<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 September 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 September 30, 1997: 4,780,827
Total Pages: 17
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,
September 30, 1997 and 1996 (unaudited),
and December 31, 1996 (audited)......................................................3
Consolidated Statements of Income (unaudited),
Three Months Ended September 30, 1997 and 1996
Nine Months Ended September 30, 1997 and 1996........................................5
Consolidated Statement of Shareholders' Equity,
Nine Months Ended September 30, 1997 (unaudited).....................................6
Consolidated Statements of Cash Flows,
Nine Months Ended September 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 .......................................................................................17
</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
September 30, December 31,
------------------------- -------------
1997 1996 1996
-------- ------- -------
<S> <C> <C> <C>
Cash and cash equivalents $ 1,383 $ 3,369 $ 2,440
Accounts receivable 888 373 553
Inventories
Site built single family homes 51,841 47,007 47,664
Land, development costs and finished lots 47,790 33,471 35,988
Manufactured single family homes 2,917 -- --
Property and equipment, net 6,865 1,931 2,619
Investments in and advances to
unconsolidated joint ventures 567 1,082 1,086
Future tax benefits 675 801 675
Cash surrender value of life insurance and
other assets 6,778 3,747 3,672
-------- ------- -------
$119,704 $91,781 $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
September 30, December 31,
-------------------------- ------------
1997 1996 1996
-------- -------- --------
<S> <C> <C> <C>
Liabilities:
Revolving credit facility $ 33,200 $ 12,500 $ 15,500
Term notes payable 16,495 19,495 18,745
Accounts payable and other accrued liabilities 14,930 8,283 9,115
Customer deposits 2,949 3,169 2,549
Income taxes payable 1,054 846 107
-------- -------- --------
Total liabilities 68,628 44,293 46,016
-------- -------- --------
Commitments and contingencies
Shareholders' equity:
Common shares, no par value, 18,000,000
shares authorized, 4,780,827 issued and
outstanding at September 30, 1997, 5,035,520 issued, and
4,780,150 outstanding at
September 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 20,252 16,672 17,854
-------- -------- --------
51,076 49,495 50,687
Less Treasury shares, at cost, 255,370 shares at
September 30, 1996 and December 31, 1996 -- (2,007) (2,006)
-------- -------- --------
Total shareholders' equity 51,076 47,488 48,681
-------- -------- --------
$119,704 $ 91,781 $ 94,697
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
PAGE 4
<PAGE> 5
ZARING NATIONAL CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(Dollars in Thousands)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------------- ---------------------------------
1997 1996 1997 1996
---------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net revenues:
Site built single family homes $ 55,153 $ 55,517 $ 150,717 $ 126,187
Retail distribution manufactured single family homes 2,826 -- 5,248 --
---------- ----------- ----------- -----------
Total net revenues 57,979 55,517 155,965 126,187
Expenses:
Cost of sales site built homes 45,865 45,526 125,402 102,390
Cost of sales retail distribution manufactured homes 2,464 -- 4,321 --
Interest 1,045 559 2,386 1,898
Selling, general and administrative 7,143 6,610 19,906 16,090
---------- ----------- ----------- -----------
Total expenses 56,517 52,695 152,015 120,378
Other (income) expense 18 (14) (23) (158)
---------- ----------- ----------- -----------
Income before provision for income taxes 1,444 2,836 3,973 5,967
Income taxes 558 1,092 1,575 2,322
---------- ----------- ----------- -----------
Net income $ 886 $ 1,744 $ 2,398 $ 3,645
========== =========== =========== ===========
Earnings per share $ 0.18 $ 0.36 $ 0.50 $ 0.76
========== =========== =========== ===========
Weighted average shares outstanding 4,780,970 4,778,307 4,780,970 4,778,307
========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
PAGE 5
<PAGE> 6
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
Treasury Shares ........ (253) -- (3) 30 -- -- (3)
Retirement of Treasury Shares (255,400) -- (2,006) (255,400) 2,006 -- --
Net Income .................. -- -- -- -- -- 2,398 2,398
---------- ------- ------- -------- ------- ------- --------
Balance, September 30, 1997 . 4,780,827 $25,146 $ 5,678 -- -- $20,252 $ 51,076
========== ======= ======= ======== ======= ======= ========
</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>
Nine Months Ended
September 30,
-----------------
1997 1996
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income .................................................................................... $ 2,398 $ 3,645
Adjustments to reconcile net income to cash
provided by operating activities --
Depreciation ............................................................................... 1,124 732
Loss (Income) from unconsolidated joint ventures ........................................... 34 (155)
Change in assets and liabilities:
Receivables ................................................................................ (335) (265)
Inventories ................................................................................ (18,896) (6,318)
Cash surrender value of life insurance and other assets .................................... (3,230) (1,267)
Accounts payable and other accrued liabilities ............................................. 5,815 (726)
Income taxes payable ....................................................................... 947 (8)
Customer deposits .......................................................................... 400 1,466
-------- -------
Net cash used by operating activities ................................................. (11,743) (2,896)
-------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment ........................................................ (5,246) (865)
Distributions from unconsolidated joint ventures ........................................... 485 651
-------- -------
Net cash provided (used) by investing activities ...................................... (4,761) (214)
-------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings (repayments) on notes payable ................................................... 15,450 2,434
Purchase of common shares for retirement ................................................... (3) (468)
-------- -------
Net cash provided (used) by financing activities ...................................... 15,447 1,966
-------- -------
DECREASE IN CASH AND CASH EQUIVALENTS ............................................................. (1,057) (1,144)
CASH AND CASH EQUIVALENTS, beginning of year ...................................................... 2,440 4,513
-------- -------
CASH AND CASH EQUIVALENTS, end of period .......................................................... $ 1,383 $ 3,369
======== =======
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for --
Interest ................................................................................... $ 2,155 $ 1,279
======== =======
Income taxes ............................................................................... $ 1,512 $ 2,335
======== =======
</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 resulted in the accompanying consolidated
financial statements including the accounts of Zaring National Corporation and
subsidiaries (the Company) that consist of 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), a wholly-owned
subsidiary, for the purpose of entering into the retail distribution of
manufactured housing. HomeMax, based in Raleigh, North Carolina, commenced
operation 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 September 30, 1997,
and for the nine months ended September 30, 1997, have been included. Operating
results for the nine months ended September 30, 1997, are not necessarily
indicative of the results of the entire year.
PAGE 8
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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 Nine Months
Ended September 30, Ended September 30,
-------------------- -------------------
(Dollars in Thousands) 1997 1996 1997 1996
-------- ------ ------ ------
<S> <C> <C> <C> <C>
Capitalized interest, beginning of period $ 1,354 $ 923 $ 1,074 $ 1,123
Interest incurred 1049 577 2,670 1,716
Interest expensed (1045) (559) (2,386) (1,898)
------- ------ ------- -------
Capitalized interest, end of period $ 1,358 $ 941 $ 1,358 $ 941
======= ====== ======= =======
</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 $10 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 September 30, 1997, the Company had outstanding balances of $33.2 million
under the revolving credit facility, and $4.5 million in letters of credit.
Term notes payable, at September 30, 1997, include a $11.3 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.
PAGE 9
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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" (SFAS128),
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 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 segregates a company. The Company intends to adopt
SFAS No. 131 in the first quarter of fiscal 1998.
6. SUBSEQUENT EVENTS
On October 1, 1997, Zaring National Corporation, through its newly formed
subsidiary, Zaring Acquisition Company of Indiana, LLC, acquired substantially
all of the net operating assets of an Indianapolis based builder of entry level
homes (Legacy, Inc.) for cash and term notes, in an approximate amount of
$1,950,000. Additionally, Zaring National Corporation acquired the stock of
Legacy Mortgage Corporation, an affiliated company of Legacy, Inc. for
approximately $148,000. The Company intends to continue the operations of both
entities.
7. RECLASSIFICATIONS
Certain amounts in the consolidated financial statements of 1996 have been
reclassified to conform to the 1997 presentation.
PAGE 10
<PAGE> 11
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 $58.0 million for the third
quarter ended September 30, 1997, compared to $55.5 million for the same quarter
in 1996. Net income for the third quarter 1997 was $0.9 million or $0.18 per
share, compared to $1.7 million or $0.36 per share for the third quarter in
1996.
For the nine months ended September 30, 1997, consolidated revenues were $156.0
million compared to $126.2 million for the same quarter in 1996. Net income for
the nine months ended September 30, 1997 was $2.4 million or $0.50 per share,
compared to $3.6 million or $0.76 per share for the same period in 1996.
PAGE 11
<PAGE> 12
The following table sets forth for the periods indicated certain information
regarding the Company's operations:
(Dollars in thousands)
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
--------------------- -----------------------
1997 1996 1997 1996
-------- -------- --------- ---------
<S> <C> <C> <C> <C>
Total Revenues $ 57,979 $ 55,517 $ 155,965 $ 126,187
======== ======== ========= =========
Site Built Single Family Homes
Revenues (1) $ 55,153 $ 55,517 $ 150,717 $ 126,187
Cost of Sales 45,865 45,526 125,402 102,390
Interest 1,804 1,312 4,859 4,370
Selling, General and
Administrative Expenses 5,715 6,270 16,354 15,186
-------- -------- --------- ---------
Operating Income 1,769 2,409 4,102 4,241
Other Income (Expense) -- 14 13 158
-------- -------- --------- ---------
Pretax Site Built Income 1,769 2,423 4,115 4,399
Retail Distribution Manufactured Single
Family Homes
Revenues (1) 2,826 -- 5,248 --
Cost of Sales 2,464 -- 4,321 --
Interest 123 -- 210 --
Selling, General and
Administrative Expenses 985 -- 1,949 --
-------- ---------
Operating Income (Loss) (746) -- (1,232) --
Other Income (Expense) (18) -- 10 --
-------- ---------
Pretax Retail Distribution Loss (764) -- (1,222) --
Corporate (Income) and Expenses
Interest Income from
Subsidiaries, Net (882) (753) (2,683) (2,472)
General and Administrative 443 340 1,603 904
-------- -------- --------- ---------
Income Before Taxes 1,444 2,836 3,973 5,967
Income Taxes 558 1,092 1,575 2,322
-------- -------- --------- ---------
Net Income $ 886 $ 1,744 $ 2,398 $ 3,645
======== ======== ========= =========
</TABLE>
(1) Revenue is recognized upon closing of a contract.
PAGE 12
<PAGE> 13
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 Nine Months
Ended September 30, Ended September 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) $56,434 231 $37,802 152 $162,252 672 $150,431 640
Closings 54,564 226 54,810 237 148,934 616 124,786 548
Backlog (2) 77,511 319 72,679 309 77,511 319 72,679 309
Average value of new
order sales $ 244 $ 249 $ 242 $ 235
Average revenue per
closing $ 241 $ 231 $ 241 $ 227
</TABLE>
(1) New orders represent total new orders received during the period, net of
cancellations.
(2) Backlog includes sales orders which have not yet closed.
Net revenues for the quarters ended September 30, 1997 and 1996 remained
relatively flat while the net revenues for the nine months ended September 30,
1997 increased 19.4% compared to the nine months ended September 30, 1996. The
number of site built home closings decreased 5% for the quarter ended September
30, 1997 compared to the quarter ended September 30, 1996 and increased 12% for
the nine months ended September 30, 1997 compared to the nine months ended
September 30, 1996. 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
remained relatively flat for the quarter ended September 30, 1997 compared to
the same quarter in 1996 and increased 6% for the nine months ended September
30, 1997 compared to the nine months ended September 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 remained relatively flat for the quarter ended September 30, 1997
compared to the quarter ended September 30, 1996. For the nine months ended
September 30, 1997, cost of sales increased $23.0 million, 22.4%, from $102.4
million for the period ended September 30, 1996, to $125.4 million for the same
period in 1997.
The resulting gross margin percentage declined from 18.0% for the quarter ended
September 30, 1996, to 16.8% for the same period in 1997. During the nine month
period ended September 30, 1997, the gross margin percentage from site built
single family homes decreased to 16.8% from 18.9% for the same period in 1996.
The decline in gross margin percentage is attributable to, among others,
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 nine months ended September 30,
1997, tempered the decline in the gross margin percentage and yielded a decrease
in gross margin dollars of $.7 million for the quarter and a $1.5 million
increase for the nine months.
Interest expense (net of amounts capitalized) totaled $1.8 and $1.3 million for
the three months ended September 30, 1997 and 1996, respectively and $4.8 and
$4.4 million for the nine months ended September 30, 1997 and 1996,
respectively.
PAGE 13
<PAGE> 14
Selling, general and administrative expenses declined $0.6 million or 8.9% for
the quarter ended September 30, 1997 and increased $1.2 million or 7.7% for the
nine months ended September 30, 1997 as compared to the same period of 1996. As
a percentage of revenue, selling, general and administrative expenses decreased
from 11.3% for the third quarter in 1996 to 10.4% for the same quarter in 1997
and from 12.0% for the nine months ended September 30, 1996 to 10.9% for the
same period in 1997. This percentage decrease was primarily due to improving
economies of scale.
As a result of the foregoing, pretax income decreased 27.3% to $1.8 million in
the third quarter in 1997 from $2.4 million in the third quarter in 1996. Pretax
income for the nine months ended September 30, 1997 decreased 6.8% to $4.1
million from $4.4 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 Nine Months
Ended September 30, 1997 Ended September 30, 1997
--------------------------- ---------------------------
Dollars Units Dollars Units
------- ----- ------- -----
<S> <C> <C> <C> <C>
New Orders (1) $2,486 60 $4,342 121
Closings 3,034 61 5,490 136
Backlog (2) (3) 3,268 53 3,268 53
Average value of new
order sales $ 41 $ 36
Average revenue per
closing $ 50 $ 40
</TABLE>
(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) 68 contracts with sales value of $4.4 million were acquired through
acquisition.
HomeMax closed 61 manufactured homes in the third quarter 1997 with total
revenues of $3.0 million. For the nine months ended September 30, 1997, HomeMax
closed 136 units for total revenues of $5.5 million.
The gross profit percentage for the three months and nine months ended September
30, 1997 was 12.8% and 17.7%, respectively. This decrease for the three months
compared to the nine months ended September 30, 1997 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 $1.0
million for the third quarter in 1997 and $1.9 million for the nine months ended
September 30, 1997. As a percentage of revenue, selling, general and
administrative expenses were 34.9% for the quarter and 37.1% for the nine month
period ended September 30, 1997.
As a result of the foregoing, HomeMax reported pretax losses of $0.8 million for
the third quarter in 1997 and $1.2 million for the nine months ended September
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 30.3% and 77.3%,
respectively for the three months and nine months ended September 30, 1997
compared to the same periods in 1996. This increase is primarily due to
additions to the management team in order to support the expansions in both
Zaring Homes and HomeMax and legal and professional fees relating to the
formation of the holding company structure.
CAPITAL RESOURCES AND LIQUIDITY
- -------------------------------
Net cash used by operating activities increased by $8.8 million from $2.9
million for the first nine months of 1996 to $11.7 million in 1997. This
increase was primarily a result of larger investments in inventories. Net cash
used by investing activities increased by $4.5 million for the first nine months
of 1997 from the first nine months of 1996 due to purchases of property and
equipment. Net cash provided by financing activities increased by $13.5 million
in the first nine months of 1997 from the first nine 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 nine month
periods ended September 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. None
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 16
<PAGE> 17
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 CORP.
(Registrant)
Date: November 13, 1997 By: /S/ Allen G. Zaring III
--------------------------
Allen G. Zaring, III
Chairman, President and Chief Executive Officer
Date: November 13, 1997 By: /S/ Ronald G. Gratz
------------------------
Ronald G. Gratz
Secretary and Treasurer
PAGE 17
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