<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended June 30, 1997
or
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 333-22679
ZARING NATIONAL CORPORATION
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
OHIO 31-1506058
- --------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
11300 Cornell Park Drive, Suite 500, Cincinnati, Ohio 45242-1825
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
513-489-8849
- --------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(g) of the Act:
Common Shares, without 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 twelve months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to the filing
requirements for the past 90 days.
YES X NO
----- -----
Number of common shares outstanding as of June 30, 1997: 4,780,827
PAGE 1
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ZARING NATIONAL CORPORATION
INDEX
<TABLE>
<CAPTION>
Page
----
<S> <C>
PART I FINANCIAL INFORMATION
Item 1 Consolidated Financial Statements
Consolidated Balance Sheets,
June 30, 1997 and 1996 (unaudited),
and December 31, 1996 (audited)...............................3
Consolidated Statements of Income (unaudited),
Three Months Ended June 30, 1997 and 1996
Six Months Ended June 30, 1997 and 1996.......................5
Consolidated Statement of Shareholders' Equity,
Six Months Ended June 30, 1997 (unaudited)....................6
Consolidated Statements of Cash Flows,
Six Months Ended June 30, 1997 and 1996 (unaudited)...........7
Notes to Consolidated Financial Statements (unaudited)............8
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations..........................11
PART II OTHER INFORMATION..........................................................16
SIGNATURES.................................................................18
</TABLE>
PAGE 2
<PAGE> 3
PART 1. FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
ZARING NATIONAL CORPORATION
CONSOLIDATED BALANCE SHEETS
ASSETS
(Dollars in Thousands)
<TABLE>
<CAPTION>
Unaudited
June 30, December 31,
---------------------- ------------
1997 1996 1996
---- ---- ----
<S> <C> <C> <C>
Cash and cash equivalents $ 2,142 $ 2,877 $ 2,440
Accounts receivable 834 348 553
Inventories
Site built single family homes 46,769 45,614 47,664
Land, development costs and finished lots 39,698 33,108 35,988
Manufactured single family homes 2,775 - -
Property and equipment, net 3,568 1,864 2,619
Investments in and advances to
unconsolidated joint ventures 581 886 1,086
Future tax benefits 675 801 675
Cash surrender value of life insurance and
other assets 5,024 3,406 3,672
======== ======== ========
$102,066 $ 88,904 $ 94,697
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
PAGE 3
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ZARING NATIONAL CORPORATION
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND SHAREHOLDERS' EQUITY
(Dollars in Thousands)
<TABLE>
<CAPTION>
Unaudited
June 30, December 31,
---------------------------------------- --------------------
1997 1996 1996
---- ---- ----
<S> <C> <C> <C>
Liabilities:
Revolving credit facility $ 20,750 $ 8,095 $ 15,500
Term notes payable 17,245 20,245 18,745
Accounts payable and other accrued liabilities 10,471 9,427 9,115
Customer deposits 2,648 4,452 2,549
Income taxes payable 762 941 107
------------- -------------- --------------
Total liabilities 51,876 43,160 46,016
------------- -------------- --------------
Commitments and contingencies
Shareholders' equity:
Common shares, no par value, 18,000,000
shares authorized, 4,780,827 issued and
outstanding at June 30, 1997, 5,035,520 issued, and
4,780,150 outstanding at
June 30, 1996, and 5,036,480 issued and
4,781,110 outstanding at December 31, 1996 25,146 25,136 25,146
Additional paid-in capital 5,678 7,687 7,687
Retained earnings 19,366 14,928 17,854
------------- -------------- --------------
50,190 47,751 50,687
Less Treasury shares, at cost, 255,370 shares at
June 30, 1996 and December 31, 1996 - (2,007) (2,006)
------------- -------------- --------------
Total shareholders' equity 50,190 45,744 48,681
------------- -------------- --------------
$ 102,066 $ 88,904 $ 94,697
============= ============== ==============
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
PAGE 4
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ZARING NATIONAL CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(Dollars in Thousands)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
----------------------------- ------------------------------
1997 1996 1997 1996
------------- ------------- -------------- -------------
<S> <C> <C> <C> <C>
Net revenues:
Site built single family homes $ 52,463 $ 43,415 $ 95,564 $ 70,670
Retail distribution manufactured single family homes 1,410 - 2,422 -
------------- ------------- -------------- -------------
Total net revenues 53,873 43,415 97,986 70,670
Expenses:
Cost of sales site built single family homes 43,957 35,066 79,537 56,864
Cost of sales retail distribution manufactured single
family homes 1,102 - 1,857 -
Interest 587 673 1,341 1,339
Selling, general and administrative 6,471 5,262 12,763 9,480
------------- ------------- -------------- -------------
Total expenses 52,117 41,001 95,498 67,683
Other (income) expense 29 (99) (41) (144)
------------- ------------- -------------- -------------
Income before provision for income taxes 1,727 2,513 2,529 3,131
Income taxes 695 990 1,017 1,230
------------- ------------- -------------- -------------
Net income $ 1,032 $ 1,523 $ 1,512 $ 1,901
============= ============= ============== =============
Earnings per share $ 0.22 $ 0.32 $ 0.32 $ 0.40
============= ============= ============== =============
Weighted average shares outstanding 4,781,063 4,777,360 4,781,063 4,777,360
============= ============= ============== =============
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
PAGE 5
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ZARING NATIONAL CORPORATION
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(Unaudited)
(Dollars in Thousands)
<TABLE>
<CAPTION>
Treasury Shares
Additional ---------------
Shares Common Paid-In Number Retained
Issued Shares Capital of Shares Amount Earnings Total
------ ------ ------- --------- ------ -------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1996 ............ 5,036,480 $ 25,146 $ 7,687 255,370 ($ 2,006) $ 17,854 $ 48,681
Purchase of Common and
Treasury Shares................... (253) -- (3) 30 -- -- (3)
Retirement of Treasury Shares.......... (255,400) -- (2,006) (255,400) 2,006 -- --
Net Income............................. -- -- -- -- -- 1,512 1,512
----------- ---------- -------- ---------- --------- -------- --------
Balance, June 30, 1997................. 4,780,827 $ 25,146 $ 5,678 0 $ 0 $ 19,366 $ 50,190
=========== ========== ======== ========== ========= ======== ========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
PAGE 6
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ZARING NATIONAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Dollars in Thousands)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
1997 1996
-------- -------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income............................................................................. $ 1,512 $ 1,901
Adjustments to reconcile net income to cash
provided by operating activities --
Depreciation........................................................................ 718 500
Loss (Income) from unconsolidated joint ventures.................................... 40 (143)
Change in assets and liabilities:
Receivables......................................................................... (281) (240)
Inventories ........................................................................ (5,590) (4,562)
Cash surrender value of life insurance and other assets............................. (1,352) (926)
Accounts payable and other accrued liabilities...................................... 1,356 418
Income taxes payable................................................................ 655 87
Customer deposits................................................................... 99 2,749
-------- -------
Net cash used by operating activities.......................................... (2,843) (216)
-------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment.................................................... (1,667) (566)
Distributions from unconsolidated joint ventures....................................... 465 835
-------- -------
Net cash provided (used) by investing activities.................................... (1,202) 269
-------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings (repayments) on notes payable............................................... 3,750 (1,221)
Purchase of common shares for retirement............................................... (3) (468)
-------- -------
Net cash provided (used) by financing activities.................................... 3,747 (1,689)
-------- -------
DECREASE IN CASH AND CASH EQUIVALENTS...................................................... (298) (1,636)
CASH AND CASH EQUIVALENTS, beginning of year............................................... 2,440 4,513
-------- -------
CASH AND CASH EQUIVALENTS, end of period................................................... $ 2,142 $ 2,877
======== =======
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for -
Interest............................................................................ $ 1,304 $ 825
------- -------
Income taxes........................................................................ $ 362 $ 1,143
------- -------
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
PAGE 7
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ZARING NATIONAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Basis of Presentation
---------------------
Effective in May 1997, Zaring National Corporation implemented the formation of
a holding company structure which results in the accompanying consolidated
financial statements including the accounts of Zaring National Corporation and
subsidiaries (the Company). The subsidiaries of the Company include the
following: Zaring Homes, Inc. and its subsidiaries, Zaring Holdings, Inc.,
Zaring Homes of Indiana LLC, Zaring Homes Kentucky LLC; and HomeMax, Inc. and
its subsidiary, HomeMax North Carolina, Inc.
The principal business of the Company's subsidiary, Zaring Homes, Inc. (Zaring
Homes) is the designing, constructing, marketing and selling of single-family
homes and the acquisition and development of land for sale as residential
building lots in the midwest and southeast United States. Zaring Homes began
operations in Cincinnati, Ohio in 1964 and commenced operations in Nashville,
Tennessee in 1986. In 1994, operations commenced in Raleigh/Durham, North
Carolina and Indianapolis, Indiana. In 1996, operations began in Louisville,
Kentucky, Charlotte, North Carolina, and Knoxville, Tennessee.
In November 1996, the Company formed HomeMax, Inc. (HomeMax) for the purpose of
entering into the retail distribution of manufactured housing. HomeMax, based in
Raleigh, North Carolina, commenced operations in the first quarter of 1997 in
conjunction with the acquisition of a retailer in the Raleigh market.
The accompanying consolidated financial statements have been prepared in
accordance with the rules and regulations of the Securities and Exchange
Commission for interim financial information. Since such financial statements do
not include all the information and footnotes required by generally accepted
accounting principles for complete financial statements, they should be read in
conjunction with the consolidated financial statements and related footnotes
included in the Form 10-K for the fiscal year ended December 31, 1996 filed with
the Securities and Exchange Commission. The financial statements are unaudited,
but in the opinion of management, all adjustments (consisting of normal
recurring adjustments) considered necessary for a fair presentation of the
Company's unaudited consolidated financial statements as of June 30, 1997, and
for the six months ended June 30, 1997 have been included. Operating results for
the six months ended June 30, 1997, are not necessarily indicative of the
results of the entire year.
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2. Capitalized Interest
--------------------
Interest is capitalized on land in the process of development and residential
housing construction costs during the development and construction period. The
following table summarizes the activity with respect to capitalized interest:
<TABLE>
<CAPTION>
Three Months Six Months
Ended June 30, Ended June 30,
--------------------- ----------------------
(Dollars in Thousands) 1997 1996 1997 1996
------- ------- ------- ---------
<S> <C> <C> <C> <C>
Capitalized interest, beginning of period $ 1,066 $ 1,007 $ 1,074 $ 1,123
Interest incurred 813 583 1,539 1,139
Interest expensed (520) (667) (1,254) (1,339)
------- ------- ------- -------
Capitalized interest, end of period $ 1,359 $ 923 $ 1,359 $ 923
======= ======= ======= =======
</TABLE>
3. Notes Payable
-------------
On May 13, 1996, the Company entered into an unsecured $87.5 million syndicated
credit facility. The new credit facility consists of a $72.5 million revolving
credit facility and a $15 million term loan. Up to ten million of the revolving
credit facility may be used for letters of credit. The revolving credit facility
bears interest at a) the greater of the prime rate or the Federal Funds rate
plus .5% or b) Euro-rate plus 1.25% to 1.625% depending on the Company's
leverage ratio. The revolving credit facility is a three-year facility expiring
July 1, 1999.
As of June 30, 1997, the Company had outstanding balances of $19.5 million under
the revolving credit facility, and $6.1 million in letters of credit.
Term notes payable, at June 30, 1997, include a $12 million term loan, expiring
April 1, 2001, which bears interest at a) the greater of the Prime Rate or the
Federal Funds rate plus.5% or b) Euro-rate plus 1.375% to 1.75% depending on the
Company's leverage ratio and is payable in quarterly installments of $750,000,
and other term loans of $5.2 million which bear interest at a fixed rate of
7.95% and are payable in 12 equal quarterly installments beginning September
1998.
4. Shareholders' Equity
--------------------
The Company is authorized to issue up to 2,000,000 preferred shares of which
1,000,000 are voting. No preferred shares have been issued.
During the second quarter of fiscal 1997, the Company retired 255,653 treasury
shares.
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5. New Pronouncements
------------------
In 1997, the Financial Accounting Standards Board (FASB) issued Statement of
Financial Accounting Standards No. 128, "Earnings Per Share" (SFAS 128),
effective for fiscal years ending after December 15, 1997. The new Standard
replaces primary Earnings Per Share (EPS) with basic EPS, simplifies EPS
calculations and requires restatement of prior year earnings. Although the
Company has not adopted SFAS 128 at this time, management does not anticipate a
material impact on the Company's 1997 financial statements.
In June 1997, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards No. 130, "Reporting Comprehensive Income"
(SFAS No. 130), which requires that comprehensive income and the associated
income tax expense or benefit be reported in a financial statement that is
displayed with the same prominence as other financial statements with an
aggregate amount of comprehensive income reported in that same financial
statement. SFAS No. 130 permits the statement of changes in shareholder's equity
to be used to meet this requirement. "Other Comprehensive Income" refers to
revenues, expenses, gains and losses that under generally accepted accounting
principles are included in comprehensive income but not in net income. The
Company intends to adopt SFAS No. 130 in the first quarter of fiscal 1998. The
Company anticipates that adoption of SFAS No. 130 will not have a material
impact on the Company's 1998 financial statements.
In June 1997, the FASB issued Statement of Financial Accounting Standards No.
131, "Disclosures About Segments of an Enterprise and Related Information" (SFAS
No. 131), which requires disclosures for each segment in which the chief
operating decision maker organizes these segments within a company for making
operating decisions and assessing performance. Reportable segments are based on
products and services, geography, legal structure, management structure and any
manner in which management desegregates a company. The Company intends to adopt
SFAS No. 131 in the first quarter of fiscal 1998.
6. Reclassifications
-----------------
Certain amounts in the consolidated financial statements of 1996 have been
reclassified to conform to the 1997 presentation.
PAGE 10
<PAGE> 11
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
- ---------------------
OVERVIEW
The Company's business and the homebuilding industry are subject to changes in
national and local economic conditions, as well as other factors, including
employment levels, availability of financing, interest rates, consumer
confidence and housing demand. The Company's results of operations for the
periods presented reflect the cyclical nature of the housing industry, both site
built and manufactured.
The Company reported consolidated revenues of $53.9 million for the second
quarter ended June 30, 1997, compared to $43.4 million for the same quarter in
1996. Net income for the second quarter 1997 was $1.0 million or $0.22 per
share, compared to $1.5 million or $0.32 per share for the second quarter 1996.
For the six months ended June 30, 1997, consolidated revenues were $98.0 million
compared to $70.7 million for the same quarter in 1996. Net income for the six
months ended June 30, 1997 was $1.5 million or $0.32 per share, compared to $1.9
million or $0.40 per share for the second quarter 1996.
PAGE 11
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The following table sets forth for the periods indicated certain information
regarding the Company's operations.
<TABLE>
<CAPTION>
(Dollars in thousands)
Three Months Six Months
Ended June 30, Ended June 30,
-------------------------------------- -------------------------------------
1997 1996 1997 1996
----------------- ---------------- ---------------- ----------------
Amount % Amount % Amount % Amount %
------ ----- ------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Site Built Single Family Homes:
Revenues (1) $ 52,463 100.0 $ 43,415 100.0 $ 95,564 100.0 $ 13,806 100.0
Cost of sales 43,957 83.8 35,066 80.8 79,537 83.2 56,864 80.5
Interest 1,607 3.1 1,576 3.6 3,055 3.2 3,058 4.3
Selling, general and
administrative expenses 5,487 10.5 4,916 11.3 10,639 11.1 8,916 12.6
Other Income (Expense) 7 -- 99 .2 13 -- 144 .2
-------- ----- -------- ----- -------- ----- -------- -----
Pretax Site Built Contribution 1,419 2.6 1,956 4.5 2,346 2.5 1,976 2.8
Retail Distribution Manufactured Single Family Homes:
Revenues (1) 1,410 100.0 -- -- 2,422 100.0 -- --
Cost of sales 1,102 78.2 -- -- 1,857 76.7 -- --
Interest 67 4.8 -- -- 87 3.6 -- --
Selling, general and
administrative expenses 461 32.7 -- -- 964 39.8 -- --
Other Income (Expense) (36) (2.6) -- -- 28 1.2 -- --
-------- ----- -------- ----- -------- ----- -------- -----
Pretax Retail Distribution Loss (256) (18.3) -- -- (458) (18.9) -- --
Corporate (Income) and Expenses:
Interest Income from
Subsidiaries, Net (1,087) -- (903) -- (1,801) -- (1,719) --
General and Administrative 523 -- 346 -- 1,160 -- 564 --
-------- ----- -------- ----- -------- ----- -------- -----
Income Before Taxes 1,727 3.2 2,513 5.8 2,529 2.6 3,131 4.4
Income Taxes 695 1.3 990 2.3 1,017 1.0 1,230 1.7
-------- ----- -------- ----- -------- ----- -------- -----
Net Income $ 1,032 1.9 $ 1,523 3.5 $ 1,512 1.6 $ 1,901 2.7
======== ===== ======== ===== ======== ===== ======== =====
<FN>
(1) Revenue from a sale is recognized upon the closing of the sale.
</TABLE>
PAGE 12
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SITE BUILT SINGLE FAMILY HOMES
The following table sets forth certain information regarding Site Built Single
Family Homes:
<TABLE>
<CAPTION>
(Dollars in thousands, except unit data)
Three Months Six Months
Ended June 30, Ended June 30,
------------------------------------- --------------------------------------
1997 1996 1997 1996
---------------- ---------------- ----------------- -----------------
Dollars Units Dollars Units Dollars Units Dollars Units
------- ----- ------- ----- ------- ----- ------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
New Orders (1) $57,085 243 $42,620 184 $105,572 441 $112,629 488
Closings 51,584 212 42,937 191 94,124 390 69,975 311
Backlog (2) 75,641 314 89,687 394 75,641 314 89,687 394
Average revenue
per closing $243 $225 $241 $225
Average value of
new order sales $235 $232 $239 $231
<FN>
(1) New orders represent total new orders received during the period, net of
cancellations.
(2) Backlog includes sales orders which have not yet closed.
</TABLE>
Net revenues for the quarter and the six months ended June 30, 1997 increased
20.8% and 35.2%, respectively. For the same periods, the number of site built
home closings increased 11.0% and 25.4%, respectively. Zaring Homes experienced
increases in homes closed in most divisions primarily due to the greater number
of communities from which homes were offered for sale during 1997. The average
selling price of homes closed increased 8.0% for the quarter ended June 30, 1997
compared to the same quarter in 1996 and 7.1% for the six months ended June 30,
1997 compared to six months ended June 30, 1996. The average selling price of
homes is affected by various factors such as the size of the home, changes in
selling price, lot premiums and the number of options selected by the home
buyer.
Cost of sales increased $8.9 million or 25% from $35.1 million for the quarter
ended June 30, 1996 to $44.0 million for the quarter ended June 30, 1997. For
the six months ended June 30, 1997, cost of sales increased $22.6 million or
40%, from $56.9 million for the period ended June 30, 1996, to $79.5 million for
the same period in 1997.
Interest expense (net of amounts capitalized) totaled $1.6 million for each of
the three months ended June 30, 1997 and 1996 and $3.1 million for each of the
six months ended June 30, 1997 and 1996.
The resulting gross margin percentage declined from 19.2% for the quarter ended
June 30, 1996, to 16.2% for the same period in 1997. During the six month period
ended June 30, 1997, the gross margin percentage from site built single family
homes decreased to 16.8% from 19.5% for the same period in 1996. The decline in
gross margin percentage is attributable to, among other reasons, increases in
per unit direct and indirect expenses, lot costs and market driven changes in
mix of product and home closings. The increase in units closed and average
revenue per closing for the quarter and six months ended June 30, 1997, were
impacted by the decline in the gross margin percentage and yielded an increase
in gross margin dollars of $.1 million and $2.2 million, respectively.
PAGE 13
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Selling, general and administrative expenses increased $571,000 or 11.6% and
$1.7 million or 19.3% for the quarter and six months ended June 30, 1997,
respectively. As a percentage of revenue, selling, general and administrative
expenses decreased from 11.3% for the second quarter 1996 to 10.5% for the same
quarter 1997 and from 12.6% for the six months ended June 30, 1996 to 11.1% for
the same period 1997. This percentage decrease was primarily due to improving
economies of scale in the newer divisions.
As a result of the foregoing, pretax income decreased 27.5% to $1.4 million in
the second quarter 1997 from $2.0 million in the second quarter 1996. Pretax
income for the six months ended June 30, 1997 increased 18.5% to $2.3 million
from $2.0 million for the same period in 1996.
RETAIL DISTRIBUTION MANUFACTURED SINGLE FAMILY HOMES
The following table sets forth certain information regarding Retail Distribution
Manufactured Single Family Homes:
<TABLE>
<CAPTION>
Three Months Six Months
Ended June 30, 1997 Ended June 30, 1997
-------------------------------- ----------------------------------
Dollars Units Dollars Units
---------- ------------- -------------- ------------
<S> <C> <C> <C> <C>
New Orders (1) $1,316 40 $1,856 61
Closings 1,330 37 2,456 75
Backlog (2) (3) 2,802 42 2,802 42
Average revenue per
closing $36 $33
Average value of new
order sales $33 $30
<FN>
(1) New orders represent total new orders received during the period, net of
cancellations.
(2) Backlog includes sales orders which have not yet closed.
(3) 28 contracts with a sales value of $2,326 and 56 contracts with sales
value of $3,402 were acquired through acquisition for the 3 month and 6
month periods ended June 30, 1997, respectively.
</TABLE>
HomeMax closed 37 manufactured homes in the second quarter 1997 with total
revenues of $1.3 million. For the six months ended June 30, 1997, HomeMax closed
75 units for total revenues of $2.5 million.
The gross profit percentage for the three months and six months ended June 30,
1997 was 21.8% and 23.3%, respectively. This decrease is due to a change in the
mix of units closed.
Selling, general and administrative expenses for HomeMax, including
infrastructure costs to leverage continued expansion efforts, totaled $461,000
for the second quarter 1997 and $964,000 for the six months ended June 30, 1997.
As a percentage of revenue, selling, general and administrative expenses are
32.7% for the quarter and 39.8% for the six month period ended June 30, 1997.
As a result of the foregoing, HomeMax reported pretax losses of $256,000 for the
second quarter 1997 and $458,000 for the six months ended June 30, 1997.
OTHER OPERATING RESULTS
- -----------------------
Interest income from subsidiaries represents the allocation of interest costs to
the subsidiaries.
PAGE 14
<PAGE> 15
Selling, general and administrative expenses increased 51.2% and 105.7%,
respectively for the three months and six months ended June 30, 1997 compared to
the same periods in 1996. These increases are primarily due to additions to the
management team as well as certain other support costs incurred in order to
facilitate the expansions in both Zaring Homes and HomeMax.
CAPITAL RESOURCES AND LIQUIDITY
- -------------------------------
Net cash used by operating activities increased by $2.6 million from $216,000
for the first six months of 1996 to $2.8 million in 1997. This increase was
primarily a result of larger investments in inventories. Net cash used by
investing activities increased by $1.5 million the first six months of 1997 from
the first six months of 1996 due to purchases of property and equipment. Net
cash provided by financing activities increased by $5.4 million in the first six
months of 1997 from the first six months of 1996 due to net bank borrowings.
The Company believes its present cash balance with amounts available from its
borrowing agreements and amounts from future operations will provide adequate
funds for its future plans.
PROVISIONS FOR WRITEDOWN TO NET REALIZABLE VALUE
- ------------------------------------------------
The Company periodically reviews the value of land and inventories and
determines whether any writedowns need to be recorded to reflect declines in
value. The Company did not record significant writedowns during the six month
periods ended June 30, 1997 or 1996. The estimated net realizable value of real
estate inventories represents management's estimate based on present plans and
intentions, selling prices in the ordinary course of business and anticipated
economic and market conditions. Accordingly, the realization of the value of the
Company's real estate inventories is dependent upon future events and conditions
that may cause actual results to differ from amounts presently estimated.
INFLATION
- ---------
Housing demand, in general, is affected adversely by increases in interest
rates. If mortgage interest rates, material and labor costs increase
significantly, the Company's revenues, gross profit, and net income could be
adversely affected.
FORWARD LOOKING INFORMATION; CERTAIN CAUTIONARY STATEMENTS
- ----------------------------------------------------------
Certain statements contained in this "Management's Discussion and Analysis of
Financial Condition and Results of Operations" section that are not related to
historical results are forward looking statements. Actual results may differ
materially from those projected or implied in the forward looking statements.
Further, certain forward looking statements are based upon assumptions of future
events which may not prove to be accurate. These forward looking statements
involve risks and uncertainties including but not limited to those referred to
under the caption "Management's Discussion and Analysis of Financial Condition
and Results of Operations; Cautionary Statements" in the Company's Quarterly
Report on Form 10-Q for the quarter ended June 30, 1996, filed with the
Securities and Exchange Commission. Readers should carefully review those risk
factors and uncertainties in conjunction with reading this Management's
Discussion and Analysis of Financial Condition and Results of Operations.
Additional information on factors which could affect the Company's financial
results may be included in the Company's most recently filed Annual Report or
Form 10-K, and subsequent reports, filed with the Securities and Exchange
Commission.
PAGE 15
<PAGE> 16
PART II - OTHER INFORMATION
- ---------------------------
Item 1. Legal Proceedings
-----------------
The Company is subject to various claims, lawsuits and administrative
proceedings arising in the ordinary course of business which seek remedies or
damages. The Company believes that any liability that may be determined will not
have a material effect on its financial position or results of operation.
Item 2. None
Item 3. None
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
A) The Annual Meeting of Shareholders of Zaring Homes, Inc. (the
predecessor of Zaring National Corporation) was held on May 8,
1997.
B) Not Applicable
C) 1) Eight nominees were elected to the Board of Directors at
the 1996 Annual Meeting:
Allen G. Zaring III was elected by a vote of 4,553,992 for
and 6,612 withheld.
John R. Brooks was elected by a vote of 4,553,932 for and
6,672 withheld.
George E. Casey, Jr. was elected by a vote of 4,553,992
for and 6,612 withheld.
Murat H. Davidson was elected by a vote of 4,553,992 for
and 6,612 withheld.
Daniel W. Geeding was elected by a vote of 4,553,832 for
and 6,772 withheld.
Robert N. Sibcy was elected by a vote of 4,553,932 for and
6,672 withheld.
John H. Wyant was elected by a vote of 4,553,832 for and
6,772 withheld.
2) At the meeting, the following additional matters were
voted upon with the voting results for each matter as
indicated:
a. The shareholders approved a proposal to form a
holding company structure for Zaring Homes, Inc. and
adopted a related agreement and plan of merger which
resulted in (i) the holders of Zaring Homes, Inc.
common shares having their shares converted into
common shares of Zaring National Corporation, (ii)
Zaring Homes, Inc. becoming a wholly-owned subsidiary
of Zaring National Corporation and (iii) the
consummation of related activities to complete the
transition to a holding company structure. There were
80,609 votes cast in opposition, 14,136 abstentions,
940,158 broker non-votes and 3,746,177
votes cast in favor.
b. The shareholders approved the Zaring Homes, Inc.
1997 Stock Option Plan. There were 115,666 votes cast
in opposition, 9,386 abstentions, 687,588 broker
non-votes and 3,968,490 votes cast in favor.
c. The shareholders confirmed the appointment of
Arthur Andersen, L.L.P. as independent auditors of
the Company for fiscal 1997. There was 11,893 votes
cast in opposition, 9,602 abstentions, 220,476 broker
non-votes and 4,539,109 votes case in favor.
D) Not Applicable
PAGE 16
<PAGE> 17
Item 5. None
Item 6. EXHIBITS AND REPORTS ON FORM 8-k
a) Exhibits 27, Financial Data Schedule
b) The Company did not file a report on Form 8-k during the
quarter for which this report is filed.
PAGE 17
<PAGE> 18
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ZARING NATIONAL CORPORATION
(Registrant)
Date: By:/s/Allen G. Zaring, III
-------------------------------------------------
Allen G. Zaring, III
Chairman, President and Chief Executive Officer
Date: By:/s/Ronald G. Gratz
-------------------------------------------------
Ronald G. Gratz
Secretary and Treasurer
PAGE 18
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<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 2,142
<SECURITIES> 0
<RECEIVABLES> 834
<ALLOWANCES> 0
<INVENTORY> 89,242
<CURRENT-ASSETS> 0
<PP&E> 7,340
<DEPRECIATION> 3,772
<TOTAL-ASSETS> 102,066
<CURRENT-LIABILITIES> 0
<BONDS> 37,995
<COMMON> 25,146
0
0
<OTHER-SE> 25,044
<TOTAL-LIABILITY-AND-EQUITY> 102,066
<SALES> 97,986
<TOTAL-REVENUES> 97,986
<CGS> 81,394
<TOTAL-COSTS> 81,394
<OTHER-EXPENSES> 12,722
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,341
<INCOME-PRETAX> 2,529
<INCOME-TAX> 1,017
<INCOME-CONTINUING> 1,512
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,512
<EPS-PRIMARY> .32
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