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 March 31, 1997
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 1-10854
THE ZIEGLER COMPANIES, INC.
(Exact name of registrant as specified in its charter)
Wisconsin 39-1148883
(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 March 31, 1997 was 2,445,257 shares.
<PAGE>
PART I
THE ZIEGLER COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED INCOME STATEMENTS
(Unaudited)
[CAPTION]
For the Three Months Ended
March 31, March 31,
1997 1996
<TABLE>
<S> <C> <C>
Revenues:
Investment banking and commission
income $ 5,667,706 $ 6,294,020
Investment management fees 762,020 680,444
Interest and dividends 1,244,152 999,164
Gross profit on chemical products 806,158 818,735
Insurance agency 396,493 304,646
Other 842,628 930,388
Total revenues 9,719,157 10,027,397
Expenses:
Employee compensation and benefits 5,776,584 5,197,257
Commissions and clearing fees 288,081 206,828
Communications 678,014 648,913
Occupancy and equipment 1,173,388 1,099,989
Promotional 531,032 427,105
Professional and regulatory 305,724 172,130
Interest 817,339 749,701
Provisional litigation settlement 1,400,000 -
Other operating expenses 1,439,142 1,518,434
Total expenses 12,409,304 10,020,357
Income (loss) from continuing
operations before income taxes (2,690,147) 7,040
Benefit from income taxes (1,072,000) (42,200)
Net income (loss) from
continuing operations (1,618,147) 49,240
Discontinued operations:
Income from operations of dis-
continued leasing subsidiary
(less applicable income taxes
of $80,000) - 132,722
Net income (loss) $(1,618,147) $ 181,962
Net income (loss) per share of
common stock:
Continuing operations $(.67) $ .02
Discontinued operations - .06
$(.67) $ .08
Dividends per share $ .13 $ .13
Average number of shares outstanding 2,414,456 2,392,185
</TABLE>
The accompanying notes to consolidated condensed financial statements
are an integral part of these statements.
<PAGE>
THE ZIEGLER COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
[CAPTION]
March 31, December 31,
1997 1996
<TABLE>
<S> <C> <C>
ASSETS
Cash $ 5,403,167 $ 6,012,977
Short-term investments 17,794,726 26,240,446
Bonds due and called as of April 1, 1997
and January 1, 1997, respectively 1,364,933 10,843,295
Total cash and cash equivalents 24,562,826 43,096,718
Securities inventory 43,157,378 34,920,458
Accounts receivable -- securities sales 6,544,158 8,434,547
Accounts receivable -- other 5,691,988 4,709,368
Investment in and receivables from
affiliates 2,570,526 2,775,607
Investment in leases 6,698,137 7,507,948
Notes receivable 22,262,247 23,204,541
Land, buildings and equipment, at cost,
net of reserves for depreciation of
$15,073,030 and $14,766,286,
respectively 7,296,628 7,165,857
Deferred income tax benefit 1,255,197 1,106,198
Other assets 8,319,131 8,235,257
Total assets $128,358,216 $141,156,499
LIABILITIES AND STOCKHOLDERS' EQUITY
Short-term notes payable $ 15,167,411 $ 13,245,639
Payable to customers 6,391,332 6,478,455
Payable to broker-dealers 731,401 370,791
Accounts payable 873,424 2,629,014
Dividends payable 317,884 1,049,740
Accrued income taxes - 6,361,958
Notes payable to banks 22,274,341 22,469,310
Bonds payable 23,913,073 25,011,498
Other liabilities and deferred items 6,300,313 9,320,894
Total liabilities 75,969,179 86,937,299
Commitments
Stockholders' equity
Common stock, $1 par, authorized
7,500,000 shares, issued 3,544,030 3,544,030 3,544,030
Additional paid-in capital 5,958,874 5,962,229
Retained earnings 60,369,366 62,305,397
Treasury stock, at cost, 1,098,773
and 1,102,773, respectively (16,993,053) (17,062,908)
Unearned compensation (490,180) (529,548)
Total stockholders' equity 52,389,037 54,219,200
Total liabilities and
stockholders' equity $128,358,216 $141,156,499
</TABLE>
The accompanying notes to consolidated condensed financial statements
are an integral part of these balance sheets.
<PAGE>
THE ZIEGLER COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
[CAPTION]
For the Three Months Ended
March 31, March 31,
1997 1996
<TABLE>
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ (1,618,147) $ 181,962
Adjustments to reconcile net income to
net cash provided by (used in)
operating activities:
Depreciation and amortization 375,879 371,834
Provision for losses 37,750 33,150
Litigation settlement provision 1,400,000 -
(Gain) Loss on sale of equipment - (10)
Unrealized loss on securities inventory 90,656 303,458
Compensation related to restricted
stock grants 39,368 47,519
Undistributed (earnings of) net
dividends received from
unconsolidated affiliate 293,350 (68,000)
Changes in operating assets and
liabilities:
Decrease (Increase) in -
Securities inventory (8,327,575) 19,166,219
Accounts receivable --
securities sales 1,890,389 (1,892,955)
Accounts receivable -- other (840,266) 132,679
Other operating assets (233,742) (2,695,393)
Discontinued operations - noncash
charges and working capital
changes - 317,277
Increase (Decrease) in -
Payable to customers and
broker-dealers 273,487 69,631
Accounts payable (1,755,587) 1,228,179
Income taxes payable (6,512,058) 27,993
Deferred income taxes (149,000) (101,000)
Other operating liabilities (4,521,808) (3,288,520)
Net cash provided by (used in)
operating activities (19,557,304) 13,834,023
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from:
Principal payments received under
leases 699,924 887,709
Sale of leased equipment 90,889 36,010
Payments received on notes receivable 954,323 13,401,129
Payments for:
Issuance of notes receivable - (14,145,512)
Capital expenditures (437,515) (321,115)
Net cash provided by (used in)
investing activities 1,307,621 (141,779)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from:
Issuance of short-term notes payable 21,766,000 22,047,000
Exercise of employee stock options 66,500 1,550
Payments of:
Principal on short-term notes payable (19,773,000) (22,986,000)
Repayment of bonds payable (1,099,000) (1,539,000)
Dividends (1,049,740) (1,167,207)
Net repayments under bank credit
facilities (194,969) (8,271,217)
Net cash used in financing
activities (284,209) (11,914,874)
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS (18,533,892) 1,777,370
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD 43,096,718 18,028,477
CASH AND CASH EQUIVALENTS AT
END OF PERIOD $ 24,562,826 $ 19,805,847
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Interest paid during the period $ 850,000 $ 949,000
Income taxes paid during the period $ 6,158,000 $ 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
March 31, 1997
Note A -- Basis of Presentation
The consolidated condensed financial statements included herein have
been prepared by The Ziegler Companies, Inc. (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 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. Certain prior year amounts
have been reclassified to conform with current year presentation.
Note B -- Commitments and Contingent Liabilities
In the normal course of business, B. C. Ziegler and Company (BCZ)
enters into firm underwriting commitments for the purchase of debt issues.
These commitments require BCZ to purchase debt issues at a specified price.
To manage the off-balance sheet credit and market risk exposure related to
these commitments, BCZ presells the issues to customers. BCZ had
approximately $6,850,000 in commitments outstanding at March 31, 1997.
As of March 31, 1997, Ziegler Financing Corporation (ZFC) had no
financial commitments to unrelated entities for construction or other
loans.
WRR is subject to a consent order of the Wisconsin Department of
Natural Resources for further testing and surface water control, and to
remedial action under the federal Research Conservation and Recovery Act
("RCRA"), of contaminants in ground water directly underneath and adjacent
to the plant site.
WRR has disposed of wastes at other recycling sites which may be added
to the National Priority List, and may be required to share in the cost of
the clean-up of these sites. As of March 31, 1997, WRR had been identified
as a potentially responsible party ("PRP") in connection with three sites.
For the first site, a reserve of $128,000 was established based on WRR's
review of documents, its knowledge of the site and its experience with the
clean-up of similar sites. No engineering studies have yet been done to
arrive at a more reliable cost estimate. Payments on this site are
expected to occur over the next five years. The estimated cost of cleaning
up a second site is between $10,000,000 and $30,000,000 based on
preliminary estimates from various consulting firms. Based on the
identification of other PRPs and the present interim allocation schedule,
WRR would be responsible for costs ranging from $500,000 to $1,800,000. In
accordance with Financial Accounting Standards Board Interpretation No. 14,
"Reasonable Estimation of the Amount of a Loss," WRR established a reserve
of $500,000 to cover its share of the clean-up costs of this second site.
Payments on this site are expected to occur over the next five years. In
June 1994, WRR was notified by the United States Environmental Protection
Agency ("EPA") that WRR is a PRP at a third site to which WRR delivered
materials from 1982 to 1985. WRR's review of the remediation investigation
and feasibility study, and other materials prepared by EPA on account of
this site, indicates that WRR has valid defenses to any action by EPA to
collect remediation costs. The EPA's estimate of WRR's proportionate share
of anticipated remediation costs at this third site approximates $200,000.
No reserve has been established on account of this third site.
WRR is jointly and severally liable on two of the previously mentioned
sites. To the extent that WRR is found liable for contributing to the
pollution at the third site, its liability will be joint and several.
Management for the Company is not aware of circumstances which could lead
to non-performance by the other PRP's when viewed as a group. No potential
insurance recovery or reimbursements from WRR's liability insurance
carriers have been accrued in the financial statements. The reserve for
accrued loss contingencies totaled $732,000 at March 31, 1997.
Note C -- Stock-Based Compensation Plans
The Ziegler Company, Inc. 1989 Employees' Stock Purchase Plan (the
"1989 Plan") was established for substantially all full-time employees. As
of March 31, 1997, unexercised options for 81,760 shares were outstanding.
All outstanding options are currently exercisable through April 30, 1997,
at 85% of the market value on the date of exercise. No options were
exercised during 1997. As of March 31, 1997, under the 1989 Plan, 35,445
options are available for future granting at 85% of the market value on the
date of exercise. Options granted under the 1989 Plan that expire,
terminate, or are cancelled are again available for the granting of future
options. Options for a total of 1,710 shares were forfeited during the
period.
The Company established the 1993 Employees' Stock Incentive Plan (the
"1993 Plan") for certain officers and key employees. Stock options, stock
appreciation rights and restricted stock may be granted under the 1993 Plan
As of March 31, 1997, unexercised options for 44,500 shares were
outstanding. The options are exercisable through December 28, 2003 at a
price of $16.625 per share. Options for a total of 4,000 shares were
exercised during 1997. No options were forfeited during this period.
Note D -- Earnings Per Share
Earnings per share calculations were computed based on the weighted
average number of common shares outstanding including restricted common
stock using the treasury stock method. The dilutive effect of shares
issuable under the various employee stock option plans in the computation
of earnings per share under Accounting Principles Board Opinion 15,
Earnings per Share, is not significant.
In March 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards, No. 128, Earnings per Share,
superseding Opinion 15. The Company is required to adopt the new rules for
periods ending after December 15, 1997. For the three month periods ending
March 31, 1997 and 1996, the adoption of the new rules would not have a
material impact on the earnings per share as presented in the Consolidated
Condensed Income Statements for either basic or diluted earnings per share,
as defined by the newly issued statement.
Note E -- Net Capital Requirements and Customer Reserve Accounts
As registered broker-dealers, BCZ and Ziegler Thrift Trading, Inc.
(ZTT) are subject to the requirements of Rule 15c3-1 (the "net capital
rule") under the Securities Exchange Act of 1934. The basic concept of the
rule is liquidity, requiring a broker-dealer to have sufficient liquid
assets at all times to cover current indebtedness. Specifically, the rule
prohibits a broker-dealer from permitting "aggregate indebtedness" to
exceed 15 times "net capital" (15 to 1) as those terms are defined.
Approximate net capital data as of March 31, 1997, is as follows:
[CAPTION]
BCZ ZTT
<TABLE>
<S> <C> <C>
Aggregate indebtedness $20,243,000 $1,865,000
Net capital $12,863,000 $1,846,000
Ratio of aggregate indebtedness
to net capital 1.57 to 1 1.01 to 1
Required net capital $ 1,350,000 $ 250,000
</TABLE>
In accordance with Securities and Exchange Commission Rule 15c3-3, BCZ
and ZTT maintain separate bank accounts for the exclusive benefit of
customers. The amounts maintained in these accounts are determined by
periodic computations required under the rule, which allows the companies
to maintain the computed amounts in cash or other qualified securities. As
of March 31, 1997, there was approximately $3,476,000 in the customer
reserve accounts.
Note F -- Investment in Ziegler Mortgage Securities, Inc. II
The Company has a 50% interest in Ziegler Mortgage Securities, Inc. II
(ZMSI II), an unconsolidated entity accounted for by the equity method.
Condensed income statement information is as follows:
[CAPTION]
For the Three Months Ended
March 31, March 31,
1997 1996
<TABLE>
<S> <C> <C>
Income, primarily interest $2,164,235 $2,720,630
Expenses -
Interest 2,013,322 2,406,375
Amortization of bond
issuance costs 41,761 208,946
Management fees 84,906 63,972
Other 24,246 41,337
Total expenses 2,164,235 2,720,630
Net income $ - $ -
</TABLE>
Note G -- Securities Inventory
Securities inventory consisted of the following:
[CAPTION]
March 31, December 31,
1997 1996
<TABLE>
<S> <C> <C>
Municipal bond issues $30,986,692 $18,619,321
Corporate bond issues 352,722 358,571
Institutional bond issues 6,835,586 13,357,676
Preferred stock 4,155,419 1,768,185
Other securities 826,959 816,705
$43,157,378 $34,920,458
</TABLE>
Note H -- Notes Payable to Banks
The Company has various unsecured and secured borrowing facilities in
place to obtain short-term funds. Short-term borrowings are used for
general corporate purposes as well as to fund specific underwriting
purchases or purchases of other large blocks of securities. The Company
had $21,435,000 in short-term borrowings outstanding at March 31, 1997.
Such short-term borrowings are generally repaid within 30 days. Such
amounts are treated as financing items in the Statement of Cash Flows.
Note I -- Ziegler Collateralized Securities, Inc.
Ziegler Collateralized Securities, Inc. (ZCSI), a wholly-owned
subsidiary of the Company, was organized to facilitate the financing of
equipment purchases and leases by securitizing such purchases and leases
for offerings to the public.
Summarized balance sheet information of ZCSI as of March 31, 1997 and
December 31, 1996 and income statements for the three month periods ended
March 31, 1997 and 1996 are as follows:
[CAPTION]
Balance Sheets as of:
March 31, December 31,
1997 1996
<TABLE>
<S> <C> <C>
Investment in leases $ 6,698,137 $ 7,507,948
Notes receivable 6,427,081 7,046,152
Other assets 4,730,197 2,773,088
Total assets $17,855,415 $17,327,188
Bonds payable $13,424,000 $14,302,000
Other liabilities 4,421,415 3,015,188
Total liabilities 17,845,415 17,317,188
Stockholder's equity 10,000 10,000
Total liabilities and
stockholder's equity $17,855,415 $17,327,188
</TABLE>
[CAPTION]
Income Statements for the
Three Months Ended
March 31, March 31,
1997 1996
<TABLE>
<S> <C> <C>
Lease income $ 170,188 $ 210,642
Interest income 168,509 173,529
Total income 338,697 384,171
Interest expense 279,839 285,425
Management fees (subsidy) (7,998) 5,793
Other expenses 66,856 92,953
Total expenses 338,697 384,171
Net income $ - $ -
</TABLE>
At the end of February 1997 the written agreement with Ziegler Leasing
Corporation (ZLC) to provide management and administrative services to ZCSI
terminated. In March 1997, a written agreement with ZCO was undertaken to
provide management and administrative services to ZCSI. Management fees
paid to ZCO/ZLC were limited to the amount which prevented ZCSI from
incurring a loss.
An analysis of each outstanding bond series as of March 31, 1997 and
for the three month period then ended indicates the income from each series
exceeds the interest expense on the corresponding bonds and the other
expenses directly related to each specific series.
[CAPTION]
Collateral Lease/ Bond Other Excess
Series Bonds Value Note Interest Related of
No. Outstanding at Cost Income Expense Expenses Income
<TABLE>
<C> <S> <S> <S> <S> <S> <S>
2 $ 100,000 $ 123,314 $ 3,343 $ 1,750 $ 706 $ 887
3 98,000 144,623 2,716 1,604 1,011 101
4 826,000 959,665 19,525 12,915 3,248 3,362
5 2,952,000 3,861,267 72,437 52,198 13,935 6,304
6 4,448,000 5,133,293 121,224 81,258 16,480 23,486
7 5,000,000 5,868,840 112,696 81,034 20,851 10,811
</TABLE>
Note J -- Litigation
B. C. Ziegler and Company, a broker-dealer subsidiary of the Company
has been made a party to a lawsuit involving the underwriting of two bond
issues in May of 1989 which totaled $11,680,000 (the "Bonds"). The Bonds
were issued to construct a retirement facility. In 1992, there was a
default on the Bonds, which resulted in a significant loss of principal and
interest by the bondholders. Admitting no liability with respect to the
matters alleged in the lawsuit, management has reached a provisional
settlement as the best means to manage the uncertainty and expense of
protracted litigation, and to limit the diversion of management time. The
settlement is in the amount of $1,400,000, and is conditioned upon judicial
certification of a class of bondholders as plaintiffs, and judicial
approval of the settlement. The settlement amount is included as an
expense in the first quarter results for 1997.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations - Three Months Ended
March 31, 1997 versus March 31, 1996
The "Company," consisting of The Ziegler Companies, Inc. and its
subsidiaries, is a financial services company whose predominant activity is
investment banking, primarily the underwriting and marketing of debt
securities for the healthcare industry, nonprofit senior living providers
and for churches and private schools. The Company's other financial
service activities include full-service and reduced-commission brokerage
services, investment management and advisory services, interim lending to
investment banking clients, and Federal Housing Administration loan
origination in conjunction with investment banking activities. The
nonfinancial services of the Company are pollution abatement, chemical
processing, and the recycling, reclaiming and disposing of chemical wastes.
The Company has discontinued its operations in the area of equipment
leasing services to the healthcare industry and commercial/industrial
customers as the result of the sale of its leasing subsidiary, Ziegler
Leasing Corporation,in December 1996.
Total revenues of the Company were $9,719,000 in 1997 compared to
revenues from continuing operations of $10,027,000 in 1996, a decrease of
$308,000 or 3%. Total expenses in 1997 were $12,409,000 compared to
expenses of continuing operations of $10,020,000 in 1996, an increase of
$2,389,000 or 24%. There was a benefit from income taxes of $1,072,000 in
1997 compared to a benefit from income taxes of continuing operations of
$42,000 in 1996 using a federal statutory tax rate of 34% in both periods.
In 1997 there was a net loss of $1,618,000 compared to net income from
continuing operations of $49,000 in 1996. Net income from discontinued
operations, net of applicable income taxes, was $133,000 in 1996. The loss
per share in 1997 was $.67 compared to earnings per share from continuing
operations of $.02 and from discontinued operations of $.06 in 1996. The
changes in revenues, operating expenses, and net income or loss from
continuing operations were primarily a reflection of factors related to
investment banking and broker-dealer activities, as well as changes in the
Company's nonfinancial services company, WRR Environmental Services Co.,
Inc. These factors, as well as the impact of other factors, are explained
more fully in the information that follows. The impact of discontinued
operations is limited to 1996 when substantially all of such operations
were sold. All references to 1997 and 1996 refer to the three months ended
March 31, unless otherwise noted.
Investment Banking and Broker-Dealer Activities
B. C. Ziegler and Company (BCZCO), the investment banking and full
service broker-dealer subsidiary of the Company, had total revenues of
$5,580,000 in 1997 compared to $6,269,000 in 1996, a decrease of $689,000
or 11%. The decrease is primarily due to a decrease in municipal
underwriting revenues of $695,000 in 1997 as compared to 1996. There were
also less significant decreases in nonunderwritten product revenues,
trading profits and fee revenue which were offset by increases in taxable
underwriting revenues, interest income and insurance agency revenues.
Total BCZCO expenses were $9,108,000 in 1997 compared to $7,038,000 in
1996, an increase of $2,070,000 or 29%. The primary reason for the
increase is a one-time litigation settlement of $1,400,000 related to a
defaulted bond issue underwritten by BCZCO in 1989. Expenses for employee
compensation and benefits increased $380,000 primarily as the result of
increased benefits expense and an increase in commissions paid. Other
changes in expense categories were not significant. BCZCO had a net loss
in 1997 of $2,124,000 compared to a loss of $424,000 in 1996.
Ziegler Thrift Trading, Inc. (ZTT), the reduced commission brokerage
service of the Company, had total revenues of $1,554,000 in 1997 compared
to $1,418,000 in 1996, an increase of $136,000 or 10%. Commission income
was $1,298,000 in 1997 compared to $1,282,000 in 1996, an increase of
$16,000 or 1%. The minor increase in commissions was the result of an
increase in the average commission per trade offset by a 4% decrease in
trading volume. The overall increase in revenues is primarily due to a
higher volume of stock option financing activity in 1997. Total expenses
of ZTT were $1,166,000 in 1997 compared to $1,043,000 in 1996, an increase
of $123,000 or 12%. Increases in clearing fees and increases in employee
compensation and benefits are the primary reasons for the increase in total
expenses. Net income for ZTT was $241,000 in 1997 compared to $232,000 in
1996.
Ziegler Asset Management, Inc. (ZAMI), the money management services
subsidiary of the Company, had total revenues of $799,000 in 1997 compared
to $637,000 in 1996, an increase of $162,000 or 25%. The increase in
revenues is due to earnings on the transfer of investment advisory business
to ZAMI from BCZ being reflected for a full three months in 1997 compared
to two months in 1996. This business was transferred to ZAMI in February
1996. Total expenses of ZAMI were $733,000 in 1997 compared to $505,000 in
1996, an increase of $228,000 or 45%. The increase in expenses is
primarily due to an increase in employee compensation and benefits and the
reimbursement of management fees by ZAMI under expense reimbursement
agreements with money market and mutual funds whose assets ZAMI manages.
Both increases are also the result of the transfer of investment advisory
business that increased revenues. Other changes in expense categories were
not significant. Net income for ZAMI was $37,000 in 1997 compared to
$74,000 in 1996.
Other Services and Activities
WRR Environmental Services Co., Inc. (WRR) is in the business of
providing pollution abatement services, chemical processing, and the
recycling, reclaiming, and disposing of chemical wastes. WRR is also
engaged in the sale, installation and servicing of truck equipment through
a wholly-owned subsidiary, WRR Northwest Enterprises, Inc. (NWE). Total
gross revenues were $2,820,000 in 1997 compared to $3,661,000 in 1996, a
decrease of $841,000 or 23%. The decrease is primarily due to a reduced
level of remediation services in 1997. In 1996, a large remediation
project in the first quarter of 1996 was the source of the majority of
remediation revenues. There were no large remediation projects in 1997.
Total gross margin for WRR was $806,000 in 1997 compared to $819,000 in
1996. The gross margin percentage in 1997 was 29% compared to 22% in 1996.
The increase in the gross margin percentage and the very small reduction in
total gross margin dollars is due to the mix of product sales. An increase
in higher margin core product sales and a decrease in disposal services and
the remediation services noted above which were lower margin activities are
the reasons for the gross margin relationships. Total expenses of WRR were
$674,000 in 1997 compared to $639,000 in 1996, an increase of $35,000 or
5%. There were no significant changes in the expenses between periods.
Net income for WRR in 1997 was $98,000 compared to $119,000 in 1996.
Ziegler Financing Corporation (ZFC) provides construction financing
and interim lending primarily to investment banking clients and is also
qualified to originate loans for the Federal Housing Administration (FHA).
Total revenues for ZFC were $43,000 in 1997 compared to $45,000 in 1996.
Revenue consists primarily of interest income. A low level of lending
activity and no mortgage origination activity in either 1997 or 1996 is the
reason for the minimal change in revenues. Total expenses of ZFC were
$63,000 in 1997 compared to $26,000 in 1996, an increase of $37,000. The
addition of employees to ZFC and an outside office and the related expenses
are the primary reasons for the increase. ZFC had a net loss of $12,000 in
1997 compared to net income of $11,000 in 1996.
First Church Financing Corporation (FCFC) is organized for the purpose
of issuing mortgage-backed bonds collateralized by first mortgages on
church buildings and properties. Total revenues of FCFC were $258,000 in
1997 compared to $319,000 in 1996. FCFC had expenses of $245,000 in 1997
compared to $310,000 in 1996. No new bond series were issued during the
year 1996 or the first quarter of 1997. The reduction in income, which is
primarily interest, is due to the amortization of principal as loan
payments are made. The principal payments on the loans are then used to
redeem outstanding bonds which reduces interest expense, the primary
component of FCFC expenses. Net income was $8,000 in 1997 compared to
$6,000 in 1996.
Ziegler Collateralized Securities, Inc. (ZCSI) facilitated the
financing of equipment leases and sales by securitizing equipment leases or
notes supporting equipment leases on sales, and offering the resulting
securities to the public. ZCSI purchased the leases and notes from Ziegler
Leasing Corporation (ZLC) which also acted as manager and lease servicer
since ZCSI had no employees. ZCSI no longer makes such purchases since the
sale of ZLC by the Company and is now allowing all leases and notes to run
to maturity. The Ziegler Companies Inc. (ZCO) now acts as manager and
lease servicer. ZCSI had revenues of $339,000 in 1997 compared to $384,000
in 1996. ZCSI revenues consist almost entirely of lease income and note
interest income. The timing of bond issues and the reduction of the
underlying principal upon which the income is received is the reason for
the decline in revenues. Expenses equaled revenues since management and
servicing fees are limited to an amount that would prevent ZCSI from
incurring a loss. Interest expense is the largest component of total
expenses and was $280,000 in 1997 and $285,000 in 1996. Management and
servicing fees were a subsidy to ZCSI of $2,000 in 1997 and an expense of
$25,000 in 1996. All other expense changes were not significant.
ZCO is the parent company of the subsidiaries and also engages in
limited investing and financing activities. Total revenues of ZCO were
$502,000 in 1997 compared to $216,000 in 1996. Revenues consist primarily
of interest income. The increase in revenues is primarily related to the
investment earnings from the proceeds of the sale of ZLC. Total expenses
of ZCO were $270,000 in 1997 compared to $163,000 in 1996. A large
component of expenses is interest expense. Interest expense increased
$80,000 in 1997 over 1996 as the result of a higher level of commercial
paper outstanding. Other expense items did not change significantly. The
net income for ZCO was $137,000 in 1997 compared to $33,000 in 1996.
Liquidity and Capital Resources
The Company's primary activities involve investment banking, retail
and institutional securities brokerage, other financial services and
environmental services. Capital expenditures for assets are relatively
insignificant. Land buildings and equipment, net of related depreciation
and amortization, was 6% of total Company assets at March 31, 1997.
The Company has a continuing requirement for cash to finance its
activities. A primary source of cash has been and continues to be the
issuance of short-term notes of the Company. These notes vary in
maturities up to 270 days. In the first three months of 1997, a total of
$21,766,000 of notes were issued and $19,773,000 were repaid. In the first
three months of 1996, a total of $22,047,000 of notes were issued and
$22,986,000 were repaid. The total balance of short-term notes
outstanding, without regard to interest discounts was $15,285,000 at March
31, 1997. Short-term notes are an important source of cash for external
lending activities.
ZCSI issues bonds to the public as a source of cash. No new bonds
have been issued in 1997 nor does the Company contemplate issuing bonds
from this subsidiary in the future. Total bonds outstanding were
$13,424,000 at March 31, 1997. The bonds are due serially from April, 1997
to October, 2001. The bonds were used to finance the purchase of lease
obligations and lease financing notes and will mature in a pattern
approximating the maturities of the lease obligations and lease financing
notes that serve as collateral.
FCFC issues bonds to the public as a source of cash. Mandatory
redemption on the bonds is made from principal payments received on the
mortgage loans which serve as collateral for the bonds. Principal payments
on the mortgage loans are received in regular installments over a 15-year
amortization schedule through 2010. No new bonds were issued in the first
three months of 1997. Total bonds outstanding were $10,084,000 at
March 31, 1997.
WRR has bonds outstanding at a face value of $415,000. The bonds
mature serially each December through the year 2004. The bonds were issued
in 1980 to financing continuing operations. WRR also has outstanding bank
borrowings incurred in a 1995 purchase of assets of a company engaged
primarily in the sale, installation and servicing of truck equipment. At
March 31, 1997, the bank borrowings total $339,000 and mature serially
through October, 2002.
BCZCO finances most activities from its own resources and also relies
upon unsecured and secured credit facilities available through banking
relationships and intercompany borrowings, if necessary. Any utilization
of these lines of credit is generally repaid in less than 30 days. BCZCO
also has broker loan and other collateralized arrangements available
through banking relationships. At March 31, 1997, BCZCO had $21,435,000
outstanding under the banking relationship credit facilities and had
intercompany borrowing of $7,385,000. The amounts were borrowed primarily
to fund an inventory of variable rate demand notes which were to be
remarketed as well as inventory for retail investors.
The Company's cash and cash equivalent position allows a certain
flexibility in its financial activities. In order to maximize income,
available cash is invested in short-term investments such as money market
funds and reverse repurchase agreements at very short maturities in
accordance with the Company's liquidity requirements.
The Company received approximately $17,000,000 as the purchase price
in cash at the closing of the sale of Ziegler Leasing Corporation. The
proceeds were reduced by the federal tax liability associated with the sale
of approximately $5,985,000. The net proceeds of approximately $11,000,000
are anticipated to be reinvested in securities related activities.
The Company has signed a letter of intent to purchase Glaisner,
Shilffarth, Grande & Schnoll, Ltd., a Milwaukee-based financial services
holding company, together with its broker-dealer subsidiary, GS2
Securities, Inc. Total consideration, which is subject to negotiation and
payable in Company common stock and cash, will be $2,750,000 at closing
with future contingent payments of up to $1,000,000 possible based on
financial performance after the purchase. The acquisition is subject to
the Company's due diligence investigation being satisfactorily completed,
the execution of a definitive purchase agreement, and the satisfaction of
all conditions to closing. The acquisition will expand the securities-
related services of the Company, including among others institutional
brokerage, research, investment banking services and investment advisor
selection and monitoring for high net worth individuals and institutions.
PART II
Item 1. Legal Proceedings
On March 21, 1997, B. C. Ziegler and Company, a broker-
dealer subsidiary of The Ziegler Companies, Inc., was
made party to a lawsuit involving the underwriting of two
bond issues. The basis of the lawsuit against B. C.
Ziegler and Company is allegations that it failed to
discover inaccuracies in disclosure documents delivered
to potential investors. A provisional settlement has
been reached for $1,400,000 with attorneys who expect to
represent a class of former bondholders. The settlement
is conditioned upon the judicial certification of a class
of bondholders as plaintiffs, and judicial approval of
the settlement. The class action was filed in the Racine
County Circuit Court in the State of Wisconsin.
Items 2 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:
Registrant filed a Current Report on Form 8-K dated
January 6, 1997 announcing the disposition of
assets of Ziegler Leasing Corporation on December
20, 1996. The Form 8-K included proforma financial
statement information.
Registrant filed a Current Report on Form 8-K dated
February 24, 1997 indicating that the Company has
signed a nonbinding letter of intent to acquire
Milwaukee-based Glaisner, Shilffarth, Grande &
Schnoll, Ltd., a financial services holding
company, and its broker-dealer and investment
advisor subsidiary, GS2 Securities, Inc. No
financial statements were filed as part of the
report.
Registrant filed a Current Report on Form 8-K dated
March 21, 1997 indicating that B. C. Ziegler and
Company, a subsidiary of the Registrant, has been
made a party to a lawsuit involving the
underwriting of two bond issues. Although
admitting no liability with respect to the matters
alleged in the lawsuit, the Company has reached a
provisional settlement in the amount of $1,400,000.
No financial statements were filed as part of the
report.
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.
THE ZIEGLER COMPANIES, INC.
Dated: May 15, 1997 By /s/ Peter D. Ziegler
Peter D. Ziegler
President
Dated: May 15, 1997 By /s/ Dennis A. Wallestad
Dennis A. Wallestad
Sr. Vice President/
Chief Financial Officer
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> BD
<LEGEND>
This schedule contains summary financial information extracted from The
Ziegler Companies, Inc. and subsidiaries financial statements and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<RESTATED>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 3,535,568
<RECEIVABLES> 9,027,409
<SECURITIES-RESALE> 0<F1>
<SECURITIES-BORROWED> 0
<INSTRUMENTS-OWNED> 50,906,600<F2>
<PP&E> 7,011,406
<TOTAL-ASSETS> 111,409,832
<SHORT-TERM> 18,673,704<F1><F3>
<PAYABLES> 7,705,318<F4>
<REPOS-SOLD> 0
<SECURITIES-LOANED> 0
<INSTRUMENTS-SOLD> 0
<LONG-TERM> 28,821,355<F5>
0
0
<COMMON> 3,544,030
<OTHER-SE> 48,612,868
<TOTAL-LIABILITY-AND-EQUITY> 111,409,832
<TRADING-REVENUE> 0<F6>
<INTEREST-DIVIDENDS> 999,164
<COMMISSIONS> 0<F6>
<INVESTMENT-BANKING-REVENUES> 6,294,020<F6>
<FEE-REVENUE> 1,610,832
<INTEREST-EXPENSE> 749,701
<COMPENSATION> 5,197,257
<INCOME-PRETAX> 7,040<F7>
<INCOME-PRE-EXTRAORDINARY> 49,240<F7>
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 181,962<F8>
<EPS-PRIMARY> .08<F8>
<EPS-DILUTED> .08<F8>
<FN>
<F1>Short-term investments includes some securities purchased under resale
agreements.
<F2>Financial instruments includes securities inventory, investment in leases,
notes receivable, and investment in and receivables from affiliates.
<F3>Includes short-term notes payable and unsecured notes payable to banks
under line of credit agreements.
<F4>Includes payable to customers, payable to broker-dealers, accounts
payable, and dividends payable.
<F5>Includes bonds payable and notes payable to banks other than line of credit
borrowings.
<F6>Revenue from investment banking activities also includes revenue from
trading activities and commissions.
<F7>Includes only income from continuing operations.
<F8>Income from continuing and discontinued operations.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> BD
<LEGEND>
This schedule contains summary financial information extracted from
The Ziegler Companies, Inc. and subsidiaries financial statements and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 5,403,167
<RECEIVABLES> 12,236,146
<SECURITIES-RESALE> 0<F1>
<SECURITIES-BORROWED> 0
<INSTRUMENTS-OWNED> 74,688,288<F2>
<PP&E> 7,296,628
<TOTAL-ASSETS> 128,358,216
<SHORT-TERM> 36,602,411<F3>
<PAYABLES> 8,314,041<F4>
<REPOS-SOLD> 0
<SECURITIES-LOANED> 0
<INSTRUMENTS-SOLD> 0
<LONG-TERM> 24,752,414<F5>
0
0
<COMMON> 3,544,030
<OTHER-SE> 48,845,007
<TOTAL-LIABILITY-AND-EQUITY> 128,358,216
<TRADING-REVENUE> 0<F6>
<INTEREST-DIVIDENDS> 1,244,152
<COMMISSIONS> 0<F6>
<INVESTMENT-BANKING-REVENUES> 5,667,706<F6>
<FEE-REVENUE> 1,604,648
<INTEREST-EXPENSE> 817,339
<COMPENSATION> 5,776,584
<INCOME-PRETAX> (2,690,147)<F7>
<INCOME-PRE-EXTRAORDINARY> (1,618,147)<F7>
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,618,147)<F8>
<EPS-PRIMARY> (.67)<F8>
<EPS-DILUTED> (.67)<F8>
<FN>
<F1>Short-term investments includes some securities purchased under resale
agreements.
<F2>Financial instruments includes securities inventory, investment in leases,
notes receivable, and investment in and receivables from affiliates.
<F3>Includes short-term notes payable and unsecured notes payable to banks under
line of credit agreements.
<F4>Includes payable to customers, payable to broker-dealers, accounts payable, and
dividends payable.
<F5>Includes bonds payable and notes payable to banks other than line of credit
borrowings.
<F6>Revenue from investment banking activities also includes revenue from
trading activities and commissions.
<F7>Includes only income from continuing operations.
<F8>Income from continuing and discontinued operations.
</FN>
</TABLE>
