within a regional market and that competition is principally based on price and depth of inventory. Increased competition to supply a decreased demand due to both the economic slowdown and a drop in the number of corporate and trade events has led to a decrease in wholesale margins. Management of Matrix believes that it competes effectively in the geographic areas it serves in the wholesale market.

During the year ended December 31, 2001, Westminster recorded an impairment write-down of the goodwill related to this business after due consideration of all factors related to its business, including the historic and expected future operating performance of the company (see Note 9 of Notes to Consolidated Financial Statements).

Matrix began operations in 1997. Westminster acquired a 68% interest in Matrix in November 1999. In February 2002, Westminster acquired an additional 6% interest in Matrix from Matrix’ other shareholder. Matrix is based in Santa Ana, California with branch locations in Las Vegas, San Francisco and San Diego. Each facility houses a wide variety of audio-visual equipment including digital projectors, screens, plasma displays, microphones, speakers and related presentation equipment.

Group Purchasing Services

Our group purchasing services operate through Westland Associates, Inc. (“Westland”) which provides group purchasing of goods and services to new car dealers. Prior to October 2002, our majority owned subsidiary Physician Advantage, L.L.C. (“Physician Advantage”) provided group purchasing of medical, surgical, pharmaceutical and office equipment and supplies to health care providers including physicians, surgical centers and other alternate care facilities. Physician Advantage ceased operations in October 2002 (see “Discontinued Operations” below).

Westland

Westland offers group purchasing services to new car dealers that enroll as members. Westland serves its dealer-members by introducing them to pre-approved vendors offering a wide spectrum of products and services for auto dealerships at reduced prices. Dealer-members place orders directly with the vendors or through Westland. Vendors ship products directly to the dealer-members and bill Westland. Westland consolidates multiple vendor invoices into a single invoice for each dealer-member. Dealer-members make payments to Westland and Westland pays the vendors.

Westland’s revenues are derived from product margins, markups on service contracts, rebates and membership fees. Margins and markups vary by product and are typically higher for Westland brands.

At December 31, 2002, Westland had approximately 700 dealer-members. Dealer-members are located primarily in California, Arizona, Nevada and Colorado. Westland offers products and services from over 70 vendors. These vendors include major national companies, as well as regional suppliers. Westland selects its vendors based upon product suitability,

7

Table of Contents

quality, dealer support and price. Westland continuously surveys its members to determine satisfaction with existing vendors and to assess the need for new products or services to meet the changing demands of dealer-members. Effective September 1, 2001, a significant vendor that offered specialized business forms and related printed products elected not to renew its long-term contract with Westland and elected to sell directly to dealers. Westland has replaced that vendor with a new vendor offering a broader product line at more attractive prices and at higher margins for Westland. While a growing number of Westland members are purchasing from the new vendor and revenues from this vendor increased monthly through 2002, rebate revenues paid to Westland by the new vendor in 2002 represent only 11.9% of rebate revenues paid by the former vendor for 2001. Westland anticipates that its revenues and profitability for the current fiscal year are likely to continue to be adversely affected by this change in vendors.

To Westland’s knowledge, there is no other group purchasing organization that competes either in the regions where Westland concentrates its marketing efforts or on a national level. State associations of dealers do provide group purchasing strength for certain items, particularly business forms. There are also large dealership groups under common ownership that consolidate portions of their purchasing. In Westland’s experience, none of these competitors provides a comprehensive selection of products and services comparable to Westland’s. The most significant challenge to the growth of Westland’s business is cost-effective marketing of the program through customer representatives, given the small gross margins Westland earns from the sale of products.

During the year ended December 31, 2001, Westminster recorded an impairment write-down of the goodwill related to this business after Westland received notice of cancellation of a long-term contract from a significant vendor of specialized business forms. This vendor relationship represented more than 50% of revenues earned by Westland (see Note 9 of Notes to Consolidated Financial Statements).

Westland was established in 1954 by a group of new car dealers in Southern California. Westminster acquired 100% of the common stock of Westland in 1997. The company is headquartered in Anaheim, California.

Finance and Secured Lending

Our financing activities include secured lending and equity investments. We generally make loans that mature in twenty-four months or less. Collateral for loans may include real and personal property. We also invest in securities-available-for-sale.

Secured lending

The Corporation originates and, from time to time, purchases loans that are generally secured by real estate, personal property or other collateral. In connection with each loan proposal, we consider the value and quality of the real estate or other collateral available to secure the loan compared to the loan amount requested, the borrower’s sources of repayment, the proposed interest rate and repayment terms, and the credit-worthiness of the borrower. We generally hold originated or purchased loans in our portfolio until maturity or earlier payoff.

At December 31, 2002, outstanding loans consisted of three loans secured by real property in the aggregate principal amount of $8,101,000.

8

Table of Contents

On October 31, 2002, a commercial office building acquired through foreclosure in August 2001 was sold for $4,500,000. The purchase price consisted of $500,000 in cash and a purchase-money promissory note in the principal amount of $4,000,000, which is secured by a first trust deed on the building. The promissory note accrues interest at 7½% per annum, payable monthly, with principal payable $300,000 on or before January 1, 2003, $200,000 on or before April 1, 2003 and the balance on or before September 30, 2004. The borrower failed to make timely payment of the principal payment of $300,000 due January 1, but subsequently cured this default when the $300,000 payment was received on February 18, 2003. Monthly payments of interest have been paid in accordance with the terms of the loan.

The building that was sold in October 2002 was originally provided to the Corporation as collateral for a loan in the principal amount of $4,218,500 and was subsequently acquired through a credit bid at a trustee’s sale in 2001 after the borrower defaulted on that loan. At December 31, 2001, the Corporation held additional collateral for this same loan, including junior encumbrances on three pieces of residential property. Prior to December 31, 2001, the Corporation purchased a senior encumbrance on one of these residential properties for $390,000. During 2002, the Corporation acquired that residential property through foreclosure and sold it to a third party for a sale price of $925,000 consisting of cash in the amount of $250,000 and a note secured by a first deed of trust on the property in the principal amount of $675,000 with interest at 9% payable monthly and principal due on or before February 1, 2003. This note was paid in full in September 2002. A second of these residential properties was sold in May 2002 by the owner, and as consideration for Westminster’s consent to remove its junior lien, the owner paid the corporation $268,442. Westminster continues to hold a junior encumbrance on a third residential property. At the present time the Corporation has no plans to initiate foreclosure proceedings with respect to that encumbrance.

In July 2002, the Corporation purchased for $1,350,000 ($2,004,000 Canadian) a 31% interest in a promissory note in the principal amount of $6,500,000 Canadian secured by a first mortgage on approximately 256 acres of land zoned for industrial development located in Alberta, Canada from Paragon Capital Corporation Limited (“Paragon”), an Alberta, Canada loan broker, in connection with the acquisition of the secured loan from the original lender. The secured loan accrued interest at 12% per annum, with accrued interest and principal due at payoff. The loan balance at December 31, 2002, converted to U.S. dollars based on the year-end exchange rates, was approximately $1,264,000. The secured loan was in default at the time the loan was purchased by Paragon on behalf of the Corporation and others, and the land securing the loan was subsequently recovered through foreclosure. In January 2003, the land was sold and the secured loan was repaid in full.

In September 2002, the Corporation purchased for $2,925,000 ($4,500,000 Canadian) a 36% interest in a promissory note with an outstanding balance of $12,500,000 Canadian secured by first mortgages on 188 condominium units located in Calgary, Alberta, Canada, an assignment of rents, sales proceeds from the condominiums, and a personal guarantee from a shareholder of the borrower. The Corporation purchased the interest in the loan from Paragon. The loan accrues interest at 14% per annum, compounded monthly, with interest payable monthly and principal due on April 1, 2003, with one six-month renewal option upon payment of a 2.5% renewal fee and provided the loan has not been in default. The loan balance at December 31, 2002, converted to U.S. dollars based on the year-end exchange rates, was approximately $2,837,000. In March 2003, the borrower defaulted in the payment of interest on the loan and Paragon and the Corporation initiated foreclosure proceedings. In April 2003, the borrower paid off the loan and all accrued interest.

9

Table of Contents

Cash and securities available-for-sale

We hold significant investments in cash and securities available-for-sale. These securities consist principally of U.S. Government and Agency securities, but also include investments in commercial paper, publicly traded common and preferred stocks, warrants, and convertible debentures. Assets identified as “cash and cash equivalents” consist principally of short-term, top-tier, investment grade commercial paper. The Corporation’s investment policy governing fixed income securities provides that the maximum maturity may not exceed 24 months and the weighted-average maturity may not exceed twelve months. We do not actively engage in investing in equity securities, but we may from time to time make investments when opportunities arise that are consistent with our business objectives. Certain of the equity securities owned by us were received as additional consideration for loans we made.

Other Income

Investments in limited partnerships that invest in securities

During 2002, we held investments in certain limited partnerships that invest in securities. Each of the partnerships seeks to achieve returns through investments in equity and debt securities following identified strategies. At December 31, 2002, we had elected to withdraw from the limited partnerships and our interests in those partnerships were being liquidated. We have no plans presently to invest in additional limited partnerships of this type. When we have made these investments, our investment decisions were based on the past performance of the limited partnerships, the past performance of their general partners, and diversification of identified strategies.

Other investments

We hold several other investments in privately owned development or early stage companies. Such individual investments typically do not exceed $250,000 and represent less than 20% ownership of any such entity.

Discontinued Operations

Physician Advantage

Physician Advantage administered a group purchasing program with Broadlane, a subsidiary of Tenet Healthcare, Inc., offering medical, surgical, pharmaceutical and office supplies for physicians. Hospitals have purchased supplies through group purchasing organizations for many years, but similar opportunities have not been available to physicians. Through Broadlane, comparable group purchasing benefits are extended to physicians. To be eligible to participate in the program, physicians had to be admitting physicians at a hospital owned or managed by Broadlane.

Physician Advantage provided customer relations with the physicians, administered registration in the program, tracked transactions between purchasing physicians and the distributors serving the program and confirmed that physicians received appropriate pricing. Physicians did not pay a fee to participate in the program. Physician Advantage’s revenues came

10

Table of Contents

from administrative fees paid by the distributors based on the purchase volume of participating physicians.

During the year ended December 31, 2000, Westminster recorded an impairment write-down of the goodwill related to this business in the amount of $1,360,000. This impairment write-down was made after consideration of all factors related to the business of Physician Advantage, including its historic operating losses and its inability to achieve its revised business plan.

Broadlane elected not to renew its contract with Physician Advantage beyond September 29, 2002. The contract with Broadlane produced substantially all of Physician Advantage’s revenue. Accordingly, Physician Advantage ceased operations in October 2002 and its results of operations are reported as a discontinued operation for all periods presented.

Physician Advantage has filed a lawsuit naming Tenet Healthcare, Inc. and Broadlane as defendants claiming that the contract between Physician Advantage and Tenet provides for continuing payments to Physician Advantage of fees derived from future purchases made by physicians enrolled in the program prior to expiration of the contract on September 29, 2002 (see Item 3. Legal Proceedings).

EMPLOYEES

As of December 31, 2002, we and our wholly and partially owned subsidiaries employed a total of one hundred and twenty-six salaried employees. Three of our employees are executive officers of the Corporation.

Employee distribution by industry segment is as follows:

11

Table of Contents

ITEM 2. PROPERTIES

Our executive offices are located at 9665 Wilshire Boulevard, Suite M-10, Beverly Hills, California 90212, telephone (310) 278-1930. This office, consisting of 2,976 square feet of space, is leased for a five-year term ending in October 2007.

Point-of-purchase display and packaging – One Source, our point-of-purchase display and packaging segment, has its corporate headquarters at 15215 Alton Parkway, Suite 100, Irvine, California 92618. This office space, consisting of 15,293 square feet, is located in a light industrial/office park and also serves as a sales office and design center. This lease expires in July 2006. One Source has an 85,018 square foot facility for manufacturing and warehouse use located in Memphis, Tennessee, that is under lease through June 30, 2005. One Source maintains a sales office in Bentonville, Arkansas.

Equipment rental and sales – Matrix, our equipment rental and sales segment, has its corporate office at 2915 S. Daimler Street, Santa Ana, California 92705. The space, which totals 11,000 square feet, also serves as the main warehouse. The lease expires on June 30, 2007. The company also has branch offices that serve as sales and warehouse facilities in San Francisco, California; San Diego, California and Las Vegas, Nevada. These facilities range in size from 1,625 to 9,818 square feet.

Group purchasing services – Westland is headquartered in leased office space of 3,528 square feet in a business park located at 2121 Towne Centre Place, Suite 110, Anaheim, California 92806, pursuant to a five-year lease expiring in March 2003. Commencing April 1, 2003, Westland has agreed to sublet from One Source approximately 2,200 square feet in its Irvine, California facility.

Finance and secured lending – Our executive offices described above also serve as the business location for all finance and lending activities.

We believe our facilities, taken as a whole, are well maintained and are adequate for our current and foreseeable business needs.

12

Table of Contents

ITEM 3. LEGAL PROCEEDINGS

Barry Blank v. William Belzberg, et al. On April 19, 2002, a complaint was filed against the Corporation and each member of the Corporation’s board of directors in the Delaware Court of Chancery for New Castle County, by a shareholder of the Corporation. The lawsuit was filed in response to the Corporation’s Offer to purchase any and all outstanding shares of its common stock at a price of $2.80 per share. The plaintiff brought this action individually and as a purported class action on behalf of all shareholders of the Corporation. The complaint, as subsequently amended, alleged that the Corporation and the members of the Corporation’s board of directors breached their fiduciary duties to the Corporation’s shareholders. Specifically the complaint alleged: (a) Westminster’s shareholders were denied the opportunity to make a fully informed judgment on a major corporate transaction in which they had to select among their options to hold or tender their stock; (b) the Offer was structured in such a way that it was coercive; and (c) the Offer benefited the fiduciaries at the expense of Westminster’s public shareholders.

The complaint sought, among other things, preliminary and permanent injunctive relief prohibiting the Corporation from proceeding and implementing the Offer and, if the Offer was completed, an order rescinding the Offer and awarding damages to the purported class. On May 8, 2002, the Delaware Court of Chancery denied the motion for expedited proceedings filed by the plaintiff and refused to schedule a hearing on the plaintiff’s motion for a preliminary injunction, which sought to enjoin the Corporation’s Offer. The Offer was closed without resolving the lawsuit. Although Westminster and its directors denied and continue to deny any allegations of wrongdoing, Westminster continued to engage in settlement discussions with the plaintiff following completion of the Offer.

On January 7, 2003, a Stipulation of Settlement (“Settlement”) was filed with the Delaware Court of Chancery. On March 7, 2003, the Court of Chancery held a hearing to consider the Settlement. To date the Court of Chancery has not ruled on the Settlement. The Settlement, if approved, would provide as follows: (i) Westminster would pay each shareholder that tendered common stock in the Offer an additional $0.20 per share (less a pro rata share of attorneys’ fees); (ii) Westminster would purchase the common stock owned by Barry Blank, which is represented to be approximately 349,300 shares, for $3.00 per share (less a pro rata share of attorneys’ fees); and (iii) William Belzberg, Hyman Belzberg, Greggory Belzberg and Keenan Behrle (“Continuing Shareholders”) would contribute their shares of common stock to a newly formed company which would then own in excess of 90% of Westminster’s outstanding common stock and the new company would then merge with and into Westminster, and each of the shareholders of Westminster (other than the new company) would be entitled to receive $3.00 per share for their shares of common stock (less a pro rata share of attorneys’ fees) and the shareholders of the new company (i.e. the Continuing Shareholders) would receive shares of stock of Westminster. Upon completion of the merger, Westminster would be privately held by the Continuing Shareholders. If any of Westminster’s shareholders entitled to receive cash for their shares in the merger object to the price, they may exercise appraisal rights as provided under the Delaware General Corporation Law.

Westminster Capital, Inc. v. Richard Rackemann, et al. The debtor on a loan in the principal amount of $4,218,500, made by Westminster in December 1999, defaulted in the payment of monthly interest installments on November 1, 2000. The loan was secured by collateral consisting of a first deed of trust on a commercial office building, a pledge of stock and a personal guarantee. Westminster declared the loan in default in November 2000, filed a Notice

13

Table of Contents

of Default and, in December 2000, filed the above captioned action seeking judicial foreclosure of the collateral. In April 2001, a Stipulation for Entry of Judgment in the action was entered in favor of Westminster in the amount of $4,684,623. Subsequent to the entry of the stipulated judgment, the debtor requested a forbearance to delay foreclosure on the building until after May 11, 2001 and, as consideration for the forbearance, conveyed to Westminster, as additional collateral, junior trust deeds on three additional pieces of residential property. Westminster scheduled a non-judicial trustee’s sale of the building for June 19, 2001. Prior to the sale, the debtor filed a Chapter 11 petition with the Bankruptcy Court and obtained an automatic stay of the trustee’s sale. The automatic stay was lifted in August 2001 and the building was sold at a trustee’s sale to Westminster by way of a credit bid of a portion of the indebtedness owed. In October 2002, the Corporation sold the building for $4,500,000 consisting of cash and a purchase-money note in the principal amount of $4,000,000 secured by a deed of trust on the building. The Corporation has recovered additional amounts in connection with two of the three residential properties on which it held junior encumbrances. See Item 1. Business, Finance and Secured Lending for further details.

Physician Advantage, LLC v. Tenet Healthcare Corporation and Broadlane. In December 2002, Physician Advantage filed a complaint against Tenet Healthcare, Inc. and Broadlane, a subsidiary of Tenet Healthcare. Under a contract between Tenet Healthcare and Access Managed Care, a subsidiary of Physician Advantage, Physician Advantage administered a group purchasing program for physicians associated with hospitals owned or managed by Tenet Healthcare. The contract terminated in September 2002, when Broadlane elected not to renew it. In the complaint, Physician Advantage alleges that it is entitled to continuing payment of fees derived from future purchases made by physicians enrolled in the program prior to expiration of the contract on September 29, 2002. The complaint seeks declaratory relief, an accounting and damages, subject to proof, for breach of contract and interference with contractual relationship. The defendants have responded with certain procedural objections. No discovery or hearings on substantive issues have yet taken place. Management of the Corporation is unable to determine the likely outcome of this suit at the present time.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None.

14

Table of Contents

PART II

ITEM 5. MARKET FOR THE CORPORATION’S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS

The principal market for our common stock is the American Stock Exchange under the symbol “WI.” Our common stock is also traded on the Archipelago Exchange under the symbol “WI.” The high and low market prices for Westminster’s Common Stock, as reported in the consolidated transaction reporting system, are set forth below:

Westminster had 598 holders of record of its common stock as of February 28, 2003.

We have not paid cash dividends since 1989 and do not presently anticipate the declaration of cash dividends in the near future, as we intend to retain all excess cash, if any, resulting from our various operations for future acquisitions and investments.

EQUITY COMPENSATION PLANS

The following table summarizes information about the securities and exercise price of securities available and outstanding equity securities authorized for issuance under our compensation plans as of December 31, 2002. For a description of these plans, please see Note 17 in our consolidated financial statements.

15

Table of Contents

ITEM 6. SELECTED FINANCIAL DATA

SELECTED FINANCIAL DATA

(dollars in thousands except per share data)

See Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” for details regarding acquisitions and dispositions of businesses.

16

Table of Contents

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

INTRODUCTION

This “Management’s Discussion and Analysis of Financial Condition and Results of Operations” should be read in conjunction with our consolidated financial statements included elsewhere herein. Certain statements we make constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 (see “Special Note Regarding Forward-Looking Statements and Projections” in Part I preceding Item 1).

Item 1. “Business” describes the four segments that comprise our business activities and the subsidiary companies through which we operate in certain of those segments. At December 31, 2002, our principal assets identified by those segments consisted of the following:

Point-of-purchase display and packaging – One Source’s assets include accounts receivable from customers, machinery and equipment, office furniture and equipment, goodwill and other assets, including cash.

Equipment rental and sales – Matrix’ assets include accounts receivable from customers, audio-visual presentation equipment held for rental, delivery vehicles, office furniture and equipment and other assets, including cash.

Group purchasing – Group purchasing assets of Westland include accounts receivable from customers, office furniture and equipment and other assets, including cash.

Finance and secured lending – Assets include securities available-for-sale; loans which are generally secured by real estate, personal property or other collateral and cash and cash equivalents.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, we evaluate our estimates, including those related to estimated future segment revenues and earnings, the fair value of recorded assets including goodwill and property acquired through foreclosure, and accruals for potential tax audit adjustments. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

The use of estimates plays a particularly crucial role in application of our accounting policies related to the carrying value of loans receivable, goodwill and property acquired through foreclosure.

17

Table of Contents

FINANCIAL STATEMENT PRESENTATION

Our 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 74% interest in Logic Technology Group, Inc. dba Matrix Visual Solutions (“Matrix”) from February 3, 2002 and a 68% interest in Matrix from acquisition on November 11, 1999 to February 2, 2002. The acquisitions of One Source, Physician Advantage and Matrix were accounted for using the purchase method of accounting.

At September 30, 2002 we determined Physician Advantage to be a “discontinued operation” under accounting principles generally accepted in the United States. As such, the financial statements as of and for the years ended December 31, 2002, 2001 and 2000 reflect the operations of Physician Advantage as a “discontinued operation,” which results are discussed below.

Our results of operations reflect our 50% equity interest in Touch Controls during the year ended December 31, 2000 and the period from January 1, 2001 to October 14, 2001, the date on which we sold that equity interest. In accordance with accounting principles generally accepted in the United States, the results of Touch Controls were included in income using the equity method of accounting until the date of sale, whereby income or loss was recognized in the Consolidated Statements of Operations based on our proportionate share of Touch Controls’ income or loss.

On January 31, 2000, we sold Global Telecommunications. The disposition of this business has been treated as a “discontinued operation” in accordance with accounting principles generally accepted in the United States. The results of this transaction are discussed under “discontinued operations” below.

RESULTS OF OPERATIONS

For the Years Ended December 31, 2002 and 2001

Revenues

Our revenues decreased by $794,000 or 3.1% from $25,411,000 for the year ended December 31, 2001 to $24,617,000 for the year ended December 31, 2002. Revenues decreased due to declines of $1,499,000 from equipment rental and sales, $497,000 from finance and secured lending, and $337,000 from group purchasing activities, offset by increased revenues of $1,539,000 from sales to packaging customers.

Revenues of One Source, reported under “Sales to packaging customers” in the Consolidated Statements of Operations, were $17,326,000 during the year ended December 31, 2002, compared to $15,787,000 during the year ended December 31, 2001, reflecting a net increase of 9.7%. This increase was due to $7,204,000 in new revenues produced largely as a result of business expansion initiatives that occurred in early 2002 with the hiring of certain employees and the purchase of certain assets from a permanent point-of-purchase display and

18

Table of Contents

fulfillment business. This increase offsets decreases in sales of temporary packaging displays and other point-of-purchase packaging products historically sold by One Source. The decrease in sales in the historic product lines resulted from both a slowdown in its customers’ product shipments and loss of orders from its customers related to lower retail demand.

Revenues of Matrix, reported under “Equipment rental and sales” in the Consolidated Statements of Operations, were $6,098,000 during the year ended December 31, 2002, compared to $7,597,000 during the year ended December 31, 2001. Revenues decreased by $1,499,000 or 19.7% due to the general economic slowdown, more competitive pricing, and the cancellation of tradeshows, conventions and conferences that occurred beginning in the third quarter of 2001.

“Group purchasing revenues” reflect the operations of Westland. Revenues of Westland declined by 35.8% due to the loss of Westland’s largest vendor in September 2001.

Finance and secured lending revenues for 2002 experienced a net decline of $497,000, compared to 2001, due mainly to a decline in interest on securities available-for-sale attributable to lower interest rates and to lower average invested funds.

Gross Profit

We calculate gross profit as total revenues less cost of sales, which includes depreciation and amortization of $1,227,000 in 2002 and $1,222,000 in 2001. Our gross profit decreased by $2,652,000 or 26% from $10,027,000 for the year ended December 31, 2001 to $7,375,000 for the year ended December 31, 2002.

Gross profit generated by One Source was $4,463,000 in 2002, compared to $5,567,000 in 2001. Gross profit as a percentage of revenues decreased from 35.3% for the year of 2001 to 25.8% for the year ended December 31, 2002. Cost of sales for this segment of $12,863,000 for 2002 and $10,220,000 for 2001 includes depreciation of $123,000 and $39,000 for 2002 and 2001, respectively. The decline in gross profit percentage is in part due to start-up costs incurred in connection with the acquisition of certain assets and hiring of certain employees of a permanent point-of-purchase display and fulfillment business, which costs lowered the margin on the initial projects from that business. Additionally, gross profits were adversely impacted by losses on a large point-of-purchase display contract caused by defective performance by a subcontractor. One Source has accrued for the losses but is continuing to dispute the charges for the defective displays and related shipping charges but the matter has not been resolved. Gross profit was also lower on the sale of clamshells due to the lower volume of revenues available to absorb fixed manufacturing costs included in cost of sales.

Gross profit generated by Matrix was $1,719,000 in 2002, compared to $2,433,000 in 2001. Gross profit as a percentage of revenues decreased to 28.2% for the year ended December 31, 2002, from 32.0% for the year ended December 31, 2001. Cost of sales for this segment of $4,379,000 for 2002 and $5,164,000 for 2001 includes depreciation of $1,104,000 and $1,183,000 for 2002 and 2001, respectively. Gross profit is lower in 2002 due to the lower volume of revenues available to absorb fixed overhead costs included in cost of sales, most notably depreciation.

19

Table of Contents

Group purchasing revenues and finance and secured lending revenues are net revenues earned from group purchasing services and finance and secured lending activities, respectively, and as such, represent the gross profits earned by these business segments.

Selling, General and Administrative Expenses

Selling, general and administrative expenses increased by $1,189,000 or 11.3% from $10,527,000, for the year ended December 31, 2001, to $11,716,000 for the year ended December 31, 2002.

Selling, general and administrative expenses for One Source were $5,752,000 for the year ended December 31, 2002, compared to $3,776,000 for the year ended December 31, 2001. The increase in expense is largely attributable to the increased overhead associated with the hiring of certain employees of a permanent point-of-purchase display and fulfillment business in January 2002, as well as increased payroll costs attributable to additions to senior management of One Source.

Selling, general and administrative expenses for Matrix were $2,551,000 for the year ended December 31, 2002, compared to $3,631,000 for the year ended December 31, 2001. Reductions in overhead made in response to a lower level of business activity, particularly payroll, advertising and promotions and a decline of $188,000 in bad debt expense in 2002 compared to 2001, were significant factors contributing to this decrease.

Selling, general and administrative expenses for the group purchasing segment were $866,000 for the year ended December 31, 2002, compared to $932,000 for the year ended December 31, 2001. This reduction in expenses is due to lower overall payroll costs during the current year attributable to various cost cutting initiatives.

Selling, general and administrative expenses for the finance and secured lending segment, including corporate overhead, were $2,547,000 for the year ended December 31, 2002, compared to $2,188,000 for the year ended December 31, 2001. The increase reflects legal, business and consulting expenses of $628,000 related to Westminster’s tender offer, which were incurred during the year ended December 31, 2002, offset mainly by lower legal and professional fees during the current year as compared to the year ended December 31, 2001.

Depreciation and Amortization

Depreciation and amortization decreased from $794,000 for the year ended December 31, 2001 to $394,000 for the year ended December 31, 2002. Beginning January 1, 2002, under Statement of Financial Accounting Standards No. 142 (“SFAS No. 142”), Goodwill and Other Intangible Assets, accounting for goodwill has changed from an amortization approach to an impairment-only approach, resulting in the discontinuation of goodwill amortization in the year ended December 31, 2002. For the year ended December 31, 2001, goodwill amortization was $548,000. Excluding this goodwill amortization, depreciation and amortization would have increased by $148,000 in 2002, as compared to 2001, as a result of acquisition of property and equipment.

20

Table of Contents

Additionally, for the year ended December 31, 2001, goodwill impairment charges of $3,094,000 and $522,000 related to Matrix and Westland, respectively, were recorded. No goodwill impairment charges have been recorded in the year ended December 31, 2002.

Other Income

Other Income was $36,000 for 2002 compared to $764,000 for 2001. Other Income is composed of the following:

Income Tax

An income tax benefit of $3,383,000 was recorded for 2002. This benefit represents a combined federal and state effective tax rate of 69%. In 2002, the effective rate of benefit is higher than the statutory rate primarily due to the Corporation’s reversing a deferred tax liability of $1,575,000 as a result of an Internal Revenue Service audit settlement.

An income tax provision of $172,000 was recorded for 2001 against pre-tax losses of $4,325,000. A significant portion of the pre-tax losses resulted from permanent differences related to non-deductible goodwill impairment charges of $3,616,000, related to Matrix and Westland. Additionally, the deferred tax benefit on operating losses incurred by Matrix of $586,000 was limited to Matrix’ deferred tax liability of $230,000 because future utilization of the deferred tax benefit could not be reasonably assured.

Minority Interests

The minority interests reflect a net benefit of $282,000 during the year ended December 31, 2002. This net benefit is comprised of the minority interest share in the net losses of Matrix of $89,000, and the minority interest share in the net losses of One Source of $193,000.

The minority interests reflect a net benefit of $239,000 during the year ended December 31, 2001. This net benefit is comprised of the minority interest share in the net losses of Matrix of $430,000, partially offset by the minority interest share in net income attributable to the shareholders of One Source of $191,000.

21

Table of Contents

Discontinued Operations

In June 2002, Physician Advantage received notice from Broadlane, a subsidiary of Tenet Healthcare, Inc., of its election not to renew the contract scheduled to expire on September 29, 2002 pursuant to which Physician Advantage provided customer management services as part of a group purchasing program marketed to physicians associated with hospitals owned or managed by Tenet Healthcare. This contract generated substantially all of the revenues of Physician Advantage. As a result of this termination, the operations of Physician Advantage ceased and the results of the operations for this business are reported as a discontinued operation for all periods presented. The consolidated financial statements have been restated to conform to the discontinued operations presentation.

The discontinued operations earned net income of $500,000 for the year ended December 31, 2002. This is composed of income from operations of $130,000, net of an income tax charge on operations of $94,000, and an income tax benefit related to the unamortized goodwill for tax purposes at the date of business discontinuation of approximately $370,000. For the year ended December 31, 2001, this discontinued operation earned net income from operations of $59,000, net of an income tax charge on operations of $43,000.

Cumulative Effect of Accounting Change

The adoption of SFAS No. 133 in 2001 resulted in a $317,000 cumulative effect transition adjustment to net income relating to stock warrants which under SFAS No. 133 qualify as derivatives. This one-time adjustment to net income as of January 1, 2001, represents the appreciated value of these warrants at December 31, 2000, which appreciation was previously excluded from the measurement of net income, but was instead included in the measure of comprehensive income. The cumulative effect transition adjustment is shown as a cumulative effect accounting change net of income taxes in the Consolidated Statements of Income.

Net Income

During the year ended December 31, 2002, we incurred a net loss of $711,000 compared to a net loss of $3,882,000 for the year ended December 31, 2001. Basic (loss) earnings per share were $(0.12) and $(0.48) for the years ended December 31, 2002 and 2001, respectively. In 2002, basic (loss) earnings per share were $(0.20) from continuing operations, and $0.08 from discontinued operations. In 2001, basic (loss) earnings per share were $(0.52) from continuing operations and $0.04 from the cumulative effect of accounting change.

For the Years Ended December 31, 2001 and 2000

Revenues

Our revenues decreased by $1,814,000 or 6.7% from $27,225,000 for the year ended December 31, 2000 to $25,411,000 for the year ended December 31, 2001. Revenues decreased due to decreased revenues from equipment rental and sales, finance and secured lending, and group purchasing activities, partially offset by increased revenues of $1,744,000 from sales to packaging customers.

Revenues of One Source were $15,787,000 during the year ended December 31, 2001, compared to $14,043,000 during the year ended December 31, 2000, reflecting an increase of

22

Table of Contents

12.4%. This increase was due mainly to an increase in sales of display packaging to consumer product manufacturers offset by a decline in clamshell and other packaging revenues. The increase in sales of display packaging to consumer product manufacturers reflects the growth in business both from existing customers and new customers. The decline in clamshell and other packaging revenues was attributable to a decline in orders from existing customers due to the economic slowdown in the latter part of 2001.

Revenues of Matrix were $7,597,000 during the year ended December 31, 2001, compared to $10,055,000 during the year ended December 31, 2000. Revenues decreased 24.5% due mainly to an emphasis on rental business rather than product sales. The decline in product sales represents 58% of the decline in revenues for the period. The remaining decline of revenues reflects a decrease in equipment rentals due to a decrease in rentals from competitors who will no longer sub-rent from Matrix due to competition from Matrix in the direct rental market; a general economic slowdown; more competitive pricing; and the cancellation of tradeshows, conventions and conferences especially following the events of September 11, 2001.

Revenues of Westland represented by gross sales less cost of sales, reported on a net basis under “Group purchasing revenues” in the Consolidated Statements of Operations, were $941,000 in 2001 compared to $1,011,000 in 2000. Revenues decreased by 6.9% due mainly to the loss of the company’s largest vendor during the fourth quarter of 2001.

Finance and secured lending revenues decreased $1,030,000, or 48.7%, to $1,086,000 for the year ended December 31, 2001 from $2,116,000 for the year ended December 31, 2000. The net decline in finance and secured lending revenues is attributable to the following:

Interest on loans was $216,000 for the year ended December 31, 2001, as compared to $733,000 for the year ended December 31, 2000, due mainly to the non-accrual of interest on a non-performing loan in the year ended December 31, 2001. Interest on loans in 2001 included a reversal of accrued interest reserves of $105,000 on a non-performing loan, which was settled during that year. Interest on securities available-for-sale and money market funds was $845,000 during the year ended December 31, 2001, as compared to $1,256,000 during the year ended December 31, 2000, due to a decrease in average invested funds and a lower interest rate environment.

Gross Profit

We calculate gross profit as total revenues less cost of sales. Gross profit was $10,027,000 in 2001 compared to $12,333,000 in 2000. Depreciation and amortization included in cost of sales was $1,222,000 in 2001 and $962,000 in 2000.

Gross profit generated by One Source was $5,567,000 or 35.3% of its revenues in 2001 compared to $4,942,000 or 35.2% of its revenues in 2000. Cost of sales for this segment of $10,220,000 for 2001 and $9,101,000 for 2000 includes depreciation of $39,000 and $69,000 for 2001 and 2000, respectively.

23

Table of Contents

Gross profit generated by Matrix was $2,433,000 or 32% of its revenues in 2001 compared to $4,264,000 or 42.4% of its revenues in 2000. Cost of sales for this segment of $5,164,000 for 2001 and $5,791,000 for 2000 includes depreciation of $1,183,000 and $893,000 for 2001 and 2000, respectively. Gross profit is lower in 2001 despite the emphasis toward higher margin rental business and away from lower margin product sales, due to the change in mix of rental revenues toward lower margin but more sustainable trade show and staging product lines. Direct labor and other costs are generally higher for the trade show and staging product lines.

Group purchasing revenues of $941,000 generated by Westland are net revenues earned from group purchasing activities and, as such, represent the gross profits earned by this entity.

Finance and secured lending revenues represent net revenues and, as such, represent the gross profit earned from this segment.

Selling, General and Administrative Expenses

Selling, general and administrative expenses increased by $1,063,000 or 11.2% from $9,464,000, for the year ended December 31, 2000, to $10,527,000 for the year ended December 31, 2001.

Selling, general and administrative expenses for One Source increased $306,000, or 8.8%, to $3,776,000 for the year ended December 31, 2001 from $3,470,000 for the year ended December 31, 2000. The increase is mainly attributable to increases in sales and marketing expenses. Sales and marketing expenses were higher due to increased commissions and bonuses resulting from higher sales and gross profit compared to the prior year.

Selling, general and administrative expenses for Matrix decreased $167,000, or 4.4%, to $3,631,000 for the year ended December 31, 2001 from $3,798,000 for the year ended December 31, 2000. The reduction in expense is attributable to a reduction of $437,000 in selling expenses, offset in part by higher general and administrative expenses. The reduction in selling expenses is proportionate to the decline in revenues and is mainly due to lower commissions, travel and lodging expenses. The higher general and administrative expenses reflect increased payroll and related costs attributable to higher average staffing levels compared to the year ended December 31, 2000.

Selling, general and administrative expenses for the group purchasing segment increased $32,000, or 3.6%, to $932,000 for the year ended December 31, 2001 from $900,000 for the year ended December 31, 2000. This increase in expense is attributable to higher selling expenses in 2001.

Selling, general and administrative expenses for the finance and secured lending segment increased $892,000, or 68.8%, to $2,188,000 for the year ended December 31, 2001 from $1,296,000 for the year ended December 31, 2000. The year 2000 reflects a reversal of accrued expenses of $1,123,000 related to the reversal of legal settlement reserves during the year ended December 31, 2000. Excluding this item, general and administrative expenses were lower in 2001 due primarily to lower legal and business consulting expenses.

24

Table of Contents

Depreciation and Amortization

Depreciation and amortization increased $44,000, or 5.9%, from $750,000 for the year ended December 31, 2000 to $794,000 for the year ended December 31, 2001.

Additionally, for the year ended December 31, 2001, goodwill impairment of $3,616,000 attributable to impairment write-offs of $3,094,000 and $522,000 related to Matrix and Westland, respectively, were recorded while the year 2000 reflects a write-off of the goodwill of Physician Advantage of $1,360,000, which is included in discontinued operations.

At September 30, 2001, management concluded that Matrix’ goodwill was impaired for its remaining value of $3,094,000 on that date. This assessment was made after due consideration of all factors affecting its business including the historic and expected future operating performance of the company. Matrix’ business consists of audio-visual rental and presentation services for trade shows, conventions and conferences. The business is dependent on travel and attendance at trade shows, conventions, and conferences. Given the status of the economy and declines in travel and attendance at these types of events, management believed the market value of this company to be impaired at that date.

Additionally, at December 31, 2001, management concluded that the goodwill related to the business of Westland was impaired for its remaining value of $522,000 on that date. That determination was made after Westland received notice of non-renewal of a long-term contract from a key vendor. This vendor relationship represented more than 50% of revenues earned by Westland.

At September 30, 2000, the Corporation recorded an impairment write-down of the goodwill of Physician Advantage in the amount of $1,360,000. This impairment write-down was made after consideration of all factors related to the business of Physician Advantage, including its historic operating losses and its inability to achieve its revised business plan. This write-down is included in discontinued operations.

Other Income

Other Income was $764,000 for 2001 compared to $197,000 for 2000. Other Income is composed of the following:

25

Table of Contents

Income Tax

An income tax provision of $172,000 was recorded for 2001 against pre-tax losses of $4,325,000. A significant portion of the pre-tax losses resulted from permanent differences related to non-deductible goodwill impairment charges of $3,616,000, related to Matrix and Westland. Additionally, the deferred tax benefit on operating losses incurred by Matrix of $586,000 was limited to Matrix’ deferred tax liability of $230,000 because future utilization of the deferred tax benefit could not be reasonably assured.

An income tax benefit of $5,561,000 was recorded for the year ended December 31, 2000. This benefit included a reversal of $5,718,000 in deferred tax liabilities related to a previously established liability for deferred taxes on legal settlement gains offset by an income tax provision of $157,000 on income from operations.

Minority Interests

The minority interests reflect a net benefit of $239,000 during the year ended December 31, 2001. This net benefit is comprised of the minority interest share in the net losses of Matrix of $430,000, partially offset by the minority interest share in net income attributable to the shareholders of One Source of $191,000.

For the year ended December 31, 2000, the minority interests reflect net income attributable to minority shareholders of $193,000. This was comprised of the minority interest share in the net income of One Source of $160,000 plus the minority interest share in the net income of Matrix of $33,000.

Discontinued Operations

The discontinued operations of Physician Advantage earned net income of $59,000 for the year ended December 31, 2001, net of an income tax charge on operations of $43,000. For the year ended December 31, 2000, this discontinued operation incurred a net loss from operations of $1,427,000, net of an income tax benefit of $1,033,000. The 2000 net loss included a write-off of goodwill of $1,360,000.

On January 31, 2000, Global Telecommunications sold substantially all of its assets. In connection with this sale, we recorded a gain of $693,000, net of estimated income taxes of $461,000.

Cumulative Effect of Accounting Change

The adoption of Statement of Financial Accounting Standards No. 133 (“SFAS No. 133”), Accounting for Derivative Instruments and Hedging Activities, resulted in a $317,000 cumulative effect transition adjustment to net income relating to stock warrants which, under SFAS No. 133, qualify as derivatives. This one-time adjustment to net income as of January 1, 2001, represents the appreciated value of these warrants at December 31, 2000, which

26

Table of Contents

appreciation was previously excluded from the measurement of net income, but was instead included in the measurement of comprehensive income. The cumulative effect transition adjustment is shown as a cumulative effect accounting change net of income taxes in the Consolidated Statements of Operations.

Net Income

During the year ended December 31, 2001, we incurred a net loss of $3,882,000 compared to net income of $6,989,000 for the year ended December 31, 2000. Basic (loss) earnings per share were $(0.48) and $0.87 for the years ended December 31, 2001 and 2000, respectively. In 2001, basic (loss) earnings per share were $(0.52) from continuing operations and $0.04 from the cumulative effect of accounting change. In 2000, basic earnings per share were $0.96 from continuing operations and a loss of $(0.09) from discontinued operations.

FINANCIAL CONDITION

LOANS RECEIVABLE AND PAST DUE LOANS

The Corporation’s loans receivable were $8,101,000 at December 31, 2002 and $289,000 at December 31, 2001.

On July 17, 2002, we purchased for $1,350,000 ($2,004,000 Canadian) a 31% interest in a promissory note in the principal amount of $6,500,000 Canadian secured by a first mortgage on approximately 256 acres of land zoned for industrial development located in Alberta, Canada from Paragon in connection with the acquisition of the secured loan from the original lender. The secured loan accrued interest at 12% per annum, with accrued interest and principal due at payoff. The loan balance at December 31, 2002, converted to U.S. dollars based on the year-end exchange rates, was approximately $1,264,000. The secured loan was in default at the time of loan purchase and the land was recovered through foreclosure. In January 2003, the land was sold and the secured loan and related interest were repaid in full.

On September 27, 2002, we purchased for $2,925,000 ($4,500,000 Canadian) a 36% interest in a promissory note with an outstanding balance of $12,500,000 Canadian secured by first mortgages on 188 condominium units located in Calgary, Alberta, Canada, an assignment of rents, sales proceeds from the condominiums, and a personal guarantee from a shareholder of the borrower. The Corporation purchased the interest in the loan from Paragon. The loan accrues interest at 14% per annum, compounded monthly with interest payable monthly and principal due on April 1, 2003, with one six-month renewal option upon payment of a 2.5% renewal fee and provided the loan has not been in default. The loan balance at December 31, 2002, converted to U.S. dollars based on the year-end exchange rates, was approximately $2,837,000. In March 2003, the borrower defaulted in the payment of interest on the loan and the lenders initiated foreclosure proceedings. In April 2003, the borrower paid off the loan and all accrued interest.

We deposited $4,275,000 in U.S. dollars into an account at a Canadian financial institution, which have been invested in U.S Treasuries, and we have used these deposits to secure a margin loan in Canadian dollars to fund the loans described above.

27

Table of Contents

In connection with the sale on October 31, 2002 of a commercial office building acquired by the Corporation through foreclosure, we received a purchase-money promissory note in the principal amount of $4,000,000, which is secured by a first trust deed on the commercial office building. The promissory note accrues interest at 7½% per annum, payable monthly in arrears, with principal payments of $300,000 due January 1, 2003, and $200,000 due on or before April 1, 2003, with the balance due on or before September 30, 2004. At December 31, 2002, accrued interest of $25,000 was owed and is included in accrued interest receivable. The payment due January 1, 2003 was received on February 18, 2003.

Westminster 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, Westminster 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 when 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.

Once a loan goes into default, we cease to accrue interest on the loan if we believe that the collateral may be insufficient to recover the principal and interest owed plus costs of recovery. When necessary, we also record reserves for impaired principal, as well as previously accrued interest.

LIQUIDITY AND CAPITAL RESOURCES

Westminster Capital’s shareholders’ equity was $28,450,000 at December 31, 2002.

Cash and cash equivalents totaled $9,495,000 at December 31, 2002, most of which was invested in top-tier investment grade commercial paper. Cash and cash equivalents include $623,000 held as working capital by subsidiaries of the Corporation. Additionally, we held U.S. Government and Agency securities with a market value of $7,285,000 at December 31, 2002.

Our cash and cash equivalents decreased by $9,452,000 during the year ended December 31, 2002. Cash flows from operating, investing and financing activities are summarized below for each of the years in the three-year period ended December 31, 2002 (dollars in thousands):

Our operations consumed cash in both 2002 and 2000, and provided cash in 2001. Operating activities consumed cash during 2002 due to losses at each of our operating segments. Cash was generated in 2001 despite the net loss from operating activities due to large non-cash charges in 2001, the most significant of which were goodwill impairment, depreciation and amortization. During 2000, net income from operations included large non-cash benefits, the most significant of which was a reversal of deferred income taxes of $5,718,000.

28

Table of Contents

Investing activities consumed cash in 2002, and produced cash in 2001 and 2000. In 2002, $4,101,000 of cash was used in loan originations, $1,649,000 was invested in property and equipment, $772,000 in net purchases of investment securities, offset by proceeds from the sale of real estate acquired from foreclosure and repayment of loans totaling $825,000, proceeds from the liquidation of limited partnership interests of $1,502,000 and principal collected on loans receivable of $964,000. The most significant contributors to the net increase in investing activities during 2001 were proceeds from the net sale of securities of $10,956,000, proceeds from the sale of an equity investment of $1,654,000, principal collected on loans receivable of $1,140,000 offset by investment in property and equipment of $715,000 and other outflows of $912,000. The substantial activity in the purchase and sale of securities was due to the repositioning of the investment portfolio toward shorter-term securities due to the current interest rate environment and the regular rolling over of securities with shorter maturities. In 2000, investing activities included $4,864,000 from the net sale of securities, $957,000 from the proceeds of the sale of Global Telecommunications, $750,000 from the liquidation of other investments and $520,000 in principal collections on loans receivable, offset by purchases of property and equipment of $4,244,000.

The major uses of cash for financing activities in 2002 were to fund common stock repurchases of $8,585,000, repay borrowings of $1,590,000 and make seller financing payments of $510,000, offset by borrowings of $4,582,000. The major uses of cash for financing activities in 2001 were to repay borrowings of $1,760,000 and for seller financing payments of $510,000. In 2000, the major contributors to cash from financing activities were borrowings of $5,095,000 and proceeds from the exercise of stock options of $570,000, offset in part by seller financing repayments of $1,749,000 and debt repayments of $1,641,000.

We continue to seek investments in or acquisitions of other businesses. No assurances can be given that any further acquisitions or investments will be made or, if made, that they will be profitable.

We believe that our cash and cash equivalents of $9,495,000 and securities available-for-sale of $7,285,000, are sufficient to meet our anticipated needs for the foreseeable future. This assessment reflects the current operating and growth needs of each business segment.

29

Table of Contents

Contractual Obligations and Commercial Commitments

The following summarizes our contractual obligations at December 31, 2002 and the effects such obligations are expected to have on liquidity and cash flow in future periods (dollars in thousands):

The following summarizes our unused bank lines of credit held by subsidiaries of the Corporation.

New Accounting Pronouncements

SFAS No. 142 was approved by the FASB on June 29, 2001. SFAS No. 142 changes the accounting for goodwill from an amortization method to an impairment-only approach. Amortization of goodwill, including goodwill recorded in past business combinations, ceased upon adoption of this statement on January 1, 2002. On an annual basis, and when there is reason to suspect that their values have been diminished or impaired, these assets must be tested for impairment and write-downs may be necessary. The Corporation implemented SFAS No. 142 on January 1, 2002. Application of the provisions of SFAS No. 142 resulted in an increase in net income or decrease in net loss of approximately $325,000 per year related to the amortization of goodwill for One Source. Westminster performed the first of the required impairment tests of goodwill using the methodology prescribed by SFAS No. 142 in 2002, noting no impairment of goodwill.

STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 143 (“SFAS No. 143”), Accounting for Asset Retirement Obligations, was issued by the FASB in August 2001. SFAS No. 143 establishes financial accounting and reporting requirements for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. The provisions of SFAS No. 143 apply to legal obligations associated with the retirement of long-lived assets that result from the acquisition, construction, development and/or the normal operation of a long-lived asset, except for certain obligations of lessees. This statement is effective for financial statements issued for fiscal years beginning after June 15, 2002. Westminster is currently evaluating the impact that the adoption of this statement will have on its consolidated financial position or results of operations.

30

Table of Contents

STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 144 (“SFAS No. 144”), Accounting for the Impairment or Disposal of Long-Lived Assets, was issued by the FASB in October 2001. SFAS No. 144 addresses the recognition of impairment losses on long-lived assets to be held and used or to be disposed of by sale. This statement supersedes certain sections of FASB Statement No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of, and the accounting and reporting provisions of Accounting Principals Board Opinion No. 30, Reporting the Results of Operations—Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions. The statement is effective for financial statements issued for fiscal years beginning after December 15, 2001. The Corporation implemented this pronouncement in the first quarter of 2002. The adoption of this statement did not have an impact on the Corporation’s consolidated financial statements.

STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 145 (“SFAS No. 145”), Rescission of FASB Statements Numbers 4, 44 and 64, Amendment of FASB No. 13 and Technical Corrections was issued by the FASB in April 2002. SFAS No. 145 rescinds FASB Statement No. 4, Reporting Gains and Losses from Extinguishment of Debt, and an amendment of that Statement, FASB Statement No. 64, Extinguishments of Debt Made to Satisfy Sinking-Fund Requirements. This Statement also rescinds FASB Statement No. 44, Accounting for Intangible Assets of Motor Carriers. This Statement amends FASB Statement No. 13, Accounting for Leases, to eliminate an inconsistency between the required accounting for sale-leaseback transactions and the required accounting for certain lease modifications that have economic effects that are similar to sale-leaseback transactions. This Statement also amends other existing authoritative pronouncements to make various technical corrections, clarify meanings, or describe their applicability under changed conditions. Westminster has determined that this statement will have no impact on its consolidated financial position or results of operations.

STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 146 (“SFAS No. 146”), Accounting for Costs Associated with Exit or Disposal Activities was issued by the FASB in June 2002. SFAS No. 146 addresses financial accounting and reporting for costs associated with exit or disposal activities and nullifies Emerging Issues Task Force (EITF) Issue No. 94-3, Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring). This statement is effective for exit or disposal activities that are initiated after December 31, 2002, with early application encouraged. Management believes that this statement will have no impact on its consolidated financial position or results of operations.

STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 148 (“SFAS No. 148”), Accounting for Stock-Based Compensation-Transition and Disclosure was issued in December 2002. SFAS No. 148 amends SFAS No. 123, Accounting for Stock-Based Compensation, to provide alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition, SFAS No. 148 amends the disclosure requirements of SFAS No 123 to require prominent disclosures in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. The amendments to SFAS No. 123 are effective for financial statements for fiscal years ending after December 15, 2003. The required disclosures for interim financial statements are effective for financial reports containing condensed financial statements for interim periods beginning after December 15,

31

Table of Contents

2002. Adoption of SFAS No. 148 is not expected to have a material effect on Westminster’s financial condition, results of operations or liquidity.

FACTORS THAT MAY AFFECT FUTURE RESULTS

Portions of this Annual Report may contain “forward-looking statements.” The reader is cautioned that all forward-looking statements are necessarily speculative and there are certain risks and uncertainties that could cause actual events or results to differ materially from those referred to in such forward-looking statements. The discussion below, together with portions of the discussion elsewhere in this Annual Report on Form 10-K, highlight some of the more important risks identified by our management, but should not be assumed to be the only things that could affect future performance.

Risks Associated with Acquisitions

We have completed several acquisitions and will continue to pursue acquisitions that we believe will increase shareholder value. However, acquisitions involve numerous risks, including:

We have devoted substantial time and resources to integrate acquired businesses and we will be required to devote substantial time and resources to integrate any other businesses that may be acquired in the future. Possible future acquisitions could cause us to incur additional debt and contingent liabilities. These factors could have an adverse impact on our financial condition and operating results.

Except as may be otherwise disclosed in this Form 10-K, we do not presently have any arrangements or understandings to acquire any company or business, and we cannot guarantee that we will be able to identify or complete any acquisition in the future. If we make additional acquisitions, there can be no assurance that these acquisitions will produce any anticipated benefits.

Competition

Competition is intense in each of the markets in which we compete. In addition to direct competition, we face significant indirect competition for customers. Many of our competitors have better name recognition and substantially greater financial and other resources than we do.

32

Table of Contents

Dependence on Major Customers and Vendors

Point-of-Purchase Display and Packaging – In January 1999 we acquired an 80% interest in One Source. One Source does approximately 40% of its current business with three customers. A loss of any one of these customers would negatively impact future revenues and profitability.

Group Purchasing Segment – Group purchasing activities are dependent upon continuing favorable relationships with both large and key vendors who provide a service to existing and future customers. There is a risk that, without such vendor support and cooperation, we could lose many of our customers to other vendors and competitors.

Loans

Loan originations occur as opportunities arise which we believe are attractive after considering the proposed terms, including yield, duration, collateral coverage and credit-worthiness of the borrower.

Despite our attempts to mitigate the risks associated with our loan portfolio, there are numerous events and circumstances that cannot be reasonably foreseen and which may impact our ability to recover the principal and accrued interest on such loans.

33

Table of Contents

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

Information relating to qualitative disclosure about market risk is set forth under the caption “Finance and Secured Lending” in Item 1. Business, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations and in Note 1 of the Notes to Consolidated Financial Statements. Such information is incorporated herein.

The Corporation places its investments in instruments that meet high credit quality standards. The Corporation’s investment policy with respect to liquid cash and excess cash requires that all investments mature in two years or less, and that the maximum weighted-average may not exceed twelve months. The policy also limits the amount of credit exposure to any one issue, issuer and type of instrument. All investments are considered to be other than trading investments.

The table below provides information about the Corporation’s investment portfolio and borrowings. For securities available-for-sale, the table presents principal cash flows and related weighted-average interest rates by expected maturity dates. The investments in partnerships that invest in securities are redeemable at the option of the Corporation by giving advance notice as required by the respective partnership agreements.

Principal amounts by expected maturity for each of the five years ending December 31 is detailed below (dollars in thousands):

Note 1 – These investments are subject to equity price risk. The table above assumes that such investments will be liquidated in 2003.

34

Table of Contents

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

INDEX TO FINANCIAL STATEMENTS

35

Table of Contents

INDEPENDENT AUDITORS’ REPORT

To the Board of Directors and Shareholders of

Westminster Capital, Inc.

Beverly Hills, California

We have audited the accompanying consolidated statements of financial condition of Westminster Capital, Inc. and its subsidiaries (the “Corporation”) as of December 31, 2002 and 2001, and the related consolidated statements of operations, comprehensive (loss) income, shareholders’ equity, and cash flows for each of the three years in the period ended December 31, 2002. These financial statements are the responsibility of the Corporation’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Westminster Capital, Inc. and its subsidiaries as of December 31, 2002 and 2001, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2002, in conformity with accounting principles generally accepted in the United States of America.

As discussed in Note 9 to the financial statements, the Corporation adopted Statement of Financial Accounting Standards No. 142 “Goodwill and Other Intangible Assets” effective January 1, 2002.

/s/    Deloitte & Touche LLP

Los Angeles, California

April 4, 2003

36

Table of Contents

WESTMINSTER CAPITAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

DECEMBER 31, 2002 AND 2001

37

Table of Contents

WESTMINSTER CAPITAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

DECEMBER 31, 2002 AND 2001 (Continued)

See accompanying notes to consolidated financial statements.

38

Table of Contents

WESTMINSTER CAPITAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

FOR THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 2002