<PAGE>
Form 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 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 June 30, 1995 was 2,435,719 shares.
<PAGE>
PART I
THE ZIEGLER COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED INCOME STATEMENTS
(Unaudited)
<TABLE>
<CAPTION>
For the Three Months Ended
June 30, June 30,
1995 1994
<S> <C> <C>
Revenues:
Investment banking and commission
income $ 6,849,136 $ 6,807,855
Interest and dividends 953,455 988,960
Lease income 2,430,524 2,534,708
Gross profit on chemical products 949,788 1,336,728
Insurance agency 228,432 195,538
Other 1,560,203 971,315
Total revenues 12,971,538 12,835,104
Expenses:
Employee compensation and benefits 5,277,923 4,834,105
Commissions and clearing fees 219,122 176,917
Communications 682,456 640,269
Occupancy and equipment 2,229,528 2,123,420
Promotional 460,659 606,358
Professional and regulatory 202,193 267,492
Interest 1,344,867 1,232,329
Other operating expenses 1,336,736 1,167,826
Total expenses 11,753,484 11,048,716
Income before income taxes 1,218,054 1,786,388
Provision for income taxes 446,200 715,200
Net income $ 771,854 $ 1,071,188
Earnings per share $ .32 $ .44
Dividends per share $ .13 $ .13
Average number of shares outstanding 2,392,303 2,434,611
</TABLE>
The accompanying notes to consolidated condensed financial statements
are an integral part of these statements.
<PAGE>
THE ZIEGLER COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED INCOME STATEMENTS
(Unaudited)
<TABLE>
<CAPTION>
For the Six Months Ended
June 30, June 30,
1995 1994
<S> <C> <C>
Revenues:
Investment banking and commission
income $12,260,192 $12,353,512
Interest and dividends 2,022,341 1,857,019
Lease income 4,930,684 5,130,498
Gross profit on chemical products 1,565,299 1,794,343
Insurance agency 518,840 577,334
Other 3,004,716 2,080,243
Total revenues 24,302,072 23,792,949
Expenses:
Employee compensation and benefits 10,030,240 9,530,716
Commissions and clearing fees 387,759 351,461
Communications 1,324,658 1,202,485
Occupancy and equipment 4,458,138 4,293,805
Promotional 946,796 1,118,225
Professional and regulatory 440,296 583,554
Interest 2,749,471 2,459,414
Other operating expenses 2,743,579 2,321,976
Total expenses 23,080,937 21,861,636
Income before income taxes 1,221,135 1,931,313
Provision for income taxes 429,800 764,700
Net income $ 791,335 $ 1,166,613
Earnings per share $ .33 $ .48
Dividends per share $ .26 $ .26
Average number of shares outstanding 2,394,416 2,434,338
</TABLE>
The accompanying notes to consolidated condensed financial statements
are an integral part of these statements.
<PAGE>
THE ZIEGLER COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
June 30, December 31,
1995 1994
<S> <C> <C>
ASSETS
Cash $ 4,344,474 $ 5,185,343
Short-term investments 8,931,959 19,027,837
Bonds due and called as of
July 1, 1995 and January 1,
1995, respectively 914,947 1,285,301
Total cash and cash
equivalents 14,191,380 25,498,481
Securities inventory 8,470,820 22,803,084
Accounts receivable --
securities sales 5,731,238 5,253,705
Accounts receivable -- other 4,688,422 3,293,159
Investment in and receivables
from affiliates 2,504,569 2,578,926
Investment in leases 53,597,540 56,062,738
Notes receivable 20,786,520 21,029,012
Land, buildings and equipment,
at cost, net of accumulated
depreciation of $13,915,820
and $13,519,851, respectively 6,773,245 6,813,086
Other assets 12,526,453 9,108,016
$129,270,187 $152,440,207
LIABILITIES AND STOCKHOLDERS'
EQUITY
Short-term notes payable $ 18,784,251 $ 19,728,501
Payable to customers 5,069,397 5,876,231
Payable to broker-dealers 416,402 1,217,984
Accounts payable 1,912,664 2,738,966
Dividends payable 316,663 804,026
Accrued income taxes 22,019 -
Deferred income taxes 5,092,284 5,322,679
Notes payable to banks 12,851,302 26,900,354
Bonds payable 29,123,625 31,605,241
Other liabilities and
deferred items 5,237,949 7,866,203
Total liabilities 78,826,556 102,060,185
Commitments
Stockholders' equity
Common stock, $1.00 par,
authorized 7,500,000 shares,
issued 3,544,030 shares 3,544,030 3,544,030
Additional paid-in capital 5,978,983 6,030,565
Retained earnings 58,890,598 58,734,576
Treasury stock, at cost,
1,108,311 and 1,107,587 shares,
respectively (17,166,071) (17,196,800)
Unearned compensation (803,909) (732,349)
Total stockholders' equity 50,443,631 50,380,022
$129,270,187 $152,440,207
</TABLE>
The accompanying notes to consolidated condensed financial statements
are an integral part of these balance sheets.
<PAGE>
THE ZIEGLER COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
For the Six Months Ended
June 30, June 30,
1995 1994
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 791,335 $ 1,166,613
Adjustments to reconcile net income
to net cash provided by (used in)
operating activities:
Depreciation and amortization 3,216,852 3,278,456
Provision for losses 68,850 129,300
(Gain) Loss on sale of equipment 40,130 (20,011)
Gain on sale of leased equipment (323,930) (442,043)
Unrealized (gain) loss on
securities inventory 21,692 (2,000)
Compensation related to restricted
stock grants 97,428 52,712
Undistributed earnings of
unconsolidated affiliate (99,535) -
Changes in operating assets and
liabilities:
Decreases (Increase) in -
Securities inventory 14,310,572 102,695
Accounts receivable --
security sales (477,533) 3,699,168
Accounts receivable --
other (516,186) (487,767)
Other operating assets (3,564,324) 2,683,220
Increase (Decrease) in -
Payable to customers and
broker-dealers (1,608,416) 347,151
Accounts payable net of
payments for purchase of
assets to be leased (1,595,483) 852,823
Accrued income taxes 22,019 (312,991)
Deferred income taxes (230,395) (191,572)
Notes payable to banks (11,280,000) 10,161,362
Other operating
liabilities (2,710,504) (2,002,640)
Net cash provided by (used
in) operating activities (3,837,428) 19,014,476
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from:
Sale of equipment 22,857 20,626
Principal payments received
under leases 7,956,990 7,040,037
Sale of leased equipment 2,368,541 2,897,651
Payments received on notes
receivable 9,229,768 1,525,052
Decrease in advances to affiliate 158,646 -
Payments for:
Investment in/loans to affiliates - (62,079)
Purchase of assets to be leased (5,021,776) (6,078,359)
Issuance of notes receivable (13,319,261) (10,427,699)
Capital expenditures (586,519) (1,346,728)
Net cash provided by (used in)
investing activities 809,246 (6,431,499)
</TABLE>
<PAGE>
THE ZIEGLER COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
(Unaudited)
<TABLE>
<CAPTION>
For the Six Months Ended
June 30, June 30,
1995 1994
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from:
Issuance of short-term notes
payable 46,560,000 53,487,000
Issuance of non-recourse debt 241,422 -
Exercise of employee stock
options 67,655 39,359
Other - 30,000
Payments of:
Principal on short-term notes
payable (47,422,000) (51,515,000)
Principal on notes payable
to banks (2,769,052) (2,819,438)
Principal on nonrecourse debt (1,093,772) (649,721)
Repayment of bonds payable (2,483,000) (2,237,000)
Purchase of treasury stock (257,496) (3,400)
Dividends (1,122,676) (1,937,190)
Net cash used in financing
activities (8,278,919) (5,605,390)
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS (11,307,101) 6,977,587
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD 25,498,481 19,484,100
CASH AND CASH EQUIVALENTS AT
END OF PERIOD $ 14,191,380 $ 26,461,687
SUPPLEMENTAL DISCLOSURES OF
CASH FLOW INFORMATION:
Interest paid during the period $ 2,768,000 $ 2,500,000
Income taxes paid during
the period $ 426,000 $ 1,161,000
SUPPLEMENTAL SCHEDULE OF
NONCASH INVESTING ACTIVITIES:
Conversion of Notes Receivable
to Investment in Leases at
the initiation of a lease $ 4,364,224 $ 1,607,441
Granting of restricted stock
from treasury stock $ 168,988 $ 848,813
</TABLE>
The accompanying notes to consolidated condensed financial statements
are an integral part of these statements.
<PAGE>
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
June 30, 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 year 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 June 30, 1995.
As of June 30, 1995, Ziegler Leasing Corporation (ZLC) had outstanding
written agreements to provide equipment lease financing for approximately
$3,054,000. 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 June 30, 1995, Ziegler Financing Corporation (ZFC) had financial
commitments to unrelated entities for construction and other loans of
approximately $900,000.
WRR has disposed of wastes at disposal sites which are now on or may be
added to the National Priority List, and may be required to share in the cost of
the clean-up of these sites. As of June 30, 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 related to remediation activities at 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 estimates that its
proportionate share of remediation costs will range 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.
The liability of parties contributing to pollution is joint and several
under certain federal environmental laws. 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 state-
ments. The reserve for accrued loss contingencies totaled $692,000 at June 30,
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. On April 30,
1995, a total of 63,835 unexercised options expired under the 1989 Plan. On May
1, 1995, the Board of Directors granted additional options to purchase 104,200
shares under the 1989 Plan. As of June 30, 1995, unexercised options for
103,162 shares were outstanding. All outstanding options are currently exercis-
able through April 30, 1997, at 85% of the market value on the date of exer-
cise. Options for a total of 4,430 shares were exercised at prices averaging
$12.87 per share during 1995. Under the 1989 Plan, 20,955 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 4,160
shares were forfeited during the period as the result of employee terminations.
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 expense over the period of vesting. The shares are
considered as outstanding, but may not be transferred by the recipients until
vested. A total of 167 shares of restricted common stock were forfeited in
1995.
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 June 30, 1995, is as follows:
<TABLE>
<CAPTION>
BCZ ZTT
<S> <C> <C>
Aggregate indebtedness $ 4,079,000 $1,761,000
Net capital $14,475,000 $1,249,000
Ratio of aggregate
indebtedness to
net capital .28 to 1 1.41 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 June 30, 1995, there was
approximately $7,437,000 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.
Summarized income statement information is as follows:
<TABLE>
<CAPTION>
For the Three Months Ended
June 30, June 30,
1995 1994
<S> <C> <C>
Income, primarily interest $ 2,593,673 $ 2,612,526
Expenses:
Interest Expense 2,410,602 2,322,096
Amortization of Bond
Issuance Costs 47,368 172,896
Management Fees 99,164 74,259
Other 36,539 43,275
Total Expenses 2,593,673 2,612,526
Net Income $ - $ -
</TABLE>
<TABLE>
<CAPTION>
For the Six Months Ended
June 30, June 30,
1995 1994
<S> <C> <C>
Income, primarily interest $ 5,288,095 $ 5,962,932
Expenses:
Interest Expense 4,830,444 4,848,871
Amortization of Bond
Issuance Costs 201,267 949,393
Management Fees 180,797 5,512
Other 75,587 159,156
Total Expenses 5,288,095 5,962,932
Net Income $ - $ -
</TABLE>
Note G -- Securities Inventory
Securities inventory consisted of the following:
<TABLE>
<CAPTION>
June 30, December 31,
1995 1994
<S> <C> <C>
Municipal bond issues $ 2,204,567 $11,344,996
Corporate bond issues 1,818,989 189,345
Institutional bond issues 179,624 4,826,932
U. S. Government securities - 4,157,527
Preferred Stock 2,334,714 519,001
Other securities 1,932,926 1,765,283
$ 8,470,820 $22,803,084
</TABLE>
Note H -- Notes Payable to Banks
BCZ had no short-term borrowings outstanding at June 30, 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 June 30, 1995 and
December 31, 1994 and income statements for the six month periods ended June 30,
1995 and 1994 are as follows:
<TABLE>
<CAPTION>
Balance Sheets as of:
June 30, December 31,
1995 1994
<S> <C> <C>
Investment in leases $ 7,546,048 $10,509,676
Notes receivable 2,999,823 3,487,364
Other assets 2,826,966 1,815,606
Total assets $13,372,837 $15,812,646
Bonds payable $10,666,000 $12,522,000
Other liabilities 2,696,837 3,280,646
Total liabilities 13,362,837 15,802,646
Stockholder's equity 10,000 10,000
Total liabilities and
stockholders' equity $13,372,837 $15,812,646
</TABLE>
<TABLE>
<CAPTION>
Income Statements for the
Six Months Ended
June 30, June 30,
1995 1994
<S> <C> <C>
Lease income $ 460,653 $ 527,841
Interest income 214,611 99,770
Total income 675,264 627,611
Interest expense 467,823 369,370
Management fees 32,950 95,030
Other expenses 174,491 163,211
Total expenses 675,264 627,611
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 June 30, 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>
1 600,000 848,706 59,956 31,938 6,945 21,073
2 1,750,000 1,986,931 80,335 57,250 14,587 8,498
3 1,250,000 1,508,510 93,503 50,079 14,252 29,172
4 2,066,000 2,352,268 124,776 68,207 22,505 34,064
5 5,000,000 6,466,838 252,345 170,750 66,366 15,229
</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 on or before October
1, 1995.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations - Three Months Ended
June 30, 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 $12,972,000 compared to
$12,835,000 in 1994, an increase of $137,000 or 1%. Operating expenses in 1995
were $11,753,000 compared to $11,049,000 in 1994, an increase of $704,000 or 6%.
There was a provision for income taxes in 1995 of $446,000 compared to $715,000
in 1994 using a federal statutory tax rate of 34% in both periods under
comparison. Net income in 1995 was $772,000 compared to $1,071,000 in 1994, a
decrease of $299,000 or 28%. Earnings per share in 1995 were $.32 compared to
$.44 in 1994. The 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 fac-
tors related to investment banking, broker-dealer and lease financing activi-
ties, 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. All references to 1995
and 1994 refer to the three months ended June 30, unless otherwise noted.
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 revenues of $7,034,000 in
1995 compared to $7,243,000 in 1994, a decrease of $209,000 or 3%. Revenues
from securities activities decreased $222,000 compared to 1994. Healthcare
underwriting volumes continue to be depressed given the uncertainty and
restructuring in the healthcare markets. Several large municipal underwritings
late in 1995 brought underwriting revenues to within $197,000 of the 1994 total.
Commission income from nonunderwritten investment products also fell short of
the 1994 revenue total due to the retail investors' refusal to accept the lower
interest rates now prevalent in the market. Revenues from trading profits
partially offset the aforementioned declines, primarily due to revenues from
preferred stock trading. A decline in interest income of $75,000 was due to a
decline in securities inventory and overall interest rates. The decline in
interest was offset by increases in insurance agency and fee income. Total
BCZCO expenses were $6,989,000 in 1995 compared to $6,655,000 in 1994, an
increase of $334,000 or 5%. Increases occurred in most categories of expenses.
The cost of added investment banking offices and staffing, increased computer
systems capability, and the absorption of expenses associated with the sponsor-
ship of mutual funds were the primary reasons for the increase in expenses.
Promotional expense decreased $175,000 by comparison to 1994 as the result of
the low level of underwriting volume. Net income in 1995 for BCZCO was
$47,000 compared to $367,000 in 1994.
Ziegler Thrift Trading, Inc. (ZTT), the reduced commission brokerage
service of the Company, had total revenues of $1,190,000 in 1995 compared to
$808,000 in 1994, an increase of $382,000 or 47%. Commission income, the
primary source of revenues, increased $289,000 or 37% as the result of a 25%
increase in trading volume and an increase in the average commission per trade.
Other income increased $76,000 or 279% due to an increase in stock option
financing, a specialized program offered by ZTT. These increases are due to the
robust equity markets during the period. Total expenses of ZTT were $863,000 in
1995 compared to $687,000 in 1994, an increase of $176,000 or 26%. An increase
in volume-based compensation of $136,000 is the primary reason for the increase.
There were modest increases in interest expense to support the higher volume of
stock option financing and promotional expense to promote services associated
with the new three day settlement cycle now a standard in the industry. A
decrease in clearing fees partially offset the aforementioned increases. Net
income in 1995 for ZTT was $203,000 compared to $74,000 in 1994, an increase
of $129,000 or 174%.
Ziegler Asset Management, Inc. (ZAMI), the money management services
subsidiary of the Company, had total revenues in 1995 of $379,000 compared to
$324,000 in 1994, an increase of $55,000 or 17%. An increase in assets under
management to over $500 million was the primary reason for the increased
revenues. Total expenses in 1995 were $342,000 compared to $273,000 in 1994, an
increase of $69,000 or 25%. The increase is related to the inclusion and
staffing of a fixed income management division that became a part of ZAMI in the
third quarter of 1994. There were increases in payroll expenses, occupancy
expenses and expenses related to management fee reimbursement agreements
associated with the management of a money market fund by the new division
partially offset by a decrease in subadvisory fees previously paid to outside
fixed income managers. Net income in 1995 for ZAMI was $21,000 compared to
$28,000 in 1994, a decrease of $7,000 or 25%.
Lease Financing Activities
Ziegler Leasing Corporation (ZLC), the primary lease financing subsidiary
of the Company, had total revenues in 1995 of $2,556,000 compared to $2,572,000
in 1994, a decrease of $16,000 or less than 1%. The primary components of
revenue were lease income and gains on the sale of leased equipment. Lease
income decreased $66,000 or 3% which reflected a small decline in total equip-
ment on lease as the result of terminating leases. Gains on the sale of leased
equipment sold at the termination of leases was $233,000 in 1995 compared to
$114,000 in 1994, an increase of 104%, primarily due to a greater volume of
equipment coming off lease in 1995. Total expenses of ZLC in 1995 were
$2,259,000 compared to $2,327,000, a decrease of $68,000 or 3%. Depreciation
expense on operating equipment, the largest component of expense, was $1,124,000
in 1995 compared to $1,172,000 in 1994, a decrease of $48,000 or 4%. A decrease
in total operating equipment on lease is the reason for the decline.
Compensation expense declined $45,000 as the result of personnel changes during
the quarter as compared to the prior year second quarter. All other expenses
did not vary significantly. Net income for ZLC in 1995 was $184,000 compared to
$149,000 in 1994, an increase of $35,000 or 23%.
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
$314,000 in 1995 compared to $301,000 in 1994, an increase of $13,000 or 4%. The
addition of a fifth series of bonds outstanding in the fourth quarter of 1994
and the related leases and notes partially offset by maturing 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 $226,000 in 1995 compared to $180,000 in
1994, an increase of $46,000 or 26%. Management and servicing fees paid ZLC
were $16,000 in 1995 compared to $55,000 in 1994 reflecting a declining base of
investment in leases and notes as older leases and notes approach maturity as
well as a less favorable spread between bonds outstanding and the collateral
of leases and notes in more recent series.
Other Services and Activities
Ziegler Financing Corporation (ZFC) provides construction financing and
interim lending primarily to investment banking clients. Total revenues of ZFC
in 1995 were $52,000 compared to $107,000 in 1994, a decrease of $55,000 or 51%.
A reduction in the level of notes receivable is the primary reason for the
decrease. A portfolio of notes was sold to First Church Financing Corporation
(FCFC) in the third quarter of 1994. Total expenses of ZFC in 1995 were $78,000
compared to $137,000 in 1994, a decrease of $59,000 or 43%. A provision for
losses of $50,000 in 1994 that was not required in 1995 is the primary reason
for the decrease. ZFC had a net loss of $15,000 in 1995 compared to a net
loss of $18,000 in 1994.
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 $204,000 in 1995 compared
to $112,000 in 1994. FCFC had expenses of $188,000 in 1995 compared to $102,000
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 in 1995 was
$9,000 compared to $5,000 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 $3,136,000 in 1995 compared to
$3,442,000 in 1994, a decrease of $306,000 or 9%. Prior year sales amounts
include activity that was delayed from the first quarter due to difficult
weather conditions. During 1995 a milder first quarter did not require such
a delay and caused sales volumes to be recognized in the first quarter when
the services could be performed. Gross margins were $950,000 in 1995 compared
to $1,337,000 in 1994, a decrease of $387,000. Gross margin percentages of
30% in 1995 compared to a restated 39% in 1994 reflect the more competitive
pricing required in 1995. Total expenses of WRR in 1995 were $574,000 compared
to $563,000 in 1994, an increase of $11,000 or 2%. Certain 1994 expenses,
including trucking expenses, have been reclassified to reflect the changing
operations at WRR. Net income for WRR in 1995 was $251,000 compared to
$468,000 in 1994, a decrease of $217,000 or 46%.
The Ziegler Companies, Inc. (ZCI) is the parent company and also engages
in limited investing activities. Revenues in 1995 were $257,000 compared to
$150,000 in 1994, an increase of $107,000. Income from Heartland Capital
Corporation (HCC), an unconsolidated affiliate, was $53,000 in 1995. HCC did
not exist in 1994. Gains from equity trading activity in 1995 resulted in a
$101,000 increase in revenues when compared with the 1994 equity trading
losses. These increases were offset by a decrease in the interest earnings
from a credit facility established by ZCI for a corporation that generates
automobile loans to individual customers. The decrease is due to a decrease in
the average amounts extended on the credit facility. Total expenses for ZCI in
1995 were $122,000 compared to $118,000 in 1994 and did not reflect any
significant changes between years. Net income for ZCI in 1995 was $72,000
compared to $19,000 in 1994, an increase of $53,000.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations - Six Months Ended
June 30, 1995 and 1994
Total revenues of the Company in 1995 were $24,302,000 compared to
$23,793,000 in 1994, an increase of $509,000 or 2%. Operating expenses in 1995
were $23,081,000 compared to $21,862,000 in 1994, an increase of $1,219,000 or
6%. The provision for income taxes in 1995 was $429,000 compared to $765,000 in
1994 using a federal statutory tax rate of 34% in both periods. Net income in
1995 was $791,000 compared to $1,167,000 in 1994, a decrease of $376,000 or 32%.
Earnings per share in 1995 were $0.33 compared to $0.48 in 1994. These changes
in revenue, operating expenses, and net income are explained in the information
that follows. All references to 1995 and 1994 refer to the six months ended
June 30, unless otherwise noted.
Investment Banking and Broker-Dealer Activities
BCZCO had total revenues in 1995 of $13,022,000 compared to $13,189,000 in
1994, a decrease of $167,000 or 1%. Revenues from securities activities
decreased $328,000 primarily due to decreases in commission income and
underwriting revenue. Commission income from nonunderwritten investment
products decreased $868,000 as retail investors refused to accept the lower
interest rates now prevalent in the market. This situation did not exist in
1994. Underwriting volumes and associated revenue declined $327,000 compared to
1994 as issuers continued to hesitate to issue new bonds despite recent
decreases in interest rates. Secondary trading profit helped to offset these
declines by increasing $866,000. Interest income and insurance agency revenue
declined and were offset by increased fee income. Total expenses of BCZCO
were $13,558,000 in 1995 compared to $13,043,000 in 1994, an increase of
$515,000 or 4%. Increases occurred in most categories of expenses. Added
investment banking personnel, increased retail sales division support activity,
increased computer systems capability, and increased absorption of expenses
related to the sponsorship of a family of mutual funds caused the increased
expenses. Promotional expense declined as the result of the lower volume of
underwritings in 1995. BCZCO had a net loss of $294,000 in 1995 compared to
net income of $103,000 in 1994.
Total revenues for ZTT in 1995 were $2,182,000 compared to $1,799,000 in
1994, an increase of $383,000 or 21%. Commission income, the primary source of
revenues, increased $260,000 or 15% as the result of a 10% increase in trading
volume and an increase in the average commission per trade. Other income
increased $98,000 or 103% due to an increase in stock option financing, a
specialized program offered by ZTT. Total expenses of ZTT were $1,635,000 in
1995 compared to $1,451,000 in 1994, an increase of $184,000 or 13%. The
primary reasons for the increase were increases in volume-based compensation of
$170,000 in recognition of higher trading volumes and interest expense of
$43,000 in support of the stock option financing program. A decrease in
clearing fees as the result of a revised clearing agreement offset the
aforementioned increases. Net income for ZTT in 1995 was $339,000 compared to
$213,000 in 1994, an increase of $126,000 or 59%.
Total revenues for ZAMI in 1995 were $736,000 compared to $692,000 in 1994,
an increase of $44,000 or 6% due to increases in total assets under management
between years. Total expenses for ZAMI in 1995 were $698,000 compared to
$563,000, an increase of $135,000 or 24%. Increased salary expenses of the
fixed income management division, additional occupancy expenses, and expenses
related to management fee reimbursement agreements of a money market fund
partially offset by a reduction in subadvisory fees is the reason for the
increased expenses between years. Net income for ZAMI in 1995 was $21,000
compared to $72,000 in 1994, a decrease of $51,000.
Lease Financing Activities
Total revenue for ZLC in 1995 was $5,119,000 compared to $5,401,000 in
1994, a decrease of 5%. Lease income decreased $133,000 or 3% to $4,470,000 in
1995 from $4,603,000 in 1994 due to a reduction in total equipment on lease.
Gains on the sale of leased equipment in 1995 were $324,000 compared to $442,000
in 1994, a decrease of $118,000 or 27%. A lower volume of equipment coming off
lease and unfavorable market conditions associated with medical equipment are
the reasons for the decline. Total expenses of ZLC in 1995 were $4,611,000
compared to $4,706,000 in 1994, a decrease of $95,000 or 2%. Depreciation
expense on operating equipment decreased $50,000 or 2% as the result of a
decline in total operating equipment on lease. Compensation expense declined
$68,000 as the result of personnel changes. Other expenses did not change
significantly. Net income for ZLC in 1995 was $312,000 compared to $427,000
in 1994, a decrease of $115,000 or 27%.
ZCSI had revenues which equaled expenses in 1995 of $675,000 compared to
$628,000 in 1994, an increase of $47,000 or 7%. The increase in revenues is due
to the leases and notes underlying an additional series of bonds outstanding
partially offset by maturing leases and notes. Management and servicing fees
paid to ZLC were $64,000 in 1995 compared to $120,000 in 1994. The decrease in
management fees is due to a declining base of investments in leases and notes as
older leases and notes approach maturity as well as a less favorable spread
between bonds outstanding and the collateral of leases and notes.
Other Services and Activities
Total revenues for ZFC in 1995 were $117,000 compared to $186,000 in 1994,
a decrease of $69,000 or 37%. Total expenses in 1995 were $177,000 compared to
$213,000 in 1994, a decrease of $36,000 or 17%. A reduction in notes receivable
is the primary reason for the decrease. A $50,000 provision for losses in 1994
did not recur in 1995 and is the primary reason for the decreased expenses in
1995. ZFC had a net loss of $36,000 in 1995 compared to a net loss of $16,000
in 1994.
FCFC had revenues in 1995 of $438,000 compared to $222,000 in 1994, an
increase of $216,000 or 97%. Expenses during the same period were $411,000 in
1995 compared to $213,000 in 1994, an increase of $198,000 or 93%. Net income
was $16,000 in 1995 compared to $6,000 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, expenses and net income.
WRR's gross sales for 1995 were $5,657,000 compared to $5,535,000 in 1994,
an increase of $122,000 or 2%. Gross margins in 1995 were $1,565,000 compared
to $1,794,000 in 1994, a decrease of $229,000. Gross margin percentages were
27% in 1995 compared to a restated 32% in 1994. Sales volumes were similar
between years. The reductions in gross margins and gross margin percentages are
due to a more competitive pricing environment. Total expenses in 1995 were
$1,142,000 compared to $1,057,000 in 1994, an increase of $85,000 or 8%.
Additional sales expenses, including the addition of a sales person, and a
slight increase in administrative expenses are the reasons for the increase.
Net income in 1995 was $285,000 compared to $449,000 in 1994, a decrease of
$164,000 or 37%.
Revenues for ZCI in 1995 were $602,000 compared to $150,000 in 1994, an
increase of $452,000. The increases related to several factors. Income from
Heartland Capital Corporation (HCC) was $100,000 in 1995. HCC did not exist in
1994. Gains from equity trading activity were $144,000 in 1995 whereas there
was a loss of $190,000 in 1994. The balance of the increase was from interest
income from investable funds partially offset by a decrease in interest income
from the credit facility for the auto loan corporation.
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, were 5% of total
Company assets and investment in leases was 41% of total Company assets as of
June 30, 1995.
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 six months of 1995, a
total of $46,560,000 of notes were issued and $47,422,000 were repaid. In the
first six months of 1994, a total of $53,487,000 of notes were issued and
$51,515,000 were repaid. The total balance of short-term notes outstanding,
without regard to interest discounts was $19,017,000 at June 30, 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 $11,000,000 at June 30, 1995. 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 June 30, 1995, there was
$1,834,000 of nonrecourse debt recorded by ZLC.
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 $7,000. The loan
proceeds were used to redeem the organization's outstanding bond issue in full.
The amount due ZFC at June 30, 1995 is approximately $4,008,000. 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 $3,508,000 at June 30, 1995, and is included in Other Assets on
the balance sheet. On July 31, 1995, the note was sold to ZCI at cost, net of
allowances.
ZCSI issues bonds to the public as a source of cash. No new bonds were
issued in the first six months of 1995 and $1,856,000 of bonds were redeemed at
maturity. Total bonds outstanding were $10,666,000 at June 30, 1995. The bonds
are due serially from July, 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 six months of 1995 and
$627,000 of bonds were called and redeemed. Total bonds outstanding were
$7,987,000 at June 30, 1995.
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 June 30, 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.
<PAGE>
PART II
Items 1 through 3.
Not applicable
Item 4. Results of Votes of Security Holders
Registrant held an annual meeting on Monday, April 24, 1995 for
which a proxy statement was sent to shareholders of record at the
close of business on February 20, 1995. A brief description of the
matters voted upon is as follows:
1. To elect three directors for a term of three years.
2. To vote on a proposal to ratify the retention of Arthur
Andersen LLP as auditors for 1995.
A total of 2,449,643 shares were outstanding and eligible to vote.
The following votes were cast and the number of abstentions and
broker nonvotes are also listed.
1. Election of directors: Shareholders voted to grant or
withhold authority to a representative of the Registrant to
vote for or against the nominees, respectively.
<TABLE>
<CAPTION>
Broker
Granting Withholding Abstaining Nonvotes
<S> <C> <C> <C> <C>
P. D. Ziegler 2,199,202 26,999 12,600 34,148
F. J. Wenzel 2,216,181 10,020 12,600 34,148
P. R. Kellogg 2,219,281 6,920 12,600 34,148
</TABLE>
The following directors also continued in office: W. R.
Holmquist, P. D. J. Kenny, B. C. Ziegler III, R. D. Ziegler,
J. C. Frueh, and J. R. Green.
2. Retention of Arthur Andersen LLP as auditors.
<TABLE>
<CAPTION>
Broker
For Against Abstaining Nonvotes
<C> <C> <C> <C>
2,221,051 10,700 7,050 34,148
</TABLE>
Item 5. Not applicable.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits: None
(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: August 11, 1994 By
Peter D. Ziegler
President
Dated: August 11, 1994 By
Jeffrey C. Vredenbregt
Controller
<TABLE> <S> <C>
<ARTICLE> BD
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE ZIEGLER
COMPANIES, INC. AND SUBSIDIARIES FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> JUN-30-1995
<CASH> 4,344,474
<RECEIVABLES> 10,419,660
<SECURITIES-RESALE> 0<F1>
<SECURITIES-BORROWED> 0
<INSTRUMENTS-OWNED> 85,359,449<F2>
<PP&E> 6,773,245
<TOTAL-ASSETS> 129,270,187
<SHORT-TERM> 18,784,251<F3>
<PAYABLES> 7,715,126<F4>
<REPOS-SOLD> 0
<SECURITIES-LOANED> 0
<INSTRUMENTS-SOLD> 0
<LONG-TERM> 41,974,927<F5>
<COMMON> 3,544,030
0
0
<OTHER-SE> 46,899,601
<TOTAL-LIABILITY-AND-EQUITY> 129,270,187
<TRADING-REVENUE> 0<F6>
<INTEREST-DIVIDENDS> 2,022,341
<COMMISSIONS> 0<F6>
<INVESTMENT-BANKING-REVENUES> 12,260,192<F6>
<FEE-REVENUE> 3,004,716
<INTEREST-EXPENSE> 2,749,471
<COMPENSATION> 10,030,240
<INCOME-PRETAX> 1,221,135
<INCOME-PRE-EXTRAORDINARY> 1,221,135
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 791,335
<EPS-PRIMARY> .33
<EPS-DILUTED> .33
<FN>
<F1>Short-term investments includes some securities purchased under resale
agreements.
<F2>Financial instruments includes securities inventory, investment in leases,
notes receivable, and investment in and receivables from affiliates.
<F3>Includes short-term notes payable and unsecured notes payable to banks under
line of credit agreements.
<F4>Includes payable to customers, payable to broker-dealers, accounts payable, and
dividends payable.
<F5>Includes bonds payable and notes payable to banks other than line of credit
borrowings.
<F6>Revenue from investment banking activities includes revenue from trading
activities and commissions.
</FN>
</TABLE>
