UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the quarterly period ended June 30, 2000
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or
[ ] Transition Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from _____ to _____
Commission file number: 0-22663
BANDO McGLOCKLIN CAPITAL CORPORATION
(Exact name of registrant as specified in its charter)
Wisconsin 39-1364345
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(State or other jurisdiction of incorporation) (I.R.S. Employer
Identification No.)
W239 N1700 Busse Road
Waukesha, Wisconsin 53188-1160
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (262) 523-4300
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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
----- -----
On August 14, 2000, there were 3,814,489 shares outstanding of the Registrant's
common stock, 6-2/3 cents par value.
BANDO McGLOCKLIN CAPITAL CORPORATION
FORM 10-Q INDEX
PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets as of June 30, 2000
(Unaudited) and December 31, 1999 ................................. 3
Consolidated Statements of Operations - For the Three and
Six Months Ended June 30, 2000 and 1999 (Unaudited) ................ 5
Consolidated Statements of Cash Flows - For the Six Months
Ended June 30, 2000 and 1999 (Unaudited) ........................... 7
Notes to the Consolidated Financial Statements (Unaudited) .......... 8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations ................................ 11
PART II. OTHER INFORMATION
Item 1. Legal Proceedings .......................................... 17
Item 2. Changes in Securities ...................................... 17
Item 3. Defaults Upon Senior Securities ............................ 17
Item 4. Submission of Matters to a Vote of Security Holders ........ 17
Item 5 Other Information ........................................... 17
Item 6. Exhibits and Reports on Form 8-K ........................... 18
Signatures ......................................................... 19
Exhibit Index ...................................................... 20
2
BANDO McGLOCKLIN CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
June 30, December 31,
2000 1999
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ASSETS
Consumer Products
Cash $ 859,466 $ 530,919
Accounts receivable, net of allowance of
$117,615 and $129,280 as of June 30, 2000
and December 31, 1999, respectively 1,897,850 2,954,428
Inventory 7,025,299 4,784,645
Prepaid inventory 758,043 872,531
Prepaid corporate taxes 357,886 -
Other prepaid expenses 473,317 407,361
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Total current assets 11,371,861 9,549,884
Fixed assets, net of accumulated depreciation
of $1,629,652 and $1,408,103 as of June 30,
2000 and December 31, 1999, respectively 3,102,199 2,880,881
Loans 621,968 621,968
Prepaid expenses and other assets 288,926 288,926
Licensing Agreement 1,416,666 1,666,667
Goodwill, net of accumulated amortization of
$67,132 and $51,640 as of June 30, 2000
and December 31, 1999, respectively 552,621 568,113
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Total Consumer Products assets 17,354,241 15,576,439
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Financial Services
Cash 2,816,938 1,509,148
Interest receivable 728,722 597,705
Rent receivable 183,831 125,436
Loans, net of allowance for doubtful accounts
of $150,000 as of June 30, 2000 and
December 31, 1999, respectively 111,781,971 113,229,680
Leased properties:
Buildings, net of accumulated depreciation
of $856,105 and $536,684 as of June 30,
2000 and December 31, 1999, respectively 29,290,774 17,897,897
Land 4,225,409 2,848,326
Construction in progress 108,517 3,324,085
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Total leased properties 33,624,700 24,070,308
Fixed assets, net of accumulated depreciation
of $477,232 and $429,167 as of June 30,
2000 and December 31, 1999, respectively 274,300 313,393
Other assets, net 904,699 643,415
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Total Financial Services assets 150,315,161 140,489,085
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Total Assets $ 167,669,402 $ 156,065,524
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3
BANDO McGLOCKLIN CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (Continued)
(Unaudited)
June 30, December 31,
2000 2000
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LIABILITIES, MINORITY INTEREST,
PREFERRED STOCK AND SHAREHOLDERS' EQUITY
Consumer Products
Short-term borrowings $ 1,455,000 $ 200,000
Accounts payable 815,965 888,469
Accrued salaries 441,610 355,075
Accrued corporate taxes - 431,309
Accrued liabilities 601,146 336,029
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Total current liabilities 3,313,721 2,210,882
Long-term debt 321,018 29,926
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Total Consumer Products liabilities 3,634,739 2,240,808
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Financial Services
Commercial paper 62,632,625 68,657,172
Notes payable to banks 7,759,637 5,000,000
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Short-term borrowings 70,392,262 73,657,172
State of Wisconsin Investment Board
notes payble 13,000,000 13,666,667
Loan participations with repurchase options 39,216,706 32,724,235
Other long-term debt 10,181,015 1,583,761
Accrued liabilities 1,665,599 1,760,157
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Total Financial Services liabilities 134,455,582 123,391,992
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Minority interest in subsidiaries 52,214 41,055
Redeemable Preferred stock, 1 cent par
value, 3,000,000 shares authorized, 690,000
shares issued and outstanding as of June 30,
2000 and December 31, 1999, respectively,
before deducting shares in treasury 17,250,000 17,250,000
Treasury stock, at cost (15,809 shares and
15,209 shares as of June 30, 2000 and
December 31, 1999, respectively) (395,225) (341,975)
Shareholders' Equity
Common stock, 6 2/3 cents par value,
15,000,000 shares authorized, 4,401,599
shares issued and outstanding as of June 30,
2000 and December 31, 1999, respectively,
before deducting shares in treasury 293,441 293,441
Additional paid-in capital 16,604,744 16,604,744
Retained earnings 1,660,448 1,218,617
Treasury stock, at cost (577,510 shares and
416,710 shares as of June 30, 2000 and
December 31, 1999, respectively) (5,886,541) (4,633,158)
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Total Shareholders' Equity 12,672,092 13,483,644
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Total Liabilities, Minority Interest,
Preferred Stock and Shareholders' Equity $ 167,669,402 $ 156,065,524
============= =============
4
BANDO McGLOCKLIN CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
For the Three Months For the Six Months
Ended June 30, Ended June 30,
2000 1999 2000 1999
---------- ---------- ----------- ----------
Consumer Products
Net sales $5,087,582 $3,927,575 $11,668,300 $8,146,400
Cost of sales 2,693,633 2,263,654 6,029,821 4,396,713
---------- ---------- ----------- ----------
Gross profit 2,393,949 1,663,921 5,638,479 3,749,687
Operating expenses
Sales and marketing 1,089,562 686,469 2,193,962 1,596,134
New product development 161,666 153,943 316,577 296,541
General and administrative 882,369 559,915 1,673,693 1,066,510
---------- ---------- ----------- ----------
Total operating expenses 2,133,597 1,400,327 4,184,232 2,959,185
Other income (expense)
Interest expense (27,651) (3,764) (43,690) (7,895)
Other income, net 30,026 46,801 88,388 79,503
---------- ---------- ----------- ----------
Total other income 2,375 43,037 44,698 71,608
Income before income taxes
and minority interest 262,727 306,631 1,498,945 862,110
Income tax benefit (expense) 133,166 30,937 (161,041) (43,237)
Minority interest in
earnings of subsidiaries 25,972 884 (4,844) 164
---------- ---------- ----------- ----------
Net income 421,865 338,452 1,333,060 819,037
---------- ---------- ----------- ----------
Financial Services
Revenues
Interest on loans 2,606,494 2,159,021 5,064,018 4,438,610
Rental income 1,052,989 704,714 1,737,650 1,338,534
Gain on sales of
leased property - 128,611 - 239,568
Other income 38,995 134,080 72,305 183,106
---------- ---------- ----------- ----------
Total revenues 3,698,478 3,126,426 6,873,973 6,199,818
---------- ---------- ----------- ----------
Expenses
Interest expense 2,477,904 1,690,504 4,667,534 3,460,044
Depreciation expense on
leased properties 179,083 123,632 319,421 241,670
Other operating expenses 434,583 390,563 821,096 799,114
---------- ---------- ----------- ----------
Total expenses 3,091,570 2,204,699 5,808,051 4,500,828
---------- ---------- ----------- ----------
Net income $ 606,908 $ 921,727 $ 1,065,922 $1,698,990
---------- ---------- ----------- ----------
5
BANDO McGLOCKLIN CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS - (Continued)
(Unaudited)
For the Three Months For the Six Months
Ended June 30, Ended June 30,
2000 1999 2000 1999
---------- ---------- ----------- ----------
Total Company
Income before income taxes
and minority interest
Consumer products $ 262,727 $ 306,631 $1,498,945 $ 862,110
Financial services 606,908 921,727 1,065,922 1,698,990
---------- ---------- ---------- ----------
Total company 869,635 1,228,358 2,564,867 2,561,100
Income tax benefit (expense) 133,166 30,937 (161,041) (43,237)
Minority interest in
earnings of subsidiaries 25,972 884 (4,844) 164
---------- ---------- ---------- ----------
Net income 1,028,773 1,260,179 2,398,982 2,518,027
Preferred stock dividends (354,519) (359,748) (676,017) (719,496)
---------- ---------- ---------- ----------
Net income available to
common shareholders $ 674,254 $ 900,431 $1,722,965 $1,798,531
========== ========== ========== ==========
Basic Earnings Per Share $ 0.18 $ 0.22* $ 0.44 $ 0.45*
========== ========== ========== ==========
Diluted Earnings Per Share $ 0.18 $ 0.22* $ 0.44 $ 0.45*
========== ========== ========== ==========
* Restated for 10% stock dividend as of the December 31, 1999 record date.
Segment Reconciliation
Consumer products
Net income $ 421,865 $ 338,452 $1,333,060 $ 819,037
Interest expense to parent (312,737) (298,197) (606,296) (593,465)
Management fees to parent (122,546) (126,042) (247,180) (240,066)
---------- ---------- ---------- ----------
Total segment net income (13,418) (85,787) 479,584 (14,494)
Financial services
Net income 606,908 921,727 1,065,922 1,698,990
Interest income
from subsidiary 312,737 298,197 606,296 593,465
Management fees
from subsidiary 122,546 126,042 247,180 240,066
---------- ---------- ---------- ----------
Total segment net income 1,042,191 1,345,966 1,919,398 2,532,521
Total company net income $1,028,773 $1,260,179 $2,398,982 $2,518,027
========== ========== ========== ==========
6
BANDO McGLOCKLIN CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
For the Six Months For the Six Months
Ended June 30, 2000 Ended June 30, 1999
------------------- -------------------
Consumer Financial Consumer Financial
Products Services Products Services
-------- --------- -------- ---------
Cash Flows from Operating Activities:
Net income $ 1,333,060 $ 1,065,922 $ 819,037 $ 1,698,990
Adjustments to reconcile net cash
provided by operating activities:
Depreciation and amortization 237,041 367,486 226,479 290,919
Allowance for doubtful accounts (11,665) - 28,330 -
Provision for inventory reserve 25,827 - (264,040) -
Change in appreciation on investments - (5,172) - 47,407
Change in minority interest in subsidiaries 11,159 - (163) -
Increase (decrease) in cash due to change in:
Accounts receivable 1,068,243 - 787,380 -
Inventory (3,024,524) - (1,834,266) -
Interest receivable - (131,017) 59,076
Other assets 1,056,576 (314,507) (36,392) (63,807)
Accounts payable (72,504) - (322,039) -
Other liabilities (437,543) (94,558) (1,050,133) (685,927)
----------- ------------ ----------- ------------
Net Cash (Used) Provided by Operations 185,670 888,154 (1,645,807) 1,346,658
----------- ------------ ----------- ------------
Cash Flows from Investing Activities:
Loans made - (24,506,198) - (22,115,218)
Principal collected on loans - 25,953,907 - 37,200,905
Proceeds from sale of leased properties - - - 2,601,063
Purchase or construction of leased properties - (9,873,813) (5,814,212)
Purchase of fixed assets (442,867) (8,972) (472,467) (20,580)
----------- ------------ ----------- ------------
Net Cash (Used) Provided by Investing (442,867) (8,435,076) (472,467) 11,851,958
----------- ------------ ----------- ------------
Cash Flows from Financing Activities:
Increase (decrease) in short term borrowings 1,549,000 (3,264,910) 1,600,000 (1,983,669)
Proceeds from loan participations with
repurchase options - net - 15,092,471 - (9,467,902)
Repayment of SWIB notes - (666,667) (666,667)
(Decrease) in other notes payable (2,908) (2,746) (2,711) (2,594)
Preferred stock dividends paid - (729,267) - (719,496)
Common stock dividends paid - (1,281,134) - (1,322,793)
Repurchase of common stock - (1,253,383) - (780,647)
----------- ------------ ----------- ------------
Net Cash (Used) Provided by Financing 1,546,092 7,894,364 1,597,289 (14,943,768)
----------- ------------ ----------- ------------
Net intercompany transactions (960,348) 960,348 (1,567,936) 1,567,936
Net (decrease) increase in cash 328,547 1,307,790 (2,088,921) (177,216)
Cash, beginning of period 530,919 1,509,148 2,209,105 626,838
----------- ------------ ----------- ------------
Cash, end of period $ 859,466 $ 2,816,938 $ 120,184 $ 449,622
=========== ============ =========== ============
7
BANDO McGLOCKLIN CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
NOTE 1. NATURE OF BUSINESS
The consolidated financial statements of Bando McGlocklin Capital Corporation
(the "Company") include two segments of business; financial services and
consumer products. The consolidated financial statements as of and for the
periods presented include the accounts of the Company and Bando McGlocklin Small
Business Lending Corporation ("BMSBLC") as financial services companies and Lee
Middleton Original Dolls, Inc. ("Middleton Doll"), License Products, Inc.
("License Products") and Middleton (HK) Limited ("Middleton (HK)") as consumer
product companies. All significant intercompany accounts and transactions have
been eliminated in consolidation.
Effective January 1, 2000, Middleton Doll acquired a 51% equity ownership in
Middleton (HK), a Hong Kong corporation. Middleton (HK) is a management
corporation which provides Middleton Doll with all of its raw materials and
finished goods from Asia.
NOTE 2. BASIS OF PRESENTATION
The accompanying unaudited financial statements of the Company and its
majority-owned subsidiaries have been prepared in accordance with the
instructions to Form 10-Q and do not include all of the other information and
disclosures required by generally accepted accounting principles. These
statements should be read in conjunction with the consolidated financial
statements and notes thereto included in the Company's Annual Report on Form
10-K for the year ended December 31, 1999.
The balance sheet for consumer products is classified due to its normal business
cycle being less than twelve months. Financial services' balance sheet is not
classified as its normal business cycle is greater than twelve months.
The accompanying consolidated financial statements have not been audited by
independent accountants in accordance with generally accepted auditing
standards, but in the opinion of management such financial statements include
all adjustments, consisting only of normal recurring accruals, necessary to
summarize fairly the Company's financial position and results of operations. The
results of operations for the period ended June 30, 2000 may not be indicative
of the results that may be expected for the year ending December 31, 2000.
8
NOTE 3. INVENTORY
Inventories of Middleton Doll and License Products are valued at the lower of
cost or market. Middleton Doll and License Products utilize the average cost
method to determine cost. The components of inventory are as follows:
June 30, December 31,
2000 1999
-------- ------------
Raw materials, net of reserve of
$261,395 and $235,568, respectively $2,839,820 $2,157,740
Work in process 266,130 90,613
Finished goods 3,919,349 2,536,292
---------- ----------
Total $7,025,299 $4,784,645
========== ==========
NOTE 4. LONG-TERM DEBT
On March 23, 2000, BMSBLC entered into a Loan and Trust Agreement with one of
its correspondent banks for issuance of industrial revenue bonds. The bonds have
varying maturities from 2004 through 2015 with interest payments and principal
reductions payable monthly to the trustee. The interest rate changes weekly
based upon the remarketing agent's lowest rate to permit the sale of the bonds.
As of June 30, 2000, the outstanding principal balance was $8,600,000 and the
interest rate was 4.85%. The principal balance is included in other long-term
debt on the balance sheet.
As of April 28, 2000, BMSBLC entered into an amendment to its amended and
restated loan agreement with five participating banks. The loan agreement
increased the existing facility from a maximum of $70,000,000 to $75,000,000
less the outstanding principal amount of commercial paper and industrial revenue
bonds (see Note 4). The facility will continue to bear interest at the prime
rate or at the 30, 60, or 90 day LIBOR rate plus one and three-eighths percent.
Interest is payable monthly and the loan agreement expires on June 30, 2000. On
June 30, 2000, the parties entered into an additional amendment extending the
maturity date to June 30, 2001.
On April 28, 2000, BMCC entered into an amended credit agreement with one of its
correspondent banks providing for an increase of the existing $5,000,000 note to
a revolving note of $7,500,000 bearing interest at the prime rate. The
additional $2,500,000 is being loaned to InvestorsBancorp, Inc. through a 10
year, fixed rate promissory note. Interest is payable quarterly and the credit
agreement expires on June 30, 2000. On June 30, 2000, the parties entered into
an additional amendment extending the maturity date to June 30, 2001.
9
NOTE 5. INCOME TAXES
The Company and its qualified REIT subsidiary, BMSBLC, qualify as a real estate
investment trust under the Internal Revenue Code. Accordingly, they are not
subject to income tax on taxable income that is distributed to shareholders.
Middleton Doll and License Products file their own tax returns. Income tax
provision in the accompanying financial statements is based on their operations
prior to the elimination of approximately $0.85 million of interest and other
expenses on transactions with the Company. In addition, $0.30 million of income
earned by License Products is offset by net operating loss carry forwards.
NOTE 6. TREASURY STOCK
During the first six months of 2000 the Company purchased 160,800 shares of its
common stock in the open market at an average price of $7.79. It is the
Company's intention to hold these shares as treasury stock.
The Company also purchased 600 shares of its preferred stock in the open market
at an average price of $16.81. The Company intends to hold these shares as
treasury stock.
NOTE 7. EARNINGS PER SHARE
See Exhibit 11 for the computation of the net income per common share. The June
30, 1999 per share amount has been restated for the 10% stock dividend as of the
December 31, 1999 record date.
NOTE 8. COMMITMENTS
Undisbursed construction loan commitments and lines of credit totaled $5,817,139
at June 30, 2000.
NOTE 9. SUBSEQUENT EVENTS
Subsequent to the quarter ending June 30, 2000 License Products determined that
a portion of its inventory was obsolete due to the breakdown of negotiations in
July 2000 with various third parties. The effect of this was to reduce July
2000 income from operations by approximately $300,000.
10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
General
Amounts presented as of June 30, 2000 and December 31, 1999, and for the three
months and the six months ended June 30, 2000 and June 30, 1999 include the
consolidation of two segments. The financial services segment includes Bando
McGlocklin Capital Corporation (the "Company") and Bando McGlocklin Small
Business Lending Corporation ("BMSBLC"), a 100% owned subsidiary of the Company.
The consumer products segment includes Lee Middleton Original Dolls, Inc.
("Middleton Doll"), a 99% owned subsidiary of the Company, License Products,
Inc. ("License Products"), a 51% owned subsidiary of the Company and Middleton
(HK) Limited ("Middleton (HK)"), a 51% owned subsidiary of the Company.
Results of Operations
For the three months ended June 30, 2000 and June 30, 1999
The Company's total net income after income taxes and minority interest for the
quarter ended June 30, 2000 equaled $0.67 million or $0.18 per share (diluted)
as compared to $0.90 million or $0.22 per share (diluted) for the quarter ended
June 30, 1999, a 26% decrease in net income. The June 30, 1999 per share amount
has been restated for the 10% stock dividend as of the December 31, 1999 record
date.
Consumer Products
Net income from consumer products after income taxes and minority interest for
the quarter ended June 30, 2000 was $0.42 million compared to $0.34 million for
the quarter ended June 30, 1999, a 24% increase. After giving effect to interest
and management fees paid to the Company, the consumer products segment lost
$13,000 and $86,000 for the quarters ended June 30, 2000 and June 30, 1999,
respectively.
Net sales from consumer products for the quarter ended June 30, 2000 increased
30% to $5.09 million from $3.93 million in the corresponding prior year period.
This increase was due to increased sales of $0.54 million at Middleton Doll and
$0.62 million at License Products. The majority of the sales increase at
Middleton Doll was attributable to the introduction of Small Wonder, the new
smaller play doll. Small Wonder's sales for the second quarter were $0.67
million. Cost of sales also increased 19% to $2.69 million for the quarter ended
June 30, 2000 from $2.26 million for the prior year quarter. Gross profit margin
increased to 47% at June 30, 2000 from 42% at June 30, 1999. During 1999 gross
profit was lower than normal due to higher factory overhead costs and lower
sales.
Total operating expenses of consumer products for the quarter ended June 30,
2000 were $2.13 million compared to $1.40 million for the quarter ended June 30,
1999, a 52% increase. Middleton Doll's total operating expenses increased $0.74
million due to related expenses stemming from the continued growth of the
company while License Products' operating expenses decreased $0.01 million.
Sales and marketing expense and new product development
11
increased $0.41 million to $1.25 million for the quarter ended June 30, 2000
compared to $0.84 million for the quarter ended June 30, 1999. The increase in
sales and marketing expense was due to Middleton Doll increasing advertising
with new larger retailers and due to new point-of-purchase displays for J.C.
Penney catalog centers. In addition, to increase distribution, a new dealer
campaign was started. General and administrative expenses increased $0.32
million over the same period a year ago. Middleton Doll reclassified offsite
warehouse expenses from cost of goods sold to general and administrative
expenses in 2000. This reclassification of $0.16 million is the result of the
warehouse now being used only as a distribution center. Also included in the
$0.16 million expenses was the relocation costs of moving the distribution
center to a suburb of Columbus, Ohio during second quarter. During the second
quarter of 2000 Middleton Doll had additional personnel expenses of $0.10
million and $0.06 million in other expenses due to growth. License Products
reduced their general and administrative costs by $0.3 million.
Other income decreased $0.04 million when compared to the same period a year ago
primarily due to increases in interest expense. The minority interest in
earnings of subsidiaries decreased for the quarter ended June 30, 2000 due to a
net loss of $0.05 million at Middleton (HK). On January 1, 2000 Middleton Doll
acquired a 51% interest in Middleton (HK). Consumer products recorded an income
tax benefit of $0.13 million for the quarter ended June 30, 2000 as compared to
$0.03 million for the quarter ended June 30, 1999, an increase of $0.10 million
due to the decrease in Middleton Doll's income on an unconsolidated basis.
Income tax expense is attributable only to Middleton Doll's income since License
Products has a net operating loss carryforward to offset its current net income
and Middleton (HK)'s earnings are currently being retained in Hong Kong.
Financial Services
Net income from financial services for the quarter ended June 30, 2000 was $0.61
million compared to $0.92 million for the quarter ended June 30, 1999, a 34%
decrease. After giving effect to interest and management fees paid to the
Company by Middleton Doll, net income was $1.04 million and $1.35 million for
the three month periods ended June 30, 2000 and June 30, 1999, respectively, a
decline of 23%.
Total revenues were $3.70 million for the quarter ended June 30, 2000 compared
to $3.13 million for the quarter ended June 30, 1999, an 18% increase. Interest
on loans increased 21% to $2.61 million for the quarter ended June 30, 2000 from
$2.16 million for the comparative quarter. Average loans under management
increased $4.23 million when comparing the second quarter of 2000 to the second
quarter of 1999. The average prime rate increased from 7.75% in the second
quarter of 1999 to 9.25% in second quarter of 2000.
BMSBLC purchased one leased property during the second quarter of 2000 and
completed construction on three additional leased properties. At June 30, 2000,
the Company had $33.62 million in leased properties compared to $24.98 million
as of June 30, 1999. Rental income increased $0.35 million to $1.05 million for
the quarter ended June 30, 2000.
In the second quarter of 1999 BMSBLC sold two properties for a gain of $0.13
million. No properties were sold during 2000. Other income decreased $0.01
million when comparing the
12
three months ended June 30, 2000 to June 30, 1999 due to prepayment penalties
which were received in 1999 and not in 2000.
Interest expense increased 47% to $2.48 million for the quarter ended June 30,
2000 as compared to $1.69 million for the quarter ended June 30, 1999. The
average debt balance increased $19.33 million in the second quarter of 2000
compared to the second quarter of 1999. The increase in debt is the result of
the purchase of additional leased properties, the increase in loan growth and
the increase in treasury stock. In addition, due to the increase in the average
prime rate noted above the company's cost of funds increased. During the second
quarter of 1999 the company reduced its interest expense by $0.04 million as a
result of an investment swap that matured in June 1999. The Company has not
entered into any new investment swaps.
Due to the increase in leased properties, depreciation expense was $0.06 million
higher when comparing the second quarter of 2000 to the second quarter of 1999.
Other operating expenses increased $0.04 million for the quarter ended June 30,
2000 compared to the quarter ended June 30, 1999 due to management fees to
InvestorsBank increasing due to the increase in leased properties and higher
loan balances.
Overall net income decreased when comparing the second quarter of 2000 to the
second quarter of 1999 partially due to higher interest rates. The financial
services segment had an increase in operating expenses as a result of the
purchase of additional leased properties in 2000 and a decrease in other income
due to the nonrecurring income in 1999 from prepayment penalties and the sale of
leased properties.
For the six months ended June 30, 2000 and June 30, 1999
The Company's total net income after income taxes and minority interest for the
six months ended June 30, 2000 equaled $1.72 million or $0.44 per share
(diluted) as compared to $1.80 million or $0.45 per share (diluted) for the six
months ended June 30, 1999, a 4% decrease in net income. The June 30, 1999 per
share amount has been restated for the 10% stock dividend as of the December 31,
1999 record date.
Consumer Products
Net income from consumer products after income taxes and minority interest for
the six months ended June 30, 2000 was $1.33 million compared to $0.82 million
for the six months ended June 30, 1999, a 62% increase. After giving effect to
interest and management fees paid to the Company, the net income was $0.48
million for the six months ended June 30, 2000 compared to a loss of $14,000 for
the same period in 1999.
Net sales from consumer products for the six months ended June 30, 2000
increased 43% to $11.67 million from $8.15 million in the corresponding prior
year period. This increase was due to increased sales of $2.33 million at
Middleton Doll and $1.19 million at License Products. The majority of the sales
increase at Middleton Doll was attributable to the introduction of Small Wonder,
the new smaller play doll. Small Wonder's sales for the first six months were
$2.0 million. Cost of sales also increased 37% to $6.03 million for the six
months ended June 30, 2000 from $4.40 million for the prior year's six months.
Gross profit margin was 48% for the
13
six months ended June 30, 2000 and was 46% for the six months ended June 30,
1999. During 1999 gross profit was lower than normal due to higher factory
overhead costs and lower sales.
Total operating expenses of consumer products for the six months ended June 30,
2000 were $4.18 million compared to $2.96 million for the six months ended June
30, 1999, a 41% increase. Middleton Doll's total operating expenses increased
$1.22 million due to related expenses stemming from the continued growth of the
company. Sales and marketing expense and new product development increased $0.62
million to $2.51 million for the six months ended June 30, 2000 compared to
$1.89 million for the six months ended June 30, 1999. The increase in sales and
marketing expense was due to Middleton Doll increasing advertising with new
retailers and due to new point-of-purchase displays for J.C. Penney catalog
centers. In addition, to increase distribution, a new dealer campaign was
started. Catalog costs were also higher because Middleton Doll introduced more
dolls in 2000 than in 1999. In addition, royalties increased 33% due to the
increase in sales volume. General and administrative expenses increased $0.61
million over the same period a year ago. Middleton Doll reclassified offsite
warehouse expenses from cost of goods sold to general and administrative
expenses in 2000. This reclassification of $0.30 million is the result of the
warehouse now being used only as a distribution center. During the first six
months of 2000 Middleton Doll had additional personnel expenses of $0.18 million
and $0.13 million in other expenses due to growth.
Other income decreased to $0.04 million from $0.07 million when compared to the
same period a year ago primarily due to increases in interest expense. The
minority interest in earnings of subsidiaries decreased for the six months ended
June 30, 2000 due to a net loss of $0.04 million at Middleton (HK). On January
1, 2000 Middleton Doll acquired a 51% interest in Middleton (HK). Consumer
products recorded an income tax expense of $0.16 million for the six months
ended June 30, 2000 as compared to $0.04 million for the six months ended June
30, 1999, an increase of $0.12 million due to the increase in Middleton Doll's
income. The income tax expense is attributable only to Middleton Doll's income
since License Products has a net operating loss carryforward to offset its
current net income and Middleton (HK)'s earnings are currently being retained in
Hong Kong.
Financial Services
Net income from financial services for the six months ended June 30, 2000 was
$1.07 million compared to $1.70 million for the six months ended June 30, 1999,
a 37% decrease. After giving effect to interest and management fees paid to the
Company by Middleton Doll, net income was $1.92 million and $2.53 million for
the six month periods ended June 30, 2000 and June 30, 1999, respectively, a
decline of 24%.
Total revenues were $6.87 million for the six months ended June 30, 2000
compared to $6.20 million for the six months ended June 30, 1999, an 11%
increase. Interest on loans increased 14% to $5.06 million for the six months
ended June 30, 2000 from $4.44 million for the comparative quarter. Average
loans under management increased $1.76 million for the first six months of 2000
compared to the first six months of 1999. The average prime rate also increased
from 7.75% for the first six months of 1999 to 8.97% for the first six months of
2000.
14
BMSBLC purchased three leased properties during the first six months of 2000 and
completed construction on three additional properties. At June 30, 2000, the
Company had $33.62 million in leased properties compared to $24.07 million as of
December 31, 1999. Rental income increased $0.40 million to $1.74 million for
the six months ended June 30, 2000 compared to $1.34 million for the six months
ended June 30, 1999.
In the second half of 1999 BMSBLC sold four properties for a gain of $0.24
million. No properties were sold during 2000. Other income decreased $0.11
million when comparing the six months ended June 30, 2000 to June 30, 1999 due
to prepayment penalties and fees which were received in 1999 and not in 2000.
Interest expense increased 35% to $4.67 million for the six months ended June
30, 2000 as compared to $3.46 million for the six months ended June 30, 1999.
The average debt balance increased $12.95 million in the first six months of
2000 compared to the first six months of 1999. Also the company's cost of funds
increased due to the increase in interest rates, as noted above. During first
quarter 1999 the company reduced its interest expense by $0.09 million as a
result of an investment swap that matured in June 1999. The Company has not
entered into any new investment swaps.
Due to the increase in leased properties, depreciation expense increased 33% to
$0.32 million for the first half of 2000 compared to $0.24 million for the first
half of 1999. Other operating expenses increased 2.5% to $0.82 million for the
six months ended June 30, 2000 as compared to $0.80 million for the six months
ended June 30, 1999 due to an increase in management fees to InvestorsBank.
Overall net income decreased when comparing the first six months of 2000 to the
first six months of 1999. Interest rate increases for short-term borrowing at
the end of 1999 increased the Company's cost of funds at the beginning of 2000.
Also, the net interest margin on the portfolio decreased during the first half
of 2000 due to the rise in long-term borrowing rates. In the second quarter
overall net income decreased due to the increase in operating expenses in 2000
and the additional income in 1999 from prepayment penalties and the sale of
leased properties.
Liquidity and Capital
Consumer Products
Total assets of consumer products were $17.35 million as of June 30, 2000 and
$15.58 million as of December 31, 1999, an 11% increase.
Cash increased to $0.86 million at June 30, 2000 from $0.53 million at December
31, 1999.
Accounts receivable, net of the allowance, decreased to $1.90 million at June
30, 2000 from $2.95 million at December 31, 1999. A decrease of $1.17 million is
attributable to Middleton Doll, and an increase of $0.12 million is attributable
to License Products. Typically both companies are seasonal with higher sales in
the third and fourth quarters, which results in a decrease in the accounts
receivable balance in the following year.
15
Inventory was $7.02 million at June 30, 2000 compared to $4.78 million at
December 31, 1999. Middleton Doll's inventory increased $2.13 million due to new
doll lines while License Products' inventory increased $0.11 million. The
increase in inventories is necessary to meet the expected increase in third and
fourth quarter sales.
Fixed assets increased by $0.22 million and other assets and prepaid expenses
decreased by $0.04 million.
Middleton Doll increased its short-term borrowings by $1.26 million on a line of
credit with a bank during the six months ended June 30, 2000 to fund working
capital needs. Middleton (HK) Limited increased its long-term debt by $0.29
million also to fund working capital needs. Both companies are increasing their
inventory levels for an expected increase in sales during the third and fourth
quarters of 2000.
Accounts payable decreased by $0.07 million as of June 30, 2000 compared to
December 31, 1999. Middleton Doll's accounts payable remained the same while
License Products' accounts payable decreased $0.07 million. Other liabilities
decreased by $0.08 million.
Financial Services
Total assets of financial services were $150.32 million as of June 30, 2000 and
$140.49 million as of December 31, 1999, a 7% increase.
Cash increased to $2.82 million at June 30, 2000 from $1.51 million at December
31, 1999.
Interest receivable increased to $0.73 million from $0.60 million. Fixed assets
and other assets including prepaid amounts increased in the aggregate by $0.28
million.
Total loans decreased by $1.45 million or 1.3% to $111.78 million at June 30,
2000 from $113.23 million at December 31, 1999 due to normal market competition.
Leased properties under management increased $9.55 million due to the purchase
of three properties and the completion of construction in progress on three
properties.
The financial services' total consolidated indebtedness at June 30, 2000
increased $11.16 million as a result of the increase in leased properties,
treasury stock and cash. As of June 30, 2000, financial services had $62.40
million outstanding in long-term debt and $70.39 million outstanding in
short-term borrowings compared to $47.97 million outstanding in long-term debt
and $73.66 million outstanding in short-term borrowings as of December 31, 1999.
During the first quarter of 2000 BMSBLC entered into a long-term debt agreement
for $8.74 million which refinanced BMSBLC's short-term borrowings.
The entire short-term borrowings have a stated maturity of June 30, 2000. As of
that date the maturities were extended to June 30, 2001.
16
PART II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
The Company is not a defendant in any material pending legal
proceeding and no such material proceedings are known to be
contemplated.
Item 2. CHANGES IN SECURITIES
No material changes have occurred in the securities of the Registrant.
Item 3. DEFAULTS UPON SENIOR SECURITIES
Not Applicable.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On May 3, 2000, the annual meeting of shareholders was held. At the
meeting, Robert A. Cooper and David A. Geraldson were elected by the
holders of Preferred Stock, voting as a separate class, to serve as
Directors of the Company until the next annual meeting of
shareholders. Peter A. Fischer and Salvatore L. Bando were elected by
the holders of the Preferred Stock and the Common Stock, voting
together, to serve as Directors of the Company until the next annual
meeting of shareholders. The Common Stock and Preferred Stock
shareholders also ratified the appointment of BDO Seidman, LLP as the
Company's independent public accountants for the year ending December
31, 2000.
There were 3,971,889 issued and outstanding shares of Common Stock
outstanding and 674,791 issued and outstanding shares of Preferred
Stock at the time of the annual meeting. The voting on each item
presented at the annual meeting was as follows:
For Withheld
--- --------
Election of Director
Preferred Stock votes:
Robert A. Cooper 651,878 11,230
David A. Geraldson 651,578 11,530
Preferred and Common Stock votes:
Peter A. Fischer 4,221,920 38,437
Salvatore L. Bando 4,212,269 48,088
For Against Abstain Total
--- ------- ------- -----
Ratification of
Accountants 4,210,909 20,685 28,763 4,260,357
Item 5. OTHER INFORMATION
None.
17
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) List of Exhibits
The Exhibits to this Quarterly Report on Form 10-Q are identified on
the Exhibit Index hereto.
(b) Reports on Form 8-K
No reports on Form 8-K were filed by the Company during the quarter
ended June 30, 2000.
18
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunder duly authorized.
BANDO McGLOCKLIN CAPITAL CORPORATION
(Registrant)
Date: August 14, 2000 /s/ George R. Schonath
----------------------
George R. Schonath
President and Chief Executive Officer
Date: August 14, 2000 /s/ Susan J. Hauke
------------------
Susan J. Hauke
Vice President Finance
19
BANDO McGLOCKLIN CAPITAL CORPORATION AND SUBSIDIARIES
QUARTERLY REPORT ON FORM 10-Q
EXHIBIT INDEX
Exhibit
Number Exhibit
4.1 Third Amendment to Credit Agreement between Bando McGlocklin Capital
Corporation and Firstar Bank, dated April 28, 2000.
4.2 Fourth Amendment to Credit Agreement between Bando McGlocklin
Capital Corporation and Firstar Bank, dated June 30, 2000.
4.3 Second Amendment to Amended and Restated Credit Agreement between
Bando McGlocklin Small Business Lending Corporation and Firstar
Bank, as agent for the Lenders, dated April 28, 2000.
4.4 Third Amendment to Amended and Restated Credit Agreement between
Bando McGlocklin Small Business Lending Corporation and Firstar
Bank, as agent for the Lenders, dated June 30, 2000.
11 Statement Regarding Computation of Per Share Earnings
27 Financial Data Schedule (EDGAR version only)
20