Form 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 1-10854
THE ZIEGLER COMPANIES, INC.
(Exact name of registrant as specified in its charter)
Wisconsin 39-1148883
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
215 North Main Street, West Bend, Wisconsin 53095
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (414) 334-5521
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes ( X ) No ( )
The number of shares outstanding of the registrant's Common Stock, par
value $1.00 per share, at September 30, 1995 was 2,435,869 shares.
<PAGE>
PART I
THE ZIEGLER COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED INCOME STATEMENTS
(Unaudited)
[CAPTION]
For the Three Months Ended
Sept. 30, Sept. 30,
1995 1994
<TABLE>
<S> <C> <C>
Revenues:
Investment banking and commission income $ 6,303,485 $ 5,875,939
Interest and dividends 1,069,831 1,118,411
Lease income 2,375,346 2,562,753
Gross profit on chemical products 1,288,849 782,507
Insurance agency 239,711 226,935
Other 1,286,507 1,620,774
Total revenues 12,563,729 12,187,319
Expenses:
Employee compensation and benefits 5,002,155 4,682,117
Commissions and clearing fees 207,135 176,720
Communications 678,297 634,664
Occupancy and equipment 2,123,997 2,136,216
Promotional 520,066 527,117
Professional and regulatory 103,408 238,261
Interest 1,349,473 1,365,736
Other operating expenses 1,385,324 1,370,126
Total expenses 11,369,855 11,130,957
Income before income taxes 1,193,874 1,056,362
Provision for income taxes 418,400 391,900
Net income $ 775,474 $ 664,462
Earnings per share $ .32 $ .27
Dividends per share $ .13 $ .13
Average number of shares outstanding 2,384,130 2,434,835
</TABLE>
The accompanying notes to consolidated condensed financial statements are an
integral part of these statements.
<PAGE>
THE ZIEGLER COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED INCOME STATEMENTS
(Unaudited)
[CAPTION]
For the Nine Months Ended
Sept. 30, Sept. 30,
1995 1994
<TABLE>
<S> <C> <C>
Revenues:
Investment banking and commission income $18,563,676 $18,229,451
Interest and dividends 3,092,173 2,975,430
Lease income 7,306,031 7,693,251
Gross profit on chemical products 2,854,148 2,576,850
Insurance agency 758,551 804,269
Other 4,291,222 3,701,017
Total revenues 36,865,801 35,980,268
Expenses:
Employee compensation and benefits 15,032,396 14,212,833
Commissions and clearing fees 594,893 528,181
Communications 2,002,954 1,837,149
Occupancy and equipment 6,582,136 6,430,022
Promotional 1,466,862 1,645,341
Professional and regulatory 543,704 821,814
Interest 4,098,944 3,825,152
Other operating expenses 4,128,903 3,692,100
Total expenses 34,450,792 32,992,592
Income before income taxes 2,415,009 2,987,676
Provision for income taxes 848,200 1,156,600
Net income $ 1,566,809 $ 1,831,076
Earnings per share $ .65 $ .75
Dividends per share $ .39 $ .39
Average number of shares outstanding 2,392,342 2,434,504
</TABLE>
The accompanying notes to consolidated condensed financial statements are an
integral part of these statements.
<PAGE>
THE ZIEGLER COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
[CAPTION]
Sept. 30, December 31,
1995 1994
<TABLE>
<S> <C> <C>
ASSETS
Cash $ 6,187,696 $ 5,185,343
Short-term investments 14,608,308 19,027,837
Bonds due and called as of
October 1, 1995 and January 1, 1995,
respectively 6,805,634 1,285,301
Total cash and cash equivalents 27,601,638 25,498,481
Securities inventory 18,517,877 22,803,084
Accounts receivable -- securities
sales 4,771,593 5,253,705
Accounts receivable -- other 4,347,453 3,293,159
Investment in and receivables from
affiliates 2,624,948 2,578,926
Investment in leases 52,771,677 56,062,738
Notes receivable 26,221,062 21,029,012
Land, buildings and equipment,
at cost, net of accumulated
depreciation of $14,200,617 and
$13,519,851, respectively 6,610,639 6,813,086
Other assets 13,013,350 9,108,016
$156,480,237 $152,440,207
LIABILITIES AND STOCKHOLDERS' EQUITY
Short-term notes payable $ 21,589,742 $ 19,728,501
Payable to customers 3,379,422 5,876,231
Payable to broker-dealers 2,297,124 1,217,984
Accounts payable 2,398,421 2,738,966
Dividends payable 316,663 804,026
Accrued income taxes 820,111 -
Deferred income taxes 4,159,851 5,322,679
Notes payable to banks 29,062,173 26,900,354
Bonds payable 35,144,317 31,605,241
Other liabilities and
deferred items 6,357,447 7,866,203
Total liabilities 105,525,271 102,060,185
Commitments
Stockholders' equity
Common stock, $1.00 par,
authorized 7,500,000 shares,
issued 3,544,030 shares 3,544,030 3,544,030
Additional paid-in capital 5,978,247 6,030,565
Retained earnings 59,349,408 58,734,576
Treasury stock, at cost,
1,108,161 and 1,107,587 shares,
respectively (17,163,445) (17,196,800)
Unearned compensation (753,274) (732,349)
Total stockholders' equity 50,954,966 50,380,022
$156,480,237 $152,440,207
</TABLE>
The accompanying notes to consolidated condensed financial statements are an
integral part of these balance sheets.
<PAGE>
THE ZIEGLER COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
[CAPTION]
For the Nine Months Ended
Sept. 30, Sept. 30,
1995 1994
<TABLE>
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,566,809 $ 1,831,076
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization 4,726,220 4,962,416
Provision for losses 165,134 174,450
Loss (Gain) on sale of equipment 38,727 (19,406)
Gain on sale of leased equipment (383,075) (864,306)
Unrealized loss (gain) on
securities inventory (52,040) 75,754
Compensation related to restricted
stock grants 148,063 84,338
Deferred income taxes (1,162,828) 232,180
Undistributed earnings of
unconsolidated affiliate (163,205) -
Changes in operating assets and
liabilities:
Decrease/(Increase) in -
Securities inventory 4,337,247 (21,720,761)
Accounts receivable --
security sales 482,112 (290,691)
Accounts receivable --
other (1,186,682) (599,408)
Other operating assets (4,105,592) 2,350,727
Increase/(Decrease) in -
Payable to customers and
broker-dealers (1,417,669) 795,270
Accounts payable net of
payments for purchase of
assets to be leased (352,598) 69,620
Income taxes payable 820,111 (746,534)
Notes payable to banks 4,661,000 21,472,805
Other operating
liabilities (1,497,515) 2,648,596
Net cash provided by
operating activities 6,624,219 10,456,126
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from:
Sale of equipment 23,157 20,626
Principal payments received
under leases 11,841,858 10,675,937
Sale of leased equipment 3,793,329 3,529,440
Payments received on notes
receivable 10,299,658 3,280,342
Decrease in investment in affiliate 158,646 500,000
Payments for:
Investment in/loans to affiliates - (62,079)
Purchase of assets to be leased (7,457,638) (9,809,620)
Issuance of notes receivable (22,909,836) (14,022,484)
Capital expenditures (711,188) (1,606,059)
Net cash used in investing
activities (4,962,014) (7,493,897)
</TABLE>
<PAGE>
THE ZIEGLER COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
(Unaudited)
[CAPTION]
For the Nine Months Ended
Sept. 30, Sept. 30,
1995 1994
<TABLE>
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from:
Issuance of short-term notes
payable 70,030,000 77,630,000
Issuance of notes payable to banks 634,829 246,658
Issuance of nonrecourse debt 848,858 -
Exercise of employee stock
options 69,545 41,476
Issuance of bonds payable 7,200,000 4,277,760
Other - 30,000
Payments of:
Principal on short-term notes
payable (68,180,000) (75,897,000)
Principal on notes payable
to banks (3,134,010) (3,188,103)
Principal on nonrecourse debt (1,668,434) (986,128)
Repayment of bonds payable (3,663,000) (3,233,000)
Purchase of treasury stock (257,496) (3,400)
Dividends (1,439,340) (2,253,704)
Net cash provided by
(used in) financing
activities 440,952 (3,335,441)
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 2,103,157 (373,212)
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD 25,498,481 19,484,100
CASH AND CASH EQUIVALENTS AT
END OF PERIOD $ 27,601,638 $ 19,110,888
SUPPLEMENTAL DISCLOSURES OF
CASH FLOW INFORMATION:
Interest paid during the period $ 3,790,000 $ 3,582,000
Income taxes paid during
the period $ 1,074,000 $ 1,535,000
SUPPLEMENTAL SCHEDULE OF
NONCASH INVESTING ACTIVITIES:
Conversion of Notes Receivable
to Investment in Leases at
the initiation of a lease $ 7,373,403 $ 3,777,804
Granting of restricted stock
from treasury stock $ 168,988 $ 848,813
</TABLE>
The accompanying notes to consolidated condensed financial statements are an
integral part of these statements.
<PAGE>
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
September 30, 1995
Note A -- Basis of Presentation
The consolidated condensed financial statements included herein have
been prepared by The Ziegler Companies, Inc. (the "Company"), without
audit, pursuant to the rules and regulations of the Securities and Exchange
Commission. Certain information and footnote disclosures normally included
in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such rules
and regulations. Management believes, however, that these condensed
financial statements reflect all adjustments which are, in the opinion of
management, necessary to a fair statement of the results for the periods
presented. All such adjustments are of a normal recurring nature. It is
suggested that these condensed financial statements be read in conjunction
with the financial statements and the notes thereto included in the
Company's latest annual report on Form 10-K. Certain prior year amounts
have been reclassified to conform with the current year presentation.
Note B -- Commitments and Contingent Liabilities
In the normal course of business, B. C. Ziegler and Company (BCZ) enters
into firm underwriting commitments for the purchase of debt issues. These
commitments require BCZ to purchase debt issues at a specified price. To
manage the off-balance sheet credit and market risk exposure related to
these commitments, BCZ presells the issues to customers. BCZ had no such
commitments outstanding at September 30, 1995.
As of September 30, 1995, Ziegler Leasing Corporation (ZLC) had
outstanding written agreements to provide equipment lease financing for
approximately $6,145,000. To manage the off-balance sheet credit and
interest rate risk exposure related to those commitments, ZLC retains the
right to adjust or cancel the commitments if adverse interest rate or
credit conditions arise.
As of September 30, 1995, Ziegler Financing Corporation (ZFC) had
financial commitments to unrelated entities for construction and other
loans of approximately $614,000.
WRR Environmental Services Co., Inc. (WRR) has disposed of wastes at
disposal sites which are now on or may be added to the National Priority
List, and may be required to share in the cost of the clean-up of these
sites. As of September 30, 1995, WRR has been identified as a potentially
responsible party ("PRP") in connection with three sites. For the first
site, an initial reserve of $128,000 was established based on WRR's review
of documents, its knowledge of the site and its experience with the clean-
up of similar sites. No engineering studies have yet been done to arrive
at a more reliable cost estimate. Payments related to remediation
activities at this site are expected to occur over the next five years.
The estimated cost of cleaning up a second site is between $10,000,000 and
$30,000,000 based on preliminary estimates from various consulting firms.
Based on the identification of other PRPs and the present interim
allocation schedule, WRR estimates that its proportionate share of
remediation costs will range from $500,000 to $1,800,000. In accordance
with Financial Accounting Standards Board Interpretation No. 14,
"Reasonable Estimation of the Amount of a Loss," WRR established an initial
reserve of $500,000 to cover its share of the clean-up costs of this second
site. Payments on this site are expected to occur over the next five
years. In June 1994, WRR was notified by the United States Environmental
Protection Agency ("EPA") that WRR is a PRP at a third site to which WRR
delivered materials from 1982 to 1985. WRR's review of the remediation
investigation and feasibility study, and other materials prepared by EPA on
account of this site, indicates that WRR has valid defenses to any action
by EPA to collect remediation costs. EPA's estimate of WRR's proportionate
share of anticipated remediation costs at this third site approximates
$200,000. No reserve has been established on account of this third site.
The liability of parties contributing to pollution is joint and several
under certain federal environmental laws. Management for the Company is
not aware of circumstances which could lead to non-performance by the other
PRP's when viewed as a group. No potential insurance recovery or
reimbursements from WRR's liability insurance carriers have been accrued in
the financial statements. The reserve for accrued loss contingencies
totaled $715,000 at September 30, 1995.
Note C -- Stock Option Plans
The Ziegler Company, Inc. 1989 Employees' Stock Purchase Plan (the "1989
Plan") was established for substantially all full-time employees. On April
30, 1995, a total of 63,835 unexercised options expired under the 1989
Plan. On May 1, 1995, the Board of Directors granted additional options to
purchase 104,200 shares under the 1989 Plan. As of September 30, 1995,
unexercised options for 100,482 shares were outstanding. All outstanding
options are currently exercisable through April 30, 1997, at 85% of the
market value on the date of exercise. Options for a total of 4,580 shares
were exercised at prices averaging $12.86 per share during 1995. Under the
1989 Plan, 23,485 shares are available for future options at 85% of the
market value on the date of exercise. Options granted under the 1989 Plan
that expire, terminate, or are cancelled are again available for the
granting of future options. Options for a total of 6,690 shares were
forfeited during the period as the result of employee terminations.
On January 27, 1995, the Company issued an aggregate of 11,313 shares of
restricted common stock of the Company to certain key employees pursuant to
the 1993 Employees' Stock Incentive Plan. Each employee's ownership of
shares is subject to full or partial forfeiture in accordance with a
vesting schedule in the event that the employee's employment with the
Company terminates for any reason before January 27, 2000. The market
value of the restricted stock, when issued, was $14.9375 per share. The
total value at issuance will be amortized and recorded as compensation
expense over the period of vesting. The shares are considered as
outstanding, but may not be transferred by the recipients until vested. A
total of 401 shares of restricted common stock were forfeited in 1995.
Note D -- Earnings Per Share
Earnings per share calculations were computed based on the weighted
average number of common shares outstanding including restricted common
stock using the treasury stock method. The dilutive effect of shares
issuable under the various employee stock option plans in the computation
of earnings per share is not significant.
Note E -- Net Capital Requirements and Customer Reserve Accounts
As registered broker-dealers, BCZ and Ziegler Thrift Trading, Inc. (ZTT)
are subject to the requirements of Rule 15c3-1 (the "net capital rule")
under the Securities Exchange Act of 1934. The basic concept of the rule
is liquidity, requiring a broker-dealer to have sufficient liquid assets at
all times to cover current indebtedness. Specifically, the rule prohibits
a broker-dealer from permitting "aggregate indebtedness" to exceed 15 times
"net capital" (15 to 1) as those terms are defined.
Approximate net capital data as of September 30, 1995, is as follows:
[CAPTION]
BCZ ZTT
<TABLE>
<S> <C> <C>
Aggregate indebtedness $17,840,000 $1,410,000
Net capital $13,935,000 $1,063,000
Ratio of aggregate indebtedness
to net capital 1.28 to 1 1.33 to 1
Required net capital $ 1,189,000 $ 250,000
</TABLE>
In accordance with Securities and Exchange Commission Rule 15c3-3, BCZ
and ZTT maintain separate bank accounts for the exclusive benefit of
customers. The amounts maintained in these accounts are determined by
periodic computations required under the rule, which allows the companies
to maintain the computed amounts in cash or other qualified securities. As
of September 30, 1995, there was approximately $7,436,000 in the customer
reserve accounts.
Note F -- Investment in Ziegler Mortgage Securities, Inc. II
The Company has a 50% interest in Ziegler Mortgage Securities, Inc. II
(ZMSI II), an unconsolidated entity accounted for by the equity method.
Summarized income statement information is as follows:
[CAPTION]
For the Three Months Ended
Sept. 30, Sept. 30,
1995 1994
<TABLE>
<S> <C> <C>
Income, primarily interest $ 2,656,683 $ 2,564,188
Expenses:
Interest 2,470,617 2,403,515
Amortization of Bond
Issuance Costs 49,727 53,258
General and Administrative 136,339 107,415
Total Expenses 2,656,683 2,564,188
Net Income $ - $ -
</TABLE>
[CAPTION]
For the Nine Months Ended
Sept. 30, Sept. 30,
1995 1994
<TABLE>
<S> <C> <C>
Income, primarily interest $ 7,944,778 $ 8,527,119
Expenses:
Interest 7,301,061 7,252,385
Amortization of Bond
Issuance Costs 250,994 1,002,651
General and Administrative 392,723 272,083
Total Expenses 7,944,778 8,527,119
Net Income $ - $ -
</TABLE>
Note G -- Securities Inventory
Securities inventory consisted of the following:
[CAPTION]
Sept. 30, December 31,
1995 1994
<TABLE>
<S> <C> <C>
Municipal bond issues $11,454,051 $11,344,996
Corporate bond issues 2,036,078 189,345
Institutional bond issues 230,897 4,826,932
U. S. Government securities - 4,157,527
Preferred Stock 2,918,138 519,001
Other securities 1,878,713 1,765,283
$18,517,877 $22,803,084
</TABLE>
Note H -- Notes Payable to Banks
BCZ had short-term borrowings outstanding of $14,678,000 at September
30, 1995. Such borrowings are used for specific underwritings and are due
on demand. Such short-term borrowings are generally repaid within 30 days.
Such amounts are treated as operating items in the Statement of Cash Flows.
Note I -- Ziegler Collateralized Securities, Inc.
Ziegler Collateralized Securities, Inc. (ZCSI), a wholly-owned
subsidiary of the Company, was organized to facilitate the financing of
equipment purchases and leases by securitizing such purchases and leases
for offerings to the public.
Summarized balance sheet information of ZCSI as of September 30, 1995
and December 31, 1994 and income statements for the nine month periods
ended September 30, 1995 and 1994 are as follows:
[CAPTION]
Balance Sheets as of:
Sept. 30, December 31,
1995 1994
<TABLE>
<S> <C> <C>
Investment in leases $10,118,176 $10,509,676
Notes receivable 7,327,890 3,487,364
Other assets 3,255,172 1,815,606
Total assets $20,701,238 $15,812,646
Bonds payable $16,874,000 $12,522,000
Other liabilities 3,817,238 3,280,646
Total liabilities 20,691,238 15,802,646
Stockholder's equity 10,000 10,000
Total liabilities and
stockholder's equity $20,701,238 $15,812,646
</TABLE>
[CAPTION]
Income Statements for the
Nine Months Ended
Sept. 30, Sept. 30,
1995 1994
<TABLE>
<S> <C> <C>
Lease income $ 652,478 $ 748,247
Other income 334,178 151,053
Total income 986,656 899,300
Interest expense 685,330 528,222
Management fees 51,879 135,905
Other expenses 249,447 235,173
Total expenses 986,656 899,300
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 September 30, 1995 and
for the nine month period then ended indicates the income from each series
exceeds the interest expense on the corresponding bonds and the other
expenses directly related to each specific series.
[CAPTION]
Collateral Lease/ Bond Other Excess
Series Bonds Value Note Interest Related of
No. Outstanding at Cost Income Expense Expenses Income
<TABLE>
<C> <C> <C> <C> <C> <C> <C>
1 456,000 534,417 77,792 40,900 9,406 27,486
2 902,000 1,012,973 104,486 72,429 18,972 13,085
3 1,250,000 1,404,751 129,382 69,160 32,928 27,294
4 2,066,000 2,330,428 179,078 98,289 31,916 48,873
5 5,000,000 6,511,887 367,489 256,125 98,093 13,271
6 7,200,000 8,080,403 18,718 15,531 2,916 271
</TABLE>
Note J -- Subsequent Event
In April, 1995, WRR entered into an agreement to purchase the assets of
a company located adjacent to WRR's existing plant in Eau Claire,
Wisconsin. The closing date was October 4, 1995. The assets purchased
included land, buildings, equipment, and inventory owned or used by the
selling company. The purchase price approximated $1,350,000. WRR intends
to utilize the assets to operate a retail sales, manufacturing and repair
business for roadway maintenance vehicles, the same business in which the
selling company was engaged.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations - Three Months Ended
September 30, 1995 and 1994
The predominant activity of The Ziegler Companies, Inc. and
subsidiaries (the "Company") has been and continues to be investment
banking, primarily the underwriting and marketing of debt securities for
the healthcare industry. The Company is also involved in other financial
service activities, specifically equipment leasing services to the
healthcare industry and commercial/industrial customers, securitization of
leases for offerings to the public, reduced commission brokerage services,
investment management and advisory services, and interim lending to
investment banking clients. The nonfinancial services of the Company are
pollution abatement and the recycling, reclaiming, and disposing of
chemical wastes.
NOTE: All references to 1995 and 1994 refer to the three months
ended September 30, unless otherwise noted.
Total revenues of the Company in 1995 were $12,564,000 compared to
$12,187,000 in 1994, an increase of $377,000 or 3%. Operating expenses in
1995 were $11,370,000 compared to $11,131,000 in 1994, an increase of
$239,000 or 2%. There was a provision for income taxes in 1995 of $418,000
compared to $392,000 in 1994 using a federal statutory tax rate of 34% in
both periods under comparison. Net income in 1995 was $775,000 compared to
$664,000 in 1994, an increase of $111,000 or 17%. Earnings per share in
1995 were $.32 compared to $.27 in 1994. The 1994 revenues and expenses
were restated due to a reclassification affecting gross profit on chemical
products. These changes do not affect the overall results of operations in
1994. The changes in revenues, operating expenses and net income for 1995
were primarily a reflection of factors related to investment banking,
broker-dealer and lease financing activities, as well as factors related to
the Company's nonfinancial services subsidiary, WRR Environmental Services
Co., Inc. These factors are explained more fully in the information that
follows.
Investment Banking and Broker-Dealer Activities
B. C. Ziegler and Company (BCZCO), the investment banking and primary
broker-dealer subsidiary of the Company, had total revenues of $6,629,000
in 1995 compared to $6,472,000 in 1994, an increase of $157,000 or 2%.
Revenues from securities activities involving sales commissions,
underwriting revenues, and trading profits increased $233,000 compared to
1994. Commission income from nonunderwritten product increased $232,000 in
1995 over 1994 levels. Underwriting revenues decreased $223,000 in 1995
with declines in institutional bond underwriting revenues and underwriting
fee income partially offset by an increase in municipal bond underwriting
revenues. Trading profits increased $224,000 primarily as the result of
preferred stock trading which is new to 1995. Interest income declined
$103,000 primarily as the result of lower interest rates. Insurance
commission income and fee income increased slightly in 1995. Total
expenses of BCZCO in 1995 were $6,804,000 compared to $6,441,000 in 1994,
an increase of $363,000 or 6%. Increases in employee compensation and
benefits, occupancy and equipment, and communication costs were the primary
reasons for the increase. Increased personnel to support enhanced
services, primarily equity trading and retail sales support, caused the
increase in employee compensation and benefits. Occupancy and equipment
costs increased as the result of enhancements to computer processing
capabilities and rent expense, and communications expense increased as the
result of increased telephone service expense. Decreases in interest
expense due to a reduced requirement for borrowed funds, and in
professional and regulatory fees due to a reduction in legal expenses and
in the use of consultants partially offset the above increases. As a
result, BCZCO recorded a loss of $91,000 in 1995 compared to net income of
$30,000 in 1994.
Ziegler Thrift Trading, Inc. (ZTT), the reduced commission brokerage
service of the Company, had total revenues of $1,019,000 in 1995 compared
to $842,000 in 1994, an increase of $177,000 or 21%. Commission income,
the primary source of revenues, increased $173,000 or 22% primarily as the
result of a 19% increase in trading volume. Total expenses of ZTT were
$793,000 in 1995 compared to $713,000 in 1994, an increase of $80,000 or
11%. An increase in volume-based compensation was partially offset by a
decrease in clearing fees. Net income in 1995 for ZTT was $140,000
compared to $79,000 in 1994, an increase of $61,000 or 77%.
Ziegler Asset Management, Inc. (ZAMI), the money management services
subsidiary of the Company, had total revenues in 1995 of $371,000 compared
to $325,000 in 1994, an increase of $46,000 or 14%. A change in the
proportion of fixed income versus equity assets under management was the
primary reason for the increased revenues. Total expenses in 1995 were
$336,000 compared to $296,000 in 1994, an increase of $40,000 or 14%. The
increase is primarily due to occupancy expenses and expenses related to
management fee reimbursement agreements associated with the management of a
money market fund. Net income in 1995 for ZAMI was $19,000 compared to
$16,000 in 1994, an increase of $3,000 or 19%.
Lease Financing Activities
Ziegler Leasing Corporation (ZLC), the primary lease financing
subsidiary of the Company, had total revenues in 1995 of $2,518,000
compared to $2,932,000 in 1994, a decrease of $414,000 or 14%. The primary
components of revenue are lease income and gains on the sale of leased
equipment. Lease income decreased $149,000 or 6% which reflects a decline
in operating equipment on lease and total lease activations in 1995. Gains
on the sale of leased equipment sold at the termination of leases was
$59,000 in 1995 compared to $422,000 in 1994, a decrease of $363,000 or 86%
due to a lower volume of equipment coming off lease and unfavorable market
conditions associated with medical equipment. Total expenses of ZLC in
1995 were $2,219,000 compared to $2,391,000 in 1994, a decrease of $172,000
or 7%. Depreciation expense on operating lease equipment, the largest
component of expense, was $1,046,000 in 1995 compared to $1,212,000 in
1994, a decrease of $166,000 or 14%. A decrease in total operating
equipment on lease is the reason for the decline. Compensation expense
also declined as the result of personnel changes during 1995 as compared to
1994 and was offset by small increases in interest expense and provision
for losses. All other expenses did not vary significantly. Net income for
ZLC in 1995 was $186,000 compared to $331,000 in 1994, a decrease of
$145,000 or 44%.
Ziegler Collateralized Securities, Inc. (ZCSI) facilitates the
financing of equipment leases and sales by securitizing equipment leases or
notes supporting equipment leases or sales, and offering the resulting
securities to the public. ZCSI purchases the leases and notes from ZLC,
which also acts as manager and lease servicer since ZCSI has no employees.
ZCSI had revenues of $311,000 in 1995 compared to $272,000 in 1994, an
increase of $39,000 or 14%. The addition of a fifth series of bonds in the
fourth quarter of 1994 and the related leases and notes partially offset by
maturing leases and notes is the reason for the increased revenues in 1995.
A sixth series of bonds was issued in September 1995 totaling $7,200,000
and also had a small impact on revenues in 1995. Expenses equaled revenues
since management and servicing fees paid to ZLC are limited to an amount
that would prevent ZCSI from incurring a loss. The largest component of
expense is interest expense. Interest expense was $218,000 in 1995
compared to $159,000 in 1994, an increase of $59,000 or 37%. Management
and servicing fees paid to ZLC were $32,000 in 1995 compared to $58,000 in
1994 reflecting a decreased spread between the interest rates on bonds
outstanding and the collateral of leases and notes in more recent series.
No management and servicing fees were earned for the sixth series just
issued.
Other Services and Activities
Ziegler Financing Corporation (ZFC) provides construction financing
and interim lending primarily to investment banking clients. Total
revenues of ZFC in 1995 were $80,000 compared to $114,000 in 1994, a
decrease of $34,000 or 30%. ZFC sold an interest free loan for its
recorded value of $3,481,000 to the parent company in July, 1995. A
reduction in the level of notes receivable is the primary reason for the
decrease, and was partially offset by the interest income from funds
received and invested from the sale of the aforementioned note. A
portfolio of notes was sold to First Church Financing Corporation in the
third quarter of 1994 reducing notes receivable. Total expenses of ZFC in
1995 were $67,000 compared to $138,000 in 1994, a decrease of $71,000 or
51%. A provision for losses of $50,000 in 1994 and a reduction in interest
expense due to a reduction in note funding requirements were the primary
reasons for the decrease.
First Church Financing Corporation (FCFC) is organized for the
purpose of issuing mortgage-backed bonds collateralized by first mortgages
on church buildings and properties. Total revenues of FCFC were $204,000
in 1995 compared to $171,000 in 1994, an increase of $33,000 or 19%. FCFC
had expenses of $193,000 in 1995 compared to $161,000 in 1994, an increase
of $32,000 or 20%. The addition of a second series of bonds outstanding
for the full period in 1995 and its related collateral of church loans is
the reason for the increased revenues and expenses, both of which reflect
primarily interest. In 1994 the second series of bonds was outstanding for
only part of the third quarter. Net income in both 1995 and 1994 was
$6,000.
WRR Environmental Services Co., Inc. (WRR) is in the business of
providing pollution abatement services and recycling, reclaiming, and
disposing of chemical wastes. Total gross revenues were $4,178,000 in 1995
compared to $2,744,000 in 1994, an increase of $1,434,000 or 52%.
Increases in remediation and spill clean-up projects are the primary
reasons for the increased sales. Gross margins were $1,289,000 in 1995
compared to $783,000 in 1994, an increase of $506,000 or 65%. Gross margin
percentages were 31% in 1995 compared to a restated 29% in 1994. Total
expenses of WRR in 1995 were $608,000 compared to $746,000 in 1994, a
decrease of $138,000 or 18%. Certain 1994 expenses, primarily trucking
expenses, have been reclassified to reflect the changing operations at WRR.
Net income for WRR in 1995 was $456,000 compared to $36,000 in 1994, an
increase of $420,000.
The Ziegler Companies, Inc. (ZCI) is the parent company and also
engages in limited investing activities. Revenues in 1995 were $231,000
compared to $402,000 in 1994, a decrease of $171,000 or 43%. Income from
Heartland Capital Corporation (HCC), an unconsolidated affiliate, was
$64,000 in 1995. HCC did not exist in 1994. Losses from equity trading
activity in 1995 resulted in a $143,000 reduction in revenues when compared
with the 1994 equity trading activity. Also contributing to the decreased
revenue was a decrease in the interest earnings from a credit facility
established by ZCI for a corporation that generates automobile loans to
individual customers. The decrease is due to a decrease in the average
amounts extended on the credit facility. Total expenses for ZCI in 1995
were $145,000 compared to $111,000 in 1994, an increase of $34,000 or 31%.
Net income for ZCI in 1995 was $54,000 compared to $184,000 in 1994, a
decrease of $130,000 or 71%. The use of funds to purchase an interest free
loan for $3,481,000 from ZFC contributed to the reduction in revenues and
net income since those funds were not earning interest.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations - Nine Months Ended
September 30, 1995 and 1994
NOTE: All references to 1995 and 1994 refer to the nine months ended
September 30, unless otherwise noted.
Total revenues of the Company in 1995 were $36,866,000 compared to
$35,980,000 in 1994, an increase of $886,000 or 2%. Operating expenses in
1995 were $34,451,000 compared to $32,993,000 in 1994, an increase of
$1,458,000 or 4%. The provision for income taxes in 1995 was $848,000
compared to $1,157,000 in 1994 using a federal statutory tax rate of 34% in
both periods. Net income in 1995 was $1,567,000 compared to $1,831,000 in
1994, a decrease of $264,000 or 14%. Earnings per share in 1995 were $.65
compared to $.75 in 1994. The 1994 revenues and expenses were restated due
to a reclassification affecting gross profit on chemical products. These
changes do not affect the overall results of operations in 1994. The
changes in revenue, operating expenses, and net income are explained in the
information that follows.
Investment Banking and Broker-Dealer Activities
BCZCO had total revenues in 1995 of $19,651,000 compared to
$19,661,000 in 1994, a decrease of $10,000. Revenues from securities
activities involving sales commissions, underwriting revenues, and trading
profits decreased $96,000. Commission income from nonunderwritten product
decreased $636,000. Underwriting revenues decreased $549,000 primarily due
to a decrease in institutional bond underwriting revenues partially offset
by underwriting fee income. Trading profits offset the aforementioned
decreases with an increase of $1,090,000 primarily due to preferred stock
trading gains. Interest income decreased $187,000 largely due to a
reduction in interest rates. The decrease in insurance agency income of
$46,000 was more than offset by an increase in other income of $318,000.
Total expenses of BCZCO in 1995 were $20,361,000 compared to $19,484,000 in
1994, an increase of $877,000 or 5%. The increase is reflected in several
areas. Increased employee compensation associated with equity trading,
retail sales support and preferred stock trading caused half of the
increase. The balance of the increase is primarily due to increased
expenses related to enhanced computer processing capabilities and increased
rent expense included in occupancy and equipment costs, increased telephone
expense included in communication expenses, and increased absorption of
expenses related to the sponsorship of a family of mutual funds as compared
to 1994. BCZCO had a net loss in 1995 of $384,000 compared to net income
of $133,000 in 1994.
Total revenues for ZTT in 1995 were $3,201,000 compared to $2,641,000
in 1994, an increase of $560,000 or 21%. Commission income, the primary
source of revenues, increased $432,000 or 17% as the result of a 12%
increase in trading volume and an increase in the average commission per
trade. Other income increased $94,000 due to an increase in stock option
financing, a specialized program offered by ZTT. Total expenses of ZTT
were $2,428,000 in 1995 compared to $2,163,000 in 1994, an increase of
$265,000 or 12%. The primary reasons for the increase were increases in
volume-based compensation in recognition of higher trading volumes and
interest expense in support of the stock option financing program. A
decrease in clearing fees as the result of a revised clearing agreement
partially offset the aforementioned increases. Net income for ZTT in 1995
was $479,000 compared to $292,000 in 1994, an increase of $187,000 or 64%.
Total revenues for ZAMI in 1995 were $1,106,000 compared to
$1,017,000 in 1994, an increase of $89,000 or 9% due to increases in total
assets under management between years. Total expenses of ZAMI in 1995 were
$1,034,000 compared to $858,000, an increase of $176,000 or 21%. Increased
salary expenses of the fixed income management division, added in the third
quarter of 1994, additional occupancy expenses, and expenses related to
management fee reimbursement agreements of a money market fund partially
offset by a reduction in subadvisory fees are the reasons for the increased
expenses between years. Net income for ZAMI in 1995 was $40,000 compared
to $88,000 in 1994, a decrease of $48,000 or 55%.
Lease Financing Activities
Total revenue for ZLC in 1995 was $7,777,000 compared to $8,343,000
in 1994, a decrease of $566,000 or 7%. Lease income decreased $282,000 or
4% primarily due to a reduction in operating equipment on lease and lease
activations in 1995. Gains on the sale of leased equipment in 1995 were
$383,000 compared to $864,000 in 1994, a decrease of $481,000 or 56%. A
lower volume of equipment coming off lease and unfavorable market
conditions associated with medical equipment are the primary reasons for
the decline. Total expenses of ZLC in 1995 were $7,024,000 compared to
$7,176,000 in 1994, a decrease of $152,000 or 2%. Depreciation expense on
operating equipment decreased $215,000 or 6% as the result of a decline in
total operating equipment on lease. Compensation expense declined as the
result of personnel changes. These decreases were partially offset by an
increase in the provision for losses and other increases which were general
in nature. Net income for ZLC in 1995 was $444,000 compared to $709,000 in
1994, a decrease of $265,000 or 37%.
ZCSI had revenues which equaled expenses in 1995 of $987,000 compared
to $899,000 in 1994, an increase of $88,000 or 10%. The increase in
revenues is primarily due to the leases and notes underlying an additional
series of bonds outstanding during the full nine months of 1995 partially
offset by maturing leases and notes. The sixth series of bonds issued at
the end of the period in 1995 also had a small impact on the increased
revenue. Management and servicing fees paid to ZLC were $96,000 in 1995
compared to $179,000 in 1994. The decrease in management fees is due to a
declining base of investments in leases and notes as older leases and notes
approach maturity as well as a decreased spread between the interest rates
on bonds outstanding and the collateral of leases and notes. No management
and servicing fees were earned for the sixth series just issued.
Other Services and Activities
Total revenues for ZFC in 1995 were $197,000 compared to $300,000 in
1994, a decrease of $103,000 or 34%. Total expenses in 1995 were $244,000
compared to $352,000 in 1994, a decrease of $108,000 or 31%. A reduction
in notes receivable and related interest income is the primary reason for
the decrease in revenues. A $100,000 provision for losses in 1994 did not
recur in 1995 and is the primary reason for the decreased expenses in 1995.
ZFC had a net loss of $29,000 in 1995 compared to a net loss of $32,000 in
1994.
FCFC had revenues in 1995 of $642,000 compared to $393,000 in 1994,
an increase of $249,000 or 63%. Expenses during the same period were
$604,000 in 1995 compared to $374,000 in 1994, an increase of $230,000 or
61%. Net income was $23,000 in 1995 compared to $11,000 in 1994. The
addition of a second series of bonds outstanding and its related collateral
of church loans is the reason for the increased revenues, expenses and net
income. The second series of bonds was issued in August 1994.
WRR's gross sales for 1995 were $9,835,000 compared to $8,279,000 in
1994, an increase of $1,556,000 or 19%. Gross margins in 1995 were
$2,854,000 compared to $2,577,000 in 1994, an increase of $277,000 or 11%.
Gross margin percentages were 29% in 1995 compared to a restated 31% in
1994. Increases in remediation and spill clean-up projects are the primary
reasons for the increased sales. Total expenses in 1995 were $1,749,000
compared to $1,802,000 in 1994, a decrease of $53,000 or 3%. Net income in
1995 was $741,000 compared to $485,000 in 1994, an increase of $256,000 or
53%.
Revenues for ZCI in 1995 were $833,000 compared to $551,000 in 1994,
an increase of $282,000. The increases related to several factors. Income
from Heartland Capital Corporation (HCC) was $163,000 in 1995. HCC did not
exist in 1994. Gains from equity trading activity were $127,000 in 1995
whereas there was a loss of $64,000 in 1994. The balance of the increase
was from interest income from investable funds partially offset by a
decrease in interest income from the credit facility for the auto loan
corporation.
Liquidity and Capital Resources
The Company's primary activities involve investment banking,
equipment leasing and other financial services. Capital expenditures for
assets other than leased equipment were relatively insignificant. Land,
buildings and equipment, net of related depreciation and amortization, were
4% of total Company assets and investment in leases was 34% of total
Company assets as of September 30, 1995.
The Company, specifically its financial subsidiaries, has a
continuing requirement for cash to finance its activities. A primary
source of cash has been and continues to be the issuance of short-term
notes of the Company. These notes vary in maturities up to 270 days. In
the first nine months of 1995, a total of $70,030,000 of notes were issued
and $68,180,000 were repaid. In the first nine months of 1994, a total of
$77,630,000 of notes were issued and $75,897,000 were repaid. The total
balance of short-term notes outstanding, without regard to interest
discounts was $21,729,000 at September 30, 1995. This source of additional
cash was used primarily to finance leasing and lending activity and remains
an important source of cash for the Company.
ZLC also uses intermediate term, fixed-rate bank borrowings and five-
year extendable/redeemable, fixed-rate bonds issued to the public. The
bank borrowings are structured to mature in a pattern approximating the
lease agreements they support. Total indebtedness to the banks under these
borrowings was $11,000,000 at September 30, 1995. The $10,000,000 of five-
year extendable/redeemable bonds previously issued by ZLC mature December
1, 2006. The holders of the extendable/redeemable bonds have the option of
tendering the bonds for repayment in whole or in part on December 1, 1996,
and December 1, 2001. ZLC was also involved in nonrecourse debt issuance
and repayments in conjunction with leveraged leasing activities. As of
September 30, 1995, there was $6,461,000 of total nonrecourse debt recorded
by ZLC. A total of $4,345,000 of the nonrecourse debt is payable to ZCSI.
In 1993, ZFC made a loan for $4,610,000 to an organization
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 of $7,000. The
loan proceeds were used to redeem the organization's outstanding bond issue
in full. On July 31, 1995, the loan was sold to ZCI at cost, net of
allowances. The amount due ZCI at September 30, 1995 is $3,918,000. 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 $3,418,000 at September 30, 1995, and is
included in Other Assets on the balance sheet.
ZCSI issues bonds to the public as a source of cash. A sixth series
of bonds was issued in September, 1995, for $7,200,000. During the first
nine months of 1995, a total of $2,848,000 of bonds were redeemed. Total
bonds outstanding were $16,874,000 at September 30, 1995. The bonds are
due serially from October 1995 to October 2001. The bonds were used to
finance the purchase of lease obligations and lease financing notes,
including nonrecourse debt, 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 generally over a
15-year amortization schedule through 2008. No new bonds were issued in
the first nine months of 1995 and $815,000 of bonds were called and
redeemed. Total bonds outstanding were $7,799,000 at September 30, 1995.
WRR has bonds outstanding at a principal amount of $485,000. The
bonds mature serially each December through the year 2004. The bonds were
issued in 1980 to finance continuing operations.
BCZCO finances most activities from its own resources and also relies
upon unsecured lines of credit available through banking relationships, if
necessary. Any utilization of these lines of credit is generally repaid in
less than 30 days. As of September 30, 1995, there was $14,678,000
outstanding under these lines of credit. BCZCO also has broker loan
arrangements available through banking relationships.
The Company's cash and cash equivalent position allows a certain
flexibility in its financial activities. In order to maximize income,
available cash is invested in short-term investments such as commercial
paper, money market funds and reverse repurchase agreements at very short
maturities in accordance with the Company's liquidity requirements.
PART II
Items 1 through 5.
Not applicable
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
Exhibit No. Description
27 Financial Data Schedule
(b) Reports on Form 8-K: None
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
THE ZIEGLER COMPANIES, INC.
Dated: November 13, 1995 By /s/ Peter D. Ziegler
Peter D. Ziegler
President
Dated: November 13, 1995 By /s/ Lynn R. Van Horn
Lynn R. Van Horn
Senior Vice President -
Finance
EXHIBIT INDEX
Exhibit
Number Description
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> BD
<LEGEND>
This schedule contains summary financial information extracted from The Ziegler
Companies, Inc. and Subsidiaries financial statements and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> SEP-30-1995
<CASH> 6,187,696
<RECEIVABLES> 9,119,046
<SECURITIES-RESALE> 0<F1>
<SECURITIES-BORROWED> 0
<INSTRUMENTS-OWNED> 100,135,564<F2>
<PP&E> 6,610,639
<TOTAL-ASSETS> 156,480,237
<SHORT-TERM> 37,530,742<F3>
<PAYABLES> 8,391,630<F4>
<REPOS-SOLD> 0
<SECURITIES-LOANED> 0
<INSTRUMENTS-SOLD> 0
<LONG-TERM> 48,265,490<F5>
<COMMON> 3,544,030
0
0
<OTHER-SE> 47,410,936
<TOTAL-LIABILITY-AND-EQUITY> 156,480,237
<TRADING-REVENUE> 0<F6>
<INTEREST-DIVIDENDS> 3,092,173
<COMMISSIONS> 0<F6>
<INVESTMENT-BANKING-REVENUES> 18,563,676
<FEE-REVENUE> 4,291,222
<INTEREST-EXPENSE> 4,098,944
<COMPENSATION> 15,032,396
<INCOME-PRETAX> 2,415,009
<INCOME-PRE-EXTRAORDINARY> 2,415,009
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,566,809
<EPS-PRIMARY> .65
<EPS-DILUTED> .65
<FN>
<F1>Short-term investments includes some securities purchased under resale
agreements.
<F2>Financial instruments includes securities inventory, investment in leases,
notes receivable, and investment in and receivables from affiliates.
<F3>Includes short-term notes payable and unsecured notes payable to banks under
line of credit arrangements.
<F4>Includes payable to customers, payable to broker-dealers, accounts payable, and
dividends payable.
<F6>Revenue from investment banking activities includes revenue from trading
activities and commissions.
<F5>Includes bonds payable and notes payable to banks other than line of credit
borrowings.
</FN>
</TABLE>
