Form 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1996
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 33-43082
ZIEGLER LEASING CORPORATION
(Exact name of registrant as specified in its charter)
Wisconsin 39-1148992
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
215 North Main Street, West Bend, Wisconsin 53095
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (414) 334-5521
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 ( )
The number of shares outstanding of the registrant's Common stock, par
value $1.00 per share, at June 30, 1996 was 2,000 shares.
REGISTRANT MEETS THE CONDITIONS SET FORTH IN GENERAL INSTRUCTIONS H(1)(a)
AND (b) OF FORM 10-Q AND IS THEREFORE FILING THIS FORM WITH THE REDUCED
DISCLOSURE FORMAT.
<PAGE>
PART I
ZIEGLER LEASING CORPORATION AND SUBSIDIARY
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
For the Three Months Ended
June 30, June 30,
1995 1996
<S> <C> <C>
REVENUES:
Operating leases $ 1,473,829 $ 1,273,647
Financing leases 707,026 604,863
Leveraged leases 36,629 52,264
Fee Income 18,083 65,327
Interest income 131,373 187,251
Gain on sale of equipment, net 232,714 226,403
Other 127,412 33,158
Total revenues 2,727,066 2,442,913
EXPENSES:
Depreciation 1,130,142 1,044,237
Interest 723,591 626,395
Provision for losses 30,000 363,295
Selling 31,301 33,135
General and administrative 518,647 450,918
Total expenses 2,433,681 2,517,980
Income (loss) before income taxes 293,385 (75,067)
Provision for (benefit from) income taxes 114,000 (9,000)
Net income (loss) $ 179,385 $ (66,067)
</TABLE>
The accompanying notes to consolidated condensed financial statements
are an integral part of these statements.
<PAGE>
ZIEGLER LEASING CORPORATION AND SUBSIDIARY
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
For the Six Months Ended
June 30, June 30,
1995 1996
<S> <C> <C>
REVENUES:
Operating leases $ 3,064,954 $ 2,668,799
Financing leases 1,329,442 1,229,967
Leveraged leases 75,636 85,016
Fee income 91,703 126,966
Interest income 274,646 432,277
Gain on sale of equipment, net 323,930 381,483
Other 130,204 76,631
Total revenues 5,290,515 5,001,139
EXPENSES:
Depreciation 2,339,347 2,124,923
Interest 1,450,702 1,336,857
Provision for losses 60,000 423,330
Selling 58,958 67,885
General and administrative 927,789 910,488
Total expenses 4,836,796 4,863,483
Income before income taxes 453,719 137,656
Provision for income taxes 195,000 71,000
Net income $ 258,719 $ 66,656
</TABLE>
The accompanying notes to consolidated condensed financial statements
are an integral part of these statements.
<PAGE>
ZIEGLER LEASING CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
December 31, June 30,
1995 1996
<S> <C> <C>
ASSETS
Cash $ 5,645 $ 3,503
Short-term investments 2,100,112 579,198
Total cash and cash equivalents 2,105,757 582,701
Investment in leases, net:
Financing leases 25,743,614 22,770,484
Leveraged leases 2,380,402 2,341,698
Operating leases 14,148,253 11,911,179
Total investment in leases 42,272,269 37,023,361
Receivables:
Notes receivable 8,274,711 7,256,106
Other receivables 435,071 23,033
Other assets 1,046,176 1,733,154
Total assets $54,133,984 $46,618,355
LIABILITIES AND STOCKHOLDER'S EQUITY
Short-term debt:
Notes payable to parent $ 8,318,462 $ 7,558,843
Current maturities of long-term debt 18,724,186 12,964,806
Accounts payable for
leased equipment purchases 725,218 81,320
Other accounts payable and
accrued expenses 870,022 1,045,390
Deferred income taxes 6,659,583 5,845,975
Long-term debt 7,516,751 8,185,603
Total liabilities 42,814,222 35,681,937
Commitments
Stockholder's Equity:
Common stock -- $1 par, 40,000 shares
authorized, 2,000 shares issued and
outstanding 2,000 2,000
Additional paid-in capital 1,748,000 1,748,000
Retained earnings 9,569,762 9,186,418
Total stockholder's equity 11,319,762 10,936,418
Total liabilities and
stockholder's equity $54,133,984 $46,618,355
</TABLE>
The accompanying notes to consolidated condensed financial statements
are an integral part of these balance sheets.
<PAGE>
ZIEGLER LEASING CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
For the Six Months Ended
June 30, June 30,
1995 1996
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 258,719 $ 66,656
Adjustments to reconcile net income
to net cash provided by
operating activities:
Depreciation and amortization 2,451,277 2,242,731
Provision for losses 60,000 423,330
Gain on sale of leased equipment (323,930) (381,483)
Deferred income taxes (758,814) (813,608)
Changes in assets and liabilities:
Decrease (increase) in -
Other receivables (1,292,442) 412,038
Other operating assets 874,469 (676,309)
Increase (decrease) in -
Other accounts payable and
accrued expenses 393,698 175,368
Other operating liabilities (387) (619)
Net cash provided by operating
activities 1,662,590 1,448,104
CASH FLOWS FROM INVESTING ACTIVITIES:
Payments received on notes receivable 487,080 3,932,278
Purchase of notes receivable (6,523,261) (7,327,661)
Purchase of assets to be leased (5,021,677) (2,372,827)
Principal payments received under leases 5,724,587 5,806,419
Proceeds from sale of leased equipment 1,709,140 3,928,267
Net cash provided (used) by
investing activities (3,624,131) 3,966,476
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of notes payable to parent 22,932,000 16,965,000
Principal payments of notes payable
to parent (20,565,000 (17,724,000)
Issuance of notes payable to affiliates - 7,229,693
Principal payments of notes payable
to affiliates - (5,815,968)
Principal payments of notes payable
to banks (2,745,812) (6,504,253)
Proceeds on issuance of nonrecourse debt 241,422 672,391
Principal payments on nonrecourse debt (1,093,722) (1,310,499)
Cash dividends paid (100,000) (450,000)
Net cash (used) by
financing activities (1,331,112) (6,937,636)
NET DECREASE IN CASH AND CASH
EQUIVALENTS (3,292,653) (1,523,056)
CASH AND CASH EQUIVALENTS AT BEGINNING
OF PERIOD 3,294,953 2,105,757
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 2,300 $ 582,701
SUPPLEMENTAL DISCLOSURES OF
CASH FLOW INFORMATION:
Interest paid during the period $ 1,432,000 $ 1,241,000
Income taxes paid during the period $ 736,000 $ 843,000
SUPPLEMENTAL SCHEDULE OF NONCASH
INVESTING ACTIVITIES:
Conversion of notes receivable to
leased equipment $ 4,364,000 $ 4,414,000
</TABLE>
The accompanying notes to consolidated condensed financial statements
are an integral part of these statements.
<PAGE>
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
June 30, 1996
(1) Basis of Presentation -
The consolidated condensed financial statements included herein
have been prepared by Ziegler Leasing Corporation and subsidiary (the
"Company"), without audit, pursuant to the rules and regulations of
the Securities and Exchange Commission. Certain information and
footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to such rules and
regulations. Management believes, however, that these consolidated
condensed financial statements reflect all adjustments which are, in
the opinion of management, necessary to a fair statement of the
results for the periods presented. All such adjustments are of a
normal, recurring nature. It is suggested that these condensed
consolidated financial statements be read in conjunction with the
financial statements and the notes thereto included in the Company's
latest annual report on Form 10-K.
(2) Consolidation -
Ziegler Leasing Corporation's wholly-owned subsidiary, Ziegler
Medical Equipment Group, Inc. ("ZMEG"), is in the business of
refurbishing and remarketing pre-owned medical equipment. (See note
3.)
(3) Allowance for possible losses -
The Company provides for the possibility that ultimately some
customers will be unable to fulfill their lease obligations.
Management monitors its past due accounts on a continuous basis, and
provides for possible losses based on knowledge of its current
customers and the industry it serves, as well as historical data.
In June of 1996, ZMEG established a reserve in the amount of
$107,000 for future expected losses related to its refurbishing
activities. ZMEG intends to concentrate primarily on the remarketing
of pre-owned medical equipment. In addition, ZMEG recognized a loss
of $215,306 for a decline in the market value of its inventory.
Activity in the allowance for possible losses for 1995 and for
the first six months of 1996 is summarized below.
<TABLE>
<S> <C>
Balance, December 31, 1994 $587,132
Provision for losses 185,269
Charge-offs, net (296,275)
Balance, December 31, 1995 476,126
Provision for losses 423,330
Charge-offs, net (210,306)
Balance, June 30, 1996 $689,150
</TABLE>
(4) Commitments -
As of June 30, 1996, the Company had outstanding written
agreements to provide equipment lease financing totaling
approximately $2,969,000. To manage the off-balance sheet credit and
interest rate risk exposure related to those commitments, the Company
retains the right to adjust or cancel the commitments if adverse
interest rate or credit conditions arise.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS
Results of Operations - Three Months Ended
June 30, 1996 and 1995
Total revenues of the Company decreased $284,153 (10%) from
$2,727,066 during the second quarter of 1995 to $2,442,913 during the
second quarter of 1996. The primary components of revenue consist of lease
income from operating and financing leases as well as gains on the sale of
leased equipment at lease termination.
The revenue from operating leases decreased $200,182 (14%) from
$1,473,829 during the second quarter of 1995 to $1,273,647 during the
second quarter of 1996. The decrease in revenue resulted primarily from an
18% decrease in the average net investment in operating leases during the
second quarter of 1996 vs the second quarter of 1995.
The revenue from financing leases decreased $102,163 (14%) from
$707,026 during the second quarter of 1995 to $604,863 during the second
quarter of 1996. The decrease in revenue resulted primarily from the
timing of financing lease activations and terminations, as the average net
investment in financing leases decreased 18% in the second quarter of 1996
vs the second quarter of 1995.
The gain on sale of equipment at lease termination decreased $6,311
(3%) from $232,714 during the second quarter of 1995 to $226,403 during the
second quarter of 1996.
Total expenses for the Company increased $84,299 (3%) from $2,433,681
during the second quarter of 1995 to $2,517,980 during the second quarter
of 1996. The primary components of total expenses consist of depreciation
of rental equipment, interest expense, general and administrative expenses
and provision for losses.
Depreciation of rental equipment decreased $85,905 (8%) from
$1,130,142 during the second quarter of 1995 to $1,044,237 during the
second quarter of 1996. The decrease in depreciation expense was due
primarily to a 18% decrease in the average net investment in operating
leases during the second quarter of 1996 vs. the second quarter of 1995.
Interest expense decreased $97,196 (13%) from $723,591 during the
second quarter of 1995 to $626,395 during the second quarter of 1996. This
decrease was due primarily to an 11% decrease in average debt outstanding
during the second quarter of 1996 vs the second quarter of 1995.
General and administrative expenses decreased $67,729 (13%) from
$518,647 during the second quarter of 1995 to $450,918 during the second
quarter of 1996. General and administrative expenses are comprised of many
expenses, the largest of which are employee compensation and benefits and
amortization of initial direct costs.
Employee compensation and benefits increased $25,819 (15%) from
$176,214 during the second quarter of 1995 to $202,033 during the second
quarter of 1996. The increase was due to the creation of additional sales
positions.
Initial direct costs are those expenses which are directly related to
lease origination and are capitalized at the inception of the lease and
amortized over the lease term. The amount of initial direct costs
amortized is influenced by the following factors: new lease activations
(number, amount and term), expected and unexpected lease terminations, and
the presence or absence of broker commissions. Amortization of initial
direct costs decreased $13,362 (17%) from $76,667 during the second quarter
of 1995 to $63,305 during the second quarter of 1996.
All other general and administrative expenses decreased $80,186 (30%)
from $265,766 during the second quarter of 1995 to $185,580 during the
second quarter of 1996. This decrease was due primarily to costs
associated with the operation of the Company's subsidiary.
Provision for losses increased $333,295 (1,111%) from $30,000 during
the second quarter of 1995 to $363,295 during the second quarter of 1996.
This increase is due primarily to reserves established for future expected
losses of the Company's subsidiary and a decline in the market value of the
subsidiary's inventory.
Net income decreased $245,452 (137%) from $179,385 during the second
quarter of 1995 to a $66,067 loss during the second quarter of 1996.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS
Results of Operations - Six Months Ended
June 30, 1996 and 1995
Total revenues of the Company decreased $289,376 (5%) from $5,290,515
for the six months ended June 30, 1995 to $5,001,139 for the six months
ended June 30, 1996. The primary components of revenue consist of lease
income from operating and financing leases as well as gains on the sale of
leased equipment at lease termination.
The revenue from operating leases decreased $396,155 (13%) from
$3,064,954 for the six months ended June 30, 1995 to $2,668,799 for the six
months ended June 30, 1996. The decrease in revenue resulted primarily
from a 19% decrease in the average net investment in operating leases for
the first six months of 1996 vs the first six months of 1995.
The gain on sale of equipment at lease termination increased $57,553
(18%) from $323,930 for the six months ended June 30, 1995 to $381,483 for
the six months ended June 30, 1996. An increase in equipment coming off
lease was the primary reason for the increase in 1996.
Total expenses for the Company increased $26,687 (1%) from $4,836,796
for the six months ended June 30, 1995 to $4,863,483 for the six months
ended June 30, 1996. The primary components of total expenses consist of
depreciation of rental equipment, interest expenses, general and
administrative expenses and provision for losses.
Depreciation of rental equipment decreased $214,424 (9%) from
$2,339,347 for the six months ended June 30, 1995 to $2,124,923 for the six
months ended June 30, 1996. The decrease in depreciation expense was due
primarily to an 19% decrease in the average net investment in operating
leases.
Interest expense decreased $113,845 (8%) from $1,450,702 for the six
months ended June 30, 1995 to $1,336,857 for the six months ended June 30,
1996. The decrease was due primarily to a 6% decrease in average debt
outstanding for the first months of 1996 vs the first six months of 1995.
General and administrative expenses decreased $17,301 (2%) from
$927,789 for the six months ended June 30, 1995 to $910,488 for the six
months ended June 30, 1996. General and administrative expenses are
comprised of many expenses, the largest of which are employee compensation
and benefits and amortization of initial direct costs.
Employee compensation and benefits increased $54,619 (14%) from
$376,994 for the six months ended June 30, 1995 to $431,613 for the six
months ended June 30, 1996. The increase was due to the creation of
additional sales positions.
Initial direct costs are those expenses which are directly related to
lease origination and are capitalized at the inception of the lease and
amortized over the lease term. The amount of initial direct costs
amortized is influenced by the following factors: new lease activations
(number, amount and term), expected and unexpected lease terminations, and
the presence or absence of broker commissions. Amortization of initial
direct costs decreased $17,080 (12%) from $145,141 for the six months ended
June 30, 1995 to $128,061 for the six months ended June 30, 1996.
All other general and administrative expenses decreased $54,840 (14%)
from $405,654 for the six months ended June 30, 1995 to $350,814 for the
six months ended June 30, 1996. The decrease was due primarily to a
reduction in costs associated with the operation of the Company's
subsidiary.
Provision for losses increased $363,330 (606%) from $60,000 for the
six months ended June 30, 1995 to $423,330 for the six months ended June
30, 1996. This increase is due primarily to reserves established for
future expected losses of the Company's subsidiary and a decline in the
market value of its inventory.
Net income decreased $192,063 (74%) from $258,719 for the six months
ended June 30, 1995 to $66,656 for the six months ended June 30, 1996.
<PAGE>
PART II
Items 1 through 5.
Not applicable
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
Exhibit No. Description
27 Financial Data Schedule
(b) Reports on Form 8-K: None
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
ZIEGLER LEASING CORPORATION
Dated: August 13, 1996 By
Mark E. Sedlmeier
President and
Chief Executive Officer
Dated: August 13, 1996 By
Kevin A. Kalnins
Controller
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Ziegler
Leasing Corporation and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 3,503
<SECURITIES> 579,198
<RECEIVABLES> 7,279,139<F1>
<ALLOWANCES> 0<F2>
<INVENTORY> 0<F4>
<CURRENT-ASSETS> 0<F3>
<PP&E> 0<F4>
<DEPRECIATION> 0<F4>
<TOTAL-ASSETS> 46,618,355
<CURRENT-LIABILITIES> 0<F3>
<BONDS> 8,185,603
0
0
<COMMON> 2,000
<OTHER-SE> 10,934,418
<TOTAL-LIABILITY-AND-EQUITY> 46,618,355
<SALES> 3,983,782<F5>
<TOTAL-REVENUES> 5,001,139
<CGS> 0<F6>
<TOTAL-COSTS> 0<F6>
<OTHER-EXPENSES> 3,103,296<F7>
<LOSS-PROVISION> 423,330
<INTEREST-EXPENSE> 1,336,857
<INCOME-PRETAX> 137,656
<INCOME-TAX> 71,000
<INCOME-CONTINUING> 66,656
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 66,656
<EPS-PRIMARY> 0<F8>
<EPS-DILUTED> 0<F8>
<FN>
<F1>Includes all amounts receivable from customers without regard to current or
long term classification.
<F2>Allowance for doubtful accounts are included in investment in leases and has
not changed significantly during the first quarter.
<F4>Amounts are not disclosed in the financial statements as the amounts are
insignificant.
<F3>Registrant has an unclassifid balance sheet.
<F5>Includes all income from leasing activities.
<F6>Not applicable to lease income.
<F7>Includes depreciation, selling, general and administrative expense.
<F8>Earnings per share not calculated.
</FN>
</TABLE>
