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U.S. 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, 1998
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.)
215 North Main Street, West Bend, Wisconsin 53095
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(Address of principal executive offices)(Zip Code)
Registrant's telephone number, including area code: (414) 334-5521
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $1.00 Par Value
-----------------------------
(Title of class)
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. [ ]
AGGREGATE MARKET VALUE OF VOTING STOCK HELD
BY NON-AFFILIATES OF THE REGISTRANT:
As of March 1, 1999, 2,465,581 shares of Common Stock were outstanding and
the aggregate market value of registrant's voting and nonvoting common equity
(based on the average of the bid and ask price $20.5625) 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 $39,868,035.
DOCUMENTS INCORPORATED BY REFERENCE
Part of Form 10-K into Which Portions of
Document Document Are Incorporated
-------- --------------------------
Portions of Annual Report to Shareholders
for the calendar year ended December 31, 1998 Part II
Portions of Proxy Statement for 1999
Annual Meeting of Shareholders Part III
PART I
ITEM 1. BUSINESS.
---------
General
The Ziegler Companies, Inc. (the "Company") is a holding company which
owns fourteen operating subsidiary companies. Twelve of the companies are
engaged in financially oriented businesses and two other companies, as to which
the Company is exploring its strategic options, are engaged in recycling,
reclaiming and disposing of industrial chemicals and solvents, blending
chemicals, and providing pollution abatement services. The Company's principal
executive offices are at 215 North Main Street, West Bend, Wisconsin 53095 and
its telephone number is (414) 334-5521. Except for the acquisition of PMC
International, Inc. and its subsidiaries, an administrative provider of
sophisticated investment management products and services, there was no material
change in the scope of the business during 1998.
The Company's financial services activities are conducted primarily
through four operating segments. These operating segments are health care and
senior living investment banking, retail brokerage, asset management, and
taxable trading.
The Company's health care and senior living investment banking segment
includes the underwriting and marketing of debt securities for the health care
industry and nonprofit senior living facilities, financial advisory services,
underwriting and private placement of equity securities, structuring of complex
financial products primarily on an agency basis and Federal Housing
Administration loan origination in conjunction with the Company's investment
banking activities. These activities are conducted through our Health Care and
Senior Living Finance Investment Banking Group of B.C. Ziegler and Company
("BCZ") and Ziegler Financing Corporation ("ZFC").
The Company's retail brokerage segment includes the activities of the
full-service retail brokerage and insurance sales activities of BCZ and the
discount brokerage activities of Ziegler Thrift Trading, Inc. ("ZTT"). The
underwriting activities performed for churches and private schools are included
as part of this business segment. The church and private school bonds
underwritten by BCZ are currently marketed through the BCZ personnel.
The Company's asset management segment includes investment advisory and
related support services provided by Ziegler Asset Management, Inc. ("ZAMI");
BCZ, including the former GS2 Securities, Inc. ("GS2") which merged into BCZ on
December 31, 1998; and PMC International, Inc. and its subsidiaries ("PMC"),
acquired by the Company in December 1998. ZAMI provides equity and fixed-income
management services to individuals, institutions, and the Principal Preservation
Portfolios, the Company's proprietary family of mutual funds. The investment
consulting services of GS2, now part of BCZ, include the evaluation of
investment advisors, managed asset administration, trading, and account
performance monitoring. The former GS2, now part of BCZ, also provides
institutional equity brokerage, equity research, and equity investment banking
services. For analysis purposes, all of the former GS2's operations are
included within the asset management segment. PMC, not a money manager itself,
provides administrative products and services to facilitate the selection and/or
monitoring of unaffiliated money managers or mutual funds for clients.
The Company's taxable trading segment includes the activities of the
taxable bond and preferred stock trading groups of BCZ. Each group covers a
wide spectrum of their respective securities and serves primarily institutional
customers. The preferred stock trading group also makes markets in preferred
stocks.
The other activities of the Company include the financial activities
associated with First Church Financing Corporation ("FCFC"), Ziegler
Collateralized Securities, Inc. ("ZCSI"), and Ziegler Capital Company, LLC
("ZCC"). FCFC was organized for the purpose of issuing mortgage-backed bonds
collateralized by first mortgages on church buildings and properties. FCFC has
not issued bonds since 1995, nor does it anticipate doing so. 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. ZCSI sold substantially all of its portfolio of
leases and notes during 1998 and does not anticipate any further activity. ZCC
was formed for the purpose of acquiring, owning, financing and otherwise dealing
with subordinated, participating mortgages secured by senior living facilities.
ZCC discontinued its operations in 1998.
The Company also has a nonfinancial subsidiary, WRR Environmental
Services Company, Inc. ("WRR"), whose services include pollution abatement and
chemical blending, as well as the recycling, reclaiming and disposing of
chemical wastes.
The Company 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 included in 1996
results when substantially all of such operations were sold.
BCZ and the Company also provide certain administrative services which are
not included in any operating segment. The administrative activities of BCZ
relate to support activities for all segments. The costs associated with these
support activities are not currently identifiable to a specific segment nor are
they currently allocated to any segment. The administrative activities of the
Company are primarily related to investing and financing activities and are not
specific to any operating segment.
Results of Operations - 1998 Compared to 1997
The following table summarizes the changes in revenue and net income
(loss) before taxes of the Company:
Year Ended December 31, Increase/
(Dollars in Thousands) 1998 1997 (Decrease)
---- ---- ---------
Revenues:
Health Care and Senior Living
Investment Banking $25,886 $20,950 $ 4,936
Retail Brokerage 21,511 19,943 1,568
Asset Management 17,276 8,562 8,714
Taxable Trading 1,594 1,483 111
Other Activities and Intercompany 9,516 8,756 760
------- ------- -------
Total $75,783 $59,694 $16,089
======= ======= =======
Income (Loss) Before Taxes:
Health Care and Senior Living
Investment Banking $ 6,530 $ 7,556 $ (1,026)
Retail Brokerage 871 2,667 (1,796)
Asset Management 811 371 440
Taxable Trading (7,054) 21 (7,075)
Other Activities and Intercompany (5,724) (10,060) 4,336
------- ------- -------
Total $(4,566) $ 555 $(5,121)
======= ======= =======
Health Care and Senior Living Investment Banking
Health care and senior living investment banking activities generated
revenues of $25,886,000 in 1998 compared to $20,950,000 in 1997, an increase of
$4,936,000 or 24%. Municipal underwriting revenues increased $4,969,000 to
$17,438,000 in 1998. A favorable economic environment provided for the
completion of 73 underwriting transactions totaling $1.6 billion of debt
securities in 1998 compared to 53 underwriting transactions totaling $1.3
billion of debt securities in 1997. Fees from financial advisory services and
special products transactions decreased $956,000 to $5,081,000 in 1998 from
$6,037,000 in 1997 as a result of a decline in activity in the special products
area during the last half of the year associated with personnel turnover. This
decrease was partially offset by increases in variable rate demand note
remarketing fees, interest income, and secondary market tax-exempt trading
profits.
Total expenses of the health care and senior living investment banking
activities were $19,356,000 in 1998 compared to $13,394,000 in 1997, an increase
of $5,962,000 or 45%. Employee compensation and benefits increased $3,604,000
to $12,464,000 in 1998 as a result of increased investment banking activity and
increased staffing. Promotional expenses increased $860,000 due to increased
municipal bond underwritings and higher travel expenses. Interest expense
increased $908,000 due to the cost of financing a higher level of inventory
during the year. The health care and senior living investment banking segment
had a net income before taxes of $6,530,000 in 1998 compared to $7,556,000 in
1997, a decrease of $1,026,000 or 14%. The decrease is attributable to the
increased competition and narrowing margins in this segment as well as the
increased costs of operations, primarily in the area of compensation and
benefits.
Retail Brokerage
Retail brokerage activities generated revenues of $21,511,000 in 1998
compared to $19,943,000 in 1997, an increase of $1,568,000 or 8%. This increase
was the result of expanded activity primarily in two parts. BCZ retail
brokerage sales activities increased $2,310,000, exclusive of church and school
bond sales. This increase was mainly related to increased mutual fund sales
and, to a lesser extent, equities and annuities sales. Church and school bond
underwriting revenue increased $520,000 to $3,394,000 reflecting an increase in
total bond issuances of $22,000,000 to approximately $80,000,000 in 1998. These
bonds are sold through BCZ retail investment brokers. These increases in BCZ
retail brokerage sales were offset by a decrease in commission and fee income at
ZTT of $745,000 to $4,950,000 in 1998. This decrease was due to the competitive
nature of pricing in the discount market and a 3% decrease in trading volume.
The balance of the change in revenues was primarily related to a decrease in
interest income partially offset by increases in insurance agency sales.
Total expenses of retail brokerage activities increased $3,364,000 in 1998
to $20,640,000 from $17,276,000 in 1997. This increase is primarily attributed
to $1,430,000 in additional broker commission-based compensation arising from
higher transaction volumes and the related revenues of the full service retail
brokerage activities of BCZ, and increased clearing charges of $1,565,000
related to the clearing of brokerage transactions by outside clearing agents for
the BCZ retail brokerage group and ZTT. Prior to May 1998, clearing costs were
a part of BCZ administrative overhead and were not allocated to the BCZ retail
brokerage sales group. The clearing conversion activity and other
organizational changes in the BCZ retail sales group accounted for the balance
of the increase in expenses. The resulting net income before taxes for the
retail brokerage segment decreased $1,796,000 to $871,000 in 1998 compared to
$2,667,000 in 1997.
Asset Management
Asset management activities generated revenues of $17,276,000 in 1998
compared to $8,562,000 in 1997, an increase of $8,714,000. The full year
inclusion of GS2 (now merged with BCZ), the partial year inclusion of PMC, and
the increases in assets under management at ZAMI were the primary reasons for
the increased revenues. ZAMI assets under management increased to $1.35 billion
in 1998 compared to $1.1 billion in 1997. Of these totals, the assets under
management related to Principal Preservation Portfolios increased to $602
million in 1998 compared to $476 million in 1997, a 26% increase. The
activities of GS2 generated increased revenues of $6,312,000 as the result of
being included in the Company's operations for a full year in 1998. GS2
activities generating this revenue are for investment advisory, investment
banking and brokerage services. GS2 was purchased by the Company at the
beginning of July 1997. The balance of the increase is attributable to the
revenues contributed by PMC, which was acquired in early December 1998. PMC
revenues included in this segment were $1,131,000 for the brief period of time
it was part of the Company in 1998.
Total expenses of the asset management segment were $16,465,000 in 1998
compared to $8,190,000 in 1997, an increase of $8,275,000. The full year
inclusion of GS2 in 1998 increased expenses by $6,185,000 across all categories
of expenses. The inclusion of PMC added $1,195,000 of expenses, with the
balance of the increase in expenses primarily related to expenses at ZAMI and
administrative support activities associated with our proprietary family of
mutual funds as these activities continue to grow with respect to the assets
under management. The resulting net income before taxes of this segment in 1998
was $811,000 compared to $371,000 in 1997. Increased profitability at ZAMI and
the former GS2, offset by a small loss at PMC for the period it was a part of
the Company, are the reasons for the improved results of this operating segment
in 1998.
Taxable Trading
The revenues and profitability anticipated from an increased investment by
the Company in taxable bond trading did not materialize in 1998. The increase
in resources devoted to the operation in 1998 began to generate revenues early
in the year. However, the adverse conditions in the bond market, especially
related to asset-backed and mortgage-backed securities, caused any transactional
revenues to be offset by losses associated with the inventory of securities for
the segment held by the Company. Given these circumstances and the high cost of
operations associated with this activity, the taxable bond trading operation was
reduced by the end of 1998 and will operate at a reduced level in 1999. Future
operations will focus on serving the Company's institutional client base for
these products. The preferred stock trading activity was largely unchanged from
1997 to 1998.
Taxable trading activities generated revenues of $1,594,000 and $1,483,000
in 1998 and 1997, respectively. Approximately $1,100,000 of revenues were
related to the preferred stock trading operation in each year. The balance of
the revenues in each year related to our taxable bond trading activity, although
the revenues in 1998 are impacted by losses associated with the inventory that
was sold at a loss or marked down to its current market price. The taxable bond
trading activity had revenues of $506,000, which reflected $1,639,000 of
interest revenue offset by $1,133,000 of net losses during 1998. Total revenues
for the taxable bond trading activity were $312,000 in 1997, which included both
bond trading and interest income.
Total expenses of the taxable trading activity were $8,648,000 in 1998
compared to $1,462,000 in 1997, an increase of $7,186,000. The costs of
employee compensation and benefits, including severance, increased $4,267,000
primarily to support the increased taxable bond trading activities. Interest
expense increased $1,942,000 to finance the inventory held for the taxable bond
trading activity. The additional increases primarily relate to other costs of
the taxable bond trading activities and impact all other categories of expenses.
The taxable trading segment had a loss before taxes of $7,054,000 in 1998
compared to net income before taxes of $21,000 in 1997. The taxable bond
trading activity lost $7,170,000 before taxes in 1998.
Other Activities and Intercompany
The financial activities of FCFC, ZCSI, and ZCC have been winding down.
Total revenues of these activities were $1,397,000 in 1998 compared to
$2,217,000 in 1997, a decrease of $820,000. Decreases in FCFC notes receivable
as outstanding principal was paid, and the sales of ZCSI leases and notes
receivable in June 1998, are the primary reasons for the decrease. Expenses
declined $740,000 to $1,530,000 in 1998 from $2,270,000 in 1997. This decline
is primarily related to a decrease in interest expense as bonds outstanding were
redeemed. The combined financial activities of FCFC, ZCSI and ZCC had a net
loss before taxes of $135,000 compared to a net loss before taxes of $53,000 in
1997.
WRR, the only nonfinancial activity of the Company, had a gross margin of
$3,411,000 in 1998 compared to $3,463,000 in 1997, a small decrease. Despite an
increase in revenues of $1,068,000, an increase in the cost of sales of
$1,120,000 more than offset the increased revenues. Product mix in 1998, which
included a higher level of waste disposal services and increasing competition in
the waste services market adversely affecting pricing were the causative
factors. WRR's expenses increased $267,000 to $2,931,000 in 1998, primarily as
the result of a $400,000 increase in the accrual for waste remediation. See
Note 16 of the Notes to Consolidated Financial Statements for additional
information on waste remediation contingencies. This increase was offset by
decreases in administrative expenses. As a result, net income before taxes was
$592,000 in 1998 compared to $940,000 in 1997, a decrease of $348,000.
The administrative activities of BCZ and the Parent generated revenue of
$4,596,000 in 1998 compared to $2,935,000 in 1997, an increase of $1,661,000.
An increase in interest income of $1,925,000 to $2,863,000 in 1998 is the
primary reason for the increase. This increase in interest income is related to
investments in collateralized mortgage obligations ("CMO's") held by the Company
during 1998 as explained in Note 4 of the Notes to Consolidated Financial
Statements. Expenses of BCZ and Company administration decreased $3,103,000 to
$10,779,000 compared to $13,882,000 in 1997. Expenses in 1997 included a one
time write-down of notes receivable and a settlement of a lawsuit totaling
$3,900,000 as explained in Note 17 of the Notes to Consolidated Financial
Statements. The reductions in the write-down and lawsuit settlement expenses in
1997 were partially offset by interest expense incurred on the repurchase
agreements financing the CMO investments described above and expenses associated
with conversion of information systems and securities clearing operations in
1998. Net interest income earned on the CMO investments financed by repurchase
agreements approximated $1,150,000 in 1998. The administrative activities
reduced net income before taxes by approximately $6,181,000 in 1998 compared to
$10,947,000 in 1997, a difference of $4,766,000. The net loss for these
administrative activities reflects their roles as primarily corporate support
functions.
Customers and Raw Materials
None of the Company's businesses is subject to governmental renegotiation
of profits; 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.
None of the businesses is seasonal, although commission income will fluctuate
depending upon the financial condition of the U.S. 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.
WRR is strictly regulated by the Environmental Protection Agency and by
other state and federal regulators, and holds certain licenses to handle and
process hazardous wastes. The revocation of such licenses could have a material
adverse effect on WRR's operations. More stringent future regulations enacted
by these agencies regarding the control of air and water pollution as well as
waste disposal sites could result in increased operating costs and capital
expenditures.
WRR is subject to a consent order of the Wisconsin Department of Natural
Resources for further testing and surface water control, and to remedial action
under RCRA, of contaminants in ground water underneath the plant site in Eau
Claire, Wisconsin.
WRR has disposed of wastes in the past at other recycling sites, and some
of these sites have or may be subject to environmental remediation under the
jurisdiction of state or federal regulators. See Note 16 to the Company's
Financial Statements, and Item 3 of Part I contained in this Form 10-K for a
further description of such environmental matters.
Employees
As of March 1, 1999, approximately 612 persons were employed full time and
89 persons were employed part time by the Company and its subsidiaries.
Executive Officers of the Company
Information regarding the executive officers of the Company, which is not
part of the Company's Proxy Statement for the 1999 Annual Meeting is as follows:
Name Age Position
- ---- --- --------
P. D. Ziegler 49 hairman, President and Chief Executive Officer
D. A. Carlson, Jr. 52 Senior Managing Director, B.C. Ziegler and Company
R. J. Glaisner 57 Senior Managing Director, B.C. Ziegler and Company
G. G. Maclay, Jr. 51 President and Chief Executive Officer of ZAMI
S. C. O'Meara 49 Senior Vice President and General Counsel
J. C. Vredenbregt 45 Vice President-Controller, Treasurer
The term of office of each officer is one year or until his successor is
elected and qualified. There is no arrangement or understanding between any
officer and any other person pursuant to which he was elected as an officer.
Mr. Peter D. Ziegler was elected President of the Company and BCZ on April
21, 1986, and became Chief Executive Officer of both companies on January 1,
1990, and Chairman in April 1997. He previously served as Executive Vice
President since January 1, 1985. He is presently a director of West Bend Mutual
Insurance Company, West Bend, Wisconsin and Trustmark Insurance Company, Lake
Forest, Illinois. Mr. Ziegler is a first cousin of Mr. B. C. Ziegler III, a
Director of the Company.
Mr. Richard J. Glaisner is Senior Managing Director, Ziegler Investment
Group of B.C. Ziegler and Company. He is presently a director of Principal
Preservation Portfolios, Inc. Mr. Glaisner is a nominee for director of the
Company.
Mr. Donald A. Carlson, Jr. is a Senior Managing Director of the Health Care
and Senior Living Investment Banking Group of B.C. Ziegler and Company, a
subsidiary of the Company. Mr. Carlson is a director of the Company.
Mr. Geoffrey G. Maclay, Jr. began employment with the Company on January
22, 1996. He currently is President and Chief Executive Officer of ZAMI. Mr.
Maclay was previously employed as a specialist in lending, marketing, planning
and investments at Firstar Investment Services from 1978 through 1995, and was
self-employed in the financial/strategic consulting business from February 1995
to January 1996.
Mr. S. Charles O'Meara began employment with the Company and BCZ as Senior
Vice President and General Counsel on January 15, 1993 and also serves as
Secretary of the Company.
Mr. Jeffrey C. Vredenbregt began employment May 18, 1987 and serves as Vice
President, Treasurer and Controller.
Year 2000 Costs
Information about the Company's Year 2000 is incorporated by reference from
the section captioned "Year 2000" set forth on pages 36 and 37 of the Company's
1998 Annual Report to Shareholders and is incorporated herein by reference.
Statement Regarding Forward Looking Disclosure
Except for the historical information contained in this Annual Report on
Form 10-K, certain matters discussed herein, including (without limitation)
under Part I, Item 1, "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, environmental matters, successful management of financial
and legal risks which necessarily accompany various segments of the Company's
business, retention of key employees, profitable operations of the institutional
trading desks, successful integration of PMC, Year 2000 issues and competition
in the financial services industry. 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" 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.
ITEM 2. PROPERTIES.
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BCZ owns an office building located at 215 North Main Street in West Bend,
Wisconsin 53095 which serves as the home office for the Company and all
subsidiaries, except ZTT, PMC (and its subsidiaries) and WRR. This three-story
building has approximately 77,000 square feet of space. BCZ also owns two other
commercial buildings located in close proximity to its principal office
building.
BCZ Health Care and Senior Living Investment Banking Group occupies leased
premises at One South Wacker Drive, Suite 3080, Chicago, Illinois 60606; 55
Brendon Way, Suite 500, Indianapolis, Indiana 46077; 1185 Avenue of the
Americas, 32nd Floor, New York, New York 10036; 111 Second Avenue, N.E., Suite
915, St. Petersburg, Florida 33701; 1850 Mt. Diablo Boulevard, Suite 640, Walnut
Creek, California 94596; and 8100 Professional Place, Suite 312, Landover,
Maryland 20785.
BCZ and ZAMI lease commercial office space at 250 East Wisconsin Avenue,
Milwaukee, Wisconsin 53202-4209.
ZTT occupies leased premises at 733 Marquette Avenue, Suite 106,
Minneapolis, Minnesota 55402; 332 Minnesota Street, Suite N-201, St. Paul,
Minnesota 55101; Building 224-2S-34, 3M Center Building, St. Paul, Minnesota
55144; 670 McKnight Road North, Eastern Heights Bank Building, St. Paul,
Minnesota 55119; 21 West Van Buren, Naperville, Illinois 60540; 10526 West
Cermak, Westchester, Illinois 60154; and 17550 West Bluemound Road, Suite 200,
Brookfield, Wisconsin 53045.
PMC occupies leased premises at 555 17th Street, 14th Floor, Denver,
Colorado 80202.
All branch offices of BCZ and ZTT are located in leased premises with
varying lease terms from one to five years.
WRR owns an office building and recycling plant located at 5200 State Road
93, Eau Claire, Wisconsin 54701 which is the sole operating plant for WRR. The
office building and plant buildings are located on approximately nine acres of
land southeast of the city of Eau Claire. In 1994, WRR purchased an additional
19 acres of land in the vicinity of its operating plant. In 1995, through its
wholly-owned subsidiary, WRR Northwest Enterprises Co., Inc., WRR purchased an
approximately six acre site with improvements located at 5100 Highway 93 South,
Eau Claire, Wisconsin, for use as a manufacturing, sales and service facility
for truck equipment.
BCZ owns approximately 40 acres of unimproved land in West Bend, Wisconsin,
which is held for future use as the potential site of the Company's home office.
ITEM 3. LEGAL PROCEEDINGS.
------------------
Note 16 to the Consolidated Financial Statements contained in this Form 10-
K refers to environmental matters pending with respect to WRR. The first
environmental disclosure referred to in Note 16 is an administrative proceeding
pending before the EPA, Region 5, Docket #V-W-96-C-343. The second site
referred to is not in litigation, but remediation work is being performed by
various waste generators at the site under the supervision of the DNR. The
third site referred to is pending in the United States District Court for the
Northern District of Indiana, Case No. 2:97 CV 372JM.
Many of the foregoing legal matters are in preliminary stages, involve
complex issues of law and fact and may proceed for protracted periods of time.
The amount of the eventual liability, if any, from these proceedings cannot be
determined with certainty; however, in the opinion of the Company's management,
based upon the information presently known, the ultimate liability of the
Company, if any, arising from the pending legal proceedings, as well as from
asserted legal claims and known potential legal claims which are probable of
assertion, taking into account established accruals for estimated liabilities,
should not be material to the financial position of the Company but could be
material to results of operations or cash flows for a particular quarter or
annual period.
Other than as mentioned above, neither the Company nor any of its
subsidiaries is a party to material litigation, other than ordinary routine
litigation incidental to its business.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
----------------------------------------------------
No matters were submitted during the fourth quarter of the fiscal year 1998
to a vote of security holders.
PART II
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 1998 and 1997 fiscal years and information about the cash
dividends paid on the Company's Common Stock for each quarter during 1998 and
1997 may be found on page 40 of the Company's 1998 Annual Report to Shareholders
incorporated herein by reference. On March 1, 1999, the average of the bid and
ask price of the Company's Common Stock was $20.5625. As of March 1, 1999, the
Company had 422 record holders of its Common Stock.
ITEM 6. SELECTED FINANCIAL DATA.
-----------------------
Page references to the Company's 1998 Annual Report in this Part II refer
to the hard copy print report, and not to pages on the SEC's electronic file
system, EDGAR.
Information about the Company's operating revenue, net income, earnings per
share of common stock, cash dividends per share declared, total assets, long-
term obligations, short-term notes payable, shareholders' equity and book value
per share for the fiscal years 1994 through 1998 may be found on page 38 of the
Company's 1998 Annual Report to Shareholders 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 conditions and
results of operations for the fiscal years 1998, 1997 and 1996 may be found on
pages 29 through 37 of the Company's 1998 Annual Report to Shareholders
incorporated herein by reference.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK.
----------------------------------------------------------
Market risk to the Company arises from exposure to changes in interest
rates, and other relevant market rate or price risk which impact an instrument's
financial value. The Company is exposed to market risk from changes in interest
rates through its trading and non-trading activities. To strive to reduce such
risks, the Company selectively uses hedging strategies which, while not perfect,
are designed to hedge market risk. All hedging transactions are authorized and
executed pursuant to existing policies and procedures, which prohibit the use of
such derivative instruments for trading purposes.
Interest Rate Risk
The Company enters into interest rate agreements and purchases futures
contracts to minimize the effect of potential interest rate changes. The
Company's accounting policies for these agreements are described in Note 1 of
the Company's Notes to Consolidated Financial Statements and is incorporated
herein. For additional information on the Company's financial instruments, see
also Note 20 to the Consolidated Financial Statements.
The table below provides information about the Company's financial
instruments that are sensitive to changes in interest rates, including interest
rate forward agreements, securities inventory and debt obligations. For
securities inventory and debt obligations, the table presents principal cash
flows and related weighted average interest rates by expected maturity dates.
For interest rate forward agreements, the table presents notional amounts and
weighted average interest rates by expected (contractual) maturity dates.
Notional amounts are used to calculate the contractual payments to be exchanged
under the contracts. For futures contracts, the table presents the notional
amounts and the current market value. Fair value is derived in accordance with
the accounting policies described in Note 19 to the Consolidated Financial
Statements. Trading accounts are shown in the caption "Securities Inventory",
"Securities purchased under agreements to resell", "Securities sold under
agreements to repurchase", and "Futures contracts", and non-trading accounts are
shown in all other captions.
I. Forward Agreement
Notational Fair
Amount Value
-------------------
Forward Debt Services Agreement 5,005,000 79,859
- -------------------------------
Index: Municipal Market Data Services AAA/Aaaa Scale plus a forward spread
Forward Interest Rate Agreement 5,005,000 (82,385)
- -------------------------------
Index: Municipal Market Data Services AAA/Aaaa Scale plus a forward spread
(Hedge to Instrument Listed above in Table I)
For additional information, see Note 20 to the Consolidated Financial
Statements.
II. Trading and Non Trading Portfolio
ASSETS
- ------
Expected Maturity Dates
(In U.S. Dollars)
Securities Inventory - fixed rate 1999 2000 2001 2002 2003 Thereafter Total Fair Value
- --------------------------------- ---- ---- ---- ---- ---- ---------- ----- ----------
Municipal bond issues 130,000 160,000 522,000 162,000 1,070,000 48,540,823 50,584,823 48,741,184
Weighted average interest rate 4.04% 4.25% 4.51% 4.01% 4.97% 5.63%
Collateralized Mortgage obligations(1) 7,530,851 7,530,851 5,251,202
Weighted average interest rate 8.81%
Institutional Bond 13,000 2,922,000 2,935,000 2,827,386
Weighted average interest rate 9.12% 7.26%
Preferred Stock 3,476,229 3,476,229 3,476,229
Weighted average dividend rate 6.97%
Other 1,000 11,000 285,000 2,894,647 3,191,647 3,338,891
Weighted average interest rate 6.80% 8.68% 5.17% 7.08%
Securities Inventory - variable rate
- ------------------------------------
Variable rate demand notes 61,795,000 61,795,000 61,795,000
Weighted average interest rate 4.12%
Securities purchased under
- --------------------------
agreement to resell(2) 4,500,000 4,500,000 4,753,125
- -------------------
Weighted average interest rate 4.46%
Notes receivable
- ----------------
Weighted average interest rate 5,509,630 5,509,630 5,509,630
9.20%
Other investments 28,587,845 28,587,845 28,587,845
- -----------------
Weighted average interst rate 8.91%
LIABILITIES
- -----------
Short-term notes payable(2) 13,501,519 13,501,519 13,501,519
- ------------------------
Weighted average interest rate 5.86%
Securities sold under agreement
- -------------------------------
to repurchase(2) 31,040,000 31,040,000 31,040,000
- -------------
Weighted average interest rate 5.57%
Securities sold not yet purchased
- --------------------------------- 4,500,000 4,500,000 4,644,855
Weighted average interest rate 5.38%
Notes payable to banks - fixed rate 1,087,687 1,087,687 1,087,687
- -----------------------------------
Weighted average interest rate 10.11%
Notes payable to banks -
- ------------------------
variable rate 1,689,000 1,689,000 1,689,000
- -------------
Weighted average interest rate 6.82%
Bonds payable - fixed rate(1) 5,369,797 5,369,797 5,369,797
- --------------------------
Weighted average interest rate 8.21%
(1) Assumes no prepayment
(2) The information shown above includes actual interest rates at December 31, 1998 and assumes no changes in interest rates
in 1999 or thereafter.
III. Futures Contracts
Futures Contracts (short)
- -------------------------
Notional Amount 1,000,000
Market Value 1,280,312
Price Range: 126.625 to 128.875
Equity Risk
In addition to interest rate risk, the Company faces market risk associated
with the fees it earns on its portfolio in the form of equity risk. Ziegler
Asset Management, Inc. manages a portfolio of $1.35 billion of separately
managed and mutual fund accounts. Additionally, BCZ's and PMC's retail accounts
have over $2 billion of assets, a portion of which is invested in managed
products from which BCZ and PMC receive periodic fees. Exposure exists to
changes in equity values due to the fact that fee income is primarily based on
equity balances. While this exposure is present, quantification remains
difficult due to the number of the other variables affecting fee income.
Interest rate changes can also have an effect on fee income for the above stated
reasons.
In addition to the above market risks, material limitations exist in
determining the overall net market risk exposure of the Company. Computation of
prospective effects of hypothetical interest rate changes are based on many
assumptions, including levels of market interest rates, predicted prepayment
speeds, and projected decay rates of assets under management and retail customer
account balances. Therefore, the above outcomes should not be relied upon as
indicative of actual results.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
--------------------------------------------
The Company's Consolidated Financial Statements containing consolidated
balance sheets for the fiscal years 1998 and 1997 may be found on page 8 of the
Company's 1998 Annual Report to Shareholders; consolidated statements of
operations for the fiscal years 1998, 1997 and 1996 and consolidated statements
of cash flows for the fiscal years 1998, 1997 and 1996 may be found on pages 9,
11 and 12 of the Company's 1998 Annual Report to Shareholders; consolidated
statements of stockholders' equity for 1998, 1997 and 1996 may be found on page
10 of the Company's 1998 Annual Report to Shareholders. The consolidated notes
to financial statements, together with the report of Arthur Andersen LLP, may be
found on pages 13 through 28 of the Company's 1998 Annual Report to
Shareholders. Such Consolidated Financial Statements and report of Arthur
Andersen LLP are incorporated herein by reference.
ITEM 9. CHANGES AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
------------------------------------------------------------
FINANCIAL DISCLOSURE.
---------------------
There have been no reportable events during the fiscal years 1998 or 1997.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY.
-----------------------------------------------
Information about the Company's directors and those persons nominated to
become directors may be found on pages 3, 4, 5 and 6 of the Company's March 22,
1999 Proxy Statement incorporated herein by reference.
Information regarding the executive officers, which is not a part of the
Company's Proxy Statement, is set forth in Part I above.
ITEM 11. EXECUTIVE COMPENSATION.
-----------------------
Information required under Item 11 about the compensation paid by the
Company to its Chief Executive Officer and other executive officers of the
Company may be found on pages 6, 7 and 8 of the Company's March 22, 1999 Proxy
Statement incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
--------------------------------------------------------------
Information concerning principal securities holders and securities holdings
of management may be found on page 3 of the Company's March 22, 1999 Proxy
Statement incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
----------------------------------------------
There have been no transactions since the beginning of fiscal year 1998, or
any currently proposed transactions, or series of similar transactions, to which
the Company or any of its subsidiaries was or is to be party in which the amount
exceeds $60,000 and in which any director, executive officer, any nominee for
election as a director, any security holder owning of record or beneficially
more than 5% of the Common Stock of the Company, or any member of the immediate
family of any of the foregoing persons had or will have a direct material
interest.
Information in response to this Item is incorporated herein by reference to
the information under the captions "Executive Compensation" and "Compensation of
Directors."
PART IV
ITEM 14(A). EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
----------------------------------------------------------------
1. Financial Statements
The following financial statements are incorporated herein by reference in
Part II, Page 16 at Item 8 above.
(i) Consolidated balance sheets - December 31, 1998 and 1997.
(ii) Consolidated statements of operations - years ended December
31, 1998, 1997 and 1996.
(iii) Consolidated statements of cash flows - years ended December
31, 1998, 1997 and 1996.
(iv) Consolidated statements of stockholders' equity - years ended
December 31, 1998, 1997 and 1996.
(v) Notes to Consolidated Financial Statements - December 31,
1998 and 1997.
(vi) Report of Independent Public Accountants.
2. Supplementary Data and Financial Statement Schedule
The following financial statement schedule in response to this Item 14(a)
is submitted as a separate section of this report:
Report of Independent Public Accountants on
Supplemental Schedule.
Report of Independent Public Accountants on and Financial Statements of
Ziegler Mortgage Securities, Inc. II (Commission file number: 33-92454)
ITEM 14(B). REPORTS ON FORM 8-K
-------------------
The Company filed a Current Report on Form 8-K, dated December 28, 1998 to
report in Item 2 the acquisition of PMC and in Item 7 the related financial
statements and exhibits. The Current Report included the following financial
statements: financial statements of business acquired; consolidated balance
sheets; consolidated statements of operations; consolidated statements of
earnings; consolidated statements of cash flow; notes to consolidated financial
statements; independent auditors' report; consolidated statement of earnings for
nine months ended September 30, 1998; consolidated statement of cash flow for
nine months ended September 30, 1998; notes to financial statements.
THE ZIEGLER COMPANIES, INC.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
- ------------------------------------------------------------------------------------------------------------------------------------
COL. A COL.B COL. C COL. D COL. E
- ------------------------------------------------------------------------------------------------------------------------------------
Additions
--------------------------------
Balance at Charged Charged To Balance at
December 31, to Other Accounts- Deductions- December 31,
DESCRIPTION 1997 Expense (Note 1) (Note 2) 1998
- ------------------------------------------------------------------------------------------------------------------------------------
Reserve for Loan Losses (Note 3) $ 2,899,345 $ 139,000 $ (340,000) $ (122,575) $ 2,575,770
=========== =========== =========== =========== ===========
Balance at Balance at
December 31, December 31,
1996 1997
---- ----
Reserve for Loan Losses (Note 3) $ 406,852 $ 2,715,762 $ (199,942) $ (23,327) $ 2,899,345
=========== =========== =========== =========== ===========
Balance at Balance at
December 31, December 31,
1995 1996
---- ----
Reserve for Loan Losses (Note 3) $ 1,508,967 $ 415,369 $ 110,290 $(1,627,774) $ 406,852
=========== =========== =========== =========== ===========
(1) The additions 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 24, 1999 By:/s/ Peter D. Ziegler
---------------------------
Peter D. Ziegler
President and Chief Executive Officer, Director
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 24, 1999 /s/ Donald A. Carlson
--------------------------------
Donald A. Carlson, Director
March --, 1999
--------------------------------
John C. Frueh, Director
March 24, 1999 /s/ John R. Green
--------------------------------
John R. Green, Director
March 24, 1999 /s/ Peter R. Kellogg
--------------------------------
Peter R. Kellogg, Director
March 24, 1999 /s/ Stephen A. Roell
--------------------------------
Stephen A. Roell, Director
March 24, 1999 /s/ Jeffrey C. Vredenbregt
--------------------------------
Jeffrey C. Vredenbregt
Vice President, Treasurer and Controller
March 24, 1999 /s/ Frederick J. Wenzel
--------------------------------
Frederick J. Wenzel, Director
March 24, 1999 /s/ Bernard C. Ziegler III
--------------------------------
Bernard C. Ziegler III, Director
March 24, 1999 /s/ Peter D. Ziegler
--------------------------------
Peter D. Ziegler
President and Chief Executive Officer, Director
THE ZIEGLER COMPANIES, INC.
Exhibit Index to Report on Form 10-K
for the fiscal year ended December 31, 1998
Exhibit Filed
No. Description 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, previously filed as Exhibit D to the
Company's Proxy Statement dated March 8, 1993 as amended
herein by Exhibit 3.1.
3.3 By-Laws of the Company, as amended on February 18, 1997
(changing number of directors from nine to eight; see Article III,
Section 3.02 of the By-Laws).
3.4 Amendment to Bylaws, effective February 1999 X
4.1 Indentures and Guaranty Agreement incorporated herein by
reference under item 10 below.
10 Material Contracts
10.1 Trust Indenture dated December 1, 1991 between Ziegler
Collateralized Securities, Inc. and M&I First National Bank
incorporated by reference to Exhibit 4.1 to Registration
Statement on Form S-3, filed September 11, 1991,
Commission File No. 33-42723.
10.2 Third Supplemental Indenture between Ziegler Collateralized
Securities, Inc. and M&I First National Bank, dated June 1, 1993,
incorporated by reference to Exhibit 10(d) on the Company's
Annual Report on Form 10-K for the year ended December 31, 1995,
filed March 22, 1996.
10.3 Fourth Supplemental Indenture between Ziegler Collateralized
Securities, Inc. and M&I First National Bank dated July 15, 1993,
incorporated by reference to Exhibit 4.1A of Amendment No. 3
to Ziegler Collateralized Securities, Inc. Form S-3 Registration
Statement, filed July 20, 1993, Commission File No. 33-42723.
10.4 Fifth Supplemental Indenture between Ziegler Collateralized
Securities, Inc. and M&I First National Bank, dated December 1,
1993, incorporated by reference to Exhibit 10(e) on the Company's
Annual Report on Form 10-K for the year ended December 31, 1995,
filed March 22, 1996.
10.5 Sixth Supplemental Indenture between Ziegler Collateralized
Securities, Inc. and M&I First National Bank, dated
October 1, 1994, incorporated by reference to Exhibit 10(f)
on the Company's Annual Report on Form 10-K for the year
ended December 31, 1995, filed March 22, 1996.
10.6 Seventh Supplemental Indenture between Ziegler
Collateralized Securities, Inc. and M&I First National
Bank, dated as of July 15, 1993, incorporated by reference
to Exhibit 4.1A of Amendment No. 4 to Ziegler Collateralized
Securities, Inc. Form S-3 Registration Statement, filed
August 31, 1995, Commission File No. 33-42723.
10.7 Eighth Supplemental Indenture between Ziegler Collateralized
Securities, Inc. and M&I First National Bank, dated as of
September 1, 1995, incorporated by reference to Exhibit 10(d)
of Form 10-K for the year ended December 31, 1996.
10.8 Ninth Supplemental Indenture between Ziegler Collateralized
Securities, Inc. and M&I First National Bank, dated as of
May 1, 1996, incorporated by reference to Exhibit 10(e) of
Form 10-K for the year ended December 31, 1996.
10.9 $70,000,000 Revolving Credit Agreement, dated as of January 16,
1998 among B. C. Ziegler and Company, as Borrower, The First
National Bank of Chicago, as Agent, and other lenders named
therein as Agents.
10.10 Guaranty Agreement between The Ziegler Company, Inc. and M&I
First National Bank dated December 1, 1991, incorporated by reference
to Exhibit 4.4 to the Registration Statement on Form S-3, Commission
File No. 33-42723.
**10.11 1993 Employees' Stock Incentive Plan incorporated by reference
from the March 8, 1993 Proxy Statement.
**10.12 1998 Stock Incentive Plan incorporated by reference from
the March 31, 1998 Proxy Statement.
10.13 Statement Re Computation of Per Share Earnings.
(incorporated from Annual Report).
13.1 1998 Annual Report to Shareholders. X
21.1 List of Subsidiaries of the Company. X
23.1 Consent of Independent Public Accountants. X
27 Financial Data Schedule X
**Executive Compensation Arrangement