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 March 31, 1999
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 (I.R.S. Employer
of incorporation) Identification No.)
W239 N1700 Busse Road
P.O. Box 190 53072-0190
Pewaukee, Wisconsin (Zip Code)
(Address of principal executive offices)
Registrant's telephone number, including area code: (414) 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 May 12, 1999 there were 3,656,771 shares outstanding of the Registrant's
common stock, 6 2/3 cents par value.
BANDO McGLOCKLIN CAPITAL CORPORATION
FORM 10-Q INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheet as of March 31, 1999 and
December 31, 1998...................................................3
Consolidated Statement of Operations - For the Three Months
Ended March 31, 1999 and 1998.......................................5
Consolidated Statement of Cash Flows - For the Three Months
Ended March 31, 1999 and 1998.......................................7
Notes to the Consolidated Financial Statements......................9
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations............................................11
PART II. OTHER INFORMATION
Item 1. Legal Proceedings....................................................15
Item 2. Changes in Securities................................................15
Item 3. Defaults Upon Senior Securities......................................15
Item 4. Submission of Matters to a Vote of Security Holders..................15
Item 5. Other Information....................................................15
Item 6. Exhibits and Reports on Form 8-K.....................................15
Signatures.........................................................16
Exhibit Index......................................................17
2
BANDO McGLOCKLIN CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(Unaudited)
March 31, December 31,
-------- -----------
1999 1998
---- ----
ASSETS
Consumer Products:
- ------------------
Cash $ 1,037,803 $ 2,209,105
Accounts receivable, net of allowance of
$101,618 and $75,557 as of March 31, 1999
and December 31, 1998, respectively 1,255,847 2,177,385
Inventory 4,273,992 3,261,553
Prepaid expenses 673,577 614,362
------------ ------------
Total current assets 7,241,219 8,262,405
------------ ------------
Fixed assets, net of accumulated depreciation of
$1,063,280 and $1,069,042 as of March 31, 1999
and December 31, 1998, respectively 2,809,819 2,648,947
Loans 621,968 621,968
Prepaid expenses and other assets 2,188,947 2,413,210
Goodwill, net of accumulated amortization of
$28,402 and $20,656 as of March 31, 1999
and December 31, 1998, respectively 591,351 599,097
------------ ------------
Total Consumer Products assets 13,453,304 14,545,627
------------ ------------
Financial Services:
- -------------------
Cash 409,635 626,838
Interest receivable 729,281 644,780
Other current assets 89,273 235,292
------------ ------------
Total current assets 1,228,189 1,506,910
------------ ------------
Loans 111,703,602 115,759,968
Leased properties:
Buildings, net of accumulated depreciation of
$315,088 and $214,822 as of March 31, 1999
and December 31, 1998 17,926,905 18,782,045
Land 2,963,595 3,090,572
Construction in progress 1,243,403 133,649
------------ ------------
Total Leased Properties 22,133,903 22,006,266
Fixed assets, net of accumulated depreciation of
$353,484 and $329,216 as of March 31, 1999
and December 31, 1998, respectively 373,345 384,703
Other assets, net 413,790 220,613
------------ ------------
Total Financial Services assets 135,852,829 139,878,460
------------ ------------
Total Assets $149,306,133 $154,424,087
============ ============
3
BANDO McGLOCKLIN CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET - (Continued)
(Unaudited)
March 31, December 31,
-------- -----------
1999 1998
---- ----
LIABILITIES, MINORITY INTEREST,
PREFERRED STOCK AND SHAREHOLDERS' EQUITY
Consumer Products:
- ------------------
Accounts payable $ 552,904 $ 748,838
Accrued liabilities 1,054,068 1,959,191
------------ ------------
Total current liabilities 1,606,972 2,708,029
Long-term debt 34,019 35,279
------------ ------------
Total Consumer Products liabilities 1,640,991 2,743,308
------------ ------------
Financial Services:
Commercial paper 51,446,905 52,487,321
Notes payable to banks 5,045,000 6,040,000
------------ ------------
Short-term borrowings 56,491,905 58,527,321
Accrued liabilities 4,886,764 1,898,342
------------ ------------
Total current liabilities 61,378,669 60,425,663
State of Wisconsin Investment Board notes
payable 14,666,667 15,000,000
Loan participations with repurchase options 41,012,635 45,881,418
Other notes payable 1,587,679 1,588,989
------------ ------------
Total Financial Services liabilities 118,645,650 122,896,070
------------ ------------
Minority interest in subsidiaries 21,120 20,399
Redeemable Preferred stock, 1 cent par value,
3,000,000 shares authorized in 1999 and 1998;
674,791 shares issued and outstanding after
deducting 15,209 shares in treasury as of
March 31, 1999 and December 31, 1998 16,908,025 16,908,025
Shareholders' Equity
Common stock, 6 2/3 cents par value,
15,000,000 shares authorized in 1999 and
1998, 4,001,540 shares issued and outstanding
as of March 31, 1999 and December 31, 1998,
before deducting shares in treasury 266,769 266,769
Additional paid-in capital 13,671,947 13,671,947
Retained earnings 2,004,142 1,770,080
Treasury stock, at cost (312,438 shares as of
March 31, 1999 and December 31, 1998) (3,852,511) (3,852,511)
------------ ------------
Total Shareholders' Equity 12,090,347 11,856,285
------------ ------------
Total Liabilities, Minority Interest,
Preferred Stock and Shareholders' Equity $149,306,133 $154,424,087
============ ============
4
BANDO McGLOCKLIN CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
Three Months Ended
------------------
March 31,
---------
1999 1998
---- ----
Consumer Products:
- ------------------
Net sales $4,218,825 $3,431,767
Cost of sales 2,133,059 1,819,440
---------- ----------
Gross profit 2,085,766 1,612,327
Operating expenses:
Sales and marketing 909,665 669,855
New product development 142,598 131,583
General and administrative 506,595 554,865
---------- ----------
Total operating expenses 1,558,858 1,356,303
Other income (expense):
Interest expense (4,131) (4,792)
Other income, net 32,702 9,654
---------- ----------
Total other income (expense) 28,571 4,862
Income before income
taxes and minority interest 555,479 260,886
Provision for income taxes (74,174) (140,154)
Minority interest in earnings
of subsidiaries (720) (108,608)
---------- ----------
Net Income 480,585 12,124
---------- ----------
Financial Services:
- -------------------
Revenues:
Interest on loans 2,279,589 2,838,157
Rental income 633,820 -
Other income 159,983 87,260
---------- ----------
Total revenues 3,073,392 2,925,417
---------- ----------
Expenses:
Interest expense 1,769,540 1,846,366
Other operating expenses 526,589 313,748
---------- ----------
Total expenses 2,296,129 2,160,114
---------- ----------
Net Income 777,263 765,303
---------- ----------
5
BANDO McGLOCKLIN CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS - (Continued)
(Unaudited)
Three Months Ended
------------------
March 31,
---------
1999 1998
---- ----
Total Company:
- --------------
Income before income taxes
and minority interest
Consumer products $ 555,479 $ 260,886
Financial services 777,263 765,303
----------- -----------
Total company 1,332,742 1,026,189
Provision for income taxes (74,174) (140,154)
Minority interest in earnings
of subsidiaries (720) (108,608)
----------- -----------
Net income 1,257,848 777,427
Preferred stock dividends (359,748) (321,580)
----------- -----------
Net income available to
common shareholders $ 898,100 $ 455,847
=========== ===========
Basic Earnings Per Share $ 0.24 $ 0.12
Diluted Earnings Per Share $ 0.24 $ 0.12
Segment Reconciliation:
- -----------------------
Consumer products
Net income $ 480,585 $ 12,124
Intersegment expenses (409,292) (64,805)
----------- -----------
Total segment net income (loss) 71,293 (52,681)
----------- -----------
Financial services
Net income 777,263 765,303
Intersegment profits 409,292 64,805
----------- -----------
Total segment net income 1,186,555 830,108
----------- -----------
Total company net income $ 1,257,848 $ 777,427
=========== ===========
6
BANDO McGLOCKLIN CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
Three months ended Three months ended
------------------ ------------------
March 31, 1999 March 31, 1998
-------------- --------------
Consumer Financial Consumer Financial
-------- --------- -------- ---------
Products Services Products Services
-------- -------- -------- --------
Cash Flows from Operating Activities:
Net income $ 480,585 $ 777,263 $ 12,124 $ 765,303
Adjustments to reconcile net cash (used)
provided by operating activities:
Change in appreciation on investments - 36,203 - 16,459
Depreciation and amortization 100,653 142,306 65,258 42,197
Change in minority interest in subsidiaries 721 - 108,608 -
Increase (decrease) in cash due to change in:
Accounts receivable 921,538 - 730,350 -
Inventory (1,012,439) - (549,098) -
Interest receivable - (84,501) - 80,394
Other assets 165,048 (83,361) (95,728) (86,391)
Accounts payable (195,934) - (334,206) -
Other liabilities (905,123) 2,988,422 (138,699) (5,504)
----------- ----------- ----------- -----------
Net Cash (Used) Provided by Operations (444,951) 3,776,332 (201,391) 812,458
----------- ----------- ----------- -----------
Cash Flows from Investing Activities:
Loans made - (15,074,609) - (27,316,811)
Principal collected on loans - 19,130,975 - 27,448,803
Loan and interest charge off - - - (12,423)
Proceeds from sale of leased properties - 917,150 - -
Premium expense (income) - net - - - 5,275
Construction of leased properties - (1,162,825) - (833,955)
Purchase of fixed assets (253,779) (12,910) (141,917) (3,400)
----------- ----------- ----------- -----------
Net Cash (Used) Provided by Investing (253,779) 3,797,781 (141,917) (712,511)
----------- ----------- ----------- -----------
7
BANDO McGLOCKLIN CAPITAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS (Continued)
(Unaudited)
Three months ended Three months ended
------------------ ------------------
March 31, 1999 March 31, 1998
-------------- --------------
Consumer Financial Consumer Financial
-------- --------- -------- ---------
Products Services Products Services
-------- -------- -------- --------
Cash Flows from Financing Activities:
(Decrease) increase in short term
borrowings - (2,035,416) 88,175 14,837,616
Proceeds from loan participations with
repurchase options - net - (4,868,783) - (13,168,011)
Repayment of SWIB notes - (333,333) - (166,666)
Decrease in other notes payable (1,260) (1,310) (22,936) -
Preferred stock dividends paid - (359,748) - (321,580)
Common stock dividends paid - (664,038) - (664,038)
----------- ----------- ----------- -----------
Net Cash (Used) Provided by Financing (1,260) (8,262,628) 65,239 838,901
----------- ----------- ----------- -----------
Net intercompany transactions (471,312) 471,312 412,305 (412,305)
Net (decrease) increase in cash (1,171,302) (217,203) 134,236 204,963
Cash, beginning of period 2,209,105 626,838 197,576
----------- ----------- ----------- -----------
Cash, end of period $ 1,037,803 $ 409,635 $ 134,236 $ 402,539
=========== =========== =========== ===========
8
BANDO McGLOCKLIN CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED 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
Bando McGlocklin Investment Corporation, Lee Middleton Original Dolls, Inc.
("Middleton Doll") and License Products, Inc. ("License Products") as consumer
product companies. All significant intercompany accounts and transactions have
been eliminated in consolidation.
NOTE 2 - BASIS OF PRESENTATION
The accompanying unaudited consolidated 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, 1998.
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 three months ended March 31, 1999 may not be
indicative of the results that may be expected for the year ending December 31,
1999.
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:
March 31, 1999 December 31, 1998
-------------- -----------------
Raw materials, net of reserve
of $224,634 and $466,661,
respectively $2,177,170 $1,600,051
Work in process 136,528 275,755
Finished goods 1,933,167 1,356,646
Prepaid inventory 27,127 29,101
---------- ----------
Total $4,273,992 $3,261,553
========== ==========
9
BANDO McGLOCKLIN CAPITAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 4 - 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.
The Company's subsidiary, BMIC, files a consolidated tax return with its
wholly-owned subsidiary, Middleton Doll. License Products files its own tax
return. Income tax provision in the accompanying financial statements is based
on the operations of BMIC, Middleton Doll and License Products prior to
elimination of approximately $410,000 of interest expense on transactions with
the Company.
NOTE 5 - EARNINGS PER SHARE
See Exhibit 11
NOTE 6 - SUBSEQUENT EVENTS
As of April 30, 1999 BMSBLC entered into an amended and restated loan agreement
with five participating banks. The loan agreement increased the existing
facility from a maximum of $60,000,000 to $70,000,000 less the outstanding
principal amount of commercial paper. 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 April 28, 2000.
In April, 1999 the Company purchased 17,500 shares of its common stock and
through its subsidiary purchased an additional 11,831 shares of its common stock
in the open market. It is the Company's intention to hold these shares as
treasury stock.
10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
General
Amounts presented as of March 31, 1999 and December 31, 1998, and for the three
months ended March 31, 1999 and March 31, 1998 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 Bando McGlocklin Investment Corporation ("BMIC"), a
99%-owned subsidiary of the Company; Lee Middleton Original Dolls, Inc.
("Middleton Doll") and License Products, Inc. ("License Products").
Results of Operations
For the three months ended March 31, 1999 and March 31, 1998
The Company's total net income after income taxes and minority interest for the
quarter ended March 31, 1999 equaled $0.90 million or $0.24 per share (diluted)
as compared to $0.46 million or $0.12 per share (diluted) for the quarter ended
March 31, 1998, a 96% increase.
Consumer Products
Net income from consumer products after income taxes and minority interest for
the quarter ended March 31, 1999 was $0.48 million compared to $0.01 million for
the quarter ended March 31, 1998. This was due to an increase in sales while
expenses remained fairly constant.
Net sales from consumer products for the quarter ended March 31, 1999 increased
23% to $4.22 million from $3.43 million over the corresponding prior year
period. This increase was due to increased sales of $0.62 million at Middleton
Doll and $0.17 million at License Products for the quarter ended March 31, 1999.
Middleton Doll sales increased due to the addition of major new sales outlets
and increased traffic at trade shows. At the Atlanta gift show Middleton Doll
received a 37% increase in orders and added 70 new dealers. Cost of sales also
increased 17% to $2.13 million for the quarter ended March 31, 1999 from $1.82
million for the prior year quarter. Gross profit margin increased slightly to
49% for the quarter ended March 31, 1999 from 47% for the quarter ended March
31, 1998.
Total operating expenses of consumer products for the quarter ended March 31,
1999 were $1.56 million compared to $1.35 million for the quarter ended March
31, 1998, a 16% increase. Sales and marketing expense increased 36% to $0.24
million for the quarter ended March 31, 1999. License Products had a decrease of
$0.07 million in its sales and marketing expenses and Middleton Doll experienced
an increase of $0.31 million in its expenses. The majority of this increase was
a result of Middleton Doll hiring additional sales personnel and increasing
advertising, including point of purchase displays. New product development
expense increased $0.01 million. General and administrative expenses decreased
$0.04 million to $0.51 million for the quarter ended March 31, 1999 from $0.55
million for the quarter ended March 31, 1998. General and administrative
expenses of License Products decreased $0.08 million and expenses of Middleton
Doll increased $0.04 million. Management of License Products significantly
reduced its operating expenses during first quarter 1999 compared to first
quarter 1998.
The minority interest ownership in the net consolidated earnings of BMIC reduced
the consolidated net income of consumer products. The minority interest in
earnings of subsidiaries equaled $720 for the quarter ended March 31, 1999 and
$108,608 for the quarter ended March 31, 1998. The decrease is the result of
BMIC owning 100% of the stock of Middleton Doll as of April 30, 1998. The
consolidated net income of consumer products for the quarter ended March 31,
1999 was increased by $0.07 million due to a reduction in the provision for
income taxes of $0.07 million as compared to the first quarter of 1998.
11
Financial Services
Net income from financial services for the quarter ended March 31, 1999 was
$0.78 million compared to $0.77 million for the quarter ended March 31, 1998, a
1% increase.
Total revenues increased to $3.07 million for the quarter ended March 31, 1999
from $2.93 million for the quarter ended March 31, 1998, a 5% increase. Interest
on loans decreased to $2.28 million for the quarter ended March 31, 1999 from
$2.84 million for the comparative quarter in 1998. Average loans under
management decreased $14.3 million to $123.7 million for the quarter ended March
31, 1999, from $138.0 million for the comparative quarter in 1998. The average
prime rate also decreased to 7.75% for the three months ended March 31, 1999
compared to 8.5% for the three months ended March 31, 1998.
Rental income increased $0.63 million in the first quarter of 1999 as compared
with the quarter ended March 31, 1998. As of March 31, 1999 the Company had $22
million in leased properties compared to $1.2 million of leased properties under
construction as of March 31, 1998. Other income increased $0.07 million during
the same period due to the sale of two leased properties resulting in a gain of
$0.11 million which was offset by a decrease in fees and a decrease in interest
on short-term investments.
Interest expense decreased to $1.77 million from $1.85 million for the quarter
ended March 31, 1999 as compared with the quarter ended March 31, 1998 due to
the decrease in the Company's cost of funds.
Operating expenses increased to $0.53 million for the quarter ended March 31,
1999 from $0.31 million for the prior year quarter. Additional expense of $0.12
million was incurred due to depreciation on leased properties. Other investments
decreased in value by $0.04 million and operating expenses increased $0.06
million.
Liquidity and Capital
Consumer Products
Total assets of consumer products were $13.45 million as of March 31, 1999 and
$14.55 million as of December 31, 1998.
Cash decreased to $1.04 million at March 31, 1999 from $2.21 million at December
31, 1998.
Accounts receivable decreased to $1.26 million at March 31, 1999 from $2.18
million at December 31, 1998. A decrease of $0.69 million is attributable to
Middleton Doll, and the remaining $0.23 million is attributable to License
Products. Both companies are seasonal and typically have lower sales in the
first quarter of the year, which corresponds to lower accounts receivable
balances.
Inventory was $4.27 million at March 31, 1999 compared to $3.26 million at
December 31, 1998. Middleton Doll's inventory increased $1.11 million due to new
product lines and anticipated sales in future quarters while License Products'
inventory decreased $0.10 million.
Fixed assets increased slightly by $0.16 million and other assets and prepaid
expenses decreased slightly by $0.17 million.
Accounts payable decreased to $0.55 million as of March 31, 1999 compared to
$0.75 million as of December 31, 1998. $0.01 million is attributable to
Middleton Doll and $0.19 million is attributable to License Products.
Other liabilities decreased by $0.91 million.
12
Financial Services
Total assets of financial services were $135.85 million as of March 31, 1999 and
$139.88 million as of March 31, 1998, a 3% decrease.
Cash decreased to $0.41 million at March 31, 1999 from $0.63 million at December
31, 1998.
Interest receivable increased to $0.73 million from $0.65 million. Fixed assets
and other assets including prepaid amounts increased in the aggregate by $0.04
million.
Total loans decreased by $4.06 million, or 3.5%, to $111.70 million at March 31,
1999 from $115.76 million at December 31, 1998. Leased properties under
management decreased $0.98 million between the two periods due to the sale of
two properties. Leased properties under construction increased by $1.11 million
as a result of the construction progress on two new buildings, which are
scheduled to be completed by the end of the next quarter.
The financial services' total consolidated indebtedness at March 31, 1999
decreased $7.24 million. As of March 31, 1999, financial services had $62.27
million outstanding in long-term debt and $51.49 million outstanding in
short-term borrowings compared to$62.47 million outstanding in long-term debt
and $58.53 million outstanding in short-term borrowings as of December 31, 1998.
Financial services has increased the availability on its short-term facility to
$70 million as of April 30, 1999 from $60 million. The additional $10 million in
debt will allow financial services to expand its leased property portfolio.
Year 2000 Compliance
The Year 2000 has posed a unique set of challenges to those industries reliant
on information technology. As a result of methods employed by early programmers,
many software applications and operation programs may be unable to distinguish
the Year 2000 from the Year 1900. If not effectively addressed, this problem
could result in the production of inaccurate data, or, in the worst cases, the
inability of the systems to continue to function altogether.
In 1997, the Company moved into a newly constructed building. The Company
purchased new computer systems during this move and the Year 2000 problem was
factored into the selection of the new equipment. During this time, the Company
identified hardware and software issues required to assure Year 2000 compliance.
The Company began by assessing the issues related to the Year 2000 problem and
the potential for those issues to adversely affect the Company's business and
operations.
The Company has established a Year 2000 management committee to deal with this
issue. It is the mission of this committee to identify areas subject to
complication related to the Year 2000 problem and to initiate remedial measures
designed to eliminate any adverse effects on the Company's business and
operations. The committee has identified all mission-critical software and
hardware that may be adversely affected by the Year 2000 problem and has
required its vendors to represent that the systems and products provided are or
will be Year 2000 compliant.
The Company licenses all software used in conducting its business from third
party vendors. None of the Company's software has been internally developed. The
Company has developed a comprehensive list of all software, all hardware and all
service providers used by the Company. Every vendor has been contacted regarding
the Year 2000 problem. The vendor of the primary software in use at the Company
released its Year 2000 compliant software in September 1998. Testing at the
Company, using test scripts developed by the vendor, was completed on October 3,
1998. The vendor will be conducting ongoing proxy testing and seminars and will
report its progress to the Company in a monthly management report. In addition,
the Company continues to monitor all other major vendors of services to the
Company for Year 2000 problems in order to avoid shortages of supplies and
services in the coming months.
13
The Company has an important relationship with three third party utilities. The
Company has not identified any practical, long-term alternatives to relying on
these companies for basic utility services. In the event that the utilities
significantly curtailed or interrupted their services to the Company, it would
have a significant adverse effect on the Company's ability to conduct its
business.
The Company also has tested all heating and air conditioning units, vault doors,
alarms systems, networks, etc. and is not aware of any significant problems with
such systems. The Company's cumulative costs of the Year 2000 problem through
the quarter ended March 31, 1999 have been $15,000. At the present time, the
Company does not anticipate material cost expenditures in the future to become
fully compliant. However, no assurance can be given that Year 2000 compliance
can be achieved without additional unanticipated expenditures and uncertainties
that might affect future financial results. The estimated total cost of the Year
2000 problem is currently $20,000. This includes costs to upgrade software and
replace equipment specifically for the purpose of Year 2000 compliance and
certain administrative expenditures.
It is not possible at this time to quantify the estimated future costs due to
possible business disruption caused by vendors, suppliers, customers, or even
the possible loss of electric power or phone service; however, such costs could
be substantial.
The Company is committed to a plan for achieving compliance, focusing not only
on its own data processing systems, but also on its loan customers. The Year
2000 management committee has proposed policy and procedure changes to help
identify potential risks to the Company and to gain an understanding of how
customers are managing the risks associated with the Year 2000 problem. The
Company is assessing the impact, if any, the Year 2000 problem will have on its
credit risk and loan underwriting. In connection with potential credit risk
related to the Year 2000 problem, the Company has contacted its large commercial
loan customers regarding their level of preparedness for the Year 2000.
The Company has developed contingency plans for various Year 2000 problems and
continues to revise those plans based on testing results and vendor
notifications.
14
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
No reports on Form 8-K were filed by the Company
during the quarter ended March 31, 1999
15
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)
/s/ George R. Schonath
Date: May 14, 1999 George R. Schonath
President and Chief Executive Officer
/s/ Susan J. Hauke
Date: May 14, 1999 Susan J. Hauke
Chief Accounting Officer
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BANDO McGLOCKLIN CAPITAL CORPORATION
QUARTERLY REPORT ON FORM 10-Q
EXHIBIT INDEX
Exhibit
Number Exhibit
4.1 Amended and Restated Credit Agreement dated as of April 30,
1999, by and among Bando McGlocklin Small Business Lending
Corporation, Firstar Bank Milwaukee, N.A., as agent, and the
Financial Institutions parties thereto.
11 Statement Regarding Computation of Per Share Earnings
27 Financial Data Schedule (EDGAR version only)
17