<PAGE>
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, 1998
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 September 30, 1998 was 2,401,632 shares.
<PAGE>
PART I
THE ZIEGLER COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED INCOME STATEMENTS
(Unaudited)
<TABLE>
<CAPTION>
For the Three Months Ended
September 30, September 30,
1998 1997
Revenues:
<S> <C> <C>
Investment banking and commission
income $11,765,138 $10,331,634
Investment management and
advisory fees 2,294,304 1,870,087
Interest and dividends 2,488,725 1,165,748
Gross profit on chemical products 1,018,127 838,336
Insurance agency 243,179 258,074
Other 522,884 1,044,404
Total revenues 18,332,357 15,508,283
Expenses:
Employee compensation and benefits 9,997,473 8,317,021
Commissions and clearing fees 1,891,782 1,055,076
Communications 825,585 732,207
Occupancy and equipment 1,402,473 1,261,475
Promotional 1,043,485 661,650
Professional and regulatory 259,777 267,498
Interest 2,176,016 674,472
Provision for losses - 2,500,000
Other operating expenses 1,460,999 1,619,951
Total expenses 19,057,590 17,089,350
Loss before income taxes (725,233) (1,581,067)
Benefit from income taxes (246,400) (641,700)
Net loss $ (478,833) $ (939,367)
Net loss per share of common stock:
Basic and diluted loss per share $(.20) $(.39)
Dividends per share $ - $ .13
Average number of shares outstanding:
Basic 2,372,343 2,400,494
Diluted 2,417,389 2,472,398
</TABLE>
The accompanying notes to consolidated condensed financial statements
are an integral part of these statements.
<PAGE>
THE ZIEGLER COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED INCOME STATEMENTS
(Unaudited)
<TABLE>
<CAPTION>
For the Nine Months Ended
September 30, September 30,
1998 1997
Revenues:
<S> <C> <C>
Investment banking and commission
income $36,570,535 $26,573,731
Investment management and
advisory fees 6,905,897 3,409,436
Interest and dividends 6,664,632 3,702,637
Gross profit on chemical products 2,660,304 2,544,465
Insurance agency 928,603 878,256
Other 2,337,688 2,710,993
Total revenues 56,067,659 39,819,518
Expenses:
Employee compensation and benefits 30,585,796 20,955,100
Commissions and clearing fees 4,486,175 1,620,250
Communications 2,848,676 2,070,040
Occupancy and equipment 4,289,114 3,678,894
Promotional 3,082,686 1,723,116
Professional and regulatory 964,100 807,451
Interest 5,473,254 2,406,536
Provision for losses - 3,900,000
Other operating expenses 4,824,101 4,499,951
Total expenses 56,553,902 41,661,338
Income (loss) before income taxes (486,243) (1,841,820)
Provision for (benefit from)
income taxes (84,000) (752,300)
Net income (loss) $ (402,243) $(1,089,520)
Net loss per share of common stock:
Basic and diluted loss per share $(.17) $(.46)
Dividends per share $ .26 $ .39
Average number of shares outstanding:
Basic 2,372,090 2,393,864
Diluted 2,428,934 2,443,478
</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)
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
ASSETS
<S> <C> <C>
Cash $ 4,327,235 $ 5,769,914
Short-term investments 25,343,404 22,849,551
Bonds due and called as of January 1, 1998 - 6,805,665
Total cash and cash equivalents 29,670,639 35,425,130
Securities inventory 91,127,223 69,255,507
Securities purchased under agreements
to resell 19,160,049 8,240,000
Accounts receivable -- securities sales - 7,272,672
Accounts receivable -- other 6,908,782 6,660,650
Investment in and receivables from
affiliates 1,660,496 1,550,082
Investment in leases - 4,475,935
Notes receivable 7,531,560 14,513,323
Other investments 29,635,465 -
Land, buildings and equipment, at cost,
net of accumulated depreciation of
$17,107,174 and $15,949,666, respectively 12,194,860 8,879,613
Deferred income tax benefit 2,847,471 2,327,646
Other assets 7,761,304 8,876,549
Total assets $208,497,849 $167,477,107
LIABILITIES AND STOCKHOLDERS' EQUITY
Short-term notes payable $ 14,542,839 $ 15,033,913
Securities sold under agreements
to repurchase 39,788,000 7,324,000
Payable to customers 720,426 4,668,771
Payable to broker-dealers and clearing
organizations 63,876,205 680,980
Accounts payable 1,345,316 6,098,180
Dividends payable - 1,042,222
Accrued income taxes payable - 329,982
Securities sold, not yet purchased 19,373,640 7,989,062
Notes payable to banks 816,294 41,833,196
Bonds payable 6,922,309 18,281,775
Other liabilities and deferred items 9,877,787 11,900,370
Total liabilities 157,262,816 115,182,451
Commitments
Stockholders' equity
Common stock, $1.00 par,
authorized 7,500,000 shares,
issued 3,544,030 shares 3,544,030 3,544,030
Additional paid-in capital 6,058,808 6,068,647
Retained earnings 59,626,375 60,658,881
Treasury stock, at cost, 1,128,398
and 1,120,257 shares, respectively (17,708,578) (17,600,754)
Unearned compensation (285,602) (376,148)
Total stockholders' equity 51,235,033 52,294,656
Total liabilities and stockholders'
equity $208,497,849 $167,477,107
</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)
<TABLE>
<CAPTION>
For the Nine Months Ended
September 30, September 30,
1998 1997
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net loss $ (402,243) $(1,089,520)
Adjustments to reconcile net loss to
net cash provided by (used in) operating
activities:
Depreciation and amortization 1,259,092 1,114,421
Provision for losses - 2,500,000
Unrealized loss (gain) on securities
inventory 464,740 (53,198)
Gain on sale of other investments (73,853) -
Compensation expense related to
restricted stock grants 297,578 115,389
Deferred income taxes (519,825) (94,999)
Net dividends received from
unconsolidated affiliates - 356,965
Loss on bond retirement 94,268 -
Changes in assets and liabilities:
Decrease/(Increase) in -
Securities inventory (10,951,878) 19,362,779
Accounts receivable -- securities sales 7,272,672 3,692,615
Accounts receivable -- other (352,292) (366,454)
Securities purchased under agreements
to resell (10,920,049) -
Other assets 510,323 299,365
Increase/(Decrease) in -
Payable to customers and broker-dealers 59,246,880 434,251
Accounts payable (4,752,864) 1,147,755
Income taxes payable (329,982) (7,348,280)
Other liabilities (1,921,941) (1,815,961)
Net cash provided by operating
activities 38,920,626 18,255,128
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from:
Sale of equipment 17,125 -
Principal payments received under leases 779,645 1,850,432
Sale of leased equipment 924,652 223,991
Payments received on notes receivable 4,813,508 6,123,185
Sale of investment in affiliate - 825,000
Cash acquired in purchase of GS2 - 600,196
Sale of leases and notes 5,832,190 -
Sales/paydowns of other investments 10,016,893 -
Payments for:
Issuance of new notes receivable (561,146) -
Purchase of other investments (39,578,505) -
Capital expenditures (4,409,699) (1,958,960)
Net cash provided by (used in)
investing activities (22,165,337) 7,663,844
<PAGE>
THE ZIEGLER COMPANIES, INC. AND SUBSIDIARIES
</TABLE>
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
(Unaudited)
<TABLE>
<CAPTION>
For the Nine Months Ended
September 30, September 30,
1998 1997
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from:
<S> <C> <C>
Issuance of short-term notes payable $60,463,000 $55,312,000
Exercise of employee stock options 85,965 127,339
Payments for:
Principal payments of short-term notes payable (60,946,000) (58,998,000)
Repayments of bonds payable (5,219,000) (4,112,000)
Purchase of treasury stock (410,660) (1,473,010)
Cash dividends paid (1,672,485) (1,689,950)
Retirement of bonds outstanding (6,257,698 -)
Net payments under bank credit
facilities (41,016,902) (21,875,023)
Net receipts on securities sold under agreements
to repurchase 32,464,000 -
Net cash used in financing
activities (22,509,780) (32,708,644)
NET DECREASE IN CASH AND CASH EQUIVALENTS (5,754,491) (6,789,672)
CASH AND CASH EQUIVALENTS AT BEGINNING OF
PERIOD 35,425,130 43,096,718
CASH AND CASH EQUIVALENTS AT END OF PERIOD $29,670,639 $36,307,046
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Interest paid during the period $ 5,132,000 $ 2,539,000
Income taxes paid during the period $ 755,000 $ 6,721,000
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING
AND FINANCING ACTIVITIES:
Granting of restricted stock from
treasury stock $ 207,000 $ -
Treasury stock issued for acquisition
of GS2 $ - $ 1,375,000
</TABLE>
The accompanying notes to consolidated condensed financial statements
are an integral part of these statements.
<PAGE>
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
September 30, 1998
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.
Statement of Financial Accounting Standards No. 130, Reporting
Comprehensive Income, requires the reporting of other comprehensive income.
Other comprehensive income refers to revenues, expenses, gains and losses
that under generally accepted accounting principles are included in
comprehensive income but excluded from net income. There are no material
items of other comprehensive income, therefore comprehensive income equals
net income.
In June, 1998, Statement of Financial Accounting Standards No. 133
("SFAS 133"), Accounting for Derivative Instruments and Hedging Activities,
was issued. The Statement establishes accounting and reporting standards
for derivative instruments. SFAS 133 is effective for fiscal years
beginning after June 15, 1999. Management has not yet quantified the
impacts of adopting SFAS 133 on the financial statements and has not
determined the timing or method of adoption of SFAS 133. Although
management expects the amount to be immaterial, the application of this
Statement to the Company's financial statements could increase volatility
in net income and other comprehensive income.
Note B -- Commitments and Contingent Liabilities
In the normal course of business, B. C. Ziegler and Company (BCZ) and
GS2 Securities, Inc. (GS2) enter into firm underwriting commitments for the
purchase of debt and equity issues. BCZ purchases debt issues at a
specified price. To manage the related credit and market risk exposure,
BCZ attempts to presell the debt issues to customers. BCZ had
approximately $7,027,000 of firm underwriting commitments outstanding at
September 30, 1998. GS2 had no firm underwriting commitments outstanding at
September 30, 1998.
WRR Environmental Services Co., Inc. (WRR) is subject to a consent
order of the Wisconsin Department of Natural Resources for further testing
and surface water control of contaminants in ground water under and
adjacent to its plant site in Eau Claire, Wisconsin.
WRR has disposed of wastes at other recycling sites which are on or
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 September 30, 1998, WRR had
been identified as a potentially responsible party ("PRP") in connection
with three sites. For the first site, a payment of $138,000 was made in
1997 in response to an assessment by a steering committee of PRPs at the
site. During the third quarter of 1998 the steering committee notified WRR
that additional remediation and monitoring costs will be required to clean
up the first site. WRR's estimate of this future cost is $50,000. Release
of WRR by the Environmental Protection Agency ("EPA") will occur only after
site work is completed and no further costs have been determined. The
estimated cost of cleaning up a second site is approximately $7,000,000
based on current management estimates. Based on the identification of
other PRPs and the present interim allocation schedule, WRR estimates that
it would be responsible for costs of approximately $420,000. WRR was
notified by the EPA that WRR is a PRP at a third site to which WRR
delivered materials from 1982 to 1985. A group of major PRPs at the site
have cross-complained against WRR and other PRPs who delivered smaller
volumes of waste to the site, requesting contributions for the cleanup
costs. The case is pending in a federal district court. WRR's review of
the EPA's remediation investigation and feasibility study, and other
materials prepared by EPA on account of this site, indicates that WRR may
have valid defenses to this cross complaint. WRR continues to evaluate its
potential liability for remediation costs at this site but is unable to
estimate a realistic cost at this time based upon the presently available
information.
While WRR is jointly and severally liable on all three sites,
management is not aware of circumstances which could lead to non-
performance by the other PRPs when viewed as a group. No potential
insurance recoveries have been accrued in the financial statements. The
reserve for accrued loss contingencies totaled $585,000 at September 30,
1998 and covers the costs related to the specific sites identified above
and other ongoing environmental matters. It is possible that WRR's
estimates of its liability related to the clean-up of these sites may
change materially in the future.
Note C -- Stock-Based Compensation Plans
On January 15, 1998, the Company issued an aggregate of 10,617 shares
of restricted common stock of the Company to certain key employees under
the 1993 Plan. As of September 30, 1998, a total of 2,565 shares had been
forfeited. Each remaining employee's ownership of shares is subject to
full or partial forfeiture in accordance with a vesting schedule in the
event that the employee's employment with the Company terminates for any
reason before January 15, 2001. None of such shares were vested at
September 30, 1998. The market value of the restricted stock, when issued,
was $19.50 per share. The total value of these shares is being amortized
and recorded as compensation expense over the period of vesting. The
shares may not be transferred by the recipients until vested.
In April, 1998, the shareholders authorized the establishment of the
1998 Stock Incentive Plan (the "1998 Plan") for key employees of the
Company. Stock options, restricted stock and stock appreciation rights may
be granted under the 1998 Plan. A total of 435,000 shares are issuable
under the 1998 Plan. The 1998 Plan will terminate on April 20, 2008.
On August 28, 1998, a total of 196,500 options to purchase shares
were granted under the 1998 Plan. The options vest equally after each of
the next three years if certain specified earnings targets are met and will
vest in any case after eight years from the date of grant. All options
granted are forfeited upon termination of employment. Under the 1998 Plan
any options that expire, terminate, or are canceled are again available for
future granting. The options must be exercised within 10 years from the
date of grant.
No further awards or grants may be made under the 1993 Employees'
Stock Incentive Plan (the "1993 Plan"). Options already granted under the
1993 Plan will remain in effect until they have been exercised or have
expired.
Note D -- Net Capital Requirements and Customer Reserve Accounts
As registered broker-dealers, BCZ, Ziegler Thrift Trading, Inc. (ZTT)
and GS2 Securities, Inc. (GS2) 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 September 30, 1998, is as
follows:
<TABLE>
<CAPTION>
BCZ ZTT GS2
<S> <C> <C> <C>
Aggregate indebtedness $6,681,000 $ 682,000 $1,487,000
Net capital $2,280,000 $1,942,000 $ 534,000
Ratio of aggregate
indebtedness to
net capital 2.93 to 1 .35 to 1 2.78 to 1
Required net capital $ 460,000 $ 250,000 $ 100,000
</TABLE>
As a registered broker-dealer that still has customer accounts, BCZ
is subject to Securities and Exchange Commission Rule 15c3-3. BCZ must
maintain a separate bank account for the exclusive benefit of customers.
The amount maintained in this account is determined by periodic
computations required under the rule, which allows the company to maintain
the computed amounts in cash or other qualified securities. As of
September 30, 1998, there was approximately $2,009,000 in the customer
reserve account.
In April, 1998, ZTT entered into an agreement to clear all
transaction through a clearing broker-dealer on a fully disclosed basis.
ZTT no longer carries customer accounts and is no longer subject to Rule
15c3-3 and, accordingly, no longer is required to make deposits to a
customer reserve account. In May, 1998, BCZ entered into a similar
agreement. However, as of September 30, 1998, BCZ still maintained some
customer accounts and accordingly was still required to maintain deposits
in a customer reserve account. BCZ is in the process of transferring all
remaining customer accounts to a clearing broker-dealer.
Note E -- 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:
<TABLE>
<CAPTION>
For the Three Months Ended
September 30, September 30,
1998 1997
<S> <C> <C>
Revenues -
Interest $ 939,324 $2,066,050
Gain on sale/redemption of
mortgage certificates 23,431 200,345
Total revenues 962,755 2,266,395
Expenses -
Interest 860,791 1,956,502
Amortization of bond
issuance costs 36,423 136,074
Management fees 53,004 143,808
Other 12,537 30,011
Total expenses 962,755 2,266,395
Net income $ - $ -
</TABLE>
<TABLE>
<CAPTION>
For the Nine Months Ended
September 30, September 30,
1998 1997
<S> <C> <C>
Revenues -
Interest $3,195,271 $6,354,062
Gain on sale/redemption of
mortgage certificates 1,078,178 304,432
Total revenues $4,273,449 $6,658,494
Expenses -
Interest 2,947,970 5,991,020
Amortization of bond
issuance costs 1,107,625 287,229
Management fees 77,095 287,891
Other 140,759 92,354
Total expenses 4,273,449 6,658,494
Net income $ - $ -
</TABLE>
Note F -- Securities Inventory
Securities inventory consisted of the following:
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
<S> <C> <C>
Municipal bond issues $72,471,400 $54,481,670
Mortgage and asset backed securities 13,909,117 9,300,821
Corporate bond issues 1,260,067 1,742,008
Institutional bond issues 209,565 2,165,128
Preferred stock 2,454,021 401,766
Other securities 823,053 1,164,114
$91,127,223 $69,255,507
</TABLE>
U.S. government agency securities consisting of collateralized
mortgage obligations totalling $39,579,000 were purchased by BCZ from ZMSI-
II in February, 1998. In July, 1998, BCZ sold these securities to the
parent (ZCO) at cost which approximated par value. As the result of sales
of some securities and repayments of principal on the underlying mortgage
obligations for securities still held the total volume of securities has
declined. Because of the nature of the underlying mortgage obligations,
the true market value is difficult to determine, but management believes
the market values approximate par value. ZCO carries these U.S. government
agency securities as other investments on the balance sheet, totaling
$29,635,000 at September 30, 1998. Coincident with purchasing these
securities, ZCO entered into a repurchase agreement under which ZCO is able
to benefit from the spread between current short-term interest rates and
the yields on the associated U.S. government agency securities.
Note G -- Securities Sold, Not Yet Purchased
Marketable securities sold, not yet purchased, consist of trading
securities at market value as follows:
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
<S> <C> <C>
U.S. government and agency securities $19,373,640 $7,989,062
</TABLE>
Note H -- Payable to Broker-Dealers and Clearing Organizations
BCZ clears its proprietary and customer transactions through another
broker-dealer on a fully disclosed basis. The relationship with the
clearing broker results in amounts payable for transaction processing and
inventory purchases offset by fees earned, commissions, inventory sales and
profits or losses on securities transactions. The amount payable to the
clearing broker of approximately $63,876,000 at September 30, 1998 relates
primarily to the financing of inventory and is collateralized by securities
owned by BCZ.
Note I -- 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 $490,000 in short-term borrowings outstanding at September 30, 1998.
BCZ serves as the remarketing agent on certain variable-rate
municipal bonds that can be tendered back to the respective issuers,
generally upon seven days advance notice, by the holders. In its role as
remarketing agent, BCZ may purchase the tendered bonds into its own
inventory. To assist in financing such activity, BCZ has a $70,000,000
revolving credit facility and an $83,000,000 uncommitted borrowing
facility. Both facilities are primarily for financing variable rate
municipal securities, although they may be used to finance other inventory
on a limited basis. The financings are done at the Federal funds rate plus
.85% and are fully collateralized. There were no amounts outstanding under
these facilities at September 30, 1998.
Note J -- 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. ZCSI has ceased any further securitization
activity of equipment leases and notes and no longer intends to make
offerings of this nature to the public.
Summarized balance sheet information of ZCSI as of September 30, 1998
and December 31, 1997 and income statements for the nine month periods
ended September 30, 1998 and 1997 are as follows:
<TABLE>
<CAPTION>
Balance Sheets as of:
September 30, December 31,
1998 1997
<S> <C> <C>
Investment in leases $ - $ 4,475,934
Notes receivable 178,301 4,203,967
Other assets 81,885 2,454,051
Total assets $ 260,186 $11,133,952
Bonds payable $ - $ 8,829,000
Other liabilities 250,186 2,294,952
Total liabilities 250,186 11,123,952
Stockholder's equity 10,000 10,000
Total liabilities and
stockholder's equity $ 260,186 $11,133,952
</TABLE>
<TABLE>
<CAPTION>
Income Statements for the
Nine Months Ended
September 30, September 30,
1998 1997
<S> <C> <C>
Lease income $ 136,438 $ 471,744
Interest income 187,894 457,809
Total income 324,332 929,553
Interest expense 306,567 754,219
Management subsidy (68,809) (17,049)
Other expenses 86,574 192,383
Total expenses 324,332 929,553
Net income $ - $ -
</TABLE>
ZCO provides management and administrative services to ZCSI.
Management subsidy received from ZCO is limited to the amount which
prevents ZCSI from incurring a loss.
During June, 1998 ZCSI sold substantially all leases and notes to a
third party. The total proceeds of the transaction were $5,832,000 which
approximated the book value of the assets sold. A total of approximately
$6,258,000 was deposited in escrow with the trustee to retire the
outstanding bonds collateralized by the leases and notes sold. The total
amount deposited is adequate to pay all principal and accrued interest on
the bonds through maturity or the first available call date which will
occur on or before November 1, 1998. The loss on the retirement of the
ZCSI bonds was approximately $94,000 before taxes.
<PAGE>
Note K -- Earnings per Share
The following reconciles the numerators and denominators of the basic
and diluted EPS computations for the net losses for the following periods:
<TABLE>
<CAPTION>
For the Three Months Ended
September 30, September 30,
1998 1997
<S> <C> <C>
Net loss $(478,833) $(939,367)
Basic
Weighted average shares outstanding 2,372,343 2,400,494
Basic earnings per share $(.20) $(.39)
Diluted
Weighted average shares outstanding-
Basic 2,372,343 2,400,494
Effect of dilutive securities:
Restricted stock 26,461 30,688
Employee stock purchase plan 9,368 28,565
Stock options 9,217 12,651
Weighted average shares outstanding-
Diluted 2,417,389 2,472,398
Diluted earnings per share $(.20) $(.39)
</TABLE>
<TABLE>
<CAPTION>
For the Nine Months Ended
September 30, September 30,
1998 1997
<S> <C> <C>
Net loss $(402,243) $(1,089,520)
Basic
Weighted average shares outstanding 2,372,090 2,393,864
Basic earnings per share $(.17) $(.46)
Diluted
Weighted average shares outstanding-
Basic 2,372,090 2,393,864
Effect of dilutive securities:
Restricted stock 24,264 28,500
Employee stock purchase plan 16,465 12,499
Stock options 16,115 8,615
Weighted average shares outstanding-
Diluted 2,428,934 2,443,478
Diluted earnings per share $(.17) $(.46)
</TABLE>
Options to purchase 50,000 shares of common stock at $19 per share were
outstanding during the three and nine month periods ended September 30,
1998, but were not included in the computation of diluted EPS because the
performance requirements for exercise of the options had not been met. The
options, which expire on June 30, 2007, were still outstanding at
September 30, 1998.
Note L -- Subsequent Event--Acquisition of PMC International, Inc.
On November 4, 1998, the Company announced the signing of a merger
agreement for the Company to acquire PMC International, Inc. ("PMC"), a
Denver-based investment management and consulting firm. Under the terms of
the agreement, a subsidiary of the Company commenced a tender offer to
acquire all of the outstanding common stock of PMC for $0.60 per share and
all of the outstanding preferred stock of PMC for $2.50 per share.
Following the completion of the tender offer, the Company will consummate a
second-step merger in which the remaining PMC common shareholders will
receive $0.60 per share and its preferred shareholders will receive $2.50
per share. The total purchase price for the currently outstanding common
and preferred stock, including PMC stock warrants and options, is
approximately $3.1 million, which will be funded from working capital of
the Company.
To support PMC during the period in which the companies are effecting
the merger, the Company has executed a $3.5 million credit facility with
PMC, the outstanding balance of which is convertible into PMC common stock
at $0.60 per share. In October 1998, the Company loaned PMC $500,000 for
working capital which is convertible into PMC preferred stock at $2.50 per
share. In addition, the two firms have entered into an option for common
stock under which the Company may immediately purchase 4,500,000 shares of
PMC common stock for $0.60 per share.
Following the completion of the merger, the Company expects to
furnish additional capital to PMC in the range of $2 million to $3 million,
either in the form of debt or equity.
Note M -- Merger of Subsidiaries
The Company intends to merge its GS2 subsidiary into BCZ effective
January 1, 1999. GS2 was originally purchased July 1, 1997 for total
consideration of $1,375,000 paid in Company stock. Additional contingent
consideration, which would increase the purchase price and goodwill, were
to be paid based upon the achievement of performance targets during the
three years following the purchase. In recognition of performance to date,
the Company will pay an additional 72,366 shares in Company stock and
approximately $468,000 in cash in final settlement of the purchase price.
The final payments will be made December 31, 1998, which will increase the
purchase price and goodwill of the transaction.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations - Three Months Ended
September 30, 1998 versus September 30, 1997
The "Company", consisting of The Ziegler Companies, Inc. and its
subsidiaries, is a financial services company whose principal activities
are investment banking, retail/institutional sales and trading of
securities, and asset management services. The Company's investment
banking services are the underwriting and marketing of debt securities for
the health care industry, nonprofit senior living providers, and for
churches and private schools, the underwriting of equity securities as well
as providing financial advisory services. The Company also provides full-
service and reduced-commission brokerage services, investment management
and advisory services, equity and fixed income primary and secondary
trading, sales of complex financial instruments on an agency basis, and
Federal Housing Administration loan origination in conjunction with
investment banking activities. The nonfinancial services of the Company
are pollution abatement, as well as the recycling, reclaiming and disposing
of chemical wastes.
The Company declared dividends for the third quarter of 1998 of 13
cents per share on October 21, 1998, after the end of the quarter. The
dividends are payable to shareholders of record on November 2, 1998, and
will be paid on November 13, 1998. For the third quarter of 1997 dividends
were declared during the quarter on September 19, 1997, payable to
shareholders of record on October 3, 1997. The dividends were paid on
October 17, 1997.
All references to 1998 and 1997 in this section of the results of
operations refer to the three months ended September 30, unless otherwise
noted. Total revenues of the Company were $18,332,000 compared to
$15,508,000 in 1997, an increase of $2,824,000 or 18%. Expenses of the
Company in 1998 were $19,058,000 compared to $17,089,000 in 1997, an
increase of $1,969,000 or 12%. The benefit from income taxes was $246,000
in 1998 and $642,000 in 1997. The statutory federal income tax rate
applicable to the Company was 34% in each of the two periods. The net loss
of the Company in 1998 was $479,000 compared to $939,000 in 1997. The
basic and diluted losses per share were $.20 in 1998 compared to $.39 in
1997. The changes in revenues, operating expenses, and net income were
primarily a reflection of factors related to investment banking, broker-
dealer and parent company 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.
Investment Banking, Broker-Dealer and Asset Management Activities
B. C. Ziegler and Company ("BCZ"), the principal investment banking
and broker-dealer subsidiary of the Company, had total revenues of
$11,660,000 in 1998 compared to $9,425,000 in 1997, an increase of
$2,235,000 or 24%. The increase was due to several factors. Underwriting
revenues increased $1,854,000 or 36% to $6,935,000 primarily due to an
increase in municipal bond underwritings. BCZ experienced a higher level
of bond refunding underwriting as municipalities took advantage of the
lower interest rates to reduce their overall borrowing costs. Trading
profits decreased $904,000 to $190,000 primarily as the result of realized
and unrealized losses on inventory positions. Commission income from the
sale of other financial products increased $291,000 to $2,389,000.
Interest income increased $1,107,000 to $1,532,000 due to substantially
higher inventory levels. All other revenues did not change significantly.
Total expenses of BCZ were $13,835,000 in 1998 compared to $9,408,000
in 1997, an increase of $4,427,000 or 47%. Employee compensation and
benefits increased $1,700,000 in 1998 to $8,193,000 primarily due to an
increase in the accrual for incentive compensation, new hires for the
secondary sales and trading areas, and increases in commission expense
related to higher sales volumes. Interest expense increased $1,490,000 to
$1,595,000, primarily due to higher inventories of variable rate demand
notes, U.S. Government Agency Securities, and secondary market issues and
the related borrowing to finance this inventory. Commissions and clearing
fees increased $507,000 to $650,000 as the result of the change from a
clearing broker-dealer to a fully disclosed broker-dealer in May, 1998.
Promotional expenses increased to $911,000 primarily related to $338,000 of
expense related to municipal bond underwritings. Other categories of
expenses increased in conjunction with the increased activity levels.
The net loss in 1998 for BCZ was $1,344,000 compared to net income of
$30,000 in 1997. The net loss is primarily related to losses in the
taxable fixed income trading division. The components of the loss in the
taxable fixed income trading division were a lower volume of trading
activity than anticipated, high fixed costs of the division, primarily in
the form of personnel costs, and unanticipated market conditions that
created losses in inventory, and for which hedging transactions were not as
effective as anticipated. The taxable fixed income trading division had a
loss of $1,952,000 before taxes in 1998. Included in the taxable fixed
income trading division loss is an unrealized loss of $458,000 related to
the effect of the market conditions on the inventory and hedge positions.
Also contributing to the loss were increased expenses that continued into
the third quarter related to the conversion of clearing operations and the
cost of consultants that are assisting in the conversion of processing and
administrative technology which is intended to increase BCZ's capabilities
as a broker-dealer and to prepare them for Year 2000 compliance.
Ziegler Thrift Trading, Inc. ("ZTT"), the reduced commission
brokerage service of the Company, had total revenues in 1998 of $1,074,000
compared to $1,344,000 in 1997, a decrease of $270,000 or 20%. Commission
income, the primary source of revenues, decreased $178,000 to $925,000
in 1998, a 19% decrease. Decreased trading volumes and a reduction in
average commission per trade are the reasons for the decreases. A decrease
in higher commission stock option trading due to market conditions, lower
commissions on electronic trading which is approximately 10% of trades, and
general competitive pressure to reduce commissions are the reasons for
these decreases. Total expenses of ZTT in 1998 were $1,021,000 compared to
$1,019,000 in 1997, an increase of $2,000 or less than 1%. The resulting
net income in 1998 was $33,000 compared to $202,000 in 1997, a decrease of
$169,000 or 84%.
GS2 Securities, Inc. ("GS2"), an equity investment banking, research,
and investment management business, had total revenues in 1998 of
$2,526,000 compared to $2,075,000 in 1997, an increase of $451,000 or 22%.
An increase in underwriting income of $397,000 was the primary reason for
the increase. Total expenses of GS2 were $2,293,000 in 1998 and $1,952,000
in 1997, an increase of $341,000 or 17%. The primary reason for the
increase was an increase in commissions and clearing fees of $191,000 to
$961,000. This increase is reflective of increased transaction activity
and includes both the cost of clearing transactions and the commissions to
nonemployee selling brokers. Net income for GS2 was $131,000 in 1998
compared to $64,000 in 1997, an increase of $67,000 or 105%.
Ziegler Asset Management, Inc. ("ZAMI"), the asset management
services subsidiary of the Company, had total revenues of $1,150,000 in
1998 compared to $906,000 in 1997, an increase of $244,000 or 27%. This
increase was primarily due to increases in management fee income associated
with increased assets under management. Assets under management increased
to approximately $1.20 billion at September 30, 1998, from approximately
$1.07 billion at September 30, 1997. Management fee income increased
$271,000 to $1,117,000 in 1998. Total expenses of ZAMI were $846,000 in
1998 compared to $740,000 in 1997, an increase of $106,000 or 14%. The
primary reason for the increase was an increased level of referral fees for
new business. Net income for ZAMI in 1998 was $183,000 compared to $92,000
in 1997, an increase of $91,000 or 99%.
Other Financial Services
Other financial service revenues primarily consist of interest income
and lease income. Total revenues in 1998 of $1,150,000 increased $87,000
or 8% from revenues from the same operations of $1,063,000 in 1997.
Decreased lease income as the result of the sale of substantially all
leases and notes in ZCSI in June 1998 was more than offset by increased
interest income. Interest income increased $310,000 as the result of the
U.S. government agency securities held by ZCO. Other changes in revenues
were not significant. Total expenses were $648,000 in 1998 compared to
$3,502,000 in 1997, a decrease of $2,854,000 or 81%. The decrease in
expenses from 1997 was primarily due to the 1997 writedowns of loans
receivable in the amount of $2.25 million and lease receivables of $250,000
held by ZCO and ZCSI, respectively. The balance of the decrease was due to
a reduction in interest expense related to the outstanding bonds issued by
ZCSI and retired in the second quarter of 1998. Net income from other
financial services was $301,000 in 1998, compared to a net loss of
$1,466,000 in 1997.
Nonfinancial Services
WRR Environmental Services Co., Inc. ("WRR") is in the business of
providing pollution abatement services, blending virgin chemicals on a
contract basis for manufacturing firms, and 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. Gross revenues in 1998 were $3,650,000 compared to
$3,072,000 in 1997, an increase of $578,000 or 19%. The gross margin for
WRR was $1,018,000 in 1998, compared to $838,000 in 1997, an increase of
$180,000 or 21%. The gross margin percentage in 1998 was 28% compared to
27% in 1997. Higher volumes of waste and product sales are the reasons for
the increased sales. The gross margin percentage increase was primarily
due to product sales, a higher margin activity. Total expenses of WRR in
1998 were $685,000 in 1998 compared to $643,000 in 1997, an increase of
$42,000 or 7%. The resulting net income for WRR in 1998 was $220,000
compared to $141,000 in 1997, an increase of $79,000 or 56%.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations - Nine Months Ended
September 30, 1998 versus September 30, 1997
All references to 1998 and 1997 in this section of the results of
operations refer to the nine months ended September 30, unless otherwise
noted. Total revenues of the Company in 1998 were $56,068,000 compared to
$39,820,000 in 1997, an increase of $16,248,000 or 41%. Expenses of the
Company in 1998 were $56,554,000 compared to $41,661,000 in 1997, an
increase of $14,893,000 or 36%. The benefit from income taxes was $84,000
in 1998 as compared to a benefit of $752,000 in 1997. The statutory
federal income tax rate applicable to the Company was 34% in each of the
two periods. The net loss of the Company in 1998 was $402,000 compared to
a net loss of $1,090,000 in 1997. The basic and diluted losses per share
were $.17 in 1998 compared to $.46 in 1997, respectively. The changes in
revenues, operating expenses, and net income 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.
As noted in the three month results, the dividends for the third
quarter were declared on October 21, 1998, and will be paid on November 13,
1998. Dividends of 39 cents per share were paid in 1997 for the first
three quarters of the year and the same amount will be paid in 1998 on the
first three quarters of the year.
Investment Banking, Broker-Dealer and Asset Management Activities
B. C. Ziegler and Company ("BCZ"), the principal investment banking
and broker-dealer subsidiary of the Company, had total revenues of
$35,853,000 in 1998 compared to $25,398,000 in 1997, an increase of
$10,455,000 or 41%. The increase was due to several factors. Underwriting
revenues increased $5,142,000 or 38% to $18,583,000 primarily due to an
increase in municipal bond underwritings and related sales of complex
financial instruments primarily on an agency basis. BCZ experienced an
increased volume of bond refunding underwritings as municipalities took
advantage of the lower interest rate environment. Commission income
increased $1,972,000 or 27% to $7,422,000 due to a substantial increase in
other financial product sales, primarily mutual funds and equity
securities. Trading profits were $2,949,000 and did not change
significantly from 1997. Interest income increased $3,164,000 or 239% to
$4,488,000 due to substantially higher inventory levels. All other
revenues did not change significantly.
Total expenses of BCZ were $39,393,000 in 1998 compared to
$27,476,000 in 1997, an increase of $11,917,000 or 43%. Employee
compensation and benefits increased $6,638,000 in 1998 to $23,748,000
primarily due to increases in commission expense related to higher sales
volumes, new hires for the secondary sales and fixed income trading areas,
and an increase in the accrual for incentive compensation. Interest
expense increased $3,397,000 to $3,990,000, primarily due to higher
inventories of variable rate demand notes, U.S. government agency
securities, and other secondary market issues and the related borrowing to
finance this inventory. Commissions and clearing fees increased $840,000
to $1,236,000 in 1998 as the result of the change from a clearing broker-
dealer to a fully disclosed broker-dealer in May, 1998. Communication
costs increased $605,000 to $2,306,000 and promotional expenses increased
$1,141,000 to $2,562,000. Both the communication and promotional expense
increases relate to higher levels of information provided to customers
involving the conversion of our clearing operations and an increase in
awareness and product advertising. Promotional expense also increased as
the result of $551,000 of expense related to municipal bond underwritings.
Other categories of expense did not change significantly.
BCZ had a net loss of $2,230,000 in 1998 compared to a net loss of
$1,228,000 in 1997. The larger loss in 1998 originated primarily in the
taxable fixed income trading division. A lower than projected volume of
trading combined with market conditions that created losses in inventory
were the primary contributors to the BCZ loss in 1998. The taxable fixed
income trading division had a loss of $3,294,000 before taxes in 1998.
Included in the taxable fixed income trading division loss is an unrealized
loss of $458,000 related to the effect of the market conditions on the
inventory and hedge positions. Also contributing to the loss were the
increased expenses of the clearing and technology conversions now taking
place. Each of the conversions is part of a strategy to increase BCZ's
capabilities as a broker-dealer and achieve Year 2000 compliance.
Ziegler Thrift Trading, Inc. ("ZTT"), the reduced-commission
brokerage service of the Company, had total revenues in 1998 of $3,856,000
compared to $4,436,000 in 1997, a decrease of $580,000 or 13%. Commission
income, the primary source of revenues, decreased $412,000 to $3,207,000
in 1998, an 11% decrease. A 3% decrease in trading volume as well as a
decrease in average commissions per trade were the primary reasons for the
decreases in revenue and commissions. A decrease in higher commission
stock option trading due to market conditions, lower commissions on
electronic trading which is approximately 10% of trades, and general
competitive pressure to reduce commissions are the reasons for these
decreases. Total expenses of ZTT in 1998 were $3,417,000 compared to
$3,334,000 in 1997, an increase of $83,000 or 2%. Reductions in
compensation and benefits were offset by increases in clearing costs while
other expense categories did not change significantly. The resulting net
income in 1998 was $275,000 compared to $683,000 in 1997, a decrease of
$408,000 or 60%.
GS2 Securities, Inc. ("GS2"), an equity investment banking, research,
and investment management and business, had total revenues in 1998 of
$8,204,000 compared to $2,075,000 in 1997, an increase of $6,129,000. GS2
was purchased on July 2, 1997, and was included in the results of
operations for three months in 1997 whereas it is included for a full nine
months in 1998. The most significant differences in revenues to the
Company were in commission income which increased $1,465,000 to $2,100,000;
investment banking revenue which increased $1,814,000 to $1,901,000 and
investment management and advisory fees which increased $2,740,000 to
$3,765,000. Total expenses of GS2 in 1998 were $7,498,000 compared to
$1,952,000 in 1997, an increase of $5,546,000. The most significant
differences in expenses were in employee compensation and benefits which
increased $2,927,000 to $3,813,000 and commissions and clearing fees which
increased $1,766,000 to $2,536,000. Net income for GS2 in 1998 was
$395,000 compared to $64,000 in 1997.
Ziegler Asset Management, Inc. ("ZAMI"), the asset management
services subsidiary of the Company, had total revenues of $3,264,000 in
1998 compared to $2,587,000 in 1997, an increase of $677,000 or 26%. This
increase was primarily due to increases in management fee income associated
with increased assets under management. Assets under management at ZAMI
reached $1.2 billion at September 30, 1998. Management fee income
increased $756,000 to $3,141,000 in 1998. Total expenses of ZAMI were
$2,430,000 in 1998 compared to $2,180,000 in 1997, an increase of
$250,000 or 11%. Increases in employee compensation and benefits and
referral fees for new business are the primary reasons for the increased
expenses. Net income for ZAMI in 1998 was $500,000 compared to $226,000 in
1997, an increase of $274,000 or 121%.
Other Financial Services
Other financial service revenues primarily consist of interest income
and lease income. Total revenues in 1998 of $3,003,000 decreased $279,000
or 8% from revenues from the same operations of $3,282,000 in 1997. The
decrease was primarily due to a decrease in lease income related to the
sale of substantially all leases in ZCSI and the phaseout of that
subsidiary. Total expenses were $2,727,000 in 1998 compared to $5,326,000
in 1997, a decrease of $2,599,000 or 49%. The decrease in expenses from
1997 is primarily due to the writedown of loans receivable in the amount of
$2.25 million and a writedown of $250,000 of lease receivables held by ZCO
and ZCSI, respectively. Net income from other financial services was
$276,000 in 1998, compared to net loss of $1,233,000 in 1997.
Nonfinancial Services
WRR Environmental Services Co., Inc. ("WRR") is in the business of
providing pollution abatement services, blending virgin chemicals on a
contract basis for manufacturing firms, and 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. Gross revenues in 1998 were $10,245,000 compared to $8,965,000
in 1997, an increase of $1,280,000 or 14%. The gross margin for WRR was
$2,660,000 in 1998, compared to $2,544,000 in 1997, an increase of $116,000
or 5%. The gross margin percentage in 1998 was 26% compared to 28% in
1997. Higher volumes of waste recycling, remediation business and, to a
lesser extent, product sales are the primary reasons for the increased
sales. Increases in lower margin sales volumes and increased price
competition were the reasons for the decline in gross margin percentages.
Total expenses of WRR in 1998 were $1,944,000 compared to $1,987,000 in
1997, a decrease of $43,000 or 2%. The resulting net income for WRR in
1998 was $486,000 compared to $400,000 in 1997.
Liquidity and Capital Resources
Capital expenditures for assets for the first nine months of 1998
were $4,410,000. Land, buildings and equipment, net of related
depreciation and amortization, was 6% of total Company assets.
The Company has also been reviewing the Year 2000 issue. The Year
2000 issue affects the ability of computer systems to correctly process
dates after December 31, 1999. The Company is in the process of completing
its evaluation of its information technology and non-information technology
systems. The evaluation of substantially all systems is expected to be
completed by the end of 1998. Information has also been obtained from our
vendors as to their current Year 2000 compliance or their strategy to be
Year 2000 compliant. The Company began the process of Year 2000 compliance
in 1997. During 1998 BCZ and ZTT completed the conversion from clearing to
fully disclosed broker-dealers. This conversion relieved the Company of
the necessity of converting its internal clearing systems to Year 2000
compliance. The Company has also initiated the process of updating
technology as part of a larger conversion of information technology
systems. As a result, it is not possible to distinguish between the costs
of operational conversions and the Year 2000 preparation. Amounts
associated with Year 2000 preparation are being expensed as incurred and
are not expected to have a significant impact on the Company's ongoing
results of operations.
The impact of the Year 2000 problem on the securities industry will
be material since virtually every aspect of the sale of securities and
processing of transactions will be affected. Because of the interdependent
nature of securities transactions, the Company may be adversely affected
depending upon whether it and the entities with whom the Company interacts
address this issue successfully. The Company has not yet established a
contingency plan. Such a plan will be given significant consideration
during 1999. Early in 1999, BCZ will be conducting Year 2000 tests with
its clearing brokers and will also be working with other vendors in the
testing of other systems. Further, the Company expects to have its primary
systems Year 2000 compliant by the end of the second quarter of 1999. The
consideration of contingency planning measures will be evaluated at that
time. BCZ, ZTT, and GS2, the broker-dealer subsidiaries of the Company,
were required to and have filed Form BD-Y2K with the Securities and
Exchange Commission providing information related to Year 2000 compliance
which is commensurate with and expands upon the information above.
The Company has a continuing requirement for cash to finance its
activities. A significant 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 nine months of 1998, a total of
$60,463,000 of notes were issued and $60,946,000 were repaid. The total
balance of short-term notes outstanding was $14,543,000 as of September 30,
1998, compared to $15,034,000 as of December 31, 1997. This source of cash
was used primarily to finance lending and investment activities.
ZCSI issued bonds to the public as a source of cash prior to 1997.
During the second quarter of 1998, substantially all non-cash assets of
ZCSI were sold and the proceeds used to retire all outstanding bonds. The
bonds had been used to finance the purchase of lease obligations and lease
financing notes. No new bonds have been issued in 1997 or 1998, nor does
the Company contemplate issuing bonds from this subsidiary in the future.
FCFC issued bonds to the public as a source of cash prior to 1996.
Mandatory redemption on the bonds is made from principal payments received
on the mortgage loans which serve as collateral for the bonds. There are
$6,665,000 of mortgage loans outstanding at September 30, 1998, which are
included in Notes Receivable on the balance sheet. Principal payments on
the mortgage loans are received in regular installments over a 15-year
amortization schedule through 2010. Total bonds outstanding at September
30, 1998 were $6,554,000. No new bonds were issued in 1998 nor does the
Company plan to issue bonds in the future.
BCZ acts as remarketing agent for approximately $1.4 billion of
variable rate demand municipal securities, most of which BCZ previously
underwrote. The securities may be tendered at the option of the holder,
generally on seven days advance notice. The obligation of the municipal
borrower to pay for tendered securities is, in substantially all cases,
supported by a third party liquidity provider, such as a commercial bank.
In order to avoid utilizing the third party liquidity provider, municipal
borrowers contract with BCZ to remarket the tendered securities. To assist
in financing such activity, BCZ has a $70,000,000 secured revolving credit
facility and an $83,000,000 uncommitted, secured borrowing facility from a
syndicate of banks. A total of $52,515,000 of variable rate securities
were in inventory at September 30, 1998. At September 30, 1998, BCZ had no
borrowings on the committed or uncommitted lines. BCZ financed the
variable rate securities with its clearing broker-dealer.
BCZ finances activities from its own resources, from unsecured lines
of credit available through banking relationships, from repurchase
agreements through brokerage relationships, and from its clearing broker-
dealer using inventory as collateral as well as intercompany borrowings
from the parent, if necessary. BCZ also has a secured broker loan
arrangement available through a banking relationship. At September 30,
1998, there were no amounts outstanding under the bank secured and
unsecured credit facilities. Amounts outstanding under repurchase
agreements were $10,324,000 and the amount due the clearing broker-dealer
was $63,667,000. In each case securities are the underlying collateral for
the amounts due.
GS2 relies on an unsecured line of credit through a banking
relationship and intercompany borrowings to finance its activities. Any
utilization of the line of credit is generally repaid in less than seven
days. At September 30, 1998 GS2 had no borrowings outstanding under the
line of credit or from intercompany borrowing.
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 $11,000,000 in net proceeds after
taxes from the sale of Ziegler Leasing Corporation in 1996. The net
proceeds have been invested in short term securities. The Company will
reinvest the proceeds in suitable acquisitions as described in the notes to
the financial statements. The total cash anticipated to be required in the
acquisition of PMC and finalization of the GS2 purchase is approximately
$10 million. The remaining balances will be reinvested in operations of
the Company.
In the opinion of management, the Company's capital resources and
available lines of credit are adequate for present and anticipated future
operations.
<PAGE>
PART II
Item 1 through 4.
Not applicable.
Item 5. Pending Acquisition of PMC International, Inc.
On November 4, 1998, the Company announced the signing of a
merger agreement for the Company to acquire PMC
International, Inc., a Denver-based investment management
and consulting firm. See Note L to the Notes to
Consolidated Condensed Financial Statements for additional
information.
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.
THE ZIEGLER COMPANIES, INC.
Dated: November 13, 1998 By /s/Peter D. Ziegler
Peter D. Ziegler
President
Dated: November 13, 1998 By /s/D. Wallestad
Dennis A. Wallestad
Senior Vice President/CFO
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> BD
<LEGEND>
This schedule contains summary 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> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
<CASH> 4,327,235
<RECEIVABLES> 6,908,782
<SECURITIES-RESALE> 19,160,049<F1>
<SECURITIES-BORROWED> 0
<INSTRUMENTS-OWNED> 129,954,744<F2>
<PP&E> 12,194,860
<TOTAL-ASSETS> 208,497,849
<SHORT-TERM> 15,359,133<F3>
<PAYABLES> 2,065,742<F4>
<REPOS-SOLD> 39,788,000
<SECURITIES-LOANED> 0
<INSTRUMENTS-SOLD> 19,373,640
<LONG-TERM> 7,738,603<F5>
0
0
<COMMON> 3,544,030
<OTHER-SE> 47,691,003
<TOTAL-LIABILITY-AND-EQUITY> 208,497,849
<TRADING-REVENUE> 0<F6>
<INTEREST-DIVIDENDS> 6,664,632
<COMMISSIONS> 0<F6>
<INVESTMENT-BANKING-REVENUES> 36,570,535<F6>
<FEE-REVENUE> 6,905,897
<INTEREST-EXPENSE> 5,473,254
<COMPENSATION> 30,585,796
<INCOME-PRETAX> (486,243)
<INCOME-PRE-EXTRAORDINARY> (402,243)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (402,243)
<EPS-PRIMARY> (.17)
<EPS-DILUTED> (.17)
<FN>
<F1>Short-term investments also includes securities purchased under resale
agreements as a short-term investment vehicle.
<F2>Financial instruments includes securities inventory, notes receivable
investment in and receivable from affiliates, and other investments.
<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.
<F6>Revenue from investment banking activities also includes revenue from trading
activities and commissions.
<F5>Includes bonds payable and notes payable to banks other than line of credit
borrowings.
</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 the
entirety by reference to such financial statements.
</LEGEND>
<RESTATED>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 5,810,678
<RECEIVABLES> 11,100,735
<SECURITIES-RESALE> 0<F1>
<SECURITIES-BORROWED> 0
<INSTRUMENTS-OWNED> 37,451,441<F2>
<PP&E> 8,314,434
<TOTAL-ASSETS> 104,015,903
<SHORT-TERM> 10,354,771<F3>
<PAYABLES> 11,509,679<F4>
<REPOS-SOLD> 0
<SECURITIES-LOANED> 0
<INSTRUMENTS-SOLD> 0
<LONG-TERM> 21,236,508<F5>
0
0
<COMMON> 3,544,030
<OTHER-SE> 48,772,293
<TOTAL-LIABILITY-AND-EQUITY> 104,015,903
<TRADING-REVENUE> 0<F6>
<INTEREST-DIVIDENDS> 3,702,637
<COMMISSIONS> 0<F6>
<INVESTMENT-BANKING-REVENUES> 26,573,731<F6>
<FEE-REVENUE> 6,120,429
<INTEREST-EXPENSE> 2,406,536
<COMPENSATION> 21,334,475
<INCOME-PRETAX> (1,841,820)
<INCOME-PRE-EXTRAORDINARY> (1,089,520)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,089,520)
<EPS-PRIMARY> (.46)
<EPS-DILUTED> (.46)
<FN>
<F1>Short-term investments includes securities purchased under resale agreements as
a short-term investment vehicle.
<F2>Financial instruments includes securities inventory, 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.
</FN>
</TABLE>
