UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form 10-Q
_______________________
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2003
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.)
250 East Wisconsin Avenue, Milwaukee, Wisconsin 53202
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (414) 978-6400
_______________________
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 ( )
Indicate by checkmark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act). Yes ( ) No ( X )
The number of shares outstanding of the registrant's Common Stock, par value
$1.00 per share, at April 30, 2003 was 2,175,088 shares.
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
THE ZIEGLER COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Unaudited)
March 31, December 31,
2003 2002
(In thousands except per share amounts)
ASSETS
Cash and cash equivalents $ 12,646 $ 10,448
Securities owned 38,165 53,888
Receivables 3,436 4,171
Notes receivable 29,288 24,842
Other investments 30,728 31,882
Land, buildings and equipment, at cost,
net of accumulated depreciation of
$13,807 and $13,490, respectively 5,462 5,377
Goodwill and other intangible assets 2,565 2,565
Other assets 4,585 4,626
Total assets $126,875 $137,799
LIABILITIES AND STOCKHOLDERS' EQUITY
Short-term notes payable $ 7,844 $ 4,682
Securities sold under agreements to repurchase 20,622 21,268
Payable to broker-dealers 20,729 27,686
Accrued compensation 3,101 11,065
Long-term debt 17,014 16,115
Other liabilities and deferred items 8,259 9,454
Total liabilities 77,569 90,270
Minority interest 9,507 7,487
Commitments
Stockholders' equity:
Common stock, $1 par, authorized
7,500 shares, issued 3,544 3,544 3,544
Additional paid-in capital 6,222 6,222
Retained earnings 51,761 51,793
Treasury stock, at cost, 1,371,
and 1,352 shares, respectively (21,563) (21,286)
Unearned compensation (165) (231)
Total stockholders' equity 39,799 40,042
Total liabilities and stockholders' equity $126,875 $137,799
See accompanying notes to consolidated financial statements.
THE ZIEGLER COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
For the Three Months Ended
March 31, March 31,
2003 2002
(In thousands except per share amounts)
Revenues:
Investment banking $ 6,982 $ 4,811
Investment management and advisory fees 2,731 2,539
Commissions 2,699 2,960
Interest and dividends 1,934 1,595
Other income 1,087 905
Total revenues 15,433 12,810
Expenses:
Employee compensation and benefits 8,773 7,739
Communications and data processing 1,442 1,541
Occupancy 1,061 947
Promotional 1,039 758
Brokerage commissions and clearing 613 866
Professional and regulatory 468 548
Investment manager and other 380 196
Interest 379 377
Other expenses 453 385
Total expenses 14,608 13,357
Income (loss) from operations before income
taxes and minority interest 825 (547)
Minority interest in net (income) loss of
subsidiaries (531) 243
Income (loss) from operations before income taxes 294 (304)
Provision for (benefit from) income taxes 42 (215)
Net income (loss) $ 252 $ (89)
Per share data:
Basic and diluted earnings (loss) per share $ 0.12 $ (0.04)
See accompanying notes to consolidated financial statements.
THE ZIEGLER COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
For the Three Months Ended
March 31, March 31,
2003 2002
(In thousands)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ 252 $ (89)
Adjustments to reconcile net income to
net cash provided by (used in) operating
activities:
Depreciation and amortization 367 576
Compensation expense paid in common stock 66 9
Minority interest in net income (loss)
of subsidiaries 531 (243)
Changes in assets and liabilities:
Decrease (increase) in:
Securities owned 15,723 70,795
Receivables 735 107
Other assets 41 (547)
Increase (decrease) in:
Payable to broker-dealers (6,957) (71,041)
Accrued compensation (7,964) (6,815)
Other liabilities and deferred items (1,195) 500
Net cash provided by (used in) operating
activities 1,599 (6,748)
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from:
Sale of equipment 9 -
Payments received on notes receivable 72 2,345
Sales/paydowns on other investments 1,154 6,084
Payments for:
Issuance of notes receivable (4,518) (1,190)
Capital expenditures (461) (227)
Purchase of other investments - (500)
Net cash (used in) provided by investing
activities (3,744) 6,512
THE ZIEGLER COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
(Unaudited)
For the Three Months Ended
March 31, March 31,
2003 2002
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from:
Issuance of short-term notes payable $12,500 $ 8,334
Issuance of long-term debt 1,000 1,100
Minority interest capital contributions 2,551 627
Payments for:
Principal payments of short-term notes
payable (9,338) (6,833)
Securities sold under agreements to
repurchase (646) (5,978)
Principal payments of long-term debt (101) (1,700)
Purchase of treasury stock (277) (87)
Cash dividends paid (284) (312)
Net cash provided by (used in) financing
activities 5,405 (4,849)
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 2,198 (5,085)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 10,448 14,688
CASH AND CASH EQUIVALENTS AT END OF PERIOD $12,646 $ 9,603
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Interest paid during the quarter $ 581 $ 429
Income taxes paid (refunded) during
the quarter $ 39 $ (79)
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND
FINANCING ACTIVITIES:
Granting of restricted stock from
treasury stock $ - $ 412
See accompanying notes to consolidated financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands except per share data)
March 31, 2003
Note A -- Basis of Presentation
The consolidated financial statements included herein have been prepared
by The Ziegler Companies, Inc. (the "Parent") and its wholly owned and
partially owned and controlled subsidiaries (collectively known as the
"Company"), without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission and the instructions to Form 10-Q. Certain
information and footnote disclosures normally included in consolidated
financial statements prepared in accordance with accounting principles
generally accepted in the United States of America have been condensed or
omitted pursuant to such rules and regulations. Management believes, however,
that these consolidated financial statements reflect all adjustments which
are, in the opinion of management, necessary to present a fair statement of
the results for the periods presented. All such adjustments are of a normal
recurring nature. Because certain disclosures have been condensed or omitted
from these consolidated financial statements, these consolidated financial
statements should be read in conjunction with the audited consolidated
financial statements and the notes thereto included in the Company's 2002
annual report on Form 10-K. Operating results for the three months ended
March 31, 2003 are not necessarily indicative of the results that may be
expected for the year ending December 31, 2003. 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), a
wholly owned subsidiary of the Parent, enters into firm underwriting
commitments for the purchase of debt securities. These commitments require
BCZ to purchase debt securities at a specified price. BCZ attempts to obtain
commitments to sell the securities to customers. BCZ had commitments
outstanding to purchase debt securities of $5,020 at March 31, 2003.
In the normal course of business, Ziegler Healthcare Fund I, LP, a
partially owned subsidiary of the Company, makes commitments to originate SBA
loans. At March 31, 2003, Ziegler Healthcare Fund I, LP had no outstanding
commitments.
In the normal course of business, the Company is the subject of customer
complaints and is named as a defendant in various legal actions arising from
the securities and other businesses. The Company has established reserves for
potential losses that may result from these customer complaints and legal
actions. Although the outcome of litigation is always uncertain, especially
in the early stages of a complaint or legal action, based on its understanding
of the facts and the advice of legal counsel, management believes that
resolution of these actions will not result in a material adverse effect on
the financial condition or results of operations of the Company. However, if
during any period any adverse complaint or legal action should become probable
or be resolved, the results of operations could be materially affected.
Note C -- Net Capital Requirements
As the Company's registered broker-dealer, BCZ is subject to the
Securities and Exchange Commission Uniform Net Capital Rule (the "Rule"),
which requires the maintenance of minimum net capital. BCZ has elected to use
the alternative method permitted by the Rule, which requires that BCZ maintain
minimum net capital, as defined, equal to the greater of $250 or 2% of
aggregate debit balances arising from customer transactions, as defined by the
Rule. At March 31, 2003, BCZ had net capital of approximately $8,956 which was
approximately $8,706 in excess of its required minimum capital. Such net
capital requirements could restrict the ability of BCZ to pay dividends to
the Parent.
Note D -- Securities Owned and Other Investments
Securities owned consisted of the following::
March 31, December 31,
2003 2002
Municipal bonds $33,863 $49,643
Preferred stock 3,259 1,770
Institutional bonds 362 1,708
Other securities 681 767
$38,165 $53,888
Municipal bonds consist primarily of revenue bonds issued by state
and local governmental authorities generally related to healthcare or long-
term care facilities. Institutional bonds consist primarily of bonds issued
by churches and independent schools. The reduction in municipal bonds from
December 31, 2002, to March 31, 2003, is due to the remarketing of variable
rate demand notes and the sale of bonds to retail investors.
Other investments consisted of the following:
March 31, December 31,
2003 2002
Collateralized mortgage obligations ("CMOs") $20,728 $21,382
EnvestNet common stock 9,500 9,500
Other 500 1,000
$30,728 $31,882
Note E -- Payable to Broker-Dealers
BCZ clears its proprietary and customer transactions through other
broker-dealers on a fully disclosed basis. The relationship with these
clearing brokers results in amounts payable for transaction processing,
inventory purchases, and losses on securities transactions, offset by fees
earned, commissions, inventory sales and profits on securities transactions.
The amount payable to the primary clearing broker was $20,729 at March 31,
2003 and relates primarily to the financing of inventory and is collateralized
by securities held in BCZ's inventory with a market value of approximately
$37,491 at March 31, 2003.
Note F - Short-term Bank Borrowing
The Company has a line of credit of $20 million in place to obtain
short-term funds. The line of credit is used primarily for underwriting
activity and the funding of Federal Housing Administration loan originations,
both on a short-term basis. The Company had no amounts outstanding at March
31, 2003.
Note G -- Income Taxes
The principal reason for the difference between the Company's effective
tax rate and the federal statutory rate is the non-taxable interest earned on
municipal bonds.
Note H -- Earnings (Loss) per Share
The following reconciles the numerators and denominators of the basic and
diluted earnings (loss) per share computations for net income for the
following periods ended March 31 (shares in thousands):
For the Three Months Ended
March 31 March 31,
2003 2002
Net income (loss) $ 252 $ (89)
Basic
Weighted average shares outstanding 2,152 2,391
Basic income (loss) per share $0.12 $(.04)
Diluted
Weighted average shares outstanding-
Basic 2,152 2,391
Effect of dilutive securities:
Restricted stock 7 -
Weighted average shares outstanding-
Diluted 2,159 2,391
Diluted income (loss) per share $0.12 $(.04)
Note I - Stock-Based Compensation
The Company accounts for stock-based employee compensation plans under
the recognition and measurement principles of Accounting Principles Board
("APB") Opinion No. 25, "Accounting for Stock Issued to Employees" and related
interpretations. No stock-based employee compensation cost related to stock
options is reflected in net income, as all stock options granted had an
exercise price equal to the market value of the underlying common stock on the
date of grant. The pro forma effect on net income and earnings per share, had
the Company applied the fair value recognition provisions of Statement of
Financial Accounting Standards ("SFAS") No. 123, "Accounting for Stock-Based
Compensation" to stock-based employee compensation related to stock options,
is presented below. The Black-Scholes option pricing model was used in all
calculations.
For the Three Months Ended
March 31 March 31,
2003 2002
Net income (loss), as reported $ 252 $ (89)
Deduct: Total employee compensation
expense determined under the fair value
based method for stock options,
net of related tax effects 21 22
Pro forma net income (loss) $ 231 $ (111)
Earnings (loss) per share:
Basic - as reported $0.12 $(0.04)
Basic - pro forma $0.11 $(0.05)
Diluted - as reported $0.12 $(0.04)
Diluted - pro forma $0.11 $(0.05)
Note J -- Operating Segments
The Company is organized and provides financial services through three
operating segments. These operating segments are Capital Markets, Investment
Services and Corporate. Operating segment results include all direct revenues
and expenses of the operating units in each operating segment as well as an
allocation of indirect administrative and operating costs.
The Capital Markets segment consists of the Company's fixed income and
preferred stock institutional sales and trading, risk management and
financial advisory, and institutional and public finance services. Sales
credits associated with underwritten offerings are reported in the Investment
Services segment when sold through retail distribution channels and in the
Capital Markets segment when sold through institutional distribution channels.
The Investment Services segment sells a wide range of financial products
through its retail branch distribution network, including equity and fixed
income securities, proprietary and non-affiliated mutual funds, annuities,
insurance products, and performance reporting and related administrative
services. The Investment Services segment also provides investment advisory
services to Company-sponsored mutual funds (the North Track Funds) and asset
management services for institutional and individual clients.
The Corporate segment is principally the Company's corporate investment
and borrowing activities and unallocated corporate revenues and expenses.
Corporate segment investment activities include the other investments
described in Note D, the activities and share of income related to Ziegler
Healthcare Fund I, LP ("ZHF"), an 11% owned Small Business Investment Company
("SBIC"), the operating results for Ziegler Healthcare Capital, LLC ("ZHC"),
the Company's wholly owned management company of the SBIC, and the Company's
proportionate share of an investment in Ziegler Equity Funding I, LLC ("ZEF"),
a 67% owned private equity fund. ZEF is also 33% owned by qualified officers
and employees of the Company. The effect on net income before taxes and after
the adjustment for minority interests is reflected below.
Since there are no comprehensive authorities for management accounting
related to the allocation of administrative expenses which are equivalent to
accounting principles generally accepted in the United States of America, the
information presented is not necessarily comparable with similar information
in other broker-dealer financial statements. In addition, methodologies used
to measure, assign and allocate certain items may change from time-to-time to
reflect, among other things, accounting refinements and changes in the
organization and management structure. Allocations of indirect administrative
and operating costs are based on methodologies which consider the size of the
operation, the extent of administrative services provided, the number of
personnel, and other relevant factors.
Operating segment financial information is as follows:
Three Months Ended March 31,
2003 2002
Revenues:
Capital Markets $ 5,464 $ 3,998
Investment Services 7,774 7,142
Corporate 2,195 1,670
Total $15,433 $12,810
Net Income (Loss) from Operations
Before Income Taxes:
Capital Markets $ 108 $ (708)
Investment Services (707) (223)
Corporate 893 627
Total $ 294 $ (304)
The Company's revenues and net income before taxes presented above
are derived entirely from domestic operations. The Company does not segregate
asset information by operating segment.
Note K -- New Accounting Pronouncements
In November 2002, the FASB issued Interpretation No. 45, "Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others." FASB Interpretation No. 45 expands the
information required to be disclosed by guarantors for obligations under
certain types of guarantees. It also requires initial recognition at fair
value of a liability for such guarantees. In addition, Interpretation No. 34,
"Disclosure of Indirect Guarantees of Others," has been rescinded, though the
guidance contained therein has been carried forward into Interpretation No. 45
without modification. The initial recognition and initial measurement
requirements are effective prospectively for guarantees issued or modified
after December 31, 2002 and the disclosure requirements are effective for
financial statement periods ending after December 15, 2002. Interpretation
No. 45 did not have a material effect on the consolidated financial statements
of the Company.
In January 2003, the FASB issued Interpretation No. 46, "Consolidation of
Variable Interest Entities." Interpretation No. 46 amends Accounting Research
Bulletin No. 51, "Consolidated Financial Statements" and establishes new
standards regarding the consolidation of a variable interest entity when the
controlling enterprise does not hold a majority voting interest in the entity.
Interpretation No. 46 applies in the fiscal year or interim period beginning
after June 15, 2003, to variable interest entities in which an enterprise
holds a variable interest that it acquired before February 1, 2003. The
Company is evaluating the effect of Interpretation No. 46 on its consolidated
financial statements. The Company does not expect that Interpretation No. 46
will have a material effect on the consolidated financial statements.
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Business and Operating Segments
The Ziegler Companies, Inc. (the "Parent"), through its wholly owned
subsidiaries and partially owned and controlled subsidiaries (collectively
known as the "Company"), is engaged in financial services activities. These
financial services activities are conducted through three operating segments:
Capital Markets, Investment Services and Corporate.
The Capital Markets segment underwrites fixed income securities primarily
for senior living and healthcare providers, religious institutions, and
private schools. Capital Markets' services also include risk management and
financial advisory services, merger and acquisition services, sales and
trading of fixed income securities and preferred stock, and Federal Housing
Administration ("FHA") mortgage loan origination, often in conjunction with
the Company's investment banking services. Capital Markets activities are
conducted primarily through B. C. Ziegler and Company ("BCZ"), except that
Ziegler Financing Corporation ("ZFC") conducts FHA mortgage loan origination
activities. These services are provided primarily to institutions,
corporations, and municipalities.
The Investment Services segment consists of two operating units: Asset
Management and Wealth Management. Asset Management provides investment
advisory services to Company-sponsored mutual funds and private accounts of
institutional and individual clients. Wealth Management offers a wide range
of financial products and financial planning services to retail clients
through its broker distribution network, including equity and fixed-income
securities, proprietary and non-affiliated mutual funds, annuities and other
insurance products. Wealth Management is the primary retail distribution
channel for religious institution and private school bonds and other taxable
and tax-exempt bonds underwritten by the Capital Markets segment. Allocated
sales credits associated with underwritten offerings are reported in the
Investment Services segment when sold through the Company's retail
distribution channels. Asset Management and Wealth Management activities are
conducted through BCZ.
The Corporate segment consists primarily of the investment and debt
management activities of the Parent and BCZ's unallocated corporate
administrative activities. Certain corporate administrative expenses are
allocated to the Capital Markets and the Investment Services segments using
methodologies which consider the size of the operation, the extent of
administrative services provided, the number of personnel, and other relevant
factors. Corporate segment investment activity includes the Company's share
of the operations of Ziegler Healthcare Fund I, LP ("ZHF"), a small business
investment company ("SBIC") that is in the business of originating loans to
qualified small businesses, primarily for-profit long-term care companies;
Ziegler Healthcare Capital, LLC ("ZHC"), the management company of ZHF; and
ZHP I, LLC ("ZHP"), the general partner of ZHF. The Company has an 11%
ownership share in ZHF and wholly owns ZHP and ZHC. The Company also owns 67%
of Ziegler Equity Funding I, LLC ("ZEF") a private equity fund whose purpose
is to provide funding for the pre-finance development needs of developmental
stage continuing care retirement communities. The Corporate segment includes
the Company's share of the operations of ZEF. ZEF is also 33% owned by
qualified officers and employees of the Company. Each of these companies is
consolidated into the Company's financial statements.
The general level of interest rates, the prospects for economic recovery
and economic growth, valuations in the equity markets and many other economic
factors impact the investment and financing decisions of the Company's
customers, both institutional and retail. In 2002, investment banking
activity in the form of bond underwriting and sales by the Capital Markets
segment was at its highest level of the past three years as the result of
favorable interest rates. The reductions in prevailing interest rates, the
growing need for senior housing, and, to some extent, the desire to refinance
higher interest rate debt contributed to the increased bond underwriting
volumes in 2002 over previous years. Historically, the Company experiences
uneven bond underwriting activity during the year. In general, the Company's
underwriting activity is slower during the early months of the year and higher
levels of activity are experienced in later months as issuers attempt to
finalize project financing activity before the end of the calendar year. The
Company experienced fewer underwriting transactions in the first quarter of
2003 compared to the first quarter of 2002. However, one large transaction
was completed in 2003 that caused bond issuance volume to exceed the 2002
first quarter totals. A "pipeline" of bond underwriting projects continues
into 2003 as the Company attempts to identify potential new bond issues to
underwrite. Those issuers that have chosen to refinance outstanding bond
issues have generally completed those refinancings and future bond issues will
more likely be for the new construction or expansion of existing facilities.
Market conditions continue to appear favorable for the issuance of bonds as
those projects are identified.
The Investment Services segment continued to be affected by the low
market valuations and the hesitancy of retail investors to enter into
transactions for financial products other than bonds. The generally low
valuations in the equity markets continued to create a significant demand for
the Company's underwritten bonds from retail investors. However, the sale of
other investment products, such as mutual funds and equity securities,
continued to be below a level desired by the Company. Uncertainties in the
economy and the global political environment have all served to diminish
retail clients' overall investment activity.
The Asset Management business suffered from the continued low
valuations in the equity markets. Fees for this business unit are earned
based upon the value of assets under management. As the market value of the
assets under management declines, fees also decline. The Company continued to
have moderate success in marketing its mutual funds and its separate account
asset management business, but has only been able to offset the reductions in
assets due to market value decreases and asset outflows. The Company has
approximately $2 billion of assets under management at March 31, 2003.
The Corporate segment (whose operations include 100% of the revenues and
expenses of the partially-owned, but consolidated, entities) had interest
revenues increase as the SBIC increased its portfolio of loans. The SBIC has
made solid progress in identifying SBA-qualified borrowers during the course
of its first full year of operations in 2002 and expects to continue that
progress in 2003 in the current economic environment. After significant
declines in the balance of CMO investments during 2002 due to principal
paydowns, the pace of those declines slowed in the first quarter of 2003. The
favorable spread between interest earned and the currently low cost of
borrowing contributes favorably to the Company's profitability, although at a
lower level than in 2002. However, this source of income could decrease if
the rate of paydowns increases or short-term interest rates rise.
The Company has an investment in common stock and a note receivable from
The EnvestNet Group, Inc. ("EnvestNet") resulting from the sale of the
Company's former subsidiary, PMC International, Inc. ("PMC"), in 2001.
EnvestNet is a closely held mid to late stage development company. It is
engaged in the business of providing managed account and performance reporting
services. The common stock held by the Company is currently valued at $9,500
in the consolidated financial statements. The note receivable is for $3,000
and is due over two years. Payment of $1,000 is due August 31, 2003, and
payment of $2,000 is due August 31, 2004. Interest is paid monthly.
EnvestNet raised additional capital at the beginning of 2003, and the Company
considered the price at which EnvestNet raised its additional capital in
valuing the Company's common stock investment in EnvestNet. This additional
capital was raised by EnvestNet through the sale of preferred stock in a
private placement, at a price that was above the value recorded on the
Company's consolidated statement of financial position for its investment in
EnvestNet common stock. The note receivable is recorded at its face value and
EnvestNet is current on all interest payments.
EnvestNet has also had difficulty in the current economic environment.
It relies on assets under advisement to generate sufficient revenues to
support operations. To date, these revenues have not been sufficient to
support operations. EnvestNet expends risk capital from investors, in
addition to revenues from its regular business operations, to meet its
operating expenses. EnvestNet projections for profitability have been delayed
due to the prevailing economic circumstances and the competitive environment
in which it operates. The Company currently has a deferred gain from the sale
of PMC included on its consolidated statement of financial position of $4,996.
The value of both the common stock and the note as well as the recognition of
the deferred gain are subject to various risks including, but not limited to
the cash requirements of EnvestNet's operations, competition in its
marketplace, equity market valuations, employee recruitment and retention, and
other factors. Given the level of risks, it is possible that changes in the
value of the common stock and the note receivable may occur in the future and
the deferred gain may have to be adjusted downward or, if significant, the
recording of a loss may be required.
Results of Operations - Three months ended
March 31, 2003 Compared to March 31, 2002
(Dollars in thousands)
The overall trends and conditions of the financial markets, specifically,
the fixed income markets and the senior living and healthcare markets, have a
significant effect on the consolidated financial position and results of
operations of the Company. Results of any year or quarter should not be
considered representative of future results. While the Company has attempted
to establish a cost structure that is appropriate for anticipated future
business activity, certain fixed operating costs cannot be reduced quickly
should business activity decline or remain at lower levels for an extended
period. The Company continuously reviews its business structure and attempts
to make adjustments accordingly.
Financial Overview
In the first quarter of 2003 the Company's revenues increased to $15,433
from $12,810, primarily due to increased investment banking volume from the
Capital Markets segment. The Investment Services and Corporate segments also
had increased revenues. Investment Services increases came primarily from
increased volumes in the Wealth Management business which was in part due to
an increase in investment consultants. Corporate revenues increased as the
result of the increase in revenues of the partially owned entities, despite a
reduction in interest income from CMO investments. The expenses of the
Company also increased but to a lesser extent than revenues.
Segment Results
The following table summarizes the changes in revenues and income (loss)
from operations before taxes of the Company and its segments. Total revenues
and the Company's share of the results of operations of the partially owned
entities are included in the Corporate segment.
Increase/
For the three months ended March 31, 2003 2002 (Decrease)
Revenues
Capital Markets $ 5,464 $ 3,998 $ 1,466
Investment Services
Asset Management 2,234 2,219 15
Wealth Management 5,540 4,923 617
Total 7,774 7,142 632
Corporate 2,195 1,670 525
$15,433 $12,810 $ 2,623
Net Income (Loss) from Operations
Before Taxes
Capital Markets $ 108 $ (708) $ 816
Investment Services
Asset Management (116) 93 (209)
Wealth Management (591) (316) (275)
Total (707) (223) (484)
Corporate 893 627 266
$ 294 $ (304) $ 598
All references to 2003 and 2002 in the information below refer to the
three months ended in both years unless otherwise indicated.
Capital Markets Segment
Capital Markets total revenues increased $1,466 from $3,998 in 2002 to
$5,464 in 2003, an increase of 37%. Although there were fewer total
underwriting transactions in 2003 compared to 2002, Capital Markets underwrote
a larger dollar volume of bonds. In particular, a single underwriting
transaction for the issuance of $183 million of municipal bonds was the
primary reason for a $1,366 increase in underwriting revenues in 2003. A
total of six senior, sole-managed, and co-managed municipal underwriting
transactions representing $386 million in bonds issued were completed in 2003
compared to nine transactions representing $246 million in 2002. A total of
four church and school underwriting transactions representing $21 million were
completed in 2003, compared to five transaction representing $29 million in
2002. Trading profits also increased in 2003 as the result of the favorable
market for bonds.
Capital Markets expenses increased $650 from $4,706 in 2002 to $5,356 in
2003. The increase in expenses is primarily attributable to increases in
employee compensation and benefits and allocated administrative support
expenses. Employee compensation and benefits increases are primarily related
to increased commissions on higher trading volumes and annual salary
increases. Allocated administrative support expenses increased $334 in 2003.
A $341 rebate from a vendor in 2002 reduced the allocated administrative
support expenses in that year. Total expenses for allocated administrative
support were $1,225 in 2003 compared to $891 in 2002. The resulting net
income from operations before taxes for Capital Markets in 2003 was $108
compared to a net loss from operations before taxes of $708 in 2002.
Investment Services Segment
The Investment Services segment is made up of the Asset Management and
Wealth Management businesses, both of which are impacted by the securities
markets. Revenues and net losses were $7,774 and $707, respectively, in 2003
compared to $7,142 and $223, respectively, in 2002.
Asset Management-
Total revenues were $2,234 in 2003 compared to $2,219 in 2002, an
increase of $15. Total assets under management averaged approximately
$2 billion during both periods. Increases in assets under management due to
the acquisition of the Heartland Wisconsin Tax-Exempt Fund during 2002 were
offset by overall decreases in the market value of assets under management and
the net redemption of mutual fund assets. Although the North Track Funds had
net sales in 2002 of $9,474, a substantial amount of those net sales were in
the first quarter of 2002 totaling $28,664. During the balance of 2002, the
North Track Funds had net redemptions of $19,190. Net redemptions of $2,027
occurred in the North Track Funds in the first quarter of 2003.
Asset Management expenses increased $224 to $2,350 in 2003 compared to
$2,126 in 2002. The increase reflects a general increase in all categories of
expense. These increases are related to increased employee compensation and
benefits, the interest expense on the debt incurred to facilitate the
acquisition of the Heartland Wisconsin Tax-Exempt Fund, and increased
promotional expenses. Allocated administrative support expenses increased $28
from $375 in 2002 to $403 in 2003. Asset Management had a net loss from
operations before taxes of $116 in 2003 compared to net income from operations
before taxes of $93 in 2002.
Wealth Management-
Total revenues of Wealth Management were $5,540 in 2003 compared to
$4,923 in 2002, an increase of $617. The increased revenues are due to
increases in trading profits and fees from investment management and advisory
services offset by a reduction in commission income. In the current economy
and as a result of lower quantities of underwritten bonds for retail investors
than were desired, retail investors increased their purchase of secondary
market bonds which increased trading profits by $502 compared to the first
quarter of 2002 results. Wealth Management's investment management and
advisory services revenue increased $236 as assets under advisement increased
compared to the first quarter of 2002. Alternatively, commission income
decreased $199 as mutual fund and equity sales declined.
Total Wealth Management expenses were $6,131 in 2003 compared to $5,239
in 2002, an increase of $892. Employee compensation and benefits increased
$381 primarily due to increased commission expense on higher revenues and the
increased cost of new broker compensation arrangements. Investment manager
fees increased $183 due to the increased investment management and advisory
business. Other expense increases were primarily related to increased office
remodeling as the Company standardizes its retail offices and increased
promotional expenses. Allocated administrative support expenses increased $74
from $370 in 2002 to $444 in 2003. Wealth Management had a net loss from
operations before taxes of $591 in 2003 compared to $316 in 2002.
Corporate Segment
Corporate revenues were $2,195 in 2003 compared to $1,670 in 2002.
A large component of revenues was from interest and dividends which were
$1,400 in 2003 compared to $1,047 in 2002. Interest on the government agency-
backed collateralized mortgage obligations ("CMOs") decreased $189 between
years as the result of the declining principal balances due to principal
paydowns on that investment. However, the overall increase in interest and
dividends is the result of an increase of $574 in interest income from the
investment of the Company in the SBIC, ZHF, due to the increase in the size of
its loan portfolio. Corporate revenues also increased due to the return on a
partnership investment of ZEF. Revenues of the minority interests included in
total Company revenues were $1,392 in 2003 compared to $127 in 2002.
Total Corporate segment expenses, which are prior to the allocation of
administrative support expenses, were $2,842 in 2003 compared to $2,921 in
2002. Costs allocated to the other segments totaled $2,072 in 2003 compared
to $1,636 in 2002. The increased allocation in 2003 is primarily due to a
cost rebate of $341 received in 2002 and passed on to the other segments
through the allocation and an increase in 2003 of certain corporate-wide
personnel expenses added to the Corporate segment that are allocated to the
other segments. The adjustment for the minority-owned share of income in 2003
was $531 compared to a reduction of the minority share of the loss of $244 in
2002. The resulting Corporate net income from operations before taxes after
allocation of administrative support expenses and adjustment for minority
interests was $893 in 2003 compared to $627 in 2002.
Liquidity and Capital Resources
(Dollars in thousands)
The Company is in the business of providing financial services. Adequate
capital and liquidity are essential elements of the Company's business,
especially with respect to underwriting activities. The Company must maintain
sufficient liquidity to operate its businesses as well as meet the regulatory
requirements of its broker-dealer subsidiary, BCZ.
A significant means of financing BCZ's operations is the financing
obtained through its clearing broker. BCZ is able to finance its securities
inventory through its clearing broker under customary margin arrangements
using its securities owned as collateral. At March 31, 2003, BCZ had a
balance due to its clearing broker of $20,729 which was collateralized by
$37,491 of securities owned by BCZ and held by the clearing broker. BCZ is
able to trade the securities used as collateral and settles daily with the
clearing broker.
Additionally, BCZ acts as a remarketing agent for approximately $2.5
billion of municipal variable rate demand notes ("VRDNs"), most of which BCZ
previously underwrote. A total of approximately $2.46 billion can be tendered
to BCZ at the option of the holder on seven days advance notice and
approximately $35 million can be tendered without notice. The obligation of
the municipal borrower to pay for tendered VRDNs 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 VRDNs. In its
capacity as remarketing agent, BCZ may purchase and hold the VRDNs as part of
its remarketing efforts. Amounts purchased as securities owned are generally
held for less than two weeks. BCZ finances its inventory of VRDNs acquired
pursuant to its remarketing activities through its clearing broker under the
clearing broker's margin financing arrangements. There were $13,750 of VRDNs
held as part of securities owned at March 31, 2003.
BCZ is subject to the requirements of the Securities and Exchange
Commission Uniform Net Capital Rule, which is designed to measure the general
financial soundness and liquidity of broker-dealers. At March 31, 2003 BCZ
had net capital of approximately $8,956 which exceeded the minimum net capital
requirements by approximately $8,706. Such net capital requirements could
restrict the ability of BCZ to pay dividends to the Parent. In the opinion of
management, the current level of BCZ's net capital is adequate for the conduct
of its business activities.
The Parent and BCZ also share a revolving loan agreement in the amount of
$20,000. The loan agreement is in the form of a demand note and is due April
29, 2004. The revolving loan agreement has been renewed annually by the bank.
The revolving loan agreement has restrictive covenants requiring, among other
things, a specified level of net worth and a compensating balance of $330.
The Company has maintained compliance with all applicable covenants on the
loan agreement. There have been no borrowings under this agreement by the
Parent or BCZ in 2003.
The Parent also finances government agency-backed CMOs using a securities
sold under agreement to repurchase arrangement commonly referred to as a
repurchase agreement. The CMOs act as collateral for the repurchase
agreement. As collateral is paid down, the counterparty collects the
payments, reduces the liability for the repurchase agreement covered by the
collateral, and remits the balance to the Parent. The Parent earns the
difference between the interest earned on the CMOs and the interest paid for
the repurchase agreement.
A source of cash for the Parent has been and continues to be the issuance
of unrated commercial paper classified as short-term notes payable on the
Consolidated Statements of Financial Condition. These notes have varying
maturities up to 270 days with the majority of notes being less than 60 days.
Through March 31 2003, a total of $12,500 of notes were issued and $9,338 were
repaid. The total balance of short-term notes payable outstanding was $7,844
as of March 31, 2003. The short-term notes payable are sold directly to
customers and are limited by the availability of customers who wish to invest
in these unrated short-term notes at the rates offered by the Company. The
Company uses this facility as a source of additional liquidity and to reduce
its reliance on higher interest rate borrowing alternatives.
Ziegler Healthcare Fund I, LP ("ZHF") is a limited partnership in which
the Company has an 11% direct and indirect interest. ZHF has qualified as a
Small Business Investment Company ("SBIC") with the Small Business
Administration ("SBA"). As an SBIC, ZHF is able to lend funds to qualifying
small businesses using its own capital and funds borrowed from the SBA on
favorable terms. In 2001, the SBA granted ZHF leverage of up to $38.2
million. At March 31, 2003, ZHF had $23,811 of outstanding loans to small
businesses and owed $15,090 on debentures due to the SBA. The loans to small
businesses and the debentures to the SBA increased $3,952 and $1,000 in 2003,
respectively, through March 31, 2003. The interest received on the loans is
sufficient to fund the interest due on the debentures as well as provide for
administrative expenses and a return to investors for contributed capital.
Repayment terms on the notes to the qualifying small businesses, including
prepayment penalties, are structured to approximately correspond to the
repayment terms on the debentures due the SBA. At March 31, 2003, ZHF had a
remaining leverage commitment from the SBA of up to $23.1 million. The
Company's obligation as a subscribing investor to the partnership is limited
to its commitment to the partnership of $2,800, of which $1,629 has already
been funded as of March 31, 2003.
ZEF is a partially owned private equity fund which is also included in
the Consolidated Financial Statements of the Company. The Parent has a
remaining commitment to ZEF totaling approximately $2.8 million at March 31,
2003, which takes into consideration loans to employees. The timing of the
payment of the commitment is dependent upon the funding requirements of ZEF.
Funding requirements are determined by ZEF based upon the identification of
suitable investments to be made. No funding has been done to date in 2003.
The funding of the remaining commitment will be offset by returns on the
investments in ZEF and the scheduled reduction of loans extended to employees.
ZFC and BCZ, as subsidiaries of the Parent, have intercompany borrowing
arrangements with the Parent to obtain or provide financing on a short-term
basis, subject to regulatory requirements of each of the subsidiary entities.
The Parent relies on its own cash balances or obtains funds from its revolving
loan agreement to fund loans to either subsidiary. The Parent lends on a
subordinated basis to BCZ in the event of a need for a temporary increase in
capital for its broker-dealer business, as required by regulatory rules. This
form of subordinated lending has not been used in 2003 to date. ZFC, whose
activities include FHA loan origination, generally finances its activities
from its own resources, through intercompany borrowings with the Parent, and
by arrangements with other parties involved in the FHA transaction. No loans
to ZFC have been done to date in 2003.
The Company's overall funding needs are periodically reviewed to ensure
that it has adequate resources to support the anticipated future operations of
its businesses. The Company's cash and cash equivalent position allows some
degree of flexibility in its business activities. In the opinion of
management, the Company's capital resources and available sources of credit
are adequate for present and anticipated future operations. The Company
intends to investigate potential acquisition opportunities as a means of
expanding its businesses. Such opportunities may require the Company to
arrange for additional sources of funding or the use of the Company's common
stock. There is no assurance that additional sources of funding will be
available.
The Company has also repurchased its own common stock from time-to-time.
The Company repurchased 19,113 shares in 2003 for a total of $277 as of March
31, 2003. The Company will evaluate the future purchase of its shares as
opportunities arise, after giving consideration to cash availability,
liquidity needs, and other relevant factors. In January 2003, the Company's
board of directors approved the future purchase of up to 100,000 shares of
Company stock in market or private transactions, under terms considered
reasonable by management.
Contractual Obligations
The Company has contractual obligations to make future payments in connection
with short-term and long-term debt and lease agreements for offices and
equipment. The contractual obligations of the Company are included in the
Management's Discussion and Analysis of Financial Condition and Results of
Operations in the Company's Annual Report for 2002. There have been no
significant changes to the information disclosed in the Annual Report.
Critical Accounting Policies
Accounting policies play an integral role in the preparation of the
Company's Consolidated Financial Statements in accordance with accounting
principles generally accepted in the United States of America. See Note 1 of
Notes to Consolidated Financial Statements in the Company's Annual Report for
2002 for a discussion of significant accounting policies and other relevant
information. Certain critical accounting policies require us to make
estimates and assumptions that affect the amount of assets, liabilities,
revenues and expenses reported in the Consolidated Financial Statements. Due
to their nature, estimates involve judgment based upon available information.
Therefore, actual results or amounts could differ from estimates and the
differences could have a material impact on the Company's Consolidated
Financial Statements. The critical accounting policies identified by
management are (i) valuation of financial instruments, (ii) valuation of
intangible assets and goodwill, and (iii) estimation of reserves for losses
and contingencies. See Management's Discussion and Analysis of Financial
Condition and Results of Operations in the Company's Annual Report for 2002
for discussion of these critical accounting policies.
Forward Looking Statements
This report contains, and other disclosures that we make from time to
time may contain, forward-looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995. Words such as "anticipate,"
"believe," "continue," "estimate," "expect," "goal," "objective," "outlook,"
"could," "intend," "may," "might," "plan," "potential," "predict," "should,"
or "will" or the negative of these terms or other comparable terminology
signify forward-looking statements. You should read statements that contain
these words carefully because they discuss our future expectations; contain
projections of our future results of operations of our financial conditions;
or state other forward-looking information.
Forward-looking statements involve known and unknown risks,
uncertainties, and other factors that may cause actual results, performance or
achievements to be materially different from any future results, performance
or achievements expressed or implied by any forward-looking statement.
Although we believe the expectations reflected in the forward-looking
statements are reasonable, we cannot guarantee future results. In addition to
the assumptions and other factors referenced specifically in connection with
such statements, the following factors among others, could impact our business
and financial prospects and affect our future results of operations and
financial condition: the overall financial health of the securities industry,
as well as the strength of the healthcare sector of the U.S. economy and the
municipal securities marketplace, the ability of the Company to distribute
securities it underwrites, the market value of mutual fund portfolios and
separate account portfolios advised by the Company, the volume of sales by its
retail brokers, the outcome of pending litigation, and the ability to attract
and retain qualified employees.
Item 3. Quantitative and Qualitative Disclosure about Market Risk
Risk is an inherent part of the Company's business activities. The
potential for changes in value of the Company's financial instruments is
referred to as "market risk." Market risk to the Company arises from changes
in interest rates, credit spreads and other relevant factors.
Interest Rate Risk
Interest rate risk, one component of market risk, arises from holding
interest sensitive financial instruments such as municipal, institutional, and
corporate bonds, and certain preferred equities. The Company manages its
exposure to interest rate risk by monitoring its inventory with respect to its
total capitalization and regulatory net capital requirements. The Company's
inventory of securities is marked to market and, accordingly, represents
current value with no unrecorded gains or losses in value. While a
significant portion of the Company's securities may have contractual
maturities in excess of several years, the inventory, on average, turns over
frequently during the year. Accordingly, the turnover of inventory mitigates
the exposure to interest rate risk.
The Company's other investments include government-agency backed
collateralized mortgage obligations ("CMOs") issued by the Government National
Mortgage Association and the Federal National Mortgage Association. These
investments have a fixed rate of interest and are subject to scheduled and
early prepayments. The Company finances the CMOs using a repurchase
agreement. The Company is exposed to the risk that the cost of financing,
which is based on short-term rates adjusted monthly, would exceed the interest
received on the CMOs, which is a fixed coupon extending to maturity.
Management is of the opinion that the spread between the rate of interest
earned and paid is sufficient to mitigate the risk of loss in net interest
received versus paid. Management continuously reviews these positions for an
adequate spread in interest rates.
Equity Price Risk
Equity price risk results from exposure to changes in the prices of
equity securities. The Company faces equity price risk with respect to the
fees it earns on the portfolio of assets it manages for clients. As of March
31, 2003, the Company managed a portfolio with an aggregate value of
approximately $2 billion in the form of separately managed and mutual fund
accounts. Of the total, $636 million relates to equity securities portfolios.
Declines in the equities market could adversely affect the amount of fee based
revenues. While this exposure is present, quantification remains difficult
due to the number of other variables affecting fee income. In general, a
reduction in assets will cause a reduction in revenue of approximately the
same proportion. Interest rate changes can also have an effect on fee income
as it relates to the value of fixed income securities portfolios.
In addition to the CMOs noted above, other investments also include
common stock in the form of the Company's investment in The EnvestNet Group,
Inc. ("EnvestNet") and partnership investments owned by ZEF. There is no
ready market for these securities; accordingly, the Company has established
procedures to periodically review these securities for proper valuation. See
"Results of Operations" in the Management's Discussion and Analysis of
Financial Condition and Results of Operations for additional information.
The table below provides information about the Company's financial
instruments as of March 31, 2003 that are sensitive to market risk. For
securities owned and debt obligations, the table presents principal cash
flows and related weighted average interest rates by expected maturity dates.
For common stock and partnership interests, the table presents the cost and
fair value of the investments. The common stock is listed as not resulting in
any regular cash flows during the next five years, although cash flows may
occur if the common stock is sold. The partnership interest is expected to
provide a return of capital plus earnings in the periods specified. The table
specifies the current expectation of the cash flows, but makes no assumptions
or estimates as to earnings. Trading accounts are shown in the caption
"Securities Owned" and non-trading accounts are shown in all other captions.
Trading and Non-Trading Portfolio
Expected Maturity Dates
2003 2004 2005 2006 2007 Thereafter Total Fair Value
(U.S. Dollars in Thousands)
ASSETS
Securities Owned - Fixed Rate
Municipal bond issues $ 5 $ $ - $ - $ - $23,857 $23,862 $20,113
Weighted average interest rate 5.95% 6.15%
Preferred Stock - - - - - 3,303 3,303 3,259
Weighted average interest rate 6.26%
Institutional bonds 5 12 35 30 5 290 377 362
Weighted average interest rate 5.75% 4.00% 4.50% 4.96% 5.00% 6.78%
Other - - - - 5 675 680 681
Weighted average interest rate 5.63%
Securities Owned - Variable Rate
Municipal Variable rate demand notes - - - - - 13,750 13,750 13,750
Weighted average interest rate 1.15%
Notes receivable
SBA Qualified Borrowers(1) 824 1,209 5,916 4,173 7,130 4,559 23,811 23,811
Weighted average interest rate 13.13% 13.16% 13.12% 13.32% 13.43% 13.93%
Other 3,547 393 428 389 219 501 5,477 5,477
Weighted average interest rate 8.43% 8.18% 4.35% 4.56% 4.74% 5.15%
Other Investments - CMOs(2) - - - - - 20,728 20,728 20,728
Weighted average interest rate 7.87%
Other investments - Common Stock - - - - - 9,500 9,500 9,500
Other investments - Partnership
Interest 500 - - - - - 500 500
LIABILITIES
Short-Term Notes Payable(3) 7,844 - - - - - 7,844 7,844
Weighted average interest rate 2.43%
Securities Sold Under Agreements to
Repurchase(3) 20,622 - - - - - 20,622 20,622
Weighted average interest rate 1.51%
Long-Term Debt
SBA Debentures(4) - - - - - 15,090 15,090 15,090
Weighted average interest rate 6.16%
Bank Term Loan 304 405 405 405 405 - 1,924 1,924
Weighted average interest rate 5.59% 5.59% 5.59% 4.80% 4.80%
(1) These balances are notes receivable of ZHF, the partially owned entity.
(2) Assumes no prepayment. When prepayments occur, the corresponding debt used to finance
these investments will decrease by a similar amount.
(3) The information includes actual interest rates at March 31, 2003. These securities are
likely to be renewed with the lenders when due. The future interest rates cannot be predicted.
(4) These balances are related to ZHF, the partially owned entity.
Material limitations exist in determining the overall net market risk exposure
to the Company. The information presented can be affected by many assumptions,
including the levels of market interest rates, prepayments of principal on notes
and other investments, the turnover of securities owned, the credit quality of
obligors and issuers, and other factors. Therefore, the above information should
not be relied upon as indicative of future actual results.
Item 4. Controls and Procedures
The Company maintains disclosure controls and procedures designed to
ensure that the information the Company must disclose in its filings with the
Securities and Exchange Commission is recorded, processed, summarized and
reported on a timely basis. The Company's principal executive officer and
principal financial officer have reviewed and evaluated the Company's
disclosure controls and procedures as defined in Rules 13a-14(c) and 15d-14(c)
under the Securities Exchange Act of 1934, as amended (the "Exchange Act") as
of a date within 90 days prior to the filing date of this report (the
"Evaluation Date"). Based on their evaluation, these officers have concluded
that, as of the Evaluation Date, the Company's disclosure controls and
procedures are effective in bringing to their attention on a timely basis
material information relating to the Company required to be included in the
Company's periodic filings under the Exchange Act.
Since the Evaluation Date, there have not been any significant changes in
the internal controls of the Company, or in other factors that could
significantly affect these controls subsequent to the Evaluation Date.
PART II. OTHER INFORMATION
Items 1 through 3. Not applicable.
Item 4. Results of Votes of Security Holders
The Registrant held an annual meeting on Tuesday, April 22, 2003 for
which a proxy statement was sent to shareholders of record at the close
of business on March 14, 2003. A brief description of the matters voted
upon is as follows:
1. To elect three directors for terms expiring at the 2006 Annual
Meeting of Shareholders; and
2. To transact any other business which may properly come before the
meeting, or any adjournments thereof.
A total of 1,791,244 shares were voted after adjustment for the
limitation on voting rights imposed on Mr. Kellogg by Wisconsin Corporation
Business Law. The following votes were cast:
1. Election of directors: Shareholders voted to grant or withhold
authority to vote for or against the nominees.
Authority Authority
Director Name Granted Withheld
Gerald J. Gagner 1,784,444 6,800
John J. Mulherin 1,784,444 6,800
Belverd E. Needles, Jr. 1,784,544 6,700
The following directors continued their unexpired terms in office:
P. R. Kellogg, B. C. Ziegler III, and D. A. Carlson, Jr.
In January 2003, Mr. John C. Frueh relinquished his remaining term
as director, which was approximately 90 days, and was elected by
the Board to fill Mr. John R. Green's remaining term as director,
ending with the annual meeting in 2004.
2. To act on other business:
Authority Authority
Grant Withheld
1,788,994 -
Item 5. Not applicable
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
See the Exhibit Index following the Certifications,
which is incorporated herein by reference.
(b) Reports on Form 8-K:
On April 22, 2003, the Registrant furnished a Current
Report on Form 8-K dated April 22, 2003, indicating the issuance
of a press release announcing its preliminary financial results
for the first quarter ended March 31, 2003. A copy of the press
release was attached to the Current Report.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
THE ZIEGLER COMPANIES, INC.
(Registrant)
Dated: May 15, 2003 By /s/ John J. Mulherin
John J. Mulherin
President and CEO
Dated: May 15, 2003 By /s/ Gary P. Engle
Gary P. Engle
Sr. Vice President/CFO
CERTIFICATIONS
I, John J. Mulherin, certify that:
1. I have reviewed this quarterly report on Form 10-Q of The Ziegler
Companies, Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure
that material information relating to the registrant, including
its consolidated subsidiaries, is made known to us by others
within those entities, particularly during the period in which
this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this quarterly report (the "Evaluation Date");
and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data
and have identified for the registrant's auditors any material
weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management
or other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether there were significant changes in internal controls
or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: May 15, 2003
/s/ John J. Mulherin
John J. Mulherin
President and CEO
A signed original of this written statement required by Section 906 has been
provided to the registrant and will be retained by the registrant and
furnished to the Securities and Exchange Commission or its staff upon request.
I, Gary P. Engle, certify that:
1. I have reviewed this quarterly report on Form 10-Q of The Ziegler
Companies, Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure
that material information relating to the registrant, including
its consolidated subsidiaries, is made known to us by others
within those entities, particularly during the period in which
this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this quarterly report (the "Evaluation Date");
and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data
and have identified for the registrant's auditors any material
weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management
or other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether there were significant changes in internal controls
or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: May 15, 2003
/s/ Gary P. Engle
Gary P. Engle
Sr. Vice President and CFO
A signed original of this written statement required by Section 906 has been
provided to the registrant and will be retained by the registrant and
furnished to the Securities and Exchange Commission or its staff upon request.
The Ziegler Companies, Inc.
(the "Registrant")
(Commission File No. 1-10854)
EXHIBIT INDEX
to
FORM 10-Q QUARTERLY REPORT
For the quarter ended March 31, 2003
Exhibit
Number Description
99.1 Certification of Chief Executive Officer Pursuant to
18 U.S.C. Section 1350 as Adopted Pursuant to Section 906
of the Sarbanes-Oxley Act of 2002.
99.2 Certification of Chief Financial Officer Pursuant to
18 U.S.C. Section 1350 as Adopted Pursuant to Section 906
of the Sarbanes-Oxley Act of 2002.
2
5
20
25