Form 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 1-10854
THE ZIEGLER COMPANIES, INC.
(Exact name of registrant as specified in its charter)
Wisconsin 39-1148883
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
215 North Main Street, West Bend, Wisconsin 53095
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (414) 334-5521
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes ( X ) No ( )
The number of shares outstanding of the registrant's Common Stock, par value
$1.00 per share, at March 31, 1995 was 2,450,963 shares.
<PAGE>
PART I
THE ZIEGLER COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED INCOME STATEMENTS
(Unaudited)
<TABLE>
<CAPTION>
For the Three Months Ended
March 31, March 31,
1995 1994
<S> <C> <C>
Revenues:
Investment banking and commission income $ 5,411,055 $ 5,545,657
Interest and dividends 1,068,886 868,059
Lease income 2,500,161 2,595,790
Gross profit on chemical products 615,511 457,615
Insurance agency 290,409 381,797
Other 1,444,512 1,108,927
Total revenues 11,330,534 10,957,845
Expenses:
Employee compensation and benefits 4,752,317 4,696,610
Commissions and clearing fees 168,637 174,545
Communications 642,202 562,217
Occupancy and equipment 2,228,610 2,170,384
Promotional 486,137 511,868
Professional and regulatory 238,103 316,060
Interest 1,404,604 1,227,086
Other operating expenses 1,406,843 1,154,150
Total expenses 11,327,453 10,812,920
Income before income taxes 3,081 144,925
Provision for (benefit from) income taxes (16,400) 49,500
Net income $ 19,481 $ 95,425
Earnings per share $ .01 $ .04
Dividends per share $ .13 $ .13
Average number of shares outstanding 2,394,416 2,434,065
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these statements.
<PAGE>
THE ZIEGLER COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
March 31, December 31,
1995 1994
<S> <C> <C>
ASSETS
Cash $ 4,535,422 $ 5,185,343
Short-term investments 14,943,768 19,027,837
Bonds due and called as of April 1, 1995
and January 1, 1994, respectively 1,265,320 1,285,301
Total cash and cash equivalents 20,744,510 25,498,481
Securities inventory 9,226,491 22,803,084
Accounts receivable -- securities sales 4,322,274 5,253,705
Accounts receivable -- other 3,342,278 3,293,159
Investment in and receivables from
affiliates 2,536,124 2,578,926
Investment in leases 56,397,116 56,062,738
Notes receivable 18,806,414 21,029,012
Land, buildings and equipment, at cost,
net of reserves for depreciation of
$13,648,998 and $13,519,851,
respectively 6,718,748 6,813,086
Other assets 10,984,550 9,108,016
Total assets $133,078,505 $152,440,207
LIABILITIES AND STOCKHOLDERS' EQUITY
Short-term notes payable $ 19,559,321 $ 19,728,501
Payable to customers 3,731,357 5,876,231
Payable to broker-dealers 200,169 1,217,984
Accounts payable 3,364,505 2,738,966
Dividends payable 318,545 804,026
Accrued income taxes 138,896 -
Deferred income taxes 5,092,284 5,322,679
Notes payable to banks 15,221,877 26,900,354
Bonds payable 30,333,932 31,605,241
Other liabilities and deferred items 4,949,089 7,866,203
Total liabilities 82,909,975 102,060,185
Commitments
Stockholders' equity
Common stock, $1 par, authorized
7,500,000 shares, issued 3,544,030 3,544,030 3,544,030
Additional paid-in capital 5,988,089 6,030,565
Retained earnings 58,435,487 58,734,576
Treasury stock, at cost, 1,093,067
and 1,107,587 shares, respectively (16,942,228) (17,196,800)
Unearned compensation (856,848) (732,349)
Total stockholders' equity 50,168,530 50,380,022
Total liabilities and
stockholders' equity $133,078,505 $152,440,207
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these balance sheets.
<PAGE>
THE ZIEGLER COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
For the Three Months Ended
March 31, March 31,
1995 1994
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 19,481 $ 95,425
Adjustments to reconcile net income to
net cash provided by (used in) operating
activities:
Depreciation and amortization 1,645,564 1,651,536
Provision for losses 34,700 33,150
Loss on sale of equipment 38,331 -
Gain on sale of leased equipment (91,216) (327,301)
Unrealized (gain) loss on securities
inventory (12,932) 173,000
Compensation related to restricted
stock grants 44,489 21,084
Undistributed earnings of
unconsolidated affiliate (46,292) -
Changes in operating assets and
liabilities:
Decrease (Increase) in -
Securities inventory 13,589,525 (63,667,231)
Accounts receivable --
security sales 931,431 3,127,438
Accounts receivable -- other (56,923) (330,555)
Other operating assets (2,033,274) 2,639,366
Increase (Decrease) in -
Payable to customers and
broker-dealers (3,162,689) 1,732,630
Accounts payable net of payments
for purchases of assets
to be leased 427,238 1,200,725
Income taxes payable 138,896 194,524
Deferred income taxes (230,395) (331,281)
Notes payable to banks (11,280,000) (6,171,195)
Securities sold under agreements
to repurchase - 73,132,726
Other operating liabilities (2,953,294) (2,159,681)
Net cash provided by (used in)
operating activities (2,997,360) 11,014,360
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from:
Sale of equipment 8,805 -
Principal payments received under
leases 3,954,396 3,439,088
Sale of leased equipment 576,733 2,293,609
Payments received on notes receivable 6,150,719 496,772
Decrease in advances to affiliates 158,646 -
Payments for:
Purchase of assets to be leased (2,700,162) (3,353,753)
Issuance of notes receivable (6,568,771) (5,238,651)
Capital expenditures (233,677) (1,012,472)
Net cash provided by (used in)
investing activities 1,346,689 (3,375,407)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from:
Issuance of short-term notes payable 26,207,000 21,925,000
Exercise of employee stock options 43,108 34,997
Other - 26,600
Payments of:
Principal on short-term notes payable (26,340,000) (19,869,000)
Principal on notes payable to banks (398,477) (404,964)
Principal on nonrecourse debt (538,905) (321,072)
Repayment of bonds payable (1,272,000) (697,000)
Dividends (804,026) (1,620,717)
Net cash used in
financing activities (3,103,300) (926,156)
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS (4,753,971) 6,712,797
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD 25,498,481 19,484,100
CASH AND CASH EQUIVALENTS AT
END OF PERIOD $ 20,744,510 $ 26,196,897
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Interest paid during the period $ 1,308,000 $ 1,028,000
Income taxes paid during the period $ 23,000 $ 78,000
SUPPLEMENTAL SCHEDULE OF NONCASH
INVESTING ACTIVITIES:
Conversion of Notes Receivable to
Investment in Leases at the
initiation of a lease $ 2,664,670 $ 586,405
Granting of restricted stock from
treasury stock $ 168,988 $ 848,313
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
<PAGE>
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
March 31, 1995
Note A -- Basis of Presentation
The consolidated condensed financial statements included herein have been
prepared by The Ziegler Companies, Inc. (the "Company"), without audit, pursuant
to the rules and regulations of the Securities and Exchange Commission. Certain
information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted pursuant to such rules and regulations. Management
believes, however, that these condensed financial statements reflect all
adjustments which are, in the opinion of management, necessary to a fair
statement of the results for the periods presented. All such adjustments are of
a normal recurring nature. It is suggested that these condensed financial
statements be read in conjunction with the financial statements and the notes
thereto included in the Company's latest annual report on Form 10-K. Certain
prior first quarter amounts have been reclassified to conform with the current
year presentation.
Note B -- Commitments and Contingent Liabilities
In the normal course of business, B. C. Ziegler and Company (BCZ) enters
into firm underwriting commitments for the purchase of debt issues. These
commitments require BCZ to purchase debt issues at a specified price. To manage
the off-balance sheet credit and market risk exposure related to these
commitments, BCZ presells the issue to customers. BCZ had no such commitments
outstanding at March 31, 1995.
As of March 31, 1995, Ziegler Leasing Corporation (ZLC) had outstanding
written agreements to provide equipment lease financing for approximately
$4,334,000. To manage the off-balance sheet credit and interest rate risk
exposure related to those commitments, ZLC retains the right to adjust or cancel
the commitments if adverse interest rate or credit conditions arise.
As of March 31, 1995, Ziegler Financing Corporation (ZFC) had financial
commitments to unrelated entities for construction and other loans of
approximately $64,000.
In 1983, WRR was placed on the National Priority List of sites regulated
by the Superfund Act because shallow well testing of ground water directly
underneath the plant site disclosed traces of contaminants. While still subject
to a consent order of the Wisconsin Department of Natural Resources for further
testing and surface water control, and to remedial action under the federal
Research, Conservation and Recovery Act ("RCRA"), WRR was removed from the
National Priority List effective February 5, 1993.
WRR has disposed of wastes at other recycling sites which may be added to
the National Priority List, and may be required to share in the cost of the
clean-up of these sites. As of March 31, 1995, WRR has been identified as a
potentially responsible party ("PRP") in connection with three sites. For the
first site, an initial reserve of $128,000 was established based on WRR's review
of documents, its knowledge of the site and its experience with the clean-up of
similar sites. No engineering studies have yet been done to arrive at a more
reliable cost estimate. Payments on this site are expected to occur over the
next five years. The estimated cost of cleaning up a second site is between
$10,000,000 and $30,000,000 based on preliminary estimates from various
consulting firms. Based on the identification of other PRPs and the present
interim allocation schedule, WRR should be responsible for costs ranging from
$500,000 to $1,800,000. In accordance with Financial Accounting Standards Board
Interpretation No. 14, "Reasonable Estimation of the Amount of a Loss," WRR
established an initial reserve of $500,000 to cover its share of the clean-up
costs of this second site. Payments on this site are expected to occur over the
next five years. In June 1994, WRR was notified by the United States
Environmental Protection Agency ("EPA") that WRR is a PRP at a third site to
which WRR delivered materials from 1982 to 1985. WRR's review of the
remediation investigation and feasibility study, and other materials prepared by
EPA on account of this site, indicates that WRR has valid defenses to any
action by EPA to collect remediation costs. EPA's estimate of WRR's
proportionate share of anticipated remediation costs at this third site
approximates $200,000. No reserve has been established on account of this
third site.
WRR is jointly and severally liable on two sites. To the extent that WRR
is found liable for contributing to the pollution at the third site, its
liability will be joint and several. Management for the Company is not aware of
circumstances which could lead to non-performance by the other PRP's when viewed
as a group. No potential insurance recovery or reimbursements from WRR's
liability insurance carriers have been accrued in the financial statements. The
reserve for accrued loss contingencies totaled $662,000 at March 31, 1995.
Note C -- Stock Option Plans
The Ziegler Company, Inc. 1989 Employees' Stock Purchase Plan (the "1989
Plan") was established for substantially all full-time employees. As of March
31, 1995, unexercised options for 66,220 shares were outstanding. All
outstanding options are currently exercisable through April 30, 1995, at 85% of
the market value on the date of exercise. Options for a total of 2,507 shares
were exercised at prices averaging $12.95 per share during 1995. Under the 1989
Plan, 59,820 options are available for future granting at 85% of the market
value on the date of exercise. Options granted under the 1989 Plan that expire,
terminate, or are cancelled are again available for the granting of future
options. Options for a total of 2,660 shares were forfeited during the period.
On January 27, 1995, the Company issued an aggregate of 11,313 shares of
restricted common stock of the Company to certain key employees pursuant to the
1993 Employees' Stock Incentive Plan. Each employee's ownership of shares is
subject to full or partial forfeiture in accordance with a vesting schedule in
the event that the employee's employment with the Company terminates for any
reason before January 27, 2000. The market value of the restricted stock, when
issued, was $14.9375 per share. The total value at issuance will be amortized
and recorded as compensation over the period of vesting. The shares are
considered as outstanding, but may not be transferred by the recipients until
vested.
Note D -- Earnings Per Share
Earnings per share calculations were computed based on the weighted
average number of common shares outstanding including restricted common stock
using the treasury stock method. The dilutive effect of shares issuable
under the various employee stock option plans in the computation of earnings
per share is not significant.
Note E -- Net Capital Requirements and Customer Reserve Accounts
As registered broker-dealers, BCZ and Ziegler Thrift Trading, Inc. (ZTT)
are subject to the requirements of Rule 15c3-1 (the "net capital rule") under
the Securities Exchange Act of 1934. The basic concept of the rule is
liquidity, requiring a broker-dealer to have sufficient liquid assets at all
times to cover current indebtedness. Specifically, the rule prohibits a
broker-dealer from permitting "aggregate indebtedness" to exceed 15 times
"net capital" (15 to 1) as those terms are defined.
Approximate net capital data as of March 31, 1995, is as follows:
<TABLE>
<CAPTION>
BCZ ZTT
<S> <C> <C>
Aggregate indebtedness $ 992,000 $3,406,000
Net capital $17,729,000 $1,069,000
Ratio of aggregate indebtedness
to net capital .06 to 1 3.19 to 1
Required net capital $ 595,000 $ 250,000
</TABLE>
In accordance with Securities and Exchange Commission Rule 15c3-3, BCZ
and ZTT maintain separate bank accounts for the exclusive benefit of customers.
The amounts maintained in these accounts are determined by periodic computations
required under the rule, which allows the companies to maintain the computed
amounts in cash or other qualified securities. As of March 31, 1995, there was
approximately $5,930,000 in the customer reserve accounts.
Note F -- Investment in Ziegler Mortgage Securities, Inc. II
The Company has a 50% interest in Ziegler Mortgage Securities, Inc. II
(ZMSI II), an unconsolidated entity accounted for by the equity method.
Condensed income statement information is as follows:
<TABLE>
<CAPTION>
For the Three Months Ended
March 31, March 31,
1995 1994
<S> <C> <C>
Income, primarily interest $2,694,422 $3,350,406
Expenses -
Interest 2,419,843 2,526,774
Amortization of Bond Issuance Costs 153,898 776,498
Management Fees (Subsidies) 81,633 (68,747)
Other 39,048 115,881
Total Expenses 2,694,422 3,350,406
Net Income $ - $ -
</TABLE>
Note G -- Securities Inventory
Securities inventory consisted of the following:
<TABLE>
<CAPTION>
March 31, December 31,
1995 1994
<S> <C> <C>
Municipal bond issues $ 4,695,403 $11,344,996
Corporate bond issues 87,585 189,345
Institutional bond issues 236,919 4,826,932
U. S. Government securities - 4,157,527
Preferred Stock 644,944 519,001
Other securities 3,561,640 1,765,283
$ 9,226,491 $22,803,084
</TABLE>
Note H -- Notes Payable to Banks
BCZ had no short-term bank borrowings outstanding at March 31, 1995. Such
borrowings are used for specific underwritings and are due on demand. Such
short-term borrowings are generally repaid within 30 days. Such amounts are
treated as operating items in the Statement of Cash Flows.
Note I -- Ziegler Collateralized Securities, Inc.
Ziegler Collateralized Securities, Inc. (ZCSI), a wholly-owned subsidiary
of the Company, was organized to facilitate the financing of equipment purchases
and leases by securitizing such purchases and leases for offerings to the
public.
Summarized balance sheet information of ZCSI as of March 31, 1995 and
December 31, 1994 and income statements for the three month periods ended March
31, 1995 and 1994 are as follows:
<TABLE>
<CAPTION>
Balance Sheets as of:
March 31, December 31,
1995 1994
<S> <C> <C>
Investment in leases $ 9,076,286 $10,509,676
Notes receivable 3,226,030 3,487,364
Other assets 2,474,410 1,815,606
Total assets $14,776,726 $15,812,646
Bond payable $11,872,000 $12,522,000
Other liabilities 2,894,726 3,280,646
Total liabilities 14,766,726 15,802,646
Stockholder's equity 10,000 10,000
Total liabilities and
stockholders' equity $14,776,726 $15,812,646
</TABLE>
<TABLE>
<CAPTION>
Income Statements for the
Three Months Ended
March 31, March 31,
1995 1994
<S> <C> <C>
Lease income $ 247,613 $ 276,334
Interest income 114,148 50,515
Total income 361,761 326,849
Interest expense 242,134 189,366
Management fees 31,858 52,286
Other expenses 87,769 85,197
Total expenses 361,761 326,849
Net income $ - $ -
</TABLE>
In accordance with a written agreement with ZLC, which provides
management and administrative services to ZCSI, management fees paid to ZLC
were limited to the amount which prevented ZCSI from incurring a loss.
An analysis of each outstanding bond series as of March 31, 1995 and for
the three month period then ended indicates the income from each series exceeds
the interest expense on the corresponding bonds and the other expenses directly
related to each specific series.
<TABLE>
<CAPTION>
Collateral Lease/ Bond Other Excess
Series Bonds Value Note Interest Related of
No. Outstanding at Cost Income Expense Expenses Income
<C> <C> <C> <C> <C> <C> <C>
1 $ 900,000 $1,057,228 $ 34,206 $ 16,875 $ 3,520 $13,811
2 $1,750,000 $1,940,923 $ 45,696 $ 28,625 $ 7,987 $ 9,084
3 $1,770,000 $1,975,500 $ 50,495 $ 26,231 $12,883 $11,381
4 $2,452,000 $2,753,450 $ 65,396 $ 34,907 $11,669 $18,820
5 $5,000,000 $6,614,783 $129,789 $ 85,375 $33,406 $11,008
</TABLE>
Note J -- Subsequent Event
In April, 1995, WRR entered into an agreement to purchase the assets of a
company located adjacent to WRR's existing plant in Eau Claire, Wisconsin. The
assets to be purchased include land, buildings, equipment, and inventory owned
or used by the selling company. The closing of the purchase is subject to
certain contingencies, and the determination of the exact purchase price is
contingent upon inventory levels of the seller on the closing date. WRR
estimates the purchase price will approximate $1,100,000. WRR intends to
utilize the assets to operate a retail sales, manufacturing and repair
business for roadway maintenance vehicles, the same business in which the
selling company is presently engaged. The closing date is anticipated to be
August 1, 1995.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND
LIQUIDITY AND CAPITAL RESOURCES
Results of Operations - Three Months Ended
March 31, 1995 and 1994
The predominant activity of The Ziegler Companies, Inc. and subsidiaries
(the "Company") has been and continues to be investment banking, primarily the
underwriting and marketing of debt securities for the healthcare industry. The
Company is also involved in other financial service activities, specifically
equipment leasing services to the healthcare industry and commercial/industrial
customers, securitization of leases for offerings to the public, reduced
commission brokerage services, investment management and advisory services, and
interim lending to investment banking clients. The nonfinancial services of the
Company are pollution abatement as well as the recycling, reclaiming, and
disposing of chemical wastes.
Total revenues of the Company in 1995 were $11,331,000 compared to
$10,958,000 in 1994, an increase of $373,000 or 3%. Operating expenses in 1995
were $11,327,000 compared to $10,813,000 in 1994, an increase of $514,000 or
5%. There was a benefit from income taxes in 1995 of $16,400 compared to a
provision for income taxes of $49,500 in 1994. Net income in 1995 was
$19,000 compared to $95,000 in 1994. Earnings per share in 1995 was $.01
compared to $.04 in 1994.
1994 revenues and expenses were restated due to a reclassification affecting
gross profit on chemical products. These changes do not affect the overall
results of operations in 1994. The changes in revenues, operating expenses and
net income for 1995 were primarily a reflection of factors related to investment
banking, broker-dealer and lease financing activities, as well as changes in our
nonfinancial services company, WRR Environmental Services Co., Inc. These
factors, as well as the impact of other factors, are explained more fully in the
information that follows.
Investment Banking and Broker-Dealer Activities
B. C. Ziegler and Company (BCZCO), the investment banking and primary
broker-dealer subsidiary of the Company, had total revenue of $5,988,000 in 1995
compared to $5,946,000 in 1994, an increase of $42,000 or 1%. Revenues from
securities activities in 1995 were $4,578,000 compared to $4,685,000, a decrease
of $107,000 or 2%. Both first quarters had low levels of municipal and
corporate underwritings. Whereas 1994 suffered from uncertainty over healthcare
reform and early interest rate increases, 1995 suffered primarily from high
interest rates and the low level of new issue volumes. Non-underwritten
product sales dropped significantly as retail investor activity did not
materialize given the economy and interest rates. Secondary trading profits
were higher as efforts were made to obtain products which were of interest to
investors. Insurance agency income decreased $92,000 due to a decrease in
commissions awarded based on insurance underwriting loss experience. Other
income was higher by $248,000, primarily due to increased fee income.
Interest income was comparable between years. Total BCZCO expenses were
$6,568,000 in 1995 compared to $6,387,000 in 1994, an increase of $181,000 or
3%. The increase was split between communications expense and other expense
related to the sponsorship of mutual funds. All other expense categories did
not change significantly. BCZCO had a net loss in 1995 of $340,000 compared
to a net loss of $264,000 in 1994.
Ziegler Thrift Trading, Inc. (ZTT), the reduced commission brokerage
service of the Company, had total revenues of $992,000 in 1995 and $991,000 in
1994. Commission income was $886,000 in 1995 compared to $915,000 in 1994, a
decrease of $29,000 or 3%. Trading volumes were approximately equal indicating
smaller trades and slightly less commission per trade. An increase in other
income, primarily fees from stock option trading, offset the decline in
commissions. Total expenses of ZTT were $772,000 in 1995 compared to $764,000
in 1994. A decrease of $35,000 in brokerage commissions and clearing fees was
more than offset by a $41,000 increase in employee compensation and benefits.
Other expense categories changed by lesser amounts. Net income for ZTT was
$137,000 in 1995 compared to $139,000 in 1994.
Ziegler Asset Management, Inc. (ZAMI), the money management services
subsidiary of the Company, had total revenues of $357,000 in 1995 compared to
$368,000 in 1994. An approximate 10% increase in total assets under management
to just over $500,000,000 was offset by the lower fees associated with a
different mix of assets being managed. Total expenses of ZAMI were $356,000 in
1995 compared to $290,000 in 1994, an increase of $66,000 or 23%. Substantially
all of the increase is due to the reimbursement of management fees related to
expense reimbursement agreements with money market and mutual funds whose assets
are under management. Professional fees in the form of subadvisory fees
decreased $105,000, but were approximately offset by increases in employee
compensation and benefits with the addition of the fixed income division in the
third quarter of 1994. Other changes in expense categories were not
significant. Net income for ZAMI was breakeven in 1995 compared to $44,000
in 1994.
Lease Financing Activities
Ziegler Leasing Corporation (ZLC), the primary lease financing subsidiary
of the Company, had total revenues of $2,562,000 in 1995 compared to $2,830,000
in 1994, a decrease of $268,000 or 9%. The primary components of revenue are
from equipment leasing and financing, and from gains on the sale of leased
equipment sold at the termination of the leases. Equipment leasing income was
$2,253,000 in 1995 compared to $2,319,000 in 1994, a decrease of $66,000 or 3%.
A lower level of equipment on lease for financing and operating leases is the
reason for the decline. Gain on the sale of leased equipment was $91,000 in
1995 compared to $327,000 in 1994, a decrease of $236,000 or 72%. A lower
volume of equipment coming off lease and less favorable market conditions are
the reasons for the decrease in equipment gains. Total expenses of ZLC were
$2,353,000 in 1995 compared to $2,379,000 in 1994. Depreciation expense on
operating equipment, the largest component of expense, was $1,204,000 in 1995
and $1,207,000 in 1994. Like depreciation expense, all other expenses did
not vary significantly between years. The resulting net income for ZLC was
$128,000 in 1995 compared to $278,000 in 1994, a decrease of $150,000.
Ziegler Collateralized Securities, Inc. (ZCSI) facilitates the financing
of equipment leases and sales by securitizing equipment leases or notes
supporting equipment leases or sales, and offering the resulting securities to
the public. ZCSI purchases the leases and notes from ZLC, which also acts as
manager and lease servicer since ZCSI has no employees. ZCSI had revenues of
$362,000 in 1995 compared to $327,000 in 1994, an increase of $35,000 or 11%.
The addition of a fifth series of bonds outstanding in the fourth quarter of
1994 and the related leases and notes are the reasons for the increased
revenues. Expenses equaled revenues since management and servicing fees paid
ZLC are limited to an amount that would prevent ZCSI from incurring a loss.
The largest component of expense is interest expense. Interest expense was
$242,000 in 1995 compared to $189,000 in 1994, an increase of $53,000 or 28%.
Management and servicing fees paid ZLC were $49,000 in 1995 compared to
$66,000 in 1994 reflecting a less favorable spread between bonds outstanding
and the collateral of leases and notes.
Other Services and Activities
Ziegler Financing Corporation (ZFC) provides construction financing and
interim lending primarily to investment banking clients. Total revenues of ZFC
were $65,000 in 1995 compared to $79,000 in 1994 and reflect primarily interest
income. Fluctuations in the loan portfolio and yield on loans versus short-term
investments are the reasons for the difference between years. Total expenses
were $99,000 in 1995 compared to $76,000 in 1994 and reflect primarily interest
expense. The increase in interest rates is the primary reason for the increase
in 1995. ZFC had a net loss of $21,000 in 1995 compared to net income of $2,000
in 1994. Net income was negatively impacted in both periods by an interest free
loan made in 1993 to a church experiencing difficulties making required debt
service payments on a bond issue originally underwritten by BCZCO.
First Church Financing Corporation (FCFC) is organized for the purpose of
issuing mortgage-backed bonds collateralized by first mortgages on church
buildings and properties. Total revenues of FCFC were $234,000 in 1995 compared
to $111,000 in 1994. FCFC had expenses of $223,000 in 1995 compared to $111,000
in 1994. The addition of a second series of bonds outstanding and its related
collateral of church loans is the reason for the increased revenues and
expenses, both of which reflect primarily interest. Net income for FCFC was
$7,000 in 1995 compared to breakeven in 1994.
WRR Environmental Services Co., Inc. (WRR) is in the business of
providing pollution abatement services and recycling, reclaiming, and
disposing of chemical wastes. Total gross revenues were $2,521,000 in 1995
compared to $2,094,000 in 1994, an increase of $427,000 or 20%. Increased
sales of specialized services, specifically remediation and spill cleanups,
along with modest increases in most other services are the reasons for the
increased sales. The gross margin percentage was 24% in 1995 compared to a
restated 22% in 1994. This increase is due to the higher margins on
specialized services noted above. Total expenses of WRR were $567,000 in
1995 compared to a restated $493,000 in 1994, an increase of $74,000 or 15%.
The increase in expenses is due to an increase in administrative personnel,
and professional fees associated with the current environmental matters.
Certain 1994 expenses, including trucking expenses, have been reclassified to
reflect the changing operations at WRR. Net income for WRR was $34,000 in
1995 compared to a loss of $20,000 in 1994.
The Ziegler Companies, Inc. (ZCI) is the parent company and also engages
in limited investing activities. Revenues for ZCI in 1995 were $345,000
compared to a negative $1,000 in 1994. Unfavorable equity trading activity
offset all other income, primarily interest, in 1994. Interest income in
1995 of $197,000 is primarily due to the interest earnings on a credit
facility established by ZCI for a corporation which generates automobile
loans to individual customers and compares to $133,000 in 1994. Income from
Heartland Capital Corporation, an unconsolidated affiliate, was $46,000 in
1995. The remaining differences in revenues for each year are due to trading
profits or losses. Total expenses for ZCI in 1995 were $165,000 compared to
$77,000 in 1994. The increase is primarily due to interest expense
associated with the funding of the credit facility. Net income for ZCI in
1995 was $133,000 compared to a net loss of $53,000 in 1994.
Liquidity and Capital Resources
The Company's primary activities involve investment banking, equipment
leasing and other financial services. Capital expenditures for assets other
than leased equipment were relatively insignificant. Land, buildings and
equipment, net of related depreciation and amortization, was 5% of total
Company assets and investment in leases was 42% of total Company assets.
The Company, specifically its financial subsidiaries, has a continuing
requirement for cash to finance its activities. A primary source of cash has
been and continues to be the issuance of short-term notes of the Company. These
notes vary in maturities up to 270 days. In the first three months of 1995, a
total of $26,207,000 of notes were issued and $26,340,000 were repaid. In the
first three months of 1994, a total of $21,925,000 of notes were issued and
$19,869,000 were repaid. The total balance of short-term notes outstanding,
without regard to interest discounts was $19,746,000 at March 31, 1995. This
source of additional cash was used primarily to finance leasing and lending
activity and remains an important source of cash for the Company.
ZLC also uses intermediate term, fixed-rate bank borrowings and five-year
extendable/redeemable, fixed-rate bonds issued to the public. The bank
borrowings are structured to mature in a pattern approximating the lease
agreements they support. Total indebtedness to the banks under these borrowings
was $13,000,000 at March 31, 1995 and $15,000,000 at March 31, 1994. The
$10,000,000 of five-year extendable/redeemable bonds previously issued by ZLC
mature December 1, 2006. The holders of the extendable/redeemable bonds have
the option of tendering the bonds for repayment in whole or in part on
December 1, 1996, and December 1, 2001. ZLC was also involved in nonrecourse
debt issuance and repayments in conjunction with leveraged leasing activities.
As of March 31, 1995, there was $2,580,000 of nonrecourse debt recorded by
ZLC and $2,916,000 at March 31, 1994.
In 1993, ZFC entered into a loan for $4,610,000 with an organization
which was experiencing difficulties making required debt service payments on an
outstanding bond issue underwritten by BCZCO. The loan is due on demand, is
interest free and requires weekly principal payments totaling $6,000. The loan
proceeds were used to redeem the organization's outstanding bond issue in full.
The amount due ZFC at March 31, 1995 is approximately $4,086,000. The loan is
secured by a first mortgage on the underlying real estate. The loan is recorded
at cost, net of allowances for possible losses previously provided, totaling
approximately $3,330,000 at March 31, 1995, and is included in Other Assets on
the balance sheet.
ZCSI issues bonds to the public as a source of cash. No new bonds were
issued in the first three months of 1995 and $650,000 of bonds were redeemed at
maturity. Total bonds outstanding were $11,872,000 at March 31, 1995, and
$11,540,000 at March 31, 1994. The bonds are due serially from June, 1995 to
October, 2001. The bonds were used to finance the purchase of lease obligations
and lease financing notes and will mature in a pattern approximating the
maturities of the lease obligations and lease financing notes that serve as
collateral.
FCFC issues bonds to the public as a source of cash. Mandatory
redemption on the bonds is made from principal payments received on the
mortgage loans which serve as collateral for the bonds. Principal payments
on the mortgage loans are received in regular installments over a 15-year
amortization schedule through 2008. No new bonds were issued in the first
three months of 1995 and $622,000 of bonds were called and redeemed. Total
bonds outstanding were $7,992,000 at March 31, 1995, and $4,390,000 at March
31, 1994.
WRR has bonds outstanding at a face value of $485,000. The bonds mature
serially each December through the year 2004. The bonds were issued in 1980 to
finance continuing operations.
BCZCO finances most activities from its own resources and also relies
upon unsecured lines of credit available through banking relationships, if
necessary. Any utilization of these lines of credit is generally repaid in
less than 30 days. As of March 31, 1995, there were no amounts outstanding
under these lines of credit. BCZCO also has broker loan arrangements
available through banking relationships.
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 commercial paper, money
market funds and reverse repurchase agreements at very short maturities in
accordance with the Company's liquidity requirements.
PART II
Items 1 through 5.
Not applicable
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
<TABLE>
<CAPTION>
Exhibit No. Description
<C> <C>
27 Financial Data Schedule (filed
electronically herewith this
Form 10-Q Quarterly Report)
</TABLE>
(b) Reports on Form 8-K:
None
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
THE ZIEGLER COMPANIES, INC.
Dated: May 12, 1995 By
Peter D. Ziegler
President
Dated: May 12, 1995 By
Lynn R. Van Horn
Senior Vice President -
Finance
<TABLE> <S> <C>
<ARTICLE> BD
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE ZIEGLER
COMPANIES, INC. AND SUBSIDIARIES FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> MAR-31-1995
<CASH> 4,535,422
<RECEIVABLES> 7,664,552
<SECURITIES-RESALE> 0<F1>
<SECURITIES-BORROWED> 0
<INSTRUMENTS-OWNED> 86,966,145<F2>
<PP&E> 6,718,748
<TOTAL-ASSETS> 133,078,505
<SHORT-TERM> 19,559,321<F3>
<PAYABLES> 7,614,576<F4>
<REPOS-SOLD> 0
<SECURITIES-LOANED> 0
<INSTRUMENTS-SOLD> 0
<LONG-TERM> 45,555,809<F5>
<COMMON> 3,544,030
0
0
<OTHER-SE> 46,624,500
<TOTAL-LIABILITY-AND-EQUITY> 133,078,505
<TRADING-REVENUE> 0<F6>
<INTEREST-DIVIDENDS> 1,068,886
<COMMISSIONS> 0<F6>
<INVESTMENT-BANKING-REVENUES> 5,411,055<F6>
<FEE-REVENUE> 1,444,512
<INTEREST-EXPENSE> 1,404,604
<COMPENSATION> 4,752,317
<INCOME-PRETAX> 3,081
<INCOME-PRE-EXTRAORDINARY> 3,081
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 19,481
<EPS-PRIMARY> .01
<EPS-DILUTED> .01
<FN>
<F1>Short-term investments includes some securities purchased under resale
agreements.
<F3>Includes short-term notes payable and unsecured notes payable to banks under
line of credit agreements.
<F4>Includes payable to customers, payable to broker-dealers, accounts payable, and
dividends payable.
<F5>Includes bonds payable and notes payable to banks other than line of credit
borrowings.
<F6>Investment banking and commission income includes revenue from trading
activities.
<F2>Includes securities inventory, investment in leases, notes receivable, and
investment in and receivables from affiliates.
</FN>
</TABLE>
