Form 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 1-10854
THE ZIEGLER COMPANIES, INC.
(Exact name of registrant as specified in its charter)
Wisconsin 39-1148883
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
215 North Main Street, West Bend, Wisconsin 53095
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (414) 334-5521
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes ( X ) No ( )
The number of shares outstanding of the registrant's Common Stock, par
value $1.00 per share, at June 30, 1996 was 2,434,897 shares.
<PAGE>
PART I
THE ZIEGLER COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED INCOME STATEMENTS
(Unaudited)
<TABLE>
<CAPTION>
For the Three Months Ended
June 30, June 30,
1996 1995
<S> <C> <C>
Revenues:
Investment banking and commission
income $ 6,816,228 $ 6,849,136
Interest and dividends 1,092,163 953,455
Lease income 2,132,536 2,430,524
Gross profit on chemical products 911,077 949,788
Insurance agency 210,032 228,432
Other 1,738,093 1,560,203
Total revenues 12,900,129 12,971,538
Expenses:
Employee compensation and benefits 5,670,119 5,277,923
Commissions and clearing fees 254,765 219,122
Communications 674,190 682,456
Occupancy and equipment 2,176,607 2,229,528
Promotional 622,857 460,659
Professional and regulatory 154,478 202,193
Interest 1,286,203 1,344,867
Other operating expenses 1,538,413 1,336,736
Total expenses 12,377,632 11,753,484
Income before income taxes 522,497 1,218,054
Provision for income taxes 187,400 446,200
Net income $ 335,097 $ 771,854
Earnings per share $ .14 $ .32
Dividends per share $ .13 $ .13
Average number of shares outstanding 2,399,054 2,392,303
</TABLE>
The accompanying notes to consolidated condensed financial statements
are an integral part of these statements.
<PAGE>
THE ZIEGLER COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED INCOME STATEMENTS
(Unaudited)
<TABLE>
<CAPTION>
For the Six Months Ended
June 30, June 30,
1996 1995
<S> <C> <C>
Revenues:
Investment banking and commission
income $13,110,247 $12,260,192
Interest and dividends 2,257,883 2,022,341
Lease income 4,396,186 4,930,684
Gross profit on chemical products 1,729,812 1,565,299
Insurance agency 514,679 518,840
Other 3,342,548 3,004,716
Total revenues 25,351,355 24,302,072
Expenses:
Employee compensation and benefits 11,099,457 10,030,240
Commissions and clearing fees 461,593 387,759
Communications 1,364,692 1,324,658
Occupancy and equipment 4,367,430 4,458,138
Promotional 1,123,310 946,796
Professional and regulatory 350,036 440,296
Interest 2,667,895 2,749,471
Other operating expenses 3,174,683 2,743,579
Total expenses 24,609,096 23,080,937
Income before income taxes 742,259 1,221,135
Provision for income taxes 225,200 429,800
Net income $ 517,059 $ 791,335
Earnings per share $ .22 $ .33
Dividends per share $ .26 $ .26
Average number of shares outstanding 2,395,619 2,394,416
</TABLE>
The accompanying notes to consolidated condensed financial statements
are an integral part of these statements.
<PAGE>
THE ZIEGLER COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
<S> <C> <C>
ASSETS
Cash $ 4,476,259 $ 4,231,808
Short-term investments 8,257,788 12,430,129
Bonds due and called as of
July 1, 1996 and January 1, 1996,
respectively 2,797,166 3,472,297
Total cash and cash equivalents 15,531,213 20,134,234
Securities inventory 16,035,674 28,151,740
Accounts receivable -- securities
sales 6,880,984 3,434,916
Accounts receivable -- other 4,685,825 4,612,320
Investment in and receivables from
affiliates 2,655,626 2,638,456
Investment in leases 46,228,187 51,090,834
Notes receivable 26,565,590 26,564,818
Land, buildings and equipment,
at cost, net of accumulated
depreciation of $14,890,635 and
$14,425,733, respectively 7,197,844 7,090,543
Other assets 14,415,658 12,127,533
Total assets $140,196,601 $155,845,394
LIABILITIES AND STOCKHOLDERS' EQUITY
Short-term notes payable $ 15,301,274 $ 18,394,420
Payable to customers 3,674,382 2,567,092
Payable to broker-dealers 158,047 409,425
Accounts payable 903,155 3,910,191
Dividends payable 316,537 1,167,207
Accrued income taxes 695,107 1,138,008
Deferred income taxes 4,763,000 5,358,583
Notes payable to banks 18,452,399 24,559,972
Bonds payable 37,906,254 37,403,990
Other liabilities and deferred
items 5,755,128 8,694,508
Total liabilities 87,925,283 103,603,396
Commitments
Stockholders' equity
Common stock, $1 par, authorized
7,500,000 shares, issued 3,544,030 3,544,030 3,544,030
Additional paid-in capital 5,970,515 5,968,737
Retained earnings 60,544,134 60,659,742
Treasury stock, at cost,
1,109,133 and 1,112,348,
respectively (17,173,641) (17,229,903)
Unearned compensation (613,720) (700,608)
Total stockholders' equity 52,271,318 52,241,998
Total liabilities and
stockholders' equity $140,196,601 $155,845,394<PAGE>
THE ZIEGLER COMPANIES, INC. AND SUBSIDIARIES
</TABLE>
The accompanying notes to consolidated condensed financial statements
are an integral part of these balance sheets.
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
For the Six Months Ended
June 30, June 30,
1996 1995
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 517,059 $ 791,335
Adjustments to reconcile net
income to net cash provided by
(used in) operating activities:
Depreciation and amortization 3,050,973 3,216,852
Provision for losses 218,630 68,850
(Gain) Loss on sale of equipment (15,161) 40,130
Gain on sale of leased equipment (381,483) (323,930)
Unrealized loss on securities
inventory 248,467 21,692
Compensation related to restricted
stock grants 86,888 97,428
Undistributed earnings of
unconsolidated affiliate (12,038) (99,535)
Changes in operating assets and
liabilities:
Decrease (Increase) in -
Securities inventory 11,867,599 14,310,572
Accounts receivable --
securities sales (3,446,068) (477,533)
Accounts receivable -- other (352,896) (516,186)
Other operating assets (1,627,255) (3,564,324)
Increase (Decrease) in -
Payable to customers and
broker-dealers 855,912 (1,608,416)
Accounts payable net of
payments for purchases of
assets to be leased (2,483,201) (1,595,483)
Income taxes payable (442,901) 22,019
Deferred income taxes (595,583) (230,395)
Notes payable to banks 633,000 (11,280,000)
Other operating liabilities (3,064,526) (2,710,504)
Net cash provided by (used in)
operating activities 5,057,416 (3,837,428)
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from:
Sale of equipment 15,510 22,857
Principal payments received under
leases 7,519,512 7,956,990
Sale of leased equipment 1,753,139 2,368,541
Payments received on notes
receivable 10,922,710 9,229,768
Decrease in advances to affiliates - 158,646
Payments for:
Purchase of assets to be leased (2,349,638) (5,021,776)
Issuance of notes receivable (15,277,824) (13,319,261)
Capital expenditures (676,086) (586,519)
Net cash provided by investing
activities 1,907,323 809,246<PAGE>
THE ZIEGLER COMPANIES, INC. AND SUBSIDIARIES
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from:
Issuance of short-term notes
payable 43,998,000 46,560,000
Issuance of non-recourse debt 746,793 241,422
Exercise of employee stock options 58,041 67,655
Issuance of bonds payable 4,875,000 -
Payments of:
Principal on short-term notes
payable (47,133,000) (47,422,000)
Principal on notes payable to
banks (6,814,975) (2,769,052)
Principal on nonrecourse debt (1,315,281) (1,093,772)
Repayment of bonds payable (4,499,000) (2,483,000)
Purchase of treasury stock - (257,496)
Dividends (1,483,338) (1,122,676)
Net cash used in financing
activities (11,567,760) (8,278,919)
NET DECREASE IN CASH AND CASH
EQUIVALENTS (4,603,021) (11,307,101)
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD 20,134,234 25,498,481
CASH AND CASH EQUIVALENTS AT
END OF PERIOD $ 15,531,213 $ 14,191,380
SUPPLEMENTAL DISCLOSURES OF
CASH FLOW INFORMATION:
Interest paid during the period $ 2,912,000 $ 2,768,000
Income taxes paid during
the period $ 1,399,000 $ 426,000
SUPPLEMENTAL SCHEDULE OF NONCASH
INVESTING ACTIVITIES:
Conversion of notes receivable to
investment in leases at the
initiation of a lease $ 4,413,989 $ 4,364,224
Granting of restricted stock
from treasury stock $ - $ 168,988
</TABLE>
The accompanying notes to consolidated condensed financial statements
are an integral part of these statements.
<PAGE>
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
June 30, 1996
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.
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 attempts to presell the issues to customers. BCZ
had no such commitments outstanding at June 30, 1996.
As of June 30, 1996, Ziegler Leasing Corporation (ZLC) had
outstanding written agreements to provide equipment lease financing for
approximately $2,969,000. To manage the off-balance sheet credit and
interest rate risk exposure related to those commitments, ZLC retains the
right to adjust or cancel the commitments if adverse interest rate or
credit conditions arise.
As of June 30, 1996, Ziegler Financing Corporation (ZFC) had no
financial commitments to unrelated entities for construction or other
loans.
WRR is 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"), of contaminants in ground water directly underneath and adjacent
to the plant site.
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 June 30, 1996, WRR had been
identified as a potentially responsible party ("PRP") in connection with
three sites. For the first 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 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 would 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 $610,000 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. The EPA's estimate of WRR's proportionate share
of anticipated remediation costs at this third site approximates $200,000.
No reserve has been established on account of this third site.
WRR is jointly and severally liable on two of the previously
mentioned sites. To the extent that WRR is found liable for contributing
to the pollution at the third site, its liability will be joint and
several. Management for the Company is not aware of circumstances which
could lead to non-performance by the other PRP's when viewed as a group.
No potential insurance recovery or reimbursements from WRR's liability
insurance carriers have been accrued in the financial statements. The
reserve for accrued loss contingencies totaled $738,000 at June 30, 1996.
Note C -- Stock Option Plans
The Ziegler Company, Inc. 1989 Employees' Stock Purchase Plan (the
"1989 Plan") was established for substantially all full-time employees. As
of June 30, 1996, unexercised options for 89,740 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
1,515 shares were exercised at prices averaging $16.36 per share during
1996. Under the 1989 Plan, 29,825 options are available for future
granting at 85% of the market value on the date of exercise. Options
granted under the 1989 Plan that expire, terminate, or are cancelled are
again available for the granting of future options. Options for a total of
5,760 shares were forfeited during the period.
Note D -- Earnings Per Share
Earnings per share calculations were computed based on the weighted
average number of common shares outstanding including restricted common
stock using the treasury stock method. The dilutive effect of shares
issuable under the various employee stock option plans in the computation
of earnings per share is not significant.
Note E -- Net Capital Requirements and Customer Reserve Accounts
As registered broker-dealers, BCZ and Ziegler Thrift Trading, Inc.
(ZTT) are subject to the requirements of Rule 15c3-1 (the "net capital
rule") under the Securities Exchange Act of 1934. The basic concept of the
rule is liquidity, requiring a broker-dealer to have sufficient liquid
assets at all times to cover current indebtedness. Specifically, the rule
prohibits a broker-dealer from permitting "aggregate indebtedness" to
exceed 15 times "net capital" (15 to 1) as those terms are defined.
Approximate net capital data as of June 30, 1996, is as follows:
<TABLE>
<CAPTION>
BCZ ZTT
<S> <C> <C>
Aggregate indebtedness $11,229,000 $2,071,000
Net capital $12,130,000 $1,273,000
Ratio of aggregate
indebtedness to
net capital .93 to 1 1.63 to 1
Required net capital $ 749,000 $ 250,000
</TABLE>
In accordance with Securities and Exchange Commission Rule 15c3-3,
BCZ and ZTT maintain separate bank accounts for the exclusive benefit of
customers. The amounts maintained in these accounts are determined by
periodic computations required under the rule, which allows the companies
to maintain the computed amounts in cash or other qualified securities. As
of June 30, 1996, there was approximately $4,441,000 in the customer
reserve accounts.
Note F -- Investment in Ziegler Mortgage Securities, Inc. II
The Company has a 50% interest in Ziegler Mortgage Securities, Inc.
II (ZMSI II), an unconsolidated entity accounted for by the equity method.
Condensed income statement information is as follows:
<TABLE>
<CAPTION>
For the Three Months Ended
June 30, June 30,
1996 1995
<S> <C> <C>
Income, primarily interest $2,685,709 $2,593,673
Expenses -
Interest 2,358,400 2,410,602
Amortization of bond
issuance costs 221,019 47,368
Management fees 63,333 99,164
Other 42,957 36,539
Total expenses 2,685,709 2,593,673
Net income $ - $ -
</TABLE>
<TABLE>
<CAPTION>
For the Six Months Ended
June 30, June 30,
1996 1995
<S> <C> <C>
Income, primarily interest $5,406,339 $5,288,095
Expenses -
Interest 4,764,775 4,830,444
Amortization of bond
issuance costs 429,965 201,267
Management fees 127,305 180,797
Other 84,294 75,587
Total expenses 5,406,339 5,288,095
Net income $ - $ -
</TABLE>
Note G -- Securities Inventory
Securities inventory consisted of the following:
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
<S> <C> <C>
Municipal bond issues $11,046,991 $20,351,886
Corporate bond issues 1,212,049 2,230,918
Institutional bond issues 639,102 2,589,739
Preferred stock 1,585,058 1,263,826
Other securities 1,552,474 1,715,371
$16,035,674 $28,151,740
</TABLE>
Note H -- Notes Payable to Banks
The Company has various unsecured and secured borrowing facilities in
place to obtain short-term funds. Short-term borrowings are used for
general corporate purposes as well as to fund specific underwriting
purchases or purchases of other large blocks of securities. The Company
had $9,198,000 in short-term borrowings outstanding at June 30, 1996. Such
short-term borrowings are generally repaid within 30 days. Such amounts
are treated as operating items in the Statement of Cash Flows.
Note I -- Ziegler Collateralized Securities, Inc.
Ziegler Collateralized Securities, Inc. (ZCSI), a wholly-owned
subsidiary of the Company, was organized to facilitate the financing of
equipment purchases and leases by securitizing such purchases and leases
for offerings to the public.
Summarized balance sheet information of ZCSI as of June 30, 1996 and
December 31, 1995 and income statements for the six month periods ended
June 30, 1996 and 1995 are as follows:
<TABLE>
<CAPTION>
Balance Sheets as of:
June 30, December 31,
1996 1995
<S> <C> <C>
Investment in leases $ 9,204,825 $ 8,818,566
Notes receivable 8,267,970 6,865,720
Other assets 3,281,966 2,614,081
Total assets $20,754,761 $18,298,367
Bonds payable $16,919,000 $15,070,000
Other liabilities 3,825,761 3,218,367
Total liabilities 20,744,761 18,288,367
Stockholder's equity 10,000 10,000
Total liabilities and
stockholder's equity $20,754,761 $18,298,367
</TABLE>
<TABLE>
<CAPTION>
Income Statements for the
Six Months Ended
June 30, June 30,
1996 1995
<S> <C> <C>
Lease income $ 428,100 $ 460,653
Interest income 357,276 214,611
Total income 785,376 675,264
Interest expense 572,742 467,823
Management fees 9,485 32,950
Other expenses 203,149 174,491
Total expenses 785,376 675,264
Net income $ - $ -
</TABLE>
In accordance with a written agreement with ZLC, which provides
management and administrative services to ZCSI, management fees paid to ZLC
were limited to the amount which prevented ZCSI from incurring a loss.
An analysis of each outstanding bond series as of June 30, 1996 and
for the six month period then ended indicates the income from each series
exceeds the interest expense on the corresponding bonds and the other
expenses directly related to each specific series.
<TABLE>
<CAPTION>
Collateral Lease/ Bond Other Excess
Series Bonds Value Note Interest Related of
No. Outstanding at Cost Income Expense Expenses Income
<C> <C> <C> <C> <C> <C> <C>
2 $ 570,000 $ 692,708 $ 27,467 $ 19,569 $ 4,990 $ 2,908
3 $ 181,000 $ 319,458 $ 29,087 $ 21,559 $ 7,519 $ 9
4 $1,219,000 $1,373,882 $ 77,301 $ 47,950 $13,155 $16,196
5 $3,543,000 $4,597,029 $187,135 $135,228 $44,463 $ 7,444
6 $6,406,000 $7,202,167 $313,984 $224,410 $66,010 $23,564
7 $5,000,000 $6,044,735 $ 43,086 $ 27,011 $ 6,994 $ 9,081
</TABLE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Second Quarter 1996 vs. Second Quarter 1995
The predominant activity of The Ziegler Companies, Inc. and
subsidiaries (the "Company") is investment banking, primarily the
underwriting and marketing of debt securities for the healthcare industry
and for churches and private schools. The Company is also involved in
other financial service activities, specifically full commission and
reduced commission brokerage services, equipment leasing services to the
healthcare industry and commercial/industrial customers, securitization of
leases for offerings to the public, 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 1996 were $12,900,000 compared to
$12,971,000 in 1995. Operating expenses in 1996 were 12,378,000 compared
to $11,753,000 in 1995, an increase of $625,000 or 5%. There was a
provision for income taxes in 1996 of $187,000 compared to $446,000 in 1995
using a federal statutory tax rate of 34% in both periods under comparison.
Net income in 1996 was $335,000 compared to $772,000 in 1995, a decrease of
$437,000 or 57%. Earnings per share in 1996 were $.14 compared to $.32 in
1995. The changes in revenues, operating expenses and net income for 1996
were primarily a reflection of factors related to investment banking,
broker-dealer and lease financing activities, as well as changes in the
Company's nonfinancial services company, WRR Environmental Services Co.,
Inc. These factors, as well as the impact of other factors, are explained
more fully in the information that follows. All references to 1996 and
1995 refer to the three months ended June 30, unless otherwise noted.
Investment Banking and Broker-Dealer Activities
B. C. Ziegler and Company (BCZCO), the investment banking and primary
broker-dealer subsidiary of the Company, had total revenue of $6,460,000 in
1996 compared to $7,034,000 in 1995, a decrease of $574,000 or 8%.
Revenues from securities activities decreased $399,000, or 7%, compared to
1995. This decline was caused by $1,184,000 less underwriting revenues in
1996 compared to 1995. Non-underwritten product revenues increased
$786,000 as BCZ increased its emphasis on such products, primarily
equities, mutual funds and annuities. Other income was lower by $138,000
primarily due to the transfer of some investment advisory business to
Ziegler Asset Management, Inc., an affiliated entity. Total BCZCO expenses
were $7,241,000 in 1996 compared to $6,989,000 in 1995, an increase of
$252,000 or 4%. The increase was primarily due to increased compensation
and related benefits. Other significant expense categories were down
slightly or did not change significantly with the exception of promotional
costs which were $114,000, or 34%, higher than 1995 primarily due to
increased mutual fund promotion. BCZCO had a net loss in 1996 of $466,000
compared to a net income of $47,000 in 1995.
Ziegler Thrift Trading, Inc. (ZTT), the reduced commission brokerage
service of the Company, had total revenues of $1,545,000 in 1996 compared
to $1,190,000 in 1995, an increase of $355,000 or 30%. Commission income,
the primary source of revenues, increased $341,000, or 32%, as the result
of a 26% increase in trading volume and an increase in the average
commission per trade. Other income increased only $14,000. These
increases are due to the robust equity markets during the period. Total
expenses of ZTT were $1,097,000 in 1996 compared to $863,000 in 1995, an
increase of $234,000 or 27%. An increase in volume-based compensation and
other volume sensitive expenses was the reason for the increase. ZTT
experienced very heavy volumes in 1996. Net income in 1996 for ZTT was
$278,000 compared to $203,000 in 1995, an increase of $75,000.
Ziegler Asset Management, Inc. (ZAMI), the money management services
subsidiary of the Company, had total revenues of $690,000 in 1996 compared
to $379,000 in 1995, an increase of $311,000 or 82%. An increase in total
assets under management and a transfer of some investment advisory business
to ZAMI from BCZCO accounts for the revenue increase. Total expenses of
ZAMI were $549,000 in 1996 compared to $342,000 in 1995, an increase of
$207,000 or 61%. Substantially all of the increase is due to the
reimbursement of management fees by ZAMI under expense reimbursement
agreements with money market and mutual funds whose assets ZAMI manages,
and by increases in employee compensation and benefits. Other changes in
expense categories were not significant. Net income for ZAMI was $79,000
in 1996 compared to $21,000 in 1995.
Lease Financing Activities
Ziegler Leasing Corporation (ZLC), the primary lease financing
subsidiary of the Company, had total revenues of $2,443,000 in 1996
compared to $2,556,000 in 1995, a decrease of $113,000 or 4%. 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 $1,931,000 in 1996 compared to
$2,217,000 in 1995, a decrease of $286,000 or 13%. A lower level of
equipment on lease for financing and operating leases is the reason for the
decline. Gain on the sale of leased equipment was $226,000 in 1996
compared to $233,000 in 1995. These decreases were partially offset by a
$47,000 increase in commission and fee income and a $104,000 increase in
interest income generated primarily by an increase in notes receivable from
ZLC customers to finance equipment purchases or leases. The remaining
increase came from $31,000 of revenues generated in 1996 by ZLC's medical
equipment refurbishing subsidiary which was consolidated into ZLC's
financial statements beginning in July, 1995. Total expenses of ZLC were
$2,518,000 in 1996 compared to $2,259,000 in 1995, an increase of $259,000
or 11%. Depreciation expense on operating equipment, the largest component
of expense, was $1,038,000 in 1996 and $1,124,000 in 1995, a decrease of
$86,000 or 8%. ZLC's provision for loss expense increased $333,000 from
$30,000 in 1995 to $363,000 in 1996. The majority of this increase was
caused by ZLC suspending all future refurbishing activities in its wholly-
owned subsidiary. Interest expense was down $97,000, or 13%, due to the
lower level of equipment on lease in 1996. Contributing to the net
increase in expenses was $97,000 of expenses generated in 1996 by its
wholly-owned subsidiary. ZLC incurred a net loss of $66,000 in 1996
compared to a net income of $187,000 in 1995, a decrease of $253,000.
Ziegler Collateralized Securities, Inc. (ZCSI) facilitates the
financing of equipment leases and sales by securitizing equipment leases or
notes supporting equipment leases or sales, and offering the resulting
securities to the public. ZCSI purchased the leases and notes from ZLC,
which also acts as manager and lease servicer since ZCSI has no employees.
ZCSI had revenues of $401,000 in 1996 compared to $314,000 in 1995. The
addition of a sixth series of bonds issued in the third quarter of 1995 and
a seventh series of bonds issued in the second quarter of 1996, and the
related leases and notes is the reason for the increased revenues.
Expenses equaled revenues since management and servicing fees paid ZLC are
limited to an amount that would prevent ZCSI from incurring a loss. The
largest component of expense is interest expense. Interest expense was
$287,000 in 1996 compared to $226,000 in 1995, an increase of $61,000 or
27%. Management and servicing fees paid ZLC were $23,000 in 1996 compared
to $16,000 in 1995.
Other Services and Activities
Ziegler Financing Corporation (ZFC) provides construction financing
and interim lending primarily to investment banking clients. Total
revenues of ZFC were $59,000 in 1996 compared to $52,000 in 1995 and
reflect primarily interest income. Fluctuations in the loan portfolio and
yield on loans versus short-term investments are the reasons for the
difference between years. Total expenses were $23,000 in 1996 compared to
$78,000 in 1995 and reflect primarily interest expense. ZFC had a net
income of $22,000 in 1996 compared to a net loss of $15,000 in 1995. Both
interest expense and net income were negatively impacted in 1995 by an
interest free loan made in 1993 to a church experiencing difficulties
making required debt service payments on a bond issue originally
underwritten by BCZCO. This loan was transferred to ZCI during 1995.
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 $269,000
in 1996 compared to $204,000 in 1995. FCFC had expenses of $248,000 in
1996 compared to $188,000 in 1995. The addition of a third series of bonds
outstanding and its related collateral of church loans is the reason for
the increased revenues and expenses, both of which reflect primarily
interest. Net income for FCFC was $13,000 in 1996 compared to $9,000 in
1995.
WRR Environmental Services Co., Inc. (WRR) is in the business of
providing pollution abatement services and recycling, reclaiming, and
disposing of chemical wastes. Total gross revenues were $3,059,000 in 1996
compared to $3,136,000 in 1995, a slight decrease of $77,000. Decreased
revenues of $469,000 from WRR's regular product lines, offset by $401,000
generated from the sale, installation and servicing of truck equipment by
WRR's wholly-owned subsidiary which became operational in October, 1995
accounted for most of the revenue decrease. The gross margin percentage
was 30% in 1996 and 1995. Total expenses of WRR were $632,000 in 1996
compared to $574,000 in 1995, an increase of $58,000 or 10%. The increase
in expenses is due to the newly formed subsidiary mentioned above. Net
income for WRR was $208,000 in 1996 compared to $251,000 in 1995.
The Ziegler Companies, Inc. (ZCI) is the parent company and also
engages in limited investing activities. Revenues for ZCI in 1996 were
$325,000 compared to $257,000 in 1995. Interest income in 1996 increased
$68,000 primarily due to the interest earnings on a credit facility
established by ZCI for a corporation which generates automobile loans to
individual customers. Total expenses for ZCI in 1996 were a negative
$85,000 compared to $122,000 in 1995. The negative expenses were created
by the reversal of $336,000 of a previously established loss reserve
related to the interest free loan transferred to ZCI from ZFC mentioned
above. The reversal was predicated on a settlement offer on the loan made
by the church. The church consummated the transaction on July 1, 1996.
Interest expense increased $99,000 in 1996, primarily because of the loan
transfer from ZFC. Net income for ZCI in 1996 was $269,000 compared to
$72,000 in 1995.
First Six Months 1996 vs. First Six Months 1995
Total revenues of the Company in 1996 were $25,351,000 compared to
$24,302,000 in 1995, an increase of $1,049,000 or 4%. Operating expenses
in 1996 were $24,609,000 compared to $23,081,000 in 1995, an increase of
$1,528,000 or 7%. There was a provision for income taxes in 1996 of
$225,000 compared to $430,000 in 1995 using a federal statutory tax rate of
34% in both periods under comparison. Net income in 1996 was $517,000
compared to $791,000 in 1995, a decrease of $274,000 or 35%. Earnings per
share in 1996 were $.22 compared to $.33 in 1995. The changes in revenues,
operating expenses and net income for 1996 were primarily a reflection of
factors related to investment banking, broker-dealer and lease financing
activities, as well as changes in the Company's nonfinancial services
company, WRR Environmental Services Co., Inc. These factors, as well as
the impact of other factors, are explained more fully in the information
that follows. All references to 1996 and 1995 refer to the six months
ended June 30, unless otherwise noted.
Investment Banking and Broker-Dealer Activities
BCZCO had total revenue of $12,729,000 in 1996 compared to
$13,022,000 in 1995, a decrease of $293,000 or 2%. Revenues from
securities activities were unchanged at approximately $10,400,000 in both
years. However, within this category, underwriting revenues decreased
approximately $1,000,000 or 17% in 1996. Non-underwritten product revenues
increased $1,057,000, or 23%, as BCZ increased its emphasis on such
products, primarily equities, mutual funds and annuities. Other income was
lower by $300,000 primarily due to the transfer of some investment advisory
business to Ziegler Asset Management, Inc., an affiliated entity. Total
BCZCO expenses were $14,279,000 in 1996 compared to $13,558,000 in 1995, an
increase of $721,000 or 5%. The increase was primarily due to increased
compensation and related benefits which increased by $767,000, or 9%, from
$8,235,000 in 1995 to $9,002,000 in 1996. Increases in commissions and
clearing costs, occupancy, and promotional costs were offset by declines in
professional fees and interest expense. BCZCO had a net loss in 1996 of
$889,000 compared to a net loss of $294,000 in 1995.
ZTT had total revenues of $2,963,000 in 1996 compared to $2,182,000
in 1995, an increase of $781,000 or 36%. Commission income, the primary
source of revenues, increased $737,000, or 38%, as the result of a 30%
increase in trading volume and a 6% increase in the average commission per
trade. Other income increased $46,000. These increases are due to the
robust equity markets during the period. Total expenses of ZTT were
$2,140,000 in 1996 compared to $1,635,000 in 1995, an increase of $505,000
or 31%. An increase in volume-based compensation and other volume
sensitive expenses was the reason for the increase. ZTT experienced very
heavy volumes in 1996. Net income in 1996 for ZTT was $510,000 compared to
$339,000 in 1995, an increase of $171,000.
ZAMI had total revenues of $1,297,000 in 1996 compared to $736,000 in
1995, an increase of $561,000 or 76%. An increase in total assets under
management and a transfer of some investment advisory business to ZAMI from
BCZCO accounts for the revenue increase. Total expenses of ZAMI were
$1,023,000 in 1996 compared to $698,000 in 1995, an increase of $325,000 or
47%. Substantially all of the increase is due to the reimbursement of
management fees by ZAMI under expense reimbursement agreements with money
market and mutual funds whose assets ZAMI manages, and by increases in
employee compensation and benefits. Net income for ZAMI was $153,000 in
1996 compared to $21,000 in 1995.
Lease Financing Activities
ZLC had total revenues of $5,001,000 in 1996 compared to $5,119,000
in 1995, a decrease of $118,000 or 2%. 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 $3,984,000 in 1996 compared to $4,470,000 in 1995, a decrease of
$486,000 or 11%. A lower level of equipment on lease for financing and
operating leases is the reason for the decline. Gain on the sale of leased
equipment was $381,000 in 1996 compared to $324,000 in 1995. ZLC realized
a $52,000 increase in commission and fee income and a $188,000, or 77%,
increase in interest income generated primarily by an increase in notes
receivable from ZLC customers to finance equipment purchases or leases.
Revenues were also positively affected by $73,000 of revenues generated in
1996 by ZLC's medical equipment refurbishing subsidiary which was
consolidated into ZLC's financial statements beginning in July, 1995.
Total expenses of ZLC were $4,863,000 in 1996 compared to $4,611,000 in
1995, an increase of $252,000 or 5%. Depreciation expense on operating
equipment, the largest component of expense, decreased $214,000, or 9%, to
$2,115,000 in 1996 from $2,329,000 in 1995, again reflecting the lower
level of equipment on lease. Interest expense was correspondingly down
$114,000, or 8%, due to the lower level of equipment on lease in 1996.
ZLC's provision for loss expense increased $363,000 from $60,000 in 1995 to
$423,000 in 1996. The majority of this increase was caused by ZLC
suspending all future refurbishing activities in its wholly-owned
subsidiary. Also contributing to the net increase in expenses was $174,000
of expenses generated in 1996 by its wholly-owned subsidiary. The
resulting net income for ZLC was $67,000 in 1996 compared to $223,000 in
1995, a decrease of $156,000.
ZCSI had revenues of $785,000 in 1996 compared to $675,000 in 1995.
The addition of a sixth series of bonds issued in the third quarter of 1995
and a seventh series of bonds issued in the second quarter of 1996, and the
related leases and notes is the reason for the increased revenues.
Expenses equaled revenues since management and servicing fees paid ZLC are
limited to an amount that would prevent ZCSI from incurring a loss. The
largest component of expense is interest expense. Interest expense was
$573,000 in 1996 compared to $468,000 in 1995, an increase of $105,000, or
22%. Management and servicing fees paid ZLC were $48,000 in 1996 compared
to $64,000 in 1995.
Other Services and Activities
Total revenues of ZFC were $104,000 in 1996 compared to $117,000 in
1995 and reflect primarily interest income. Total expenses were $49,000 in
1996 compared to $177,000 in 1995 and reflect primarily interest expense.
ZFC had a net income of $33,000 in 1996 compared to a net loss of $36,000
in 1995. Both interest expense and net income were negatively impacted in
1995 by an interest free loan made in 1993 to a church experiencing
difficulties making required debt service payments on a bond issue
originally underwritten by BCZCO. This loan was transferred to ZCI during
1995. As a result, interest expense in 1996 totaled $36,000 compared to
$164,000 in 1995.
Total revenues of FCFC were $588,000 in 1996 compared to $438,000 in
1995. FCFC had expenses of $557,000 in 1996 compared to $411,000 in 1995.
The addition of a third series of bonds outstanding and its related
collateral of church loans is the reason for the increased revenues and
expenses, both of which reflect primarily interest. Net income for FCFC
was $19,000 in 1996 compared to $16,000 in 1995.
WRR had gross revenues of $6,720,000 in 1996 compared to $5,657,000
in 1995, an increase of $1,063,000 or 19%. Revenues from WRR's regular
product lines increased a modest 2%, or $138,000 in 1996 over 1995. Most
of the revenue increase was caused by $925,000 of revenues generated from
the sale, installation and servicing of truck equipment by WRR's wholly-
owned subsidiary which became operational in October, 1995. The gross
margin percentages were 26% and 27% in 1996 and 1995, respectively. Total
expenses of WRR were $1,271,000 in 1996 compared to $1,142,000 in 1995, an
increase of $129,000 or 11%. The increase in expenses is due to the newly
formed subsidiary mentioned above. Net income for WRR was $327,000 in 1996
compared to $285,000 in 1995.
Revenues for ZCI in 1996 were $541,000 compared to $602,000 in 1995,
a decrease of $61,000. ZCI had realized $144,000 of gains from equity
trading in 1995 which was not repeated in 1995. ZCI also realized a
$67,000 increase in earnings from its Heartland Capital Corporation joint
venture in 1996 over 1995 from $99,000 in 1995 to $166,000 in 1996.
Interest income in 1996 increased $19,000. Total expenses for ZCI in 1996
were $77,000 compared to $287,000 in 1995, a decrease of $210,000 or 73%.
The low expense level in 1996 was created by the reversal of $336,000 of a
previously established loss reserve related to the interest free loan
transferred to ZCI from ZFC mentioned above. The reversal was predicated
on a settlement offer on the loan made by the church. The church
consummated the transaction on July 1, 1996. Interest expense increased
$110,000 in 1996, primarily because of the loan transfer from ZFC. Net
income for ZCI in 1996 was $302,000 compared to $205,000 in 1995.
Liquidity and Capital Resources
The Company's primary activities involve investment banking, retail
brokerage, equipment leasing and other financial services. Capital
expenditures for assets other than leased equipment were relatively
insignificant. Land, buildings and equipment, net of related depreciation
and amortization, was 5% of total Company assets and investment in leases
was 33% of total Company assets. The Company, specifically its financial
subsidiaries, has a continuing requirement for cash to finance its
activities. A primary source of cash has been and continues to be the
issuance of short-term notes of the Company. These notes vary in
maturities up to 270 days. In the first six months of 1996, a total of
$43,998,000 of notes were issued and $47,133,000 were repaid. In the first
six months of 1995, a total of $46,560,000 of notes were issued and
$47,422,000 were repaid. The total balance of short-term notes
outstanding, without regard to interest discounts was $15,418,000 at June
30, 1996. 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 $4,000,000 at June 30, 1996 and $11,000,000 at June 30,
1995. The $10,000,000 of five-year extendable/redeemable bonds previously
issued by ZLC mature December 1, 2006. ZLC has the right to reset the
interest rate on the bonds in August, 1996 and August, 2001. The holders
of the extendable/redeemable bonds have the option of tendering the bonds
for repayment in whole or in part on December 1, 1996, and December 1,
2001. ZLC was also involved in nonrecourse debt issuance and repayments in
conjunction with leveraged leasing activities. As of June 30, 1996, there
was $1,606,000 of nonrecourse debt recorded by ZLC and $1,834,000 at
June 30, 1995.
Since 1993, the Company had a loan with an organization which was
experiencing difficulties making required debt service payments on an
outstanding bond issue underwritten by BCZCO. The loan was due on demand,
was interest free and required weekly principal payments totaling $7,000.
The loan proceeds were used to redeem the organization's outstanding bond
issue in full. The loan was secured by a first mortgage on the underlying
real estate. The loan was recorded at cost, net of allowances for possible
losses previously provided, totaling approximately $3,145,000 at June 30,
1996, and is included in Other Assets on the balance sheet. This loan was
paid on July 1, 1996.
ZCSI issues bonds to the public as a source of cash. One new series
of bonds totaling $5,000,000 was issued in the second quarter of 1996.
Total bonds outstanding were $16,919,000 at June 30, 1996, and $10,666,000
at June 30, 1995. The bonds are due serially from June, 1996 to October,
2001. The bonds were used to finance the purchase of lease obligations and
lease financing notes and will mature in a pattern approximating the
maturities of the lease obligations and lease financing notes that serve as
collateral.
FCFC issues bonds to the public as a source of cash. Mandatory
redemption on the bonds is made from principal payments received on the
mortgage loans which serve as collateral for the bonds. Principal payments
on the mortgage loans are received in regular installments over a 15-year
amortization schedule through 2008. No new bonds were issued in the first
six months of 1996. Total bonds outstanding were $10,549,000 at June 30,
1996, and $7,987,000 at June 30, 1995.
WRR has bonds outstanding at a face value of $450,000. The bonds
mature serially each December through the year 2004. The bonds were issued
in 1980 to financing continuing operations. WRR also has outstanding bank
borrowings incurred in a 1995 purchase of assets of a company engaged
primarily in the sale, installation and servicing of truck equipment. At
June 30, 1996, the bank borrowings total $812,000 and mature serially
through October, 2002.
BCZCO finances most activities from its own resources and also relies
upon unsecured and secured credit facilities available through banking
relationships, if necessary. Any utilization of these credit facilities is
generally repaid in less than 30 days. As of June 30, 1996, BCZCO had
$9,198,000 amounts outstanding under these facilities. There were no
amounts outstanding under these facilities at June 30, 1995.
The Company's cash and cash equivalent position allows a certain
flexibility in its financial activities. In order to maximize income,
available cash is invested in short-term investments such as commercial
paper, money market funds and reverse repurchase agreements at very short
maturities in accordance with the Company's liquidity requirements.
<PAGE>
PART II
Items 1 through 3.
Not applicable
Item 4. Results of Votes of Security Holders
Registrant held an annual meeting on Monday, April 15, 1996 for
which a proxy statement was sent to shareholders of record at the
close of business on February 23, 1996. A brief description of
the matters voted upon is as follows:
1. To elect three directors for a term of three years.
2. To vote on a proposal to ratify the retention of Arthur
Andersen LLP as auditors for 1996.
A total of 2,431,727 shares were outstanding and eligible to
vote. The following votes were cast and the number of
abstentions and broker nonvotes are also listed.
1. Election of directors: Shareholders voted to grant or
withhold authority to a representative of the Registrant to
vote for or against the nominees, respectively.
<TABLE>
<CAPTION>
Broker
Granting Withholding Abstaining Nonvotes
<S> <C> <C> <C> <C>
P. D. J. Kenny 1,961,105 300 18,300 267,252
S. A. Roell 1,951,255 10,150 18,300 267,252
B. C. Ziegler III 1,961,205 200 18,300 267,252
</TABLE>
The following directors also continued in office: R. D.
Ziegler, J. C. Frueh, J. R. Green, P. D. Ziegler, F. J.
Wenzel, and P. R. Kellogg.
2. Retention of Arthur Andersen LLP as auditors.
<TABLE>
<CAPTION>
Broker
For Against Abstaining Nonvotes
<C> <C> <C> <C>
1,968,203 10,692 810 267,252
</TABLE>
Item 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: August 14, 1996 By /s/ Peter D. Ziegler
Peter D. Ziegler
President
Dated: August 14, 1996 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> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 4,476,259
<RECEIVABLES> 11,566,809
<SECURITIES-RESALE> 0<F1>
<SECURITIES-BORROWED> 0
<INSTRUMENTS-OWNED> 91,485,077<F2>
<PP&E> 7,197,844
<TOTAL-ASSETS> 140,196,601
<SHORT-TERM> 24,499,274<F3>
<PAYABLES> 5,052,121<F4>
<REPOS-SOLD> 0
<SECURITIES-LOANED> 0
<INSTRUMENTS-SOLD> 0
<LONG-TERM> 47,160,653<F5>
0
0
<COMMON> 3,544,030
<OTHER-SE> 48,727,288
<TOTAL-LIABILITY-AND-EQUITY> 140,196,601
<TRADING-REVENUE> 0<F6>
<INTEREST-DIVIDENDS> 1,092,163
<COMMISSIONS> 0<F6>
<INVESTMENT-BANKING-REVENUES> 6,816,228<F6>
<FEE-REVENUE> 1,738,093
<INTEREST-EXPENSE> 1,286,203
<COMPENSATION> 5,670,119
<INCOME-PRETAX> 522,497
<INCOME-PRE-EXTRAORDINARY> 522,497
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 335,097
<EPS-PRIMARY> .14
<EPS-DILUTED> .14
<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.
<F5>Includes bonds payable and notes payable to banks other than line of credit
borrowings.
<F6>Revenue from investment banking activities includes revenues from trading
activities and commission income.
</FN>
</TABLE>
