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, 1999
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: (262) 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 October 31, 1999 was 2,435,778 shares.
<PAGE>
PART I
THE ZIEGLER COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
September 30, December 31,
<S> <C> <C>
1999 1998
ASSETS
Cash $ 8,608,749 $ 7,037,183
Short-term investments 6,530,241 10,267,040
Total cash and cash equivalents 15,138,990 17,304,223
Securities inventory 39,625,668 125,429,892
Securities purchased under agreements to resell 4,483,125 4,753,125
Accounts receivable 7,073,304 6,655,766
Accrued income taxes receivable 2,470,708 1,344,380
Investment in and receivables from affiliates 1,678,651 1,629,473
Notes receivable 4,654,390 5,509,630
Other investments 27,055,377 28,587,845
Land, buildings and equipment, at cost,
net of accumulated depreciation of
$21,681,274 and $19,792,490, respectively 12,565,291 13,240,874
Deferred income tax benefit 2,783,390 3,212,427
Goodwill 12,641,421 13,346,998
Other assets 5,480,045 5,719,308
Total assets $135,650,360 $226,733,941
LIABILITIES AND STOCKHOLDERS' EQUITY
Short-term notes payable $ 8,898,200 $ 13,501,519
Securities sold under agreements to repurchase 29,470,000 31,040,000
Payable to broker-dealers and clearing
organizations 24,736,257 98,435,492
Accounts payable 1,820,537 2,156,426
Securities sold, not yet purchased 4,438,125 4,644,855
Notes payable to banks 657,342 2,776,687
Bonds payable 4,595,124 5,369,797
Other liabilities and deferred items 12,779,695 19,208,188
Total liabilities 87,395,280 177,132,964
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 6,220,888 6,204,728
Retained earnings 55,799,750 56,875,618
Treasury stock, at cost, 1,093,037
and 1,073,459 shares, respectively (17,172,432) (16,797,954)
Unearned compensation (137,156) (225,445)
Total stockholders' equity 48,255,080 49,600,977
Total liabilities and stockholders' equity $135,650,360 $226,733,941
</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 CONDENSED INCOME STATEMENTS
(Unaudited)
<TABLE>
<CAPTION>
For the Three Months Ended
September 30, September 30,
<S> <C> <C>
1999 1998
Revenues:
Investment banking $ 6,086,776 $ 7,618,614
Commission income 6,166,164 5,236,614
Investment management and
advisory fees 6,554,829 1,447,393
Interest and dividends 1,487,509 2,488,725
Gross profit on chemical products 908,082 1,018,127
Other 789,386 522,884
Total revenues 21,992,746 18,332,357
Expenses:
Employee compensation and benefits 10,862,668 9,997,473
Commissions and clearing fees 4,071,417 1,891,782
Communications 887,677 825,585
Occupancy and equipment 2,499,869 1,402,473
Promotional 1,151,052 1,043,485
Professional and regulatory 624,484 259,777
Interest 986,393 2,176,016
Goodwill amortization 235,193 28,932
Other operating expenses 1,173,740 1,432,067
Total expenses 22,492,493 19,057,590
Loss before income taxes (499,747) (725,233)
Benefit from income taxes (151,118) (246,400)
Net loss $ (348,629) $ (478,833)
Net loss per share of common stock:
Basic and diluted loss per share $(.14) $(.20)
Dividends per share $ .13 $ -
Average number of shares outstanding:
Basic 2,422,306 2,372,343
Diluted 2,447,482 2,417,389
</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,
1999 1998
Revenues:
<S> <C> <C>
Investment banking $20,450,020 $22,313,145
Commission income 18,447,498 16,524,691
Investment management and advisory fees 19,674,327 4,267,199
Interest and dividends 4,831,800 6,664,632
Gross profit on chemical products 2,163,940 2,660,304
Other 2,831,868 2,337,688
Total revenues 68,399,453 54,767,659
Expenses:
Employee compensation and benefits 33,138,153 30,585,796
Commissions and clearing fees 12,817,770 4,486,175
Communications 2,753,315 2,848,676
Occupancy and equipment 7,042,607 4,289,114
Promotional 3,149,061 3,082,686
Professional and regulatory 1,654,886 964,100
Interest 3,105,236 5,473,254
Goodwill 705,577 86,795
Other operating expenses 3,975,232 4,737,306
Total expenses 68,341,837 56,553,902
Income (loss) before income taxes 57,616 (1,786,243)
Provision for (benefit from)
income taxes 172,582 (624,000)
Net loss (114,966) $(1,162,243)
Net loss per share of common stock:
Basic and diluted loss per share $(.05) $(.49)
Dividends per share $ .39 $ .26
Average number of shares outstanding:
Basic 2,427,415 2,372,090
Diluted 2,454,576 2,428,934
</TABLE>
The accompanying notes to consolidated condensed financial statements
are an integral part of these statements.
<PAGE>
THE ZIEGLER COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
For the Nine Months Ended
September 30, September 30,
1999 1998
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (114,966) $(1,162,243)
Adjustments to reconcile net loss to
net cash provided by (used in) operating
activities:
Depreciation and amortization 2,953,727 1,259,092
Unrealized loss on securities inventory 256,478 464,740
Gain on sale of other investments - (73,853)
Compensation expense related to
restricted stock grants 88,289 297,578
Deferred income taxes 429,037 (1,059,825)
Loss on bond retirement - 94,268
Changes in assets and liabilities:
Decrease/(Increase) in -
Securities inventory 85,547,746 (10,951,878)
Accounts receivable (576,227) 6,920,380
Accrued income taxes receivable (1,126,328) (329,982)
Securities purchased under agreements
to resell 270,000 (10,920,049)
Other assets 212,949 510,323
Increase/(Decrease) in -
Payable to customers and broker-dealers (73,699,235) 59,246,880
Accounts payable (335,889) (4,752,864)
Securities sold, not yet purchased (206,730) -
Other liabilities (6,374,811) (621,941)
Net cash provided by operating
activities 7,324,040 38,920,626
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from:
Sale of equipment 99,670 17,125
Principal payments received under leases - 779,645
Sale of leased equipment - 924,652
Payments received on notes receivable 936,072 4,813,508
Sale of leases and notes - 5,832,190
Sales/paydowns of other investments 1,532,468 10,016,893
Payments for:
Issuance of new notes receivable - (561,146)
Purchase of other investments - (39,578,505)
Capital expenditures (1,615,918) (4,409,699)
Net cash provided by (used in)
investing activities 952,292 (22,165,337
</TABLE>
<PAGE>
THE ZIEGLER COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
(Unaudited)
<TABLE>
<CAPTION>
For the Nine Months Ended
September 30, September 30,
1999 1998
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from:
Issuance of short-term notes payable $55,104,000 $60,463,000
Exercise of employee stock options 104,900 85,965
Payments for:
Principal payments of short-term notes
payable (59,761,000) (60,946,000)
Repayments of bonds payable (776,000) (5,219,000)
Purchase of treasury stock (463,218) (410,660)
Cash dividends paid (960,902) (1,672,485)
Retirement of bonds outstanding - (6,257,698)
Net payments under bank credit
facilities (2,119,345) (41,016,902)
Net receipts (payments) on securities
sold under agreements to repurchase (1,570,000) 32,464,000
Net cash used in financing
activities (10,441,565) (22,509,780)
NET DECREASE IN CASH AND CASH EQUIVALENTS (2,165,233) (5,754,491)
CASH AND CASH EQUIVALENTS AT BEGINNING OF
PERIOD 17,304,223 35,425,130
CASH AND CASH EQUIVALENTS AT END OF PERIOD $15,138,990 $29,670,639
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Interest paid during the period $ 3,366,000 $ 5,132,000
Income taxes paid during the period $ 683,000 $ 755,000
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING
AND FINANCING ACTIVITIES:
Granting of restricted stock from
treasury stock $ - $ 207,000
</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, 1999
Note A -- Basis of Presentation
The consolidated condensed financial statements included herein have
been prepared by The Ziegler Companies, Inc. and its subsidiaries
(collectively known as 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. Operating results for the
nine months ended September 30, 1999 are not necessarily indicative of the
results that may be executed for the year ending December 31, 1999.
Certain prior year amounts have been reclassified to conform with current
year presentation.
Note B -- Commitments and Contingent Liabilities
In the normal course of business, B. C. Ziegler and Company (BCZ)
enters into firm underwriting commitments for the purchase of debt 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 did not have any such underwriting
commitments outstanding at September 30, 1999.
WRR Environmental Services Company, Inc. (WRR) is subject to a
consent order of the Wisconsin Department of Natural Resources for further
testing and control of contaminants in ground water under and adjacent to
the plant site in Eau Claire, Wisconsin.
WRR has disposed of wastes at other waste disposal or 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, 1999, 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 1998 the steering committee
notified WRR that additional remediation and monitoring costs will be
required to clean up the first site. WRR estimates that its total
remaining assessment for cleanup costs at the first site will be
approximately $150,000. The total 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 its proportionate share of
remediation costs at this second site approximates $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
has cross-complained against WRR and other PRPs, requesting contribution
for the cleanup costs. The case is pending in a federal district court.
In the course of litigation, WRR entered into negotiations with the major
PRP group to settle WRRs alleged liability. While there can be no
assurances, based on the current status of negotiations, WRR anticipates a
final settlement of any liability to the PRP group to be finalized in the
fourth quarter, in an amount approximating $375,000 which is expected to be
partially offset by insurance recoveries.
While WRR may be jointly and severally liable for all charges 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. The reserve for
accrued loss contingencies totaled $844,000 at September 30, 1999 and,
based upon current estimates, is sufficient to cover the estimated 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 -- Net Capital Requirements and Customer Reserve Accounts
As registered broker-dealers, BCZ, Ziegler Thrift Trading, Inc. (ZTT)
and Portfolio Brokerage Services, Inc. (PBS) (all of which are direct or
indirect subsidiaries of the Company) are subject to the requirements of
Rule 15c3-1 (the "net capital rule") under the Securities Exchange Act of
1934. The net capital rule requires a broker-dealer to have sufficient
capital, as defined, available to meet current indebtedness. Specifically,
the net capital 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, 1999, is as
follows:
<TABLE>
<CAPTION>
BCZ ZTT PBS
<S> <C> <C> <C>
Aggregate indebtedness $8,403,000 $ 628,000 $ 72,000
Net capital $5,861,000 $2,021,000 $1,024,000
Ratio of aggregate
indebtedness to
net capital 1.43 to 1 0.31 to 1 0.07 to 1
Required net capital $ 560,000 $ 250,000 $ 100,000
</TABLE>
Registered broker-dealers that carry customer accounts are subject to
Securities and Exchange Commission Rule 15c3-3. BCZ and ZTT each maintain
a separate bank account for the exclusive benefit of customers. The amount
maintained in this account is determined by periodic computations required
under that rule, which allows the Company to maintain the computed amounts
in cash or other qualified securities. As of September 30, 1999 there was
approximately $2,365,000 in the customer reserve accounts. PBS executes
transactions and promptly transmits all customer cash and securities on a
delivery versus payment basis through the customer's custodian bank and is,
therefore, not subject to rule 15c3-3.
BCZ and ZTT clear all securities purchase and sale transactions
through a clearing agent on a fully disclosed basis and do not carry
customer accounts. BCZ currently makes deposits to a customer reserve
account as the result of a transfer agent service that it provides. ZTT
will discontinue its customer reserve account as a result of the recent
sale of substantially all of its assets and liabilities
Note D -- 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,
<S> <C> <C>
1999 1998
Revenues -
Interest $ 649,489 $ 939,324
Gain on sale/redemption of
mortgage certificates 15,206 23,431
Total revenues 664,695 962,755
Expenses -
Interest 592,968 860,791
Amortization of bond issuance costs 24,071 36,423
Management fees 37,285 53,004
Other 10,371 12,537
Total expenses 664,695 962,755
Net income $ - $ -
</TABLE>
<TABLE>
<CAPTION>
For the Nine Months Ended
September 30, September 30,
1999 1998
<S> <C> <C>
Revenues -
Interest $2,058,178 $3,195,271
Gain on sale/redemption of
mortgage certificates 139,491 1,078,178
Total revenues $2,197,669 $4,273,449
Expenses -
Interest 1,888,104 2,947,970
Amortization of bond issuance costs 170,947 1,107,625
Management fees 76,272 77,095
Other 62,346 140,759
Total expenses 2,197,669 4,273,449
Net income $ - $ -
</TABLE>
Note E -- Securities Inventory
Securities inventory consisted of the following:
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
<S> <C> <C>
Municipal bond issues $28,772,682 $110,536,184
Collateralized mortgage obligations 4,991,872 5,251,202
Institutional bond issues 2,276,143 2,827,386
Preferred stock 1,933,007 3,476,229
Other securities 1,651,964 3,338,891
$39,625,668 $125,429,892
</TABLE>
Note F -- Securities Sold, Not Yet Purchased
Marketable securities sold, not yet purchased, consist of trading
securities at market value as follows:
September 30, December 31,
1999 1998
U.S. Treasury Notes $4,438,125 $4,644,855
Note G -- Payable to Broker-Dealers and Clearing Organizations
BCZ clears its proprietary and customer brokerage transactions through a
clearing agent on a fully disclosed basis. The relationship with the
clearing agent 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 agent of approximately $22,735,000 at September 30, 1999
relates primarily to the financing of inventory and is collateralized by
securities held in inventory with a market value of approximately
$35,294,000 owned by BCZ. Funds are borrowed at the Federal Funds rate
plus 50 basis points and are due under normal margin arrangements for
securities inventory.
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 $657,000 in short-term borrowings outstanding at September 30,
1999. Such short-term borrowings are generally repaid within 30 days.
Note I -- Earnings per Share
The following reconciles the numerators and denominators of the basic
and diluted EPS computations for net income (loss) for the following
periods:
<TABLE>
<CAPTION>
For the Three Months Ended
September 30, September 30,
1999 1998
<S> <C> <C>
Net loss $ (348,629) $(478,833)
Basic
Weighted average shares outstanding 2,422,306 2,372,343
Basic loss per share $(.14) $(.20)
Diluted
Weighted average shares outstanding-
Basic 2,422,306 2,372,343
Effect of dilutive securities:
Restricted stock 24,965 26,461
Employee stock purchase plan - 9,368
Stock options 211 9,217
Weighted average shares outstanding-
Diluted 2,447,482 2,417,389
Diluted loss per share $(.14) $(.20)
</TABLE>
<TABLE>
<CAPTION>
For the Nine Months Ended
September 30, September 30,
1999 1998
<S> <C> <C>
Net loss $ (114,966) $(1,162,243)
Basic
Weighted average shares outstanding 2,427,415 2,372,090
Basic loss per share $(.05) $(.49)
Diluted
Weighted average shares outstanding-
Basic 2,427,415 2,372,090
Effect of dilutive securities:
Restricted stock 22,514 24,264
Employee stock purchase plan - 16,465
Stock options 4,647 16,115
Weighted average shares outstanding-
Diluted 2,454,576 2,428,934
Diluted loss per share $(.05) $(.49)
Note J -- Operating Segments
The operating segments of the Company are organized according to the
products and services they provide and the customers they serve. The
following is a summary of information by operating segment:
</TABLE>
<TABLE>
<CAPTION>
Health Care
and Senior
Living
Investment Retail Asset Taxable Other
Banking Brokerage Management Trading Segments Totals
For the three
months ended
Sept. 30, 1999
Total
<S> <C> <C> <C> <C> <C> <C>
revenues $ 4,431,442 $ 6,193,003 $ 9,396,493 $ 203,041 $ 1,067,310 $ 21,291,289
Intersegment
revenues 29,493 52,198 117,911 - - 199,602
Income (loss)
before taxes 592,409 599,394 263,791 (317,220) 339,651 1,478,025
For the three
months ended
Sept. 30, 1998
Total
revenues $ 6,704,568 $ 5,196,069 $ 3,902,462 $ 255,731 $ 1,283,024 $ 17,341,854
Intersegment
revenues 6,670 50,134 37,276 - - 94,080
Income (loss)
before taxes 1,911,910 43,440 317,934 (1,871,433) 391,464 793,315
For the nine
months ended
Sept. 30, 1999
Total
revenues $15,883,444 $19,016,030 $27,084,697 $ 1,235,684 $ 2,824,065 $ 66,043,920
Intersegment
revenues 78,753 163,201 242,530 - - 484,484
Income (loss)
before taxes 3,161,556 2,349,671 10,745 (427,207) 577,119 5,671,884
Total assets 19,285,617 22,219,950 22,062,500 2,868,589 13,070,637 79,507,293
For the nine
months ended
Sept. 30, 1998
Total
revenues $16,944,744 $16,053,995 $12,195,675 $ 2,024,087 $ 3,952,715 $ 51,171,216
Intersegment
revenues 22,697 95,446 129,715 - 26,311 274,169
Income (loss)
before taxes 3,555,115 767,882 1,054,528 (3,181,711) 660,042 2,855,856
Total assets 68,550,439 13,857,610 7,886,033 36,624,623 15,449,056 142,367,761
</TABLE>
The following are reconciliations of operating segment information to
the Company's consolidated totals:
[CAPTION]
<TABLE>
For the Three Months Ended For the Nine Months Ended
Sept. 30, Sept. 30, Sept. 30, Sept. 30,
1999 1998 1999 1998
Total Revenues:
<S> <C> <C> <C> <C>
Total revenues for
reportable segments $20,223,979 $16,058,830 $63,219,855 $47,218,501
Revenue for other segments 1,067,310 1,283,024 2,824,065 3,952,715
Revenues from administrative
and corporate functions 901,059 1,084,583 2,840,017 3,870,610
Elimination of intersegment
revenues (199,602) (94,080) (484,484) (274,167)
Total consolidated revenues $21,992,746 $18,332,357 $68,399,453 $54,767,659
</TABLE>
Revenues from administrative and corporate functions are primarily
related to fee income and interest revenue. Intersegment revenues include
primarily miscellaneous transactions for various services and fees,
generally of an administrative nature.
<TABLE>
<CAPTION>
For the Three Months Ended For the Nine Months Ended
Sept. 30, Sept. 30, Sept. 30, Sept. 30,
1999 1998 1999 1998
Income before taxes:
<S> <C> <C> <C> <C>
Total income for reportable
segments $ 1,138,374 $ 401,851 $ 5,094,765 $ 2,195,814
Income before taxes for other
segments 339,651 391,464 577,119 660,042
Unallocated amounts:
Unallocated administrative and
corporate expenses net of
income (1,977,772) (1,518,548) (5,614,268) (4,642,099)
Total consolidated net income
(loss) before taxes $ (499,747) $ (725,233) $ 57,616 $(1,786,243)
</TABLE>
Administrative and corporate activities are activities that support
multiple segments and relate to the overall management, administration, and
regulatory compliance of the Company and its subsidiaries. Substantially
all income is earned from the services and activities provided by the
Company. Taxes are not allocated among the operating segments.
<TABLE>
<CAPTION>
For the Nine Months Ended
Sept. 30, Sept. 30,
<S> <C> <C>
1999 1998
Total Assets:
Total assets for reportable
segments $ 66,436,656 $126,918,705
Assets for other segments 13,070,637 15,449,056
Corporate and other unallocated
assets 56,143,067 66,136,487
Total consolidated assets $135,650,360 $208,504,248
</TABLE>
Assets specifically identifiable to a segment are allocated to that
segment. A significant amount of the assets are financial assets
pertaining to corporate activities and are not allocated. Total assets
includes securities inventory which can vary significantly from period to
period.
Note K -- Subsequent Events
In August, 1999, the Company signed a definitive asset purchase
agreement to sell substantially all of the assets and liabilities
(excluding approximately $1.866 million in cash) of ZTT, its discount
brokerage subsidiary, to a major financial services company for $7.4
million plus 1999 net income through closing. The transaction closed on
October 29, 1999. The proceeds were paid in cash at closing. The
proposed transaction will generate an after-tax gain of approximately
$3.6 million or $1.48 per share.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The Ziegler Companies, Inc. (the "Parent"), through its wholly owned
subsidiaries (collectively known as the "Company"), is principally engaged
in financial services activities. These financial services activities are
conducted primarily through four operating segments. These operating
segments are health care and senior living investment banking, retail
brokerage, asset management, and taxable trading. These activities are
carried on through the Company's subsidiaries which are B. C. Ziegler and
Company ("BCZ"), Ziegler Thrift Trading, Inc. ("ZTT"), Ziegler Financing
Corporation ("ZFC"), Ziegler Asset Management Inc. ("ZAMI"), and PMC
International, Inc. and its subsidiaries ("PMC"). GS2 Securities, Inc.
("GS2") was merged into BCZ as of December 31, 1998.
The Company also has a nonfinancial subsidiary, WRR Environmental
Services Company, Inc. ("WRR"), whose services include pollution abatement
and chemical blending, as well as the recycling, reclaiming and disposing
of chemical wastes. Other areas of the Company not considered operating
segments are the administrative activities provided by BCZ and the Parent.
Results of Operations - Three months ended
September 30, 1999 Compared to September 30, 1998
The following table summarizes the changes in revenue and net income
(loss) before taxes of the Company:
<TABLE>
<CAPTION>
Increase/
For the Three Months Ended September 30, 1999 1998 (Decrease)
(Dollars in thousands)
<S> <C> <C> <C>
Revenues:
Health Care and Senior Living
Investment Banking $ 4,431 $ 6,705 $(2,274)
Retail Brokerage 6,193 5,196 997
Asset Management 9,396 3,902 5,494
Taxable Trading 203 256 (53)
Other Activities and Eliminations 1,770 2,273 (503)
Total $21,993 $18,332 $ 3,661
Income (Loss) Before Taxes:
Health Care and Senior Living
Investment Banking $ 592 $ 1,912 $(1,320)
Retail Brokerage 599 43 556
Asset Management 264 318 (54)
Taxable Trading (317) (1,871) 1,554
Other Activities (1,638) (1,127) (511)
Total $ (500) $ (725) $ 225
</TABLE>
Health Care and Senior Living Investment Banking
Health care and senior living investment banking activities generated
revenues of $4,431,000 in 1999 compared to $6,705,000 in 1998, a decrease
of $2,274,000 or 34%. Total healthcare and senior living investment
banking revenue decreased $1,824,000 in 1999. A total of 13 managed or
comanaged transactions were completed in 1999 compared to 17 in 1998. The
decrease in transactions and an overall decrease in underwriting discounts
were the primary reasons for the decrease in revenues. The balance of the
decrease in revenues was due to decreases in trading profits and interest
income. Financial advisory, special products, and remarketing fees did not
change significantly between years. The decreases were partially offset by
increased fees from FHA mortgage servicing activities.
Total expenses of the health care and senior living investment
banking activities were $3,839,000 in 1999 compared to $4,793,000 in 1998,
a decrease of $954,000 or 20%. The decrease was primarily related to a
decrease in commission-based employee compensation and benefits of $845,000
as the result of decreased revenues. A decrease in interest expense
primarily related to remarketing activities was the primary reason for the
balance of the decline. The health care and senior living investment
banking activities had a net income before taxes of $592,000 in 1999
compared to $1,912,000 in 1998.
Retail Brokerage
Retail brokerage activities generated revenues of $6,193,000 in 1999
compared to $5,196,000 in 1998, an increase of $997,000 or 19%. The
BCZ retail sales group had increased revenues of $792,000, mostly
attributed to increased commissions from the sales of mutual funds.
ZTT also increased its discount brokerage revenues by approximately
$200,000 as the result of increased transaction activity. BCZ insurance
agency revenues did not change significantly.
Total expenses of the retail brokerage activities were $5,594,000 in
1999 compared to $5,153,000 in 1998, an increase of $441,000 or 9%. A
primary reason for the increase was an increase in commission-based
compensation expense of $231,000 due to the higher volumes of revenue.
Interest expense also increased $133,000 as the result of interest expense
allocations to the BCZ retail sales group for inventory held. The resulting
net income before taxes for retail brokerage activities was $599,000 in
1999 compared to $43,000 in 1998.
Asset Management
Asset management activities generated revenues of $9,396,000 in 1999
compared to $3,902,000 in 1998, an increase of $5,494,000 or 141%. The
inclusion of PMC as a subsidiary contributed $4,932,000 of revenues in
1999. PMC was acquired by the Company in December, 1998. Total ZAMI
revenues decreased $494,000 as the result of the transfer of Principal
Preservation Portfolio ("PPP") mutual fund management to BCZ effective May
1, 1999. BCZ managed asset activities had increased revenues of $953,000
in 1999 over 1998 primarily as the result of the aforementioned transfer,
which was done to better align activities within the Company. The net
increase in revenues of approximately $459,000 was the result of an
increase in average assets under management for these two entities.
Total expenses of the asset management activities were $9,132,000 in
1999 compared to $3,584,000 in 1998, an increase of $5,548,000 or 155%.
The inclusion of PMC as a subsidiary in 1999 caused an increase of
$4,988,000 in expenses, of which $2,476,000 related to fees paid by PMC to
third party investment managers and others which are included in
Commissions and Clearing Fees, $1,251,000 related to employee costs
included in Employee Compensation and Benefits, and $630,000 related to
occupancy and equipment costs. The asset management activities had a net
income before taxes of $264,000 in 1999 compared to net income of $318,000
in 1998, a decrease of $54,000 or 17%. PMC was close to breakeven for
the quarter.
Taxable Trading
Taxable trading activities had gross revenues of $203,000 in 1999
compared to $256,000 in 1998, a decrease of $53,000 or 21%. The decrease
in revenues was primarily due to reduced trading activity. A reduced
trading operation and market conditions were the primary reasons for the
decrease.
Expenses of taxable trading activities were $520,000 in 1999 compared
to $2,127,000 in 1998, a decrease of $1,607,000 or 76%. Reductions in
employee compensation and benefits of approximately $623,000 related to the
reduced trading operation and approximately $807,000 in interest expense
due to the financing of lower levels of inventory were the primary reasons
for the decrease. The taxable trading activities had a net loss before
tax of $317,000 in 1999 compared to a net loss before tax of $1,871,000 in
1998.
Other Activities and Intercompany
The activities of other financial services generated revenues of
$114,000 in 1999 compared to $238,000 in 1998. The decease was related to
the planned reduction or discontinuation of several activities. Reductions
in the FCFC loan portfolio and the sale by ZCSI of substantially all leases
and notes receivable in June, 1998, were the primary reasons for the
decrease in revenues, primarily interest income. Expenses, primarily
interest expense, for these activities also decreased as the result of the
retirement of bonds outstanding for both FCFC and ZCSI.
WRR, the only nonfinancial activity of the Company, had a gross
margin of $953,000 in 1999 compared to $1,045,000 in 1998, a decrease of
$92,000 or 9%. Decreased product sales as compared to prior year was the
primary reason for the decrease. The overall decrease in petroleum prices
earlier in the year as well as the effects of the Asian economy on WRR's
customers had caused sales to decrease. A recovery in oil prices has begun
to see an increase in sales. Net income before taxes for WRR was
$327,000 in 1999 compared to $358,000 in 1998.
The administrative activities of BCZ and the Parent generated
revenues of $907,000 in 1999 compared to $1,263,000 in 1998. This
revenue was primarily related to interest income on collateralized mortgage
obligations ("CMOs") held by the Parent and purchased in February, 1998.
This revenue has decreased as the result of principal paydowns and
occasional sales of the investment. Total expenses were $2,885,000 in 1999
compared to $2,781,000 in 1998. Decreased interest expense associated with
the CMO financing and allocation of interest to the operating segments were
the primary reasons for the decrease. This decrease was offset by an
increase in administrative costs related to the cost of replacing equipment
and professional fees. Administrative activities include executive
management, internal audit, management information systems, human
resources, building services, securities operations, compliance and
accounting. The administrative activities of BCZ and the Parent reduced
net income before taxes by $1,978,000 in 1999 compared to $1,519,000 in
1998.
Results of Operations - Nine months ended
September 30, 1999 Compared to September 30, 1998
The following table summarizes the changes in revenue and net income
(loss) before taxes of the Company:
<TABLE>
<CAPTION>
Increase/
For the Nine Months Ended September 30, 1999 1998 (Decrease)
<S> <C> <C> <C>
(Dollars in thousands)
Revenues:
Health Care and Senior Living
Investment Banking $15,883 $16,945 $(1,062)
Retail Brokerage 19,016 16,054 2,962
Asset Management 27,085 12,196 14,889
Taxable Trading 1,236 2,024 (788)
Other Activities and Intercompany 5,179 7,549 (2,370)
Total $68,399 $54,768 $13,631
Income (Loss) Before Taxes:
Health Care and Senior Living
Investment Banking $ 3,162 $ 3,555 $ (393)
Retail Brokerage 2,350 768 1,582
Asset Management 11 1,055 (1,044)
Taxable Trading (427) (3,182) 2,755
Other Activities and Intercompany (5,038) (3,982) (1,056)
Total $ 58 $(1,786) $ 1,844
</TABLE>
Health Care and Senior Living Investment Banking
Health care and senior living investment banking activities generated
revenues of $15,883,000 in 1999 compared to $16,945,000 in 1998, a
decrease of $1,062,000 or 6%. Total investment banking revenues increased
$459,000 in 1999 as compared to 1998. A total of 49 managed or comanaged
transactions were completed in 1999 compared to 51 in 1998. Although the
total face amount of bonds issued did not change significantly from 1998, a
slight increase in the average underwriting discount was the reason for the
increase. Underwriting fees decreased $1,426,000 in 1999 compared to 1998.
A decrease in special products and financial advisory transactions was the
reason for the decrease and is primarily due to a turnover in personnel.
Remarketing fees, income from tax-exempt trading, and interest income also
decreased compared to prior year. These decreases were partially offset by
increased fees from mortgage origination and servicing which approximated
$760,000.
Total expenses of the health care and senior living investment
banking activities were $12,721,000 in 1999 compared to $13,390,000 in
1998, a decrease of $669,000 or 5%. A decrease in employee compensation
and benefits of $478,000 related to decreased revenues was the primary
reason for the decrease. General increases in most categories of expenses
were offset by a decrease in interest expense as the general level of
inventory decreased. The health care and senior living investment banking
activities had a net income before taxes of $3,162,000 in 1999 compared to
$3,555,000 in 1998.
Retail Brokerage
Retail brokerage activities generated revenues of $19,016,000 in 1999
compared to $16,054,000 in 1998, an increase of $2,962,000 or 18%. An
increase of $610,000 in revenue from the underwriting and sale of church
and school bonds contributed to this revenue growth. These bonds were
primarily sold through BCZ full service retail brokerage offices. The BCZ
retail brokerage offices also increased revenues from other products by
approximately $1,530,000. Other products sold include primarily equities,
mutual funds, and annuities. ZTT also increased its discount brokerage
revenues by approximately $542,000 as the result of increased transaction
activity in 1999 over 1998.
The expenses of retail brokerage activities were $16,666,000 in 1999
compared to $15,286,000 in 1998, an increase of $1,380,000 or 9%. This
increase was primarily due to increased clearing charges of approximately
$1,107,000 related to the clearing of brokerage transactions by outside
clearing agents. Prior to May, 1998, clearing costs were part of BCZ
administrative overhead and were not allocated to the BCZ retail sales
group. Compensation and benefits increased approximately $458,000,
primarily associated with the higher volumes of activity. Interest expense
also increased $282,000 as the result of interest expense allocations to
the BCZ retail sales group for inventory held. These increases were
partially offset by decreases in promotional and communication expenses
totalling approximately $472,000. The decreased promotional and
communications activity relates to a high volume of activity in 1998 with
respect to communication of the clearing conversions and related issues
with our customers that did not recur in 1999. The resulting net income
before taxes for retail brokerage activities was $2,350,000 in 1999
compared to $768,000 in 1998.
Asset Management
Asset management activities generated revenues of $27,085,000 in 1999
compared to $12,196,000 in 1998, an increase of $14,889,000 or 122%. The
inclusion of PMC as a subsidiary contributed $15,071,000 of revenues in
1999. Total ZAMI revenues decreased $491,000 primarily as the result of
the transfer of PPP mutual fund investment management activity to BCZ. BCZ
managed asset activities had increased revenues of $1,590,000 in 1999 over
1998 primarily as the result of the transfer. The overall increase in
revenues at ZAMI and BCZ was the result of an increase in total assets
under management. The above increases were offset by reduced revenue at
the former GS2 subsidiary of approximately $1,290,000 primarily related to
reduced corporate investment banking volumes.
Total expenses of the asset management activities were $27,074,000 in
1999 compared to $11,141,000 in 1998, an increase of $15,933,000 or 143%.
The inclusion of PMC as a subsidiary in 1999 caused an increase of
$15,344,000 in expenses, of which $7,970,000 related to fees paid to third
party investment managers and others, $3,710,000 related to employee costs
included in Employee Compensation and Benefits, and $2,000,000 related to
occupancy and equipment costs. The asset management activities of the
Company had a net income before taxes of $11,000 in 1999 compared to net
income of $1,055,000 in 1998. PMC, acquired in December, 1998, had a net
loss of $374,000 for the nine month period. The balance of the decrease is
due to the shortfall of corporate investment banking income noted above.
Taxable Trading
Taxable trading activities had gross revenues of $1,236,000 in 1999
compared to $2,024,000 in 1998, a decrease of $788,000 or 39%. Trading
revenue decreased by approximately $159,000 due to a reduced trading
operation and current fixed income market conditions. Interest income
decreased $944,000 related to reduced interest income as the result of
lower levels of inventory.
Expenses of taxable trading activities were $1,663,000 in 1999
compared to $5,206,000 in 1998, a decrease of $3,543,000 or 68%. Employee
compensation and benefits decreased $1,660,000 as the result of the
reduction in this activity in 1999 compared to 1998. Interest expense
decreased $944,000 as the result of less financing required on reduced
inventory levels. The taxable trading activity had a net loss before taxes
of $427,000 in 1999 compared to a loss of $3,182,000 in 1998.
Other Activities and Intercompany
The activities of other financial services generated revenues of
$376,000 in 1999 compared to $1,204,000 in 1998. The decrease in revenues
as well as expenses was related to the planned reduction or discontinuation
of several activities as discussed in the third quarter results.
WRR had a gross margin of $2,448,000 in 1999 compared to $2,749,000
in 1998, a decrease of $301,000 or 11%. Decreased recycled product sales
as the result of an earlier decline in petroleum prices was the primary
reason for the decrease. WRR responded with cost reductions and has seen
improvement in sales since that time. Net income before taxes for
WRR was $542,000 in 1999 compared to $799,000 in 1998.
The administrative activities of BCZ and the Parent generated
revenues of $2,953,000 in 1999 compared to $4,458,000 in 1998. This
revenue was primarily related to interest income on CMOs held by the Parent
and purchased in February, 1998. Principal paydowns on the CMOs have
caused this revenue to decrease. Total expenses were $8,567,000 in 1999
compared to $9,100,000 in 1998. Decreased interest expense and allocation
of interest to the operating segments were the primary reasons for the
decrease. The administrative activities of BCZ and the Parent reduced net
income before taxes by $5,614,000 in 1999 compared to $4,642,000 in 1998.
<PAGE>
Liquidity and Capital Resources
Capital expenditures for assets for the first six months of 1999 were
$1,616,000. Approximately $1,060,000 were technology expenditures and
$556,000 were expended for furniture, equipment, and leasehold
improvements. Land, buildings and equipment, net of related depreciation
and amortization, was 9% of total Company assets.
The Company has a continuing need 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 to third parties. These notes vary in
maturities up to 270 days. In the first nine months of 1999, a total of
$55,104,000 of notes were issued and $59,761,000 were repaid. This source
of additional cash was used primarily to finance lending and investment
activity.
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 1998 or 1999, 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 1997.
Mandatory redemption on the bonds is made from principal payments received
on the mortgage loans which serve as collateral for the bonds. There were
$4,481,000 of mortgage loans outstanding at September 30, 1999, 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 and through prepayments. Total bonds
outstanding at September 30, 1999 were $4,270,000. No new bonds were
issued in 1999 nor does the Company plan to issue bonds in the future.
BCZ acts as remarketing agent for approximately $1.2 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. A total
of $5,300,000 of variable rate securities were held in inventory at
September 30, 1999. BCZ finances its inventory of variable rate securities
acquired pursuant to its remarketing activities through its clearing agent
under the clearing agent's margin financing arrangements.
BCZ finances activities from its own resources, from unsecured lines
of credit available through banking relationships, from repurchase
agreements through brokerage relationships, from its clearing agent using
inventory as collateral, as well as intercompany borrowings from the
Parent, if necessary. There were no amounts outstanding under bank
unsecured credit facilities at September 30, 1999. Amounts outstanding
under repurchase agreements were $813,000 and the amount owed the clearing
agent was $22,735,000. In each case securities are the underlying
collateral for the amounts due.
The Parent finances its activities through the issuance of short-term
notes described above, banking relationships shared with BCZ, and
repurchase agreements. The Parent had no amounts outstanding under bank
unsecured credit facilities at September 30, 1999. Amounts outstanding
under repurchase agreements totalled $28,657,000 at September 30, 1999, and
were used to finance collateralized mortgage obligations included in Other
Investments on the balance sheet.
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.
In the opinion of management, the Company's capital resources and
available lines of credit are adequate for present and anticipated future
operations.
Year 2000
The Year 2000 issue affects the ability of computer systems to
correctly process dates after December 31, 1999. The Year 2000 issue is
the result of computer programs being written using two digits rather than
four to define the applicable year. Computer equipment, software, and
electronic devices with imbedded technology that are time sensitive may
recognize a date using "00" as the year 1900 rather than the year 2000.
This could result in a system failure or miscalculations causing
disruptions of operations, including, among other things, a temporary
inability to process transactions or engage in similar normal business
activities.
The Company began the process of addressing Year 2000 compliance in
1996. During 1998, BCZ and ZTT, the Company's primary retail brokerage
subsidiaries, completed the conversion from self-clearing to clearing on a
fully disclosed basis through clearing agents. This conversion relieved
the Company of the burden of making corrections to its internal computer-
based clearing systems to achieve Year 2000 compliance. In the case of
each of the two subsidiaries, the conversion of securities brokerage
processing systems was to a vendor that is a significant provider of this
type of service to the securities industry. Each vendor has published
plans and progress reports with respect to its readiness for Year 2000 and
indicated its belief that it will be prepared for Year 2000. The Company
has also converted its information technology processes from a central
mainframe computer to a server-based network system. The vendors of the
hardware and software associated with this system have indicated compliance
with Year 2000 readiness standards. This server-based network system is
being extended throughout the company replacing older systems.
As part of its reviews, the Company completed a company-wide
inventory and assessment of electronic equipment and systems of all its
financial services subsidiaries including PMC and its subsidiaries acquired
in December, 1998. The Company had made substantial progress in the
process of updating technology as part of a larger conversion of
information technology and operational systems. Those and remaining
systems are believed to be ready to Year 2000 compliance. The Company has
received responses from all vendors of mission critical systems as to their
readiness for Year 2000. The Company has successfully participated in
industry-wide testing. The industry-wide testing was completed with no
material exceptions. The internal testing of mission critical and non-
critical internal systems is complete.
Year 2000 planning and preparation at PMC has been in progress since
1997 using primarily internal resources. PMC's business operations include
both internal information systems, such as performance reporting and
portfolio accounting, and external systems, which support its broker-dealer
operations and portfolio accounting. Final testing of the internal systems
has been completed. The external systems are provided by recognized
vendors who have responded favorably with respect to inquiries about Year
2000 compliance. PMC has finalized its contingency plans.
The total costs of the Year 2000 preparedness efforts as distinguished
from the costs of other conversion efforts are difficult to identify. The
conversion of BCZ and ZTT to fully disclosed clearing through third party
clearing agents and the updating of internal information systems to current
technology were part of a larger strategy to update internal systems, and
were not budgeted or identified as expenses specifically related to Year
2000 compliance. As a result, it is difficult to distinguish between the
costs of strategic operational conversions and Year 2000 compliance. When
considering the cost of all conversion efforts taken together, the Company
incurred approximately $3 million on computer hardware and software costs
and an additional $1 million for consultants to assist in the conversion
efforts. Costs incurred for Year 2000 compliance by internal information
systems personnel were principally payroll costs and were not separately
tracked.
The impact of the Year 2000 issue on the securities industry could
be significant since virtually every aspect of the sale of securities and
processing of transactions requires Year 2000 compliance review. 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 failure to
correct a significant Year 2000 issue could result in an interruption in,
or a failure of, certain normal business activities or operations. Such
failures could materially and adversely affect the Company's results of
operations, liquidity and financial condition. However, the Company does
not control third party vendors and as a result, cannot determine to what
extent future results may be adversely affected by the failure of these
third parties to successfully address their Year 2000 issues. Due to the
general uncertainty inherent in the Year 2000 issue, resulting in part form
the uncertainty of the Year 2000 readiness of third-party suppliers and
customers, the Company is unable to determine at this time whether the
consequences of Year 2000 failures will have a material impact on the
Company's results of operations, liquidity or financial condition. The
Company believes that, with the conversion to fully-disclosed clearing
agents who have favorably responded as to their Year 2000 readiness, and
updated technology platforms, the probability of significant interruptions
of normal operations is mitigated.
The Company has prepared a contingency plan for Year 2000 issues.
The plan identifies Year 2000 issues with respect to our primary
operational activities. Time frames and alternatives have been developed
to continue processing transactions under various scenarios. It is
impossible to anticipate all possible circumstances; however, the Company
has attempted to address all significant operational areas. Many of our
subsidiaries were required to file Year 2000 information with the
Securities and Exchange Commission. This information may be found on their
website at www.sec.gov.
Forward Looking Statements
Certain comments in this Form 10-Q represent forward looking
statements made pursuant to the provisions of the Private Securities
Litigation Reform Act of 1995. The statements are based on current
estimates and are dependent upon a variety of factors that could cause
actual results to differ from these estimates. Such factors which may
impact the results are: a reduction in the demand for investment banking
services by nonprofit healthcare and senior living providers; a significant
decline in the overall values of equity and fixed income securities, and
the level of activity in those markets; the loss of key personnel;
unforeseen material Year 2000 operational problems; the loss of significant
customer relationships for investment banking or investment advisory
services.
<PAGE>
Quantitative and Qualitative Disclosure About Market Risk
Market risk to the Company arises from exposure to changes in
interest rates and other relevant market rate or price risk which impact an
instrument's financial value. The Company is exposed to market risk from
changes in interest rates through its trading and non-trading activities.
In the ordinary course of its business, the Company selectively uses
hedging strategies which, while not perfect, are designed to reduce market
risk. The Company has adopted policies and procedures which prohibit the
use of such derivative instruments for trading purposes.
Interest Rate Risk
The Company enters into interest rate agreements and purchases
futures contracts to minimize the effect of potential interest rate
changes. The table below provides information about the Company's
financial instruments that are sensitive to changes in interest rates,
including interest rate forward agreements, futures contracts, securities
inventory and debt obligations. For securities inventory and debt
obligations, the table presents principal cash flows and related weighted
average interest rates by expected maturity dates. For interest rate
forward agreements, the table presents notional amounts and weighted
average interest rates by expected (contractual) maturity dates. Notional
amounts are used to calculate the contractual payments to be exchanged
under the contracts. For futures contracts, the table presents the
notional amounts and the current market value. Trading accounts are shown
in the caption "Securities Inventory", "Securities purchased under
agreements to resell", "Securities sold under agreements to repurchase",
and "Futures contracts", and non-trading accounts are shown in other
captions.
I. Forward Agreements at September 30, 1999
Fair
Notational Value
Amount (Deficit)
Forward Debt Services Agreement $5,005,000 $(146,000)
Index: The estimated actual yields on the bonds issued to refund the
Series 1998B Bonds (the "Bonds"). The Bonds will be priced
at the tax-exempt market rate.
Forward Interest Rate Agreement $5,005,000 $135,000
Index: Municipal Market Data Services AAA/Aaaa Scale plus a forward
spread. (Hedge to above instrument.
<PAGE>
II. Trading and Non Trading Portfolio at September 30, 1999
<TABLE>
<CAPTION>
ASSETS
Expected Maturity Dates
(In U.S. Dollars)
Securities Inventory - fixed rate 1999 2000 2001 2002 2003 Thereafter Total Fair Value
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Municipal bond issues 65,000 30,000 23,000 409,000 126,000 23,563,623 24,216,623 23,460,179
Weighted average interest rate 5.29% 6.40% 4.99% 5.37% 6.87% 5.92%
Collateralized Mortgage obligations(1) - - - - - 7,521,805 7,521,805 4,991,873
Weighted average interest rate - - - - - 6.17%
Corporate Bond issues 8,000 - - - - 139,000 147,000 143,878
Weighted average interest rate 8.4% - - - - 6.73%
Institutional Bonds 41,000 2,000 17,000 4,000 65,000 2,258,000 2,387,000 2,276,143
Weighted average interest rate 6.82% 7.00% 9.03% 6.25% 6.36% 7.39%
Preferred Stock - - - - - 2,098,065 2,098,065 1,936,435
Weighted average dividend rate - - - - - 6.58%
Other - - 196,000 - 282,000 1,055,407 1,533,407 1,517,160
Weighted average interest rate - - 5.55% - 5.09% 6.84%
Securities Inventory - variable rate
Variable rate demand notes - - - - - 5,300,000 5,300,000 5,300,000
Weighted average interest rate - - - - - 3.53%
Securities purchased under agreement
to resell(2) - - - - 4,500,000 - 4,500,000 4,415,625
Weighted average interest rate - - - - 5.38% -
Notes receivable - - - - - 4,654,390 4,654,390 4,654,390
Weighted average interest rate - - - - - 9.22%
Other investments - - - - - 27,055,377 27,055,377 27,055,377
Weighted average interest rate - - - - - 8.87%
LIABILITIES
Short-term notes payable(2) 8,898,200 - - - - - 8,898,200 8,898,200
Weighted average interest rate 5.59% - - - - -
Securities sold under agreement to
repurchase(2) 29,470,000 - - - - - 29,470,000 29,470,000
Weighted average interest rate 5.60% - - - - -
</TABLE>
<TABLE>
<CAPTION>
LIABILITIES (Cont'd.)
Expected Maturity Dates
(In U.S. Dollars)
1999 2000 2001 2002 2003 Thereafter Total Fair Value
<S> <C><C> <C> <C> <C> <C> <C> <C>
Securities sold not yet purchased - - - - - 4,500,000 4,500,000 4,438,125
Weighted average interest rate - - - - - 5.38%
Notes payable to banks - fixed rate - 657,342 - - - - 657,342 657,342
Weighted average interest rate - 8.26% - - - -
Notes payable to banks - variable rate - - - - - - - -
Weighted average interest rate - - - - - -
Bonds payable - fixed rate(1) - - - - - 4,595,124 4,595,124 4,595,124
Weighted average interest rate - - - - - 8.23%
(1) Assumes no prepayment
(2) The information shown above includes actual interest rates at September 30, 1999 and assumes no changes in interest
rates in 1999 or thereafter.
III. Futures Contracts
Futures Contracts (short) - None
</TABLE>
<PAGE>
Equity Risk
In addition to interest rate risk, the Company faces market risk
associated with the fees it earns on its portfolio in the form of equity
risk. Ziegler Asset Management, Inc. manages a portfolio with an aggregate
value of approximately $1.4 billion in the form of separately managed and
mutual fund accounts. Additionally, PMC and BCZ accounts under management
or advisement have an approximate value of $3.8 billion and $786 million,
respectively, a portion of which is invested in managed products from which
BCZ and PMC receive periodic fees. A general decline in the equities
market could adversely affect revenues. A reduction in the value of the
equity securities in accounts managed or advised by subsidiaries of the
Company would result in a reduction in the amount of fees payable to BCZ,
ZAMI, and PMC. While this exposure is present, quantification remains
impractical due to the number of other variables affecting fee income.
Interest rate changes can also have an effect on fee income for the above
stated reasons.
In addition to the above market risks, material limitations exist in
determining the overall net market risk exposure of the Company.
Computation of prospective effects of hypothetical interest rate changes
are based on many assumptions, including levels of market interest rates,
predicted prepayment speeds, and projected effect on assets under
management and retail customer account balances. Therefore, the above
outcomes should not be relied upon as indicative of actual results.
<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:
Registrant filed a Current Report on Form 8-K dated August 12,
1999, indicating that The Ziegler Companies, Inc. and Ziegler
Thrift Trading, Inc. entered into an Asset Purchase Agreement
with Strong Investments, Inc. and Strong Capital Management,
Inc. Under that Agreement, substantially all of the assets and
liabilities (excluding approximately $1.866 million in cash) of
Ziegler Thrift Trading, Inc. will be sold for $7.4 million plus
1999 income through closing. The purchase price is subject to
adjustment.
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 15, 1999 By /s/ Peter D. Ziegler
Peter D. Ziegler
Chairman of the Board, President,
and Chief Executive Officer
Dated: November 15, 1999 By /s/ Gary P. Engle
Gary P. Engle
Senior Vice President/
Chief Financial Officer
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> BD
<LEGEND>
This schedule contains sumary 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-31-1999
<PERIOD-END> SEP-30-1999
<CASH> 8,608,749
<RECEIVABLES> 7,073,304
<SECURITIES-RESALE> 4,483,125
<SECURITIES-BORROWED> 0
<INSTRUMENTS-OWNED> 79,544,327
<PP&E> 12,565,291
<TOTAL-ASSETS> 135,650,360
<SHORT-TERM> 9,555,542
<PAYABLES> 26,556,794
<REPOS-SOLD> 29,470,000
<SECURITIES-LOANED> 0
<INSTRUMENTS-SOLD> 4,438,125
<LONG-TERM> 4,595,124
0
0
<COMMON> 3,544,030
<OTHER-SE> 44,711,050
<TOTAL-LIABILITY-AND-EQUITY> 135,650,360
<TRADING-REVENUE> 2,866,335
<INTEREST-DIVIDENDS> 4,831,800
<COMMISSIONS> 18,447,498
<INVESTMENT-BANKING-REVENUES> 17,583,685
<FEE-REVENUE> 19,674,327
<INTEREST-EXPENSE> 3,105,236
<COMPENSATION> 33,138,153
<INCOME-PRETAX> 57,616
<INCOME-PRE-EXTRAORDINARY> (114,966)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (114,966)
<EPS-BASIC> (.05)
<EPS-DILUTED> (.05)
</TABLE>
