THE ZIEGLER COMPANIES, INC.
1997 ANNUAL REPORT
Table of Contents
Financial Summary
Letter to Shareholders
Results of Restructuring
Consolidated Financial Statements
Directors and Executive Officers
Investor Information
<PAGE>
Financial Summary
<TABLE>
<CAPTION>
For the Years Ended
December 31,
1997 1996
<S> <C> <C>
Total Revenues $59,694,000 $49,317,000
Income from Continuing Operations
Before Income Taxes 555,000 4,785,000
Income from Continuing Operations 354,000 2,975,000
Income from Discontinued Operations - 670,000
Net Income 354,000 3,645,000
Per Share
Basic earnings per share from
continuing operations $ .15 $1.25
Basic earnings per share from
discontinued operations - $ .28
Basic earnings $ .15 $1.53
Dividends Declared $ .82 $ .82
Average common shares outstanding 2,387,713 2,377,138
</TABLE>
Corporate Creed
We believe in the American free enterprise system. We shall consistently
treat our clients, employees, shareholders and community with honesty,
dignity, fairness and respect. We will conduct our business with the
highest ethical standards.
<PAGE>
Letter to Shareholders
To Our Shareholders:
In 1997, The Ziegler Companies, Inc. made some great strides in positioning
the Company for future profitability. It was also a year of difficult
financial performance, due primarily to two non-recurring events. These
results have caused us to make some tough and important decisions and
refocus our efforts, as I will discuss later in this letter.
For the year ended December 31, 1997, total revenue and net income from
continuing operations were $59,694,000 and $354,000, respectively, compared
to $49,317,000 and $2,975,000 in 1996. Basic earnings per share from
continuing operations in 1997 were 15 cents versus $1.25 in the period a
year ago. The substantial earnings decline for 1997 was largely a function
of two previously announced non-recurring write-offs. During the first
quarter of 1997, we announced an after-tax write-off of $840,000 resulting
from the settlement of a class action litigation related to a 1989 bond
underwriting. In the third quarter of 1997, we took a one-time after-tax
write-off of $1,350,000 related to the uncertainty of collection of
obligations due Ziegler from a third party.
1997 marked the 46th consecutive year that dividends have been declared on
your Company's common shares. Cash dividends declared in 1997 were 82 cents
per share, the same as in 1996. Included in 1997's declared dividend was a
30 cent extra dividend declared in the fourth quarter. The declaration of
dividends in an amount substantially greater than the net earnings in 1997
was, in part, to provide a better return to the shareholders. This dividend
rate, relative to net earnings, also recognizes the strong capital position
of the Company. The combination of stock appreciation and dividends in 1997
provided shareholders a return of 24.6%. Our goal is to provide most of our
shareholders' return in stock appreciation, not through dividend payout.
This is also consistent with the philosophy previously expressed by your
management and directors, whereby a high payout of earnings will be
considered until a higher return on shareholders' equity is achieved.
During 1997, your Company repurchased 98,560 shares at an average price that
was less than book value. In October, your Board authorized the repurchase
of 200,000 shares.
1997 was yet another record year of earnings on Wall Street. We recognize
that the robust equity markets were a major driver of that profitability.
We have taken a number of actions to shift more of our revenue mix toward
equity businesses and we will continue the efforts of the past two years to
not only reposition individual operating divisions and subsidiaries, but the
Company as a whole in order to achieve higher shareholder equity returns.
In that regard, the following significant actions have been or are being
implemented to reposition the Company and sharpen our focus, as well as
redeploy our capital in the securities business:
- On July 1, 1997, we acquired Glaisner, Schilffarth, Grande &
Schnoll, Ltd. and its broker-dealer and investment advisory
subsidiary, GS2 Securities, Inc. This Milwaukee-based firm is a
strategic acquisition that brings with it much-needed core
competency in institutional equity sales, trading and research.
Further, its investment management and advisory business manages
over a billion dollars in assets and complements our existing
investment advisor, Ziegler Asset Management, Inc.
- During the third quarter we announced that in 1998 we would
outsource our brokerage clearing function to Pershing, a division
of Donaldson, Lufkin & Jenrette Securities Corp. This decision
brings with it "Year 2000" compliance, new products and services
for our Retail Division, state-of-the-art technology and the
ability for us to focus on the front-end of the business. Our
goal is to effect a conversion in mid-May of 1998. Regrettably,
this decision will reduce employment in West Bend by approximately
fifty employees.
- We made substantial progress in building our institutional fixed
income sales and trading capability by successfully recruiting
professionals into our existing offices in Milwaukee, Chicago, New
York, and St. Petersburg, Florida, in both the taxable and tax-
exempt arenas. While this capability will enhance our already
strong original issue distribution of our underwritings, it will
significantly improve our secondary market sales and trading, as
well as provide more fixed income product on a regular basis to
our Retail Division.
- While we have been and will continue to be a premier underwriter
of fixed income securities for the not-for-profit health care
industry, we are broadening our health care practice significantly
at Ziegler Securities Division. In 1997 we increased our merger
and acquisition engagements, completed 79 structured finance
transactions for our health care and senior living clients and
began principal investing in assisted living projects. The net
effect of this has been to diversify our revenue mix in our health
care investment banking practice.
- Finally, we recently reorganized all of our financial services
into two operating divisions. Don Carlson will continue to head-
up the Ziegler Securities Division which will have responsibility
for capital formation, investment banking and institutional fixed
income sales and trading. All of our money management services,
institutional equity sales, trading and research, and the Retail
Division will report to Dick Glaisner, who will head the new
Ziegler Investment Division of B.C. Ziegler and Company. The
primary objective of this reorganization is to consolidate and
simplify our organizational structure, and bring together our
financial services businesses so that they work more closely and
effectively together. You'll see commentary from Mr. Carlson and
Mr. Glaisner on pages 6 and 7 of this report.
The following is a brief summary of the results of your major operating
subsidiaries:
B. C. Ziegler and Company (BCZCO)
BCZCO's operating income declined in 1997 relative to 1996, primarily as
a result of the non-recurring write-off associated with the previously
mentioned class-action lawsuit settlement.
-- Ziegler Securities Division (ZSD) had a break-out year with
revenues increasing 45%. However, operating income was up
substantially less than revenue due to heavy investment in
technology, people and offices. The Senior Living Finance Group
of ZSD posted another stellar year by completing 41 financings
totalling $715,000,000, maintaining its undisputed national
leadership in senior living financing. ZSD maintained its
national ranking in total health care financing, and more
importantly, it further broadened its services beyond
underwriting. ZSD continued to increase revenues from financial
advisory, principal investing, secondary market trading, and
structured finance products for its not-for-profit and for-profit
clients.
-- The Retail Division experienced a decline in profitability due
primarily to strong institutional demand and pricing for our
underwritings, reducing supply to our retail investors. Our
strongest retail product in 1997 was mutual funds, as we sold a
record $100,000,000 to our retail clients. A large majority of
these were equity funds. For the first time, retail gross
revenues from non-underwritten product exceeded revenues from our
own underwritings, which achieved an important strategic goal for
the division.
-- The Church & School Finance Division held their own in 1997 in the
face of stiff competition from commercial banks. The group
completed 18 financings for nearly $60,000,000. With historically
low interest rates, more institutions are realizing the benefits
of Ziegler's long-term financing program.
-- Principal Preservation Portfolios, Inc., our family of mutual
funds, had a great year of sales and investment performance. Net
sales, after redemptions, tripled from 1996, bringing total assets
to $470,000,000 at year-end, up from $386,000,000 at year-end
1996. We are encouraged by the balance of sales of Principal
Preservation mutual fund shares between BCZCO investment brokers
and outside broker-dealers.
-- Our independent insurance agency posted substantially increased
profits. This was very encouraging in a soft insurance market
where many independent agencies are struggling.
-- GS2 Securities, Inc. enjoyed a profitable first six months with
the Ziegler Companies. Institutional sales and research continued
to enjoy the strong underwriting markets providing research on
companies entering the public arena and their merger and
acquisition calendar reached record level.
Ziegler Thrift Trading, Inc. (ZTT)
ZTT posted another record year of profitability, bolstered by strong
equity market volume. To keep pace with a sector that's being
revolutionalized by electronic trading services, ZTT introduced its
internet trading services in the fourth quarter of 1997. The service
targets experienced investors who want convenience and flexibility and
are comfortable investing without human interface.
Ziegler Asset Management, Inc. (ZAMI)
ZAMI's assets under management grew 21%, reaching $1,085,000,000 at
year-end 1997. This growth propelled ZAMI to higher profitability
relative to 1996.
WRR Environmental Services Co., Inc. (WRR)
WRR experienced a decline in profitability due to severe pricing
pressures in the industry and very little volume in the remediation
area. Management has done an excellent job of repositioning the
Company. This bodes well for future profitability.
Patrick D.J. Kenny will step down from his directorship on your Board of
Directors in April of this year. Pat followed in the footsteps of his
father, D.J. Kenny, and brother, Tom Kenny, in serving your Company, and
April will mark his 25th year of loyal service on your Board. On behalf of
all the shareholders, employees, and fellow Directors, I thank Pat for his
continuous support, integrity and positive contributions.
I believe 1997 will be viewed as a watershed year in the securities
industry. It was a year in which consolidation took place at an
unprecedented pace. There were 16 mergers effected, totalling more than $30
billion. For all practical purposes, Glass Steagal is dead on a de facto
basis, as large commercial banks have bought their way into our industry at
record setting prices. The combination between securities firms also
accelerated as the year wore on. Time will tell as to the wisdom of these
many transactions. It is clear that this creates opportunity for us.
Opportunity in hiring talent who want to work for a firm where they can make
a difference and opportunity to compete successfully in niches where we
provide superior services and products.
Coming off a year of unacceptable financial results, it's difficult for a
non-employee shareholder to share the positive and enthusiastic attitude
Management has for the future of your Company. The fast changing complexion
of the Ziegler Companies, at times, has been difficult to manage and
stressful for the organization. Change is not easy. However, I believe
we're all gratified that we have retained the key managers and producers
during this "repositioning" and at the same time have attracted significant
new talent.
I'm often reminded, as well as I often remind others, that ours is a
business based on trust. That trust is created and maintained not only by
our ability to deliver what we promise, but by how we deliver our services.
You have our pledge that we will continue to be diligent in maintaining our
good name and reputation.
I am grateful for the collective contributions of all Ziegler employees, for
the support of you, our shareholders, and the counsel and encouragement of
the Board of Directors.
I thank you.
Peter D. Ziegler
Chairman, President & CEO
<PAGE>
Results of Restructuring
In early 1998, B.C. Ziegler and Company was restructured to position the
company for future growth. On these pages, Richard J. Glaisner of Ziegler
Investment Division and Donald A. Carlson, Jr. of Ziegler Securities
Division present the strengths and strategic goals of the two new divisions.
Richard J. Glaisner came to Ziegler via the Company's July 1997 acquisition
of GS2 Securities, Inc. Mr. Glaisner is the newly appointed president and
chief executive officer of the Ziegler Investment Division of B.C. Ziegler
and Company. Mr. Glaisner's background includes managing institutional
equity sales for a major Wall Street brokerage, as well as other senior
management positions in the securities industry.
Ziegler Investment Division
First and foremost, this business is about relationships. It's about
listening, building trust and finding successful solutions to clients'
investment needs. What we sell is the value of personal service and solid
advice about investing.
Ziegler Investment Division brings together all B.C. Ziegler and Company's
money management services, retail investor services, and equity research
products and trading capabilities. We serve a spectrum of consumers with
differing levels of experience, knowledge, risk tolerance and assets by
packaging advice in various ways to meet each client's objectives. Our
Retail Division is a full-service brokerage with a unique franchise -
Ziegler-underwritten tax-exempt and taxable bonds. A broad range of
investments is available to retail investors, including our proprietary
bonds, our mutual fund family, Principal Preservation Portfolios, and an
array of funds, insurance products, equities and preferred securities.
Realizing that more and more clients can benefit from ongoing management of
their portfolios, we're focusing on our portfolio management services.
Through Ziegler Asset Management, Inc. and GS2 Securities, Inc. we offer
discretionary asset management programs, and investment consulting services
which objectively match investors' goals with individual money managers or
funds. Beyond advising individual investors, we also provide advisory
portfolio management to foundations, corporations, corporate retirement
plans, municipalities and other institutions. The proprietary institutional
equity research published by GS2 Securities, Inc. is utilized by
institutional investors.
What's ahead for this new division? Our May 1998 conversion to Pershing
gives us an important technological advantage and expands our client
services with broadened equity research and products. Throughout Ziegler
Investment Division, we are in position to profit from the explosive growth
of managed money through custom portfolio management services and rapidly
growing mutual fund sales. Finally, we will be working to grow through
referrals from our existing clients as we add products and expertise that
will appeal to future generations of increasingly savvy investors.
Donald A. Carlson, Jr. has been president and chief executive officer of the
Ziegler Securities Division of B.C. Ziegler and Company since 1987. In his
22 years at ZSD, he has had extensive experience in all phases of financing
health care and senior living organizations nationwide. Prior to 1987, he
managed the division's sales and trading and risk management business.
Ziegler Securities Division
The Ziegler Securities Division of B.C. Ziegler and Company directs its
resources toward investment banking, financial advisory services, structured
financial products, and distribution of securities related to health care
and senior living organizations. The firm's long time specialty focus
allows us to bring significant value in financing the continuum of health
care organizations.
Ziegler Securities' investment banking practice includes all traditional
capital markets functions - underwriting, financial advisory services and
broad sales and trading capability. In addition to providing superior
service to our traditional non-profit health care and senior living clients,
we have also added many corporate finance services and products providing
equity capital to emerging health care organizations and for-profit
developers of senior living, assisted living and nursing care organizations,
as well as many creative and innovative structured financed products.
The investment banking practice of ZSD includes raising debt and equity
capital for both non-profit and for profit health care organizations,
including integrated delivery systems, managed care companies, home health
companies, physician groups and the entire spectrum of senior living
organizations.
In 1997, ZSD continued to add professionals to further broaden its corporate
finance and not for profit services. A major part of this growth included
substantially expanding our corporate advisory services and our debt and
equity research capability. In addition, ZSD significantly expanded its
institutional sales and trading operation. We have broadened both our
primary and secondary distribution capabilities for taxable and tax-exempt
bonds, preferred stock and equity securities. We're pleased to have
attracted very talented and experienced industry professionals to staff
these growth initiatives in our New York, Chicago, St. Petersburg and
Milwaukee offices.
Strategies for future growth: In the past two years, ZSD has committed
significant resources to further expanding our health care and senior living
products and services. Expansion into corporate merger and acquisition
advisory services, principal investing activities through our Ziegler
Capital Company affiliate, and across the board distribution capabilities in
both fixed income and equity securities give us the platform to
substantially grow our business in the near term.
In 1998 and beyond, ZSD will continue to seek opportunities related to our
core strengths, with the ultimate goal of bringing our clients unparalleled
expertise and exceptional value.
<PAGE>
Consolidated Financial Statements
Table of Contents
Consolidated Balance Sheets
Consolidated Statements of Income
Consolidated Statements of Cash Flows
Consolidated Statements of Stockholders' Equity
Notes to Consolidated Financial Statements
Report of Independent Public Accountants
Management's Discussion and Analysis
<PAGE>
Consolidated Balance Sheets
<TABLE>
<CAPTION>
As of
December 31,
1997 1996
<S> <C> <C>
ASSETS
Cash $ 5,769,914 $ 6,012,977
Short-term investments 22,849,551 26,240,446
Bonds due and called as of January 1,
1998 and 1997, respectively 6,805,665 10,843,295
Total cash and cash equivalents 35,425,130 43,096,718
Securities inventory 69,255,507 34,920,458
Securities purchased under agreements to resell 8,240,000 -
Accounts receivable -
Securities sales 7,272,672 8,434,547
Other 6,660,650 4,709,368
Investment in and receivables from
affiliates 1,550,082 2,775,607
Investment in leases 4,475,935 7,507,948
Notes receivable 14,513,323 23,204,541
Land, buildings and equipment, at cost,
net of accumulated depreciation of
$15,949,666 and $14,766,286,
respectively 8,879,613 7,165,857
Deferred income tax benefit 2,327,646 1,106,198
Other assets 8,876,549 8,235,257
Total assets $167,477,107 $141,156,499
LIABILITIES AND STOCKHOLDERS' EQUITY
Short-term notes payable $ 15,033,913 $ 13,245,639
Securities sold under agreements to repurchase 7,324,000 -
Payable to customers 4,668,771 6,478,455
Payable to broker-dealers 680,980 370,791
Accounts payable 6,098,180 2,629,014
Dividends payable 1,042,222 1,049,740
Accrued income taxes payable 329,982 6,361,958
Securities sold, not yet purchased 7,989,062 -
Notes payable to banks 41,833,196 22,469,310
Bonds payable 18,281,775 25,011,498
Other liabilities and deferred items 11,900,370 9,320,894
Total liabilities 115,182,451 86,937,299
Commitments
Stockholders' equity -
Common stock, $1 par, 7,500,000 shares
authorized, 3,544,030 shares issued 3,544,030 3,544,030
Preferred stock - -
Additional paid-in capital 6,068,647 5,962,229
Retained earnings 60,658,881 62,305,397
Treasury stock, at cost, 1,120,257 and
1,102,773 shares, respectively (17,600,754) (17,062,908)
Unearned compensation (376,148) (529,548)
Total stockholders' equity 52,294,656 54,219,200
Total liabilities and
stockholders' equity $167,477,107 $141,156,499
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these balance sheets.
<PAGE>
Consolidated Statements of Income
<TABLE>
<CAPTION>
For the Years Ended
December 31,
1997 1996 1995
<S> <C> <C> <C>
Revenues:
Investment banking and commission income $40,795,829 $33,633,401 $30,642,641
Investment management fees 5,411,126 2,842,490 2,399,034
Interest and dividends 5,100,178 4,379,040 3,731,837
Gross profit on chemical products
(28%, 29% and 28% of net sales,
respectively) 3,462,731 4,013,413 3,762,466
Insurance agency 1,058,047 970,422 951,085
Other 3,865,792 3,478,183 3,454,548
59,693,703 49,316,949 44,941,611
Expenses:
Employee compensation and benefits 30,874,441 24,842,807 21,518,372
Brokerage commission and clearing fees 2,696,170 988,234 820,472
Communications 3,002,728 2,708,823 2,525,861
Occupancy and equipment 4,874,104 4,484,307 4,178,086
Promotional 3,101,815 2,304,034 1,855,067
Professional and regulatory 1,370,304 679,804 793,122
Provision for losses 3,900,000 - -
Interest 3,325,050 2,996,573 2,768,241
Other operating expenses 5,993,854 5,527,753 5,212,249
59,138,466 44,532,335 39,671,470
Income from continuing
operations before income taxes 555,237 4,784,614 5,270,141
Provision for income taxes 201,500 1,809,900 1,942,200
Income from continuing operations 353,737 2,974,714 3,327,941
Discontinued operations:
Income from operations of discontinued
leasing subsidiary (less applicable
income taxes of $306,000 and $350,000,
respectively) - 729,973 716,380
Loss on disposal of leasing subsidiary
(less applicable income taxes) - (60,000) -
Income from discontinued
operations - 669,973 716,380
Net income $ 353,737 $ 3,644,687 $ 4,044,321
Per share data:
Continuing operations $ .15 $1.25 $1.40
Discontinued operations - .28 .30
Basic earnings per share $ .15 $1.53 $1.70
Continuing operations $ .14 $1.23 $1.38
Discontinued operations - .28 .30
Diluted earnings per share $ .14 $1.51 $1.68
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these statements.
<PAGE>
Consolidated Statements of Stockholders' Equity
<TABLE>
<CAPTION>
Additional Unearned
Common Paid-In Retained Treasury Compen-
For the Years Ended Stock Capital Earnings Stock sation Total
<S> <C> <C> <C> <C> <C> <C>
BALANCE, December 31, 1994 $3,544,030 $6,030,565 $58,734,576 $(17,196,800) $(732,349) $50,380,022
Net income - - 4,044,321 - - 4,044,321
Dividends declared ($ .87 per share) - - (2,119,155) - - (2,119,155)
Proceeds from exercise of stock options - (32,613) - 143,170 - 110,557
Cost of treasury stock purchased
(24,241 shares) - - - (374,475) - (374,475)
Restricted stock grants - (29,215) - 198,202 (168,987) -
Amortization of unearned compensation - - - - 200,728 200,728
BALANCE, December 31, 1995 3,544,030 5,968,737 60,659,742 (17,229,903) (700,608) 52,241,998
Net income - - 3,644,687 - - 3,644,687
Dividends declared ($ .82 per share) - - (1,999,032) - - (1,999,032)
Proceeds from exercise of stock options - (6,508) - 166,995 - 160,487
Amortization of unearned compensation - - - - 171,060 171,060
BALANCE, December 31, 1996 3,544,030 5,962,229 62,305,397 (17,062,908) (529,548) 54,219,200
Net income - - 353,737 - - 353,737
Dividends declared ($ .82 per share) - - (2,000,253) - - (2,000,253)
Cost of treasury stock purchased
(98,560 shares) - - - (1,953,885) - (1,953,885)
Proceeds from exercise of stock options - (8,214) - 155,717 - 147,503
Purchase of GS2 (72,366 shares) - 114,632 - 1,260,322 - 1,374,954
Amortization of unearned compensation - - - - 153,400 153,400
BALANCE, December 31, 1997 $3,544,030 $6,068,647 $60,658,881 $(17,600,754) $(376,148) $52,294,656
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these statements.
<PAGE>
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
For the Years Ended
December 31,
1997 1996 1995
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 353,737 $ 3,644,687 $ 4,044,321
Adjustments to reconcile net income to
net cash provided by (used in) operating
activities:
Depreciation and amortization 1,533,279 1,501,520 1,436,308
Provision for losses 2,500,000 - -
Unrealized loss (gain) on securities
inventory 36,194 290,491 (437,351)
Compensation expense related to
restricted stock grants 153,400 171,060 200,728
Deferred income taxes (1,192,648) 210,000 (142,000)
Undistributed net dividends received
from (earnings of) unconsolidated
affiliates 356,965 (129,143) (224,521)
Pre-tax gain on sale of discontinued
operations - (5,925,000) -
Change in assets and liabilities:
Decrease (Increase) in -
Accounts receivable - securities sales 1,161,875 (4,999,631) 1,818,789
Accounts receivable - other (1,635,855) (873,996) (603,306)
Securities inventory (26,344,241) (7,059,209) (4,911,305)
Securities purchased under agreements
to resell (8,240,000) - -
Other assets 670,283 2,650,944 (1,121,587)
Discontinued operations - noncash
charges and working capital changes - 274,560 (416,379)
Increase (Decrease) in -
Payable to customers and broker-dealers (1,499,495) 3,872,729 (4,117,698)
Accounts payable 3,337,574 (485,850) 480,682
Income taxes payable (6,035,491) 5,703,590 643,170
Securities sold under agreements
to repurchase 7,324,000 - -
Other liabilities 1,615,331 1,395,914 1,162,526
Net cash provided by (used in)
operating activities (25,905,092) 242,666 (2,187,623)
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from -
Sale of equipment - 33,329 27,313
Principal payments received under leases 2,397,639 3,191,407 4,115,461
Sale of leased equipment 571,904 840,653 923,161
Payments received on notes receivable 7,583,261 52,806,868 54,380,159
Sale of investment in affiliate 825,000 - -
Cash acquired in purchase of GS2 600,196 - -
Payments for -
Purchase of assets to be leased - (2,887,898) (3,481,132)
Issuance of new notes receivable (1,065,577) (45,124,525) (58,433,036)
Capital expenditures (2,781,652) (1,386,809) (881,931)
Acquisition of business assets - - (1,868,058)
Proceeds from sale of discontinued
operations - 17,070,202 -
Net cash provided by (used in)
investing activities 8,130,771 24,543,227 (5,218,063)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from -
Issuance of short-term notes payable 74,707,000 80,329,000 94,452,000
Exercise of employee stock options 147,502 160,487 110,557
Issuance of bonds payable - 4,875,000 11,074,080
Payments for -
Principal payments of short-term notes
payable (72,872,000) (85,590,000) (95,778,000)
Repayments of bonds payable (6,732,000) (7,395,000) (5,627,000)
Purchase of treasury stock (1,953,885) - (374,476)
Cash dividends paid (2,007,770) (2,116,499) (1,755,974)
Net borrowings under credit facilities 18,813,886 10,019,360 629,448
Net cash provided by financing
activities 10,102,733 282,348 2,730,635
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS (7,671,588) 25,068,241 (4,675,051)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 43,096,718 18,028,477 22,703,528
CASH AND CASH EQUIVALENTS AT END OF YEAR $35,425,130 $43,096,718 $18,028,477
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Interest paid during the year $ 3,302,000 $ 3,196,000 $ 2,630,000
Income taxes paid during the year $ 7,359,000 $ 1,722,000 $ 662,000
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING
AND FINANCING ACTIVITIES:
Granting of restricted stock from
treasury stock $ - $ - $ 169,000
Treasury stock issued for acquisition of GS2 $ 1,375,000 $ - -
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
<PAGE>
Notes to Consolidated Financial Statements
(1) Summary of Significant Accounting Policies -
Principles of Consolidation -
The consolidated financial statements of The Ziegler Companies, Inc. and
subsidiaries (the "Company") include the accounts of The Ziegler
Companies, Inc. ("ZCO") and its wholly-owned subsidiaries, B. C. Ziegler
and Company ("BCZ"), GS2 Securities, Inc. ("GS2"), Ziegler Thrift
Trading, Inc. ("ZTT"), Ziegler Financing Corporation ("ZFC"), Ziegler
Asset Management, Inc. ("ZAMI"), Ziegler Collateralized Securities, Inc.
("ZCSI"), WRR Environmental Services Co., Inc. ("WRR"), First Church
Financing Corporation ("FCFC") and Ziegler Capital Company, LLC ("ZCC").
All significant intercompany balances and transactions have been
eliminated in consolidation.
The Company, through its financial service subsidiaries, provides a wide
range of financial services for businesses, institutions and
individuals. WRR recycles, reclaims and disposes of industrial
chemicals and solvents and provides pollution abatement services.
The Company has a 50% interest in Ziegler Mortgage Securities, Inc. II
("ZMSI II"), an unconsolidated entity accounted for by the equity
method.
Securities -
Security transactions are recorded on a settlement date basis, which is
not materially different from a trade date basis. In the normal course
of business, the Company, like other firms in the securities industry,
purchases and sells securities as both principal and agent. If another
party to the transaction fails to perform as agreed, the Company may
incur a loss if the market value of the security is different from the
contract amount of the transaction.
Short-term investments consist of commercial paper, money market
investments, and U.S. Government and U.S. Government agency securities
purchased under agreements to resell.
Resale and Repurchase Agreements -
Transactions involving purchases of securities under agreements to
resell or sales of securities under agreements to repurchase are
accounted for as collateralized financings, except where the Company
does not have an agreement to sell (or purchase) the same or
substantially the same securities and to obtain possession of collateral
with a market value equal to or in excess of the principal amount loaned
under resale agreements. Collateral is valued daily, and the Company
may require counterparties to deposit additional collateral or return
collateral pledged when appropriate.
Investment Banking -
Investment banking revenues include gains, losses, and fees, net of
syndicate expenses, arising from debt securities offerings in which the
Company acts as an underwriter. Investment banking revenues also
include fees earned from providing strategic consulting, merger and
acquisition, and financial advisory services. Investment banking
management fees are recorded on offering date, sales concessions on
settlement date, and underwriting fees at the time the underwriting is
completed and the income is reasonably determinable.
Depreciation -
Depreciation is computed on buildings and equipment on a straight-line
basis. The buildings are depreciated over 20 to 40 years and equipment
over 3 to 10 years.
Income Taxes -
The provision for income taxes is the estimated amount of income taxes
payable, both currently and in the future, on consolidated pre-tax
earnings for the year at current Federal and state tax rates. Deferred
income taxes have been provided for those transactions, which are
accounted for in different periods for financial reporting purposes than
for income tax purposes.
Cash Equivalents -
Cash equivalents are defined as short-term investments maturing within
three months of the date of purchase.
Use of Estimates -
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the dates of the
financial statements and the reported amounts of revenues and expenses
during the reporting periods. Actual results could differ from those
estimates.
Reclassifications -
Certain prior year amounts have been reclassified to conform with
current year presentation.
(2) Securities Inventory -
Securities inventory at December 31, 1997 and 1996, consists of trading
securities at market value, as follows:
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Municipal bond issues $54,481,670 $18,619,321
Collateralized mortgage obligations 9,300,821 -
Institutional bond issues 2,165,128 13,357,676
Preferred stock 401,766 1,768,185
Other 2,906,122 1,175,276
$69,255,507 $34,920,458
</TABLE>
Municipal bond issues consist primarily of revenue bonds issued by state
and local governmental authorities related to healthcare or long-term
care facilities. Institutional bond issues consist primarily of bonds
issued by for-profit hospitals, geriatric care facilities, churches and
independent schools.
Included in municipal and institutional bond issues at December 31,
1996, are approximately $8,435,000 of bonds from one issuer in Virginia
and $11,482,000 of bonds from one issuer in Arizona. These bonds were
sold in 1997. The holdings of any individual issue were not significant
at December 31, 1997.
(3) Securities Sold, Not Yet Purchased -
Marketable securities sold, not yet purchased, consist of trading
securities at market value, as follows:
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
U.S. Treasury Notes $7,989,062 $ -
</TABLE>
(4) Investment in ZMSI II -
Condensed financial information of ZMSI II as of December 31, 1997 and
1996, and for the three year period ended December 31, 1997 is as
follows:
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Mortgage Certificates, net of
unamortized discount of $2,450,788
and $2,795,809, respectively $88,675,684 $ 98,182,510
Deferred bond issuance costs 2,421,060 2,758,864
Cash and cash equivalents,
primarily held by trustee 7,556,304 3,877,863
Accrued interest receivable 636,857 707,253
Total assets $99,289,905 $105,526,490
Mortgage Certificate-Backed
Bonds payable $94,958,000 $101,047,000
Accrued interest payable 2,791,882 2,948,545
Due to BCZ 20,023 10,945
Total liabilities 97,769,905 104,006,490
Stockholders' equity ($1,510,000
held by the Company) 1,520,000 1,520,000
Total liabilities and
stockholders' equity $99,289,905 $105,526,490
</TABLE>
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
Income, primarily interest $8,771,002 $10,383,391 $10,623,778
Expenses -
Interest expense 7,875,114 9,158,478 9,764,637
Amortization of bond issuance
costs 432,363 805,971 359,513
Management fee earned by BCZ 335,985 216,365 349,925
General and administrative
expense 127,540 202,577 149,703
Total expenses 8,771,002 10,383,391 10,623,778
Net income $ - $ - $ -
</TABLE>
The Mortgage Certificate-Backed Bonds are collateralized by the Mortgage
Certificates, which consist of Government National Mortgage Association
certificates and Federal National Mortgage Association certificates.
(5) Ziegler Collateralized Securities, Inc. -
ZCSI holds an investment portfolio of financing leases. The terms of
these equipment contracts generally range from one to seven years.
Approximately 79% of the investment in leases is concentrated in the
healthcare industry. Investment in leases consists of the following:
<TABLE>
<CAPTION>
December 31,
1997 1996
<S> <C> <C>
Lease contracts receivable $4,910,254 $8,423,851
Estimated residual value 104,447 171,155
Deferred initial direct costs 40,264 113,516
Less -
Unearned income (527,363) (1,148,906)
Allowance for losses (51,668) (51,668)
Investment in leases $4,475,934 $7,507,948
</TABLE>
The following is a summary of scheduled payments to be received on the
lease contracts:
<TABLE>
<CAPTION>
<S> <C>
1998 $2,423,437
1999 1,466,844
2000 899,458
2001 108,860
2002 11,655
$4,910,254
</TABLE>
Condensed financial information of ZCSI as of December 31, 1997 and
1996, and for the three year period ended December 31, 1997 is as
follows:
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Investment in leases $ 4,475,934 $ 7,507,948
Notes receivable 4,203,967 7,046,152
Other assets 2,454,051 2,773,088
Total assets $11,133,952 $17,327,188
Bonds payable $ 8,829,000 $14,302,000
Other liabilities, primarily a
subordinated note to the Company 2,294,952 3,015,188
Total liabilities 11,123,952 17,317,188
Stockholder's equity 10,000 10,000
Total liabilities and
stockholder's equity $11,133,952 $17,327,188
</TABLE>
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
Lease income $ 569,628 $ 870,055 $ 877,242
Other income, primarily interest 599,381 766,897 519,381
Total income 1,169,009 1,636,952 1,396,623
Interest expense 940,427 1,172,770 988,358
Amortization of bond
issuance costs 113,147 180,157 131,821
Administrative fees to ZCO/ZLC 27,428 93,847 126,722
Amortization of initial direct
cost 63,397 114,764 133,621
Other expenses 24,610 75,414 16,101
Total expenses 1,169,009 1,636,952 1,396,623
Net income $ - $ - $ -
</TABLE>
At the end of February 1997, the written agreement with Ziegler Leasing
Corporation ("ZLC") to provide management and administrative services to
ZCSI terminated. In March 1997, a written agreement with ZCO was
undertaken to provide management and administrative services to ZCSI.
Management and administrative fees paid to ZCO or ZLC were limited to
the amount which prevented ZCSI from incurring a loss.
An analysis of each outstanding bond series as of December 31, 1997 and
for the year then ended is as follows:
<TABLE>
<CAPTION>
Collateral Lease/ Bond Other
Bonds Value Note Interest Related Excess
Series # Outstanding at Cost Income Expense Expenses of Income
<S> <C> <C> <C> <C> <C> <C>
3 $ 19,000 $ 32,428 $ 7,764 $ 3,422 $ 2,771 $ 1,571
4 284,000 337,594 57,457 40,793 9,257 7,407
5 1,337,000 1,753,280 233,752 158,978 45,651 29,123
6 3,739,000 4,262,501 425,693 287,981 54,492 83,220
7 3,450,000 4,038,086 401,275 281,071 64,480 55,724
</TABLE>
(6) Short-Term Notes Payable, Lines of Credit,
Notes Payable to Banks and Bonds Payable -
The Company finances the operations of certain subsidiaries by issuing
commercial paper (short-term notes payable). During 1997, 1996 and
1995, it had average outstanding balances of approximately $12,751,000,
$16,333,000, and $19,882,000, respectively. Maximum borrowings based on
month-end outstanding balances for those same years were approximately
$15,674,000, $18,597,000, and $21,590,000, respectively. During 1997,
1996 and 1995, the weighted average interest rates incurred were 6.2%,
6.3%, and 6.8%, respectively, based on month-end outstanding balances.
Total interest expense in connection with these borrowings was $784,000,
$1,008,000, and $1,330,000 in 1997, 1996, and 1995, respectively. The
total commercial paper outstanding at December 31, 1997 and 1996 was
$15,033,913 and $13,245,639, respectively.
Notes payable to banks consists of the following:
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Borrowings under unsecured
lines of credit $12,625,000 $11,628,000
Borrowings under secured broker loan
facilities for specific underwritings 11,750,000 10,000,000
Borrowings under secured broker loan
facilities for remarketing 16,550,000 -
Other 908,196 841,310
$41,833,196 $22,469,310
</TABLE>
The Company had lines of credit as of December 31, 1997 and 1996,
totaling $30,500,000 and $28,000,000, respectively. In accordance with
normal banking practice, these lines may be withdrawn at the discretion
of the lenders. In connection with certain of these bank lines, the
Company is required to maintain, as compensating balances, average
collected funds, which at December 31, 1997 and 1996, approximated
$380,000. There are no legal restrictions on the withdrawal of these
funds. Total interest expense in connection with borrowings against
these lines of credit was $334,000, $362,000, and $408,000 in 1997, 1996
and 1995, respectively. One of the bank lines for $3,000,000 is shared
with the family of mutual funds sponsored by BCZ. All borrowings under
this line of credit by the family of mutual funds are guaranteed by BCZ.
The family of mutual funds had no borrowings outstanding at December 31,
1997 or 1996.
BCZ periodically obtains short-term borrowings for specific
underwritings at the market rate of interest to broker-dealers, payable
on demand and fully collateralized by the securities held in inventory.
Such amounts are generally outstanding for periods of less than two
weeks.
BCZ serves as the remarketing agent on certain variable-rate municipal
bonds that can be tendered back to the respective issuers, generally
upon seven days advance notice, by the holders. To assist it in
carrying out its remarketing duties, the Company obtained $125,000,000
of borrowing capacity to allow it to finance the purchase of tendered
bonds it elects to purchase into its own inventory. This loan facility
is restricted to financing variable rate municipal bonds, and each
financing must be approved by the lender in advance. The financings are
done at the greater of i) the lender's prime rate less one-quarter
percent, and ii) the federal funds borrowing rate plus one percent, are
payable on demand and are fully collateralized by the variable rate
municipal bonds. Such amounts are generally outstanding for periods of
less than two weeks.
Total interest expense under these secured borrowing arrangements
totaled $375,000, $48,000, and $93,000 in 1997, 1996, and 1995,
respectively.
Subsequent to December 31, 1997, the Company terminated the $125,000,000
facility and replaced it with a $70,000,000 facility with similar
borrowing restrictions and a substantial uncommitted borrowing facility.
Bonds payable at December 31, 1997 and 1996, consists of the following:
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
First Church Financing Corporation
Mortgage-Backed Bonds:
Series 1 - due March, 2008;
interest at 8.25% $ 2,668,000 $ 2,883,000
Series 2 - due August, 2009;
interest at 8.75% 2,491,000 3,345,000
Series 3 - due December, 2010;
interest at 8.00% 3,927,000 4,077,000
Waste Research and Reclamation Co.,
Inc., Small Business Pollution
Control Revenue Bonds, due in
monthly principal and interest
installments of approximately
$6,000, through December 1, 2004,
bearing interest at 7.5% 366,775 404,498
Ziegler Collateralized Securities,
Inc., Collateralized Bonds;
collateralized by equipment leases
and other financing agreements;
guaranteed by The Ziegler Companies,
Inc.:
Series 2 - due serially through
July, 1997; interest ranging
from 5.00% to 7.00% - 265,000
Series 3 - due serially through
June, 1998; interest 6.75% 19,000 98,000
Series 4 - due serially through
December, 1998; interest 6.50% 284,000 826,000
Series 5 - due serially through
October, 1999; interest ranging
from, 7.00% to 7.50% 1,337,000 2,952,000
Series 6 - due serially through
March, 2001; interest ranging
from 6.50% to 7.00% 3,739,000 5,161,000
Series 7 - due serially through
November, 2000; interest ranging
from 6.25% to 7.00% 3,450,000 5,000,000
$18,281,775 $25,011,498
</TABLE>
Annual amounts due on notes payable to banks and bonds payable for the
next five years are:
<TABLE>
<CAPTION>
<S> <C>
1998 $45,519,798
1999 2,954,523
2000 1,913,313
2001 176,169
2002 348,393
Thereafter 9,202,775
$60,114,971
</TABLE>
(7) Related Party Transactions -
BCZ sponsors the Principal Preservation Portfolios, Inc. family of
mutual funds. Certain BCZ officers also serve as officers or directors
of the family of mutual funds. BCZ performs depository services and
administrative services for the family of mutual funds. ZAMI also
provides investment advisory services to the family of mutual funds.
Total fees for services earned from the family of mutual funds
approximated $2,755,000, $2,360,000, and $2,253,000 in 1997, 1996 and
1995, respectively.
BCZ serves as manager of ZMSI II pursuant to a written agreement. BCZ
also advances funds to ZMSI II and owns $1,500,000 of $9 non-cumulative,
non-voting preferred stock in ZMSI II. See Note 4 for the ZMSI II
intercompany balances with The Ziegler Companies, Inc. and BCZ for the
years ended December 31, 1997 and 1996.
(8) Retirement Plans -
The Company has contributory profit sharing plans for substantially all
full-time employees and certain part-time employees. BCZ, ZTT, ZAMI,
and ZFC have plans which provide for a guaranteed company match equal to
50% of employee contributions up to 6% of defined compensation and a
discretionary annual company contribution up to 6% of defined
compensation for each year. The annual company contributions are at the
discretion of the board of directors. GS2 has a defined contribution
savings plan which has a provision for employer contributions based on a
percentage of qualifying contributions made by participating employees.
WRR has a plan that provides a company match equal to 100% of employee
contributions up to a maximum match of 1.43% of defined compensation.
WRR also provides a company contribution equal to 3.88% of defined
compensation. Retirement plan expense of the Company was $1,489,000,
$1,281,000, and $1,159,000 in 1997, 1996 and 1995, respectively.
(9) Provision for Income Taxes -
The provision for income taxes for the years ended December 31, 1997,
1996 and 1995, consists of the following:
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
Current Federal $1,146,848 $1,276,600 $1,611,600
Current state 276,100 323,300 472,600
Deferred provision (benefit) (1,221,448) 210,000 (142,000)
Total $ 201,500 $1,809,900 $1,942,200
</TABLE>
The following are reconciliations of the statutory Federal income tax
rates for 1997, 1996 and 1995 to the effective income tax rates:
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
Statutory Federal income tax rate 34.0% 34.0% 34.0%
State taxes on income, net of related
Federal income tax benefit 6.4 5.2 5.2
Tax-exempt interest income, net of
related nondeductible interest expense (19.7) (4.4) (1.7)
Nondeductible business expenses 12.3 1.3 .4
Additional taxes provided (used) (1.4) 2.5 (.9)
Other, net 4.7 (.8) (.1)
Effective income tax rate 36.3% 37.8% 36.9%
</TABLE>
The tax effects of temporary differences that give rise to significant
elements of the deferred tax assets and deferred tax liabilities at
December 31, 1997 and 1996 are as follows:
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Deferred tax assets:
Accrued loss contingencies $ 315,933 $ 288,970
Allowance for uncollectible accounts 1,214,367 282,398
Compensation 422,738 443,593
Other 516,066 307,818
Total deferred tax assets 2,469,104 1,322,779
Deferred tax liabilities:
Fixed assets (primarily due to
depreciation) (71,682) (68,124)
Other (69,776) (148,457)
Total deferred tax liabilities (141,458) (216,581)
Net deferred tax assets $2,327,646 $1,106,198
</TABLE>
(10) Preferred Stock -
The Company is authorized to issue 500,000 shares of preferred stock, $1
par value, which is undesignated as to series.
(11)Stock-Based Compensation Plans -
The Company has established the 1993 Employees' Stock Incentive Plan
(the "1993 Plan") for certain officers and key employees. Stock
options, stock appreciation rights, and restricted stock may be granted
under the 1993 Plan. A total of 200,000 shares are issuable under the
1993 Plan. The Company also established the 1989 Employees' Stock
Purchase Plan (the "1989 Plan") for substantially all full-time
employees. Options to purchase stock may be granted under the 1989
Plan. A total of 150,000 shares are issuable under the 1989 Plan.
Under both the 1993 Plan and the 1989 Plan, options or shares granted
under either plan that expire, terminate, or are canceled are again
available for future granting.
Restricted Stock
On January 26, 1994, the Company issued an aggregate of 49,000 shares of
restricted common stock of the Company to certain key employees under
the 1993 Plan. Each employee's ownership of shares is subject to full
or partial forfeiture in accordance with a vesting schedule in the event
that the employee's employment with the Company terminates for any
reason before January 26, 2003. All shares remain nonvested at December
31, 1997. The market value of the restricted stock, when issued, was
$17.3125 per share. The total value at issuance is being amortized and
recorded as compensation over the period of vesting. Total compensation
cost recognized in income for the January 26, 1994, issue of restricted
stock was $127,000 in each of the years 1997, 1996, and 1995. The
shares may not be transferred by the recipients until vested.
On January 27, 1995, the Company issued an aggregate of 11,313 shares of
restricted common stock of the Company to certain key employees under
the 1993 Plan. Each employee's ownership of shares is subject to full
or partial forfeiture in accordance with a vesting schedule in the event
that the employee's employment with the Company terminates for any
reason before January 27, 2000. A total of 2,183 shares vested in both
1997 and 1996 and are no longer restricted. In 1995, 401 shares were
forfeited. The market value of the restricted stock, when issued, was
$14.9375 per share. The total value at issuance is being amortized and
recorded as compensation over the period of vesting. Total compensation
cost recognized in income for the January 27, 1995, issue of restricted
stock was $27,000 in 1997, $45,000 in 1996 and $68,000 in 1995. The
shares may not be transferred by the recipients until vested. There are
a total of 6,546 nonvested shares at December 31, 1997.
Stock Options
On December 29, 1993, the Board of Directors granted options to purchase
54,500 shares of Company stock under the 1993 Plan. The options are
exercisable through December 28, 2003 at a price of $16.625 per share.
Options for a total of 10,000 and 4,000 shares were exercised in 1997
and 1996, respectively, and none were exercised in 1995. A total of
2,000 options were forfeited in 1995. There were no forfeitures in 1997
or 1996. A total of 38,500 shares remain outstanding at December 31,
1997 and are currently exercisable.
On May 1, 1995, the Board of Directors granted options to purchase
104,200 shares under the 1989 Plan. The May 1, 1995 options expired on
April 30, 1997. On May 1, 1997, the Board of Directors granted options
to purchase 130,030 shares under the 1989 Plan.
A summary of activity relating to the common stock options under the
1989 Plan is presented in the following table:
<TABLE>
<CAPTION>
1997 1996 1995
(Number of Shares)
<S> <C> <C> <C>
Outstanding at beginning of year 83,470 97,015 71,387
Exercised (3,510) (3,875) (7,467)
Forfeited (11,390) (9,670) (7,270)
Expired (76,940) - (63,835)
Granted 130,030 - 104,200
Outstanding at end of year 121,660 83,470 97,015
Average price of shares exercised $16.69 $15.76 $13.38
</TABLE>
Only 113,695 additional shares are authorized for issuance under the
1989 Plan. Shares will be issued on a first come, first served basis
until all authorized shares are issued. Subject to the above
limitation, all outstanding options are currently exercisable through
May 31, 1999, at 85% of the market value on the date of exercise. A
total of 36,305 shares have been purchased since the inception of the
1989 Plan. Under the 1989 Plan, no options are currently available for
future granting as a result of the limitation described above. Options
granted under the 1989 Plan that expire, terminate, or are cancelled are
again available for the granting of future options subject to the above
limitation.
The Company has granted certain officers nonstatutory stock options to
purchase 30,000 shares of common stock at prices ranging from $15.12 to
$18.75 per share. All options remain outstanding and expire on various
dates ranging from January, 2003 to April, 2007.
The Company established a nonstatutory stock option plan (the "GS2
Plan") for certain officers and other key employees of GS2 pursuant to
the acquisition of that subsidiary. A total of 10,000 stock options may
be granted under the GS2 Plan. No options may be granted after June 30,
2000. As of December 31, 1997, no options have been granted. If
granted, options will be earned and vest in accordance with an earnings
target to be achieved by GS2 during the three year period ended June 30,
2000. Once vested, the stock options are exercisable through June 30,
2007 at a price of $19 per share.
The Company granted 50,000 nonstatutory stock options to a key employee
of GS2 pursuant to the acquisition of that subsidiary. The exercise of
the options is subject to performance requirements, a vesting schedule,
and continued employment. Options will be earned and vest in accordance
with a specified schedule of earnings targets to be achieved by GS2
during the three year period ended June 30, 2000. Compensation expense
will be recognized based on the number of shares earned and the market
price when earned. Once vested, the stock options are exercisable
through June 30, 2007 at a price of $19 per share.
Effective January 1, 1996 the Company adopted Statement of Financial
Accounting Standard No. 123, "Accounting for Stock-Based Compensation"
("SFAS 123"), which establishes a fair value based method of accounting
for stock options and similar awards. SFAS 123 allows companies to
continue using the intrinsic value method of accounting prescribed by
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued
to Employees" ("APB 25"). The Company has continued to account for
stock-based compensation plans under APB 25.
The pro forma disclosure of net income and earnings per share as if the
fair value based accounting method in SFAS 123 had been used is
presented below. The Black Scholes option pricing model was used in all
calculations.
<TABLE>
<CAPTION>
Pro forma amounts for: The year ended December 31,
1997 1996 1995
<S> <C> <C> <C>
Income from continuing
operations $252,697 $2,958,984 $3,238,537
Income from discontinued
operations - 669,973 716,380
Net income $252,697 $3,628,957 $3,954,917
Per share data:
Income from continuing
operations $ .11 $1.25 $1.36
Income from discontinued
operations - .28 .30
Basic earnings per share $ .11 $1.53 $1.66
Income from continuing
operations $ .10 $1.22 $1.35
Income from discontinued
operations - .28 .30
Diluted earnings per share $ .10 $1.50 $1.65
</TABLE>
Weighted average significant assumptions under Black Scholes:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Risk-free interest rate 6.29% 5.70% 6.55%
Dividend yield 5.10% 5.20% 5.20%
Stock price volatility 13.75% 20.60% 20.60%
Option life (in years) 4.7 10.0 2.0
Weighted average fair values
at grant date:
Stock options granted $2.19 $2.86 *
Stock purchase options awarded $1.16 * $1.43
</TABLE>
* Not applicable
(12)Net Capital Requirements and Customer Reserve Accounts -
As registered broker-dealers, BCZ, ZTT, and GS2 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 net capital
rule is liquidity, requiring a broker-dealer to have sufficient liquid
assets at all times to cover current indebtedness. Specifically, the
net capital rule prohibits a broker-dealer from permitting "aggregate
indebtedness" to exceed 15 times "net capital" (15 to 1) as those terms
are defined.
Approximate net capital data as of December 31, 1997, is as follows:
<TABLE>
<CAPTION>
BCZ ZTT GS2
<S> <C> <C> <C>
Aggregate indebtedness $33,056,000 $1,694,000 $617,000
Net capital $11,454,000 $2,041,000 $609,000
Ratio of aggregate
indebtedness to net capital 2.89 to 1 .83 to 1 1.01 to 1
Required net capital $ 2,204,000 $ 250,000 $ 100,000
</TABLE>
In accordance with Securities and Exchange Commission Rule 15c3-3, BCZ
and ZTT maintain separate bank accounts for the exclusive benefit of
customers. The amounts maintained in these accounts are determined by
periodic computations required under the rule, which allows the
companies to maintain the computed amounts in cash or qualified
securities. As of December 31, 1997 and 1996, there were approximately
$ 6,483,000 and $4,473,000, respectively, in the customer reserve
accounts.
GS2 is exempt from Rule 15c3-3 of the Securities and Exchange Commission
under paragraph (k)(2)(ii) of that rule. Paine Webber Incorporated,
Wexford Clearing Services Corp., a division of Prudential Securities,
Inc., Pershing and Company, a division of Donaldson, Lufkin and Jenrette
Securities Corp. and Bear Stearns Securities Corp. served as clearing
brokers for GS2's securities transactions.
(13)Acquisition of Subsidiary -
On July 2, 1997, the Company acquired Glaisner, Schilffarth, Grande &
Schnoll, Ltd., a Milwaukee-based financial services holding company,
together with its broker-dealer subsidiary GS2. The acquisition expands
the securities related services of the Company, including, among others,
institutional brokerage, research, investment banking services, and
investment advisor selection and monitoring for high net worth
individuals and institutions. Total consideration paid in Company stock
at the date of acquisition was $1,375,000. Additional contingent
consideration, which would increase the purchase price and goodwill,
will be paid if performance targets are met during the three years
following the purchase. This additional contingent consideration may
consist of 72,366 additional shares of Company stock and cash. The
acquisition has been accounted for under the purchase method of
accounting and the consolidated financial statements include the results
of operations from the date of acquisition. Following the merger of
Glaisner, Schilffarth, Grande & Schnoll, Ltd. into the Company, GS2
survives as a new broker-dealer subsidiary of the Company. The pro
forma impact of the acquisition was not material to the Company.
(14) Discontinued Operations -
During 1996, the Company disposed of its lease financing segment,
primarily Ziegler Leasing Corporation (ZLC"). Effective December 20,
1996, the common stock of ZLC was sold to General Electric Capital
Corporation for cash of approximately $17,000,000. The sale resulted in
a loss of approximately $60,000 after taxes. Summary operating results
of discontinued operations for the years 1996 and 1995, excluding the
above loss, are as follows:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Revenues $9,412,000 $10,484,000
Income before income taxes $1,036,000 $ 1,066,000
Provision for income taxes $ 306,000 $ 350,000
Income from discontinued operations $ 730,000 $ 716,000
</TABLE>
(15) Segment Information -
Information about the Company's operations by major industry segment is
as follows:
<TABLE>
<CAPTION>
Year Ended December 31, 1997
Income (Loss) Total Depreciation
Revenues Before Taxes Assets Expense
<S> <C> <C> <C> <C>
Broker-dealer $51,943,433 $1,356,581 $119,771,043 $ 680,452
Hazardous waste
management 3,603,302 931,901 8,212,824 499,470
Real estate financing 514,271 282,784 2,085,055 -
Corporate and other 3,632,697 (2,016,029) 37,408,185 -
Consolidated $59,693,703 $ 555,237 $167,477,107 $1,179,922
</TABLE>
<TABLE>
<CAPTION>
Year Ended December 31, 1996
Income Total Depreciation
Revenues Before Taxes Assets Expense
<S> <C> <C> <C> <C>
Broker-dealer $41,168,130 $2,583,962 $ 74,713,756 $ 694,077
Hazardous waste
management 4,130,346 1,507,940 7,343,046 450,826
Real estate financing 199,303 20,550 2,366,665 -
Corporate and other 3,819,170 672,162 56,733,032 -
Consolidated $49,316,949 $4,784,614 $141,156,499 $1,144,903
</TABLE>
<TABLE>
<CAPTION>
Year Ended December 31, 1995
Income Total Depreciation
Revenues Before Taxes Assets Expense
<S> <C> <C> <C> <C>
Broker-dealer $37,679,955 $3,625,194 $ 54,259,872 $ 684,541
Hazardous waste
management 3,845,915 1,416,689 6,783,467 409,174
Real estate financing 295,117 122,420 4,438,944 -
Corporate and other 3,120,624 105,838 60,947,033 -
Consolidated $44,941,611 $5,270,141 $126,429,316 $1,093,715
</TABLE>
The industry segments above are each a separate company or group of
companies; therefore, all expenses and assets can be directly identified
with segment revenues. Substantially all revenues are derived from
transactions with unaffiliated parties in the United States.
(16) Commitments and Contingent Liabilities -
In the normal course of business, BCZ and GS2 enter into firm
underwriting commitments. To manage the off-balance sheet credit and
market risk exposure related to these commitments, BCZ attempts to
pre-sell the issues to its customers. BCZ and GS2 had no such
commitments outstanding at December 31, 1997 or 1996.
The Company leases office space under noncancellable lease agreements,
which allow for annual adjustments to the minimum lease payments to
reflect increases in actual operating costs. BCZ leases computer
equipment under noncancellable agreements. Minimum lease payments for
office space and computer equipment which extend through 2003, are:
<TABLE>
<CAPTION>
<S> <C>
1998 $1,718,000
1999 1,514,000
2000 1,334,000
2001 857,000
2002 636,000
2003 242,000
</TABLE>
Rental expense for 1997, 1996 and 1995 was $2,473,000, $2,382,000, and
$2,293,000, respectively.
WRR is subject to a consent order of the Wisconsin Department of Natural
Resources for further testing and surface water control of contaminants
in ground water underneath and adjacent to the plant site in Eau Claire,
Wisconsin.
WRR has disposed of wastes at other recycling sites, which may be added
to the National Priority List, and may be required to share in the cost
of the clean-up of these sites. As of December 31, 1997, WRR had been
identified as a potentially responsible party ("PRP") in connection with
three sites. For the first site, a payment of $138,000 was made in 1997
in response to an assessment by a steering committee of PRPs at the
site. WRR believes that the payment is sufficient to cover its
proportionate share of the current estimated costs to clean up the first
site. Release of WRR by the Environmental Protection Agency ("EPA")
will occur only after site work is completed and no further costs have
been determined. The estimated cost of cleaning up a second site is
approximately $7,000,000 based on current management estimates. Based
on the identification of other PRPs and the present interim allocation
schedule, WRR would be responsible for costs of approximately $420,000.
WRR was notified by the EPA that WRR is a PRP at a third site to which
WRR delivered materials from 1982 to 1985. In addition, a group of
major PRPs at the site has cross-complained against WRR and other PRPs,
requesting contributions for the cleanup costs. The case is pending in
a federal district court. WRR's review of the EPA's 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.
While WRR may be jointly and severally liable on all three sites,
management is not aware of circumstances which could lead to non-
performance by the other PRPs when viewed as a group. No potential
insurance recoveries have been accrued in the financial statements. The
reserve for accrued loss contingencies totaled $564,000 at December 31,
1997 and covers the costs related to the specific sites identified above
and other ongoing environmental matters. It is possible that WRR's
estimates of its liability related to the clean-up of these sites may
change materially in the future.
(17) Provision for Losses -
Included in Notes Receivable are approximately $2.4 million of loans
receivable, a portion of which management believes may not be
collectible. In recognition of that information, management recognized
a $2.25 million charge to write down the receivables to estimated net
realizable value. Additionally management recognized a $250,000 charge
to writedown lease receivables included in Investment in Leases and
Notes Receivable.
BCZ was a party to a class action lawsuit involving the underwriting of
two bond issues in May of 1989 which totaled $11,680,000 (the "Bonds").
The Bonds were issued to construct a retirement facility. In 1992,
there was a default on the Bonds, which resulted in a significant loss
of principal and interest by the bondholders. Admitting no liability
with respect to the matters alleged in the lawsuit, management reached a
settlement with the class of plaintiffs as the best means to manage the
uncertainty and expense of protracted litigation and to limit the
diversion of management time. The settlement, which was in the amount
of $1,400,000 was expensed, judicially approved and paid in 1997.
(18) Fair Value of Financial Instruments -
Statement of Financial Accounting Standard No. 107, "Disclosure about
Fair Value of Financial Instruments" ("SFAS 107") requires that the
Company disclose the fair value of financial instruments for both assets
and liabilities for which it is practicable to estimate that value.
Where readily available, quoted market prices were utilized by the
Company. If quoted market prices were not available, fair values were
based on estimates using present value or other valuation techniques.
These techniques were significantly affected by the assumptions used,
including the discount rate and estimates of future cash flows. The
calculated fair value estimates, therefore, cannot be substantiated by
comparison to independent markets and, in many cases, could not be
realized in immediate settlement of the instrument. SFAS 107 excludes
certain financial instruments and all nonfinancial instruments from its
disclosure requirements. Accordingly, the aggregate fair value amounts
presented do not represent the underlying value of the Company.
The book values, estimated fair values and the methods and assumptions
used to estimate the fair value of the financial instruments of the
Company are reflected below as of December 31, 1997 and 1996.
Cash and cash equivalents -
The carrying values of cash and cash equivalents approximate the fair
values for those amounts. For purposes of SFAS 107, cash and securities
in customer reserve accounts are considered cash and cash equivalents.
Securities inventory -
The carrying value of securities inventory approximates the fair value
based on quoted market prices.
Notes receivable -
The carrying value of notes receivable approximates the fair value based
on a discounted cash flow analysis. The discount rates were based on
the Company's current loan rates.
Short-term notes payable -
The carrying value of short-term notes payable approximates the fair
value, which was determined, based on current market rates offered on
notes with similar terms and maturities.
Notes payable to banks -
The carrying value of notes payable to banks approximates the fair
value, which was determined, based on current market rates offered on
notes with similar terms and maturities.
Bonds payable -
The carrying value of bonds payable approximates the fair value, which
was determined based on current market rates offered on bonds with
similar terms and maturities.
(19) Earnings per Share -
Statement of Financial Accounting Standard No. 128, "Earnings per
Share", specifies the computation, presentation, and disclosure
requirements for earnings per share ("EPS") and replaces primary and
fully diluted EPS with basic and diluted EPS. The Company has restated
all previously reported per share amounts to conform to the new
presentation.
The following reconciles the numerators and denominators of the basic
and diluted EPS computations for income from continuing operations:
<TABLE>
<CAPTION>
For the Year Ended December 31,
1997 1996 1995
<S> <C> <C> <C>
Income from continuing
operations $353,737 $2,974,714 $3,327,941
Basic
Weighted average shares
outstanding 2,387,713 2,377,138 2,381,600
Basic earnings per share $ .15 $1.25 $1.40
Diluted
Weighted average shares
outstanding -
Basic 2,387,713 2,377,138 2,381,600
Effect of dilutive securities:
Stock options 40,442 20,341 11,752
Restricted stock 29,589 22,044 10,636
Weighted average shares
outstanding -
Diluted 2,457,744 2,419,523 2,403,988
Diluted earnings per share $ .14 $1.23 $1.38
</TABLE>
Options to purchase 50,000 shares of common stock at $19 per share were
outstanding during the second half of 1997 but were not included in the
computation of diluted EPS because the performance requirements for
exercise of the options had not been met as of December 31, 1997. The
options, which expire on June 30, 2007, were still outstanding at
December 31, 1997.
<PAGE>
Report of Independent Public Accountants
To the Stockholders and the Board of Directors of
The Ziegler Companies, Inc.:
We have audited the accompanying consolidated balance sheets of THE ZIEGLER
COMPANIES, INC. (a Wisconsin corporation) and subsidiaries as of December
31, 1997 and 1996, and the related consolidated statements of income,
stockholders' equity and cash flows for each of the three years in the
period ended December 31, 1997. These financial statements are the
responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of The Ziegler Companies,
Inc. and subsidiaries as of December 31, 1997 and 1996, and the results of
their operations and their cash flows for each of the three years in the
period ended December 31, 1997, in conformity with generally accepted
accounting principles.
/s/ Arthur Andersen LLP
ARTHUR ANDERSEN LLP
Milwaukee, Wisconsin,
February 6, 1998.
<PAGE>
Management's Discussion and Analysis of
Financial Conditions and Results of Operations
Results of Operations (Comparison of Years 1997, 1996 and 1995)
The "Company," consisting of The Ziegler Companies, Inc. and its
subsidiaries, is a financial services company whose principal activities are
providing investment banking, retail/institutional sales and trading and
asset management services. The Company's investment banking services are
the underwriting and marketing of debt securities for the health care
industry, nonprofit senior living providers, and for churches and private
schools, as well as providing financial advisory services. The Company also
provides full-service and reduced-commission brokerage services, investment
management and advisory services, equity and fixed income primary and
secondary trading, sales of complex financial instruments on an agency
basis, and Federal Housing Administration loan origination in conjunction
with investment banking activities. The nonfinancial services of the
Company are pollution abatement, as well as the recycling, reclaiming and
disposing of chemical wastes. The Company has discontinued its operations
in the area of equipment leasing services to the health care industry and
commercial/industrial customers as the result of the sale of its leasing
subsidiary, Ziegler Leasing Corporation, on December 20, 1996. The impact
of discontinued operations is limited to 1996 when substantially all of such
operations were sold.
Total revenues of the Company in 1997 were $59,694,000 compared to
$49,317,000 in 1996, an increase of $10,377,000 or 21%. The revenues from
continuing operations for 1996 reflected an increase of $4,375,000 or 10%
over revenues from continuing operations of $44,942,000 in 1995. Expenses
of the Company in 1997 were $59,138,000 compared to $44,532,000 in 1996, an
increase of $14,606,000 or 33%. The expenses of continuing operations in
1996 reflected an increase of $4,860,000 or 12% over expenses of continuing
operations of $39,672,000 in 1995. The provisions for income taxes related
to continuing operations were $202,000 in 1997, $1,810,000 in 1996, and
$1,942,000 in 1995. The statutory federal income tax rate applicable to the
Company was 34% in each of the three years. Net income of the Company in
1997 was $354,000 compared to $2,975,000 from continuing operations in 1996,
a decrease of $2,621,000 or 88%. The net income from continuing operations
in 1996 reflected a decrease of $353,000 or 11% from net income from
continuing operations of $3,328,000 in 1995. Net income from discontinued
operations, which is net of applicable income taxes, was $670,000 in 1996
and $716,000 in 1995. Basic earnings per share from continuing operations
were $.15, $1.25, and $1.40 in 1997, 1996, and 1995, respectively. Total
basic earnings per share from continuing and discontinued operations were
$.15, $1.53, and $1.70 in 1997, 1996, and 1995, respectively. The changes
in revenues, operating expenses, and net income from continuing operations
were primarily a reflection of factors related to investment banking and
broker-dealer 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.
Investment Banking, Broker-Dealer and Asset Management Activities
B. C. Ziegler and Company ("BCZCO"), the principal investment banking and
broker-dealer subsidiary of the Company, had total revenues of $38,697,000
in 1997 compared to $33,278,000 in 1996, an increase of $5,419,000 or 16%.
The increase was primarily due to an increase in underwriting revenues of
$4,016,000, or 22% to $22,437,000 and an increase in commission income of
$1,369,000, or 22% to $7,509,000. Trading profits, interest and dividend
income, insurance agency and other revenues did not change significantly.
Total expenses of BCZCO were $39,533,000 in 1997 compared to $32,387,000 in
1996, an increase of $7,146,000 or 22%. Employee compensation and benefits
increased $3,718,000 in 1997 to $25,045,000 due to higher sales volumes, as
well as an increase in investment banking-related personnel. Promotional
expenses increased $620,000 or 32% as overall marketing activities
increased. A provision for losses was recorded for a litigation settlement
of $1,400,000 related to a defaulted bond issue underwritten by BCZCO in
1989. Interest expense also increased $621,000 or 178% primarily due to
increased inventory related to variable rate demand note remarketing
activity and the related borrowing against credit facilities to finance the
inventory. The increases in total expenses in 1997 offset the increase in
total revenues resulting in a decline in net income of $1,187,000 to a loss
of $491,000 in 1997 as compared to net income of $696,000 in 1996.
BCZCO total revenues in 1996 of $33,278,000 increased $1,239,000 or 4% from
revenues of $32,039,000 in 1995. Revenues from investment banking and
commission income increased $2,056,000 or 9% to $24,563,000. A slight
decline in trading profits included in investment banking and commission
income offset the above increases. Other revenues decreased $906,000
primarily due to a reduction in management fee income due to the transfer of
investment advisory business to Ziegler Asset Management, Inc., an
affiliated entity. Interest and dividend income increased $139,000, while
insurance agency revenues did not change significantly.
Total expenses of BCZCO were $32,387,000 in 1996 compared to $29,592,000 in
1995, an increase of $2,795,000 or 9%. Employee compensation and benefits
increased $2,387,000 in 1996 to $21,327,000. The increase was primarily due
to incentive and commission-based compensation expense associated with
higher sales volumes and a changed commission structure, as well as an
increase in investment banking-related personnel and office locations.
Promotional expenses increased $299,000 as overall marketing activities
increased. Occupancy and equipment expenses increased $193,000 as the
result of increased office locations and expenses for technology. The
increases in total expenses in 1996 offset the increase in total revenues
resulting in a decline of $859,000 in net income to $696,000 in 1996 from
$1,555,000 in 1995, a decrease of 55%.
Ziegler Thrift Trading, Inc. ("ZTT"), the reduced-commission brokerage
service of the Company, had total revenues in 1997 of $5,823,000 compared to
$5,440,000 in 1996, an increase of $383,000 or 7%. Commission income, the
primary source of revenues, increased $140,000 to $4,784,000 in 1997, a 3%
increase. The balance of the increase in total revenues is due to increases
in fee-based income associated with handling, IRA and stock option trading
fees. Total expenses of ZTT in 1997 were $4,441,000 compared to $4,110,000
in 1996, an increase of $331,000 or 8%. Employee compensation and benefits
increased $112,000 in 1997 to $2,334,000 primarily as the result of an added
sales location in Wisconsin and additional sales support personnel. The
balance of the increase in expenses is primarily due to increased promotion
and communication costs associated with added advertising and added office
locations, respectively. The resulting net income in 1997 was $856,000
compared to $824,000 in 1996, an increase of $32,000 or 4%.
Ziegler Thrift Trading, Inc. had total revenues in 1996 of $5,440,000
compared to $4,434,000 in 1995, an increase of $1,006,000 or 23%.
Commission income increased $620,000 to $4,644,000 in 1996 a 15% increase.
The increase in commission income was due to a 12% increase in trading
volume and a 3% increase in average commissions received on each trade. The
balance of the increase in total revenues was due to increases in fee-based
income associated with handling, IRA and stock option trading fees. Total
expenses of ZTT in 1996 were $4,110,000 compared to $3,341,000 in 1995, an
increase of $769,000 or 23%. Employee compensation and benefits increased
$404,000 in 1996 to $2,222,000 primarily as the result of added sales
locations in Illinois and additional sales support personnel. The balance
of the increase in expenses was primarily due to increased promotion and
communication costs associated with added advertising and added office
locations, respectively. The resulting net income in 1996 was $824,000
compared to $677,000 in 1995, an increase of $147,000 or 22%.
GS2 Securities, Inc. ("GS2"), an equity investment banking, research and
asset management, and broker-dealer business, had total revenues of
$4,277,000 since its purchase by the Company on July 2, 1997. Its primary
sources of revenue were investment advisory fees of $2,167,000 and
commission income of $1,247,000. Other sources of revenue include trading,
investment banking and fee income. Total expenses of GS2 were $3,958,000.
The largest expense categories were employee compensation and benefits of
$1,778,000 and brokerage commission and clearing fees of $1,546,000. Net
income for GS2 was $171,000 in 1997.
Ziegler Asset Management, Inc. ("ZAMI"), the asset management services
subsidiary of the Company, had total revenues of $3,494,000 in 1997,
compared to $2,888,000 in 1996, an increase of $606,000 or 21%. This
increase was primarily due to increases in management fee income associated
with increased assets under management. Assets under management increased
to approximately $1.1 billion at the end of 1997 from approximately $900
million at the end of 1996. Total expenses of ZAMI were $3,003,000 in 1997
compared to $2,524,000 in 1996, an increase of $479,000 or 19%. Employee
compensation and benefits increased $415,000 or 33% to $1,664,000 due to the
additional personnel associated with the increased level of assets under
management. Net income for ZAMI in 1997 was $274,000 compared to $202,000
in 1996, an increase of $72,000 or 36%.
Ziegler Asset Management, Inc. had total revenues of $2,888,000 in 1996
compared to $1,479,000 in 1995, an increase of $1,409,000 or 95%. This
increase was primarily due to increases in management fee income associated
with the transfer of investment advisory services to ZAMI from BCZCO, which
was a significant factor in the increase of assets under management to
approximately $900 million at the end of 1996 from $587 million at the end
of 1995. Total expenses of ZAMI were $2,524,000 in 1996 compared to
$1,393,000 in 1995, an increase of $1,131,000 or 81%. Employee compensation
and benefits increased $422,000 or 51% to $1,249,000 due to the additional
personnel associated with the increased level of assets under management.
Other expenses also increased $424,000 due to the reimbursement of
management fees by ZAMI under expense reimbursement agreements with money
market and mutual funds whose assets ZAMI manages, some of which relates to
the transfer of services noted earlier. The balance of the increase in
expenses is primarily related to increased promotional expenses and a
$145,000 increase in fees paid to sub-advisors in 1996. The resulting net
income from ZAMI in 1996 was $202,000 compared to $48,000 in 1995, an
increase of $154,000.
Nonfinancial Services
WRR Environmental Services Co., Inc. ("WRR") is in the business of providing
pollution abatement services, blending virgin chemicals on a contract basis
for manufacturing firms, and recycling, reclaiming and disposing of chemical
wastes. WRR is also engaged in the sale, installation and servicing of
truck equipment through a wholly-owned subsidiary that purchased the land,
buildings, equipment and certain inventories of a company located adjacent
to WRR in October 1995. Total gross revenues in 1997 were $12,415,000
compared to $13,957,000 in 1996, a decrease of $1,542,000 or 11%. The total
gross margin for WRR and its subsidiary was $3,463,000 in 1997 compared to
$4,013,000 in 1996, a decrease of $550,000 or 14%. The gross margin
percentage in 1997 was 28% compared to 29% in 1996. A decrease in
remediation, field and emergency response services was the primary reason
for the decline in gross revenues and gross margin. Total expenses of WRR
in 1997 were $2,664,000 compared to $2,622,000 in 1996, an increase of
$42,000 or 2%. The resulting net income for WRR in 1997 was $591,000
compared to $948,000 in 1996, a decrease of $357,000 or 38%.
Total gross revenues of WRR in 1996 were $13,957,000 compared to $13,502,000
in 1995, an increase of $455,000 or 3%. The increase in gross revenues was
due to an increase in truck servicing subsidiary revenues of $1,385,000
reflecting a full year of operations. This increase is offset by a decrease
in WRR revenues primarily due to a reduction in remediation services. The
total gross margin for WRR and its subsidiary was $4,013,000 in 1996
compared to $3,762,000 in 1995, an increase of $251,000 or 7%. The gross
margin percentage in 1996 was 29% compared to 28% in 1995. These increases
reflected the higher sales volumes and a change in the mix of sales at WRR
to higher margin services. Total expenses of WRR in 1996 were $2,622,000
compared to $2,429,000 in 1995, an increase of $193,000 or 8%. Expenses
associated with the truck servicing subsidiary increased $272,000 reflecting
a full year of operations. This increase was offset by a reduction in sales
and marketing expenses at WRR. The resulting net income for WRR in 1996 was
$948,000 compared to $918,000 in 1995, an increase of $30,000 or 3%.
Other Financial Services
The Company's other financial services are primarily provided through
Ziegler Financing Corporation ("ZFC"),First Church Financing Corporation
("FCFC"), Ziegler Collateralized Securities, Inc. ("ZCSI"), Ziegler Capital
Company, LLC ("ZCC") and to a limited extent by The Ziegler Companies, Inc.
("ZCO"). ZFC provides construction financing and interim lending, primarily
to investment banking clients, and is also qualified to originate federally
insured mortgage loans for the Federal Housing Administration ("FHA"). FCFC
was organized for the purpose of issuing mortgage-backed bonds
collateralized by first mortgages on church buildings and properties. ZCSI
facilitated 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. ZCC was formed for the purpose of
acquiring, owning, financing and otherwise dealing with subordinated,
participating mortgages secured by senior living facilities.
Other financial service revenues primarily consist of interest income, lease
income and mortgagee fees. Total revenues in 1997 of $4,611,000 increased
$425,000 or 10% from revenues from continuing operations of $4,186,000 in
1996. The increase was primarily due to higher interest income which
increased $407,000 from $2,783,000 in 1996 to $3,190,000 in 1997 or 15% and
mortgagee fees which increased to $430,000 in 1997 compared to $105,000 in
1996. Total expenses were $6,344,000 in 1997 compared to $3,504,000 in
1996, an increase of $2,840,000 or 81%. The increase was primarily related
to a provision for losses of $2,250,000 related to the collectibility of
loans recorded by ZCO. See the Liquidity and Capital Resources section for
further discussion. Interest expense associated with borrowings by a number
of these companies decreased from $2,549,000 in 1996 to $2,459,000 in 1997
or 3%. The net loss from other financial services was $1,040,000 in 1997,
compared to net income from continuing operations for other financial
services of $313,000 in 1996.
Other financial service revenues from continuing operations of $4,186,000 in
1996 increased $619,000 or 17% from revenues of $3,567,000 in 1995. The
increase was primarily due to higher interest income which increased from
$2,272,000 in 1995 to $2,783,000 in 1996 or 22%. Total expenses were
$3,504,000 in 1996 compared to $3,330,000 in 1995, an increase of $174,000
or 5%. The increase was primarily related to higher interest expense of
$2,549,000 in 1996 as compared to $2,287,000 in 1995. Net income from
continuing operations for other financial services was $313,000 in 1996
compared to $139,000 in 1995.
Liquidity and Capital Resources
The Company's primary activities involve investment banking, retail and
institutional securities brokerage, other financial services and
environmental services. Capital expenditures for assets were relatively
insignificant during the year ended December 31, 1997. Land, buildings and
equipment, net of related depreciation and amortization, was 6% of total
Company assets. In 1997 the Company began modifying its computer systems
and outsourcing various activities to address the Year 2000 issue.
Anticipated spending for these modifications will be expensed as incurred
and is not expected to have a significant impact on the Company's ongoing
results of operations. The Company expects to have its primary computer
systems Year 2000 compliant by the second quarter of 1999.
The Company has a continuing requirement for cash to finance its activities.
A significant 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 1997, a total of $74,707,000 of notes was issued and $72,872,000
was repaid. In 1996, a total of $80,329,000 of notes was issued and
$85,590,000 was repaid. In 1995, a total of $94,452,000 of notes was issued
and $95,778,000 was repaid. The total balance of short-term notes
outstanding was $15,034,000 as of December 31, 1997, compared to $13,246,000
as of December 31, 1996, and $18,394,000 as of December 31, 1995. This
source of additional cash was used primarily to finance lending activity and
securities inventory.
ZCSI issued bonds to the public as a source of cash prior to 1997. No new
bonds have been issued in 1997 nor does the Company contemplate issuing
bonds from this subsidiary in the future. During 1997, ZCSI redeemed
$5,473,000 of bonds which matured and $335,000 of bonds which were called.
During 1996, ZCSI issued $5,000,000 of bonds to the public, and redeemed
$4,565,000 of bonds which matured and $1,203,000 of bonds which were called.
During 1995, ZCSI issued $7,200,000 of bonds to the public, and redeemed
$4,335,000 of bonds which matured, and $317,000 of bonds which were called.
Total bonds outstanding at December 31, 1997, 1996 and 1995 were $8,829,000,
$14,302,000 and $15,070,000, respectively. The bonds are due serially from
January 1998 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 issued bonds to the public as a source of cash prior to 1997.
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 2010. During 1997, FCFC did not issue
any bonds and redeemed $1,219,000 of bonds which were called. During 1996,
FCFC did not issue any bonds to the public and redeemed $1,592,000 of bonds
which were called. During 1995, FCFC issued $4,223,000 of bonds to the
public and redeemed $940,000 of bonds which were called. Total bonds
outstanding at December 31, 1997, 1996 and 1995, were $9,086,000,
$10,305,000 and $11,897,000, respectively.
BCZCO, through its Ziegler Securities Division ("ZSD") acts as remarketing
agent for approximately $1.6 billion of variable rate demand municipal
securities which ZSD previously underwrote. The securities are repayable at
the option of the holder on relatively short notice, typically five business
days. The obligation of the municipal borrower to repay bond holder tenders
is, in substantially all cases, supported by a third party liquidity
provider, such as a commerical bank. In order to avoid utilizing the third
party liquidity provider, municipal borrowers contract with ZSD to remarket
tendered variable rate demand securities. In order to permit ZSD, acting as
remarketing agent, to purchase securities to be held in ZSD's inventory
pending successful remarketing to others, ZSD has arranged a committed,
secured line of credit for $70 million from a syndicate of banks, together
with substantial uncommitted lines.
BCZCO finances most activities from its own resources and also relies upon
unsecured lines of credit available through banking relationships and
intercompany borrowing, if necessary. Any utilization of these lines of
credit is generally repaid in less than 30 days. BCZCO also has broker loan
and other collateralized arrangements available through banking
relationships. At December 31, 1997, 1996 and 1995 amounts outstanding
under the credit facilities were $40,925,000, $21,628,000 and $11,402,000,
respectively.
ZTT and GS2 rely on unsecured lines of credit through their banking
relationships and intercompany borrowings to finance their activities. Any
utilization of those lines of credit is generally repaid in less than seven
days. At December 31, 1997, 1996 and 1995 ZTT had $-0-, $1,181,000 and $-0-
, respectively outstanding under the line of credit. At December 31, 1997,
GS2 had no borrowings outstanding under its line of credit.
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 money market funds and reverse
repurchase agreements at very short maturities in accordance with the
Company's liquidity requirements.
In 1996 the Company received approximately $17,000,000 as the purchase price
in cash at the closing of the sale of Ziegler Leasing Corporation. The
proceeds were reduced by the Federal tax payment related to the tax
liability associated with the sale of approximately $5,985,000. The net
proceeds of approximately $11,000,000 have been invested in short-term
securities until such time as management determines the final use of these
proceeds. If suitable reinvestment opportunities are not identified within
a reasonable period of time, a special distribution or a partial buyback of
the Company's common stock through open market purchases or a tender offer
may be effected.
During the third quarter of 1997 the Company became aware of negative
information about the credit status of its portfolio of auto loans, and a
related working capital loan receivable, having an aggregate outstanding
balance of approximately $2.9 million as of June 30, 1997. The auto loans
were purchased in 1995 and 1996 under a warehouse financing arrangement the
Company had with the originator of the sub-prime automobile loans. The
intent of the financing was to warehouse the loans until the originator or
others could securitize the loans, and sell the securitized loan portfolio
to investors. The working capital loan represented a line of credit the
Company provided the originator to facilitate the sale of several pools of
auto loans. During 1997, the Company recognized a $2.25 million pretax
charge to write down the loan receivables to estimated net realizable value.
The Company has not funded any auto loans or loaned any money under the line
of credit since August 1996, and began reducing its net position in its
warehouse of auto loan receivables at approximately that time. As of
December 31, 1997, the aggregate balance of the auto loan warehouse and
working capital loan receivable was approximately $2.4 million. The
decrease in the auto loan warehouse and the loan balance since June 30, 1997
is due to cash payments received on performing auto loans and the
application of various deposits from the originator against the loan
receivable. Actions have been taken to repossess the collateral on the
delinquent auto loans and pursue other legal remedies. Management does not
expect that additional write-offs related to these loan receivables will be
incurred.
In the opinion of management, the Company's capital resources and available
lines of credit are adequate for present and anticipated future operations.
<PAGE>
Five-Year Summary of Financial Data
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C>
Operating
Revenues $ 59,693,703 $ 49,316,949 $ 44,941,611 $ 36,451,820 $ 39,668,351
Income from
Continuing
Operations $ 353,737 $ 2,974,714 $ 3,327,941 $ 1,241,378 $ 3,455,466
Income from
Discontinued
Operations $ - $ 669,973 $ 716,380 $ 763,678 $ 1,075,558
Net Income $ 353,737 $ 3,644,687 $ 4,044,321 $ 2,005,056 $ 4,531,024
Basic earnings
per share:
Continuing
operations $ .15 $1.25 $1.40 $ .52 $1.45
Discontinued
operations $ - $ .28 $ .30 $ .32 $ .45
Net income per
share $ .15 $1.53 $1.70 $ .84 $1.90
Diluted earnings
per share:
Continuing
operations $ .14 $1.23 $1.38 $ .51 $1.44
Discontinued
operations $ - $ .28 $ .30 $ .32 $ .45
Net income per
share $ .14 $1.51 $1.68 $ .83 $1.89
Cash Dividends
Declared Per
Share of
Common Stock $ .82 $ .82 $ .87 $ .72 $1.07
Total Assets $167,477,107 $141,156,499 $126,429,316 $152,440,207 $110,266,350
Long-Term
Obligations $ 14,595,173 $ 20,642,689 $ 22,869,304 $ 17,174,242 $ 12,698,244
Short-Term
Notes Payable $ 15,033,913 $ 13,245,639 $ 18,394,420 $ 19,728,501 $ 19,322,467
End of Year
Shareholders'
Equity $ 52,294,656 $ 54,219,200 $ 52,241,998 $ 50,380,022 $ 49,951,855
Book Value
Per Share $21.58 $22.21 $21.48 $20.68 $20.96
</TABLE>
<PAGE>
Quarterly Consolidated Results of Operations for 1997 and 1996
<TABLE>
<CAPTION>
1997 Quarter Ended March 31 June 30 September 30 December 31
<S> <C> <C> <C> <C>
Revenues $ 9,719,000 $14,592,000 $15,508,000 $19,874,000
Expenses 12,409,000 12,163,000 17,089,000 17,477,000
Net Income (Loss) (1,618,000) 1,468,000 (939,000) 1,443,000
Basic Earnings Per Share $(.68) $ .61 $(.39) $ .61
Diluted Earnings Per Share $(.68) $ .60 $(.39) $ .59
</TABLE>
<TABLE>
<CAPTION>
1996 Quarter Ended March 31 June 30 September 30 December 31
<S> <C> <C> <C> <C>
Revenues $ 9,996,000 $10,576,000 $12,363,000 $16,382,000
Expenses 9,989,000 9,978,000 11,165,000 13,400,000
Income From
Continuing Operations 49,000 401,000 774,000 1,751,000
Income (Loss) From
Discontinued Operations 133,000 (66,000) 339,000 264,000
Net Income 182,000 335,000 1,113,000 2,015,000
Basic Earnings Per Share
Continuing Operations $ .02 $ .17 $ .33 $ .74
Discontinued Operations $ .06 $(.03) $ .14 $ .11
Net Income $ .08 $ .14 $ .47 $ .85
Diluted Earnings Per Share
Continuing Operations $ .02 $ .17 $ .32 $ .72
Discontinued Operations $ .06 $(.03) $ .14 $ .11
Net Income $ .08 $ .14 $ .46 $ .83
</TABLE>
<PAGE>
Directors and Executive Officers
DIRECTORS
J. C. Frueh
President, Aegis Group, Inc., Pittsburgh, Pennsylvania; Acquisition and
Management of Manufacturing and Distribution Companies
J. R. Green
Partner, Green, Manning & Bunch, Denver, Colorado; a Private Investment
Banking Firm
P. R. Kellogg
Senior Managing Director, Spear, Leeds & Kellogg; Specialist Firm on the New
York Stock Exchange
P. D. J. Kenny
Director of University Facilities - Mercer University, Macon, Georgia
S. A. Roell
Vice President and Chief Financial Officer, Johnson Controls, Inc.,
Milwaukee, Wisconsin
F. J. Wenzel
Professor of Medical Practice Management, University of St. Thomas Graduate
School of Business, Minneapolis, Minnesota; Advisor to the President,
Marshfield Clinic, Marshfield, Wisconsin
B. C. Ziegler III
President, Ziegler/Limbach, Inc., West Bend, Wisconsin; Business
Development, Management and Consulting
P. D. Ziegler
Chairman of the Board, President, and Chief Executive Officer
B. C. Ziegler
Director Emeritus
R. D. Ziegler
Director Emeritus
EXECUTIVE OFFICERS
P. D. Ziegler
Chairman of the Board, President, and Chief Executive Officer
S. C. O'Meara
Senior Vice President and General Counsel
D. A. Wallestad
Senior Vice President - Chief Financial Officer
J. C. Vredenbregt
Vice President, Treasurer and Controller
J. R. Yovanovich
Corporate Secretary
<PAGE>
OFFICERS AND
SUBSIDIARIES
B. C. Ziegler
and Company
P. D. Ziegler
Chairman of the Board,
President and Chief
Executive Officer
N. L. Fuerbringer
Senior Vice President-
Administration
S. C. O'Meara
Senior Vice President
and General Counsel
D. A. Wallestad
Senior Vice President-
Chief Financial
Officer
D. A. Carlson, Jr.
Senior Vice President
G. Aman
Vice President -
Insurance
R. G. Dalnodar
Vice President -
Operations
J. H. Downer
Vice President-
MIS Director
D. P. Frank
Vice President -
Director of Strategic
Planning and Change
S. K. Hittman
Vice President-
Personnel
R. J. Johnson
Vice President-
Compliance
R. C. Strzok
Vice President -
Administration
J. C. Vredenbregt
Vice President,
Treasurer and
Controller
M. A. Baumgartner
Vice President
S. A. Hron
Vice President
S. D. Rolfs
Vice President
T. S. Ross
Vice President
B. J. Bronson
Assistant Vice
President
H. C. Delcore
Assistant Vice
President
D. J. Hauser
Assistant Vice
President
B. A. Rahlf
Assistant Vice
President
J. R. Yovanovich
Corporate Secretary
K. A. Lochen
Assistant Secretary
Ziegler Investment
Division
R. J. Glaisner
President and Chief
Executive Officer
J. C. Wagner
Senior Vice President-
Retail Sales
M. P. Doyle
Senior Vice President
R. R. Poggenburg
Senior Vice President
R. N. Spears
Senior Vice President
R. J. Tuszynski
Senior Vice President
J. L. Brendemuehl
Vice President -
Managed Products
J. M. Bushman
Vice President -
Recruiting and
Training Coordinator
L. C. Rosenheimer
Vice President -
Retail Trading Group
C. G. Stevens
Vice President -
Marketing Director
T. P. Sancomb
Vice President
J. Ferrara, Jr.
Assistant Vice
President - Mutual
Funds
N. E. Harris
Assistant Vice
President
A. A. Struebing
Assistant Vice
President
Regional Vice
Presidents - Sales:
J. F. Cape
W. G. Morse
First Vice Presidents
- - Sales:
A. G. Frey
J. V. Noordyk
R. D. Ping
Vice Presidents -
Sales:
S. C. Bass
D. S. Bast
W. L. Bruss
J. O. Conwell
M. S. Donahoe
R. W. Eggebrecht
W. T. Epping
G. R. Knutson
L. D. Martin
P. D. O'Brien
D. J. Schoenwetter
C. D. Schrader
M. W. Severson
S. D. Steinke
W. R. Uebele
G. M. Wilson
Assistant Vice
Presidents - Sales:
G. C. Bravo
T. J. Fitzgerald
W. F. Gould
J. D. Klanderman
P. J. Krause
W. J. Langley
D. L. Peterson
M. B. Seiser
P. D. Voss
Ziegler Securities
Division
P. D. Ziegler
Chairman of the Board
D. A. Carlson, Jr.
President, Chief
Executive Officer and
Treasurer
J. M. Annett
Senior Vice President
and National Director
of Senior Living
Finance
S. R. Arnold
Senior Vice President
- - TFI Institutional
Sales
T. L. DiGaloma
Senior Vice President
- - TFI Institutional
Sales and Trading, New
York Sales Manager
C. W. Kearns
Senior Vice President
and Co-Manager of TFI
L. A. Lekai
Senior Vice President
- - TFI Institutional
Sales and Trading,
Chicago Sales Manager
M. P. McDaniel
Senior Vice President
and Director of Tax-
Exempt Sales and
Trading
J. J. O'Keefe
Senior Vice President
and Manager of New
York Office
T. R. Paprocki
Senior Vice President
and Director of
Capital Markets
P. C. Staaf
Senior Vice President
and Co-Manager of TFI
J. B. Sterns
Senior Vice President
and National Director
of Healthcare Finance
M. A. Baumgartner
Senior Vice President
D. J. Hermann
Senior Vice President
D. M. Rognerud
Senior Vice President
R. Cogswell
Managing Director -
Corporate Finance
J. W. Sweet
Managing Director -
Corporate Finance
T-E. Bockman-Pedersen
Vice President and
Senior High Yield Tax-
Exempt Trader
K. L. Brod
Vice President -
Director of Research,
Senior Living Finance
D. M. Collins III
Vice President - Sales
R. A. Conn
Vice President - Sales
T. J. Doyle
Vice President - Sales
D. H. Freed
Vice President - Sales
T. S. Howard
Vice President - Sales
S. A. Isaacson
Vice President - Sales
D. M. Kolzow
Vice President -
Operations
D. A. Korey
Vice President and
Director of Capital
Markets
J. A. Kramer
Vice President - Sales
J. LeBuhn
Vice President - Sales
J. J. Mitchell
Vice President -
Research
T. J. Sheehan
Vice President and
Co-Director of Special
Products Group
S. D. Smith
Vice President and
Co-Director of Special
Products Group
T. L. Brod
Vice President
M. O. Faragasso
Vice President
A. A. Hayman
Vice President
D. R. Hayes
Vice President
E. A. Jordahl
Vice President
M. J. Kane
Vice President
S. S. Manfrin
Vice President
R. K. Price
Vice President
P. P. Rizzo
Vice President
R. J. Scanlon
Vice President
M. L. Tomsons
Assistant Vice
President - Operations
E. K. Eng
Assistant Vice
President
A. Franklin
Assistant Vice
President
J. J. Lavelle
Assistant Vice
President
T. H. Meyers
Assistant Vice
President
C. M. Schellinger
Assistant Vice
President
S. M. Siegel
Assistant Vice
President
R. C. White
Assistant Vice
President
M. H. Hanley
Information Systems
and Technology Officer
J. C. Vredenbregt
Assistant Treasurer
Ziegler Financing
Corporation
S. C. O'Meara
President and General
Counsel
D. A. Wallestad
Vice President and
Treasurer
J. M. Annett
Vice President
M. O. Faragasso
Vice President
R. K. Price
Vice President
T. S. Ross
Vice President
J. R. Wyatt
Vice President
P. D. Ziegler
Vice President
J. R. Yovanovich
Corporate Secretary
J. C. Vredenbregt
Assistant Treasurer
Ziegler Thrift
Trading, Inc.
P. D. Ziegler
Chairman of the Board
D. P. Frank
President and Chief
Executive Officer
R. L. Kangrga
Vice President and
Assistant Secretary
M. W. Stefano
Vice President and
Treasurer
D. A. Wallestad
Vice President
J. R. Yovanovich
Corporate Secretary
J. C. Vredenbregt
Assistant Treasurer
WRR Environmental
Services Co., Inc.
J. L. Hager
President and Chief
Executive Officer
B. I. Heath
Senior Vice President
J. Y. Lee
Vice President -
Quality Control
D. M. Reali
Secretary - Treasurer
First Church Financing
Corporation
S. D. Rolfs
President
D. A. Wallestad
Secretary and
Treasurer
J. R. Yovanovich
Assistant Secretary
Ziegler Asset
Management, Inc.
P. D. Ziegler
Chairman of the Board
G. G. Maclay, Jr.
President and Chief
Executive Officer
M. J. Dion
Vice President -
Portfolio Manager and
Chief Investment
Officer
J. Ferrara, Jr.
Vice President -
Portfolio Manager and
Analyst
R. F. Patek
Vice President -
Portfolio Manager
D. R. Wyatt
Vice President -
Retirement Plans
W. E. Hansen
Vice President
D. L. Lauterbach
Vice President
T. P. Sancomb
Vice President
R. J. Tuszynski
Vice President
J. R. Wyatt
Vice President
R. D. Ziegler
Vice President
J. R. Yovanovich
Corporate Secretary
J. C. Vredenbregt
Treasurer
Ziegler Collateralized
Securities, Inc.
D. A. Wallestad
President
P. D. Ziegler
Vice President
J. R. Yovanovich
Corporate Secretary
J. C. Vredenbregt
Treasurer
GS2 Securities, Inc.
R. J. Glaisner
President and Chief
Executive Officer
R. A. Schilffarth
Executive Vice
President and
Secretary
H. M. Schnoll
Executive Vice
President and
Treasurer
D. I. Grande
Executive Vice
President
G. N. Bruck
Senior Vice President
and Chief Financial
Officer
M. B. Oster
Senior Vice President
Ziegler Capital
Company LLC
J. M. Annett
Chairman
D. A. Korey
Managing Director
E. M. Smith
Assistant Vice
President
T. S. Ross
Director of Research
DIVISION AND SUBSIDIARY OFFICES
B. C. Ziegler and Company
Corporate Headquarters
Ziegler Investment Division
215 North Main Street
West Bend, Wisconsin 53095-3348
(414) 334-5521
Investment Offices
Denver, Colorado
Orlando, Florida
Arlington Heights, Illinois
Rockford, Illinois
Springfield, Illinois
Indianapolis, Indiana
West Des Moines, Iowa
Minneapolis, Minnesota
St. Louis, Missouri
Portland, Oregon
Appleton, Wisconsin
Fond du Lac, Wisconsin
Fort Atkinson, Wisconsin
Green Bay, Wisconsin
Kenosha, Wisconsin
LaCrosse, Wisconsin
Madison, Wisconsin
Milwaukee, Wisconsin
Mequon, Wisconsin
Port Washington, Wisconsin
Sheboygan, Wisconsin
Wausau, Wisconsin
West Bend, Wisconsin
Insurance Office
West Bend, Wisconsin
Ziegler Securities Division
Division Headquarters
One South Wacker Drive
Suite 3080
Chicago, Illinois 60606-4617
(312) 263-0110
Division Offices
Walnut Creek, California
St. Petersburg, Florida
Indianapolis, Indiana
New York, New York
Washington, D.C.
Mequon, Wisconsin
Milwaukee, Wisconsin
West Bend, Wisconsin
<PAGE>
GS2 Securities, Inc.
250 East Wisconsin Avenue
Milwaukee, Wisconsin 53202
(414) 277-4400
Ziegler Asset Management, Inc.
215 North Main Street
West Bend, Wisconsin 53095-3348
(414) 334-5521
Fixed Income Division
250 East Wisconsin Avenue
Suite 1900
Milwaukee, Wisconsin 53202-4209
(414) 347-7300
Ziegler Capital Company LLC
1185 Avenue of the Americas
32nd Floor
New York, New York 10036
(212) 512-0450
Ziegler Financing Corporation
8100 Professional Place
Suite 312
Landover, Maryland 20785
(301) 918-9700
Ziegler Thrift Trading, Inc.
Corporate Headquarters
733 Marquette Avenue
Suite 106
Minneapolis, Minnesota 55402-2340
(612) 333-4206
Investment Offices
Minneapolis, Minnesota
St. Paul, Minnesota
Naperville, Illinois
Westchester, Illinois
Brookfield, Wisconsin
Ziegler Investment Services
670 McKnight Road North
Eastern Heights Bank Building
St. Paul, Minnesota 55119-4140
(612) 736-7974
WRR Environmental Services Co., Inc.
5200 State Road 93
Eau Claire, WI 54701-9808
(715) 834-9624
WRR Northwest Enterprises, Inc.
5100 State Road 93
Eau Claire, Wisconsin 54701
(715) 834-8426
<PAGE>
Investor Information
Corporate Offices
215 North Main Street
West Bend, Wisconsin 53095-3348
Annual Meeting
The annual meeting of shareholders will be held at 10:00 a.m., April 20,
1998 at the West Bend Inn, 2520 West Washington Street, West Bend,
Wisconsin.
Copies of the Form 10-K covering the fiscal year 1997 are available upon
request. Form 10-K is the Company's annual report filed with the Securities
and Exchange Commission, Washington, D.C. Shareholders wishing to receive a
copy, please write to:
The Ziegler Companies, Inc.
Attention: Janine R. Yovanovich
215 North Main Street
West Bend, Wisconsin 53095-3348
Market
The Ziegler Companies, Inc. common stock trades on the American Stock
Exchange. The range of bid and asked quotations during 1997 and 1996 was as
follows:
<TABLE>
<CAPTION>
1997 Bid Asked 1996 Bid Asked
<S> <C> <C> <S> <C> <C>
1st Quarter High 19-3/8 19-3/4 1st Quarter High 19-3/4 20
Low 16-1/2 16-7/8 Low 16-3/8 16-5/8
2nd Quarter High 18-5/8 19-1/8 2nd Quarter High 19-3/4 20-1/8
Low 17-3/4 18 Low 18-1/4 19-1/4
3rd Quarter High 23 23-3/8 3rd Quarter High 18-1/4 19-1/4
Low 18-1/8 18-1/2 Low 17-1/8 17-3/8
4th Quarter High 23-1/4 23-1/2 4th Quarter High 18-1/2 18-7/8
Low 20-3/4 21-1/4 Low 17-1/8 17-1/2
</TABLE>
Cash Dividends
Cash Dividends paid during 1997 and 1996 were as follows:
<TABLE>
<CAPTION>
Per Share 1997 1996
<S> <C> <C>
January $ .13 $ .13
Extra cash dividend .30 .35
April .13 .13
July .13 .13
October .13 .13
Total $ .82 $ .87
</TABLE>
Holders of record on January 9, 1998, were paid a regular cash dividend of
13 cents per share plus an extra cash dividend of 30 cents per share on
January 23, 1998.
Transfer Agent and Registrar
Firstar Trust Company
Corporate Trust Department
1555 North RiverCenter Drive, Suite 301
Milwaukee, Wisconsin 53212
Organization and Compensation Committee
John R. Green, Chairman
Stephen A. Roell
Frederick J. Wenzel
Audit Committee
John C. Frueh, Chairman
Peter R. Kellogg
Bernard C. Ziegler III
AMEX Symbol
ZCO
