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, 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 March 31, 1998 was 2,435,800 shares.
<PAGE>
PART I
THE ZIEGLER COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED INCOME STATEMENTS
(Unaudited)
<TABLE>
<CAPTION>
For the Three Months Ended
March 31, March 31,
1998 1997
<S> <C> <C>
Revenues:
Investment banking and commission
income $ 8,992,220 $ 5,667,706
Investment management fees 2,252,676 762,020
Interest and dividends 1,903,835 1,244,152
Gross profit on chemical products 753,789 806,158
Insurance agency 441,155 396,493
Other 850,423 842,628
Total revenues 15,194,098 9,719,157
Expenses:
Employee compensation and benefits 9,109,475 5,776,584
Commissions and clearing fees 1,065,517 288,081
Communications 1,018,806 678,014
Occupancy and equipment 1,444,210 1,173,388
Promotional 848,901 531,032
Professional and regulatory 395,345 305,724
Interest 1,492,515 817,339
Provision for losses - 1,400,000
Other operating expenses 1,615,376 1,439,142
Total expenses 16,990,145 12,409,304
Loss before income taxes (1,796,047) (2,690,147)
Benefit from income taxes (646,800) (1,072,000)
Net loss $(1,149,247) $(1,618,147)
Net loss per share of common stock:
Basic and Diluted earnings
per share $(.49) $(.68)
Dividends per share $ .13 $ .13
Average number of shares outstanding:
Basic 2,371,350 2,388,378
Diluted 2,434,144 2,438,845
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these statements.
<PAGE>
THE ZIEGLER COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
March 31, December 31,
<S> <C> <C>
1998 1997
ASSETS
Cash $ 6,453,484 $ 5,769,914
Short-term investments 24,536,491 22,849,551
Bonds due and called as of April 1, 1998
and January 1, 1998, respectively 1,090,451 6,805,665
Total cash and cash equivalents 32,080,426 35,425,130
Securities inventory 78,280,959 69,255,507
Securities purchased under agreements to
resell 17,978,300 8,240,000
Accounts receivable--securities sales 8,253,067 7,272,672
Accounts receivable--other 7,026,280 6,660,650
Investment in and receivables from
affiliates 1,564,521 1,550,082
Investment in leases 3,088,039 4,475,935
Notes receivable 13,228,154 14,513,323
Land, buildings and equipment, at cost,
net of reserves for depreciation of
$16,423,590 and $15,949,666,
respectively 10,131,557 8,879,613
Deferred income tax benefit 2,339,146 2,327,646
Other assets 9,414,061 8,876,549
Total assets $183,384,510 $167,477,107
LIABILITIES AND STOCKHOLDERS' EQUITY
Short-term notes payable $ 14,960,173 $ 15,033,913
Securities sold under agreements to
repurchase 40,814,000 7,324,000
Payable to customers 6,618,451 4,668,771
Payable to broker-dealers 1,308,311 680,980
Accounts payable 5,194,985 6,098,180
Dividends payable 316,654 1,042,222
Accrued income taxes payable - 329,982
Securities sold, not yet purchased 17,875,532 7,989,062
Notes payable to banks 20,420,068 41,833,196
Bonds payable 16,347,286 18,281,775
Other liabilities and deferred items 8,639,629 11,900,370
Total liabilities 132,495,089 115,182,451
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 6,052,087 6,068,647
Retained earnings 59,192,981 60,658,881
Treasury stock, at cost, 1,108,230
and 1,120,257 shares, respectively (17,352,697) (17,600,754)
Unearned compensation (546,980) (376,148)
Total stockholders' equity 50,889,421 52,294,656
Total liabilities and
stockholders' equity $183,384,510 $167,477,107
</TABLE>
The accompanying notes to consolidated 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 Three Months Ended
March 31, March 31,
1998 1997
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $(1,149,247) $(1,618,147)
Adjustments to reconcile net loss to
net cash provided by (used in)
operating activities:
Depreciation and amortization 416,282 375,879
Provision for losses - 1,400,000
Unrealized loss on securities inventory 97,517 90,656
Compensation expense related to
restricted stock grants 36,200 39,368
Deferred income tax (11,500) (149,000)
Undistributed net dividends received
from (earnings of) unconsolidated
affiliate - 293,350
Changes in assets and liabilities:
Decrease (increase) in:
Accounts receivable--securities
sales (980,395) 1,890,389
Accounts receivable--other 439,218 (840,266)
Securities inventory 763,501 (8,327,575)
Securities purchased under
agreements to resell (9,738,300) -
Other assets (1,041,365) (195,992)
Increase (decrease) in:
Payable to customers and
broker-dealers 2,577,011 273,487
Accounts payable (903,195) (1,755,587)
Income taxes payable (1,138,580) (6,512,058)
Securities sold under agreements
to repurchase 33,490,000 -
Other liabilities (2,819,197) (4,521,808)
Net cash provided by (used in)
operating activities 20,037,950 (19,557,304)
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from:
Sale of equipment 17,125 -
Principal payments received under
leases 464,951 699,924
Sale of leased equipment 908,771 90,889
Payments received on notes receivable 1,371,032 954,323
Payments for:
Issuance of new notes receivable (61,146) -
Capital expenditures (1,620,503) (437,515)
Net cash provided by investing
activities 1,080,230 1,307,621
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from:
Issuance of short-term notes payable 20,981,000 21,766,000
Exercise of employee stock options 24,465 66,500
Payments for:
Principal payments on short-term notes
payable (21,078,000) (19,773,000)
Repayment of bonds payable (1,935,000) (1,099,000)
Cash dividends (1,042,222) (1,049,740)
Net repayments under credit facilities (21,413,127) (194,969)
Net cash used in financing
activities (24,462,884) (284,209)
NET DECREASE IN CASH AND CASH EQUIVALENTS (3,344,704) (18,533,892)
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD 35,425,130 43,096,718
CASH AND CASH EQUIVALENTS AT
END OF PERIOD $32,080,426 $24,562,826
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Interest paid during the quarter $ 1,486,000 $ 850,000
Income taxes paid during the quarter $ 503,000 $ 6,158,000
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING
AND FINANCING ACTIVITIES
Granting of restricted stock from
treasury stock $ 207,000 $ -
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these statements.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 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 audited 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.
Comprehensive Income, as required to be reported by Statement of Financial
Accounting Standards No. 130, is equal to Net 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 $16,605,000 in commitments outstanding at March 31, 1998.
GS2 had no such commitments outstanding at March 31, 1998.
As of March 31, 1998, Ziegler Financing Corporation (ZFC) had no
financial commitments to unrelated entities for construction or other
loans.
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 the plant site in Eau Claire, Wisconsin.
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, 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. WRR
believes that the payment is sufficient to cover its proportionate share of
the current estimated costs to clean up the first site. 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 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. In
addition, a group of major PRPs at the site have cross-complained against
WRR and other PRPs, 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 has valid
defenses to this cross complaint by the major PRP group at the site, or any
action by the 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.
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 $582,000 at March 31, 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. Each 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. All shares remain nonvested at March 31, 1998. The
market value of the restricted stock, when issued, was $19.50 per share.
The total value at issuance is being amortized and recorded as compensation
expense over the period of vesting. The shares may not be transferred by
the recipients until vested.
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 March 31, 1998, is as follows:
<TABLE>
<CAPTION>
BCZ ZTT GS2
<S> <C> <C> <C>
Aggregate indebtedness $26,030,000 $5,953,000 $798,000
Net capital $ 5,344,000 $2,054,000 $546,000
Ratio of aggregate
indebtedness to
net capital 4.87 to 1 2.90 to 11.46 to 1
Required net capital $ 1,735,000 $ 397,000 $100,000
</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, 1998, there was approximately $7,696,000 in the customer
reserve accounts.
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
March 31, March 31,
1998 1997
<S> <C> <C>
Revenues -
Interest $1,306,906 $2,145,190
Gain on sale/redemption of
mortgage certificates 1,018,156 19,045
Total revenues $2,325,062 $2,164,235
Expenses -
Interest 1,209,155 2,013,322
Amortization of bond
issuance costs 1,030,567 41,761
Management fee (subsidy) (19,179) 84,906
Other 104,519 24,246
Total expenses 2,325,062 2,164,235
Net income $ - $ -
</TABLE>
BCZ purchased approximately $39,578,000 of mortgage certificates from
ZMSI II in February, 1998. ZMSI used the proceeds from the sale to call
$39,570,000 of bonds which were outstanding.
Note F -- Securities Inventory
Securities inventory consisted of the following:
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
<S> <C> <C>
Municipal bond issues $13,598,682 $54,481,670
Collateralized mortgage
obligations 5,483,925 9,300,821
Corporate bond issues 14,629,239 1,742,008
U.S. government agency
securities 39,497,495 -
Institutional bond issues 606,045 2,165,128
Preferred stock 3,094,431 401,766
Other securities 1,371,142 1,164,114
$78,280,959 $69,255,507
</TABLE>
U.S. Government Agency Securities represent securities purchased by BCZ
from ZMSI II in February 1998. Because of the nature of the underlying
mortgage obligations, the true market value may be difficult to determine,
but management believes such market values approximate par value.
Coincident with purchasing these securities, BCZ entered into a repurchase
agreement under which BCZ is able to benefit from the spread between
current short-term interest rates and the yields on the associated U.S.
Government Agency Securities. It is management's intention to hold these
U.S. Government Agency Securities for a longer period than most securities
inventory.
Note G -- Securities Sold, Not Yet Purchased
Marketable securities sold, not yet purchased, consist of trading
securities at market value as follows:
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
<S> <C> <C>
U.S. Treasury Notes $17,875,532 $ 7,989,062
</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 $20,089,000 in short-term borrowings outstanding at March 31, 1998.
Such short-term borrowings are generally repaid within 30 days.
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 obtained a
$70,000,000 revolving credit facility and an $83,000,000 uncommitted
borrowing facility. Both facilities are primarily for financing variable
rate municipal bonds, 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. The amount outstanding under these
facilities was $4,700,000 at March 31, 1998.
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, 1998,
and December 31, 1997 and income statements for the three month period
ended March 31, 1998, and 1997 are as follows:
<TABLE>
<CAPTION>
Balance Sheets as of:
March 31, December 31,
1998 1997
<S> <C> <C>
Investment in leases $3,088,039 $ 4,475,934
Notes receivable 3,671,100 4,203,967
Other assets 2,897,843 2,454,051
Total assets $9,656,982 $11,133,952
Bonds payable $7,627,000 $ 8,829,000
Other liabilities 2,019,982 2,294,952
Total liabilities 9,646,982 11,123,952
Stockholder's equity 10,000 10,000
Total liabilities and
stockholder's equity $9,656,982 $11,133,952
</TABLE>
<TABLE>
<CAPTION>
Income Statements for the
Three Months Ended
March 31, March 31,
1998 1997
<S> <C> <C>
Lease income $ 82,570 $170,188
Other, primarily interest income 106,130 168,509
Total income 188,700 338,697
Interest expense 168,635 279,839
Management subsidy (17,405) (7,998)
Other expenses 37,470 66,856
Total expenses 188,700 338,697
Net income $ - $ -
</TABLE>
An analysis of each outstanding bond series as of March 31, 1998, 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.
<TABLE>
<CAPTION>
Collateral Lease/ Bond Other Excess
Series Bonds Value Note Interest Related of
No. Outstanding at Cost Income Expense Expenses Income
<S><C> <C> <C> <C> <C> <C>
3 $ 19,000 $ 23,700 $ 527 $ 321 $ 56 $ 150
4 284,000 320,676 6,138 4,615 755 768
5 1,337,000 1,758,329 30,483 23,985 5,435 1,064
6 2,537,000 3,057,824 76,203 56,125 13,438 6,640
7 3,450,000 4,047,792 71,916 57,384 9,781 4,751
</TABLE>
Note J -- Earnings per Share
The following reconciles the numerators and denominators of the basic
and diluted EPS computations for loss from continuing operations for the
three month period ended March 31,
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Loss from continuing operations $(1,149,247) $(1,618,147)
Basic
Weighted average shares outstanding 2,371,350 2,388,378
Basic loss per share $(.49) $(.68)
Diluted
Weighted average shares outstanding-
Basic 2,371,350 2,388,378
Effect of dilutive securities:
Restricted stock 33,152 26,249
Employee stock purchase plan 16,455 17,422
Stock options 13,187 6,796
Weighted average shares outstanding-
Diluted 2,434,144 2,438,845
Diluted loss per share $(.49) $(.68)
</TABLE>
Options to purchase 50,000 shares of common stock at $19 per share were
outstanding during the three month period ended March 31, 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 March 31, 1998.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations - Three Months Ended
March 31, 1998 versus March 31, 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, 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.
All references to 1998 and 1997 in this section of the results of
operations refer to the three months ended March 31, unless otherwise
noted. Total revenues of the Company in 1998 were $15,194,000 compared to
$9,719,000 in 1997, an increase of $5,475,000 or 56%. Expenses of the
Company in 1998 were $16,990,000 compared to $12,409,000 in 1997, an
increase of $4,581,000 or 37%. The benefit from income taxes was $647,000
in 1998 and $1,072,000 in 1997. The statutory federal income tax rate
applicable to the Company was 34% in each of the two periods. Net loss of
the Company in 1998 was $1,149,000 compared to $1,618,000 in 1997, a
reduction in the loss of $469,000 or 29%. The basic and diluted loss per
share was $.49 and $.68 in 1998 and 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.
Investment Banking, Broker-Dealer and Asset Management Activities
B. C. Ziegler and Company ("BCZCO"), the principal investment banking
and broker-dealer subsidiary of the Company, had total revenues of
$8,779,000 in 1998 compared to $5,580,000 in 1997, an increase of
$3,199,000 or 57%. The increase was due to several factors. Underwriting
revenues increased $624,000 or 35% to $2,421,000 primarily due to an
increase in municipal bond underwritings. Commission income increased
$981,000 or 61% to $2,589,000 due to a substantial increase in other
financial product sales, primarily mutual funds. Trading profits increased
$772,000 or 83% to $1,704,000 due to the addition of several new trading
areas to BCZ and a greater emphasis on secondary trading as a source of
customer service to institutional clients. Interest income also increased
$800,000 or 187% to $1,227,000 due to substantially higher inventory
levels. Insurance agency and other revenues did not change significantly.
Total expenses of BCZCO were $11,459,000 in 1998 compared to
$9,108,000 in 1997, an increase of $2,351,000 or 26%. Employee
compensation and benefits increased $2,137,000 in 1998 to $6,902,000
primarily due to increases in commission expense related to higher sales
volumes, new hires for the secondary sales and trading areas, and an
$841,000 increase in the accrual for incentive compensation. Interest
expense increased $810,000 to $977,000, 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. The remaining expense increases were primarily a function of
expanding offices and activities. BCZCO had a net loss of $1,683,000 in
1998 compared to a net loss of $2,125,000 in 1997. The results in the
prior year period included a $1,400,000 before tax settlement on a
defaulted bond issue underwritten by BCZCO in 1989.
Ziegler Thrift Trading, Inc. ("ZTT"), the reduced-commission
brokerage service of the Company, had total revenues in 1998 of $1,458,000
compared to $1,554,000 in 1997, a decrease of $96,000 or 6%. Commission
income, the primary source of revenues, decreased $63,000 to $1,178,000 in
1998, a 5% decrease. Total expenses of ZTT in 1998 were $1,217,000
compared to $1,166,000 in 1997, an increase of $51,000 or 4%. The increase
in expenses was primarily due to increased promotion and communication
costs associated with added advertising and increased customer
communication. The resulting net income in 1998 was $152,000 compared to
$241,000 in 1997, a decrease of $89,000 or 37%.
GS2 Securities, Inc. ("GS2"), an equity investment banking, research,
asset management and broker-dealer business, had total revenues of
$2,389,000 for the first three months of 1998. Its primary sources of
revenue were investment advisory fees of $1,271,000, commission income of
$582,000 and investment banking fees of $390,000. Total expenses of GS2
were $2,161,000. The largest expense categories were employee compensation
and benefits of $1,103,000 and brokerage commission and clearing fees of
$724,000. Net income for GS2 was $123,000 in 1998. GS2 was not a part of
the Company in the first quarter of 1997.
Ziegler Asset Management, Inc. ("ZAMI"), the asset management
services subsidiary of the Company, had total revenues of $1,025,000 in
1998 compared to $799,000 in 1997, an increase of $226,000 or 28%. This
increase was primarily due to increases in management fee income associated
with increased assets under management. Assets under management increased
to approximately $1.2 billion at March 31, 1998, from approximately $930
million at March 31, 1997. Total expenses of ZAMI were $766,000 in 1998
compared to $733,000 in 1997, an increase of $33,000 or 5%. Employee
compensation and benefits increased $62,000 or 16% to $454,000. Net income
for ZAMI in 1998 was $155,000 compared to $37,000 in 1997, an increase of
$118,000 or 319%.
Other Financial Services
The Company's other financial services are primarily provided through
Ziegler Financing Corporation ("ZFC"), First Church Financing Corporation
("FCFC"), Ziegler Collateralized Securities, Inc. ("ZCSI"), Ziegler Capital
Company, LLC ("ZCC") and to a limited extent through The Ziegler Companies,
Inc. ("ZCO"). ZFC provides construction financing and interim lending,
primarily to investment banking clients, and is also qualified to originate
federally insured mortgage loans for the Federal Housing Administration
("FHA"). FCFC was organized for the purpose of issuing mortgage-backed
bonds collateralized by first mortgages on church buildings and properties.
ZCSI facilitated the financing of equipment leases and sales by
securitizing equipment leases or notes supporting equipment leases or
sales, and offering the resulting securities to the public. ZCC, formed
for the purpose of acquiring, owning, financing and otherwise dealing with
mortgages secured by senior living facilities, will cease operating in May,
1998.
Other financial service revenues primarily consist of interest
income, lease income and mortgage fees. Total revenues in 1998 of
$1,042,000 decreased $100,000 or 9% from revenues from the same operations
of $1,142,000 in 1997. The decrease was primarily due to a decrease in
interest income and lease income offset by an increase in other income.
Total expenses were $1,039,000 in 1998 compared to $917,000 in 1997, an
increase of $122,000 or 13%. The increase in expenses was due to some
expansion of operations, offset by a decrease in interest expense. The net
income from other financial services was $3,500 in 1998, compared to
$133,000 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. Total gross revenues in 1998 were $3,028,000 compared to
$2,820,000 in 1997, an increase of $208,000 or 7%. The total gross margin
for WRR and its subsidiary was $754,000 in 1998, compared to $806,000 in
1997, a decrease of $52,000 or 6%. The gross margin percentage in 1998 was
25% compared to 29% in 1997. Total expenses of WRR in 1998 were $625,000
compared to $674,000 in 1997, a decrease of $49,000 or 7%. The resulting
net income for WRR in 1998 was $94,000 compared to $98,000 in 1997, a
decrease of $4,000 or 4%.
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 for the first
three months of 1998 were $1,621,000. Land, buildings and equipment, net
of related depreciation and amortization, was 5% of total Company assets.
In 1997 the Company began modifying its computer systems and outsourcing
various activities to address the Year 2000 issue. Anticipated spending
for these modifications will be expensed as incurred and is not expected to
have a significant impact on the Company's ongoing results of operations.
The Company expects to have its primary computer systems Year 2000
compliant by the second quarter of 1999.
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 three months of 1998, a total of
$20,981,000 of notes were issued and $21,078,000 were repaid. The total
balance of short-term notes outstanding was $14,960,000 as of March 31,
1998, compared to $15,034,000 as of December 31, 1997. This source of
additional cash was used primarily to finance lending activity and
securities inventory.
ZCSI issued bonds to the public as a source of cash prior to 1997.
No new bonds have been issued in 1997 or 1998, nor does the Company
contemplate issuing bonds from this subsidiary in the future. Total bonds
outstanding at March 31, 1998 were $7,627,000. The bonds are due serially
from April 1998 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 issued bonds to the public as a source of cash prior to 1997.
Mandatory redemption on the bonds is made from principal payments received
on the mortgage loans which serve as collateral for the bonds. There are
$8,402,000 of mortgage loans outstanding at March 31, 1998, which are
included in Notes Receivable in 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 March 31,
1998 were $8,353,000.
BCZCO, through its Ziegler Securities Division ("ZSD"), acts as
remarketing agent for approximately $1.6 billion of variable rate demand
municipal securities which ZSD 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 ZSD
to remarket the tendered securities. In order to permit ZSD, acting as
remarketing agent, to purchase securities to be held in ZSD's inventory
pending successful remarketing to others, ZSD has arranged a committed,
secured line of credit for $70 million from a syndicate of banks, together
with substantial uncommitted lines. At March 31, 1998, B. C. Ziegler and
Company had borrowed $4,700,000 on the uncommitted lines.
BCZCO finances most activities from its own resources and also relies
upon unsecured lines of credit and repurchase agreements available through
banking and brokerage relationships as well as 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, 1998,
amounts outstanding under the credit facilities were $17,160,000.
ZTT and GS2 rely on unsecured lines of credit through their banking
relationships and intercompany borrowings to finance their activities. Any
utilization of those lines of credit is generally repaid in less than seven
days. At March 31, 1998 ZTT had $2,439,000 outstanding under the line of
credit. At March 31, 1998 GS2 had no borrowings outstanding under its line
of credit.
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 has
requested a Private Letter Ruling from the Internal Revenue Service about
the availability of tax-favored treatment of a possible future distribution
to shareholders of the proceeds. Additionally, the Company continues to
explore reinvestment opportunities as well as a special dividend or partial
buyback of the Company's common stock through open market purchases or a
tender offer.
Subsequent to the end of the quarter, the shareholders approved The
Ziegler Companies, Inc. 1998 Stock Incentive Plan as discussed in the
Notice of Annual Meeting of Shareholders.
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
Items 1 through 5.
Not applicable.
Item 6.Exhibits and Reports on Form 8-K
(a) Exhibits:
Exhibit No. Description
27 Financial Data Schedule
(b) Reports on Form 8-K: None
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
THE ZIEGLER COMPANIES, INC.
Dated: May 15, 1998 By /s/ Peter D. Ziegler
Peter D. Ziegler
President
Dated: May 15, 1998 By /s/ Dennis A. Wallestad
Dennis A. Wallestad
Senior Vice President/CFO
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-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 5403167
<RECEIVABLES> 12236146
<SECURITIES-RESALE> 0<F1>
<SECURITIES-BORROWED> 0
<INSTRUMENTS-OWNED> 74688288<F2>
<PP&E> 7296628
<TOTAL-ASSETS> 128358216
<SHORT-TERM> 36602411<F3>
<PAYABLES> 8314041<F4>
<REPOS-SOLD> 0
<SECURITIES-LOANED> 0
<INSTRUMENTS-SOLD> 0
<LONG-TERM> 24752414<F5>
0
0
<COMMON> 3544030
<OTHER-SE> 48845007
<TOTAL-LIABILITY-AND-EQUITY> 128358216
<TRADING-REVENUE> 0<F6>
<INTEREST-DIVIDENDS> 1244152
<COMMISSIONS> 0<F6>
<INVESTMENT-BANKING-REVENUES> 5667706<F6>
<FEE-REVENUE> 1604648
<INTEREST-EXPENSE> 817339
<COMPENSATION> 5776584
<INCOME-PRETAX> (2690147)<F7>
<INCOME-PRE-EXTRAORDINARY> (1618147)<F7>
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1618147)<F8>
<EPS-PRIMARY> (.68)<F8>
<EPS-DILUTED> (.68)<F8>
<FN>
<F1>Short-term investments includes some securities purchased under resale
agreements.
<F2>Financial instruments include 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 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-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 6453484
<RECEIVABLES> 14470749
<SECURITIES-RESALE> 17978300<F1>
<SECURITIES-BORROWED> 0
<INSTRUMENTS-OWNED> 96161673<F2>
<PP&E> 10131557
<TOTAL-ASSETS> 184758690
<SHORT-TERM> 35049173<F3>
<PAYABLES> 13438401<F4>
<REPOS-SOLD> 40814000
<SECURITIES-LOANED> 0
<INSTRUMENTS-SOLD> 17875532
<LONG-TERM> 16678354<F5>
0
0
<COMMON> 3544030
<OTHER-SE> 47345391
<TOTAL-LIABILITY-AND-EQUITY> 184758690
<TRADING-REVENUE> 0<F6>
<INTEREST-DIVIDENDS> 1903835
<COMMISSIONS> 0<F6>
<INVESTMENT-BANKING-REVENUES> 8992220
<FEE-REVENUE> 3103099
<INTEREST-EXPENSE> 1492515
<COMPENSATION> 9109475
<INCOME-PRETAX> (1796047)
<INCOME-PRE-EXTRAORDINARY> (1149247)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1149247)
<EPS-PRIMARY> (.49)
<EPS-DILUTED> (.49)
<FN>
<F1>Short-term investments includes securities purchased under resale
agreements as a short-term investment vehicle.
<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.
</FN>
</TABLE>
