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 September 30, 2000
------------------
or
[ ] Transition Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from _____ to _____
Commission file number: 0-22663
BANDO McGLOCKLIN CAPITAL CORPORATION
(Exact name of registrant as specified in its charter)
Wisconsin 39-1364345
--------- ----------
(State or other jurisdiction
of incorporation) (I.R.S. Employer Identification No.)
W239 N1700 Busse Road
Waukesha, Wisconsin 53188-1160
------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (262) 523-4300
--------------
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 November 14, 2000, there were 3,727,589 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 September 30,
2000 (Unaudited) and December 31, 1999 ............................. 3
Consolidated Statements of Operations - For the
Three and Nine Months Ended September 30, 2000
and 1999 (Unaudited) ............................................... 5
Consolidated Statements of Cash Flows - For the Nine
Months Ended September 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 ......................................... 18
Item 2. Changes in Securities ..................................... 18
Item 3. Defaults Upon Senior Securities ........................... 18
Item 4. Submission of Matters to a Vote of Security Holders ....... 18
Item 5 Other Information ......................................... 18
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)
September 30, December 31,
2000 1999
------------- ------------
ASSETS
Consumer Products
Cash $ 691,409 $ 530,919
Accounts receivable, net of allowance of
$182,889 and $129,280 as of September 30,
2000 and December 31, 1999, respectively 3,887,638 2,954,428
Inventory 7,485,552 4,784,645
Prepaid inventory 195,769 872,531
Prepaid corporate taxes 236,988 -
Other prepaid expenses 179,416 407,361
------------ ------------
Total current assets 12,676,772 9,549,884
Fixed assets, net of accumulated
depreciation of $1,779,512 and $1,408,103
as of September 30, 2000 and December 31,
1999, respectively 3,225,746 2,880,881
Loans 621,968 621,968
Prepaid expenses and other assets 525,914 288,926
Licensing Agreement 1,291,666 1,666,667
Goodwill, net of accumulated amortization
of $74,878 and $51,640 as of June 30,
2000 and December 31, 1999, respectively 544,875 568,113
------------ ------------
Total Consumer Products assets 18,886,941 15,576,439
------------ ------------
Financial Services
Cash 718,052 1,509,148
Interest receivable 781,384 597,705
Rent receivable 256,476 125,436
Loans, net of allowance for doubtful
accounts of $150,000 as of September 30,
2000 and December 31, 1999, respectively 107,810,650 113,229,680
Leased properties:
Buildings, net of accumulated depreciation
of $1,026,737 and $536,684 as of
September 30, 2000 and December 31, 1999,
respectively 31,668,511 17,897,897
Land 4,834,436 2,848,326
Construction in progress 108,517 3,324,085
------------ ------------
Total leased properties 36,611,464 24,070,308
Fixed assets, net of accumulated
depreciation of $499,619 and $429,167 as
of September 30, 2000 and December 31, 1999,
respectively 251,913 313,393
Other assets, net 1,355,000 643,415
------------ ------------
Total Financial Services assets 147,784,939 140,489,085
------------ ------------
Total Assets $166,671,880 $156,065,524
============ ============
3
BANDO McGLOCKLIN CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (Continued)
(Unaudited)
September 30, December 31,
2000 1999
------------- ------------
LIABILITIES, MINORITY INTEREST,
PREFERRED STOCK AND SHAREHOLDERS' EQUITY
Consumer Products
Short-term borrowings $ 1,955,000 $ 200,000
Accounts payable 1,420,752 888,469
Accrued salaries 322,273 355,075
Accrued corporate taxes - 431,309
Accrued liabilities 623,953 336,029
------------ ------------
Total current liabilities 4,321,978 2,210,882
Long-term debt 319,455 29,926
------------ ------------
Total Consumer Products liabilities 4,641,433 2,240,808
------------ ------------
Financial Services
Commercial paper 62,691,156 68,657,172
Notes payable to banks 8,157,575 5,000,000
------------ ------------
Short-term borrowings 70,848,731 73,657,172
State of Wisconsin Investment Board notes payble 12,666,667 13,666,667
Loan participations with repurchase options 33,870,252 32,724,235
Other long-term debt 13,849,623 1,583,761
Accrued liabilities 1,650,509 1,760,157
------------ ------------
Total Financial Services liabilities 132,885,782 123,391,992
------------ ------------
Minority interest in subsidiaries 53,822 41,055
Redeemable Preferred stock, 1 cent par value,
3,000,000 shares authorized, 690,000 shares
issued and outstanding as of September 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 September 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
September 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 1,702,955 1,218,617
Treasury stock, at cost (631,510 shares and
416,710 shares as of September 30, 2000 and
December 31, 1999, respectively) (6,365,072) (4,633,158)
------------ ------------
Total Shareholders' Equity 12,236,068 13,483,644
------------ ------------
Total Liabilities, Minority Interest,
Preferred Stock and Shareholders' Equity $166,671,880 $156,065,524
============ ============
4
BANDO McGLOCKLIN CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
2000 1999 2000 1999
---------- ---------- ----------- -----------
Consumer Products
Net sales $7,553,151 $6,849,590 $19,221,451 $14,995,990
Cost of sales 4,037,254 3,733,899 10,067,075 8,130,612
---------- ---------- ----------- -----------
Gross profit 3,515,897 3,115,691 9,154,376 6,865,378
Operating expenses
Sales and marketing 1,300,494 1,001,311 3,494,456 2,597,445
New product development 182,564 182,236 499,141 478,777
General and administrative 1,119,630 499,118 2,793,323 1,565,628
---------- ---------- ----------- -----------
Total operating expenses 2,602,688 1,682,665 6,786,920 4,641,850
Other income (expense)
Interest expense (54,147) (52,037) (97,837) (54,564)
Other income, net 15,550 4,355 103,938 78,490
---------- ---------- ----------- -----------
Total other income (expense) (38,597) (47,682) 6,101 23,926
Income before income taxes
and minority interest 874,612 1,385,344 2,373,557 2,247,454
Income tax expense (279,145) (360,913) (440,186) (404,150)
Minority interest in earnings
of subsidiaries (1,607) (6,269) (6,451) (6,105)
---------- ---------- ----------- -----------
Net income 593,860 1,018,162 1,926,920 1,837,199
---------- ---------- ----------- -----------
Financial Services
Revenues
Interest on loans 2,589,329 2,038,930 7,653,347 6,477,540
Rental income 1,017,439 733,968 2,755,089 2,072,502
Gain on sales of leased property 36,471 - 36,471 239,568
Other income 46,597 37,113 118,902 220,219
---------- ---------- ----------- -----------
Total revenues 3,689,836 2,810,011 10,563,809 9,009,829
---------- ---------- ----------- -----------
Expenses
Interest expense 2,622,316 1,682,604 7,289,850 5,142,648
Depreciation expense on
leased properties 197,072 134,955 516,493 376,625
Other operating expenses 437,736 371,990 1,258,832 1,171,104
---------- ---------- ----------- -----------
Total expenses 3,257,124 2,189,549 9,065,175 6,690,377
---------- ---------- ----------- -----------
Net income $ 432,712 $ 620,462 $ 1,498,634 $ 2,319,452
========== ========== =========== ===========
5
BANDO McGLOCKLIN CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS - (Continued)
(Unaudited)
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
2000 1999 2000 1999
---------- ---------- ----------- -----------
Total Company
Income before income taxes and
minority interest
Consumer products $ 874,612 $ 1,385,344 $ 2,373,557 $ 2,247,454
Financial services 432,712 620,462 1,498,634 2,319,452
----------- ----------- ----------- -----------
Total company 1,307,324 2,005,806 3,872,191 4,566,906
Income tax expense (279,145) (360,913) (440,186) (404,150)
Minority interest in earnings of
subsidiaries (1,607) (6,269) (6,451) (6,105)
----------- ----------- ----------- -----------
Net income 1,026,572 1,638,624 3,425,554 4,156,651
Preferred stock dividends (359,749) (359,748) (1,035,766) (1,079,244)
----------- ----------- ----------- -----------
Net income available to common
shareholders $ 666,823 $ 1,278,876 $ 2,389,788 $ 3,077,407
=========== =========== =========== ===========
Basic Earnings Per Share $ 0.18 $ 0.32* $ 0.62 $ 0.77
=========== =========== =========== ===========
Diluted Earnings Per Share $ 0.18 $ 0.32* $ 0.62 $ 0.76
=========== =========== =========== ===========
* Restated for 10% stock dividend as of the December 31, 1999 record date.
Segment Reconciliation
Consumer products
Net income $ 593,860 $ 1,018,162 $ 1,926,920 $ 1,837,199
Interest expense to parent (308,655) (303,016) (914,951) (896,481)
Management fees to parent (126,105) (90,135) (373,285) (330,201)
----------- ----------- ----------- -----------
Total segment net income 159,100 625,011 638,684 610,517
Financial services
Net income 432,712 620,462 1,498,634 2,319,452
Interest income from subsidiary 308,655 303,016 914,951 896,481
Management fees from subsidiary 126,105 90,135 373,285 330,201
----------- ----------- ----------- -----------
Total segment net income 867,472 1,013,613 2,786,870 3,546,134
Total company net income $ 1,026,572 $ 1,638,624 $ 3,425,554 $ 4,156,651
=========== =========== =========== ===========
6
BANDO McGLOCKLIN CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
For the Nine Months For the Nine Months
Ended September 30, 2000 Ended September 30, 1999
Consumer Financial Consumer Financial
Products Services Products Services
----------- ------------ ----------- ------------
Cash Flows from Operating Activities:
Net income $ 1,926,920 $ 1,498,634 $ 1,837,199 $ 2,319,452
Adjustments to reconcile net cash
provided by operating activities:
Depreciation and amortization 394,647 586,945 344,088 451,243
Allowance for doubtful accounts 53,609 - - -
Provision for inventory reserve 86,592 - - -
Change in appreciation on
investments - (17,688) - 54,337
Change in minority interest in
subsidiaries 12,767 - 6,105 -
Increase (decrease) in cash due
to change in:
Accounts receivable (986,819) - (396,281) -
Inventory (2,983,268) - (1,984,728) -
Interest receivable - (183,679) 101,621
Other assets 1,001,501 (824,937) 329,182 (76,394)
Accounts payable 532,283 - (264,985) -
Other liabilities (176,187) (109,648) (746,230) (306,281)
----------- ------------ ----------- ------------
Net Cash (Used) Provided by Operations (137,955) 949,627 (875,650) 2,543,978
----------- ------------ ----------- ------------
Cash Flows from Investing Activities:
Loans made - (32,762,171) - (30,439,209)
Principal collected on loans - 38,181,201 - 49,427,430
Proceeds from sale of leased
properties - 555,722 - 2,601,063
Purchase or construction of
leased properties - (13,613,371) (8,484,122)
Purchase of fixed assets (716,274) (8,972) (579,506) (23,252)
----------- ------------ ----------- ------------
Net Cash (Used) Provided by Investing (716,274) (7,647,591) (579,506) 13,081,910
----------- ------------ ----------- ------------
Cash Flows from Financing Activities:
Increase (decrease) in short
term borrowings 2,049,000 (2,808,441) 1,606,863 (729,186)
Proceeds from loan participations
with repurchase options - net 13,416,017 - (11,132,541)
Repayment of SWIB notes - (1,000,000) (1,000,000)
(Decrease) in other notes payable (4,471) (4,138) (4,001) (3,901)
Preferred stock dividends paid - (1,089,016) - (1,079,244)
Common stock dividends paid - (1,905,450) - (1,974,880)
Repurchase of common stock - (1,731,914) - (780,647)
----------- ------------ ----------- ------------
Net Cash Provided (Used) by Financing 2,044,529 4,877,058 1,602,862 (16,700,399)
----------- ------------ ----------- ------------
Net intercompany transactions (1,029,810) 1,029,810 (1,860,654) 1,860,654
Net increase (decrease) in cash 160,490 (791,096) (1,712,948) 786,143
Cash, beginning of period 530,919 1,509,148 2,209,105 626,838
----------- ------------ ----------- ------------
Cash, end of period $ 691,409 $ 718,052 $ 496,157 $ 1,412,981
=========== ============ =========== ============
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 September 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:
September 30, December 31,
2000 1999
------------- ------------
Raw materials, net of reserve
of $322,160 and $235,568,
respectively $ 3,374,775 $ 2,157,740
Work in process 451,330 90,613
Finished goods 3,659,447 2,536,292
----------- -----------
Total $ 7,485,552 $ 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 September 30, 2000, the outstanding principal balance was $8,470,000 and
the interest rate was 5.6%. The principal balance is included in other long-term
debt on the balance sheet.
As of June 30, 2000, BMSBLC entered into an amendment to its amended and
restated loan agreement with five participating banks. The loan agreement
provides for a maximum principal of $75,000,000 less the outstanding principal
amount of commercial paper and industrial revenue bonds. The facility bears
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, 2001.
On June 30, 2000, BMCC entered into an amended credit agreement with one of its
correspondent banks providing for a note of $8,500,000 bearing interest at the
prime rate. Interest is payable quarterly and the credit agreement expires on
June 30, 2001. As of September 30, 2000, the outstanding principal balance was
$7,950,000.
On September 15, 2000, BMSBLC entered into a Letter of Credit Agreement with one
of its correspondent banks for issuance of industrial revenue bonds. The bonds
mature in 2012 with quarterly interest payments and a yearly principal reduction
payable to the trustee. The interest rate changes quarterly based upon the
remarketing agent's lowest rate to permit the sale of the bonds. As of September
30, 2000, the outstanding principal balance was $3,800,000 and the interest rate
was 4.55%. The principal balance is included in other long term debt on the
balance sheet.
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 $1.29 million of interest and other
expenses on transactions with the Company. In addition, $0.05 million of income
earned by License Products is offset by net operating loss carryforwards.
NOTE 6. TREASURY STOCK
During the first nine months of 2000 the Company purchased 214,800 shares of its
common stock in the open market at an average price of $8.06. 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
September 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 $5,724,434
at September 30, 2000.
10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
General
Amounts presented as of September 30, 2000 and December 31, 1999, and for the
three months and the nine months ended September 30, 2000 and September 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 September 30, 2000 and September 30, 1999
The Company's total net income available to common shareholders for the quarter
ended September 30, 2000 equaled $0.67 million or $0.18 per share (diluted) as
compared to $1.28 million or $0.32 per share (diluted) for the quarter ended
September 30, 1999, a 48% decrease in net income. The September 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 September 30, 2000 was $0.59 million compared to $1.02 million
for the quarter ended September 30, 1999, a 42% decrease. After giving effect to
interest and management fees paid to the Company, the consumer products segment
income was $0.16 million and $0.63 million for the quarters ended September 30,
2000 and September 30, 1999, respectively.
Net sales from consumer products for the quarter ended September 30, 2000
increased 10% to $7.55 million from $6.85 million in the corresponding prior
year period. This increase was due to increased sales of $0.69 million at
Middleton Doll and $0.01 million at License Products. Middleton Doll's new line
of Small Wonder dolls, the new smaller play doll, accounted for an increase in
sales of $1.29 million in the third quarter of 2000. This was offset by a
decline of $0.60 million in the other doll lines during the quarter. Cost of
sales also increased 8% to $4.04 million for the quarter ended September 30,
2000 from $3.73 million for the prior year quarter. Gross profit margin
increased to 47% at September 30, 2000 from 45% at September 30, 1999. The
increase in gross profit margin was primarily attributable to the improved
pricing structure on the collectible doll lines which accounted for 21% of sales
for the quarter ended September 30, 2000.
Total operating expenses of consumer products for the quarter ended September
30, 2000 were $2.60 million compared to $1.68 million for the quarter ended
September 30, 1999, a 55%
11
increase. Middleton Doll's total operating expenses increased $0.87 million due
to related expenses stemming from the continued growth of the company while
License Products' operating expenses increased $0.05 million. Sales and
marketing expense and new product development increased $0.30 million to $1.48
million for the quarter ended September 30, 2000 compared to $1.18 million for
the quarter ended September 30, 1999. New marketing and sales promotions related
to the introduction of the Small Wonder doll accounted for $0.13 million of the
increase. Dealer advertising programs accounted for an additional $0.10 million
of the increase with additional sales staffing and the opening of a New York
showroom accounting for the balance of the increase. General and administrative
expenses increased $0.62 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 $0.24 million is the
result of the warehouse being relocated to Columbus, Ohio, and being used only
as a distribution center. Personnel expenses increased $0.17 million during the
quarter due to growth and due to the staffing of the new distribution center.
Nonrecurring expenses of $0.17 million were due to the relocation of the sales
and marketing offices to a suburb of Columbus, Ohio, during the third quarter.
Other third quarter expenses increased $0.02 million. General and administrative
costs at License Products increased by $0.02 million.
Other income decreased $0.01 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 September 30, 2000 due
to a net loss at License Products. Consumer products recorded an income tax
expense of $0.28 million for the quarter ended September 30, 2000 as compared to
$0.36 million for the quarter ended September 30, 1999, a decrease of $0.08
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 loss for the quarter and Middleton (HK)'s earnings
are currently being retained in Hong Kong.
Financial Services
Net income from financial services for the quarter ended September 30, 2000 was
$0.43 million compared to $0.62 million for the quarter ended September 30,
1999, a 31% decrease. After giving effect to interest and management fees paid
to the Company by Middleton Doll, net income was $0.87 million and $1.01 million
for the three month periods ended September 30, 2000 and September 30, 1999,
respectively, a decline of 14%.
Total revenues were $3.69 million for the quarter ended September 30, 2000
compared to $2.81 million for the quarter ended September 30, 1999, a 31%
increase. Interest on loans increased 27% to $2.59 million for the quarter ended
September 30, 2000 from $2.04 million for the comparative quarter. Average loans
under management increased $8.21 million when comparing the third quarter of
2000 to the third quarter of 1999. The average prime rate increased from 8.10%
in the third quarter of 1999 to 9.50% in third quarter of 2000.
BMSBLC purchased three leased properties and sold one leased property during the
third quarter of 2000. Rental income increased $0.28 million to $1.02 million
for the quarter ended
12
September 30, 2000 and the Company owned $36.61 million in leased properties at
September 30, 2000.
In the third quarter of 2000 BMSBLC sold one property for a gain of $0.04
million. No properties were sold during the third quarter of 1999. Other income
increased $0.01 million when comparing the three months ended September 30, 2000
to September 30, 1999 due to an increase in interest income on short-term
investments.
Interest expense increased 56% to $2.62 million for the quarter ended September
30, 2000 as compared to $1.68 million for the quarter ended September 30, 1999.
The average debt balance increased $22.03 million in the third quarter of 2000
compared to the third quarter of 1999. The increase in debt is the result of the
purchase of additional leased properties and the funding of an increase in
treasury stock. In addition, due to the increase in the average prime rate noted
above the company's cost of funds increased and the interest rate spread
narrowed on debt swap agreements. During the third quarter of 2000 debt swap
agreements contributed $0.06 million of expense while during the third quarter
of 1999 debt swap agreements contributed $0.18 million of income. Net interest
margin decreased to 2.89% for the quarter ended September 30, 2000 compared to
3.50% for the quarter ended September 30, 1999.
Due to the increase in leased properties, depreciation expense was $0.06 million
higher when comparing the third quarter of 2000 to the third quarter of 1999.
Other operating expenses increased $0.07 million for the quarter ended September
30, 2000 compared to the quarter ended September 30, 1999. Management fees to
InvestorsBank increased $0.03 million due to the increase in leased properties
and higher loan balances. Legal fees and leased property expenses increased
$0.02 million each.
Overall net income decreased when comparing the third quarter of 2000 to the
third quarter of 1999 for both the consumer products and the financial services
segments. The consumer products segment's net income decreased due to an
increase in operating expenses. These expenses were incurred in order to meet
increased product demand and to provide a framework for future growth. The
financial services segment's net income decreased due to the narrowing of
interest rate spreads during the quarter.
For the nine months ended September 30, 2000 and September 30, 1999
The Company's total net income available to common shareholders for the nine
months ended September 30, 2000 equaled $2.39 million or $0.62 per share
(diluted) as compared to $3.08 million or $0.76 per share (diluted) for the nine
months ended September 30, 1999, a 22% decrease in net income. The September 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 nine months ended September 30, 2000 was $1.93 million compared to $1.84
million for the nine months ended September 30, 1999, a 5% increase. After
giving effect to interest and management fees
13
paid to the Company, the net income was $0.64 million for the nine months ended
September 30, 2000 compared to $0.61 million for the same period in 1999.
Net sales from consumer products for the nine months ended September 30, 2000
increased 28% to $19.22 million from $15.0 million in the corresponding prior
year period. This increase was due to increased sales of $3.01 million at
Middleton Doll and $1.21 million at License Products. Middleton Doll's new line
of Small Wonder dolls, the new smaller play doll, accounted for an increase in
sales of $3.26 million for the nine months ended September 30, 2000. This was
offset by a decline of $0.25 million in the other doll lines during the same
period. Cost of sales also increased 24% to $10.07 million for the nine months
ended September 30, 2000 from $8.13 million for the prior year's nine months.
Gross profit margin was 48% for the nine months ended September 30, 2000 and was
46% for the nine months ended September 30, 1999. The increase in gross profit
margin was primarily attributable to the improved pricing structure on the
collectible doll lines which accounted for 58% of sales for the nine months
ended September 30, 2000.
Total operating expenses of consumer products for the nine months ended
September 30, 2000 were $6.79 million compared to $4.64 million for the nine
months ended September 30, 1999, a 46% increase. Middleton Doll's total
operating expenses increased $2.08 million due to related expenses stemming from
the continued growth of the company. Sales and marketing expense and new product
development increased $0.92 million to $3.99 million for the nine months ended
September 30, 2000 compared to $3.07 million for the nine months ended September
30, 1999. The increase in sales and marketing expense was primarily related to
the introduction of the Small Wonder doll in 2000. Additional expenses were due
to dealer advertising programs, the opening of a New York showroom and
additional sales staff. Royalties increased 24% due to the increase in sales
volume. General and administrative expenses increased $1.23 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 $0.54 million is the result of the warehouse being relocated
to Columbus, Ohio, and being used only as a distribution center. Personnel
expenses increased during the quarter due to growth and due to the staffing of
the new distribution center. Nonrecurring expenses of $0.29 million were due to
the relocation of the sales and marketing offices to a suburb of Columbus, Ohio,
during the third quarter and to the establishment of the new distribution center
during the second quarter.
Other income decreased $0.02 million when compared to the same period a year ago
primarily due to increases in interest expense. The minority interest in
earnings of subsidiaries remained constant for both periods. Consumer products
recorded an income tax expense of $0.44 million for the nine months ended
September 30, 2000 as compared to $0.40 million for the nine months ended
September 30, 1999, an increase of $0.04 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.
14
Financial Services
Net income from financial services for the nine months ended September 30, 2000
was $1.50 million compared to $2.32 million for the nine months ended September
30, 1999, a 35% decrease. After giving effect to interest and management fees
paid to the Company by Middleton Doll, net income was $2.79 million and $3.55
million for the nine month periods ended September 30, 2000 and June 30, 1999,
respectively, a decline of 21%.
Total revenues were $10.56 million for the nine months ended September 30, 2000
compared to $9.01 million for the nine months ended June 30, 1999, a 17%
increase. Interest on loans increased 18% to $7.65 million for the nine months
ended September 30, 2000 from $6.48 million for the comparative quarter. Average
loans under management increased $3.96 million for the first nine months of 2000
compared to the first nine months of 1999. The average prime rate also increased
from 7.87% for the first nine months of 1999 to 9.15% for the first nine months
of 2000.
BMSBLC purchased six leased properties during the first nine months of 2000 and
completed construction on three additional properties. At September 30, 2000,
the Company had $36.61 million in leased properties compared to $24.07 million
as of December 31, 1999. Rental income increased $0.69 million to $2.76 million
for the nine months ended September 30, 2000 compared to $2.07 million for the
nine months ended September 30, 1999.
In the first nine months of 2000 BMSBLC sold one property for a gain of $0.04
million. During the same period in 1999 BMSBLC sold four properties for a gain
of $0.24 million. Other income decreased $0.10 million when comparing the nine
months ended September 30, 2000 to September 30, 1999 due to prepayment
penalties which were received in 1999 and not in 2000.
Interest expense increased 42% to $7.29 million for the nine months ended
September 30, 2000 as compared to $5.14 million for the nine months ended
September 30, 1999. The average debt balance increased $15.49 million in the
first nine months of 2000 compared to the first nine months of 1999. The
increase in debt is the result of the purchase of additional leased properties
and the funding of an increase in treasury stock. In addition, due to the
increase in the average prime rate noted above the company's cost of funds
increased and the interest rate spread narrowed on debt swap agreements. During
the nine months ended September 30, 2000 debt swap agreements contributed $0.01
million of expense while during the nine months ended September 30, 1999 debt
swap agreements contributed $0.67 million of income. Net interest margin
decreased to 3.06% for the nine months ended September 30, 2000 compared to
3.50% for the nine months ended September 30, 1999.
Due to the increase in leased properties, depreciation expense increased 37% to
$0.52 million for the first nine months of 2000 compared to $0.38 million for
the first nine months of 1999. Other operating expenses increased 8% to $1.26
million for the nine months ended September 30, 2000 as compared to $1.17
million for the nine months ended September 30, 1999. Management fees to
InvestorsBank increased $0.07 million due to the increase in leased properties
and higher loan balances. Legal fees increased $0.02 million and leased property
expenses increased $0.05 million during the period. Changes in the value of
investments caused a net decrease in expense of $0.07 million between the two
periods.
15
Overall net income decreased when comparing the first nine months of 2000 to the
first nine months of 1999. Interest rate increases were the primary cause of the
decrease. Short-term borrowing at the end of 1999 increased the Company's cost
of funds at the beginning of 2000, and the net interest margin on the portfolio
decreased during the second and third quarters of 2000.
Liquidity and Capital
Consumer Products
Total assets of consumer products were $18.89 million as of September 30, 2000
and $15.58 million as of December 31, 1999, a 21% increase.
Cash increased to $0.69 million at September 30, 2000 from $0.53 million at
December 31, 1999.
Accounts receivable, net of the allowance, increased to $3.89 million at
September 30, 2000 from $2.95 million at December 31, 1999. An increase of $0.78
million is attributable to Middleton Doll, and an increase of $0.16 million is
attributable to License Products. Typically both companies are seasonal with
higher sales in the third and fourth quarters, which results in an increase in
the accounts receivable balances during those periods.
Inventory was $7.49 million at September 30, 2000 compared to $4.78 million at
December 31, 1999. Middleton Doll's inventory increased $2.55 million due to new
doll lines while License Products' inventory increased $0.16 million. The
increase in inventories was necessary to meet the expected increase in fourth
quarter sales.
Fixed assets increased by $0.34 million and other assets and prepaid expenses
decreased by $0.84 million due mainly to a decrease in prepaid inventory items
and due to the amortization of the licensing agreement.
Middleton Doll increased its short-term borrowings by $1.76 million on a line of
credit with a bank during the nine months ended September 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 have increasing
accounts receivable and inventory levels due to increased sales during 2000.
Accounts payable increased by $0.53 million as of September 30, 2000 compared to
December 31, 1999. Middleton Doll's accounts payable increased by $0.61 million
while License Products' accounts payable decreased $0.08 million. Other
liabilities decreased by $0.18 million.
16
Financial Services
Total assets of financial services were $147.78 million as of September 30, 2000
and $140.49 million as of December 31, 1999, a 5% increase.
Cash decreased to $0.72 million at September 30, 2000 from $1.51 million at
December 31, 1999.
Interest and rent receivable increased to $1.04 million from $0.72 million.
Fixed assets and other assets including prepaid amounts increased in the
aggregate by $0.65 million.
Total loans decreased by $5.42 million or 4.8% to $107.81 million at September
30, 2000 from $113.23 million at December 31, 1999 due to normal market
competition. Leased properties under management increased $12.54 million due to
the purchase of six properties and the completion of construction in progress on
three properties.
The financial services' total consolidated indebtedness at September 30, 2000
increased $9.61 million as a result of the increase in leased properties and the
funding of an increase in treasury stock. As of September 30, 2000, financial
services had $60.39 million outstanding in long-term debt and $70.85 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.
17
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
None
Item 5. OTHER INFORMATION
None.
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
A report on Form 8-K was filed by the Company dated
September 22, 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: November 14, 2000 /s/ George R. Schonath
----------------------
George R. Schonath
President and Chief Executive Officer
Date: November 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
- -------------- -------
11 Statement Regarding Computation of Per Share Earnings
27 Financial Data Schedule (EDGAR version only)
20