Form 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1994
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from to
Commission file number 0-6237
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
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, $1.00 Par Value
AGGREGATE MARKET VALUE OF VOTING STOCK HELD
BY NON-AFFILIATES OF THE REGISTRANT:
$36,897,747.69 based on the average of the bid and asked prices
of such stock ($15.0625 per share) on February 20, 1995
Number of shares outstanding of registrant's classes of common stock, as of
February 20, 1995:
Class Shares Outstanding
Common Stock, 2,449,643
$1.00 Par Value
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 CHECK MARK IF DISCLOSURE OF DELINQUENT FILERS PURSUANT TO ITEM 405
OF REGULATION S-K IS NOT CONTAINED HEREIN, AND WILL NOT BE CONTAINED, TO THE
BEST OF REGISTRANT'S KNOWLEDGE, IN DEFINITIVE PROXY OR INFORMATION STATEMENTS
INCORPORATED BY REFERENCE IN PART III OF THIS FORM 10-K OR ANY AMENDMENT TO
THIS FORM 10-K. [ X ]
DOCUMENTS INCORPORATED BY REFERENCE:
1. Portions of the Annual Report to Shareholders for the year ended
December 31, 1994 are incorporated by reference into Part II of this
Report.
2. Portions of the annual Proxy Statement prepared for the 1995 Annual
Meeting of Shareholders are incorporated by reference into Parts I and
III.
FORM 10-K
THE ZIEGLER COMPANIES, INC.
PART I
Item 1. Business
(a) The Ziegler Companies, Inc. (the "Company") is a holding
company which owns eight operating subsidiary companies. Seven of the
companies are engaged in financially oriented businesses and the other company
is engaged in recycling, reclaiming and disposing of industrial chemicals and
solvents and provides pollution abatement services. The Company's principal
executive offices are at 215 North Main Street, West Bend, Wisconsin 53095 and
its telephone number is (414) 334-5521. There was no material change in the
nature of the business done by The Ziegler Companies, Inc. and its
subsidiaries during 1994.
The Company's subsidiaries include an investment banking
firm, B. C. Ziegler and Company which, with its operating division Ziegler
Securities, engages in underwriting and distributing debt securities of
hospitals and health care institutions, long-term care facilities, municipal
entities, churches, and other corporations. Ziegler Leasing Corporation
concentrates on leasing equipment to health care providers and commercial
enterprises. Ziegler Financing Corporation provides construction and interim
loan services primarily to health care providers and churches. Ziegler Thrift
Trading, Inc. is a discount brokerage firm. Ziegler Asset Management, Inc.
provides money management services to individuals and institutions. First
Church Financing Corporation was organized to issue mortgage-backed bonds
collateralized by first mortgages on church buildings and properties. Ziegler
Collateralized Securities, Inc. was organized to issue bonds collateralized by
pools of equipment leases and other debt instruments. WRR Environmental
Services Co., Inc., formerly named Waste Research and Reclamation Co., Inc.,
recycles, reclaims and disposes of industrial chemicals and solvents and
provides clean-up services with respect to sites with environmental damage.
(b) The Company's operations are conducted through four industry
segments, namely, (1) broker-dealer, (2) lease financing, (3) real estate and
interim financing and (4) corporate and other. The industry segments are each
served by a separate subsidiary or group of subsidiaries; therefore, all
expenses and assets can be directly identified with segment revenues. Inter-
company revenues consist primarily of interest income earned on loans between
subsidiaries, management and other administrative fees charged between
subsidiaries, intercompany security execution charges, and dividends received
by the Company from subsidiaries. All other significant revenues are derived
from transactions with unaffiliated parties in the United States.
<PAGE>
Revenues, net of intercompany transactions, Income Before
Taxes, and Assets of each segment are as follows:
<TABLE>
<CAPTION>
1994 1993 1992
REVENUES (net of intercompany transactions) (In Thousands)
<S> <C> <C> <C>
Broker-Dealer $ 30,324 $ 35,238 $ 33,393
Lease Financing 11,872 11,606 12,585
Real Estate and Interim Financing 328 351 513
Corporate and Other 5,950 3,666 1,815
$ 48,474 $ 50,861 $ 48,306
<CAPTION>
INCOME BEFORE TAXES
<S> <C> <C> <C>
Broker-Dealer $ 686 $ 5,484 $ 6,001
Lease Financing 1,206 1,751 2,277
Real Estate and Interim Financing (70) 64 235
Corporate and Other 1,300 125 (273)
$ 3,122 $ 7,424 $ 8,240
<CAPTION>
ASSETS
<S> <C> <C> <C>
Broker-Dealer $ 56,636 $ 47,195 $ 41,734
Lease Financing 67,984 66,498 61,550
Real Estate and Interim Financing 5,045 7,924 7,276
Corporate and Other 22,775 20,006 14,263
$152,440 $141,623 $124,823
</TABLE>
<PAGE>
BROKER-DEALER
B. C. Ziegler and Company ("BCZCO")
The major portion of BCZCO's business continues to be underwriting and
distributing debt securities of hospitals and other health and long-term care
providers. All health care and substantially all public finance underwriting
functions are consolidated under Ziegler Securities ("ZSD"), an operating
division of BCZCO. While these activities are the prime source of BCZCO's
income, a significant contribution to earnings results from underwriting
profits from underwriting and distributing debt issues for churches, from the
sale of lease-backed and GNMA and FNMA certificate-backed bonds, from the sale
of various mutual funds which it sponsors, and from the sale of other
financial products, including unit investment trusts, deferred annuities,
certificates of deposit, insurance and other mutual funds. BCZCO intends to
continue all of these underwriting and sales activities.
Total revenues of BCZCO in 1994 were $25,787,000 as compared with
$30,352,000 in 1993. Net income in 1994 was $3,000 as compared with 1993 net
income of $2,659,000.
BCZCO began operations as an insurance agency in 1902 and at the present
time maintains direct agency contracts with 26 insurance companies offering
diversified lines of coverage, including life, property, casualty and fidelity
insurance. It underwrote its first publicly offered security issue in 1913
for a church in West Bend, Wisconsin. Since then, it has concentrated on
providing investment banking services to nonprofit corporations, with
particular emphasis on health care providers, continuing care retirement
communities and churches.
During 1994, Ziegler Securities managed 18 new issues of tax-exempt and
taxable healthcare debt securities totaling $502,895,000. During 1994,
Ziegler Securities also managed 34 issues for long-term care retirement
facilities totaling $302,275,000. For purposes of comparison, during 1993,
Ziegler Securities managed 27 issues of tax-exempt and 2 issues of taxable
healthcare debt securities totaling $578,000,000 and $20,000,000,
respectively. Ziegler Securities also managed 37 issues for continuing care
retirement facilities totaling $418,000,000 in 1993.
BCZCO underwrote and sold 21 bond issues for various churches, schools
and other non-profit institutions, totaling approximately $66,176,000 in 1994
compared to 31 issues totaling approximately $109,712,000 in 1993.
As of December 31, 1994, BCZCO had 24 retail sales offices located
throughout the United States which play a vital role in the distribution of
the taxable and tax-exempt issues underwritten by BCZCO. Securities are sold
by BCZCO as a broker-dealer to individuals, financial institutions and other
dealers. In addition, BCZCO maintains a secondary market for debt securities
it has underwritten as an accommodation to its investor clientele.
BCZCO continues to underwrite and offer a variety of investment products
and continues to develop new investment products.
BCZCO also sponsors and acts as the primary distributor for the
Principal Preservation Portfolios, Inc. family of mutual funds, and acts as
investment adviser to certain of the individual portfolios offered by
Principal Preservation Portfolios, Inc. This open-end diversified investment
company offers nine distinct mutual fund portfolios having total net assets
over $250,000,000 as of December 31, 1994.
Ziegler Mortgage Securities, Inc. II ("ZMSI-II"), in its ninth year of
operation, issued seven series of "AAA" rated bonds in the total amount of
$21,402,000. BCZCO owns a portion of the capital stock of ZMSI-II, and acts
as underwriter for the offerings of bonds by it. ZMSI-II bonds are rated
"AAA" by Standard & Poor's Corporation and are backed by Government National
Mortgage Association ("GNMA") certificates, Federal National Mortgage
Association ("FNMA") certificates or by a combination of GNMA and FNMA
certificates. The GNMA certificates are fully modified pass-through mortgage
certificates backed by a pool of Federal Housing Authority ("FHA") loans or
Veterans Administration ("VA") loans, and provide for payment of principal and
interest and other proceeds of the mortgage loans to the registered holder of
the GNMA certificates. Such payments are guaranteed by GNMA, which guarantee
is supported by the full faith and credit of the United States. The FNMA
certificates represent interests in pools of loans backed by mortgages on one
to four family residences. The mortgage loans may be conventional mortgage
loans or mortgage loans insured by the FHA or guaranteed by the VA. Payment
of principal and interest and other proceeds from the mortgage loans will be
made to the registered holders of the FNMA certificates. FNMA certificates
are guaranteed solely by the FNMA and are not backed by the full faith and
credit of the United States.
In 1994, BCZCO underwrote and sold one series of lease-backed bonds for
Ziegler Collateralized Securities, Inc. ("ZCSI") in the total amount of
$5,000,000. The bonds were collateralized by pools of equipment leases and
other debt instruments organized and sold to ZCSI by a sister company, Ziegler
Leasing Corporation.
BCZCO is one of the nation's oldest health care underwriters. BCZCO
experiences competition in most potential taxable health care bond
underwritings due in part to the fact that debt financing for health care
providers can also be accomplished by bank borrowing or by mortgage financing
with institutional lenders. Competition in the underwriting of tax-exempt
issues is from other major investment bankers and, in certain instances, from
commercial banks. This competition for underwriting volume over the past
several years has caused a general decline in the level of compensation paid
for investment banking services in connection with the healthcare market.
It is anticipated that significant changes in the manner in which health
care is delivered in the United States will occur over the next several years,
either because of competitive forces in the marketplace or government
mandates. There can be no guarantee of the continuing availability of health
care, long-term care and corporate debt issues in adequate volume for BCZCO
and other competitive investment bankers and underwriters. The availability
of suitable underwritings for BCZCO is related to a variety of factors, among
which are the general level of interest rates, the need for replacing or
upgrading facilities, the development of new medical technology, changes in
government programs and private contracts relating to reimbursement of health
care providers, consolidation and integration within the health care industry,
and the demographic characteristics of the United States' population.
BCZCO expanded its services in several areas during 1994, including the
addition (i) of personnel to ZSD to provide consulting services to physician
groups; (ii) of personnel to ZSD to provide underwriting capability regarding
affordable housing; and (iii) of a preferred stock trading division to BCZCO,
serving the needs of institutional investors. The number of retail brokers at
BCZCO rose to 64, and services offered to retail investors by the brokers are
in the course of being expanded, including the introduction of solicited
equity trading.
BCZCO is a broker-dealer registered with the Securities and Exchange
Commission and with the security regulatory bodies of 50 states and the
District of Columbia. It is also a member of the National Association of
Securities Dealers, Inc. ("NASD") and the Securities Investor Protection
Corporation ("SIPC"). It is subject to the rules and regulations established
and administered by these various regulatory and self-regulatory agencies.
Failure to comply with any of these rules and regulations could result in
censure, fines, suspension or expulsion. Suspension could be imposed for
varying periods of time and could have a materially adverse effect upon BCZCO
for at least the period of suspension. Expulsion would effectively preclude
it from engaging in the securities business. The various rules and
regulations to which it is subject govern such matters as sales methods,
recordkeeping requirements, net capital requirements, relationships between
brokers and relationships between broker-dealers and the public.
Under the Securities Act of 1933 and other applicable Federal and state
securities laws and regulations, an underwriter is subject to substantial
potential liability for material misstatements or omissions in the prospectus
used to describe each issue of securities being underwritten and offered to
the public.
Underwriting involves substantial economic risk. An underwriter may
incur losses if it is unable to resell the securities it has committed to
purchase, or if it is forced to liquidate all or part of its commitment at
less than the purchase price.
The securities industry in general is presently experiencing increased
litigation from customers related to compliance with laws and industry rules
related to the sales of securities.
BCZCO includes an independent insurance agency, which is subject to
various rules and regulations which are generally imposed at the state level.
Ziegler Thrift Trading, Inc. ("ZTT")
ZTT is a discount brokerage firm organized in the State of Minnesota.
ZTT is an order execution specialist for stocks, corporate bonds and options
and can execute orders on any exchange and the over-the-counter market. Since
ZTT has no research department and no salesmen, ZTT's commission charges are
approximately 50% to 70% less than those of regular brokerage firms. The
minimum commission charge is $34.50.
ZTT is registered with the Securities and Exchange Commission and is a
member of the National Association of Securities Dealers, Inc. and the
Securities Investor Protection Corporation. It is licensed as a broker-dealer
in 41 states and the District of Columbia. The company is headquartered in
downtown Minneapolis and has three branch offices in St. Paul, Minnesota.
Since the beginning of 1983, ZTT has provided reduced commission
brokerage services to the customers of banks in Minnesota and Wisconsin.
These arrangements offer bank customers the convenience of buying and selling
securities through ZTT by authorizing direct transfers of funds to and from
their checking accounts to settle their securities transactions. In 1990, ZTT
opened a satellite facility in the Eastern Heights Bank, St. Paul, Minnesota,
on the home office campus of a major international manufacturing firm. In
early 1994, this satellite facility began offering full service brokerage
services, under the division name Ziegler Investment Services. In February
1995, the full service office relocated to the new Eastern Heights Bank at 670
McKnight Road North, St. Paul.
In 1994 ZTT's gross revenues were $3,474,000 and net income was $382,000
compared to net income of $554,000 in 1993 on gross revenues of $4,027,000.
LEASE FINANCING
Ziegler Leasing Corporation ("ZLC")
ZLC concentrates on leasing equipment to the health care industry, but
also writes a substantial volume of leases on commercial and industrial
equipment. ZLC's portfolio consists primarily of full payout finance leases,
leveraged leases and non-cancelable operating leases. A major portion of its
net investment in lease transactions is in full payout finance leases wherein
most of the usual ownership risks are passed to the lessee, and the lease
income represents the excess of the lease contract's receivable (during an
initial non-cancelable lease term) plus estimated equipment residual value
over the cost of the leased equipment. The income is recognized over the term
of the lease. Leveraged leases have essentially the same characteristics as
finance leases, except that third parties furnish financing in the form of
long-term debt that provides for no recourse against ZLC or the Company. The
investment in leveraged leases less the related deferred income taxes
represents the net investment in leveraged leases for purposes of computing
periodic net income. Income is prorated to the years in which such net
investment is positive. Under the operating method of accounting for leases,
ZLC retains most of the usual risks and rewards of ownership, and reports as
income the monthly lease payments when due and charges income with
depreciation on the leased equipment on a straight-line basis over the lease
term, and allows for residual value at the end of the term.
ZLC's gross revenue in 1994 was $10,842,000 as compared with $10,863,000
in 1993. Net income was $764,000 in 1994 as compared with $1,076,000 in 1993.
At December 31, 1994, ZLC's investment in leases and notes totaled
$47,331,000 compared with $48,031,000 at December 31, 1993.
REAL ESTATE AND INTERIM FINANCING
Ziegler Financing Corporation ("ZFC")
ZFC is engaged in the business of making construction and interim loans
to selected hospitals, medical groups, long-term care providers and churches.
ZFC incurred a net loss in 1994 of $42,000, compared to a net income of
$40,000 in 1993. Total revenues were $364,000 in 1994 compared to $375,000 in
1993. At the end of 1994, there were loans, notes and related accrued
interest outstanding from unrelated entities totaling approximately
$5,258,000, compared to $7,036,000 at the end of 1993. The loan totals
include a loan to 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 in 1993. The amount due ZFC on
this loan as of December 31, 1994 was approximately $4,164,000.
The results of future operations of ZFC will depend upon the demand for
suitable loans at profitable yields. The acquisition of construction and
interim loans is highly competitive in that commercial banks, savings and loan
associations, mortgage bankers, real estate trusts, and other construction
lenders are aggressively seeking high quality loans. In addition to
competitive conditions, yields depend to a large extent upon the type of
property securing the loans, the term of the loan, the credit of borrowers,
the reputation of the builder, the condition of the money market at the time
the loan is acquired, and other factors.
ZFC has obtained substantially all of its funds for investment in
construction and interim loans through the sale of short-term notes by the
Company. These notes have maturities of nine months or less and have a
shorter term, in most cases, than the loans made by ZFC. As selected loans in
the health and long-term care fields become available, ZFC intends to operate
on a leveraged basis, i.e., with substantial amounts of debt in relation to
net worth. This policy will be reviewed from time to time on the basis of
experience and current factors. In addition, operations on a leveraged basis
can result in a decline of earnings or loss because of inability to pay
maturing debt obligations without disadvantageous liquidation of loans or new
borrowings at higher rates of interest. Inability to pay maturing debt could
result from defaults on loans held by ZFC or inability to make short-term
borrowings.
Ziegler Asset Management, Inc. ("ZAMI")
This subsidiary was organized in June of 1991 to provide money
management services to individuals and institutional accounts. The equity
investment strategy utilized by ZAMI for individual accounts seeks out
companies that have demonstrated a superior record of growing their earnings,
increasing their dividends and maintaining strong balance sheets. With
respect to institutional accounts, ZAMI has utilized sub-advisors to help the
clients meet their investment objectives, risk limitations and liquidity
requirements. As of December 31, 1994, ZAMI had approximately $523,000,000 of
assets under management. ZAMI realized net income of $97,000 in 1994,
compared to $156,000 in 1993.
In 1994, ZAMI added personnel for the purpose of enhancing its ability
to render investment advice to fixed income accounts.
Ziegler Collateralized Securities, Inc. ("ZCSI")
This subsidiary was organized in August of 1991 for the purpose of
issuing bonds collateralized by pools of leases and other debt instruments
packaged and sold to ZCSI by Ziegler Leasing Corporation. In 1994 one series
of bonds was issued by ZCSI totaling $5,000,000. It is anticipated that
future series will be offered on a regular basis. In accordance with a
written management agreement, management fees paid to Ziegler Leasing
Corporation have been limited to the amounts which prevented ZCSI from
incurring a loss. As a result, ZCSI had no net income in 1994, 1993 or 1992.
First Church Financing Corporation ("FCFC")
This subsidiary was incorporated on May 3, 1990 for the purpose of
issuing mortgage-backed bonds collateralized by a pool of notes secured by
first mortgages on church buildings and properties. The notes and mortgages
in the pool typically originate from church financings which are too small in
principal amount to support a separate public offering of bonds. One series
of bonds totaling $4,456,000 was issued by FCFC in 1994.
CORPORATE AND OTHER
WRR Environmental Services Co., Inc. ("WRR")
WRR, formerly named Waste Research and Reclamation Co., Inc., was
founded in 1970 and owns and operates a licensed hazardous waste treatment and
waste solvent recycling facility located in Eau Claire, Wisconsin. WRR
recycles spent industrial solvents for re-use and blends waste solvents for
use as alternative energy sources for businesses in EPA permitted liquid
injection incinerators and cement kilns. WRR also offers several other
services such as processing dry cleaner filters, underground storage tank
removal, remediation of polluted industrial sites, and emergency spill
response.
WRR obtains raw materials for its recycling operations directly from the
primary users of chemicals and solvents. Virgin chemicals are purchased and
blended with certain of WRR's reclaimed blended products, or are sold as new
products. WRR is not dependent on a single supplier or a few suppliers for
its raw materials.
WRR is regulated by the United States Environmental Protection Agency
("EPA") and the Wisconsin Department of Natural Resources ("DNR"). On
September 30, 1988 WRR obtained a final hazardous waste operating permit from
the EPA making it the first fully licensed treatment, storage and disposal
facility in the State of Wisconsin.
In 1983, WRR's Eau Claire facility was placed on the National Priority
List of sites regulated by the Superfund Act ("CERCLA") because shallow well
testing of ground water directly underneath the plant site disclosed traces of
contaminants. WRR is subject to a DNR consent order for further testing and
surface water control related to the contaminants. Although still subject to
the consent order 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.
In addition, WRR has disposed of wastes at other sites which have been
placed on the National Priority List and at sites which may be added to the
List. Under CERCLA any party that disposed of waste at any facility that
requires remediation may be held jointly and severally liable for a portion
of, or the entire cost of, such remediation. In some cases, EPA will expend
funds to remedy a site, and then seek reimbursement from those parties who
disposed of wastes at the site. The total reserve of WRR on account of
potential liability for remediation of environmentally damaged sites at
December 31, 1994 was $633,000. See the section of this filing entitled
"Environmental Matters" for additional information.
WRR's gross margin in 1994 was $4,479,000 as compared to $3,181,000 in
1993. Net income was $529,000 in 1994, compared to $234,000 in 1993.
The Ziegler Companies, Inc. ("ZCO")
In 1994, ZCO purchased a one third equity interest in Heartland Capital
Company L.L.C. ("HCC"), a newly organized Wisconsin limited liability company
which is in the business of making construction loans to finance the
construction or rehabilitation of affordable housing projects. The total
subscription obligation of ZCO is $2,500,000, of which $825,000 was due and
paid in 1994. The balance of the subscription obligation will become due in
the future as the volume of outstanding loans made by HCC increases to certain
predetermined levels. HCC intends to obtain the funds needed to make
construction loans from bank credit facilities and the issuance of commercial
paper. HCC commenced operations in the fourth quarter of 1994, and no return
on the investment had been realized by ZCO as of the year end. The return on
this investment of ZCO is dependent upon various factors, including the demand
for affordable housing, the ability of HCC to maintain a spread between HCC's
cost of funds and the interest rates charged to developers, and the successful
management of the risk of default by developers on the loans made by HCC.
GENERAL
None of the Company's businesses are subject to governmental
renegotiation of profits; none are dependent on a single customer or a few
customers nor are any of them dependent on a single supplier of raw materials
or a few suppliers of raw materials. In no case are patents, trademarks,
licenses or franchises important nor are any of the businesses seasonal. None
of the businesses engage in significant operations outside the United States.
ENVIRONMENTAL MATTERS
Compliance with Federal, state and local laws and regulations which have
been enacted or adopted relating to the protection of the environment have had
no material effect upon the capital expenditures, earnings and competitive
position of the registrant and its financial services subsidiaries.
WRR is strictly regulated by the EPA and the DNR. More stringent future
regulations enacted by these agencies regarding the control of air and water
pollution as well as waste disposal sites could result in increased operating
costs and capital expenditures.
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 December 31, 1994, WRR had been identified as
a potentially responsible party ("PRP") in connection with four sites. For
the first site, a reserve of $12,000 was established based on a total, actual
assessment. Payment for this site was made in 1994. For the second site, a
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 third 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 a reserve of $500,000 to cover its share of the clean-up costs of
this third 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 fourth 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 fourth site approximates $200,000.
No reserve has been established on account of this fourth site.
While WRR is jointly and severally liable on all three remaining sites,
management 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
$633,124 and $640,000 at December 31, 1994 and 1993, respectively.
EMPLOYEES
As of March 1, 1995, 446 persons were employed full time and 87 persons
were employed part time by the Company and its subsidiaries.
EXECUTIVE OFFICERS OF THE COMPANY
Information regarding the executive officers of the Company, which is
not part of the Company's March 3, 1995 Proxy Statement is as follows:
<TABLE>
<CAPTION>
Name Age Office
<S> <C> <C>
R. D. Ziegler 68 Chairman of the Board
P. D. Ziegler 45 President and Chief Executive Officer
S. C. O'Meara 45 Senior Vice President and General Counsel
J. C. Wagner 40 Senior Vice President - Retail Sales
L. R. Van Horn 41 Senior Vice President - Finance
V. C. Van Vooren 63 Senior Vice President and Treasurer
J. C. Vredenbregt 41 Assistant Treasurer and Controller
J. R. Schmidt 35 Corporate Secretary
</TABLE>
The term of office of each officer is one year or until his successor is
elected and qualified. There is no arrangement or understanding between any
officer and any other person pursuant to which he was elected as an officer.
Mr. R. Douglas Ziegler was elected Chairman of the Board of The Ziegler
Company, Inc. and B. C. Ziegler and Company on April 21, 1986. Mr. Ziegler
joined the Company on January 1, 1973, became President and Chief Executive
Officer on June 15, 1973 and served as Chief Executive Officer until December
31, 1989. Mr. Ziegler has been a Director of B. C. Ziegler and Company, the
Company's principal subsidiary, from January 26, 1953 to April 21, 1969, and
again became a Director on October 2, 1972. He is presently a Director of
Johnson Controls, Inc. and Principal Preservation Portfolios, Inc. Mr.
Ziegler is the father of Mr. P. D. Ziegler and uncle of Mr. B. C. Ziegler III.
Mr. Peter D. Ziegler was elected President of The Ziegler Company, Inc.
and B. C. Ziegler and Company on April 21, 1986, and became Chief Executive
Officer of both companies on January 1, 1990. He previously served as
Executive Vice President since January 1, 1985. He is presently a director of
West Bend Mutual Insurance Company, West Bend, Wisconsin and Trustmark
Insurance Company, Lake Forest, Illinois. Mr. Ziegler is the son of R. D.
Ziegler, Chairman of the Company and a first cousin of Mr. B. C. Ziegler III,
a Director of the Company.
Mr. S. Charles O'Meara began employment with the Company and B. C.
Ziegler and Company as Senior Vice President and General Counsel on January
15, 1993.
Mr. John C. Wagner was elected Senior Vice President - Retail Sales of
the Company and B. C. Ziegler and Company effective November 20, 1989. Prior
thereto, Mr. Wagner served as Vice President of B. C. Ziegler and Company from
April 18, 1988.
Mr. Lynn R. Van Horn was elected Senior Vice President - Finance of the
Company and B. C. Ziegler and Company on March 19, 1990. He joined B. C.
Ziegler and Company as Director of Finance on May 1, 1984 and was elected Vice
President - Finance on March 25, 1985.
Mr. Vernon C. Van Vooren is Treasurer of The Ziegler Companies, Inc. and
was elected Senior Vice President of the Company on January 15, 1980. He
currently heads the commercial paper department of B. C. Ziegler and Company
and serves as President of Ziegler Thrift Trading, Inc.
Mr. Jeffrey C. Vredenbregt was elected Assistant Treasurer and
Controller of the Company and B. C. Ziegler and Company on July 1, 1987. On
March 15, 1993, he was elected Vice President of B. C. Ziegler and Company and
continues in his capacities of Assistant Treasurer and Controller.
Ms. Janine R. Schmidt was elected Corporate Secretary of the Company and
B. C. Ziegler and Company on November 24, 1992.
Item 2. Properties
B. C. Ziegler and Company owns an office building located at
215 North Main Street in West Bend, Wisconsin 53095 which serves
as the home office for the Company and all subsidiaries except WRR
Environmental Services Co., Inc., Ziegler Thrift Trading, Inc. and
the Ziegler Securities Division of B. C. Ziegler and Company.
This three-story building has approximately 77,000 square feet of
space.
B. C. Ziegler and Company also owns two buildings located at
237-239 and 241-243 North Main Street, West Bend, Wisconsin 53095.
These buildings contain four residential rental units and four
rental units for businesses. The business rental units are
currently leased to businesses which are not affiliated with The
Ziegler Companies, Inc. or any of its subsidiaries.
B. C. Ziegler and Company rents commercial space for its
various retail brokerage offices under leases with terms that are
typically three years or less.
Ziegler Securities Division occupies leased premises at One
South Wacker Drive, Suite 3080, Chicago, Illinois 60606; 1850 Mt.
Diablo Boulevard, Suite 640, Walnut Creek, California 94596; 111
Second Avenue, N.E., Suite 915, St. Petersburg, Florida 33701; 112
South West Street, Alexandria, Virginia 22314; and 11925 Wilshire
Boulevard, Suite 316, Los Angeles, California 90025.
Ziegler Leasing Corporation's midwest regional offices
occupy leased premises at 7800 Metro Parkway, Suite 300,
Bloomington, Minnesota 55425, 16000 Bothell Everett Highway, Suite
100, Mill Creek, Washington 98012 and 11479 South Pine Drive,
Suite 22, Parker, Colorado 80134.
Ziegler Thrift Trading, Inc. occupies leased premises at 733
Marquette Avenue, Suite 106, Minneapolis, Minnesota 55402, 336
Robert Street North, Suite 210, St. Paul, Minnesota 55101,
Building 224-2S-34, 3M Center Building, St. Paul, Minnesota 55144
and 670 McKnight Road North, Eastern Heights Bank Building, St.
Paul, Minnesota 55119.
All branch offices of B. C. Ziegler and Company, Ziegler
Securities, Ziegler Leasing Corporation and Ziegler Thrift
Trading, Inc. are located in leased premises with varying terms
from one to ten years.
Ziegler Leasing Corporation and Ziegler Collateralized
Securities, Inc. had, as of December 31, 1994, investments in
leased equipment of $45,553,000 and $10,510,000, respectively.
WRR Environmental Services Co., Inc. owns an office building
and recycling plant located at 5200 State Road 93, Eau Claire,
Wisconsin 54701 which is the sole operating plant for WRR. The
office building and plant buildings are located on approximately
nine acres of land southeast of the city of Eau Claire. In 1994,
WRR purchased an additional 19 acres of land in the vicinity of
its operating plant.
The Company owns one small parcel of partially-improved land
in West Bend, Wisconsin, aggregating about 16 acres, which has
been held for long-term investment.
In 1994, B. C. Ziegler and Company purchased approximately
40 acres of unimproved land in West Bend, Wisconsin for future use
as the site of the Company's home office. The purchase price for
the tract was $660,000.
Item 3. Pending Legal Proceedings
Neither the Company nor any of its subsidiaries has any
material pending legal proceedings other than ordinary routine
litigation incidental to the respective businesses, and other than
the three pending environmental matters at Eau Claire, Wisconsin,
Zionsville, Indiana, and Griffith, Indiana described under the
caption "Environmental Matters" above.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted during the fourth quarter of the
fiscal year 1994 to a vote of security holders.
PART II
Item 5. Market for the Company's Common Stock and Related Security Holder
Matters
Information about the range of bid and asked quotations for
the Company's common stock on the American Stock Exchange for each
quarter during the Company's 1994 and 1993 fiscal years and
information about the cash dividends paid on the Company's common
stock for each quarter during 1994 and 1993 may be found on page
52 of the Company's 1994 Annual Report to Shareholders. Such
information is incorporated herein by reference as if fully set
forth herein.
Item 6. Selected Financial Data
Information about the Company's operating revenue, net
income, earnings per share of common stock, cash dividends per
share declared, total assets, long-term obligations, short-term
notes payable, shareholders' equity and book value per share for
the fiscal years 1990 through 1994 may be found on page 45 of the
Company's 1994 Annual Report to Shareholders. Such information is
incorporated herein by reference as if fully set forth herein.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Information about the Company's changes in financial
condition and results of operations for the fiscal years 1994,
1993 and 1992 may be found on pages 37 through 44 of the Company's
1994 Annual Report to Shareholders. All of the foregoing
information is incorporated herein by reference as if fully set
forth herein.
Item 8. Financial Statements and Supplementary Data
The Company's consolidated financial statements containing
consolidated balance sheets for the fiscal years 1994 and 1993 may
be found on page 16 of the Company's 1994 Annual Report to
Shareholders; consolidated statements of income for the fiscal
years 1994, 1993 and 1992 and consolidated statements of cash
flows for the fiscal years 1994, 1993 and 1992 may be found on
pages 17 through 19 of the Company's 1994 Annual Report to
Shareholders; consolidated statements of stockholders' equity for
1994, 1993 and 1992 may be found on page 20 of the Company's 1994
Annual Report to Shareholders. The consolidated notes to
financial statements, together with the report of Arthur Andersen
LLP, may be found on pages 21 through 36 of the Company's 1994
Annual Report to Shareholders. Such consolidated financial
statements and report of Arthur Andersen LLP are incorporated
herein by reference, see Exhibit 13 at page 22.
Item 9. Disagreements with Accountants on Accounting and Financial
Disclosure
There have been no reportable events during the fiscal years
1994 or 1993.
PART III
Item 10. Directors and Executive Officers of the Company
Information about the Company's directors and those persons
nominated to become directors may be found on pages 4, 5 and 6 of
the Company's March 3, 1995 Proxy Statement. Such information is
incorporated by reference as if fully set forth herein.
Information regarding the executive officers, which is not a
part of the Company's Proxy Statement, is set forth in Part I
above.
Item 11. Executive Compensation
Information required under Item 11 about the compensation
paid by the Company to its Chief Executive Officer and other
executive officers of the Company may be found in the Company's
March 3, 1995 Proxy Statement, which information is incorporated
by reference herein.
Item 12. Security Ownership of Certain Beneficial Owners and Management
Information concerning principal securities holders and
securities holdings of management which may be found on pages 2, 3
and 4 of the Company's March 3, 1995 Proxy Statement is
incorporated by reference as if fully set forth herein.
Item 13. Certain Relationship and Related Transactions
There have been no transactions since the beginning of
fiscal year 1994, or any currently proposed transactions, or
series of similar transactions, to which the Company or any of its
subsidiaries was or is to be party in which the amount exceeds
$60,000 and in which any director, executive officer, any nominee
for election as a director, any security holder owning of record
or beneficially more than 5% of the Common Stock of the Company,
or any member of the immediate family of any of the foregoing
persons had or will have a direct material interest, with the
exception of the following transactions:
Mr. B. C. Ziegler III, current Director, is a shareholder,
director and officer of Z/L Media Corporation, which is the
general managing partner of KXRM Partnership, Colorado Springs,
Colorado. KXRM has entered into three leases with Ziegler Leasing
Corporation, a subsidiary of the Company. Monthly lease payments
total $5,562.77.
PART IV
Item 14(a). Document List
1. Financial Statements
The following financial statements are incorporated herein
by reference in Part II, Page 14 at Item 8 above.
(i) Consolidated balance sheets - December 31, 1994 and 1993.
(ii) Consolidated statements of income - years ended December 31,
1994, 1993 and 1992.
(iii) Consolidated statements of cash flows - years ended December
31, 1994, 1993 and 1992.
(iv) Consolidated statements of stockholders' equity - years
ended December 31, 1994, 1993 and 1992.
(v) Consolidated notes to financial statements - December 31,
1994 and 1993.
(vi) Report of Independent Public Accountants.
2. Supplementary Data and Financial Statement Schedule
The following financial statement schedule in response to
this Item 14(a) is submitted as a separate section of this report:
Report of Independent Public Accountants on Supplemental Schedule.
SCHEDULE II - Valuation and Qualifying Accounts.
Report of Independent Public Accountants on and Financial
Statements of Ziegler Mortgage Securities, Inc. II (Commission
file number: 33-28290, 33-21324, 33-10076, 33-1726 on Form 10-K
[33-28290]).
3. Exhibits Required by Securities and Exchange Commission Regulation
S-K:
(3) a. Articles of Incorporation of the Company, previously
filed as Exhibit C to the Company's Proxy Statement
dated March 8, 1993.
b. By-Laws of the Company, previously filed as Exhibit D
of the Company's Proxy Statement dated March 8, 1993.
(4) Instruments Defining the Rights of Security Holders -
Indentures and Guaranty Agreement incorporated herein by
reference under item 10 below.
(9) Voting Trust Agreements - Not applicable pursuant to
Regulation S-K, Item 601.
(10) Material Contracts
a. Form of Indemnification Agreement incorporated by
reference to Exhibit A to the Notice of Special
Meeting and Proxy Statement on July 11, 1986.
b. Trust Indenture dated as of December 1, 1991 between
Ziegler Leasing Corporation and M&I First National
Bank as it relates to $10,000,000 principal amount of
Five-Year Extendable Notes, Series 1991 incorporated
by reference to Exhibit 4.1 to Registration Statement
on Form S-1, Commission File No. 33-43082.
c. Trust Indenture dated December 1, 1991 between Ziegler
Collateralized Securities, Inc. and M&I First National
Bank incorporated by reference to Exhibit 4.1 to
Registration Statement on Form S-3, Commission File
No. 33-42723; First Supplemental Indenture dated
December 1, 1991 incorporated by reference to Exhibit
4.1 to current report on Form 8-K dated December 12,
1991, Commission File No. 33-42723; Second
Supplemental Indenture dated July 1, 1992 incorporated
by reference to Exhibit 4.1 to current report on Form
8-K dated July 17, 1992, Commission File No. 33-42723;
Third Supplemental Indenture dated June 1, 1993; Fifth
Supplemental Indenture dated December 1, 1993; and
Sixth Supplemental Indenture dated October 1, 1994.
d. Guaranty Agreement between The Ziegler Company, Inc.
and M&I First National Bank dated December 1, 1991
incorporated by reference to Exhibit 4.4 to the
Registration Statement on Form S-3, Commission File
No. 33-42723.
e. $10,000,000 Credit Agreement between Ziegler Leasing
Corporation and First Wisconsin National Bank of
Milwaukee, dated May 15, 1991 incorporated by
reference to Item 14(a)3.(10)e of Part IV of the
Company's 1993 Form 10-K.
f. $5,000,000 Term Loan Agreement between Ziegler Leasing
Corporation and M&I Marshall & Ilsley Bank, dated
December 28, 1992 incorporated by reference to Item
14(a)3.(10)e of Part IV of the Company's 1992 Form 10-
K.
g. Indenture dated March 1, 1993 between First Church
Financing Corporation and M&I First National Bank, as
Trustee, relating to mortgage-backed bonds Series 1
incorporated by reference to Exhibit 4.1 to Form 8-K
filed March 25, 1993, Commission File No. 33-35079 and
First Supplemental Indenture dated as of March 1, 1993
incorporated by reference to Exhibit 4.2 to Form 8-K
filed March 25, 1993, Commission File No. 33-35079.
Executive Compensation Plan and Arrangements
h. Nonstatutory Stock Option Agreement referred to in
portions of the Company's March 4, 1994 Proxy
Statement, which information is incorporated by
reference in Item 11 of Part III of this Form 10-K.
i. 1993 Employees' Stock Incentive Plan incorporated by
reference from the March 8, 1993 Proxy Statement.
(11) Statement Re Computation of Per Share Earnings.
(12) Statements Re Computation of Ratios - Not applicable
pursuant to Regulation S-K, Item 601.
(13) 1994 Annual Report to Shareholders.
(18) Letter Re Change in Accounting Principles - Not applicable.
(19) Previously Unfiled Document - Not applicable.
(22) Subsidiaries of the Company.
(23) Published Report Regarding Matters Submitted to Vote of
Security Holders - Not applicable.
(24) Consent of Independent Certified Public Accountants.
(25) Power of Attorney - Not applicable.
(27) Financial Data Schedule
(28) Additional Exhibits
a) March 3, 1995 Proxy Statement.
(29) Information from reports furnished to state insurance
regulatory authorities - Not applicable.
Item 14(b). Reports on Form 8-K
There were no reports on Form 8-K filed during the year
ended December 31, 1994.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Act of 1934, as amended, the registrant has duly caused this report to be
signed on its behalf by the undersigned, hereunto duly authorized.
THE ZIEGLER COMPANIES, INC.
March 20, 1995 By:
Janine R. Schmidt, Secretary
Pursuant to the requirements of the Securities and Exchange Act of 1934,
as amended, this report has been signed below by the following persons on
behalf of the registrant and in the capacities and on the dates indicated.
March 20, 1995
R. Douglas Ziegler
Chairman of the Board, Director
March 20, 1995
Peter D. Ziegler
President and Chief Executive Officer,
Director
March 20, 1995
John C. Frueh, Director
March 20, 1995
John R. Green, Director
March 20, 1995
William R. Holmquist, Director
March 20, 1995
Patrick D. J. Kenny, Director
March 20, 1995
Thomas J. Rolfs, Director
March 20, 1995
Frederick J. Wenzel, Director
March 20, 1995
Bernard C. Ziegler III, Director
March 20, 1995
Lynn R. Van Horn
Senior Vice President - Finance
March 20, 1995
Jeffrey C. Vredenbregt
Assistant Treasurer and Controller
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit No.: Page
<C> <S> <S>
3(a). Articles of Incorporation n/a
3(b). By-Laws n/a
4. Instruments Defining the Rights of Security Holders n/a
9. Voting Trust Agreements n/a
10(a). Indemnification Agreement n/a
10(b). Ziegler Leasing Corporation Trust Indenture n/a
10(c). Ziegler Collateralized Securities, Inc. Trust Indenture n/a
10(d). Guaranty Agreement n/a
10(e). Ziegler Leasing Corporation Credit Agreement n/a
10(f). Ziegler Leasing Corporation Term Agreement n/a
10(g). First Church Financing Corporation Indenture n/a
10(h). Nonstatutory Stock Option Agreement n/a
10(i). 1993 Employees' Stock Incentive Plan n/a
11. Computation of Net Income per Common Share 21
12. Statements Re Computation of Ratios n/a
13. 1994 Annual Report to Shareholders of the Company 22
18. Letter Re Change in Accounting Principles n/a
19. Previously Unfiled Document n/a
22. Subsidiaries of the Company 23
23. Published Report Regarding Matters Submitted to Vote of
Security Holders n/a
24. Consent of Arthur Andersen LLP, Independent Public
Accountants 24
25. Power of Attorney n/a
27. Financial Data Schedule 25
28. Proxy Statement of the Company, March 3, 1995 26
29. Information From Reports Furnished to State Insurance
Regulatory Authorities n/a
</TABLE>
<PAGE> EXHIBIT 11
<TABLE>
COMPUTATION OF NET INCOME PER COMMON SHARE
<CAPTION>
Year Ended December 31
1994 1993 1992
<S> <C> <C> <C>
Weighted Average Shares Outstanding
Before Adjustments 2,385,920 2,382,957 2,535,418
Incremented Shares Related to
Restricted Common Stock (1) 2,666 - -
Weighted Average Shares Outstanding 2,388,586 2,382,957 2,535,418
Net Income $2,005,056 $4,531,024 $5,086,534
Per Share Amount $ .84 $1.90 $2.01
</TABLE>
(1) Calculation is based on the treasury stock method using average market
price.
<PAGE>
EXHIBIT 13
1994 ANNUAL REPORT TO SHAREHOLDERS OF THE COMPANY
<PAGE>
EXHIBIT 22
<TABLE>
SUBSIDIARIES OF THE COMPANY
<CAPTION>
Percentage of
Subsidiaries of the Registrant Subsidiary Voting Stock Owned
The Ziegler Companies, Inc. Incorporated by Registrant
<S> <C> <S>
B. C. Ziegler and Company Wisconsin 100%
Ziegler Leasing Corporation Wisconsin 100%
Ziegler Financing Corporation Wisconsin 100%
Ziegler Thrift Trading, Inc. Minnesota 100%
Ziegler Asset Management, Inc. Wisconsin 100%
Ziegler Collateralized Securities, Inc. Wisconsin 100%
First Church Financing Corporation Wisconsin 100%
WRR Environmental Services Co., Inc. Wisconsin 100%
</TABLE>
The Registrant and all of the above subsidiaries are included in the
accompanying consolidated financial statements.
<PAGE>
EXHIBIT 24
CONSENT OF ARTHUR ANDERSEN LLP
INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the
incorporation by reference in this Annual Report on Form 10-K of The Ziegler
Companies, Inc. of our report dated February 3, 1995, included in the 1994
Annual Report to Shareholders of The Ziegler Companies, Inc.
We also consent to the incorporation by reference in the Registration
Statement (Form S-8 No. 33-39543) of The Ziegler Companies, Inc. and related
Prospectus pertaining to The Ziegler Company, Inc.'s 1989 Employees' Stock
Purchase Plan and in the Registration Statement (Form S-8 No. 33-74636) of The
Ziegler Companies, Inc. and related Prospectus pertaining to The Ziegler
Company, Inc. 1993 Employees' Stock Incentive Plan, of our report dated
February 3, 1995, with respect to the financial statements of The Ziegler
Companies, Inc. incorporated by reference in this Annual Report (Form 10-K)
for the year ended December 31, 1994.
We also consent to the incorporation by reference in the Registration
Statement (Form S-3 No. 33-42723) of Ziegler Collateralized Securities, Inc.
and related Prospectus of our report dated February 3, 1995, with respect to
the financial statements of The Ziegler Companies, Inc. incorporated by
reference in this Annual Report (Form 10-K) for the year ended December 31,
1994.
ARTHUR ANDERSEN LLP
Milwaukee, Wisconsin,
March 24, 1995.
<PAGE>
EXHIBIT 27
FINANCIAL DATA SCHEDULE
<PAGE>
EXHIBIT 28
PROXY STATEMENT
March 3, 1995
<PAGE>
THE ZIEGLER COMPANIES, INC.
SUPPLEMENTAL SCHEDULE TO
THE FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1994, 1993 AND 1992
Report of independent public accountants on supplemental schedule
SCHEDULE II Valuation and Qualifying Accounts
Report of independent public accountants and financial statements of Ziegler
Mortgage Securities, Inc. II (Commission file number: 33-28290, 33-21324, 33-
10076, 33-1726 on Form 10-K [33-28290]).
All other schedules are not submitted because they are not applicable or not
required or because the required information is included in the financial
statements as incorporated by reference or notes thereto.
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
ON SUPPLEMENTAL SCHEDULE
To the Board of Directors of
The Ziegler Companies, Inc.:
We have audited in accordance with generally accepted auditing
standards, the financial statements included in The Ziegler Companies, Inc.
Annual Report to Shareholders incorporated by reference in this Form 10-K, and
have issued our report thereon dated February 3, 1995. Our audit was made for
the purpose of forming an opinion on those statements taken as a whole. The
schedule on page 29 is the responsibility of the Company's management and is
presented for purposes of complying with the Securities and Exchange
Commission's rules and is not part of the basic financial statements. This
schedule has been subjected to the auditing procedures applied in the audit of
the basic financial statements and, in our opinion, fairly states in all
material respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Milwaukee, Wisconsin,
February 3, 1995.
<PAGE>
<TABLE>
SCHEDULE II
THE ZIEGLER COMPANIES, INC.
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
<CAPTION>
Additions
Charged to
Balance at Additions Other Balance at
December 31, Charged to Accounts Deductions December 31,
Description 1993 Expense (Note 3) (Note 1) 1994
<S> <C> <C> <C> <C> <C>
Reserve for loan
losses (Note 2) $2,519,931 $335,685 $711,729 $(2,515,726) $1,051,619
<CAPTION>
Additions
Charged to
Balance at Additions Other Balance at
December 31, Charged to Accounts Deductions December 31,
Description 1992 Expense (Note 3) (Note 1) 1993
<S> <C> <C> <C> <C> <C>
Reserve for loan
losses (Note 2) $2,251,704 $165,746 $536,327 $ (433,846) $2,519,931
<CAPTION>
Additions
Charged to
Balance at Additions Other Balance at
December 31, Charged to Accounts Deductions December 31,
Description 1991 Expense (Note 3) (Note 1) 1992
<S> <C> <C> <C> <C> <C>
Reserve for loan
losses (Note 2) $2,216,318 $444,344 $ 27,400 $ (436,358) $2,251,704
</TABLE>
NOTES:
(1) These deductions represent charge-offs for the purpose for which the
reserve was established.
(2) The reserve is offset against the corresponding assets in the balance
sheet.
(3) The additions represent adjustments to prior charge-offs.
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders and Board of Directors of
Ziegler Mortgage Securities, Inc. II:
We have audited the accompanying balance sheets of ZIEGLER MORTGAGE
SECURITIES, INC. II (a Wisconsin corporation) as of December 31, 1994 and
1993, and the related statements of operations, changes in stockholders'
equity and cash flows for each of the three years in the period ended December
31, 1994. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Ziegler Mortgage
Securities, Inc. II as of December 31, 1994 and 1993, and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1994, in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
Milwaukee, Wisconsin,
March 24, 1995.
<PAGE>
<TABLE>
ZIEGLER MORTGAGE SECURITIES, INC. II
BALANCE SHEETS
AS OF DECEMBER 31, 1994 AND 1993
<CAPTION>
1994 1993
ASSETS
<S> <C> <C>
Cash $ 87,263 $ 40,485
Money market investments, at cost which
approximates market 104,483 441,368
Demand note with The Ziegler Companies, Inc.,
at cost, which approximates market 402,205 -
Total cash and cash equivalents 593,951 481,853
Cash and investments held by trustee, at cost,
which approximates market 4,142,583 24,960,609
Accrued interest receivable 844,075 950,892
Mortgage Certificates, held by trustee (net
of purchase discount of $3,453,038 and
$3,752,259, respectively) 113,401,638 122,749,538
Deferred issuance costs 3,409,878 3,807,061
Total assets $122,392,125 $152,949,953
LIABILITIES AND STOCKHOLDERS' EQUITY
Accrued interest payable $ 3,613,928 $ 4,996,449
Mortgage Certificate-Backed Bonds payable 117,018,000 145,809,000
Payable to B. C. Ziegler and Company 240,197 124,504
Total liabilities 120,872,125 150,929,953
Stockholders' Equity:
Preferred Stock, $.10 par value, non-voting,
$9.00 non-cumulative dividend,
$100 redemption price;
200,000 shares authorized,
15,000 and 20,000 shares issued and
outstanding, respectively 1,500,000 2,000,000
Common Stock, $1 par value,
56,000 shares authorized,
20,000 shares issued and outstanding 20,000 20,000
Retained earnings - -
Total stockholders' equity 1,520,000 2,020,000
Total liabilities and
stockholders' equity $122,392,125 $152,949,953
</TABLE>
The accompanying notes to financial statements are an integral part of these
balance sheets.
<PAGE>
<TABLE>
ZIEGLER MORTGAGE SECURITIES, INC. II
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
<CAPTION>
1994 1993 1992
<S> <C> <C> <C>
Revenues:
Interest income $10,129,823 $14,773,591 $17,563,731
Gain on sale of mortgage
certificates 1,014,811 2,237,059 960,618
Total revenues 11,144,634 17,010,650 18,524,349
Expenses:
Interest expense 9,654,473 14,443,586 16,979,721
Amortization of deferred
issuance costs 1,111,631 2,138,311 1,258,195
Management fee 158,801 179,930 52,436
General and administrative 219,729 248,823 233,997
Total expenses 11,144,634 17,010,650 18,524,349
Income before income taxes - - -
Provision for income taxes - - -
Net income $ - $ - $ -
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
<PAGE>
<TABLE>
ZIEGLER MORTGAGE SECURITIES, INC. II
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
<CAPTION>
Common Stock Preferred Stock Total
Number Number Stock-
of of Retained holders'
Shares Amount Shares Amount Earnings Equity
<S> <C> <C> <C> <C> <C> <C>
Balance at
December 31, 1991 20,000 $20,000 24,000 $2,400,000 $ - $2,420,000
Issuance of common
stock 10,000 10,000 - - - 10,000
Redemption of common
stock (10,000) (10,000) - - - (10,000)
Redemption of
preferred stock - - (4,000) (400,000) - (400,000)
Net income - - - - - -
Balance at
December 31, 1992 20,000 20,000 20,000 2,000,000 - 2,020,000
Net income - - - - - -
Balance at
December 31, 1993 20,000 20,000 20,000 2,000,000 - 2,020,000
Redemption of
preferred stock - - (5,000) (500,000) - (500,000)
Net income - - - - - -
Balance at
December 31, 1994 20,000 $20,000 15,000 $1,500,000 $ - $1,520,000
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
<PAGE>
<TABLE>
ZIEGLER MORTGAGE SECURITIES, INC. II
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
<CAPTION>
1994 1993 1992
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ - $ - $ -
Adjustments to reconcile net
income to net cash provided by
(used in) operating activities:
Gain on sale of Mortgage
Certificates (1,014,811) (2,237,059) (960,618)
Discount accretion on
Mortgage Certificates (116,878) (163,050) (187,191)
Amortization of deferred
issuance costs 1,111,631 2,138,311 1,258,195
Change in assets and
liabilities:
Decrease (Increase) in -
Funds held by trustee 20,874,119 (16,403,461) 4,124,638
Accrued interest
receivable 119,467 406,615 220,715
Receivable from B. C.
Ziegler and Company - 24,679 (24,679)
Increase (Decrease) in -
Payable to B. C. Ziegler
and Company (26,943) 124,504 (105,780)
Accrued interest payable (1,430,566) (1,294,567) (915,404)
Net cash provided by (used in)
operating activities 19,516,019 (17,404,028) 3,409,876
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash acquired through merger 55,249 - -
Sale and redemption of Mortgage
Certificates 33,126,215 64,362,572 34,157,898
Purchase of Mortgage Certificates (20,681,090) (15,208,792) (9,231,805)
Net cash provided by investing
activities: 12,500,374 49,153,780 24,926,093
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of Mortgage Certificate-
Backed Bonds 20,749,705 15,134,070 9,288,125
Principal payments on Mortgage-
Certificate-Backed Bonds (52,154,000) (46,495,000) (37,336,000)
Redemption of preferred stock (500,000) - (400,000)
Net cash used in financing
activities (31,904,295) (31,360,930) (28,447,875)
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS 112,098 388,822 (111,906)
CASH AND CASH EQUIVALENTS AT
BEGINNING OF YEAR 481,853 93,031 204,937
CASH AND CASH EQUIVALENTS AT
END OF YEAR $ 593,951 $ 481,853 $ 93,031
SUPPLEMENTAL DISCLOSURES OF
CASH FLOW INFORMATION:
Interest paid during the year $11,085,000 $15,738,000 $17,895,000
Income taxes paid during
the year $ - $ - $ -
SUPPLEMENTAL SCHEDULE OF NONCASH
INVESTING ACTIVITIES:
Assets acquired through merger,
primarily Mortgage Certificates $ 2,096,000 $ - $ -
Liabilities assumed through
merger, primarily Mortgage
Certificate-Backed Bonds $ 2,151,000 $ - $ -
</TABLE>
The accompanying notes to financial statements are an integral part of these
statements.
<PAGE>
ZIEGLER MORTGAGE SECURITIES, INC. II
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1994 AND 1993
(1) Organization -
Ziegler Mortgage Securities, Inc. II (the "Company") is a limited
purpose finance company. The Company was organized to facilitate
the financing of mortgage loans. The common stock of the Company
is owned equally by The Ziegler Companies, Inc. and James G.
Pouros.
(2) Summary of Significant Accounting Policies -
Mortgage Certificates are carried at par value less unamortized
purchase discount. The purchase discount on the Mortgage
Certificates is amortized over the life of the related outstanding
Mortgage Certificate-Backed Bonds (the "Bonds") using the bonds
outstanding method which approximates the effective interest rate
method. The market values of the Mortgage Certificates at
December 31, 1994, 1993 and 1992 were approximately $112,825,000,
$132,029,000 and $182,971,000, respectively.
Deferred bond issuance costs consist of underwriting discounts and
other expenses of issuance and distribution. Such costs are
amortized over the life of the outstanding Bonds using the bonds
outstanding method which approximates the effective interest rate
method.
Cash equivalents are defined as unrestricted short-term
investments maturing within three months of the date of purchase.
The $402,205 demand note with The Ziegler Companies, Inc. is for
funds deposited with The Ziegler Companies, Inc. which have been
invested in daily reverse repurchase agreements collateralized by
securities guaranteed by the full faith and credit of the United
States.
(3) Mortgage Certificates -
The Mortgage Certificates consist of GNMA Certificates (comprising
88% of the portfolio as of December 31, 1994) guaranteed by the
Government National Mortgage Association ("GNMA") and/or
Guaranteed Mortgage Pass-Through Certificates (comprising 12% of
the portfolio) issued by the Federal National Mortgage Association
("FNMA") (collectively the "Mortgage Certificates"). The full and
timely payment of the principal and interest on the GNMA
Certificates is guaranteed by GNMA. The GNMA guaranty is backed
by the full faith and credit of the United States government.
FNMA guarantees the payment of principal and interest on the FNMA
Certificates but the FNMA guaranty is not backed by the full faith
and credit of the United States government.
Principal and interest payments received from the Mortgage
Certificates are controlled by the trustee. These funds are
utilized to meet the semiannual interest payments on the Bonds, to
reduce the outstanding principal balance of the Bonds and to pay
certain operating expenses of the Company.
(4) Mortgage Certificate-Backed Bonds Payable -
Bonds outstanding at December 31, 1994, consist of the following:
<TABLE>
<CAPTION>
Outstanding
Principal
Original Amounts
Date of Stated Principal at
Series Rate Bonds Maturity Amounts 12/31/94
<C> <C> <C> <C> <C> <C>
10 8.90% 10/1/86 10/1/21 $ 8,200,000 $ 2,552,000
15 7.75% 4/1/87 4/1/22 3,522,000 1,594,000
16 9.00% 5/1/87 1/1/22 4,500,000 2,311,000
18 9.15% 6/1/87 5/1/22 7,372,000 5,848,000
19 9.15% 6/1/87 5/1/22 5,750,000 3,836,000
20 9.00% 7/1/87 6/1/22 5,418,000 3,528,000
21 9.00% 7/1/87 6/1/22 5,266,000 4,920,000
22 9.10% 8/1/87 12/1/21 5,650,000 2,472,000
24 9.20% 10/1/87 2/1/22 5,237,000 5,027,000
33 9.10% 4/1/88 10/15/21 7,054,000 3,687,000
34 9.35% 6/1/88 5/15/23 4,163,000 3,347,000
37 9.10% 7/1/88 5/15/23 3,565,000 1,745,000
39 9.40% 8/1/88 8/15/23 5,780,000 3,840,000
40 9.50% 9/1/88 9/15/23 6,800,000 3,951,000
41 9.30% 10/1/88 10/15/23 4,655,000 4,286,000
42 9.20% 10/1/88 10/15/23 4,000,000 3,687,000
45 9.45% 2/1/89 1/15/24 3,950,000 3,853,000
47 9.75% 5/1/89 2/15/24 3,744,000 3,657,000
49 8.45% 7/1/89 7/15/22 2,740,000 2,639,000
52 9.35% 5/1/90 5/15/20 3,000,000 782,000
55 9.00% 9/1/90 10/1/20 3,244,000 706,000
60 8.30% 6/1/91 6/15/24 3,326,000 3,254,000
61 8.00% 9/1/91 11/15/19 3,390,000 1,659,000
62 7.25% 2/1/92 4/15/22 2,925,000 1,718,000
63 7.60% 5/1/92 5/15/22 3,400,000 2,005,000
64 7.40% 6/1/92 6/15/22 3,300,000 1,914,000
65 7.00% 1/1/93 1/15/28 3,029,000 2,994,000
66 7.00% 1/1/93 1/15/28 3,000,000 2,971,000
67 6.40% 3/1/93 12/15/13 3,585,000 3,450,000
68 6.25% 4/1/93 5/1/23 3,000,000 2,804,000
69 6.00% 5/1/93 5/1/23 3,022,000 2,643,000
70 6.00% 3/1/94 11/15/28 3,390,000 3,380,000
71 7.00% 4/1/94 9/20/23 3,015,000 3,015,000
72 7.00% 4/1/94 10/15/23 2,897,000 2,882,000
73 7.00% 4/1/94 4/15/24 3,130,000 3,130,000
74 7.10% 5/1/94 2/15/24 3,145,000 3,145,000
75 7.10% 6/1/94 2/15/24 3,290,000 3,290,000
76 7.35% 9/1/94 9/15/29 2,535,000 2,535,000
156,989,000 115,057,000
<CAPTION>
American Mortgage Securities, Inc.
Mortgage Certificate-Backed Bonds
<C> <C> <C> <C> <C> <C>
5 7.35% 3/1/92 3/1/22 3,000,000 1,961,000
$159,989,000 $117,018,000
</TABLE>
The stated maturities are the dates on which Bonds will be fully
paid assuming no prepayments are received on the Mortgage
Certificates which serve as collateral for the Bonds and no Bonds
are called. The stated maturities of the Bonds will be shortened
by prepayments on the Mortgage Certificates and by any Bond calls.
The Bonds can be redeemed each month without premium under the
following circumstances:
The Company must call the Bonds, to the extent funds are
available, commencing in the twelfth month following the
original issuance of each series or commencing at such time
as the aggregate balance in the redemption fund, as defined
in the prospectus, for each series that reaches $100,000;
whichever occurs first.
The Bonds of any series may be redeemed in whole by the
Company after the third anniversary of the original issuance
and, commencing with Series 16 bonds, at any time as the
outstanding principal amount of such series is less than 10%
of the aggregate principal amount of such series originally
issued.
Bondholders can present their Bonds for redemption each
month commencing with the second calendar month following
the month in which each series is originally issued. The
Company will redeem such Bonds to the extent funds are
available.
The market values in the secondary bond market of the Bonds
outstanding as of December 31, 1994 and 1993, approximated
$111,150,000 and $148,738,000, respectively.
(5) Related Parties -
B. C. Ziegler and Company, a wholly-owned subsidiary of The
Ziegler Companies, Inc. which owns 50% of the Company's
outstanding stock, is the sole underwriter for the Bonds issued by
the Company. In its capacity as underwriter, B. C. Ziegler and
Company received a fee for its services equal to a percent of the
Bonds offered by the Company.
B. C. Ziegler and Company provided management and administrative
services to the Company for which, pursuant to a management
agreement with the Company, they were entitled to receive a
management fee not to exceed .375% of the aggregate outstanding
principal amount of bonds issued by the Company at the last day of
the month preceding each semiannual payment date. Any calculated
management fee is retroactively reduced to such amount (not less
than zero) and will prevent the Company from suffering a loss for
each fiscal year.
As of December 31, 1994 and 1993, the Company owed B. C. Ziegler
and Company $97,561 and $124,504, respectively, for accrued
management fees. As of December 31, 1994, the Company also owed
B. C. Ziegler and Company $142,636 which was AMSI indebtedness to
B. C. Ziegler and Company at the time of the merger discussed
below. During 1994, the Company redeemed 5,000 shares of the
preferred stock from B. C. Ziegler and Company, the sole owner of
the Company's preferred stock, for $500,000.
(6) Merger -
Effective December 30, 1994, the Company merged with American
Mortgage Securities, Inc. ("AMSI"), another limited purpose
finance company organized to facilitate the financing of mortgage
loans. Prior to the merger, AMSI was owned 50% by The Ziegler
Companies, Inc. and 50% by Mr. James G. Pouros. The Company was
the surviving corporation and assumed all the assets and
liabilities of AMSI at year end 1994. These assets and
liabilities, primarily one outstanding bond issue totaling
$1,961,000 which is collateralized by a separate pool of Mortgage
Certificates totaling $1,966,000, at amortized cost, are included
in the Company's Balance Sheet as of December 31, 1994. The
merger produced no effect on the Company's 1994 operations since
it was not effective until year end.
THE ZIEGLER COMPANIES, INC.
1994 ANNUAL REPORT
1994 will be remembered by our industry as a year of difficult financial
markets - a year in which outside forces had a great effect on our success.
But within the walls of The Ziegler Companies, Inc, our 93rd year of business
will be remembered as a year we began to reshape our own future. We invested
in new services that are needed by our existing clients - and are a natural
extension of our traditional core of financial services.
And in 1994 our people began a metamorphosis, shedding some conventional ideas
and looking at our businesses in a new light. Going forward, we aim to become
a growing, thriving network linking people and the financial services that
help them prosper.
<TABLE>
<CAPTION>
Table of Contents
<S> <C>
Financial Highlights 3
Letter to Shareholders 4
Summary of Operations 13
Officers and Directors 47
Investor Information 53
</TABLE>
<TABLE>
Financial Highlights
<CAPTION>
For the Year Ended
December 31,
1994 1993
<S> <C> <C>
Total Revenues $48,474,000 $50,861,000
Income Before Income Taxes 3,122,000 7,424,000
Net Income 2,005,000 4,531,000
Per share
Net Income $ .84 $1.90
Dividends Declared $ .72 $1.07
Average Common Shares Outstanding 2,388,586 2,382,957
Number of Common Shareholders 590 617
</TABLE>
Corporate Creed
We believe in the American free enterprise system. We shall consistently
treat our customers, employees, shareholders and community with honesty,
dignity, fairness and respect. We will conduct our business with the highest
ethical standards.
<PAGE>
Letter to Shareholders
1994 strongly challenged your Company. A year ago at this time I wrote that
your management would be managing with an eye toward the end of the bull
markets that we and most investors had enjoyed for a number of years. The end
came quickly and viciously. By any measure, the fixed-income markets of 1994
were a disaster. One has to go back to the 1920's to find a year when the
fixed-income markets performed so poorly.
While we have put in place a number of business strategies designed to temper
our reliance on the fixed-income markets, 1994 demonstrated to us that we have
much to accomplish in this regard. Our single most important objective is to
manage the Company for a more consistent bottom line.
The Ziegler Companies, Inc.'s 1994 net income was $2,005,000, down from
$4,531,000 in 1993. Earnings per share declined to 84 cents from $1.90 in
1993. Book value per share at year-end 1994 was $20.68.
Cash dividends declared in 1994 were 72 cents per share compared to $1.07 in
1993. Included in 1994's declared dividend was a 20 cent per share extra
dividend declared in the fourth quarter. 1994 marked the 43rd consecutive
year that cash dividends have been paid on your Company's common shares.
Despite 1994's declared dividends declining 35 cents per share from those in
1993, a substantially larger share of 1994's net income was paid out in
dividends. This is consistent with the philosophy previously expressed by
your management and directors, whereby a high payout of earnings will be made
until a more satisfactory return on shareholder equity is achieved. We will
continue this philosophy unless the capital is required to operate the
business or worthy investment opportunities present themselves, including the
buyback of outstanding shares.
B. C. Ziegler and Company
Your flagship subsidiary bore the brunt of the fixed income markets' decline
in 1994. B.C. Ziegler and Company (BCZCO) operated at essentially a breakeven
level, amplifying its heavy reliance on the fixed-income underwriting markets.
All major underwriting businesses of BCZCO registered declines in 1994.
BCZCO's general corporate finance division's underwriting volume in 1994 was
$94,600,000, down 31% from 1993. With escalating interest rates in 1994,
there were fewer refinancing opportunities. This division underwrote 30
issues, with its primary emphasis on the church and school market. We believe
we continue to be the nation's largest underwriter of such securities. In
1994 we began offering investment management services to this market. We were
quite successful as many of these not-for-profit organizations saw the value
added by our fixed-income management services to the investment of their bond
issue proceeds, sinking funds and reserve funds. Our challenge going forward
is to seek out additional products and services that we can profitably offer
this market where we enjoy many fine relationships.
Ziegler Securities Division (ZSD) had to contend with not only a faltering
municipal bond market but also the persistent threat of national healthcare
reform, which dampened new money issuance. The municipal bond market suffered
its largest percentage drop in new issuance in 50 years as volume dropped $130
billion, or 44% from 1993. The healthcare sector of the municipal market saw
new issuance drop 54%. With that perspective, ZSD underwrote $595,000,000 of
healthcare and long-term care bonds, down from $947,000,000 in 1993. In
addition, ZSD currently acts as remarketing agent for $489,000,000 of variable
rate demand notes. While long-term care underwriting volume was down in 1994,
ZSD continues to be recognized as the national leader in this market segment.
The retail distribution division of BCZCO saw gross revenue decline 23% as a
result of fewer retail underwritings; higher interest rates which reduced
investable dollars from bond calls; and reduced sales of most shelf products,
particularly mutual funds. Our mutual fund sales declined from $80,000,000 in
1993 to $54,000,000 in 1994, which is not surprising considering that the
average bond and stock mutual fund lost money last year. A telling statistic
is that only 25 of the 3,233 fixed income mutual funds had a positive total
return in 1994.
During the year, we increased our number of retail investment brokers by five,
bringing the total to 64. We recognize that the size of our retail sales
force has not kept pace with the industry nor with our general underwriting
capacity. As discussed later, we are making significant moves to assist us in
our efforts to recruit brokers.
Our family of mutual funds, Principal Preservation Portfolios, ended the year
with total assets of $254,000,000, a decline of $19,000,000 from year-end
1993. We experienced net redemptions on the whole, but most particularly in
our bond funds, which was an industry-wide phenomenon. Consequently, the
profitability of our mutual fund division declined in 1994. Principal
Preservation introduced two new funds during 1994: a tax-exempt bond fund
that provides double tax-exempt income for Wisconsin residents and a mid-cap
equity fund. With a well-rounded family of funds offering vehicles to meet
most investment objectives, we will turn our attention to marketing in 1995.
BCZCO's independent insurance agency turned in record profitability in 1994.
This was the result of two primary factors: substantial new business and a
high level of performance-based commission from the insurance companies it
represents. During the third quarter, it started a new division called
Ziegler Financial Agency. This general agency will distribute financial
insurance-based products through an existing network of Wisconsin-based
independent insurance agencies.
In December of 1994 we opened a preferred stock sales and trading office of
BCZCO in Mequon, Wisconsin. This division is staffed by five professionals
who have developed a niche in the institutional and broker/dealer preferred
stock marketplace.
Ziegler Asset Management, Inc.
Ziegler Asset Management, Inc. (ZAMI) experienced another year of growth, and
ended the year with $523,000,000 in assets under management. However, profits
declined in this subsidiary, primarily as a result of the continued investment
in human resources to support future growth. In that regard, we opened a ZAMI
office in Milwaukee late in the third quarter, staffed by five new employees
who offer specialized fixed-income management services. With the
infrastructure of ZAMI now well established, our focus going forward is to
increase profitability.
Ziegler Leasing Corporation
Ziegler Leasing Corporation (ZLC) net income declined 29% in 1994. This drop
was primarily the result of two factors. First, lease income was down in 1994
as a result of the average size of the lease portfolio in 1994 being smaller
than in 1993. Second, ZLC's ownership in Ziegler Medical Equipment Group
(ZMEG), a start-up venture begun in the first half of 1994, showed a loss of
$143,000. We will monitor the progress of this joint venture closely in 1995.
On the positive side, gains on sale of equipment were substantially over
budget, verifying our conservative approach to booking residuals. Further, we
had success cracking a new, rapidly growing market, the energy management
industry. John J. Becker, Chief Executive Officer and founder of ZLC in 1971,
will retire in the first quarter of this year. Under John's leadership, ZLC
has grown to become a significant force in the healthcare equipment leasing
industry, as well as a substantial contributor to your Company's earnings.
Mark E. Sedlmeier, President and Chief Operating Officer, has worked with John
for the last 12 years and will ably assume the CEO position upon John's
retirement.
Ziegler Thrift Trading, Inc.
Ziegler Thrift Trading, Inc. (ZTT) profits were down in 1994, primarily as a
result of retail ticket volume dropping 14% from 1993. Also contributing to
the decline were the expenses associated with opening a new office. Despite
this, 1994 was ZTT's third best year ever. ZTT began emphasizing its mutual
fund services in 1994 with encouraging results in the later part of the year.
Additional new offices are scheduled to open in early 1995.
Waste Research and Reclamation Co., Inc.
Waste Research and Reclamation Co., Inc. (WR&R) was a bright spot in 1994.
Net income more than doubled on a 12.7% increase in revenues. These results
came in the face of extreme margin pressure and a maturing hazardous waste
processing industry. WR&R's improved earnings were achieved as the result of
new services introduced in the last couple of years, particularly remediation
services. As waste minimization by generators continues to depress capacity
utilization and margins of the waste processing industry, WR&R will have to
continue to exploit new markets and services to grow its profitability. In
January of 1995, WR&R changed its name to WRR Environmental Services Co., Inc.
to better reflect the changing nature of the services it offers and the
markets it serves.
Challenges
I would be remiss if I closed without giving a brief overview of where BCZCO
has evolved from, and where we plan to go in the future.
Like many businesses, ours have evolved over the years out of niche markets.
Our retail distribution grew rapidly out of the need to sell fixed-income
securities which BCZCO underwrote for hospitals, churches and other
institutions. In the 1960's we had a dominating presence as an underwriter in
these markets. Our retail customers became very loyal to our Company's high
quality and attractive yielding fixed income securities. As the healthcare
market exploded with growth, subsidized by Federal reimbursement programs,
free enterprise worked well; competition in investment banking services came
from all angles to capitalize on the growth.
Investment Banking
On the investment banking side, we still excel in these specialized markets.
We are recognized as one of the leading investment bankers in financing
not-for-profit corporations, including acute care hospitals, clinics,
ambulatory care facilities, medical office buildings, retirement centers and
other healthcare related entities. In addition, we are the largest
underwriter of church securities. However, these markets are maturing with
the classical signs of slower growth, greater competition and declining
margins. Additionally, in the healthcare market, a revolution is taking place
as both consolidation and integration accelerate in the delivery systems.
Overlaying all of this is the fact that in the securities industry, more so
than in almost any other industry, factors outside of management's control
cause major swings in prices, volume and ultimately profitability. This is
best evidenced by BCZCO's 1994 performance (or lack thereof) and a securities
industry that saw its record profits of 1993 decline 80% in 1994. Volume
drops of 40-60% in many sectors of fixed income underwriting were not uncommon
for investment bankers in 1994. BCZCO has the highest concentration of its
revenue derived from underwriting of any publicly traded regional securities
firm.
Our challenge is to offer additional value-added services to these markets
where we enjoy such a fine reputation. Our objective is to build new revenue
streams that are less volatile and complement our underwriting capabilities.
While we have had some success in this arena, our strategies to meet this
challenge are discussed following this letter.
Retail Sales
On the retail side of BCZCO, our complexion is changing as well. Our clients,
just like those of other firms, are not as loyal. Our investor base is not
growing. Competition for the investor's dollar is fierce among all financial
intermediaries and product proliferation continues unabated (although many
times to the detriment of the investing public). The evolution of our retail
distribution system has not changed as quickly as the marketplace. Still over
half of our retail gross revenues continue to be derived from BCZCO
underwritten bonds. This is great when markets are strong and margins wide --
not so great when volume falls and margins narrow, as they did in 1994.
We have to change the way we do business to not only avoid the extreme
cyclical swings in our business, but increase the return on equity of
shareholders throughout the cycle. If we don't accomplish this goal,
shareholders will choose to invest their money elsewhere, and will be
justified in doing so.
These issues are not new to your management. They are being addressed with
all the energy we possess. I have communicated with all of your Company's
employees about the need for change. We are communicating with and involving
all employees in this process -- not on a one-time basis, but on a continuing
basis.
Following this letter is a section which identifies our major challenges and
maps out the strategies to meet those challenges. Of major importance and
worth noting here, is that in mid-1995, BCZCO investment brokers will be
allowed to solicit equity trades for the first time in our corporate history.
This step is being taken in response to the needs and desires of our clients.
An Investment In Our Future
As mentioned in previous reports, we continue to invest in your most important
asset -- human capital. This investment cut into profitability in 1994 and
will again in 1995. These are long-term investments which should produce
handsome returns. Given the changes we have initiated, as well as the market
conditions we are experiencing, employees and shareholders will have to take a
long-term outlook to realize these returns.
All of us at The Ziegler Companies, Inc. want to give special recognition to
Vernell D. Krueger, who retired from BCZCO in February of 1995 after 42 years
of service. Vernell was Vice President-Operations and was responsible for
day-to-day service to our customers and investment brokers. Vernell has been
a model of integrity, work ethic and fairness, traits for which BCZCO is
recognized.
In April of 1994 John R. Green, a partner with Green Manning & Bunch, a
merchant banking firm in Denver, was elected to your Board of Directors. Jack
brings with him experience in the brokerage and investment banking industry.
We look forward to years of counsel from Jack.
In 1995, Thomas J. Rolfs will retire from the Board of Directors under the
Company's mandatory retirement age. Tom has served diligently and with great
insight as a director of your Company since 1977. During his tenure, he has
always been mindful of what was right for the shareholders and at the same
time being supportive of management and the employees of The Ziegler
Companies. We will miss his wisdom and counsel.
In summary, 1994 was a humbling year. But in the tough years, as well as the
good years, you as shareholders can be proud of how your Company transacted
business -- with integrity, pride, and the value of putting clients' and
shareholders' interests ahead of our own.
It is in the years such as 1994 when the value of hardworking and loyal
associates, trust of our clients, counsel of your directors, and patience of
the shareholders is most appreciated. We are truly grateful.
Sincerely,
Peter D. Ziegler
President & CEO
<PAGE>
Challenges Facing B. C. Ziegler and Company
and
Strategies To Meet Our Challenges
There are several important challenges facing B.C. Ziegler and Company, the
primary subsidiary of The Ziegler Companies, Inc. The two major facets of B.
C. Ziegler and Company's business are investment banking and retail brokerage
services. Here is an overview of the challenges each faces and the strategies
we are following to address them.
INVESTMENT BANKING
Challenge
Provide a more predictable revenue stream by bringing new "value added"
products and services to our healthcare clients. A radically changing
healthcare environment will require cutting-edge expertise.
Strategies
Ziegler Securities Division will be adding new investment banking skills to
meet the needs of our clients. Special emphasis will be on corporate finance
applications, including strategic consulting in creating integrated delivery
systems; equity funding capabilities; and broader distribution of taxable debt
products.
A major focus will be organizing and financing medical group practices.
Ziegler Healthcare Affiliates was formed in 1994 to meet the planning and
financing objectives of these emerging organizations.
In 1995, merchant banking activities will complement and broaden our more
traditional investment banking capability. Critical focus areas are non-
recourse off-balance sheet ownership and financing structures of outpatient
facilities, including medical office buildings.
In 1994, ZSD formed a "Special Products Group" to bring additional expertise
in asset and liability management to our healthcare clients. This is a
growing but complex area that further complements the financial strategies and
products our bankers can offer.
Continuous development of new and innovative investment products, including
GICs, derivatives and other investment products, is being structured and
utilized to manage risk and enhance returns for our healthcare clients. In
1995, we expect to add staff to this area and further broaden its scope.
Challenge
Address the specific needs of the long-term care industry, which is a rapidly
growing and changing industry. As we witness more intense competition in this
specialized market, we must respond with strategies that will enable us to
maintain our position as the preeminent investment banking firm offering
products and services to this market.
Strategies
We will continue to explore ways to benefit from Ziegler Securities Division's
relationship with the American Association of Homes and Services for the Aging
(AAHSA). This relationship will enable the firm to remain at the forefront of
financing continuing-care retirement-center facilities, nursing homes and
independent assisted-living facilities.
In 1994, ZSD established a "housing" practice to complement our existing long-
term care finance capabilities. Low and moderate income housing, assisted-
living and government-subsidized nursing home programs will be the principal
focus of this effort. The FHA mortgage license of Ziegler Financing
Corporation has been reactivated to take advantage of new rules expanding the
availability of this type of financing for both for-profit and non-profit
providers.
Ziegler Securities Division will further broaden our geographic coverage of
long-term care providers through our new office in Washington, D.C.
Challenge
Address the increased competition for church financing from not only other
bond underwriters, but also from banks. Banks have moved into this area to
diversify their loan portfolios.
Strategies
In 1994 we began to focus on schools in marketing our financing capabilities;
we are expanding our approach in 1995 to include Christian colleges.
We have established contacts with professionals that specialize in churches
and other nonprofit corporations, such as accountants, lawyers, architects and
mortgage bankers. This valuable source of financing leads will be further
expanded.
Challenge
Fulfill, through new products and services, the nonfinancing needs of our
church clients.
Strategies
In the past year we provided investment advisory services to enhance the
return that churches and schools received on their sinking funds and unused
construction funds. We will expand this capability to include pension funds
for our larger church clients.
For churches and schools with needs such as portable classrooms, we will offer
leasing services to provide greater financing flexibility to these clients.
RETAIL BROKERAGE
Challenge
Increase a client base that is aging, becoming less loyal and seeking greater
product diversification in a fast-changing and highly competitive marketplace.
Strategies
During 1994 significant attention was given to restructuring our retail sales
division. A new retail sales management team has been created to lead
initiatives identified in a marketing audit of the division which was
completed in 1994. The team is now focusing on initiatives of which
increasing the client base is a priority.
The effort to expand the client base has two facets -- reaching clients who
are inactive and adding new buying households to the client base.
Reactivating clients who aren't currently active with the company is being
approached with new vigor. To provide guidance and direction in the planning
process, a marketing director position was added. A training and recruitment
director position has also been filled.
Product and services development is fundamental to the approach of reaching
less-active clients as well as introducing our investment services to new
clients. Adding stock trading services in 1995 is a key to repositioning the
division as a provider of the breadth of investment services clients demand
today.
Stocks, as a product group, are a means of addressing the aging of our
clientele. The appeal of stocks as a growth vehicle to younger investors is
important in the expansion of the client base. Stocks provide a pivotal means
to reach the preretirement market. A conservative philosophy of high quality,
independent research and service will be an underpinning to our approach to
the equity markets.
We are increasing the number of retail investment brokers to expand the
division's reach to prospective clients as well as existing clients. A
fundamental building block to expand the ability to distribute our products
and to continue improving services is the addition of investment brokers.
Challenge
Break the cyclical swings in revenue generation.
Strategies
The impact of market forces on the fixed-income products distributed by our
retail sales division dominates its ability to generate revenues. The
volatility caused by the extreme cyclical swings is being attacked through a
focus on client needs, product diversification and a wider distribution
capability. A movement toward providing portfolio service rather than a
transaction orientation is underway. Adding independent research and common
stock services in 1995 will be a critical step in fulfilling individual
portfolio development.
New client-driven services, such as a redesigned "client friendly" monthly
statement, will be implemented during the course of 1995. A pilot program
placing personal computers in branch offices has been completed. This program
is designed to move technology closer to the clients to serve them better.
Increased information services for a range of investment needs will be at the
fingertips of brokers when they need to assist clients.
The retail sales division is repositioning itself as a provider of integrated
investment services. Changing perception can be a difficult task, but it's the
mission of our marketing efforts to bring a new awareness of the retail sales
division as not only a quality brokerage of bonds and fixed-income products,
but as a high-quality provider of integrated investment services. This re-
education of clients demands a long-term investment of time and resources.
Within the marketing area, product managers and marketing communications staff
have been added to strengthen our abilities in marketing. It's their task to
bring the message of the changes to our clients and prospective clients.
Improved product planning is a critical element. Continuous input from front-
line sources, idea exchanges and new communication efforts are in place to
move product planning into action. The division is moving toward a
relationship approach with clients to become client driven and to assist our
clients in creating wealth.
<PAGE>
<TABLE>
Consolidated Financial Statements
<CAPTION>
Table of Contents
<S> <C>
Consolidated Balance Sheets 16
Consolidated Statements of Income 17
Consolidated Statements of Cash Flows 18
Consolidated Statements of Stockholders' Equity 20
Notes to Consolidated Financial Statements 21
Auditors' Report 36
Management's Discussion and Analysis 37
</TABLE>
<PAGE>
1994 Summary of Operations
A holding company with eight principal subsidiaries, The Ziegler Companies,
Inc., ("ZCO") provides a wide range of financial services for businesses,
institutions and individuals. B. C. Ziegler and Company ("BCZCO"), Ziegler
Leasing Corporation ("ZLC"), Ziegler Financing Corporation ("ZFC"), Ziegler
Thrift Trading, Inc. ("ZTT"), Ziegler Asset Management, Inc. ("ZAMI"), Ziegler
Collateralized Securities, Inc. ("ZCSI"), and First Church Financing
Corporation ("FCFC") are financial services companies; WRR Environmental
Services Co., Inc. ("WRR" and formerly Waste Research and Reclamation Co.,
Inc.) recycles, reclaims and disposes of industrial chemicals and solvents and
provides pollution abatement services.
ZCO acquired a 33% interest in Heartland Capital Company, LLC ("HCC"), a
start-up company organized to provide construction loans to low-income housing
developments. HCC commenced operations in November 1994.
Operational results for ZCO and its subsidiaries are as follows:
B. C. Ziegler and Company including Ziegler Securities: BCZCO is one of the
nation's leading investment banking firms specializing in underwriting and
marketing tax-exempt and taxable debt securities for hospitals, clinics,
medical office buildings and other healthcare related entities and churches.
In addition, BCZCO is the leading underwriter for long-term care facilities.
Ziegler Securities, headquartered in Chicago, is a major operating division of
BCZCO and is responsible for all healthcare, long-term care and municipal
finance activities of BCZCO.
In addition to traditional underwriting services offered to its clients,
Ziegler Securities also provides financial advisory and consulting services to
healthcare clients through its new Ziegler Healthcare Affiliates division.
Other financial services offered through Ziegler Securities include asset and
liability management, special products for capital restructurings and interest
rate management strategies.
During 1994, Ziegler Securities managed 18 new issues of tax-exempt and
taxable healthcare debt securities totaling $502,895,000. During 1994,
Ziegler Securities also managed 34 issues for long-term care retirement
facilities totaling $302,275,000.
The underwriting volume of the corporate finance group of BCZCO did not keep
pace with the record year of 1993. This group, which performs underwriting in
connection with offerings of taxable bonds for non-profit institutions,
brought 21 bond issues to market in 1994 on behalf of churches, private
schools and other non-profit institutions. The offerings had a total
principal amount of $66,176,000. Included in the 21 issues was the second
offering by FCFC of $4,456,000 of bonds, collateralized by a pool of smaller
church mortgage financings.
Principal Preservation Portfolios, Inc., a family of mutual funds sponsored by
B. C. Ziegler and Company, had assets reduced to approximately $250,000,000
due to falling values in its bond funds, as well as moderate redemptions. The
fund family established two new portfolios, the Wisconsin Tax-Exempt Portfolio
on June 13, 1994, and the Select Value Portfolio on August 23, 1994. The
assets of each of these portfolios were approximately $8,100,000 and
$2,000,000, respectively, on December 31, 1994.
BCZCO has also owned and operated a general independent insurance agency since
its founding in 1902; offices are located in West Bend and Milwaukee,
Wisconsin. The agency maintains direct agency contracts with 26 insurance
companies. Diversified coverages including, but not limited to, life, health,
property, casualty and fidelity insurance are available for personal and
business insurance customer needs. In September 1994, the agency started
Ziegler Financial Agency, a general insurance agency which will distribute
financial insurance-based products through BCZCO and an existing network of
Wisconsin-based independent insurance agencies.
In 1994, total BCZCO revenues were $25,787,000, compared to $30,352,000 in
1993, a 15% decrease. An industry-wide downturn in underwriting volume caused
by higher interest rates and the threat of national healthcare reform was the
major cause of the revenue decrease. Total expenses were $25,899,000 in 1994,
compared to $26,076,000 in 1993, a 1% decrease. The resulting net income was
$3,000 in 1994, compared to $2,659,000 in 1993.
Ziegler Leasing Corporation: ZLC leases diagnostic, laboratory and operating
equipment to hospitals, clinics and other healthcare providers, and it leases
a variety of commercial equipment to financial institutions, insurance
companies and manufacturing concerns. ZLC also offers other financing
alternatives, including non-recourse notes and purchase money security notes
in addition to its leasing alternatives. ZLC's total revenues were
$10,842,000 in 1994, compared to $10,863,000 in 1993. Net income was $764,000
in 1994 compared to $1,076,000 in 1993. Start-up losses from its ZMEG
subsidiary were the primary cause of the decline. One hundred fifteen (115)
leases or notes involving equipment costing $26,063,000 were activated in
1994.
Ziegler Thrift Trading, Inc.: Headquartered in Minneapolis, this subsidiary
is Minnesota's oldest discount brokerage firm. ZTT maintains two branch
offices in St. Paul, one of which is located in a branch bank of a major
financial institution.
Reduced trading activity by the investing public resulted in reduced profits
in 1994. Net income was $382,000 compared to a record $554,000 in 1993.
Investors use ZTT to trade equities, bonds and options, while saving 50% to
70% of commissions charged by full-service brokerage firms.
Dividend Z Plus, a commission-free dividend reinvestment program which was
introduced last year, has been very successful and well-received by ZTT
customers. Two new money market funds and other new services are planned for
1995.
Ziegler Asset Management, Inc.: ZAMI is the investment adviser or money
manager entity in the family of companies. Entering the industry in mid-1991,
ZAMI has shown rapid growth: from $48,000,000 in assets under management in
1991 to $523,000,000 in assets under management at the end of 1994. Growth
continues in two primary areas: equity and balanced portfolios, using a
quality growth strategy for individuals, foundations, endowments and 401(k)s;
and fixed-income management provided by our newly assembled fixed-income
management team, primarily for the benefit of healthcare clients. ZAMI is
expected to be a steady and profitable company when its account base and
operations stabilize after its early period of rapid growth.
WRR Environmental Services Co., Inc.: ZCO's only non-financial related
business operates a recycling and treatment facility in Eau Claire, Wisconsin.
At WRR, waste chemicals and spent solvents are converted into recycled
products which may again be used by industrial concerns. In addition to
hazardous waste management, WRR also offers parts washer service through its
AIS Division, and emergency response spill cleanup service, field service for
lab packs, and off-site remediation cleanup service through its RESCO and
Field Service divisions. Net income increased from $234,000 to $529,000 in
1994, primarily because of a large remediation project that WRR was awarded in
the fall of 1993 and completed during the fourth quarter of 1994.
<PAGE>
Ziegler Financing Corporation: The subsidiary's policy of limited interim
lending activities continued in 1994. Total revenues were $364,000, compared
to $375,000 in 1993.
<PAGE>
<TABLE>
Consolidated Balance Sheets
<CAPTION>
As of December 31,
1994 1993
<S> <C> <C>
ASSETS
Cash $ 5,185,343 $ 3,630,205
Short-term investments 19,027,837 12,980,096
Bonds due and called as of January 1,
1995 and 1994, respectively 1,285,301 2,873,799
Total cash and cash equivalents 25,498,481 19,484,100
Securities inventory 22,803,084 17,879,861
Accounts receivable -
Securities sales 5,253,705 7,139,801
Other 3,293,159 4,687,625
Investment in and receivables from affiliates 2,578,926 2,400,036
Investment in leases 56,062,738 57,641,414
Notes receivable 21,029,012 15,855,355
Land, buildings and equipment, at cost, net
of accumulated depreciation of $13,519,851
and $12,707,780, respectively 6,813,086 5,913,759
Other assets 9,108,016 10,621,104
Total assets $152,440,207 $141,623,055
LIABILITIES AND STOCKHOLDERS' EQUITY
Short-term notes payable $ 19,728,501 $ 19,322,467
Payable to customers 5,876,231 2,718,600
Payable to broker-dealers 1,217,984 196,766
Accounts payable 2,738,966 2,762,587
Dividends payable 804,026 1,620,717
Accrued income taxes payable - 807,436
Deferred income taxes 5,322,679 4,878,623
Notes payable to banks 26,900,354 24,735,781
Bonds payable 31,605,241 27,128,244
Other liabilities and deferred items 7,866,203 7,499,979
Total liabilities 102,060,185 91,671,200
Commitments
Stockholders' equity -
Common stock, $1 par, 7,500,000 shares
authorized, 3,544,030 shares issued 3,544,030 3,544,030
Additional paid-in capital 6,030,565 5,882,390
Retained earnings 58,734,576 58,483,066
Treasury stock, at cost, 1,107,587 and
1,160,622 shares, respectively (17,196,800) (17,957,631)
Unearned compensation (732,349) -
Total stockholders' equity 50,380,022 49,951,855
Total liabilities and
stockholders' equity $152,440,207 $141,623,055
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these balance sheets.
<PAGE>
<TABLE>
Consolidated Statements of Income
<CAPTION>
For the Years Ended
December 31,
1994 1993 1992
<S> <C> <C> <C>
Revenues:
Investment banking and commission
income $23,702,142 $29,819,544 $28,790,131
Interest and dividends 4,210,107 2,228,984 2,215,307
Lease income 10,253,033 10,390,587 10,489,769
Gross profit on chemical products
(42%, 34% and 28% of net sales,
respectively) 4,479,250 3,180,506 1,888,608
Insurance agency 985,320 830,075 904,911
Other 4,844,073 4,411,760 4,017,342
48,473,925 50,861,456 48,306,068
Expenses:
Employee compensation and benefits 18,651,203 19,532,839 17,737,450
Commissions and clearing fees 728,472 775,743 753,459
Communications 2,510,738 2,461,531 2,360,897
Occupancy and equipment 8,573,225 7,974,217 7,835,414
Promotional 2,234,606 2,274,578 2,224,073
Professional and regulatory 1,121,473 953,826 614,290
Trucking 856,169 826,866 738,262
Interest 5,261,397 4,419,711 4,520,591
Other operating expenses 5,414,286 4,217,921 3,282,098
45,351,569 43,437,232 40,066,534
Income before income taxes 3,122,356 7,424,224 8,239,534
Provision for income taxes 1,117,300 2,893,200 3,153,000
Net income $ 2,005,056 $ 4,531,024 $ 5,086,534
Net income per share of common stock $ .84 $1.90 $2.01
Weighted average number of common
shares outstanding 2,388,586 2,382,957 2,535,418
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these statements.
<PAGE>
<TABLE>
Consolidated Statements of Cash Flows
<CAPTION>
For the Years Ended
December 31,
1994 1993 1992
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 2,005,056 $ 4,531,024 $ 5,086,534
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization 6,647,086 6,078,718 5,827,419
Provision for losses 269,550 164,696 694,971
(Gain) loss on sale of equipment (18,397) (62,641) 23,805
Gain on sale of leased equipment (841,819) (869,990) (1,726,568)
Unrealized loss (gain) on
securities inventory 206,643 152,000 (336,559)
Compensation expense related
to restricted stock grants 115,964 - -
Deferred income taxes 444,056 498,333 438,317
Change in assets and liabilities:
Decrease (Increase) in -
Accounts receivable -
security sales 1,886,096 (1,422,693) (1,116,349)
Accounts receivable - other (840,451) (1,619,156) (1,178,840)
Securities inventory (5,129,866) (2,447,151) (1,501,480)
Other assets 2,385,153 (2,222,277) 1,407,511
Increase (Decrease) in -
Payable to customers and
broker-dealers 4,178,849 66,079 822,974
Accounts payable net of
leased equipment
purchases 383,695 1,232,337 (3,080,092)
Income taxes payable (807,436) 276,756 89,458
Other liabilities 5,287,303 3,337,206 6,050,075
Net cash provided by
operating activities 16,171,482 7,693,241 11,501,176
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from -
Decrease in investment in
affiliate 505,000 - 400,000
Proceeds received on sale of
equipment 21,376 90,328 14,678
Principal payments received under
leases 14,591,072 14,064,246 13,394,038
Proceeds from sale of leased
equipment 4,009,902 3,999,554 5,823,552
Payments received on notes
receivables 7,541,691 10,147,894 6,236,123
Payments for -
Investment in and loans to
affiliates (890,379) (25,025) (216,271)
Purchase of assets to be leased (15,510,850)(16,730,744)(26,600,536)
Issuance of new notes receivable (21,015,487)(25,667,177)(14,415,352)
Capital expenditures (1,977,440) (2,873,316) (1,529,642)
Net cash used in
investing activities (12,725,115) (16,994,240) (16,893,410)
CASH FLOWS FROM FINANCING
ACTIVITIES:
Proceeds from -
Issuance of short-term
notes payable 103,861,000 92,974,000 72,292,000
Issuance of notes payable
to banks 851,910 610,014 669,529
Issuance of nonrecourse debt 4,421,988 515,941 7,620,877
Exercise of employee stock
options 64,093 100,169 559,429
Issuance of bonds payable 9,152,760 11,426,000 4,600,000
Other 30,000 - -
Payments for -
Principal payments of
short-term notes payable (103,363,000) (91,348,000) (66,300,000)
Principal payments of notes
payable
to banks (3,552,142) (1,421,185) (6,496,258)
Principal payments of
nonrecourse debt (1,342,958) (1,666,847) (1,742,287)
Repayments of bonds payable (4,982,000) (1,929,000) (730,000)
Purchase of treasury stock (3,400) (20,000) (4,500,000)
Cash dividends paid (2,570,237) (2,308,566) (2,262,236)
Net cash provided by
financing activities 2,568,014 6,932,526 3,711,054
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS 6,014,381 (2,368,473) (1,681,180)
CASH AND CASH EQUIVALENTS AT
BEGINNING OF YEAR 19,484,100 21,852,573 23,533,753
CASH AND CASH EQUIVALENTS AT
END OF YEAR $ 25,498,481 $ 19,484,100 $ 21,852,573
SUPPLEMENTAL DISCLOSURES OF
CASH FLOW INFORMATION:
Interest paid during the year $ 5,040,525 $ 4,417,000 $ 4,439,000
Income taxes paid during
the year $ 1,410,439 $ 2,097,000 $ 2,753,000
SUPPLEMENTAL SCHEDULE OF NONCASH
INVESTING ACTIVITIES:
Conversion of notes receivable
to leased equipment $ 8,202,635 $ 4,916,710 $ 4,144,666
Granting of restricted stock
from treasury stock $ 848,313 $ - $ -
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these statements.
<PAGE>
<TABLE>
Consolidated Statements of Stockholders' Equity
<CAPTION>
For the Years Ended Additional Unearned
December 31, 1994, Common Paid-In Retained Treasury Compensa-
1993 and 1992 Stock Capital Earnings Stock tion Total
<S> <C> <C> <C> <C> <C> <C>
BALANCE, December 31, 1991 $ 3,544,030 $ 5,806,578 $53,792,484 $(14,021,418)$ - $49,121,674
Net income - - 5,086,534 - - 5,086,534
Dividends declared
($0.97 per share) - - (2,376,808) - - (2,376,808)
Proceeds from exercise
of stock options - 60,085 - 499,345 - 559,430
Cost of treasury
stock purchased
(300,000 shares) - - - (4,500,000) - (4,500,000)
BALANCE, December 31, 1992 3,544,030 5,866,663 56,502,210 (18,022,073) - 47,890,830
Net income - - 4,531,024 - - 4,531,024
Dividends declared
($1.07 per share) - - (2,550,168) - - (2,550,168)
Proceeds from exercise
of stock options - 15,727 - 84,442 - 100,169
Cost of treasury
stock purchased
(1,200 shares) - - - (20,000) - (20,000)
BALANCE, December 31, 1993 3,544,030 5,882,390 58,483,066 (17,957,631) - 49,951,855
Net income - - 2,005,056 - - 2,005,056
Dividends declared
($0.72 per share) - - (1,753,546) - - (1,753,546)
Proceeds from exercise
of stock options - (6,335) - 70,428 - 64,093
Cost of treasury
stock purchased
(200 shares) - - - (3,400) - (3,400)
Restricted stock grants - 154,510 - 693,803 (848,313) -
Amortization of unearned
compensation - - - - 115,964 115,964
BALANCE, December 31, 1994 $ 3,544,030 $ 6,030,565 $58,734,576 $(17,196,800) $(732,349) $50,380,022
</TABLE>
<PAGE>
Notes to Consolidated Financial Statements
(1) Summary of Significant Accounting Policies -
Principles of consolidation -
The consolidated financial statements of The Ziegler Companies, Inc. and
subsidiaries (the "Company") include the accounts of The Ziegler
Companies, Inc. and its wholly-owned subsidiaries, B. C. Ziegler and
Company ("BCZ"), Ziegler Thrift Trading, Inc. ("ZTT"), Ziegler Financing
Corporation ("ZFC"), Ziegler Leasing Corporation ("ZLC"), Ziegler Asset
Management, Inc. ("ZAMI"), Ziegler Collateralized Securities, Inc.
("ZCSI"), WRR Environmental Services Co., Inc. ("WRR") and First Church
Financing Corporation ("FCFC"). All significant intercompany balances
and transactions have been eliminated in consolidation.
ZLC has a 60% interest in Ziegler Medical Equipment Group ("ZMEG"), a
consolidated entity.
The Company has a 50% interest in Ziegler Mortgage Securities, Inc. II
("ZMSI II"), an unconsolidated entity accounted for by the equity
method.
The Company had a 50% interest in American Mortgage Securities, Inc.
("AMSI"), an unconsolidated entity accounted for by the equity method.
AMSI was merged with and into ZMSI II during 1994.
The Company acquired a 33% interest in Heartland Capital Company, LLC
("HCC"), a start-up company organized to provide construction loans to
low income housing developments. HCC did not have a significant impact
on the consolidated financial statements because it commenced operations
in November, 1994. HCC is an unconsolidated entity accounted for by the
equity method.
Securities -
Security transactions are recorded on a settlement date basis which is
not materially different from a trade date basis. Investment banking
revenue is recorded net of directly related expenses.
Short-term investments consist of commercial paper, variable rate demand
notes, money market investments, equities and U. S. Government and U. S.
Government agency securities purchased under agreements to resell.
Securities purchased under agreements to resell, and securities sold
under agreements to repurchase, are treated as financing transactions
and are carried at the amounts at which the securities will be
subsequently resold or repurchased as specified in the respective
agreements. Other short-term investments are carried at approximate
market. The reported value of the securities inventory is carried at
approximate market.
At December 31, 1993, there were unrealized gains totaling approximately
$173,000 on short-term investments and securities inventory. At
December 31, 1994, the market value of the short-term investments and
the securities inventory was not materially different from cost.
Lease contracts -
ZLC leases various types of equipment to hospitals and other
organizations. The terms of these contracts generally range from one to
seven years. Depending on the lease terms, they are classified as
operating, financing or leveraged leases in accordance with Statement of
Financial Accounting Standards No. 13. Generally, third parties finance
approximately 75% to 90% of the leveraged leases in the form of long-
term debt that provides no recourse against ZLC and is secured by a
first lien on the property.
Initial direct costs -
Initial direct costs are those costs incurred by the Company that are
directly associated with negotiating and consummating completed leasing
transactions. For operating and financing leases, the Company defers
and amortizes initial direct costs over the lease term as an adjustment
to the yield. The unamortized initial direct costs are reported as part
of the investment in leases on the balance sheets.
Depreciation -
Depreciation is computed on buildings and equipment on a straight-line
basis. The buildings are depreciated over 20 to 40 years and equipment
over three to 10 years. Equipment under operating leases is depreciated
over the terms of the respective leases.
Income taxes -
The provision for income taxes is the estimated amount of income taxes
payable, both currently and in the future, on consolidated pretax
earnings for the year at current Federal and state tax rates. Deferred
income taxes have been provided for those transactions, primarily
investment in lease transactions, which are accounted for in different
periods for financial reporting purposes than for income tax purposes.
The Company adopted Financial Accounting Standard, No. 109, Accounting
for Income Taxes in 1993. The cumulative effect of the change in
accounting, determined as of January 1, 1993, was not material on the
Company's financial position or the results of operations for the year
ended December 31, 1993, nor did the change have a material effect on
net income for the year ended December 31, 1993.
Net Income Per Share of Common Stock -
Net income per share of common stock is calculated based on the weighted
average number of common shares outstanding, including restricted common
stock using the treasury stock method.
Cash Equivalents -
Cash equivalents are defined as short-term investments maturing within
three months of the date of purchase.
(2) Securities Inventory -
Securities inventory at December 31, 1994 and 1993, consisted of the
following:
<TABLE>
<CAPTION>
1994 1993
<S> <C> <C>
Municipal bond issues $11,344,996 $ 7,663,923
Corporate bond issues 189,345 960,326
Institutional bond issues 4,826,932 239,722
U. S. Government securities 4,157,527 6,696,163
Preferred stock 519,001 -
Other 1,765,283 2,319,727
$22,803,084 $17,879,861
</TABLE>
Municipal bond issues consist primarily of revenue bonds issued by state
and local governmental authorities related to healthcare facilities.
Corporate bond issues consist primarily of bonds issued by for-profit
corporations. Institutional bond issues consist primarily of bonds
issued by not-for-profit hospitals, geriatric care facilities and
churches.
(3) Investment in Leases -
Approximately 75% of the Company's investment in leases is concentrated
in the healthcare industry. Investment in leases consisted of the
following:
<TABLE>
<CAPTION>
December 31,
1994 1993
<S> <C> <C>
Financing leases -
Lease contracts receivable $38,632,162 $40,042,232
Estimated residual value 4,104,599 4,046,525
Deferred initial direct costs 634,902 590,425
Less -
Unearned income (6,620,784) (7,060,044)
Allowance for losses (587,132) (586,291)
Investment in financing leases 36,163,747 37,032,847
Leveraged leases -
Lease contracts receivable (net of
principal and interest on the
nonrecourse debt) 1,073,586 1,324,374
Estimated residual value 1,970,941 1,506,041
Less -
Unearned income (566,042) (648,116)
Investment in leveraged leases 2,478,485 2,182,299
Operating leases -
Equipment on rental, at cost 28,383,149 29,031,914
Less -
Accumulated depreciation (11,164,178) (10,783,818)
Deferred initial direct costs 201,535 178,172
Investment in operating leases 17,420,506 18,426,268
Total investment in leases $56,062,738 $57,641,414
</TABLE>
Deferred income taxes arising from leveraged leases were $1,804,727 and
$1,295,033 as of December 31, 1994 and 1993, respectively, resulting in
a net investment in leveraged leases of $673,758 and $887,266,
respectively.
The following is a summary of scheduled payments to be received on
financing, leveraged, and noncancellable operating lease contracts:
<TABLE>
<CAPTION>
Financing Leveraged Operating
<C> <C> <C> <C>
1995 $14,962,985 $ 307,514 $ 5,933,109
1996 10,316,997 270,623 4,322,156
1997 7,263,239 196,843 2,593,810
1998 4,296,328 291,932 1,424,045
1999 1,470,737 6,674 353,921
Thereafter 321,876 - -
$38,632,162 $1,073,586 $14,627,041
</TABLE>
(4) Investment in ZMSI II -
Condensed financial information of ZMSI II as of December 31, 1994 and
1993, and for the three-year period ended December 31, 1994 is as
follows:
<TABLE>
<CAPTION>
1994 1993
<S> <C> <C>
Mortgage Certificates, net of unamortized
discount of $3,453,038 and $3,752,259,
respectively $113,401,638 $122,749,538
Deferred bond issuance costs 3,409,878 3,807,061
Cash and cash equivalents, primarily
held by trustee 4,736,534 25,442,462
Accrued interest receivable 844,075 950,892
Total assets $122,392,125 $152,949,953
Mortgage Certificate-Backed Bonds payable $117,018,000 $145,809,000
Accrued interest payable 3,613,928 4,996,449
Due to BCZ 240,197 124,504
Total liabilities 120,872,125 150,929,953
Stockholders' equity ($1,510,000 and
$2,010,000, respectively, held by
the Company) 1,520,000 2,020,000
Total liabilities and
stockholders' equity $122,392,125 $152,949,953
</TABLE>
<TABLE>
<CAPTION>
1994 1993 1992
<S> <C> <C> <C>
Income, primarily interest $11,144,634 $17,010,650 $18,524,349
Expenses -
Interest expense 9,654,473 14,443,586 16,979,721
Amortization of bond issuance
costs 1,111,631 2,138,311 1,258,195
Management fee earned by BCZ 158,801 179,930 52,436
General and administrative
expense 219,729 248,823 233,997
Total expenses 11,144,634 17,010,650 18,524,349
Net income $ - $ - $ -
</TABLE>
The Mortgage Certificate-Backed Bonds are collateralized by the Mortgage
Certificates, which consist of Government National Mortgage Association
certificates and Federal National Mortgage Association certificates.
(5) Investment in AMSI -
Effective December 30, 1994, AMSI was merged with and into ZMSI II.
Condensed financial information of AMSI as of December 31, 1993, and for
the three-year period ended December 31, 1994 is as follows:
<TABLE>
<CAPTION>
1993
<S> <C>
Mortgage Certificates, net of
unamortized discount of $282,145 $ 9,112,184
Deferred bond issuance costs 298,141
Cash and equivalents, primarily held
by trustee 719,580
Accrued interest receivable 65,734
Total assets $10,195,639
Mortgage Certificate-Backed Bonds payable $ 9,582,000
Accrued interest payable 343,695
Due to BCZ 259,944
Total liabilities 10,185,639
Stockholders' equity ($5,000 held
by the Company) 10,000
Total liabilities and
stockholders' equity $10,195,639
</TABLE>
<TABLE>
<CAPTION>
1994 1993 1992
<S> <C> <C> <C>
Income, primarily interest $ 663,317 $ 1,041,440 $ 1,180,591
Expenses -
Interest expense 412,515 914,813 1,064,034
Amortization of bond
issuance costs 235,987 103,184 109,797
Management fee earned by
(subsidized by) BCZ (17,307) 773 (18,927)
General and administrative
expense 32,122 22,670 25,687
Total expenses 663,317 1,041,440 1,180,591
Net income $ - $ - $ -
</TABLE>
The Mortgage Certificate-Backed Bonds are collateralized by the Mortgage
Certificates, which consist of Government National Mortgage Association
certificates and Federal National Mortgage Association certificates.
(6) Ziegler Collateralized Securities, Inc. -
ZCSI was organized to facilitate the financing of equipment purchases
and leases by securitizing such purchases and leases for offerings to
the public.
Summarized financial information of ZCSI as of December 31, 1994 and
1993 and for the years ended December 31, 1994, 1993 and 1992 is as
follows:
<TABLE>
<CAPTION>
1994 1993
<S> <C> <C>
Investment in leases $10,509,676 $10,926,439
Notes receivable 3,487,364 1,906,107
Other assets 1,815,606 1,512,112
Total assets $15,812,646 $14,344,658
Bonds payable $12,522,000 $12,140,000
Other liabilities, primarily
a subordinated note
to Company 3,280,646 2,194,658
Total liabilities 15,802,646 14,334,658
Stockholder's equity 10,000 10,000
Total liabilities and
stockholder's equity $15,812,646 $14,344,658
</TABLE>
<TABLE>
<CAPTION>
1994 1993 1992
<S> <C> <C> <C>
Lease income $ 993,566 $ 908,886 $ 605,777
Other income, primarily interest 248,845 24,452 15,893
Total income 1,242,411 933,338 621,670
Interest expense 763,019 539,650 361,630
Management fees 153,024 147,095 110,668
Other expenses 326,368 246,593 149,372
Total expenses 1,242,411 933,338 621,670
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 December 31, 1994 and
for the year then ended is as follows:
<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 $1,268,666 $188,456 $104,417 $23,050 $60,989
2 $2,400,000 $2,654,939 $294,630 $170,750 $50,303 $73,577
3 $1,770,000 $2,108,480 $275,146 $151,825 $84,564 $38,757
4 $2,452,000 $2,877,955 $324,898 $181,313 $77,322 $66,263
5 $5,000,000 $6,654,089 $107,034 $ 68,300 $26,333 $12,401
</TABLE>
(7) Short-Term Notes Payable, Lines of Credit,
Notes Payable to Banks and Bonds Payable -
The Company finances the operations of certain subsidiaries by issuing
commercial paper (short-term notes payable). During 1994, 1993 and
1992, it had average outstanding balances of approximately $20,856,000,
$18,889,000 and $16,021,000, respectively. Maximum borrowings based on
month-end outstanding balances for those same years were approximately
$21,707,000, $19,434,000 and $18,271,000, respectively. During 1994,
1993 and 1992, the weighted average interest rates incurred were 4.8%,
3.8%, and 4.3%, respectively, based on month-end outstanding balances.
The average discount rates on short-term notes payable outstanding as of
December 31, 1994 and 1993, were 4.83% and 3.67%, respectively.
The Company had lines of credit as of December 31, 1994 and 1993,
totaling $26,000,000 and $22,000,000. In accordance with normal banking
practice, these lines may be withdrawn at the discretion of the lenders.
In connection with certain of these bank lines, the Company is required
to maintain, as compensating balances, average collected funds, which at
December 31, 1994 and 1993, approximated $380,000. There are no legal
restrictions on the withdrawal of these funds. Interest expense
incurred in connection with borrowings against its lines of credit was
not material in 1994, 1993 or 1992. One of the bank lines for
$3,000,000 is shared with the family of mutual funds sponsored by BCZ.
All borrowings under this line of credit by the funds are guaranteed by
BCZ. The family of mutual funds had borrowings of $75,000 outstanding
at December 31, 1994.
BCZ periodically obtains short-term borrowings for specific
underwritings under broker loan facilities at the market rate of
interest to broker-dealers, payable on demand and fully collateralized
by the securities held in inventory. Such amounts are generally
outstanding for periods of less than two weeks and total interest
expense in connection with such borrowings was not material in 1994,
1993 or 1992.
Notes payable to banks consisted of the following:
<TABLE>
<CAPTION>
1994 1993
<S> <C> <C>
Unsecured promissory note, 10.02% interest,
principal due - $2,000,000 in May, 1995
and any remaining due in May, 1996 $ 8,000,000 $10,000,000
Unsecured term note, 8.0% interest,
principal due - $1,000,000 annually in
December, 1995 and 1996 with any
remaining due in December, 1997 5,000,000 5,000,000
Secured note, prime plus .5%, monthly
payments of $4,120 with remaining
balance due October 20, 1995 40,503 -
Borrowings under unsecured lines of credit 11,280,000 5,669,000
Borrowings under broker loan facilities - 746,195
Other - nonrecourse notes, collateralized
by leased equipment, interest ranging
from 7.00%-10.55%, payable in monthly
installments through November 1, 1997 2,579,851 3,320,586
$26,900,354 $24,735,781
</TABLE>
Among other restrictions of the debt agreements, ZLC is required to
maintain tangible net worth, as defined, of $10,600,000. At December
31, 1994, tangible net worth was $10,726,000.
Bonds payable at December 31, 1994 and 1993, consisted of the following:
<TABLE>
<CAPTION>
1994 1993
<S> <C> <C>
First Church Financing Corporation
Mortgage-Backed Bonds, Series 1,
interest at 8.25%; principal due
March 10, 2008 $ 4,158,000 $ 4,487,000
First Church Financing Corporation
Mortgage-Backed Bonds, Series 2,
interest at 8.75%; principal due
August 10, 2009 4,456,000 -
Ziegler Collateralized Securities, Inc.
Collateralized Bonds, Series 1,
interest ranging from 6.00% to 7.75%,
collateralized by equipment leases,
principal due serially through
June, 1996; guaranteed by
The Ziegler Companies, Inc. 900,000 1,700,000
Ziegler Collateralized Securities, Inc.
Collateralized Bonds, Series 2,
interest ranging from 5.00% to 7.00%,
collateralized by equipment leases,
principal due serially through
July, 1997; guaranteed by
The Ziegler Companies, Inc. 2,400,000 3,600,000
Ziegler Collateralized Securities, Inc.
Collateralized Bonds, Series 3,
interest ranging from 5.00% to 6.75%,
collateralized by equipment leases,
principal due serially through
June, 1998; guaranteed by
The Ziegler Companies, Inc. 1,770,000 3,340,000
Ziegler Collateralized Securities, Inc.
Collateralized Bonds, Series 4,
interest ranging from 4.75% to 6.50%,
collateralized by equipment leases and
other financing agreements,
principal due serially through
December, 1998; guaranteed by
The Ziegler Companies, Inc. 2,452,000 3,500,000
Ziegler Collateralized Securities, Inc.
Collateralized Bonds, Series 5,
interest ranging from 6.25% to 7.75%,
collateralized by equipment leases and
other financing agreements,
principal due serially through
October, 2001; guaranteed by
The Ziegler Companies, Inc. 5,000,000 -
Ziegler Leasing Corporation Five-Year
Extendable/Redeemable Notes, Series 1991,
8.75% interest, unsecured; principal
redeemable by holders December, 1996
and December, 2001; principal
redeemable by ZLC after November, 1993,
any remaining due in December, 2006 10,000,000 10,000,000
Waste Research and Reclamation Co., Inc.,
Small Business Pollution Control Revenue
Bonds, due in monthly principal and
interest installments of approximately
$6,000, through December 1, 2004, bearing
interest at 7.50% 469,241 501,244
$31,605,241 $27,128,244
</TABLE>
Annual amounts due on notes payable to banks and bonds payable for the
next five years are:
<TABLE>
<C> <C>
1995 $20,173,714
1996 21,329,436
1997 5,684,918
1998 1,715,944
1999 598,342
Thereafter 9,003,241
$58,505,595
</TABLE>
(8) Related Party Transactions -
BCZ sponsors the Principal Preservation Portfolios, Inc. family of
mutual funds. Certain BCZ officers and directors also serve as officers
or directors of the funds. BCZ performs investment advisory services,
transfer agency services, depository services and administrative
services for the funds. ZAMI also provides investment advisory services
to the funds. Fees for services earned from the funds approximated
$2,009,000, $2,073,000 and $2,007,000 in 1994, 1993 and 1992,
respectively.
BCZ serves as Manager of ZMSI II pursuant to a written agreement. BCZ
also advances funds to ZMSI II and owns $1,500,000 of $9 non-cumulative,
non-voting preferred stock in ZMSI II. See footnote 4 for the ZMSI II
intercompany balances with The Ziegler Companies, Inc. and BCZ for the
years ended December 31, 1994 and 1993.
(9) Retirement Plans -
The Company has contributory profit sharing plans for substantially all
full-time employees. BCZ and ZTT have plans which provide for a
guaranteed company match equal to 50% of employee contributions and a
discretionary annual company contribution up to 6% of defined
compensation for each year. The annual company contributions are at the
discretion of the boards of directors. WRR has a plan that provides a
company match equal to 100% of employee contributions up to a maximum
match of 1.43% of defined compensation. WRR also provides a company
contribution equal to 3.88% of defined compensation. Retirement plan
expense of the Company and subsidiaries was $820,000, $1,065,000 and
$897,000 in 1994, 1993 and 1992, respectively.
(10) Provision for Income Taxes -
The provision for income taxes for the years ended December 31, 1994,
1993 and 1992, consisted of the following:
<TABLE>
<CAPTION>
1994 1993 1992
<S> <C> <C> <C>
Current Federal $ 535,400 $1,920,100 $2,024,000
Current state 137,800 474,800 693,000
Deferred provision 444,100 498,300 436,000
Total $1,117,300 $2,893,200 $3,153,000
</TABLE>
The following are reconciliations of the statutory Federal income tax
rates for 1994, 1993 and 1992 to the effective income tax rates:
<TABLE>
<CAPTION>
1994 1993 1992
<S> <C> <C> <C>
Statutory Federal income tax rate 34.0% 34.0% 34.0%
State taxes on income, net of
related Federal income tax
benefit 4.5% 4.8% 5.2%
Federal tax-exempt interest income (5.0%) (1.5%) (2.0%)
Other, net 2.6% 1.6% 1.0%
Effective income tax rate 36.1% 38.9% 38.2%
</TABLE>
The tax effects of temporary differences that give rise to significant
elements of the deferred tax assets and deferred tax liabilities at
December 31, 1994 and 1993 are as follows:
<TABLE>
<CAPTION>
1994 1993
<S> <C> <C>
Deferred tax asset:
Allowance for uncollectible
accounts $(794,142)$(1,052,476)
Alternative minimum tax
carryforward (754,595) (642,871)
Other (865,392) (919,224)
Total deferred tax asset (2,414,129) (2,614,571)
Deferred tax liability:
Fixed assets (primarily due
to depreciation) 105,944 79,414
Investment in leases 7,239,691 7,263,402
Other 391,173 150,378
Total deferred tax liability 7,736,808 7,493,194
Net deferred tax liability $5,322,679 $4,878,623
</TABLE>
The principal items in the deferred tax provision for the year ended
December 31, 1992 are as follows:
<TABLE>
<CAPTION>
1992
<S> <C>
Excess of tax over book depreciation $4,271,000
Excess of tax over book lease income (3,380,000)
Excess of tax gain over book gain on sale of equipment (844,000)
Interest expense on leveraged leases (220,000)
Alternative minimum tax 548,000
Provision for losses 101,000
Other, net (40,000)
$ 436,000
</TABLE>
(11) Other Assets -
During 1988, BCZ purchased from its customers, approximately $5,000,000
of existing bonds of an issuer which filed a reorganization petition in
bankruptcy court. Reorganization of the issuer resulted in an agreement
whereby the principal amount of the bonds only would be repaid serially
through January 1, 1994. The amount due BCZ at December 31, 1993 was
approximately $3,543,000. The bonds were redeemed in their entirety by
the issuer in 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 BCZ.
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 December 31, 1994 is approximately $4,164,000.
The bonds were, and the loan is, secured by first mortgages on the
underlying real estate. The bonds and the loan are recorded at cost,
net of allowances for possible losses previously provided, totaling
approximately $3,578,000 and $6,248,000 at December 31, 1994 and 1993,
respectively, and are included in Other Assets on the balance sheets.
While it had no obligation to do so, the Company elected to repurchase
the bonds and make the loan to maintain its business reputation and the
confidence of the purchasers of securities BCZ underwrites.
(12) Preferred Stock -
The Company is authorized to issue 500,000 shares of preferred stock, $1
par value, which is undesignated as to series.
(13) Stock Option Plans -
In 1993, the Company established the 1993 Employees' Stock Incentive
Plan (the "1993 Plan") for certain officers and key employees. On
December 29, 1993, the Board of Directors granted options to purchase
54,500 shares of Company stock under this Plan. The options are
exercisable through December 28, 2003 at a price of $16.625 per share.
No options were exercised or forfeited during 1994 or 1993. A total of
200,000 shares are issuable under the Plan. Options granted under the
1993 Plan that expire, terminate or are cancelled are again available
for the granting of future options.
On January 26, 1994, the Company issued an aggregate of 49,000 shares of
restricted common stock of the Company to certain key employees pursuant
to the 1993 Plan. Each employee's ownership of shares is subject to
full or partial forfeiture in accordance with a vesting schedule in the
event that the employee's employment with the Company terminates for any
reason before January 26, 2003. The market value of the restricted
stock, when issued, was $17.3125 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.
The 1989 Employees' Stock Purchase Plan (the "1989 Plan") was
established for substantially all full-time employees. On May 1, 1991
the Board of Directors granted options to purchase 76,500 shares under
the 1989 Plan. The May 1, 1991 options still outstanding expired on
April 30, 1993.
On May 1, 1993, the Board of Directors granted options to purchase
80,960 shares. Activity relating to the common stock options under the
1989 Plan was:
<TABLE>
<CAPTION>
1994 1993
(Number of Shares)
<S> <C> <C>
Options outstanding, beginning
of year 77,882 64,715
Options exercised (3,535) (6,023)
Options forfeited (2,960) (61,770)
Additional options granted - 80,960
Options outstanding, end of year 71,387 77,882
</TABLE>
All outstanding options are currently exercisable through April 30,
1995, at 85% of the market value on the date of exercise. Shares were
exercised at prices averaging $14.65 per share during 1994. Under the
1989 Plan, 57,160 shares 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.
The effect of outstanding stock options on net income per share is not
material.
(14) Net Capital Requirements and Customer Reserve Accounts -
As registered broker-dealers, BCZ and 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 December 31, 1994, is as follows:
<TABLE>
<CAPTION>
BCZ ZTT
<S> <C> <C>
Aggregate indebtedness $ 4,794,000 $ 1,369,000
Net capital $26,763,000 $ 1,075,000
Ratio of aggregate indebtedness
to net capital .18 to 1 1.27 to 1
Required net capital $ 600,000 $ 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 qualified
securities. As of December 31, 1994 and 1993, there were approximately
$5,924,200 and $3,406,900, respectively, in the customer reserve
accounts.
(15) Segment Information -
Information about the Company's operations by major industry segment is
as follows:
<TABLE>
<CAPTION>
Year Ended December 31, 1994
Income
(Loss)
Before Total Depreciation
Revenues Taxes Assets Expense
<S> <C> <C> <C> <C>
Broker-dealer $30,324,225 $ 686,114 $ 56,636,013 $ 675,699
Lease financing 11,872,082 1,205,679 67,983,998 4,813,728
Real estate financing 328,164 (69,471) 5,044,727 -
Corporate and other 5,949,454 1,300,034 22,775,469 350,206
Consolidated $48,473,925 $3,122,356 $152,440,207 $5,839,633
</TABLE>
<TABLE>
<CAPTION>
Year Ended December 31, 1993
Income
Before Total Depreciation
Revenues Taxes Assets Expense
<S> <C> <C> <C> <C>
Broker-dealer $35,237,620 $5,484,248 $ 47,195,182 $ 567,912
Lease financing 11,606,242 1,750,558 66,498,130 4,497,858
Real estate financing 350,957 64,509 7,923,869 -
Corporate and other 3,666,637 124,909 20,005,874 319,287
Consolidated $50,861,456 $7,424,224 $141,623,055 $5,385,057
</TABLE>
<TABLE>
<CAPTION>
Year Ended December 31, 1992
Income
(Loss)
Before Total Depreciation
Revenues Taxes Assets Expense
<S> <C> <C> <C> <C>
Broker-dealer $33,393,105 $6,001,268 $ 41,734,041 $ 598,271
Lease financing 12,585,311 2,276,529 61,550,264 4,410,409
Real estate financing 512,790 235,484 7,276,084 -
Corporate and other 1,814,862 (273,747) 14,262,550 348,481
Consolidated $48,306,068 $8,239,534 $124,822,939 $5,357,161
</TABLE>
The industry segments above are each a separate company or group of
companies; therefore, all expenses and assets can be directly identified
with segment revenues. Intercompany revenues consist of interest income
earned by the Company on loans to subsidiaries and dividends from
subsidiaries. Substantially all other revenues are derived from
transactions with unaffiliated parties in the United States.
(16) Commitments and Contingent Liabilities -
In the normal course of business, 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 pre-sells the issues to its customers. BCZ had no such
commitments outstanding at December 31, 1994.
As of December 31, 1994, ZLC had outstanding written agreements to
provide equipment lease financing for approximately $4,469,000. 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.
The Company leases office space under noncancellable lease agreements
which allow for annual adjustments to the minimum lease payments to
reflect increases in actual operating costs. WRR leases vehicles under
noncancellable lease agreements which allow for adjustments to the
minimum lease payments to reflect excess mileage above the agreed
mileage allowance. Minimum lease payments for office space and
vehicles, which extend through 2003, are:
<TABLE>
<C> <C>
1995 $ 980,000
1996 765,000
1997 559,000
1998 458,000
1999 405,000
2000 and after 1,208,000
</TABLE>
Rental expense for 1994, 1993 and 1992 was $1,912,000, $1,853,000 and
$1,823,000, respectively.
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 December 31, 1994, WRR had been
identified as a potentially responsible party ("PRP") in connection with
four sites. For the first site, a reserve of $12,000 was established
based on a total, actual assessment. Payment for this site was made in
1994. For the second site, a 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 third 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 a reserve of $500,000 to cover its
share of the clean-up costs of this third 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 fourth 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 fourth site approximates
$200,000. No reserve has been established on account of this fourth
site.
While WRR is jointly and severally liable on all three remaining sites,
management 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 $633,124 and $640,000 at December 31,
1994 and 1993, respectively.
<PAGE>
Report of Independent Public Accountants
To the Stockholders and the Board of Directors
of The Ziegler Companies, Inc.:
We have audited the accompanying consolidated balance sheets of THE ZIEGLER
COMPANIES, INC. (a Wisconsin corporation) and subsidiaries as of December 31,
1994 and 1993, and the related consolidated statements of income,
stockholders' equity and cash flows for each of the three years in the period
ended December 31, 1994. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of The Ziegler Companies, Inc.
and subsidiaries as of December 31, 1994 and 1993, and the results of their
operations and their cash flows for each of the three years in the period
ended December 31, 1994, in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
Milwaukee, Wisconsin
February 3, 1995.
<PAGE>
Management's Discussion and Analysis of
Financial Conditions and Results of Operations
Results of Operations (Comparison of Years 1994, 1993 and 1992)
The predominant activity of The Ziegler Companies, Inc., (the "Company") has
been and continues to be investment banking, primarily the underwriting and
marketing of debt securities for the healthcare industry. The Company has
also been increasingly 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 1994 were $48,474,000 compared to $50,861,000
in 1993, a decrease of $2,387,000 or 5%. The revenues for 1993 reflected an
increase of $2,555,000 or 5% over revenues of $48,306,000 in 1992. Expenses
of the Company in 1994 were $45,352,000 compared to $43,437,000 in 1993, an
increase of $1,915,000 or 4%. The expenses in 1993 reflected an increase of
$3,371,000 or 8% over expenses of $40,066,000 in 1992. The provisions for
income taxes were $1,117,000, $2,893,000, and $3,153,000 in 1994, 1993, and
1992, respectively. The statutory federal income tax rates applicable to the
Company were 34% in each of the three years. Net income of the Company in
1994 was $2,005,000 compared to $4,531,000 in 1993, a decrease of $2,526,000
or 56%. The net income for 1993 reflected a decrease of $556,000 or 11% from
net income of $5,087,000 in 1992. Earnings per share were $0.84, $1.90, and
$2.01 in 1994, 1993, and 1992, respectively. Weighted average shares
outstanding did not change significantly between 1994 and 1993, but decreased
6% between 1993 and 1992 which had an impact on earnings per share, increasing
it by 11 cents per share in 1993. The changes in revenues, operating expenses
and net income 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 broker-dealer
subsidiary of the Company, had total revenues of $25,787,000 in 1994 compared
to $30,352,000 in 1993, a decrease of $4,565,000 or 15%. Tax-exempt
underwriting revenues in 1994 decreased to 63% of 1993 levels in response to
an industry-wide downturn in underwriting volume caused by sharply increased
interest rates and the threat of national healthcare reform. Taxable
underwriting volumes also decreased, primarily the result of higher interest
rates and fewer refinancing opportunities. In total, underwriting revenues
decreased $6,327,000 in 1994. Commission income from non-underwritten
product, primarily mutual funds, decreased $1,085,000. Trading profits
increased $1,728,000 as suitable products were obtained for sale to customers
to replace the shortfall in underwritten products. Further offsetting the
aforementioned decreases were increases in interest income of $693,000 due to
favorable interest arbitrage opportunities, an increase in insurance agency
revenues of $155,000, and an increase in fee revenues of $270,000.
Total expenses of BCZCO were $25,899,000 in 1994 compared to $26,076,000 in
1993, a decrease of $177,000 or 1%. Employee compensation and benefits
decreased $964,000 as the result of a decrease in incentive and commission-
based payments, which was partially offset by the expense associated with an
increase in investment sales brokers and a 4% general wage increase. Interest
expense increased $340,000 due to the interest rate arbitrage activities that
also increased revenues. All other expenses remained approximately the same
as last year or increased modestly in line with inflation and expenses
associated with additional product sales efforts. Net income for BCZCO was
$3,000 in 1994 compared to $2,659,000 in 1993, a decrease of $2,656,000.
Total BCZCO revenues of $30,352,000 in 1993 increased $901,000 or 3% over
revenues of $29,451,000 in 1992. Underwriting volumes were generally strong
in both years; however, underwriting revenues decreased $452,000 in 1993 while
commission income from non-underwritten products increased $1,338,000 as sales
of mutual funds and insurance products were strong. Trading profits did not
vary significantly between years. Interest income decreased $229,000 due to
lower rates; fee income increased $400,000 as fee-based activities increased;
and insurance agency revenues declined $75,000.
Total BCZCO expenses of $26,076,000 in 1993 increased $1,688,000 or 7% over
expenses of $24,388,000 in 1992. Employee compensation and benefits increased
$1,299,000 due to the result of an increase in commission based payments,
increases in the investment broker sales force and a general wage increase in
1993. All other expenses did not change significantly between years. Net
income was $2,659,000 in 1993 compared to $3,178,000 in 1992, a decrease of
$519,000 or 16%.
Ziegler Thrift Trading, Inc. ("ZTT"), the reduced commission brokerage service
of the Company, had total revenues of $3,474,000 in 1994 compared to
$4,027,000 in 1993, a decrease of $553,000 or 14%. Commission income, the
primary source of revenues, declined $539,000 or 14% as the result of a 14%
decrease in trading volume compared to 1993. Other components of revenue did
not change significantly. Total expenses of ZTT were $2,850,000 in 1994
compared to $3,073,000 in 1993, a decrease of $223,000 or 7%. Most of the
decrease was from decreases in volume-based commission and clearing fee
expense and employee compensation and benefits. Net income for ZTT was
$382,000 in 1994 compared to $554,000 in 1993, a decrease of $172,000 or 31%.
Total ZTT revenues of $4,027,000 in 1993 increased $230,000 or 6% over
revenues of $3,797,000 in 1992. Commission income, the primary source of
revenues, increased $267,000 or 8% as the result of a 3% increase in trading
volume and an increase in average commission per trade. Other components of
revenue did not change significantly. Total ZTT expenses of $3,073,000 in
1993 increased $206,000 or 7% over expenses of $2,867,000 in 1992. Additional
employees and general wage increases caused employee compensation and benefits
to increase $137,000 in 1993. The promotion of new services and customer-
awareness activities caused promotional expense to increase by $51,000. All
other expenses did not change significantly. Net income for ZTT was $554,000
in 1993 compared to $540,000 in 1992, an increase of $14,000 or 3%.
Ziegler Asset Management, Inc. ("ZAMI"), the money management services
subsidiary of the Company, had total revenues of $1,383,000 in 1994 compared
to $1,204,000 in 1993, an increase of $179,000 or 15%. An increase in assets
under management to $523,000,000 is the reason for the increased revenues.
Total expenses of ZAMI were $1,209,000 in 1994 compared to $949,000 in 1993,
an increase of $260,000 or 27%. The primary reasons for the increase in
expenses are the increase of $127,000 associated primarily with the added
personnel expenses of a new office devoted to fixed-income management services
and $84,000 of expenses associated with the reimbursement of management fees.
All other expenses did not change significantly. Net income for ZAMI was
$97,000 in 1994 compared to $156,000 in 1993, a decrease of $59,000 or 38%.
Total ZAMI revenues of $1,204,000 in 1993 increased $758,000 over revenues of
$446,000 in 1992. An increase in assets under management from $280,000,000 to
$475,000,000 is the reason for the increased revenues. ZAMI expenses of
$949,000 in 1993 increased $517,000 over expenses of $432,000 in 1992. The
increase in expenses is due to the continued expansion of operations after the
inception of business in the fourth quarter of 1991. Employee compensation
and benefits increased $291,000 and subadvisory fees increased $230,000 and
were the primary increases while other expenses remained the same or declined.
Net income for ZAMI was $156,000 in 1993 compared to $10,000 in 1992, an
increase of $146,000.
Lease Financing Activities
Ziegler Leasing Corporation ("ZLC") is the primary lease financing subsidiary
of the Company. ZLC leases equipment and provides other financing primarily
to the healthcare industry as well as to commercial and industrial customers.
ZLC had total revenues of $10,842,000 in 1994 compared to $10,863,000 in 1993,
a decrease of $21,000. 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 $9,259,000 in
1994 compared to $9,482,000 in 1993, a decrease of $223,000 or 2%. The
recognition of leasing income is affected by the different methods of
accounting for the different types of leases and the timing of lease
activations and terminations. Lease activations in 1994 were $23,000,000 or
26% of total equipment on lease as of the beginning of the year. Although
activations exceeded the total of terminations and sales to Ziegler
Collateralized Securities, Inc., a related company, the average equipment on
lease in 1994 decreased 4% as compared to 1993. The decrease in average
equipment on lease is due to the timing of activations and terminations and is
the primary reason for the 2% decrease in lease income compared to 1993.
Total equipment on lease actually increased 4% during the year despite the
lower average of equipment on lease noted above with the largest net increase
occurring in the fourth quarter.
Gains on the sale of leased equipment were $842,000 in 1994 compared to
$870,000 in 1993, a decrease of $28,000 or 3%, reflecting similar
circumstances involving volume of equipment terminated and market conditions
in both years. Interest income was $470,000 in 1994 compared to $258,000 in
1993, an increase of $212,000 or 82%. The increase is due to an increase in
the levels of notes and an increase in the rate of return on short-term
investments. Fee income remained comparable between years at $229,000 in 1994
compared to $240,000 in 1993. Of the total fees, $212,000 in 1994 and
$190,000 in 1993 were received from Ziegler Collateralized Securities, Inc.
Total expenses of ZLC were $9,666,000 in 1994 compared to $9,113,000 in 1993,
an increase of $553,000 or 6%. The largest component of expenses is
depreciation expense on operating lease equipment. The expense was $4,817,000
in 1994 compared to $4,498,000 in 1993, an increase of $319,000 or 7% and is
attributable to the higher average level of operating equipment on lease
during 1994. Another large component of expense is interest expense which was
$2,866,000 in 1994 compared to $2,979,000 in 1993, a decrease of $113,000 or
4%. Interest expense reflects the financing of the assets associated with
leases and, on a smaller scale, notes. The decrease in interest expense is
due to the decrease in the average overall portfolio of leases, partially
offset by an increase in interest rates and an increase in the average notes
outstanding during the year. Other changes in expenses were not significant.
Net income for ZLC was $764,000 in 1994 compared to $1,076,000 in 1993, a
decrease of $312,000 or 29%. Investment in leases and notes at December 31,
1994, was $45,553,000 and $1,778,000, respectively.
Total ZLC revenues of $10,863,000 in 1993 decreased $1,249,000 or 10% from
$12,112,000 in 1992. Equipment leasing income was $9,482,000 in 1993 compared
to $9,884,000 in 1992, a decrease of $402,000 or 4%. Lease activations were
$20,000,000 or 21% of total equipment on lease at the beginning of the year.
A net decrease during the year of 8% of equipment on lease which included a
sale of equipment to Ziegler Collateralized Securities, Inc. was the primary
reason for the decrease in leasing income. Gains on the sale of leased
equipment were $870,000 in 1993 compared to $1,727,000 in 1992 a decrease of
$857,000 or 50%. Less favorable market conditions on terminating leases in
1993 than in 1992 despite a similar volume of leases terminating caused the
decrease. Other sources of revenue consisted primarily of interest and fee
income. Interest income declined $57,000 due to a reduction in interest
rates. Fee income increased $88,000 or 58% to $240,000 in 1993 compared to
$152,000 in 1992. Of the total fees, $190,000 in 1993 and $139,000 in 1992
was received from Ziegler Collateralized Securities, Inc.
Total ZLC expenses of $9,113,000 in 1993 decreased $723,000 or 7% from
$9,836,000 in 1992. Depreciation expense on operating equipment, the largest
expense, was $4,498,000 in 1993 compared to $4,418,000 in 1992, an increase of
$88,000 or 2%. A slightly increased level of average operating equipment on
lease between years was the reason for the increase. Interest expense was
$2,979,000 in 1993 compared to $3,543,000 in 1992, a decrease of $564,000 or
16%. The decrease in interest expense is due to a decline in interest rates
and a 4% decline in the average equipment on lease in 1993 compared to 1992.
The provision for losses declined $316,000 from $436,000 in 1992 to $120,000
in 1993. Specific leases required an additional provision for losses in 1992.
Other expenses did not change significantly during the year. Net income for
ZLC was $1,076,000 in 1993 compared to $1,420,000 in 1992, a decrease of
$344,000 or 24%. Investment in leases and notes at December 31, 1993, were
$46,715,000 and $1,316,000, respectively.
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 five series
of bonds outstanding totaling $12,522,000 as of December 31, 1994, one of
which was issued in October of 1994 for $5,000,000. ZCSI had revenues of
$1,242,000 in 1994 compared to $933,000 in 1993, an increase of $309,000 or
33%. ZCSI revenues consist almost entirely of leasing income and note
interest income. The increase in revenues is due to the purchase of leases
for bond issues in June and December of 1993 having an impact on income for
the full year in 1994. The additional leases purchased in October also
contributed to the increase. Expenses of ZCSI consist primarily of interest
expense, amortized bond issue costs, management and servicing fees, and
initial direct cost expense. Management and servicing fees are paid to ZLC
and are limited to an amount that would prevent ZCSI from incurring a loss.
Such fees earned in 1994 were $212,000 compared to $190,000 in 1993. Expenses
equaled revenues in both 1994 and 1993. Investment in leases and notes were
$10,510,000 and $3,487,000, respectively, as of December 31, 1994.
Total ZCSI revenues of $933,000 in 1993 increased $311,000 or 50% over
revenues of $622,000 in 1992. Income from the leases and notes purchased in
the third quarter of 1992 and the second and fourth quarters of 1993 were the
reasons for the increased revenues in 1993. Expenses of ZCSI equaled revenues
in both 1993 and 1992. Management fees paid to ZLC were $190,000 in 1993
compared to $139,000 in 1992. Investment in leases and notes as of December
31, 1993, were $10,927,000 and $1,906,000, respectively.
Other Services and Activities
Ziegler Financing Corporation ("ZFC") provides construction financing and
interim lending primarily to investment banking clients. Total revenues were
$364,000 in 1994 compared to $375,000 in 1993, a decrease of $11,000 or 3%.
Revenues consist primarily of interest income on loans and short-term
investments. A fluctuating level of loans associated with the demand for
interim lending is the reason behind the revenue differences between years.
In recent years, ZFC has accumulated loans for church construction projects
and sold them to First Church Financing Corporation ("FCFC"), a related
company. A portfolio of loans was sold to FCFC in both 1994 and 1993. Total
expenses of ZFC were $433,000 in 1994 compared to $311,000 in 1993, an
increase of $122,000 or 39%. The increase in expenses is due to a provision
for losses of $100,000 and increasing interest rates on borrowed funds. The
$100,000 provision for losses is related to an investment in two residual
ownership interests totaling $170,000, the values of which have been impaired.
There was a net loss of $42,000 in 1994 compared to net income of $40,000 in
1993, a decrease of $82,000.
Total ZFC revenues of $375,000 in 1993 decreased $171,000 or 31% from revenues
of $546,000 in 1992. The decrease in revenues is primarily due to the
inclusion of a loan for $4,610,000 to a church experiencing difficulties
making required debt service payments on an outstanding bond issue
underwritten by BCZCO. The loan is due on demand and is interest free, thus
reducing revenues. Total ZFC expenses of $311,000 in 1993 were unchanged from
expenses of $311,000 in 1992 and were primarily interest expense in both
years. Net income for ZFC was $40,000 in 1993 compared to $143,000 in 1992, a
decrease of $103,000 or 72%.
First Church Financing Corporation ("FCFC") is organized for the purpose of
issuing mortgage-backed bonds collateralized by first mortgages on church
buildings and properties. FCFC has two series of bonds outstanding. The
first series totaled $4,586,000 and was issued during the first quarter of
1993. The second series totaled $4,456,000 and was issued in the third
quarter of 1994. Total revenues of FCFC were $611,000 in 1994 compared to
$347,000 in 1993, an increase of $264,000. This increase is directly related
to the interest received on the church loans that are associated with the bond
issues and are purchased by FCFC at the time of issue of the bonds. The
timing of the issuance of the two series of the bonds is the reason for the
increased revenues. Total expenses of FCFC were $578,000 in 1994 compared to
$324,000 in 1993, an increase of $254,000. Expenses reflect primarily
interest on the bonds outstanding and the increase is a reflection of the
amount of bonds outstanding during all or part of each of the years. Included
among the expenses is a servicing fee paid to ZFC as servicer of the church
loans of $21,000 in 1994 and $12,000 in 1993. Net income for FCFC was $20,000
in 1994 compared to $14,000 in 1993.
Because FCFC did not commence doing business until the first issue of bonds in
the first quarter of 1993, there was no activity associated with 1992, and the
aforementioned 1993 amounts reflect increases over the lack of business
activities in 1992.
WRR Environmental Services Co., Inc. ("WRR" and formerly Waste Research and
Reclamation Co., Inc.) is in the business of providing pollution abatement
services and recycling, reclaiming, and disposing of chemical wastes. Total
gross revenues were $10,648,000 in 1994 compared to $9,450,000 in 1993, an
increase of $1,198,000 or 13%. WRR has increased revenue through aggressive
marketing and sales of new services, specifically waste remediation services.
Included among gross revenues is a project with a customer completed during
1994 that amounted to approximately 21% of gross revenues. The higher sales
volumes combined with a cost structure that includes a high level of fixed
costs caused the gross margin percentage to increase to 42% in 1994 from 34%
in 1993. Total dollars of gross margin were $4,479,000 in 1994 compared to
$3,181,000 in 1993, an increase of $1,298,000 or 41%. Total expenses of WRR
other than cost of sales were $3,656,000 in 1994 compared to $2,873,000 in
1993, an increase of $783,000 or 27%. The increase in expenses is due to
personnel and promotional costs associated with the increased marketing and
sales activities, increased transportation costs associated with higher levels
of business activity, and increased expenses associated with tax compliance
and insurance audits. Net income for WRR was $529,000 in 1994 compared to
$234,000 in 1993, an increase of $295,000 or 126%.
Total WRR gross revenues of $9,450,000 in 1993 increased $2,654,000 or 39%
over $6,796,000 of gross revenues in 1992. The higher revenues are associated
with the increasing volumes in many new and previously existing services where
WRR has aggressively marketed their unique core competencies in the waste
remediation services industry. The gross margin percentage was 34% in 1993
compared to 28% in 1992. The increase in the gross margin percentage is due
to the increase in revenues and the high level of fixed costs in cost of sales
which yield higher percentage margins when sales volumes increase. Gross
margin dollars were $3,181,000 in 1993 compared to $1,889,000 in 1992, an
increase of $1,292,000 or 68%. Total WRR expenses of $2,873,000 in 1993
increased $1,032,000 or 56% from expenses of $1,841,000 in 1992. A large part
of the increase was due to a $572,000 expense as WRR's estimated share of the
costs to clean up wastes which were disposed of over ten years ago when such
disposals were legal and considered proper. The balance of the increase in
expenses is due to the increase in sales and marketing activity. Net income
for WRR was $234,000 in 1993 compared to $86,000 in 1992, an increase of
$148,000 or 172%.
The Ziegler Companies, Inc. ("ZCI") is the parent company of the subsidiaries
and also engages in limited investing activities. Total revenues of ZCI were
$859,000 in 1994 compared to $107,000 in 1993, an increase of $752,000. An
increase in interest income related to a credit facility established by ZCI
for a corporation that generates automobile loans for retail customers is the
primary reason for the increase. The balance outstanding on this credit
facility at December 31, 1994, was $5,025,000. A loss of $200,000 recorded in
1993 on an abandoned new business venture also had an impact on the comparison
of revenues between 1994 and 1993. ZCI expenses were $452,000 in 1994
compared to $383,000 in 1993, an increase of $69,000 or 18%. An increase in
interest expense to support a higher level of funds advanced under the
aforementioned credit facility is the primary reason for the increase.
Expenses incurred in 1993 associated with the establishment of the credit
facility did not recur in 1994 and also had an impact on the comparison of
expense between years. Net income for ZCI was $263,000 compared to a net loss
of $191,000 in 1993.
Total ZCI revenues of $107,000 in 1993 increased $237,000 from negative
revenues of $130,000 in 1992. A loss of $250,000 recorded in 1992 and a loss
of $200,000 recorded in 1993, both on the previously mentioned new business
venture ultimately abandoned in 1993, caused the low revenues in 1993 and the
negative revenues in 1992. The previously mentioned credit facility
established in 1993 yielded interest income in 1993 and resulted in positive
revenues for the year; unlike 1992 when the lower level of investable funds
did not yield significant interest income. Total ZCI expenses of $383,000 in
1993 increased $103,000 or 37% over expenses of $280,000 in 1992. Increased
administrative costs and interest expense to establish and fund the
aforementioned credit facility are the primary reasons for the increase. ZCI
had a net loss of $191,000 in 1993 compared to a net loss of $277,000 in 1992.
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 during the year ended December
31, 1994. Land, buildings and equipment, net of related depreciation and
amortization, was 4% of total Company assets and investment in leases was 37%
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 1994, a total of
$103,861,000 of notes were issued and $103,363,000 were repaid. In 1993, a
total of $92,974,000 of notes were issued and $91,348,000 were repaid. In
1992, a total of $72,292,000 of notes were issued and $66,300,000 were repaid.
The total balance of short-term notes outstanding, without regard to interest
discounts, was $19,879,000 as of December 31, 1994, compared to $20,442,000 as
of December 31, 1993, and $17,755,000 as of December 31, 1992. 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 the end of 1994, $15,000,000 at the end of 1993,
and $15,000,000 at the end of 1992. The $10,000,000 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.
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 December 31, 1994 is approximately $4,164,000.
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 $3,578,000 at December 31, 1994, and is
included in Other Assets on the balance sheets.
ZCSI issues bonds to the public as a source of cash. During 1994, ZCSI issued
$5,000,000 of bonds to the public and redeemed $4,354,000 of bonds which
matured and $264,000 of bonds which were called. During 1993, ZCSI issued
$6,840,000 of bonds to the public and redeemed $1,800,000 of bonds which
matured. During 1992, ZCSI issued $4,600,000 of bonds and redeemed $700,000
of bonds which matured. Total bonds outstanding at December 31, 1994, 1993,
and 1992 were $12,522,000; $12,140,000; and $7,100,000, respectively. The
bonds are due serially from January, 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. During 1994, FCFC issued $4,456,000 of bonds to the public and
redeemed $329,000 of bonds which were called. During 1993, FCFC issued
$4,586,000 of bonds to the public and redeemed $99,000 of bonds which were
called. Total bonds outstanding at December 31, 1994 and 1993, were
$8,614,000 and $4,487,000, respectively.
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. 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. The repurchase of 300,000 shares
of the Company's common stock from a shareholder in 1992 has not affected the
Company's ability to fund its business activities.
Five-Year Summary of Financial Data
<TABLE>
<CAPTION>
1994 1993 1992 1991 1990
<S> <C> <C> <C> <C> <C>
Operating
Revenues $ 48,473,925 $ 50,861,456 $ 48,306,068 $ 41,342,278 $ 34,362,812
Net Income
from
Continuing
Operations $ 2,005,056 $ 4,531,024 $ 5,086,534 $ 3,811,858 $ 2,513,594
Net Income
from
Continuing
Operations
Per
Common
Share $ .82 $1.90 $2.01 $1.45 $ .95
Cash Divi-
dends
Declared
Per Share
of Common
Stock $ .72 $1.07 $ .97 $ .87 $ .77
Total
Assets $152,440,207 $141,623,055 $124,822,939 $117,182,297 $101,562,582
Long-Term
Obliga-
tions $ 38,331,881 $ 37,490,196 $ 33,588,703 $ 32,916,233 $ 15,337,761
Short-Term
Notes
Payable $ 19,728,501 $ 19,322,467 $ 17,708,751 $ 11,688,766 $ 20,594,291
End of Year
Share-
holders'
Equity $ 50,380,022 $ 49,951,855 $ 47,890,830 $ 49,121,674 $ 47,584,496
Book Value
Per Share $20.68 $20.96 $20.14 $18.65 $18.09
</TABLE>
<TABLE>
Quarterly Consolidated Results of Operations for 1994 and 1993
<CAPTION>
1994 Quarter Ended March 31 June 30 September 30 December 31
<S> <C> <C> <C> <C>
Revenues $11,133,000 $13,061,000 $12,394,000 $11,886,000
Expenses 10,988,000 11,274,000 11,338,000 11,752,000
Net Income 95,000 1,071,000 665,000 174,000
Net Income Per Share $ .04 $ .44 $ .27 $ .09
</TABLE>
<TABLE>
<CAPTION>
1993 Quarter Ended March 31 June 30 September 30 December 31
<S> <C> <C> <C> <C>
Revenues $11,266,000 $13,297,000 $11,847,000 $14,451,000
Expenses 10,119,000 11,367,000 10,218,000 11,733,000
Net Income 682,000 1,167,000 1,004,000 1,678,000
Net Income Per Share $ .29 $ .49 $ .42 $ .70
</TABLE>
Directors and Executive Officers
DIRECTORS
J. C. Frueh
President, Aegis Group, Inc., Pittsburgh, Pennsylvania; Acquisition and
Management of Manufacturing and Distribution Companies
J. R. Green
Partner, Green, Manning & Bunch, Denver, Colorado; Merchant Banking Firm
W. R. Holmquist
Retired Senior Vice President - Marketing of the Company
P. D. J. Kenny
Director of University Facilities - Mercer University, Macon, Georgia
T. J. Rolfs
Retired Chairman of the Board, Amity Leather Products Company, West Bend,
Wisconsin
F. J. Wenzel
Advisor to the President, Marshfield Clinic, Marshfield, Wisconsin; Executive
Director and Chief Executive Officer, Medical Group Management Association,
Englewood, Colorado
B. C. Ziegler III
President, Ziegler/Limbach, Inc., West Bend, Wisconsin; Business Development,
Management and Consulting
P. D. Ziegler
President and Chief Executive Officer
R. D. Ziegler
Chairman of the Board
B. C. Ziegler
Director Emeritus
EXECUTIVE OFFICERS
R. D. Ziegler
Chairman of the Board
P. D. Ziegler
President and Chief Executive Officer
S. C. O'Meara
Senior Vice President and General Counsel
L. R. Van Horn
Senior Vice President - Finance
V. C. Van Vooren
Senior Vice President, Treasurer and Assistant Secretary
J. R. Schmidt
Corporate Secretary
J. C. Vredenbregt
Assistant Treasurer and Controller
OFFICERS AND
SUBSIDIARIES
B. C. Ziegler
and Company
R. D. Ziegler
Chairman
P. D. Ziegler
President and Chief
Executive Officer
S. C. O'Meara
Senior Vice President
and General Counsel
D. A. Carlson, Jr.
Senior Vice President
M. P. Doyle
Senior Vice President-
Retail Operations
N. L. Fuerbringer
Senior Vice President-
Administration
E. H. Rudnicki
Senior Vice President
R. N. Spears
Senior Vice President-
WATS Division
L. R. Van Horn
Senior Vice President-
Finance
V. C. Van Vooren
Senior Vice President
and Treasurer
J. C. Wagner
Senior Vice President-
Retail Sales
J. R. Wyatt
Senior Vice President
G. Aman
Vice President -
Insurance
M. A. Baumgartner
Vice President
J. J. Becker
Vice President
J. M. Bushman
Vice President -
Recruiting and
Training Coorindator
M. S. Donahoe
Vice President
J. H. Downer
Vice President-
MIS Director
D. P. Frank
Vice President -
Director of Strategic
Planning and Change
S. K. Hittman
Vice President-
Personnel
R. J. Johnson
Vice President-
Compliance
D. J. Meizen
Vice President
L. C. Rosenheimer
Vice President - Bond
Sales Control
T. S. Ross
Vice President
D. A. Schlosser
Vice President
C. G. Stevens
Vice President -
Marketing Director
R. J. Tuszynski
Vice President -
Director of Mutual
Funds
J. C. Vredenbregt
Vice President,
Assistant Treasurer
and Controller
B. J. Bronson
Assistant Vice
President
H. C. Delcore
Assistant Vice
President
J. Ferrara, Jr.
Assistant Vice
President - Mutual
Funds
D. J. Hauser
Assistant Vice
President
S. A. Hron
Assistant Vice
President
B. A. Rahlf
Assistant Vice
President
S. D. Rolfs
Assistant Vice
President
J. R. Schmidt
Corporate Secretary
R. C. Strzok
Assistant Vice
President -
Administration
K. A. Lochen
Assistant Secretary
Vice Presidents-Sales:
S. C. Bass
D. S. Bast
W. L. Bruss
R. T. Bunn
J. O. Conwell
G. R. Knutson
G. F. Koepke
J. V. Noordyk
P. D. O'Brien
R. D. Ping
R. R. Poggenburg
W. P. Randall
T. P. Sancomb
C. D. Schrader
W. R. Uebele
M. B. Walsh
G. M. Wilson
Assistant Vice
Presidents-Sales:
R. W. Eggebrecht
F. H. Ellenberger
T. J. Fitzgerald
A. G. Frey
N. E. Harris
J. D. Klanderman
P. J. Krause
W. J. Langley
C. L. Mahnke
W. G. Morse
D. L. Peterson
R. J. Ratterman
D. J. Schoenwetter
M. B. Seiser
M. W. Severson
R. R. Sims
S. D. Steinke
A. A. Struebing
T. M. Turner
P. D. Voss
Ziegler Securities
Division
P. D. Ziegler
Chairman
D. A. Carlson, Jr.
President, Chief
Executive Officer and
Treasurer
J. M. Annett
Senior Vice President
and National Director
of Long-Term Care
Finance
J. B. Sterns
Senior Vice President
and National Director
of Healthcare Finance
M. P. McDaniel
Senior Vice President
D. M. Rognerud
Senior Vice President
J. R. Wyatt
Senior Vice President
M. A. Baumgartner
Vice President
D. J. Hermann
Vice President
T. S. Howard
Vice President
M. J. Kane
Vice President
G. M. Keenan
Vice President
J. LeBuhn
Vice President
R. K. Price
Vice President
R. J. Scanlon
Vice President
R. D. Sultan
Assistant Vice
President
S. D. Smith
Special Products Group
Manager
D. E. Bolstad
Controller
V. C. Van Vooren
Assistant Treasurer
J. M. Garza
Administrative Officer
Ziegler Healthcare
Affiliates Division
R. R. Barkley
President
Ziegler Financing
Corporation
E. H. Rudnicki
President
S. C. O'Meara
Senior Vice President
and General Counsel
J. M. Annett
Vice President
R. K. Price
Vice President
L. R. Van Horn
Vice President and
Treasurer
J. R. Wyatt
Vice President
P. D. Ziegler
Vice President
V. C. Van Vooren
Secretary
J. C. Vredenbregt
Assistant Treasurer
Ziegler Leasing
Corporation
M. E. Sedlmeier
President and Chief
Operating Officer
S. C. O'Meara
Senior Vice President
and General Counsel
L. E. Johnson
Vice President -
Marketing
R. F. Jones
Vice President - Sales
T. A. Norman
Vice President -
Asset Management
P. D. Ziegler
Vice President
J. L. Michaelson
Assistant Vice
President and
Controller
D. M. Pieper
Assistant Vice
President - Operations
J. R. Schmidt
Corporate Secretary
V. C. Van Vooren
Assistant Secretary
L. R. Van Horn
Treasurer
J. C. Vredenbregt
Assistant Treasurer
Ziegler Thrift
Trading, Inc.
R. D. Ziegler
Chairman
V. C. Van Vooren
President and Chief
Executive Officer
R. L. Kangrga
Vice President and
Assistant Secretary
M. W. Stefano
Vice President and
Treasurer
L. R. Van Horn
Vice President
J. R. Schmidt
Corporate Secretary
J. C. Vredenbregt
Assistant Treasurer
WRR Environmental
Services Co., Inc.
J. L. Hager
President and Chief
Executive Officer
J. D. Bisek
Vice President - Sales
and Marketing
J. Y. Lee
Vice President -
Quality Control
B. I. Heath
Vice President - Plant
Operations
D. J. Reali
Secretary-Treasurer
First Church Financing
Corporation
E. H. Rudnicki
President
L. R. Van Horn
Secretary and
Treasurer
J. R. Schmidt
Assistant Secretary
Ziegler Asset
Management, Inc.
R. D. Ziegler
Chairman
R. L. Hauswirth
President and Chief
Executive Officer
P. D. Ziegler
Senior Vice President
M. J. Dion
Vice President and
Chief Investment
Officer
D. L. Lauterbach
Vice President
R. F. Patek
Vice President -
Portfolio Manager
R. J. Tuszynski
Vice President
D. R. Wyatt
Vice President -
Retirement Plan
Services
J. R. Schmidt
Corporate Secretary
L. R. Van Horn
Treasurer
Ziegler Collateralized
Securities, Inc.
L. R. Van Horn
President
J. J. Becker
Vice President
J. R. Schmidt
Corporate Secretary
M. E. Sedlmeier
Treasurer
DIVISION AND SUBSIDIARY OFFICES
B. C. Ziegler and Company
215 North Main Street
West Bend, Wisconsin 53095-3348
(414) 334-5521
Preferred Stock Division
1001 West Glen Oaks Lane, Suite 101
Mequon, Wisconsin 53092-3365
(414) 241-7200
Ziegler Securities Division
Division Headquarters
One South Wacker Drive
Suite 3080
Chicago, Illinois 60606-4617
(312) 263-0110
California Office
1850 Mt. Diablo Boulevard
Suite 640
Walnut Creek, California 94596-4432
(510) 930-0655
Florida Office
111 Second Avenue NE
Suite 915
St. Petersburg, Florida 33701-3441
(813) 895-0202
Wisconsin Office
215 North Main Street
West Bend, Wisconsin 53095-3348
(414) 334-5521
Ziegler Healthcare Affiliates
Division
California Office
11925 Wilshire Boulevard
Suite 316
Los Angeles, California 90025
(310) 575-4354
Ziegler Leasing Corporation
Corporate Headquarters
215 North Main Street
West Bend, Wisconsin 53095-3348
(414) 334-5521
Regional Offices
7800 Metro Parkway
Suite 300
Bloomington, Minnesota 55425
(612) 854-2767
16000 Bothell Everett Highway
Suite 100
Mill Creek, Washington 98012
(206) 338-4616
11479 South Pine Drive
Suite 22
Parker, Colorado 80134
(303) 841-4711
Ziegler Thrift Trading, Inc.
Minneapolis, Minnesota
733 Marquette Avenue
Suite 106
Minneapolis, Minnesota 55402-2340
(612) 333-4206
Out of State: (800) 328-4854
St. Paul, Minnesota
336 Robert Street North
Suite 210
St. Paul, Minnesota 55101
(612) 292-1505
Out of State: (800) 433-1505
Building 224-2S-34
3M Center Building
St. Paul, Minnesota 55144-1000
(612) 737-5321
670 McKnight Road, North
Eastern Heights Bank Building
St. Paul, Minnesota 55119-4140
(612) 575-1000
Ziegler Investment Services
670 McKnight Road, North
Eastern Heights Bank Building
St. Paul, Minnesota 55119-4140
(612) 736-7974
Ziegler Asset Management, Inc.
215 North Main Street
West Bend, Wisconsin 53095-3348
(414) 334-5521
Fixed Income Division
100 East Wisconsin Avenue
Suite 1850
Milwaukee, Wisconsin 53202
(414) 271-0464
WRR Environmental Services Co., Inc.
5200 State Road 93
Eau Claire, WI 54701-9808
(715) 834-9624
Investor Information
Corporate Offices
215 North Main Street
West Bend, Wisconsin 53095-3348
Annual Meeting
The annual meeting of shareholders will be held at 10:00 a.m., April 24, 1995
at the West Bend Inn, 2520 West Washington Street, West Bend, Wisconsin.
Copies of the Form 10-K covering the fiscal year 1994 are available upon
request. Form 10-K is the Company's annual report filed with the Securities
and Exchange Commission, Washington, D.C. Shareholders wishing to receive a
copy, please write to:
The Ziegler Companies, Inc.
Attention: Janine R. Schmidt
215 North Main Street
West Bend, Wisconsin 53095-3348
Market
The Ziegler Companies, Inc. common stock began trading on the American Stock
Exchange on September 20, 1991. The range of bid and asked quotations during
1994 and 1993 was as follows:
<TABLE>
<CAPTION>
1994 Bid Asked 1993 Bid Asked
<C> <C> <C> <C> <C> <C> <C> <C>
1st Quarter High 19 19-1/8 1st Quarter High 19 19-1/4
Low 16-1/4 16-5/8 Low 15-1/8 15-3/8
2nd Quarter High 18 18-3/8 2nd Quarter High 18-7/8 19-1/8
Low 16-1/8 16-3/8 Low 16-1/2 16-7/8
3rd Quarter High 17 17-3/8 3rd Quarter High 18-1/2 18-7/8
Low 16-1/8 16-1/2 Low 16-1/2 16-3/4
4th Quarter High 17-1/4 17-5/8 4th Quarter High 17-5/8 17-7/8
Low 14-7/8 15-1/8 Low 16-3/8 16-5/8
</TABLE>
Cash Dividends
Cash Dividends during 1994 and 1993 were paid as follows:
<TABLE>
<CAPTION>
Per Share 1994 1993
<C> <C> <C>
January $ .13 $ .13
Extra cash dividend .55 .45
April .13 .13
July .13 .13
October .13 .13
Total $1.07 $ .97
</TABLE>
Holders of record on January 9, 1995, were paid a regular cash dividend of
$.13 per share plus an extra cash dividend of $.20 per share on January 20,
1995.
Transfer Agent and Registrar
Firstar Trust Company
777 East Wisconsin Avenue
Milwaukee, Wisconsin 53202
Compensation Committee
Thomas J. Rolfs, Chairman
William R. Holmquist
Frederick J. Wenzel
Audit Committee
John C. Frueh, Chairman
Patrick D. J. Kenny
Bernard C. Ziegler III
AMEX Symbol
ZCO
THE ZIEGLER COMPANIES, INC.
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
Monday, April 24, 1995
TO THE SHAREHOLDERS OF THE ZIEGLER COMPANIES, INC.:
NOTICE IS HEREBY GIVEN that the annual meeting of shareholders of The Ziegler
Companies, Inc., will be held on Monday, April 24, 1995 at 10:00 A.M. (Central
Daylight Time) at the West Bend Inn, 2520 West Washington Street, West Bend,
Wisconsin, for the following purposes:
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.
3. To transact any other business which may properly come
before the meeting, or any adjournments thereof.
Shareholders of record at the close of business on February 20, 1995 will be
entitled to vote at the meeting and any adjournments thereof.
A PROXY AND PROXY STATEMENT ARE ENCLOSED HEREWITH.
YOUR VOTE IS IMPORTANT. TO ASSURE YOUR REPRESENTATION
AT THIS MEETING, PLEASE FILL IN THE ENCLOSED PROXY,
WHICH IS SOLICITED BY THE BOARD OF DIRECTORS, SIGN
EXACTLY AS YOUR NAME APPEARS AND RETURN IMMEDIATELY.
SHAREHOLDERS WHO EXECUTE PROXIES RETAIN THE RIGHT TO
REVOKE THEM AT ANY TIME BEFORE THEY ARE VOTED.
By Order of the Board of Directors,
Janine R. Schmidt
Secretary
March 3, 1995
215 North Main Street
West Bend, Wisconsin 53095
THE ZIEGLER COMPANIES, INC.
215 North Main Street
West Bend, Wisconsin 53095
March 3, 1995
PROXY STATEMENT
ANNUAL MEETING OF SHAREHOLDERS, MONDAY, APRIL 24, 1995
This proxy statement is being mailed to the shareholders of The Ziegler
Companies, Inc. (the "Company") on March 3, 1995, in connection with the
solicitation by the Board of Directors of the Company of proxies for use at
the annual meeting of the shareholders to be held at the West Bend Inn, 2520
West Washington Street, West Bend, Wisconsin, at 10:00 A.M., (Central Daylight
Time) on Monday, April 24, 1995, and at any adjournments of such meeting.
Execution of a proxy given in response to this solicitation will not affect a
shareholder's right to attend the meeting and to vote in person. Presence at
the meeting of a shareholder who has signed a proxy does not in itself revoke
a proxy. Any shareholder giving a proxy may revoke it at any time before it
is exercised by giving notice thereof to the Company in writing or in open
meeting. Unless so revoked, the shares represented by proxies will be voted
at the meeting and at any adjournments thereof. Where a shareholder specifies
a choice by means of a ballot provided in the proxy, the shares will be voted
in accordance with such specification.
Only shareholders of record on February 20, 1995 are entitled to vote at the
meeting. As of that date, the Company's issued and outstanding voting
securities consisted of 2,449,643 shares of Common Stock, each having one vote
per share.
STOCK OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Set forth below is a tabulation indicating those persons who, as of February
20, 1995, were known by the Company to be the beneficial owners of more than
5% of any class of the Company's voting securities. The following information
is based on reports on Schedule 13D filed with the Securities and Exchange
Commission or other reliable information. To the best of the Company's
knowledge, all shareholdings represent shares actually owned and do not
include shares which the designated person has the right to acquire.
<TABLE>
<CAPTION>
Name and Address Amount and Nature
Title of of Beneficial of Beneficial Percent
Class Owner Ownership of Class
<S> <C> <C> <C> <C>
Common Stock Peter R. Kellogg (1) 400,000 16.32%
$1.00 Par Value 120 Broadway
New York, New York
Bernard C. Ziegler (2) 129,480 5.28%
5402 Highway Z
West Bend, Wisconsin
</TABLE>
(1) Mr. Peter R. Kellogg, Chief Executive Officer and Senior Partner, Spear,
Leeds & Kellogg, 120 Broadway, New York, New York filed a Form 4 dated
July 6, 1994 with the Securities and Exchange Commission disclosing that
as of June 30, 1994, Mr. Kellogg beneficially owned an aggregate of
400,000 shares of the Company's common stock. Of those shares, 100,000
shares were owned by Mr. Kellogg personally, and 150,000 shares were
owned by I.A.T. Reinsurance Syndicate, Ltd. ("IAT"), a Bermuda
corporation of which Mr. Kellogg is the sole holder of voting stock. In
addition, Mr. Kellogg may be deemed to be the indirect beneficial owner
of 100,000 shares of common stock held by his wife, and 50,000 shares of
common stock held by the Peter R. and Cynthia K. Kellogg Foundation, by
virtue of his shared disposition and voting power. The aggregate number
of shares of common stock, with respect to which Mr. Kellogg may be
deemed to be the beneficial owner is 400,000 shares.
(2) Shares include an aggregate of 36,676 shares beneficially owned by Mr.
Ziegler's spouse. Mr. Ziegler disclaims beneficial ownership of such
shares.
Set forth below is a tabulation indicating as of February 20, 1995, the shares
of equity securities of the Company and its subsidiary corporations,
beneficially owned by (i) each of the executive officers of the Company or its
subsidiaries, (ii) each director of the Company and each nominee for director
of the Company and (iii) by all directors and executive officers of the
Company as a group. Except as indicated below, no such person owns in excess
of 1% of the outstanding shares of any class of the Company's equity
securities. Except as indicated in the footnotes, each person has sole voting
and dispositive power with respect to the number of shares indicated.
<TABLE>
<CAPTION>
Amount and Nature
Title of Name of of Beneficial Percent
Class Beneficial Owner Ownership (3)(4) of Class
<S> <C> <C> <C>
Common Stock Peter R. Kellogg (1) 400,000 16.32%
$1.00 Par Value R. Douglas Ziegler (1) 104,604 4.27%
William R. Holmquist (1) 58,635 2.39%
Bernard C. Ziegler III (2) 27,252 1.11%
Peter D. Ziegler (2) 22,466
Patrick D. J. Kenny (1)(2) 20,248
Ronald N. Spears 15,893
S. Charles O'Meara 11,433
Thomas J. Rolfs 7,618
Vernon C. Van Vooren (1) 5,320
Lynn R. Van Horn 4,617
John C. Wagner 1,545
Jeffrey C. Vredenbregt 1,460
John R. Green 1,100
John C. Frueh 500
Frederick J. Wenzel 300
All directors and executive officers
as a group TOTAL 682,991
TOTAL PERCENT OF CLASS 27.88%
</TABLE>
(1) Shares shown include an aggregate of 314,515 shares of common stock to
which all such nominees and directors disclaim beneficial ownership.
Such shares are beneficially owned in the amounts indicated: Mr.
Kellogg (300,000); Mr. R. Douglas Ziegler (2,528); Mr. Holmquist
(6,735); Mr. P. D. Ziegler (1,800); Mr. Kenny (3,352); and Mr. Van
Vooren (100).
(2) Shares shown include an aggregate of 20,142 shares of common stock which
are held in trusts of which nominees and directors are trustees or in
custodian accounts for minors as to which directors serve as custodians,
in the amount indicated: Mr. Kenny (11,392) (co-trustee, shared voting
and investment power); Mr. Peter D. Ziegler (4,600) (custodian, sole
voting and investment power) and (3,000) (co-trustee, shared voting and
investment power); and Mr. B. C. Ziegler III (1,150) (co-trustee, shared
voting and investment power). These nominees and directors disclaim
beneficial ownership of these shares other than sole or shared voting
and investment power as indicated.
(3) Includes shares of Common Stock which, as of February 20, 1995, were
subject to outstanding stock options exercisable within 60 days as
follows: Mr. P. D. Ziegler, 3,067 shares; Mr. Van Vooren, 820 shares;
Mr. Van Horn, 2,000 shares; Mr. R. D. Ziegler, 500 shares; Mr. O'Meara,
11,333 shares; Mr. Wagner, 1,497 shares; and stock options for all
directors and executive officers as a group, 21,050 shares.
(4) Except as otherwise indicated in the previous footnotes, all stock
ownership is direct.
ELECTION OF DIRECTORS
The Board of Directors consists of nine members of whom an equal number are
elected each year to serve for terms of three years or until their successors
are elected. It is intended that the enclosed proxy will be voted for the
election of Messrs. P. D. Ziegler, F. J. Wenzel and P. R. Kellogg for terms
expiring in 1998. Messrs. Ziegler and Wenzel are presently directors and were
elected by a vote of the shareholders. Mr. Kellogg is being nominated to fill
the position being vacated by Mr. T. J. Rolfs who will retire from the Board
of Directors on April 24, 1995 under the Company's mandatory retirement age.
Directors are elected by a plurality of the votes cast by the Company's
shareholders at a meeting at which a quorum is present. "Plurality" means
that the individuals who receive the greatest number of votes cast are elected
as directors up to the maximum number of directors to be chosen at the
meeting. Consequently, any shares not voted (whether by abstention, broker
non-vote or otherwise) have no impact on the election of directors except to
the extent the failure to vote for an individual results in another individual
receiving a larger proportion of votes actually cast. Under Wisconsin law,
cumulative voting for directors is permitted but is not presently provided for
in the Company's Articles of Incorporation.
Information with respect to such nominees and other directors is set forth as
follows:
<TABLE>
<CAPTION>
Name, Age, Principal Occupation Director of Company or a Subsidiary
and Public Directorships (1) Thereof Continuously Since
<S> <C>
Class of 1995 (Nominees)
(Term will expire in 1998)
Peter D. Ziegler, Age 45 1986
President and Chief Executive Officer
of the Company; Director, West Bend
Mutual Insurance Company, West Bend,
Wisconsin; Director, Trustmark Insurance
Company, Lake Forest, Illinois
Frederick J. Wenzel, Age 64 (1) 1993
Advisor to the President, Marshfield
Clinic, Marshfield, Wisconsin, a
multi-specialty medical clinic;
Executive Director and Chief Executive
Officer, Medical Group Management
Association, Englewood, Colorado
Peter R. Kellogg, Age 52 -
Chief Executive Officer and Senior
Partner, Spear, Leeds & Kellogg,
a specialist firm on the New York
Stock Exchange; Director, Interstate
Johnson Lane, Inc.
Class of 1996
(Term will expire in 1996)
William R. Holmquist, Age 69 1975
Retired Senior Vice President -
Marketing of the Company
Patrick D. J. Kenny, Age 54 (1) 1973
Director of University Facilities,
Mercer University, Macon, Georgia
Bernard C. Ziegler III, Age 45 1993
President, Ziegler/Limbach, Inc.,
West Bend, Wisconsin, a business and
real estate development firm
Class of 1997
(Term will expire in 1997)
R. Douglas Ziegler, Age 68 1952
Chairman of the Board of the Company;
Director, Johnson Controls, Inc.,
Milwaukee, Wisconsin; Principal
Preservation Portfolios, Inc.
John C. Frueh, Age 60 1976
President, Aegis Group, Inc., Pittsburgh,
Pennsylvania, a firm specializing in
acquisition and management of manufacturing
and distributing companies
John R. Green, age 50 1994
Partner, Green Manning & Bunch, Denver,
Colorado, a merchant banking firm
</TABLE>
(1) Each of the nominees and directors has been in his principal occupation
for the past five years or longer with the following exceptions:
Mr. Wenzel was Executive Director of the Marshfield Clinic from
August 1976 to June 1993.
Mr. Kenny was a colonel in the United States Army until October
5, 1992, when he retired. He served as Senior Vice President,
Columbus, Georgia Chamber of Commerce from October 5, 1992 until
October 1, 1993 when he joined Mercer University.
Messrs. R. D. Ziegler, P. D. Ziegler (son of Mr. R. D. Ziegler), B. C. Ziegler
III (nephew of Mr. R. D. Ziegler) and trusts or custodian accounts as to which
either Mr. P. D. Ziegler or Mr. B. C. Ziegler III serve as co-trustee or
custodian own beneficially 6.29% of the outstanding common stock of the
Company.
EXECUTIVE COMPENSATION
The Summary Compensation Table on page 9 shows the compensation for the past
three years of the Company's Chief Executive Officer and of each of the
Company's other executive officers who were serving as such during 1994, and
whose compensation exceeded $100,000.
The table on page 10 shows information concerning the exercise of stock
options during 1994 by each of the executive officers named in the Summary
Compensation Table and the fiscal year-end value of unexercised options held
by each such executive officer.
* * * * * * * *
Ziegler Growth Retirement Plan. All regular employees, including executive
officers, of B. C. Ziegler and Company and designated subsidiaries, who have
met certain length of service requirements are eligible to participate in the
Ziegler Growth Retirement Plan ("Growth Plan"). The Growth Plan consists of
two components, the 401(k) component and the profit sharing component. Under
the 401(k) component, participants may elect to contribute from 1% to 6% of
their monthly compensation (the "Participant's Contribution"). Each
Participant Contribution constitutes a salary reduction which has the effect
of reducing the participant's compensation for Federal income tax purposes.
B. C. Ziegler and Company contributes, on behalf of each participant, an
amount equal to 50% of each Participant's Contribution. Under the profit
sharing component, B. C. Ziegler and Company makes an annual determination,
based on its profitability, of the amount it will contribute to the Growth
Plan as a profit sharing contribution. Funds contributed by the corporation
will be allocated ratably to each participant's account in amounts up to 6% of
the participant's annual compensation. For 1994, the Company's profit sharing
contribution was 3% of eligible compensation.
Amounts contributed, accrued or vested for the fiscal year 1994, under the
Growth Plan were $47,561 for all executive officers as a group and $668,383
for all employees as a group.
* * * * * * * *
Incentive Stock Option Plan. On April 19, 1993, the shareholders of the
Company approved the adoption of The Ziegler Company, Inc. 1993 Employees'
Stock Incentive Plan ("1993 Plan"). Pursuant to the 1993 Plan, the Company
granted qualified statutory stock options for an aggregate of 54,500 shares of
the Common Stock of the Company to certain officers of the Company on December
29, 1993. The option price for each share under the options granted on
December 29, 1993 is $16.625. The options expire on December 28, 2003, unless
earlier terminated in connection with an employee's retirement, death,
disability, or separation from the Company. The right of an employee to
exercise an option is subject to a vesting schedule which provides that one-
third of the shares subject to the option vest on each of the first three
anniversaries of the grant.
Pursuant to the 1993 Employees' Stock Incentive Plan, on January 26, 1994, the
Company issued an aggregate of 49,000 shares of restricted Common Stock of the
Company to certain key employees in the Ziegler Securities Division of B. C.
Ziegler and Company. Also pursuant to the 1993 Employees' Stock Incentive
Plan, the Company issued an aggregate of 11,313 shares of restricted Common
Stock to certain key employees in the Ziegler Securities Division on January
27, 1995. Under the restricted stock grants, an employee's title to the
shares of restricted Common Stock 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 the restricted Common Stock
is fully vested. The vesting schedule for the restricted Common Stock issued
in 1994 extends to 2003, and the vesting schedule for the restricted Common
Stock issued in 1995 extends to 2000. Pending vesting of the restricted
shares of Common Stock, an employee is entitled to vote the restricted shares
and receive dividends on the restricted shares. Employees may not transfer
restricted shares until they are vested.
On January 22, 1993, a nonstatutory option was granted to an executive officer
of the Company for 10,000 shares at a per share option price of $15.125. The
option has a duration of ten years from the date of its grant.
* * * * * * * *
Employee Stock Purchase Plan. On February 10, 1989, the Board of Directors
adopted The Ziegler Company, Inc. 1989 Employees' Stock Purchase Plan (the
"1989 Plan"). The purpose of the Plan is to provide employees of the Company
and certain of its subsidiaries with the opportunity to purchase shares of
Common Stock and thereby share in the ownership of the Company. 150,000
shares of Common Stock, $1.00 par value may be issued under the Plan.
All full-time employees of the Company and any of its designated subsidiaries
who have been employed at least two years are eligible to participate in the
Plan. No employee may participate if he would own, directly or indirectly, 5%
or more of the total combined voting power or value of all classes of Company
stock.
On such dates as may be determined by the Company's Compensation Committee,
options to purchase 10 shares of Common Stock for each $1,000 or fraction
thereof of compensation earned in the calendar year immediately prior to the
grant of the option will be granted to eligible employees. The purchase price
per share shall not be less than 85% of the fair market value of the Common
Stock on the date of exercise. The Compensation Committee may specify the
maximum number of shares which may be purchased by an employee. The term of
any option shall be determined by the Compensation Committee, but shall not
exceed five years following the date of grant.
On March 15, 1993, the Board of Directors granted options effective May 1,
1993 to 224 eligible employees to purchase a total of 80,960 shares of the
Company's common stock at a purchase price equal to 85% of the fair market
value of the common stock on the date the options are exercised. On the
effective date of the grant of the options, the market price of the Company's
common stock was $17.25 per share. The options have a term of two years after
which the unexercised options will expire and the balance of the unexercised
shares will become available to be re-issued pursuant to subsequent option
grants. P. D. Ziegler, R. N. Spears, L. R. Van Horn and V. C. Van Vooren were
each granted options to purchase shares of common stock in the following
amounts respectively: 1,500, 1,070, 780 and 820. All present executive
officers as a group were granted options to purchase 5,990 shares of common
stock and all employees including executive officers as a group were granted
options to purchase 80,960 shares of common stock.
No options or SARs were granted to any of the named executive officers during
1994.
<PAGE>
<TABLE>
SUMMARY COMPENSATION TABLE
<CAPTION>
Long-Term Compensation
Annual Compensation Awards Payouts
Securities
Underlying
Options/ Long-
Stock Term
Other Apprecia- Incen- All
Name Annual Restricted tion tive Other
and Compensa- Stock Rights Plan Compensa-
Principal Salary Bonus tion Award (SAR's) Payouts tion
Position Year ($) ($) ($)(1) ($) (#) ($) ($)(2)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
P. D. Ziegler 1994 171,600 None 2,948 None 8,400 None 10,926
President 1993 165,000 80,000 None None 9,500 None 18,667
and CEO 1992 150,000 100,000 None None None None 14,640
R. N. Spears 1994 113,110 12,000 2,782 None 4,000 None 11,150
Sr. Vice 1993 112,331 56,000 None None 5,070 None 13,969
President 1992 107,494 63,000 2,640 None None None 11,341
S. C. O'Meara 1994 104,000 7,500 None None 14,000 None 7,252
Sr. Vice Pres. 1993 96,218 25,000 None None 14,000 None 768
and Gen. Cnsl. 1992 - - - - - - -
L. R. Van Horn 1994 93,600 15,000 None None 6,780 None 8,851
Sr. Vice Pres.- 1993 90,000 55,000 None None 6,780 None 11,685
Finance 1992 78,000 60,000 None None None None 8,439
J. C. Wagner(3) 1994 91,724 15,000 None None 2,830 None 8,213
Sr. Vice Pres.- 1993 - - - - - - -
Retail Sales 1992 - - - - - - -
</TABLE>
(1) Value realized upon exercise of stock options.
(2) Payments by B. C. Ziegler and Company under the Growth Plan (Mr.
Ziegler, $9,000; Mr. Spears, $8,495; Mr. O'Meara, $6,355; Mr.
Van Horn, $7,266; and Mr. Wagner, $6,643) and premiums paid by the
Company for term life insurance and long-term disability insurance
(Mr. Ziegler, $1,193; Mr. Spears, $970; Mr. O'Meara, $897; Mr.
Van Horn, $837; and Mr. Wagner, $822) and taxable fringe benefits and
commission (Mr. Ziegler, $733; Mr. Spears, $1,685; Mr. Van Horn,
$748; Mr. Wagner, $748.)
(3) Mr. Wagner did not serve as an executive officer during 1992 and 1993.
<PAGE>
<TABLE>
AGGREGATED OPTION/STOCK APPRECIATION RIGHT (SAR)
EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION/SAR VALUES
<CAPTION>
Value of
Number of Unexercised
Securities In-the-Money
Underlying Options/SARs
Unexercised at
Options/SARs at December 31, 1994
December 31, 1994 ($)
Number of Value
Shares Acquired Realized
Name on Exercise ($) Exercisable/Unexercisable Exercisable/Unexercisable
<S> <C> <C> <C> <C>
P. D. Ziegler 1,100 2,948 3,067 / 5,333 $ 900 / $ -
R. N. Spears 1,070 2,782 1,333 / 2,667 $ - / $ -
L. R. Van Horn - - 2,780 / 4,000 $1,755 / $ -
S. C. O'Meara - - 11,333 / 2,667 $ - / $ -
J. C. Wagner - - 1,497 / 1,333 $1,868 / $ -
<PAGE>
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
William R. Holmquist, a member of the Compensation Committee, was formerly the
Senior Vice President - Marketing of the Company. Mr. Holmquist retired from
that position in 1989.
COMPENSATION COMMITTEE REPORT
The Compensation Committee is responsible for making recommendations on the
compensation of the Company's executive officers to the Board of Directors.
In making its recommendations, the Compensation Committee considered a variety
of factors. Among the factors considered are the following: (1) the
financial performance of the Company as a whole on both a long-term and short-
term basis (including net income and return on average shareholders' equity);
(2) with respect to each individual executive officer, the financial
performance of that area of the Company, if any, for which such executive is
responsible, (3) the compensation levels of executive officers in similar
positions in similar companies; (4) the length of service by the employee to
the Company; (5) the Company's evaluation of the executive's overall job
performance; and (6) any other material information which the Compensation
Committee deems appropriate in the case of any particular individual. With
regard to any individual executive officer, the Compensation Committee may
weigh one or more of the above factors more heavily than the other factors.
The Committee annually considers discretionary bonuses for executive officers
as a short-term incentive. In response to the decline in many of the
indicators of the Company's financial performance, the amount of discretionary
bonuses to executive officers and to other employee groups within the Company
were substantially reduced from the preceding year. In addition, the
Company's profit sharing contribution, which had been 6% of employees'
eligible compensation for 1993, was reduced to 3% for 1994.
In lieu of a portion of annual cash bonus and in part as a long-term
incentive, the Company awarded 11,313 shares of restricted stock to certain
investment banking employees, but declined to grant long-term incentive stock
options to any employees.
Mr. Peter D. Ziegler has been President of the Company since 1986 and Chief
Executive Officer of the Company since 1990. Mr. Ziegler's compensation for
1994 was adjusted downward from 1993's level in a manner consistent with the
Compensation Committee's decisions with respect to other executive officers.
The Committee believes that this relationship between the Company's decline in
performance in 1994 and the compensation of its chief executive officer to be
appropriate and in the interest of shareholders. Mr. Ziegler was not granted
long-term stock options, restricted stock, or stock appreciation rights in
1994.
COMPENSATION COMMITTEE
Thomas J. Rolfs, Chairman
William R. Holmquist
Frederick J. Wenzel
<PAGE>
PERFORMANCE GRAPH
Set forth below is a line graph comparing the cumulative total shareholder
return on the Company's Common Stock, based on the market price of the Common
Stock and assuming reinvestment of dividends, with the cumulative total return
of companies on the Standard & Poor's 500 Stock Index and on an index compiled
by the Company of publicly held regional brokerage firms. The firms contained
within the index of publicly held regional brokerage firms are:
</TABLE>
<TABLE>
<S> <C>
Advest Group Inc. McDonald & Company Investments
Alex Brown Inc. Morgan Keegan Inc.
First Albany Companies Inc. Piper Jaffray Companies Inc.
Inter-Regional Financial Group Raymond James Financial Corporation
Interstate/Johnson Lane Inc. Rodman & Renshaw Capital Group
Jefferies Group Inc. Scott & Stringfellow Financial
Kinnard Investments Inc. Stifel Financial Corporation
Legg Mason Inc.
</TABLE>
<TABLE>
<CAPTION>
12-31-90 12-31-91 12-31-92 12-31-93 12-31-94
<S> <C> <C> <C> <C> <C>
Ziegler $66 $167 $106 $117 $109
S&P 500 $97 $126 $136 $150 $152
Regionals $72 $174 $206 $271 $207
</TABLE>
Assumes $100 invested on December 31, 1989.
<PAGE>
COMPENSATION OF DIRECTORS
Directors not employed by the Company received the following compensation in
1994 for their services: (a) $11,000 annual retainer, (b) $500 for each board
meeting attended and (c) $500 for each committee meeting attended. Directors
may elect to defer all or part of compensation earned following the date of
such election. Deferred amounts, plus interest, are paid in annual
installments over a three year period beginning no later than the year after
retirement from the Board of Directors. In 1994 the Company transferred to
each non-employee director 100 shares of its Common Stock as part of such
director's compensation.
MEETINGS OF THE BOARD OF DIRECTORS
The Board of Directors met five times in 1994. All directors attended all
meetings of the Board of Directors and all of the meetings of the Committees
(Audit and Compensation) of which they are members.
COMMITTEES OF THE BOARD OF DIRECTORS
The Audit Committee of the Company during 1994 was composed of John C. Frueh
(Chairman), Patrick D. J. Kenny and Bernard C. Ziegler III, Directors of the
Company who are not officers or employees of the Company. The Committee met
twice in 1994. The Audit Committee meets with the independent auditors to
review the plan for and results of the annual audit, to review the range of
audit fees, and to discuss financial reporting policies and practices and the
system of internal control. Non-audit services and fees are also reviewed.
The Committee meets with the internal auditor to review its activities during
the year and the planned activities for the ensuing year. The Committee
recommends the engagement of the independent auditors to the Board of
Directors.
The Compensation Committee of the Company during 1994 was composed of Thomas
J. Rolfs (Chairman), William R. Holmquist and Frederick J. Wenzel, Directors
of the Company who are not officers or employees of the Company. During 1994
the Compensation Committee met once and in doing so, the Committee reviewed
the overall compensation policy, approved the Company's annual compensation
program, the award of certain shares of restricted stock and determined
compensation for the chief executive officer of the Company.
The Company does not have a Nominating Committee.
SELECTION OF INDEPENDENT AUDITORS
The Board of Directors will propose the adoption of a resolution approving the
Directors' decision to continue the employment of Arthur Andersen LLP as
auditors. If the shareholders fail to ratify such selection, the Board will
reconsider it. Representatives of Arthur Andersen LLP will be present at the
shareholders' meeting with the opportunity to make a statement if they desire
to do so, and to respond to appropriate questions. Arthur Andersen LLP
performed the following audit services for the Company during 1994: audits of
the annual consolidated financial statements of the Company and its
subsidiaries.
SHAREHOLDERS PROPOSALS
Proposals of shareholders intended to be presented at next year's annual
meeting must be received by the Company no later than November 3, 1995 for
inclusion in the Company's proxy materials.
OTHER MATTERS
Based solely on a review of statements of beneficial ownership and of changes
therein furnished to the Company during and with respect to the 1994 calendar
year and written representations made to the Company, the management of the
Company reports that during 1994, no director or officer or beneficial owner
of more than 10% of the Company's common stock failed to file with the
Securities and Exchange Commission on a timely basis reports of beneficial
ownership of the Company's securities required by Section 16(a) of the
Securities and Exchange Act of 1934, as amended.
Mr. B. C. Ziegler III, current Director, is also a shareholder, director and
officer of Z/L Media Corporation, which is the general managing partner of
KXRM Partnership, Colorado Springs, Colorado. KXRM has entered into three
leases with Ziegler Leasing Corporation, a subsidiary of the Company. Monthly
lease payments total $5,562.77.
The matters referred to in the notice of meeting and in the proxy statement
are, as far as the Board of Directors now knows, the only matters which will
be presented for consideration at the meeting. If any other matters properly
come before the meeting, the persons named in the accompanying form of proxy
will vote on them in accordance with their best judgment.
The cost of soliciting proxies will be borne by the Company. The Company
expects to solicit proxies primarily by mail. Proxies may also be solicited
personally and by telephone by certain officers of the Company. It is not
anticipated that anyone will be specifically engaged to solicit proxies or
that special compensation will be paid for that purpose. The Company may
reimburse brokers or other nominees for their expenses in communicating with
the persons for whom they held stock of the Company.
The Company's 1994 Annual Report, although not a part of this proxy statement,
is enclosed.
By Order of the Board of Directors,
Janine R. Schmidt
Secretary
<PAGE>
THE ZIEGLER COMPANIES, INC. - SHAREHOLDERS'S PROXY
ANNUAL MEETING - APRIL 24, 1995 AND ADJOURNMENTS
The undersigned having received the Notice of Annual Meeting and Proxy
Statement dated March 3, 1995, and the Annual Report of 1994, hereby appoints
R. D. Ziegler and W. R. Holmquist, and each of them, as proxy with power of
substitution, hereby revoking any previous proxies, to vote for the
undersigned at the Annual Meeting of Shareholders of The Ziegler Companies,
Inc. (the "Company") on April 24, 1995, and any adjournments thereof, as
follows:
1. GRANTING WITHHOLDING ABSTAIN authority to vote
in the election of Peter D. Ziegler, Frederick J. Wenzel and
Peter R. Kellogg.
2. FOR AGAINST ABSTAIN continued employment by the
Company of Arthur Andersen LLP, as auditors.
3. In their discretion, upon any other business which may come
before the meeting.
THE UNDERSIGNED MAY WITHHOLD AUTHORITY TO VOTE FOR ANY OF THE INDIVIDUAL
NOMINEES NAMED ABOVE BY DRAWING A LINE THROUGH THE NOMINEE'S NAME.
(Proxy continues on reverse side hereof where it is to be signed.)
PROXY NO. NO. OF SHARES
THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED AS DIRECTED,
BUT IF NO DIRECTION IS INDICATED, WILL BE VOTED FOR ALL NOMINEES
AND IN FAVOR OF PROPOSAL 2.
Signed:
Date: , 1995
Please sign exactly as name appears
hereon. If signed as attorney, executor,
administrator, trustee or guardian, please
give full title as such. If shares are
held in two or more names, all persons so
named must sign. A proxy on behalf of a
corporation should be signed in its name
by a duly authorized officer.
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS.
PLEASE SIGN AND RETURN THIS PROXY PROMPTLY.
<TABLE> <S> <C>
<ARTICLE> BD
<LEGEND>
This schedule contains summary financial information extracted from The Ziegler
Companies, Inc. and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> DEC-31-1994
<CASH> 5,185,343
<RECEIVABLES> 8,546,864
<SECURITIES-RESALE> 0<F1>
<SECURITIES-BORROWED> 0
<INSTRUMENTS-OWNED> 102,410,760<F2>
<PP&E> 6,813,086
<TOTAL-ASSETS> 152,440,207
<SHORT-TERM> 31,008,501<F3>
<PAYABLES> 10,637,207<F4>
<REPOS-SOLD> 0
<SECURITIES-LOANED> 0
<INSTRUMENTS-SOLD> 0
<LONG-TERM> 47,225,595<F5>
<COMMON> 3,544,030
0
0
<OTHER-SE> 46,835,992
<TOTAL-LIABILITY-AND-EQUITY> 152,440,207
<TRADING-REVENUE> 0<F6>
<INTEREST-DIVIDENDS> 4,210,107
<COMMISSIONS> 0<F6>
<INVESTMENT-BANKING-REVENUES> 23,702,142<F6>
<FEE-REVENUE> 4,844,073
<INTEREST-EXPENSE> 5,261,397
<COMPENSATION> 18,651,203
<INCOME-PRETAX> 3,122,356
<INCOME-PRE-EXTRAORDINARY> 3,122,356
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,005,056
<EPS-PRIMARY> .84
<EPS-DILUTED> .84
<FN>
<F1>Short-term investments of $19,027,837 includes some securities purchased
under resale agreements.
<F2>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
lines of credit.
<F4>Includes payables to customers, broker-dealers, and vendors and shareholder
dividends payable.
<F5>Includes bonds payable and notes payable to banks other than lines of credit
borrowings.
<F6>Revenues from investment banking activities includes those revenues as
well as commissions and trading income. Investment banking revenue is the
largest component.
</FN>
</TABLE>
