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 September 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 September 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
September 30, September 30,
1995 1996
<S> <C> <C>
Revenues:
Operating leases $ 1,403,233 $ 1,164,167
Financing leases 749,026 547,251
Leveraged leases 31,263 47,818
Fee income 48,895 57,049
Interest income 173,013 210,831
Gain on sale of equipment, net 59,145 243,324
Other 54,246 47,775
Total revenues 2,518,821 2,318,215
Expenses:
Depreciation 1,059,122 811,315
Interest 722,183 566,768
Provision for losses 62,634 7,668
Selling 29,527 31,690
General and administrative 345,662 359,877
Total expenses 2,219,128 1,777,318
Income (loss) before income taxes 299,693 540,897
Provision for income taxes 114,000 202,000
Net income (loss) $ 185,693 $ 338,897
</TABLE>
The accomanying 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 Nine Months Ended
September 30, September 30,
1995 1996
<S> <C> <C>
Revenues:
Operating leases $ 4,468,186 $ 3,832,966
Financing leases 2,078,468 1,777,218
Leveraged leases 106,899 132,834
Fee income 124,597 189,015
Interest income 417,855 643,107
Gain on sale of equipment, net 383,075 624,808
Other 197,954 119,406
Total revenues 7,777,034 7,319,354
Expenses:
Depreciation 3,398,469 2,936,238
Interest 2,143,080 1,903,625
Provision for losses 122,635 430,997
Selling 88,487 99,825
General and administrative 1,270,952 1,270,116
Total expenses 7,023,623 6,640,801
Income before income taxes 753,411 678,553
Provision for income taxes 309,000 273,000
Net income $ 444,411 $ 405,553
</TABLE>
The accompanying notes to consolidated condensed financial statements
are an integral part of these financial statements.
<PAGE>
ZIEGLER LEASING CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
December 31, September 30,
1995 1996
<S> <C> <C>
ASSETS
Cash $ 5,645 $ 5,106
Short-term investments 2,100,112 1,377,191
Total cash and cash equivalents 2,105,757 1,382,297
Investment in leases, net:
Financing leases 25,743,614 24,861,438
Leveraged leases 2,380,402 2,229,179
Operating leases 14,148,253 10,956,318
Total investment in leases 42,272,269 38,046,935
Receivables:
Notes receivable 8,274,711 5,887,593
Other receivables 435,071 2,069,542
Other assets 1,046,176 567,591
Total assets $54,133,984 $47,953,958
LIABILITIES AND STOCKHOLDER'S EQUITY
Short-term debt:
Notes payable to parent $ 8,318,462 $ 8,485,846
Current maturities of long-term debt 18,724,186 6,040,810
Accounts payable for leased equipment
purchases 725,218 461,294
Other accounts payable and
accrued expenses 870,022 1,265,515
Deferred income taxes 6,659,583 5,786,975
Long-term debt 7,516,751 14,938,202
Total liabilities 42,814,222 36,978,642
Commitments
Stockholder's Equity:
Common stock -- $1.00 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 9,225,316
Total stockholder's equity 11,319,762 10,975,316
Total liabilities and
stockholder's equity $54,133,984 $47,953,958
</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 Nine Months Ended
September 30, September 30,
1995 1996
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 444,411 $ 405,553
Adjustments to reconcile net income
to net cash provided by
operating activities:
Depreciation and amortization 3,566,580 3,101,773
Provision for losses 122,635 430,997
Gain on sale of leased equipment (383,075) (624,808)
Deferred income taxes (1,084,828) (872,608)
Changes in assets and liabilities:
Decrease (increase) in -
Other receivables (60,592) (1,634,471)
Other operating assets 947,712 853,148
Increase (decrease) in -
Other accounts payable and
accrued expenses 950,328 395,493
Other operating liabilities 142 384
Net cash provided by operating
activities 4,503,313 2,055,461
CASH FLOWS FROM INVESTING ACTIVITIES:
Payments received on notes receivable 1,080,463 4,359,117
Purchase of notes receivable (12,910,591) (9,455,294)
Purchase of assets to be leased (7,455,800) (5,172,351)
Principal payments received under leases 8,724,004 8,734,031
Proceeds from sale of leased equipment 6,620,139 4,697,007
Net cash (used) provided by
investing activities (3,941,785) 3,162,510
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of notes payable to parent 40,901,000 27,079,000
Principal payments of notes payable
to parent (38,476,000) (26,912,000)
Issuance of notes payable
to affiliates 4,983,491 7,229,693
Principal payments of notes payable
to affiliates - (6,169,221)
Issuance of notes payable to banks - 256,258
Principal payments of notes payable
to banks (3,102,799) (6,578,655)
Proceeds on issuance of nonrecourse debt 848,858 2,012,728
Principal payments on nonrecourse debt (1,688,434) (2,009,234)
Cash dividends paid (100,000) (850,000)
Net cash (used) provided by
financing activities 3,366,116 (5,941,430)
</TABLE>
The accompanying notes to consolidated condensed financial statements
are an integral part of these statements.
<PAGE>
ZIEGLER LEASING CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
(Unaudited)
<TABLE>
<CAPTION>
For the Nine Months Ended
September 30, September 30,
1995 1996
<S> <C> <C>
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 3,927,644 (723,460)
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD 2,300 2,105,757
CASH AND CASH EQUIVALENTS AT
END OF PERIOD 3,929,944 1,382,297
SUPPLEMENTAL DISCLOSURES OF
CASH FLOW INFORMATION:
Interest paid during the period $ 1,432,000 $ 1,750,000
Income taxes paid during the period $ 736,000 $ 1,797,000
SUPPLEMENTAL SCHEDULE OF NONCASH
INVESTING ACTIVITIES:
Conversion of notes receivable to
leased equipment $ 4,364,000 $ 7,483,000
</TABLE>
The accompanying notes to consolidated condensed financial statements
are an integral part of these statements.
<PAGE>
ZIEGLER LEASING CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
September 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
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 nine 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 430,997
Charge-offs, net (210,306)
Balance, June 30, 1996 $ 696,817
</TABLE>
(4) Commitments -
As of September 30, 1996, the Company had outstanding written
agreements to provide equipment lease financing totaling
approximately $2,384,000. 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.
(5) Subsequent Events -
The Ziegler Companies, Inc., which owns 100% of Ziegler Leasing
Corporation stock, has signed a nonbinding letter of intent to sell
its Ziegler Leasing Corporation subsidiary to a major financial
services company. The proposed transaction, which is expected to be
completed in the fourth quarter of 1996, is subject to the completion
by the buyer of its due diligence investigation, the approval of the
purchaser's board, Hart-Scott-Rodino approval, and the negotiation of
a definitive purchase agreement. If the transaction closes, the
purchaser shall succeed to the rights and obligations of Ziegler
Leasing Corporation under the trust indenture which secures the
Series 1991 Notes.
As of September 30, 1996, $3,052,000 of the $10,000,000 Series
1991 Notes have been tendered for redemption on December 1, 1996. In
the event the proposed sale of the company is not consummated, the
company intends to raise the funds necessary to redeem the principal
and accrued interest on the tendered Bonds through the issuance of
short-term notes.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS
Results of Operations - Three Months Ended
September 30, 1996 and 1995
Total revenues of the Company decreased $200,606 (8%) from $2,518,821
during the third quarter of 1995 to $2,318,215 during the third 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 $239,066 (17%) from
$1,403,233 during the third quarter of 1995 to $1,164,167 during the third
quarter of 1996. The decrease in revenue resulted primarily from an 18%
decrease in the average net investment in operating leases during the third
quarter of 1996 vs the third quarter of 1995.
The revenue from financing leases decreased $201,775 (27%) from
$749,026 during the third quarter of 1995 to $547,251 during the third
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 third quarter of 1996
vs the third quarter of 1995.
The gain on sale of equipment at lease termination increased $184,179
(311%) from $59,145 during the third quarter of 1995 to $243,324 during the
third quarter of 1996. An increase in equipment coming off lease in the
third quarter of 1996 was the primary reason for the increase in the third
quarter of 1996 vs the third quarter of 1995.
Total expenses for the Company decreased $441,810 (20%) from
$2,219,128 during the third quarter of 1995 to $1,777,318 during the third
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 $247,807 (23%) from
$1,059,122 during the third quarter of 1995 to $811,315 during the third
quarter of 1996. The decrease in depreciation expense was due primarily to
an 18% decrease in the average net investment in operating leases during
the third quarter of 1996 vs the third quarter of 1995.
Interest expense decreased $155,415 (22%) from $722,183 during the
third quarter of 1995 to $566,768 during the third quarter of 1996. This
decrease was due primarily to a 11% decrease in average debt outstanding
during the third quarter of 1996 vs the third quarter of 1995.
General and administrative expenses increased $14,215 (4%) from
$345,662 during the third quarter of 1995 to $359,877 during the third
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 $43,688 (32%) from
$137,306 during the third quarter of 1995 to $180,994 during the third
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 $18,311 (25%) from $72,653 during the third quarter
of 1995 to $54,342 during the third quarter of 1996.
All other general and administrative expenses decreased $11,162 (8%)
from $135,703 during the third quarter of 1995 to $124,541 during the third
quarter of 1996. This decrease was due primarily to a reduction in costs
associated with the operation of the Company's subsidiary.
Provision for losses decreased $54,966 (88%) from $62,634 during the
third quarter of 1995 to $7,668 during the third quarter of 1996. This
decrease is due primarily to a recovery of reserves established for future
losses of the Company's subsidiary.
Net income increased $153,204 (83%) from $185,693 during the third
quarter of 1995 to $338,897 during the third quarter of 1996.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS
Results of Operations - Nine Months Ended
September 30, 1996 and 1995
Total revenues of the Company decreased $457,680 (6%) from $7,777,034
for the nine months ended September 30, 1995 to $7,319,354 for the nine
months ended September 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 $635,220 (14%) from
$4,468,186 for the nine months ended September 30, 1995 to $3,832,966 for
the nine months ended September 30, 1996. The decrease in revenue resulted
primarily from a 19% decrease in the average net investment in operating
leases for the first nine months of 1996 vs the first nine months of 1995.
The revenue from financing leases decreased $301,250 (14%) from
$2,078,468 for the nine months ended September 30, 1995 to $1,777,218 for
the nine months ended September 30, 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 11% in the
first nine months of 1996 vs the first nine months of 1995.
The gain on sale of equipment at lease termination increased $241,733
(63%) from $383,075 for the nine months ended September 30, 1995 to
$624,808 for the nine months ended September 30, 1996. An increase in
equipment coming off lease was the primary reason for the increase in 1996.
Total expenses for the Company decreased $382,822 (5%) from
$7,023,623 for the nine months ended September 30, 1995 to $6,640,801 for
the nine months ended September 30, 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 $462,231 (14%) from
$3,398,469 for the nine months ended September 30, 1995 to $2,936,238 for
the nine months ended September 30, 1996. The decrease in depreciation
expense was due primarily to a 19% decrease in the average net investment
in operating leases in the first nine months of 1996 vs the first nine
months of 1995.
Interest expense decreased $239,455 (11%) from $2,143,080 for the
nine months ended September 30, 1995 to $1,903,625 for the nine months
ended September 30, 1996. This decrease was due primarily to a 6% decrease
in average debt outstanding for the first nine months of 1995 vs the first
nine months of 1995.
General and administrative expenses decreased $836 (0%) from
$1,270,952 for the nine months ended September 30, 1995 to $1,270,116 for
the nine months ended September 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 $98,308 (19%) from
$514,300 for the nine months ended September 30, 1995 to $612,608 for the
nine months ended September 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 $32,893 (15%) from $215,296 for the nine months
ended September 30, 1995 to $182,403 for the nine months ended September
30, 1996.
All other general and administrative expenses decreased $66,251 (12%)
from $541,356 during the nine months ended September 30, 1995 to $475,105
for the nine months ended September 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 $308,362 (251%) from $122,635 for the
nine months ended September 30, 1995 to $430,997 for the nine months ended
September 30, 1996. This increase is due primarily to reserves established
for future losses of the Company's subsidiary and a decline in the market
value of its inventory.
Net income decreased $38,858 (9%) from $444,411 for the nine months
ended September 30, 1995 to $405,553 for the nine months ended September
30, 1996.
<PAGE>
PART II
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
Note: As an event subsequent to the close of the fiscal
quarter covered by this report, the registrant filed a Form 8-K
on November 1, 1996 relating to the possible acquisition of the
registrant. Please see Note 5 to the financial statements
contained in this Form 10-Q.
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: November 14, 1996 By /s/ Mark E. Sedlmeier
Mark E. Sedlmeier
President and
Chief Executive Officer
Dated: November 14, 1996 By /s/ Kevin A. Kalnins
Kevin A. Kalnins
Controller
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Ziegler
Leasing Corporation financial statements and is qualified in its entirety
by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 5,106
<SECURITIES> 1,377,191
<RECEIVABLES> 7,957,135<F1>
<ALLOWANCES> 0<F2>
<INVENTORY> 0
<CURRENT-ASSETS> 0<F3>
<PP&E> 0<F4>
<DEPRECIATION> 0<F4>
<TOTAL-ASSETS> 47,953,958
<CURRENT-LIABILITIES> 0<F3>
<BONDS> 14,938,202
0
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 0
<SALES> 5,743,018<F5>
<TOTAL-REVENUES> 7,319,354
<CGS> 0<F6>
<TOTAL-COSTS> 0<F6>
<OTHER-EXPENSES> 4,306,179<F7>
<LOSS-PROVISION> 430,997
<INTEREST-EXPENSE> 1,903,625
<INCOME-PRETAX> 678,553
<INCOME-TAX> 273,000
<INCOME-CONTINUING> 405,553
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 405,553
<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 third quarter.
<F3>Registrant has an unclassified balance sheet.
<F4>Amounts are not disclosed in the financial statements as the amounts are
insignificant.
<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>
