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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2002
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________ to _________
Commission file number: 0-6237
THE ZIEGLER COMPANIES, INC.
(Exact name of registrant as specified in its charter)
Wisconsin 39-1148883
--------- ----------
State or other jurisdiction of (I.R.S. Employer
incorporation or organization Identification No.)
250 East Wisconsin Avenue, Suite 2000, Milwaukee, Wisconsin 53202
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(Address of principal executive offices)(Zip Code)
Registrant's telephone number, including area code: (414) 277-4400
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class Name of each exchange
------------------- on which registered
-------------------
Common Stock, $1.00 Par Value American Stock Exchange
----------------------------- -----------------------
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No _____
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act). Yes ___ No X
AGGREGATE MARKET VALUE OF VOTING AND NONVOTING STOCK HELD
BY NON-AFFILIATES OF THE REGISTRANT:
As of June 28, 2002, the aggregate market value of registrant's voting and
nonvoting common equity (based on the average of the bid and ask price of $15.10
on that date) excluding shares reported as beneficially owned by directors and
executive officers (which exclusion does not constitute an admission as to
affiliate status) was approximately $20.8 million.
As of March 14, 2003, approximately 2.18 million shares of Common Stock
were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Part of Form 10-K into Which Portions
Document of Document Are Incorporated
-------- --------------------------------------
Portions of Annual Report to Shareholders
for the calendar year ended December 31, 2002 Part II
Portions of Proxy Statement for the 2003
Annual Meeting of Shareholders Part III
PART I
ITEM 1. BUSINESS.
--------
General
The Ziegler Companies, Inc. (the "Parent" and, collectively with its wholly
owned and partially owned and controlled subsidiaries, the "Company") is a
financial services holding company incorporated under the laws of Wisconsin in
1993 which owns operating subsidiary companies in three segments -- Capital
Markets, Investment Services and Corporate. See Note 14 to the Company's
Consolidated Financial Statements for information concerning the Company's three
reportable segments. A list of the Company's subsidiaries is filed as Exhibit
21.1 to this Form 10-K. All of the companies are engaged in financial service
businesses. The Company's principal executive offices are located at 250 East
Wisconsin Avenue, Milwaukee, Wisconsin 53202 and its telephone number is (414)
277-4400. Previously the Company's executive offices were at 215 N. Main
Street, West Bend, Wisconsin 53095.
CAPITAL MARKETS SEGMENT
The Capital Markets segment underwrites fixed income securities primarily
for senior living and healthcare providers, religious institutions, and private
schools. Capital Markets' services also include financial advisory services,
merger and acquisition services, sales on an agency basis of complex financial
instruments for financial risk management, sales and trading of fixed income
securities and preferred stock, and Federal Housing Administration ("FHA")
mortgage loan origination. Capital Markets activities are conducted primarily
through B.C. Ziegler and Company ("BCZ"), except that Ziegler Financing
Corporation ("ZFC") conducts FHA mortgage loan origination activities. These
services are provided primarily to institutions, corporations, and
municipalities.
INVESTMENT SERVICES SEGMENT
The Investment Services segment consists of two operating units: Asset
Management and Wealth Management. On August 31, 2001, the Company disposed of
its Portfolio Consulting unit, PMC International, Inc. ("PMC"), previously a
third operating unit. The Company still offers portfolio consulting services
through the broker distribution network of its Wealth Management business using
Company resources as well as third party providers. Asset Management provides
investment advisory services to Company-sponsored mutual funds, the North Track
Funds, and private accounts for institutional and individual clients. Wealth
Management provides a wide range of financial products and financial planning
services to retail clients through its broker distribution network, including
equity and fixed-income securities, proprietary and non-affiliated mutual funds,
annuities and other insurance products. Wealth Management is the primary retail
distribution channel for religious institution and private school bonds and
other taxable and tax-exempt bonds underwritten by the Capital Markets segment.
Allocated sales credits associated with underwritten offerings are reported in
the Investment Services segment when sold through the Company's retail
distribution channels. Asset Management and Wealth Management activities are
conducted through BCZ. Prior to the merger of Ziegler Asset Management, Inc.
into BCZ on January 1, 2001, Asset Management activities were conducted through
Ziegler Asset Management, Inc.
CORPORATE SEGMENT
The Corporate segment consists primarily of the investment and debt
management activities of the Parent and BCZ's unallocated corporate
administrative activities. Certain corporate administrative costs are allocated
to the Capital Markets and the Investment Services segments using methodologies
which consider the size of the operation, the extent of administrative services
provided, the number of personnel, and other relevant factors. Corporate
segment investment activity includes the Company's share of the operations of
Ziegler Healthcare Fund I, LP ("ZHF"), a small business investment company
("SBIC") that is in the business of originating and making subordinated loans to
qualified small businesses, primarily for-profit long-term care companies;
Ziegler Healthcare Capital, LLC ("ZHC"), the management company of ZHF; and ZHP
I, LLC ("ZHP"), the general partner of ZHF. The Company has an 11% ownership
share, is the general partner through ZHP, and exercises significant control in
ZHF and wholly owns ZHC and ZHP. The Company also owns 67% of Ziegler Equity
Funding I, LLC ("ZEF") a private equity fund whose purpose is to provide funding
for the pre-finance development needs of developmental stage continuing care
retirement communities. The Corporate segment includes the Company's share of
the
operations of ZEF. ZEF is 33% owned by qualified officers and employees of
the Company. Each of these companies is consolidated into the Company's
financial statements.
DISPOSITIONS
In August, 2001, the Company exchanged its 100% interest in PMC, its
Denver-based managed account and performance reporting services subsidiary, for
a minority interest in The EnvestNet Group, Inc. ("EnvestNet"). In exchange for
the Company's interest in PMC, the Company received 9,681,784 shares of common
stock of EnvestNet valued at $9,500,000. EnvestNet also assumed $8,000,000 in
debt owed to the Company. EnvestNet paid $3,500,000 of the debt at closing and
$1,500,000 of the debt on August 31, 2002. An additional $3,000,000 was
originally scheduled to be paid August 31, 2003. In January 2003, the
$3,000,000 note due August 31, 2003 was amended to accelerate the payment of
accrued interest, and provide for the payment of $1,000,000 on August 31, 2003,
and $2,000,000 on August 31, 2004. Interest on the amended $3,000,000 note will
remain at 12% and be paid monthly. EnvestNet has experienced slower growth than
originally projected due to the continued decline in the equity markets and its
effect on the value of assets under administration. These decreases caused
lower than anticipated revenues and cash flows at EnvestNet. EnvestNet
requested the Company to extend the maturity on part of its note and has
obtained additional capital from existing and outside investors. This
additional capital was provided to EnvestNet in exchange for preferred stock at
a price that was above the current carrying value of the Company's common stock
investment in EnvestNet. The Company did not participate in the additional
capital contributions to EnvestNet.
In the process of recording the disposition of PMC, the Company recorded a
gain in 2001 of $1,399,000 as the result of the receipt of cash at closings and
a gain of $600,000 in 2002 as the result of the receipt of the payment of the
note due in 2002. Additional gains of $400,000 and $799,000 may be recorded in
2003 and 2004, if the amended note is paid as currently scheduled, and there is
no requirement to adjust the valuation of the common stock. The remaining
deferred gain of $3,797,000 would be recognized upon the disposition of the
EnvestNet common stock, or at such time as the uncertainty of the valuation of
the common stock is removed. Management has no reason to believe that the value
of the common stock has changed. The investments in EnvestNet, including both
the note and common stock, are subject to various risks including, but not
limited to the cash requirements of EnvestNet's operations, competition in its
marketplace, equity market valuations, employee recruitment and retention, and
other factors. Given the level of risks, it is possible that changes in the
value of these investments may occur in the future and the deferred gain may
have to be adjusted downward or, if significant, the recording of a loss may be
required.
In conjunction with the receipt of EnvestNet stock, the Company became
party to an EnvestNet shareholders' agreement. The shareholders' agreement
restricts the Company's ability to sell its interest in EnvestNet. The Company
owns less than 20% of the common stock of EnvestNet at December 31, 2002, and
does not exert significant influence over EnvestNet.
The financial results of PMC, which include all revenues and expenses prior
to the disposition, are included as part of the Investment Services segment.
The gain on the sale of PMC is reported in the Corporate segment.
BUSINESS FACTORS
The general level of interest rates, the prospects for a general economic
recovery and economic growth, valuations in the equity markets, and many other
economic factors impact the investment and financing decisions of the Company's
customers, both institutional and retail. In 2002, investment banking activity
in the form of bond underwriting and sales by the Capital Markets segment was at
its highest level in the past three years as the result of favorable market
factors. The reductions in prevailing interest rates, the growing need for
senior housing, and, to some extent, the desire to refinance higher interest
rate debt contributed to the increased bond underwriting volumes in 2002.
Favorable economic factors do not generally result in an immediate increase in
bond underwriting volume and do not guarantee that bond underwriting volumes
will remain high. The bond underwriting projects completed in 2002 were
generally started in previous years and finalized in 2002. The Company
currently has a modest "pipeline" of bond underwriting projects, but these
projects may be affected by changes in these and other factors. Historically,
the Company experiences uneven bond underwriting activity during the year. In
general, the Company's underwriting activity (which is only part of the Capital
Markets segment) is slower during the early months of the year and higher levels
of activity are experienced in later months as issuers attempt to finalize
financing activity before the end of the calendar year. Given the sometimes
sporadic timing of the completion of underwriting projects, the demand for new
bond issues can change quickly when changes occur in economic or political
conditions. Complementary services of the Capital Markets segment are
frequently performed coincident or in conjunction with bond underwritings and
may follow similar patterns. Other activities such as FHA mortgage loan
origination may actually diminish during a low interest rate environment with
the increased availability of other low interest borrowing alternatives to
clients.
The Investment Services segment was also affected by economic and market
circumstances. The decreasing valuations in the equity markets provided a
significant demand for the Company's underwritten bonds from retail clients,
especially taxable church and school bonds that are sold exclusively to the
Company's retail clients. However, the sale of other investment products, such
as mutual funds and equities, suffered under the same economic circumstances.
The sluggish economy, the lingering uncertainty related to the September 11,
2001 terrorist attacks, the war in Iraq, and the uncertain global political
environment have all served to diminish retail clients' overall investment
activity.
The Asset Management business suffered from the decline in equity market
values. Fees for this business unit are generally charged as a percentage of
the value of assets under management. As the market value of the assets under
management declines, fees decline also. The Company experienced success in
marketing its mutual funds and its separate account asset management business,
but was only able to offset the reductions in assets under management due to
market value decreases and asset outflows.
The Corporate segment was affected primarily by the decline in interest
rates and the reduction in investments. The Company's substantial investment in
collateralized mortgage obligations ("CMOs"), whose interest rates are
relatively high compared to current market rates, were subject to an increase in
prepayments during 2002 over previous years. Because of the higher rates on the
CMOs as compared to the cost of financing, the reduction in principal will
reduce the net interest income earned by the Company from this arrangement. An
increase in short-term borrowing rates would further reduce net interest income,
by increasing the cost of carrying the CMOs.
Liquidity is essential to the Company's businesses. The Company's
liquidity could be impaired by an inability to sell securities from its
inventory, an inability to access the repurchase and securities lending markets,
or an inability to sell financial assets. This situation may arise due to
circumstances that the Company may be unable to control, such as a general
market disruption, perceptions about the Company's creditworthiness or an
operational problem that affects third parties or the Company. Further, the
Company's ability to sell financial assets may be impaired if other market
participants are seeking to sell similar assets at the same time.
Substantial legal liability or a significant regulatory action against the
Company could have a material adverse financial impact or cause significant
reputational harm to the Company's businesses, which in turn could seriously
harm the Company's business prospects. The Company faces significant legal
risks in its businesses, and the amount of damages claimed in litigation against
financial intermediaries are increasing. In addition, the Company would expect
legal claims by customers and clients to increase in a market downturn.
The Company, as a participant in the financial services industry, is
subject to extensive regulation. Among other things, the Company could be fined
or prohibited from engaging in some of its business activities as a result of
administrative orders by regulators. New laws or regulations or changes in
enforcement of existing laws or regulations applicable to the Company's clients
may also adversely affect its businesses.
Results of Operations - 2002 Compared to 2001
- ---------------------------------------------
The following table summarizes the changes in revenues and income (loss)
before taxes of continuing operations of the Company.
The Years Ended
December 31, Increase/
2002 2001 (Decrease)
---- ---- ---------
Revenues: (in thousands)
--------
Capital Markets $31,245 $28,898 $ 2,347
Investment Services
Asset Management 8,373 8,405 (32)
Wealth Management 22,071 21,384 687
Portfolio Consulting - 16,231 (16,231)
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30,444 46,020 (15,576)
Corporate 5,751 5,761 (10)
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$67,440 $80,679 $(13,239)
------- ------- --------
------- ------- --------
Net income (loss) before taxes:
------------------------------
Capital Markets $ 2,321 $ 4,070 $ (1,749)
Investment Services
Asset Management (665) (616) (49)
Wealth Management (1,604) (2,496) 892
Portfolio Consulting - (1,389) 1,389
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(2,269) (4,501) 2,232
Corporate 2,741 2,632 109
------- ------- --------
$ 2,793 $ 2,201 $ 592
------- ------- --------
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Customers and Raw Materials
None of the Company's businesses is subject to governmental renegotiation
of profits; and none is dependent on a single customer or a few customers or
dependent on a single supplier of raw materials or a few suppliers of raw
materials. In no case are patents, trademarks, licenses or franchises important
other than securities brokerage and investment advisory licenses under federal
and state laws and regulations of self regulatory organizations and service
marks which identify the "brands" of the Company and its affiliated mutual fund
family. None of the Company's businesses are seasonal, although commission
income will fluctuate depending upon the condition of the US securities markets.
None of the businesses engages in significant operations outside the United
States.
Environmental Matters
Compliance with federal, state and local laws and regulations that have
been enacted or adopted relating to the protection of the environment has had no
material effect upon the capital expenditures, earnings and competitive position
of the Company and its financial services subsidiaries.
Employees
As of March 1, 2003 approximately 336 persons were employed full time and
18 persons were employed part time by the Company and its subsidiaries.
Statement Regarding Forward Looking Disclosure
Except for the historical information contained or incorporated by
reference in this Annual Report on Form 10-K, certain matters discussed herein
or incorporated by reference, including (without limitation) under Part I, Item
1, "Business -- General -- Business Factors," "Business -- Environmental
Matters," Item 3, "Legal Proceedings" and under Part II, Item 7, "Management's
Discussion and Analysis of Financial Condition and Results of Operations,"
contain forward looking statements that involve risks and uncertainties,
including (without limitation) the effect of economic and market conditions,
such as demand for investment advisory, banking and brokerage services in the
markets served by the Company, pricing of services, successful management of
regulatory and legal risks which necessarily accompany various segments of the
Company's business, interest rates, retention of key employees, profitable
operations of the institutional trading desks, competition in the financial
services industry, the ability to collect firm receivables and realize the value
of firm investments, the Company's ability to realize the value of goodwill and
other intangible assets, and the ability of the Company to underwrite and
distribute securities. The forward looking statements and statements based on
the Company's beliefs contained in "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "Quantitative and Qualitative
Disclosure about Market Risk" represent the Company's attempt to measure
activity in, and to analyze the many factors affecting, the markets for its
products. There can be no assurance that: (i) the Company has correctly
measured or identified all of the factors affecting these markets or the extent
of their likely impact; (ii) the publicly available information with respect to
these factors on which the Company's analysis is based is complete or accurate;
or (iii) the Company's analysis is correct. The Company undertakes no
obligation to publicly update or revise any forward-looking statements, whether
as a result of new information, future events or otherwise.
ITEM 2. PROPERTIES.
----------
The Company and BCZ lease commercial office space at 250 East Wisconsin
Avenue, Milwaukee, Wisconsin 53202-4209. BCZ also owns an office building
located at 215 North Main Street in West Bend, Wisconsin 53095 which serves as
an office for the Company and all subsidiaries. This three-story building has
approximately 65,000 square feet of space.
BCZ occupies leased premises at One South Wacker Drive, Suite 3080,
Chicago, Illinois 60606; 1185 Avenue of the Americas, 32nd Floor, New York, New
York 10036; 150 Second Avenue, N.E., Suite 1150, St. Petersburg, Florida
33701; 200 California Street, Suite 400, San Francisco, California 94111-4341;
and 8100 Professional Place, Suite 312, Landover, Maryland 20785. Other than
the above described office location in West Bend, Wisconsin, all branch offices
of BCZ's Wealth Management group are located in leased premises with varying
lease terms from one to five years.
The Company believes that its offices are well maintained and adequate for
present needs.
ITEM 3. LEGAL PROCEEDINGS.
-----------------
In the normal course of business, the Company was named as a defendant in
certain lawsuits. These suits arose in connection with the Company's role as an
underwriter in various securities offerings as well as a broker for customers.
At December 31, 2002, one such lawsuit brought by an institutional investor who
purchased a $5 million bond in a primary offering of securities was pending.
The investor requested rescission under state securities laws. The Company
settled the matter in January, 2003, under terms that are not expected to have a
significant impact on the Company's financial statements.
The Company is also the subject of customer complaints and has also been
named as a defendant in various legal actions arising from its securities and
other businesses. The Company has established reserves for potential losses
that may result from these customer complaints and legal actions. Although the
outcome of litigation is always uncertain, especially in the early stages of a
complaint or legal action, based on its understanding of the facts and the
advice of legal counsel, management believes that resolution of these actions
will not result in a material effect on the financial condition or results of
operations of the Company. However, if during any period any adverse complaint
or legal action should become probable or be resolved, the results of operations
could be significantly affected.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
---------------------------------------------------
No matters were submitted during the fourth quarter of fiscal year 2002 to
a vote of security holders.
EXECUTIVE OFFICERS OF THE COMPANY
Information regarding the officers of the Company as of March 1, 2003,
which is not part of the Company's Proxy Statement for the 2003 Annual Meeting
is as follows:
Name Age Position
- ---- --- --------
John J. Mulherin 51 President and Chief Executive Officer of the Company
Gary P. Engle 50 Senior Vice President, Chief Financial Officer and
Chief Administrative Officer of the Company
S. Charles O'Meara 52 Senior Vice President, Secretary and General Counsel of the Company
Jeffrey C. Vredenbregt 49 Vice President, Controller and Treasurer of the Company
Officers of Subsidiaries Deemed Executive Officers of the Company
Name Age Position
- ---- --- --------
Donald A. Carlson 56 Senior Managing Director - Capital Markets Group
Thomas R. Paprocki 48 Chief Operating Officer - Capital Markets Group
Darrel P. Frank 44 Senior Managing Director - Services and Technology Group
David G. Stoeffel 44 Senior Managing Director - Asset Management Group
Brian K. Andrew 40 Chief Investment Officer - Asset Management Group
Robert J. Tuszynski 43 Senior Vice President and Managing Director - Asset
Management Group
John C. Todd 54 Senior Managing Director - Wealth Management Division
Each officer serves until his successor is elected and qualified. Officers are
appointed by the board of directors. There is no arrangement or understanding
between any officer and any other person pursuant to which he was elected as an
officer. Each of the above officers has been acting in such capacity with the
Company for the past five years except as follows:
Mr. Mulherin has been President and Chief Executive Officer of the Company
since February 2000. From June 1999 to February 2000, Mr. Mulherin was
chief administrative officer at Villanova Capital, the asset management
group of Nationwide Insurance. Prior to joining Villanova Capital, Mr.
Mulherin served as president of National Financial Correspondent Services
Company, Boston, a clearing subsidiary of Fidelity Investments, and
previous to that served as chief operating officer of Fidelity Investments
Institutional Services Company, a mutual fund distribution and services
organization since August 1995.
Mr. Engle has been Senior Vice President, Chief Financial Officer and Chief
Administrative Officer of the Company since April 1999. Prior to joining
the Company, Mr. Engle was Chief Financial Officer of trusts and
investments at Firstar Corp, a financial services company, since 1996.
Mr. Stoeffel joined the Company as Senior Managing Director - Asset
Management Group in February 2003. Prior to joining the Company, Mr.
Stoeffel was Senior Vice President of Nomura Asset Management U.S.A. Inc.,
Business Units Sales/Marketing, from 1998 to 2003 and Eastern Division
Manager of Brinson Funds, a mutual company, from 1997 to 1998. Mr.
Stoeffel was appointed as an executive officer of the Company as of March
26, 2003.
Mr. Andrew has been Chief Investment Officer - Asset Management Group since
2001. He was previously an officer of Ziegler Asset Management, Inc., a
former subsidiary of the Company, since September 1994.
Mr. Tuszynski has been Senior Vice President and Managing Director - Asset
Management Group since 1999. He was previously a Senior Vice President of
B.C. Ziegler and Company, a subsidiary of the Company, from 1995-1999.
Mr. Todd has been the Senior Managing Director, Wealth Management Division
since 2002. He was previously the Director of Sales at Disciplined
Investment Advisors, an investment management company, since 1998.
INVOLVEMENT IN CERTAIN LEGAL PROCEEDINGS
On December 28, 1998, Brian Andrew consented to entry of an administrative
order by the Securities and Exchange Commission, based on certain actions he
took as an employee of an unaffiliated prior employer in the management of an
unaffiliated investment company between February 1993 and March 1994. Under the
terms of the order, Mr. Andrew paid a civil forfeiture and his activities as an
associated person of an investment advisor were subject to certain conditions
for one year.
PART II
Page references to the Company's 2002 Annual Report to Shareholders in this
Part II refer to the hard copy print report, and not to pages on the SEC's
electronic filing system, EDGAR.
ITEM 5. MARKET FOR THE COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
----------------------------------------------------------------------
The Company's Common Stock is traded under the symbol "ZCO" on the American
Stock Exchange. Information about the range of bid and asked quotations for the
Company's Common Stock on the American Stock Exchange for each quarter during
the Company's 2002 and 2001 fiscal years and information about the cash
dividends paid on the Company's Common Stock for each quarter during 2002 and
2001 may be found on page 46 of the Company's 2002 Annual Report to Shareholders
incorporated herein by reference. On March 14, 2003, the average of the bid and
ask price of the Company's Common Stock was $14.55. As of March 14, 2003, the
Company had approximately 233 record holders of its Common Stock.
ITEM 6. SELECTED FINANCIAL DATA.
-----------------------
Information about the Company's operating revenue, net income (loss),
earnings (loss) per share of common stock, cash dividends per share declared,
total assets, long-term obligations, short-term notes payable, shareholders'
equity and book value per share for the fiscal years 1998 through 2002 may be
found on page 44 of the Company's 2002 Annual Report to Shareholders, which is
incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
-----------------------------------------------------------------------
OF OPERATIONS.
-------------
Information about the Company's analysis of financial condition and results
of operations for the fiscal years 2002, 2001 and 2000 may be found on pages 31
through 43 of the Company's 2002 Annual Report to Shareholders, which is
incorporated herein by reference.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK.
---------------------------------------------------------
Risk is an inherent part of the Company's business activities. The
potential for changes in value of the Company's financial instruments is
referred to as "market risk." Market risk to the Company arises from changes in
interest rates, credit spreads and other relevant factors.
Interest Rate Risk
Interest rate risk, one component of market risk, arises from holding
interest sensitive financial instruments such as municipal, institutional, and
corporate bonds, and certain preferred equities. The Company manages its
exposure to interest rate risk by monitoring its inventory with respect to its
total capitalization and regulatory net capital requirements. The Company's
inventory of securities is marked to market and, accordingly, represents current
value with no unrecorded gains or losses in value. While a significant portion
of the Company's securities may have contractual maturities in excess of several
years, the inventory, on average, turns over frequently during the year.
Accordingly, the turnover of inventory mitigates the exposure to interest rate
risk.
The Company's other investments include government-agency backed
collateralized mortgage obligations ("CMOs") issued by the Government National
Mortgage Association and the Federal National Mortgage Association. These
investments have a fixed rate of interest and are subject to scheduled and early
prepayments. The Company finances the CMOs using a repurchase agreement. The
Company is exposed to the risk that the cost of financing, which is based on
short-term rates adjusted monthly, would exceed the interest received on the
CMOs, which is a fixed coupon extending to maturity. Management is of the
opinion that the spread between the rate of interest earned and paid is
sufficient to mitigate the risk of loss in net interest received versus paid.
Management continuously reviews these positions for an adequate spread in
interest rates.
Equity Price Risk
Equity price risk results from exposure to changes in the prices of equity
securities. The Company faces equity price risk with respect to the fees it
earns on the portfolio of assets it manages for clients. As of December
31, 2002, the Company managed a portfolio with an aggregate value of
approximately $1.9 billion in the form of separately managed and mutual fund
accounts. Of the total, $539 million relates to equity securities portfolios.
Continued declines in the equities market could adversely affect the amount of
fee based revenues. While this exposure is present, quantification remains
difficult due to the number of other variables affecting fee income. In
general, a reduction in assets will cause a reduction in revenue of
approximately the same proportion. Interest rate changes can also have an
effect on fee income as it relates to the value of fixed income securities
portfolios.
In addition to the CMOs noted above, other investments also include common
stock in the form of the Company's investment in The EnvestNet Group, Inc.
("EnvestNet") and partnership investments owned by ZEF. There is no ready
market for these securities; accordingly, the Company has established procedures
to periodically review these securities for proper valuation. See "Results of
Operations" in the Management Discussion and Analysis section for additional
information.
Financial Instruments
The table below provides information about the Company's financial
instruments as of December 31, 2002 that are sensitive to market risk. For
securities owned and debt obligations, the table presents principal cash flows
and related weighted average interest rates by expected maturity dates. For
common stock and partnership interests, the table presents the cost and fair
value of the investments. The common stock is listed as not resulting in any
regular cash flows during the next five years, although cash flows may occur if
the common stock is sold. The partnership interests are expected to provide a
return of capital plus earnings in the periods specified. The table specifies
the current expectation of the cash flows, but makes no assumptions or estimates
as to earnings. Trading accounts are shown in the caption "Securities Owned"
and non-trading accounts are shown in all other captions.
TRADING AND NON-TRADING PORTFOLIO
Scheduled Maturity Dates
2003 2004 2005 2006 2007 Thereafter Total Fair Value
---- ---- ---- ---- ---- ---------- ----- ----------
(U.S. Dollars in Thousands)
ASSETS
- ------
SECURITIES OWNED - FIXED RATE
- -----------------------------
Municipal bond issues $ 24 $ -- $2,455 $ 35 $ -- $28,447 $30,961 $29,843
Weighted average interest rate 3.50% 2.50% 5.33% 5.94%
Preferred Stock -- -- -- -- -- 1,780 1,780 1,770
Weighted average interest rate 8.19%
Institutional Bonds 9 38 55 115 35 1,526 1,778 1,708
Weighted average interest rate 5.64% 4.50% 5.00% 5.45% 5.89% 6.95%
Other -- -- -- -- -- 767 767 767
Weighted average interest rate 5.31%
SECURITIES OWNED - VARIABLE RATE
- --------------------------------
Municipal Variable rate demand notes -- -- -- -- 19,800 19,800 19,800
Weighted average interest rate 1.58%
NOTES RECEIVABLE 4,438 1,277 5,972 4,134 6,862 2,159 24,842 24,842
- ----------------
SBA Qualified Borrowers (1) 872 888 5,547 3,749 6,643 2,160 19,859 19,859
Weighted average interest rate 12.95% 12.98% 12.95% 13.14% 13.24% 13.85%
Other 3,566 389 424 385 219 -- 4,983 4,983
Weighted average interest rate 8.76% 3.92% 3.98% 4.09% 3.81%
OTHER INVESTMENTS - CMOS(2) -- -- -- -- -- 21,382 21,382 21,382
- -------------------------------
Weighted average interest rate 7.88%
OTHER INVESTMENTS - COMMON STOCK -- -- -- -- -- 9,500 9,500 9,500
- --------------------------------
OTHER INVESTMENTS- PARTNERSHIP INTERESTS 1,000 -- -- -- -- -- 1,000 1,000
- ----------------------------------------
LIABILITIES
- -----------
SHORT-TERM NOTES PAYABLE (3) $4,682 $ -- $ -- $ -- $ -- $ -- $4,682 $4,682
- --------------------------------
Weighted average interest rate 2.76%
SECURITIES SOLD UNDER AGREEMENTS
TO REPURCHASE(3) 21,268 -- -- -- -- -- 21,268 21,268
- --------------------------------
Weighted average interest rate 1.62%
LONG-TERM DEBT
SBA Debentures (4) -- -- -- -- -- 14,090 14,090 14,090
Other 405 405 405 405 405 6.16%
5.59% 5.59% 5.59% 4.80% 4.80% -- 2,025 2,025
(1) These balances are notes receivable of ZHF, the partially owned
entity, and are not directly payable to the Company.
(2) Assumes no prepayment When prepayments occur, the corresponding debt
used to finance these investments will decrease by a similar amount.
(3) The information includes actual interest rates at December 31, 2002.
These securities are likely to be renewed with the lenders when due.
The future interest rates cannot be predicted.
(4) These balances are related to ZHF, the partially owned entity, and are
not a direct obligation of the Company.
Material limitations exist in determining the overall net market risk
exposure to the Company. The information presented can be affected by many
assumptions, including the levels of market interest rates, prepayments of
principal on notes and other investments, the turnover of securities owned,
the credit quality of obligors and issuers, and other factors. Therefore,
the above information should not be relied upon as indicative of future
actual results.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
-------------------------------------------
The Company's Consolidated Financial Statements containing consolidated
statements of financial condition for the years 2002 and 2001 may be found
on page 10 of the Company's 2002 Annual Report to Shareholders; and
consolidated statements of operations for the years 2002, 2001 and 2000 may
be found on page 11 of the Company's 2002 Annual Report to Shareholders,
consolidated statements of cash flows for the years 2002, 2001 and 2000 may
be found on pages 13 and 14 of the Company's 2002 Annual Report to
Shareholders; consolidated statements of changes in stockholders' equity for
2002, 2001 and 2000 may be found on page 12 of the Company's 2002 Annual
Report to Shareholders. The notes to the consolidated financial statements,
together with the reports of KPMG LLP and Arthur Andersen LLP may be found
on pages 15 through 30 of the Company's 2002 Annual Report to Shareholders.
Such Consolidated Financial Statements and reports of KPMG LLP and Arthur
Andersen LLP are incorporated herein by reference. For additional
information regarding Arthur Andersen and its report, see Exhibit 23.2.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
---------------------------------------------------------------
FINANCIAL DISCLOSURE.
--------------------
Information regarding a change in independent auditors in 2002 was
previously reported in two Current Reports on Form 8-K dated as of May 31,
2002 and July 24, 2002, respectively. There have been no other reportable
events.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
--------------------------------------------------
Information about the Company's directors and those persons nominated
to become directors may be found on pages 3-4 of the Company's Proxy
Statement relating to the Annual Meeting of Shareholders currently scheduled
for April 22, 2003 (the "2003 Proxy Statement") and is incorporated herein
by reference.
Information relating to "Section 16(a) Beneficial Ownership Reporting
Compliance" may be found on page 13 of the 2003 Proxy Statement and is
incorporated herein by reference.
Additional information, which is not a part of the 2003 Proxy
Statement, is set forth in Part I above under the heading "Executive
Officers of the Company." Such information is incorporated herein by
reference.
ITEM 11. EXECUTIVE COMPENSATION.
----------------------
Information required under Item 11 about the compensation paid by the
Company to its Directors, Chief Executive Officer and other executive
officers of the Company may be found on pages 5-6, pages 8-9 and page 10 of
the Company's 2003 Proxy Statement and is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
--------------------------------------------------------------
AND RELATED STOCKHOLDER MATTERS.
-------------------------------
Information concerning security ownership of certain beneficial owners
and management may be found on pages 2-3 of the Company's 2003 Proxy
Statement and is incorporated herein by reference.
The following table summarizes information about the Company's Common
Stock that may be issued upon the exercise of options, warrants and rights
under the Company's equity compensation plans as of December 31, 2002:
EQUITY COMPENSATION PLAN INFORMATION
(B) (C)
WEIGHTED- NUMBER OF
AVERAGE SECURITIES REMAINING
(A) EXERCISE AVAILABLE FOR FUTURE
NUMBER OF PRICE OF ISSUANCE UNDER EQUITY
SECURITIES TO BE ISSUED OUTSTANDING COMPENSATION PLANS
UPON EXERCISE OF OPTIONS, (EXCLUDING
OUTSTANDING OPTIONS, WARRANTS SECURITIES REFLECTED IN
PLAN CATEGORY WARRANTS AND RIGHTS AND RIGHTS COLUMN (A))
- ------------- ------------------- ---------- -----------------------
Equity compensation plans approved
by security holders (1) 291,450 $18.04 112,550
Equity compensation plans not
approved by security holders (2) 28,782(3) $15.88(3) -0-(4)
Total 320,232 $17.93 112,550
(1) Equity compensation plans approved by security holders include the
Company's 1998 Stock Incentive Plan (the "1998 Plan") and the
Company's 1993 Employees' Stock Incentive Plan (the "1993 Plan").
The 1998 Plan was approved by shareholders on April 20, 1998. No
further awards or grants have been made under the 1993 Plan since the
1998 Plan was approved by shareholders. Options granted under the
1993 Plan remain in effect until they have been exercised or have
expired.
In 2002, the 1998 Plan was amended, without shareholder approval, to
increase the maximum number of shares of restricted stock that may be
issued in one year from 20,000 to 30,000. The 1998 Plan is designed
to permit the grant of not more than a total of 435,000 shares of
Common Stock (not more than 43,500 annually to any participant) in the
form of non-qualified stock options, incentive stock options, stock
appreciation rights and restricted stock (a maximum of 30,000 shares
of restricted stock may be granted in any calendar year). The purpose
of the 1998 Plan is to provide incentive for key employees of the
Company and its subsidiaries to improve corporate performance on a
long-term basis, and to attract and retain key employees and qualified
directors.
(2) Equity plans not approved by security holders include a Deferred Stock
Agreement between the Company and John J. Mulherin effective as of
March 19, 2002 (the "Deferred Stock Agreement"), two stock option
awards of 10,000 and 5,000 shares, respectively, to two officers of
the Company, the Director's annual retainer and the Directors Deferred
Stock Arrangement, all as described in the following paragraphs.
Pursuant to the Deferred Stock Agreement, the Company agreed to issue
5,000 shares of Common Stock ("Deferred Stock") to Mr. Mulherin on
January 31, 2005, or earlier upon certain conditions. The shares
vested upon grant. Mr. Mulherin has the right to receive dividends,
if any, on the Deferred Stock.
In 1993 and 1997, the Company issued options to purchase 10,000 shares
and 5,000 shares, respectively, of Common Stock to two of its officers
(Mr. O'Meara and Mr. Tuszynski). The option price for both grants was
the fair market value of the Common Stock at the date of grant. The
options became exercisable one year following the date of grant and
expire ten years after the grant date. The options must be exercised
while the grantee is employed by the Company or a subsidiary of the
Company or, under certain circumstances, within three months of
termination of service with the Company. The 10,000 options issued to
Mr. O'Meara expired, with no options being exercised, on January 22,
2003.
The $11,000 annual retainer paid to directors is paid in Common Stock
unless deferred by a director. The Deferred Compensation Plan for
Directors allows non-employee directors of the Company to defer the
receipt of their annual retainer otherwise payable in Common Stock for
serving on the Board of Directors. Prior to December 31 of each year,
non-employee directors may irrevocably elect to participate in the
Company's Deferred Compensation Plan for Directors for the following
year. The annual retainer is deferred into a stock unit account
established on the director's behalf. Annual retainers deferred into
stock unit accounts are credited with shares of Common Stock based on
the closing price of the Common Stock shortly after the Company's
earnings are released for the first quarter of the year. Deferred
compensation is distributed following the termination of the
director's service to the Company either in ten annual installments
or, upon application of the director, upon such terms and conditions
as the Board of Directors determines. Distributions from stock unit
accounts are made solely in shares of Common Stock. Pursuant to the
Deferred Compensation Plan for Directors, 8,782 stock units, payable
on a one-for one-basis in shares of Common Stock, were credited to
stock unit accounts as of December 31, 2002.
(3)>F7> The Deferred Stock and the deferred stock units issuable under the
Deferred Compensation Plan for Directors are included in column (a),
but because there is no "exercise price" associated with the Deferred
Stock or the stock units, they are not reflected in column (b).
(4) The Deferred Compensation Plan for Directors does not reserve a set
number of shares of Common Stock, nor is there a set number of shares
reserved for issuance for annual retainers issuable to directors not
participating in the Deferred Compensation Plan for Directors.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
----------------------------------------------
Information concerning certain relationships and related transactions
may be found on page 12 of the Company's 2003 Proxy Statement and is
incorporated herein by reference.
ITEM 14. CONTROLS AND PROCEDURES.
-----------------------
The Company maintains disclosure controls and procedures designed to ensure
that the information the Company must disclose in its filings with the
Securities and Exchange Commission is recorded, processed, summarized and
reported on a timely basis. The Company's principal executive officer and
principal financial officer have reviewed and evaluated the Company's disclosure
controls and procedures as defined in Rules 13a-14(c) and 15d-14(c) under the
Securities Exchange Act of 1934, as amended (the "Exchange Act") as of a date
within 90 days prior to the filing date of this report (the "Evaluation Date").
Based on their evaluation, these officers have concluded that, as of the
Evaluation Date, the Company's disclosure controls and procedures are effective
in bringing to their attention on a timely basis material information relating
to the Company required to be included in the Company's periodic filings under
the Exchange Act.
Since the Evaluation Date, there have not been any significant changes in
the internal controls of the Company, or in other factors that could
significantly affect these controls subsequent to the Evaluation Date.
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
----------------------------------------------------------------
ITEM 15(A). CERTAIN INFORMATION
-------------------
1. Financial Statements
The following financial statements are incorporated herein by
reference in Part II at Item 8 above.
(i) Consolidated statements of financial condition - December
31, 2002 and 2001.
(ii) Consolidated statements of operations - years ended
December 31, 2002, 2001 and 2000.
(iii) Consolidated statements of stockholders' equity - years
ended December 31, 2002, 2001 and 2000.
(iv) Consolidated statements of cash flows - years ended
December 31, 2002, 2001 and 2000.
(v) Notes to Consolidated Financial Statements.
(vi) Report of KPMG LLP, Independent Auditors.
(vii) Report of Arthur Andersen LLP, Independent Public
Accountants.
2. Supplementary Data and Financial Statement Schedule
The following report and financial statement schedule in response to
this Item 15(a) is submitted as a separate section of this report:
Page
----
Independent Auditors' Report....................... 19
Schedule II - Valuation and Qualifying Accounts.... 20
3. Exhibits
See the Exhibit Index included as the last part of this report, which
is incorporated herein by reference. Each management contract and
compensatory plan or arrangement required to be filed as an exhibit to this
report is identified in the Exhibit Index by an asterisk following its
exhibit number.
ITEM 15(B). REPORTS ON FORM 8-K
-------------------
No reports on Form 8-K were filed during the fourth quarter of 2002.
ITEM 15(C). EXHIBITS
--------
See the Exhibit Index included as the last part of this report, which
is incorporated herein by reference.
ITEM 15(D). FINANCIAL STATEMENT SCHEDULES
-----------------------------
INDEPENDENT AUDITORS' REPORT
To the Stockholders and the Board of Directors
of The Ziegler Companies, Inc.:
On January 28, 2003, we reported on the consolidated statement of financial
condition of The Ziegler Companies, Inc. and Subsidiaries (the Company) as of
December 31, 2002, and the related consolidated statements of operations,
stockholders' equity, and cash flows for the year then ended, which are included
in the 2002 Annual Report on Form 10-K. The consolidated financial statements
and the related financial statement schedules of The Ziegler Companies, Inc. and
Subsidiaries, as of December 31, 2001 and 2000, were audited by other auditors
who have ceased operations. Those auditors expressed an unqualified opinion on
the consolidated financial statements for 2001 and 2000 in their report dated
February 9, 2002, and the related financial statement schedules in their report
dated March 18, 2002. In connection with our audit of the aforementioned 2002
consolidated financial statements, we also audited the related financial
statement schedule as listed in Item 15(a)2. The financial statement schedule is
the responsibility of the Company's management. Our responsibility is to express
an opinion on the financial statement schedule based on our audit.
In our opinion, such 2002 financial statement schedule, when considered in
relation to the consolidated financial statements taken as a whole, presents
fairly, in all material respects, the information set forth therein.
KPMG LLP
Milwaukee, Wisconsin
January 28, 2003
THE REPORT SET FORTH BELOW IS A COPY OF A PREVIOUSLY ISSUED AUDIT REPORT BY
ARTHUR ANDERSEN LLP. THIS REPORT HAS NOT BEEN REISSUED BY ARTHUR ANDERSEN LLP
IN CONNECTION WITH ITS INCLUSION IN THIS FORM 10-K.
AFTER REASONABLE EFFORTS, WE HAVE NOT BEEN ABLE TO OBTAIN THE WRITTEN CONSENT OF
ARTHUR ANDERSEN LLP AS REQUIRED BY SECTION 7 OF THE SECURITIES ACT OF 1933 FOR
OUR REGISTRATION STATEMENTS ON FORM S-8. ACCORDINGLY, INVESTORS WILL NOT BE
ABLE TO SUE ARTHUR ANDERSEN LLP PURSUANT TO SECTION 11(A)(4) OF THE SECURITIES
ACT WITH RESPECT TO ANY SUCH REGISTRATION STATEMENTS AND, THEREFORE, ULTIMATE
RECOVERY ON A SUCCESSFUL CLAIM MAY BE LIMITED. THE ABILITY OF INVESTORS TO
RECOVER FROM ARTHUR ANDERSEN LLP MAY ALSO BE LIMITED AS A RESULT OF ARTHUR
ANDERSEN LLP'S FINANCIAL CONDITION OR OTHER MATTERS RESULTING FROM THE VARIOUS
CIVIL AND CRIMINAL LAWSUITS AGAINST THAT FIRM. FOR FURTHER INFORMATION, SEE
EXHIBIT 23.2
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON SUPPLEMENTAL SCHEDULE
To the Board of Directors and Shareholders of The Ziegler Companies, Inc.:
We have audited in accordance with auditing standards generally accepted in the
United States, the financial statements included in The Ziegler Companies, Inc.
Annual Report to Shareholders incorporated by reference in this Form 10-K, and
have issued our report thereon dated February 9, 2002. Our audit was made for
the purpose of forming an opinion on those statements taken as a whole.
Supplemental Schedule II is the responsibility of the Company's management and
are presented for the purposes of complying with the Securities and Exchange
Commission's rules and are not part of the basic financial statements. This
schedule has been subjected to the auditing procedures applied in the audit of
the basic financial statements and, in our opinion, fairly states in all
material respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.
/s/ Arthur Andersen LLP
- -----------------------
ARTHUR ANDERSEN LLP
Milwaukee, Wisconsin
March 18, 2002
THE ZIEGLER COMPANIES, INC.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000
COL. A COL. B COL. C COL. D COL. E
------ ------ ------ ------ ------
ADDITIONS
DESCRIPTION
Balance at Charged Charged to Balance at
December 31, to Other Accounts Deductions December 31,
2001 Expense (Note 1) (Note 2) 2002
---- ------- ----------- ------------- ----
Reserve for losses (Note 3) $ 332,825 $ 4,186 $(174,603) $ (8,222) $ 154,186
---------- -------- --------- ----------- ----------
---------- -------- --------- ----------- ----------
Balance at Charged Charged to Balance at
December 31, to Other Accounts- Deductions- December 31,
2000 Expense (Note 1) (Note 2) 2001
---- ------- ----------- ------------- ----
Reserve for losses (Note 3) $2,682,636 $174,608 $(355,409) $(2,169,010) $ 332,825
---------- -------- --------- ----------- ----------
---------- -------- --------- ----------- ----------
Balance at Charged Charged to Balance at
December 31, to Other Accounts- Deductions- December 31,
1999 Expense (Note 1) (Note 2) 2000
---- ------- ----------- ------------- ----
Reserve,for,losses (Note 3) $2,605,596 $314,715 $(154,500) $ (83,175) $2,682,636
---------- -------- --------- ----------- ----------
---------- -------- --------- ----------- ----------
(1) These amounts represent adjustments to prior charge-offs.
(2) These deductions represent charge-offs for the purpose for which the
reserve was established.
(3) The reserve is offset against the corresponding assets in the balance
sheet.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.
THE ZIEGLER COMPANIES, INC.
March 28, 2003 By /s/ John J. Mulherin
---------------------------------------------
John J. Mulherin
President, CEO and Director
(Principal Executive Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this report has been signed below by the following persons on behalf of
the registrant and in the capacities and on the dates indicated.
March 28, 2003 /s/ Donald A. Carlson, Jr.
-----------------------------------------------
Donald A. Carlson, Jr., Director
March 28, 2003 /s/ Gary P. Engle
-----------------------------------------------
Gary P. Engle
Senior Vice President, Chief Financial Officer
and Chief Administrative Officer
(Principal Financial Officer)
March 28, 2003 /s/ John C. Frueh
-----------------------------------------------
John C. Frueh, Director
March 28, 2003 /s/ Gerald J. Gagner
-----------------------------------------------
Gerald J. Gagner, Director
March 28, 2003 /s/ Peter R. Kellogg
-----------------------------------------------
Peter R. Kellogg, Director and Chairman
March 28, 2003 /s/ John J. Mulherin
-----------------------------------------------
John J. Mulherin, President, Chief Executive
Officer and Director (Principal Executive
Officer)
March 28, 2003 /s/ Jeffrey C. Vredenbregt
-----------------------------------------------
Jeffrey C. Vredenbregt
Vice President, Treasurer and Controller
(Principal Accounting Officer)
March 28, 2003 /s/ Bernard C. Ziegler III
-----------------------------------------------
Bernard C. Ziegler III, Director
CERTIFICATIONS
I, John J. Mulherin, certify that:
1. I have reviewed this annual report on Form 10-K of The Ziegler
Companies, Inc.;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this annual report is being
prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the filing
date of this annual report (the "Evaluation Date"); and
c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have identified
for the registrant's auditors any material weaknesses in internal controls;
and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in
this annual report whether there were significant changes in internal controls
or in other factors that could significantly affect internal controls subsequent
to the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
Date: March 28, 2003
/s/ John J. Mulherin
- -----------------------------------
Chief Executive Officer
I, Gary P. Engle, certify that:
1. I have reviewed this annual report on Form 10-K of The Ziegler
Companies, Inc.;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this annual report is being
prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the filing
date of this annual report (the "Evaluation Date"); and
c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have identified
for the registrant's auditors any material weaknesses in internal controls;
and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in
this annual report whether there were significant changes in internal controls
or in other factors that could significantly affect internal controls subsequent
to the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
Date: March 28, 2003
/s/ Gary P. Engle
- ----------------------------------
Chief Financial Officer
THE ZIEGLER COMPANIES, INC.
Exhibit Index to Report on Form 10-K
for the fiscal year ended December 31, 2002
Exhibit Incorporated by Filed
No. Description Reference Herewith
- --- ----------- --------- --------
3.1 Articles of Incorporation of the Company Previously filed as Exhibit C to the
Company's Proxy Statement dated March 8,
1993.
3.2 By-Laws of the Company X
4.1 Indentures and Guaranty Agreement Incorporated herein by reference under
Exhibit 10 below.
10 Material Contracts
10.1* 1993 Employees' Stock Incentive Plan Incorporated by reference from the March 8,
1993 Proxy Statement.
10.2* 1998 Stock Incentive Plan (restated to Previously filed as Exhibit 10.1 to the Form
reflect amendments through April 23, 10-Q for the quarterly period ended June 30,
2002) 2002.
10.3* John Mulherin Employment Agreement and Previously filed as Exhibit 10.4 to the Form
Offer Letter 10-K for year ended December 31, 2000.
10.4* Gary Engle Employment Agreement Previously filed as Exhibit 10.5 to the Form
10-K for year ended December 31, 2000.
10.5 Letter Agreement with M&I Marshall & Previously filed as Exhibit 10.6 to the Form
Ilsley Bank dated September 14, 1999 with 10-K for year ended December 31, 2000.
Promissory Note
10.6 Promissory Note with M&I Marshall & Previously filed as Exhibit 10.1 to the Form
Ilsley Bank dated April 30, 2002 10-Q for the quarterly period ended March 31,
2002.
10.7* John J. Mulherin Promissory Note, dated Previously filed as Exhibit 10.7 to Amendment
December 29, 2000 No. 1 to Form 10-K for year ended December
31, 2000.
10.8* Form of John J. Mulherin Promissory Note, Previously filed as Exhibit 10.8 to Amendment
dated April 15, 2001 No. 1 to Form 10-K for year ended December
31, 2000.
10.9* 2001 Outside Director Stock Option Previously filed as Exhibit 10.9 to Form 10-K
Agreement for year ended December 31, 2001.
10.10* Deferred Benefit Agreement between The X
Ziegler Companies, Inc. and John J.
Mulherin
10.11* John C. Todd Employment Agreement X
10.12* Form of Restricted Stock Agreement X
10.13* Form of Nonqualified Stock Option X
Agreement
10.14* Nonstatutory Stock Option Agreement Previously filed as Exhibit 99.6 to the
between the Company and Robert J. Company's Registration Statement on Form S-8
Tuszynski dated as of the 9th day of filed on March 29, 2000.
January, 1997
10.15* Form of directors deferred compensation Previously filed as Exhibit 99.7 to the
agreement Company's Registration Statement on Form S-8
filed on March 29, 2000.
10.16* Performance Vesting Incentive Stock X
Option Agreement between the Company and
John J. Mulherin dated August 17, 2000
10.17* Stock Award between the Company and John X
J. Mulherin made as of August 17, 2000
10.18* Performance Stock Award Agreement between X
the Company and John J. Mulherin dated as
of August 17, 2000
10.19* David Stoeffel Employment Agreement X
10.20* Form of The Ziegler Companies, Inc. X
Mandatory Deferred Bonus Plan
10.21* Form of The Ziegler Companies, Inc. X
Voluntary Deferral Bonus Plan
11.1 Statement Re Computation of Per Share Incorporated from 2002 Annual Report to
Earnings Shareholders, filed as Exhibit 13.1.
13.1 2002 Annual Report to Shareholders X
21.1 List of Subsidiaries of the Company X
23.1 Consent of KPMG LLP--Independent Auditors X
23.2 Notice Regarding Consent of Arthur X
Andersen LLP--Independent Public
Accountants
99.1 Chief Executive Officer's certification X
pursuant to 18 U.S.C. section 1350, as
adopted pursuant to section 906 of the
Sarbanes-Oxley Act of 2002
99.2 Chief Financial Officer's certification X
pursuant to 18 U.S.C. section 1350, as
adopted pursuant to section 906 of the
Sarbanes-Oxley Act of 2002
* Indicates compensatory plan or arrangement.