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WASHINGTON, D.C. 20549 3/11/98
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, 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
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(Exact name of registrant as specified in its charter)
OHIO 31-1506058
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
11300 Cornell Park Drive, Suite 500, Cincinnati, Ohio 45242-1825
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(Address of principal executive offices) (Zip Code)
513-489-8849
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(Registrant's telephone number, including area code)
Securities registered pursuant to section 12(g) of the Act:
Common Shares, without par value
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(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
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (Section 229.405 of this chapter) is not contained herein, and
will not be contained herein, 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.
YES X NO
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As of March 6, 1998, there were 4,765,788 common shares issued and outstanding,
and the aggregate market value of those shares held by non-affiliates of the
registrant was approximately $16,059,000. Solely for the purpose of this
calculation, all directors and executive officers were excluded as affiliates of
the registrant.
DOCUMENTS INCORPORATED BY REFERENCE
1. Portions of the registrant's Annual Report to Shareholders for the year
ended December 31, 1997 (Parts II and IV).
2. Portions of the registrant's Proxy Statement for the Annual Meeting of
Shareholders to be held on April 23, 1998 (Part III).
Total Pages:
Exhibit Index at Page
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PART I
ITEM 1. BUSINESS
GENERAL
Effective May 8, 1997, Zaring National Corporation (formerly Zaring Homes, Inc.)
implemented the formation of a holding company structure. The subsidiaries of
Zaring National Corporation (the "Company") include the following: Zaring Homes,
Inc.; HomeMax, Inc.; Hearthside Homes, LLC; and Legacy Mortgage Corporation.
The Company's subsidiary, Zaring Homes, Inc. ("Zaring Homes") is a recognized
regional builder of luxury site-built homes.
In 1997, the Company expanded its operations to include the retail distribution
of manufactured homes through its subsidiary, HomeMax, Inc. ("HomeMax"). During
1997, the Company acquired three (3) established retail distributors of
manufactured homes and opened its first Company designed and constructed Super
Model Home Village. As of December 31, 1997, all HomeMax locations are in North
Carolina.
On October 1, 1997, the Company, through its subsidiary, Hearthside Homes, LLC
("Hearthside") entered the area of entry level site-built homes by acquiring the
operating assets of an Indianapolis, Indiana entry level builder. At the same
time, the Company acquired the stock of Legacy Mortgage Corporation ("Legacy").
Legacy originates, processes and sells mortgages to third party investors.
Consolidated revenues in 1997 were derived as follows: 95.6% Luxury Site-Built
Homes, 3.6% Retail Distribution Manufactured Homes and 0.8% Entry Level
Site-Built Homes. This revenue mix is projected to change significantly through
the growth of HomeMax and Hearthside.
The Company was founded by Allen G. Zaring, III in 1964 and in 1997 has recorded
its thirty-third consecutive year of profitability. The Company completed its
initial public offering of 2,000,000 Common Shares on June 2, 1993.
In 1994, the Board of Directors appointed George E. Casey as President and Chief
Executive Officer of Zaring Homes, and Mr. Zaring as Chairman of the Board.
RECENT DEVELOPMENTS
In 1997, following the formation of Zaring National Corporation as a holding
company, the Board of Directors appointed Allen G. Zaring, III as Chairman and
Chief Executive Officer of the principal subsidiaries of the Company, Zaring
Homes and HomeMax.
Daniel W. Jones was appointed Executive Vice President and Chief Operating
Officer of Zaring Homes, Matthew S. Massarelli was appointed Executive Vice
President and Chief Operating Officer of HomeMax and Allen G. Zaring, IV, Mr.
Zaring's son, was appointed Chief Executive Officer of Hearthside. On December
15, 1997 the Board of Directors accepted the resignation of George E. Casey,
who had been President and Chief Executive Officer of Zaring Homes.
OPERATING STRATEGY
The Company has adopted a completely new operating strategy with a focus on
increasing the rates of return on invested capital that is decidedly different
from its competitors in the housing industry.
According to industry sources, over the past ten years, manufactured homes have
increased from 25% to 32% of all new homes sold in the United States and is
approaching 50% in several markets served by the Company. The Company's
consolidated business strategy recognizes that the production of all housing is
based on various forms of manufacturing techniques, and this concept is being
applied to all phases of its business.
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ZARING HOMES (LUXURY SITE-BUILT HOMES)
The Company, through its subsidiary, Zaring Homes, identifies existing markets
for housing, purchases and develops land and then designs, constructs and sells
luxury single-family detached homes to meet demand. The Company's focus is to
build distinctive, quality neighborhoods, rather than individual homes. A
variety of architectural styles and different models within a community create
inviting neighborhoods. Homes built by the Company emphasize classic exterior
elevations, innovative interior design and quality construction with attention
to detail. The Company has a reputation for on-time, on-budget construction.
Zaring Homes traditionally has marketed to the Luxury/"Move-Up" market,
comprised of individuals who previously owned a principal residence. In
executing this strategy, the Company builds homes that range in size from 1,900
to 4,000 square feet at prices that range from approximately $128,000 to
$425,000.
MARKETS
Prior to 1994, Zaring Homes conducted its operations in two metropolitan areas:
Cincinnati, Ohio and Nashville, Tennessee. During 1994, the Company expanded
into two new metropolitan areas: Raleigh, North Carolina and Indianapolis,
Indiana. In 1996, the Company expanded into Charlotte, North Carolina and
Louisville, Kentucky. The Company believes that all of these metropolitan areas
have similar characteristics, such as, relatively low unemployment, steady job
growth, diversification of industry, and satisfactory infrastructure and
transportation facilities. The Company believes that the continued customer
response supports the Company's strategy of offering multiple product lines
differentiated by price point in the same market.
Cincinnati
The Company operates in four counties in Ohio and two counties in Northern
Kentucky, which constitutes six of the twelve counties in the Cincinnati
metropolitan statistical area, offering homes that range in price from $128,000
to $425,000. Homes ranging in size from 1,900 square feet to 4,000 square feet
are currently offered in 21 communities.
Nashville
The Company operates in two of eight counties in the Nashville metropolitan
statistical area, offering homes that range in price from $169,000 to $302,000
in six communities. The product line encompasses homes ranging from 2,000 square
feet to 3,500 square feet. This product line has provided the Company with
significant growth opportunities within the region.
Indianapolis
The Company operates in one of the nine counties in the Indianapolis
metropolitan statistical area. The Company markets homes ranging in price from
$153,000 to $400,000 in six distinct communities. The product line includes
homes ranging from 2,100 square feet to 3,600 square feet.
Raleigh
The Company operates in one of the six counties which comprise the
Raleigh-Durham-Chapel Hill metropolitan statistical area. The Company markets
homes ranging in size from 2,000 square feet to 3,600 square feet and in price
from $168,000 to $ 345,000 in five communities.
Charlotte
The Company operates in two of the seven counties which comprise the greater
Charlotte-Gastonia-Rockhill metropolitan statistical area. The Company markets
homes ranging in size from 2,100 square feet to 3,600 square feet and in price
from $210,000 to $320,000 in six communities.
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Louisville
The Company operates in one county of the seven counties of the Louisville
metropolitan statistical area. The Company markets homes ranging in size from
2,100 square feet to 4,000 square feet and in price from $190,000 to $402,000 in
one community.
PRODUCTS
The Company's homes normally are purchased for occupancy as primary residences
and are built in a variety of models. The base price of each home includes
standard features such as insulated glass windows, one or more fireplaces,
equipped kitchens and landscaping. Additionally, the Company provides a complete
list of pre-priced options, ranging from extra electrical outlets to bonus
rooms, three-car garages and flex space additions. Such options permit a buyer
to personalize the home and should result in incremental profits to the Company.
The Company uses the same portfolio of home designs in similar communities. The
Company develops new designs to replace existing ones as part of its continuing
efforts to assure that its homes are responsive to assessment of market trends
and requirements. For new designs, the Company engages a number of unaffiliated
architectural firms supervised by an in-house architectural group. During the
design phase, all plans are reviewed by management and by professionals outside
the Company to ensure that the plans meet the needs of the target market and
are engineered for the most effective production techniques and the most
economical usage of materials.
Upon approval of a new home design, a prototype is constructed and evaluated.
During construction, all of those involved in planning, as well as sales
personnel, tour the home to analyze its design in light of their particular
area of expertise. The Company also shows the prototype to potential customers
and actively seeks customer input.
MARKETING AND SALES
The Company's homes are sold primarily through its own staff of Sales Managers
who are compensated on a salary plus commission basis. The Company's marketing
efforts rely heavily on furnished model homes. The furnished models in all
communities are open seven days a week, and are staffed by Sales Managers who
consult with the prospective customer regarding floor plans, elevations and
available options. At December 31, 1997, the Company maintained 61 furnished
model homes. The Company cooperates with outside real estate agents to whom it
pays commissions at market rates. Other marketing tools include the Multiple
Listing Service, local newspaper advertisements, promotions, newsletters to
realtors, entrance signs and illustrated brochures, all of which utilize the
Zaring Homes name.
Additionally, in 1997 the Company opened Design Galleries in both Cincinnati,
Ohio and Nashville, Tennessee. The Design Galleries are fully staffed centers
where the variety of options available to the customer are displayed to
further enhance the customers' opportunity of choice without the need to
customize the base product line.
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Sales of the Company's homes are made pursuant to standard sales contracts.
These contracts generally require a customer to make a deposit of approximately
2% to 20% of the sale price at the time of the execution of the sales contract,
depending on local competitive conditions. Contracts are generally subject to
certain contingencies including the availability of mortgage financing to the
purchaser. Contracts for the sale of homes are at fixed prices. Prices at which
homes are offered normally increase from time to time during the sellout of the
community, reflecting, in part, increased costs. The prices of homes vary with
location as well as style, and standard and optional amenities.
The majority of the Company's homes are completed after a sales contract has
been signed, but the Company frequently commences construction of homes that are
held "under roof," with completed exteriors, as inventory for sale ("Market
Homes"). This practice limits funds committed to construction of the house, but
at the same time permits rapid completion of the interior of the home to a
purchaser's specifications upon execution of a sales contract. The Company has
Market Homes in each community in order to offer a range of homes to prospective
buyers and to be able to complete a house for occupancy in approximately the
same length of time as required for a loan closing in the resale market. Some
sales are of completed homes, including model homes no longer needed for the
Company's marketing efforts. At December 31, 1997, the Company had 193 Market
Homes at various stages of completion. Market Homes are not reflected in the
Company's backlog until placed under a purchase contract by a third-party
purchaser.
BACKLOG AND INVENTORY
The Company's backlog consists of homes for which the Company has entered into a
sales contract, but which it has not yet delivered. As of December 31, 1997, the
Company had a backlog of 240 luxury site-built units under contract, with a
sales value of $60.8 million, substantially all of which will be completed
within 100 days. Construction of homes in backlog is expected to be financed
using cash flow from operations and not through construction loans.
CONSTRUCTION
Zaring Homes enjoys a reputation as a quality builder of luxury homes. The
Company acts as its own construction manager and general contractor using
even-flow production techniques to produce quality homes on a 60 working day (84
calendar day) cycle. The entire value delivery system is managed by a process
circle consisting of a Process Control Executive, Builder, Sales Manager and
Operations Manager who work in concert to construct and deliver its homes
consistently and predictably. Zaring's proprietary software and information age
technologies are deployed in this process.
The Company uses subcontractors for virtually all of its construction operations
and selects them and its suppliers based on past performance, reputation,
quality, ability to perform and value. The Company typically attempts to
negotiate one-year arrangements with subcontractors and suppliers. Agreements
with subcontractors and suppliers typically provide for a fixed price for labor
and materials. Such suppliers and subcontractors cannot raise prices to the
Company on any house on which there is a contract of sale. Many of the Company's
subcontractors have worked with the Company for more than 10 years. The Company
recognizes that its subcontractors and suppliers are an integral part of its
success and honors those who excel in their performance by designating them as
Master Contractors at an annual awards luncheon.
The Company does not have major investments in capital equipment, building
supply inventories or component manufacturing facilities rather subcontractors
and suppliers are utilized as part of a "just-in-time" inventory control system.
The use of subcontractors minimizes the Company's payroll and increases its
flexibility in responding to changes in the demand for housing. The Company
utilizes a fast-track scheduling system which generally enables it to complete
its homes in less than 100 days from the date a building permit is issued. A
Market Home normally can be completed within 45 days after a contract is signed.
The Company utilizes building components, such as wall panels, roof trusses,
pre-hung doors and manufactured kitchen cabinets and stair rails, to control
quality and reduce on-site labor. In addition to increasing construction
efficiencies, the use of such components reduces the Company's vulnerability to
weather delays, substantially reduces waste and theft, and allows the Company to
better control material and labor costs.
The principal raw materials used in the construction of the Company's homes are
brick, wood, concrete and other building materials, as well as plumbing and
electrical supplies. All of these materials are generally available from a
variety of sources, but are subject to periodic price fluctuations. The Company
has attempted to reduce its exposure to such volatility through the use of
engineered lumber products and pre-assembled building components purchased from
third parties. To increase purchasing efficiency, the Company utilizes
standardized building materials and products in its homes. Due to the Company's
policy of carefully selecting
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its materials, suppliers and subcontractors, it has not experienced significant
construction delays due to the unavailability of materials or subcontractors.
The Company builds homes on a year-round basis, with minimal seasonal impact on
its construction operations. The Company believes its relationships with its
suppliers and subcontractors to be good.
CUSTOMER SERVICE AND QUALITY CONTROL
The Company believes that its commitment to quality construction and customer
service, as evidenced by its follow-up inspection and warranty program, enhances
its competitive position. The Company grants a one-year limited warranty on
materials and workmanship and passes on to its customers all warranties provided
by manufacturers or suppliers of components installed in each home. The
Company's warranty expense approximated $1,941,000, $1,372,000 and $313,000, in
1997, 1996, and 1995, respectively. The Company's Customer Care program includes
two inspections of the home by the home buyer and a member of the Quality Team
which supervised construction of the home. The first inspection is conducted
shortly before closing, and the other occurs approximately six months after
occupancy. The Customer Care Team has authority to make repairs under the
warranty program to meet Company standards.
LAND ACQUISITION AND DEVELOPMENT
The Company typically buys unimproved land, which has been approved for
immediate development into finished lots. The Company does not buy land for
speculation but only acquires real estate consistent with its planned building
operations. The Company has in the past also utilized joint ventures with both
affiliated and non-affiliated parties to develop land and anticipates that any
future land development-joint ventures will be with non-affiliated parties. Lots
occasionally are sold to other builders by the Company and the joint ventures in
which it participates. The Company also builds in communities developed by
affiliates and third parties. The Company generally seeks to build on parcels of
30 or more lots, whether those parcels are developed by it, affiliates or third
parties.
In considering the suitability of unimproved land for development, the Company
reviews such factors as proximity to existing developed areas, population growth
patterns, availability of existing community services,employment growth rates,
the anticipated absorption rates for new housing,transportation availability,
and the estimated costs of development. Development activities include obtaining
any necessary zoning, environmental and other regulatory approvals and
constructing roads, sewers, drainage systems, amenities and other improvements.
In general, the Company has been able to obtain the government approvals
required for the development of land and the construction of homes on a timely
basis, in part due to its reputation for adding value to an area through the
construction of high-quality, attractive neighborhoods.
The Company generally purchases unimproved land pursuant to contingent purchase
contracts, making only a nominal refundable deposit on the property. Closing of
the land purchase is contingent upon, among other things, the Company's
successful completion of its own economic, geologic, environmental, engineering
and other feasibility studies and the Company's ability to obtain all requisite
approvals from government agencies to develop the land.
At December 31, 1997, the Company owned approximately 995 lots and undeveloped
land which will be developed into approximately 970 additional lots. The
Company also had under contract, subject to the satisfaction of the Company's
purchase contingencies and exercising of option agreements, 428 lots and
undeveloped land which, if purchased, would be developed into approximately
1,103 lots. Of the 1,531 lots under contract, the Company is committed to
purchase 512 lots where the purchase contingencies have been satisfied.
CUSTOMER FINANCING
The Company does not finance the purchase of homes in its communities and does
not contemplate doing so. Virtually all of the Company's customers utilize first
mortgage financing obtained from independent third parties, which typically
require down payments of 20%.
The Company attempts to assist its customers in arranging traditional mortgage
financing with third-party lenders through Blue Chip Mortgage Company, a
Cincinnati, Nashville and Raleigh mortgage broker, in which the Company owns a
50% interest. In 1997, Blue Chip Mortgage Company assisted approximately 33% of
the Company's customers in obtaining mortgages. Revenues from the operations of
Blue Chip Mortgage Company are not material to the Company.
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COMPETITION
The homebuilding business is highly competitive. The Company competes in each of
its local market areas with numerous national, regional, and local homebuilders,
some of which have greater financial and other resources than the Company. The
Company competes primarily on the basis of location, quality, reputation,
service, design and price. At this time, the Company views the home resale
market, rather than other builders of new homes, as its principal competition in
all of its geographic markets and attempts to meet the competition from the home
resale market by offering benefits which that market cannot provide, notably the
latest design features, the flexibility to select interior and exterior finishes
and a new home warranty. In addition, the Company competes with other
homebuilders in the acquisition of undeveloped property for lot development.
HOMEMAX (MANUFACTURED HOUSING RETAILING)
The Company, through its subsidiary, HomeMax, is engaged in the retail
distribution, installation and servicing of manufactured homes under the name
"HomeMax." The strategy is to create innovative model home villages designed to
introduce manufactured housing's quality and value to a market previously
untapped by the Company.
The Company opened its first Super Model Home Village in Wake Forest, North
Carolina in December 1997. This Super Model Home Village, a concept unique to
HomeMax, features a 2,700 square foot Welcome Center and more than 15 decorated,
furnished models displayed in a landscaped environment to create a neighborhood
concept.
The Company views manufactured housing producers as complementary to its
process, and has entered into a five year partnering agreement with Champion
Enterprises, Inc. ("Champion"), the number one producer of manufactured housing
revenues in the United States, to produce a proprietary product line of homes
for HomeMax for distribution and installation through its Super Model Home
Villages.
MARKETS
The Company currently operates four (4) retail sales centers in North Carolina.
Three of the sales centers were acquired during 1997 and are located within a
one hour drive of the Raleigh/Durham area. The fourth center is located in Wake
Forest and is the Company's first Super Model Home Village.
PRODUCTS
The Company's manufactured homes are principally manufactured by Champion under
a five year agreement whereby Champion develops and supplies an exclusive
branded product line of single and multi-section manufactured homes
marketed under the "HomeMax" name. The manufactured homes are purchased for
occupancy as primary residences.
These proprietary HomeMax designs include a variety of models ranging in price
from $20,000 to $75,000 and in size from 900 to 2,200 square feet. The base
price of each unit includes many standard features such as wood cabinet doors,
vinyl siding, shingled roof and equipped kitchens. Additionally, the Company
provides a complete list of pre-priced options ranging from additional
electrical outlets to brick exteriors, free standing garages or decks. Such
options permit the buyer to personalize their manufactured home and should
result in incremental profits to the Company. The Company, together with
Champion, develops new designs to replace existing ones as part of its
continuing effort to ensure its manufactured homes are responsive to assessments
of market trends and requirements.
MARKETING AND SALES
The Company markets its manufactured homes to a variety of customers including
first time buyers and "empty nesters", emphasizing quality, options and customer
satisfaction. The Company's manufactured homes are sold through its own staff of
trained home consultants who are compensated through a base salary and a per
home sale bonus. The Company's marketing efforts, through its Model Home Village
concept, emphasize finished model home units. The finished models at all sales
centers are open seven days a week, and are staffed by home consultants, who
consult with prospective customers regarding floor plans and available options.
At December 31, 1997 the Company maintained finished model homes in four
Villages. Other marketing tools include local newspaper, radio and television
advertisements, promotions entrance signs and illustrated brochures all of which
utilize the HomeMax name and trademark. The Company's strategy is to display
model merchandising and retailing concepts in line with super retailers.
Sales of the Company's manufactured homes are pursuant to standard sales
contracts. The contracts generally require that a customer make a deposit of up
to 20% of the sale price at the time of the execution of the sales contract,
depending upon the local competitive conditions and available financing.
Contracts are generally subject to certain contingencies including the
availability of financing to the purchaser. Contracts for the sale of homes are
at fixed prices. Prices at which homes are offered normally increase from time
to time reflecting the cost of manufacturing the home and its options. The
Company attempts to assist its customers in arranging financing with third-party
lenders.
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BACKLOG AND INVENTORY
The Company's backlog consists of homes for which the Company has entered into a
sales contract, but which it has not yet delivered. As of December 31, 1997, the
Company had a backlog of 40 units under contract, with a sales value of $2.4
million, substantially all of which will be completed within 100 days.
Installation of homes in backlog is expected to be financed using cash flow from
operations and not through construction loans.
LAND ACQUISITION AND DEVELOPMENT
Currently, HomeMax does not purchase land for development into lots or finished
lots to offer to its customers, however, land home communities (neighborhoods)
will be developed under the "Tulip Meadows(TM)" trademark in proximity to its
Super Model Home Villages in the near future.
CUSTOMER FINANCING
The Company does not finance the purchase of homes in its communities and does
not contemplate doing so. Virtually all of the Company's customers utilize
financing obtained from independent third parties, which typically requires down
payments of up to 20%.
COMPETITION
The retail manufactured home business is highly competitive. The Company
competes in its current market area with numerous national, regional, and local
retailers, some of which have greater financial and other resources than the
Company. The Company competes primarily on the basis of quality, service,
design, price and the ability to personalize the manufactured homes.
HEARTHSIDE (ENTRY LEVEL SITE-BUILT AND MODULAR HOMES)
The Company, through its subsidiary Hearthside, purchases lots and designs,
constructs and sells entry level single-family detached homes in the
Indianapolis, Indiana area. The Company offers a variety of architectural styles
and models emphasizing classic exterior elevations, innovative interior design
and quality construction with attention to detail. The Company stresses on-time,
on-budget construction.
The Company markets to the "entry level" buyer, comprised of individuals who
have not previously owned a principal residence. In executing this strategy, the
Company builds homes that range in size from 1,200 to 2,400 square feet at
prices that range from approximately $90,000 to $150,000.
MARKETS
The Company conducts its operations in the Indianapolis, Indiana metropolitan
area. Currently, the Company builds in 5 communities in Indianapolis, Indiana.
It is anticipated that Hearthside will expand its operations to Nashville,
Tennessee using the same product line as Indianapolis.
PRODUCTS
The Company's homes normally are purchased for occupancy as primary residences
and are built in a variety of models. The base price of each of the homes
includes standard features such as insulated glass windows, equipped kitchens
and landscaping. Additionally, the Company provides a complete list of
pre-priced options, ranging from extra electrical outlets to three car garages.
Such options permit a buyer to personalize the home and should result in
incremental profits to the Company.
The Company develops new designs to replace existing ones as part of its
continuing efforts to assure that its homes are responsive to assessment of
market trends and requirements. For new designs, the Company engages
unaffiliated architectural firms supervised by an in-house architectural group.
During the design phase, all plans are reviewed by management and professionals
outside the Company to ensure that the plans meet the needs of the target market
and are engineered for the most effective production techniques and the most
economical usage of materials.
Upon approval of a new home design, a prototype is constructed and evaluated.
During construction, all of those involved in planning, as well as sales
personnel, tour the home to analyze its design in light of their particular area
of expertise. The Company also shows the prototype to potential customers and
actively seeks customer input.
MARKETING AND SALES
The Company's homes are sold primarily through its own staff of Sales Managers
who are compensated on a commission basis. The Company's marketing efforts
emphasize furnished model homes. All furnished models are open seven days a
week, and are staffed by Sales Managers who consult with the prospective
customer regarding floor plans, elevations and available options. At December
31, 1997, the Company maintained 5 furnished model homes. The Company also
cooperates with outside real estate agents to whom it pays commissions at market
rates. Other marketing tools include the Multiple Listing Service, local
newspaper advertisements, promotions, newsletters to realtors, entrance
signs and illustrated brochures, all of which utilize the "Hearthside Homes"
name.
Sales of the Company's homes are made pursuant to standard sales contracts.
These contracts generally require a customer to make a deposit of approximately
1% to 20% of the sales price at the time of execution of the sales
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contract, depending on local competitive conditions and mortgage financing
requirements. Contracts are generally subject to certain contingencies including
the availability of mortgage financing to the purchaser. Contracts for the sale
of homes are at fixed prices. Prices at which homes are offered normally
increase from time to time, reflecting, in part, increased costs. The prices of
homes vary with location as well as style, and standard and optional amenities.
The majority of the Company's homes are completed after a sales contract has
been signed, but the Company frequently commences construction of Market Homes.
This practice limits funds committed to construction of the house, but at the
same time permits rapid completion of the interior of the home to a purchaser's
specifications upon execution of a sales contract. The Company has Market Homes
in each community, in order to offer a range of homes to prospective buyers and
to be able to complete a house for occupancy in approximately the same length of
time as required for a loan closing in the resale market. Some sales are of
completed homes, including model homes no longer needed for the Company's
marketing efforts. At December 31, 1997, the Company had 14 Market Homes at
various stages of completion. Market Homes are not reflected in the Company's
backlog until placed under a purchase contract by a third-party purchaser.
BACKLOG AND INVENTORY
The Company's backlog consists of homes for which the Company has entered into a
sales contract, but which it has not yet delivered. As of December 31, 1997, the
Company had a backlog of 24 entry-level units under contract, with a sales value
of $3.1 million; substantially all of which will be completed within 60 days.
Construction of homes in backlog is expected to be financed using cash flow from
operations and not through construction loans.
CONSTRUCTION
Construction methods are similar to those employed by Zaring Homes using
even-flow technologies with a 60 day production cycle (see Zaring Homes).
The Company is test marketing a modular housing product that is being produced
and developed for it by a modular housing manufacturer. Pending the outcome of
these tests, it is anticipated that a partnering agreement similar to the
HomeMax arrangement with Champion will be entered into with the modular housing
manufacturer.
CUSTOMER SERVICE AND QUALITY CONTROL
This operation is conducted similar to Zaring Homes (see Zaring Homes).
LAND ACQUISITION AND DEVELOPMENT
This operation is conducted similar to Zaring Homes (see Zaring Homes).
At December 31, 1997, the Company owned approximately 33 lots. The Company also
had under contract, subject to the satisfaction of the Company's purchase
contingencies and exercising of option agreements, 244 lots, of which the
Company is committed to 110 lots.
CUSTOMER FINANCING
The Company does not finance the purchase of homes in its communities and does
not contemplate doing so. Virtually all of the Company's customers utilize FHA
first mortgage financing, which typically requires down payments of up to 20%.
The Company attempts to assist its customers in arranging FHA mortgage financing
with third-party lenders through Legacy. In 1997, Legacy assisted substantially
all of the Company's customers in obtaining mortgages. Revenues from the
operations of Legacy are not material to the Company.
COMPETITION
The competition factors are similar to those of Zaring Homes. (see Zaring Homes)
In addition, the Company competes for customers from rental property,
manufactured housing, other builders and the re-sale market.
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EMPLOYEES
At December 31, 1997, the Company had 428 full-time employees.
ITEM 2. PROPERTIES
The Company's corporate and Cincinnati offices are located at 11300 Cornell Park
Drive, Cincinnati, Ohio 45242. These offices occupy approximately 19,439 square
feet under a lease which expires in December 2006. Other locations at which the
Company operates are:
<TABLE>
<CAPTION>
<S> <C>
Zaring Homes, Inc. Zaring Homes, Inc.
Nashville, Tennessee Charlotte, North Carolina
- -------------------- -------------------------
1604 Westgate Circle 1043 East Morehead Street, Suite 200
Brentwood, TN 37027 Charlotte, NC 28204
Size: 16,755 Sq. Ft. Size: 3,272 Sq. Ft.
Lease Expiration Date: September 2012 Lease Expiration Date: June 1999
Zaring Homes, Inc. Zaring Homes, Inc.
Raleigh, North Carolina Louisville, Kentucky
- ----------------------- --------------------
4700 Homewood Court, Suite 115 303 Hurstbourne Parkway, Suite 100
Raleigh, NC 27609 Louisville, KY 40222
Size: 3,878 Sq. Ft. Size: 2,601 Sq. Ft.
Lease Expiration Date: October 1998 Lease Expiration Date: June 2001
Zaring Homes, Inc. Hearthside Homes, Inc.
Indianapolis, Indiana Indianapolis, Indiana
- --------------------- ---------------------
11555 N. Meridian Street, Suite 530 2345 South Lynhurst Drive, Suite 112
Carmel, IN 46032 Indianapolis, Indiana 46241
Size: 2,776 Sq. Ft. Size: 2,833 sq. ft.
Lease Expiration Date: November 1999 Lease Expiration Date: September 2001
HomeMax, Inc.
Raleigh, North Carolina
- -----------------------
One North Commerce Center
3691 Trust Drive
Raleigh, N.C. 27604
Size: 7,296 Sq. Ft.
Lease Expiration Date: August 2001
</TABLE>
ITEM 3. LEGAL PROCEEDINGS
The Company is subject to various claims, lawsuits and administrative
proceedings arising in the ordinary course of business with respect to real
estate, environmental, zoning, and other matters, which seek remedies or
damages. The Company believes that any liability that may finally be determined
will not have a material effect on its financial position, cash flows, or
results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of security holders in the fourth quarter of
the fiscal year covered by this report.
10
<PAGE> 11
EXECUTIVE OFFICERS OF THE REGISTRANT (DURING 1997).
The names, ages and positions of the executive officers of the Company are as
follows:
<TABLE>
<CAPTION>
Name Age Title
---- (as of 1/1/98) -----
--------------
<S> <C> <C>
ZARING NATIONAL CORPORATION
- ---------------------------
Allen G. Zaring, III 55 Chairman of the Board, President, Chief Executive Officer
Ronald G. Gratz 50 Chief Financial Officer, Secretary and Treasurer
Stuart B. Frankel 32 Vice President, Acquisitions and Land Development
Theresa J. Peard 48 Corporate Assistant Vice President, Administration
ZARING HOMES, INC.
- ------------------
Allen G. Zaring, III 55 President, Chief Executive Officer
Daniel W. Jones 38 Executive Vice President, Chief Operating Officer
Patricia A. Payne 49 Senior Vice President, Marketing and Sales
Douglas C. Hinger 41 Vice President, Product and Community Planning
Daniel E. Poole 32 Vice President, Operations
Richard A. Rodriguez 32 Vice President, Process Improvement
HOMEMAX, INC.
- -------------
Allen G. Zaring, III 55 President, Chief Executive Officer
Matthew S. Massarelli 31 Executive Vice President, Chief Operating Officer
James C. Miller 53 Senior Vice President, Marketing
Lloyd C. McCaskill, Jr. 41 Chief Financial Officer
Rolly Bannister, III 34 Vice President, Retail Operations
Eric Scott Daves 33 Vice President, Development
HEARTHSIDE HOMES, LLC
- ---------------------
Allen G. Zaring, IV 28 President, Chief Executive Officer
Diana Binford 47 Executive Vice President, Chief Operating Officer
</TABLE>
11
<PAGE> 12
ALLEN G. ZARING, III formed the principal predecessor to the Company in 1964 and
is currently Chairman of the Board and Chief Executive Officer. Mr. Zaring, III
has a B.S. in Economics and Finance from Babson College. Mr. Zaring, III is a
graduate of the Owner/President's Management Program of the Harvard Graduate
School of Business. Mr. Zaring also serves as a director of PNC Bank, Ohio,
National Association, and is a member of the Board of Advisors of the Blue Chip
Venture Capital Fund, both located in Cincinnati, Ohio.
RONALD G. GRATZ joined the Company in 1995 as Vice President and Chief Financial
Officer. Mr. Gratz was the Treasurer of Borror Corporation since 1979 and Chief
Financial Officer since 1992. Mr. Gratz is a Certified Public Accountant
registered in the State of Ohio and has a B.S. in Business Administration and
Accounting from Ohio State University.
STUART B. FRANKEL joined the Company in 1996 as Vice President of Business
Expansion. In 1997 Mr. Frankel was promoted to Vice President, Acquisition and
Development. From September 1993 to May 1996, Mr. Frankel was an attorney for
Frost and Jacobs, Cincinnati, Ohio. Mr. Frankel received a J.D. from Vanderbuilt
University in 1993. Mr. Frankel is a Certified Public Accountant registered in
the States of Ohio and Illinois.
THERESA J. PEARD joined the Company in 1989 and served as Office Manager and
Administrative Assistant to the Chairman of the Board and President. In 1995,
Ms. Peard was promoted to Corporate Assistant Vice President of Administration.
Ms. Peard received a B.S. degree in Business Administration and Human Services
from the College of Notre Dame of Maryland.
DANIEL W. JONES joined the Company in 1982 as a production superintendent. Mr.
Jones served as Vice President of Construction for the Company's Nashville
Division from 1989 to 1992. Mr. Jones returned to Cincinnati in 1992 as
Executive Vice President of Production and became Cincinnati Divisional
President. In 1996, Mr. Jones was promoted to Mid-West Regional President. In
1997, Mr. Jones was promoted to Executive Vice President, Chief Operating
Officer of Zaring Homes. Mr. Jones received a B.S. in Construction from the
University of Cincinnati.
PATRICIA A. PAYNE joined the Company in 1987 and served as Vice President of
Merchandising from 1988 to 1993. In 1993, Ms. Payne was promoted to Corporate
Vice President of Marketing. In 1997, Ms. Payne was promoted to Senior Vice
President, Marketing and Sales. Ms. Payne received a B.A. from Edgecliff
College.
DOUGLAS C. HINGER joined the Company in 1993 as Product Manager for Zaring
Homes, Cincinnati. From 1995 to 1996, Mr. Hinger served as Director of
Marketing. From 1996 to 1997, Mr. Hinger was Sales Manager for Zaring Homes,
Cincinnati. In 1997, Mr. Hinger was promoted to Vice President, Product and
Community Planning. Mr. Hinger has a B.A. in Environmental Design from Miami
University and is a registered Architect in the State of Ohio.
DANIEL E. POOLE joined the Company in 1996 as Operations Manager, Zaring Homes
Charlotte Divison. In 1998 Mr. Poole was promoted to Vice President, Operations.
From 1994 to 1996, Mr. Poole was Purchasing Manager for Ryland Homes in
Charlotte, North Carolina. From 1992 to 1994, Mr. Poole was Project Manager for
Pulte Homes in Charlotte, North Carolina. Mr. Poole has a B.S. in Religion from
Liberty University.
RICHARD A. RODRIGUEZ joined the Company in 1996 as Vice President, Operations.
In 1997 Mr. Rodriguez was promoted to Vice President, Process Improvement. From
1995 to 1996 Mr. Rodriguez was Manufacturing Manager at Crysteco. From 1993 to
1995 Mr. Rodriguez was Manufacturing Supervisor for Corning, Inc. From 1988 to
1993 Mr. Rodriguez served as a United States Navy Seal Officer. Mr. Rodriguez
has a B.S. in Engineering from the United States Naval Academy and a M.B.A. in
Business Administration from Xavier University.
MATTHEW S. MASSARELLI joined the Company in 1996 as Vice President and General
Counsel. In 1997, Mr. Massarelli was promoted to Executive Vice President and
Chief Executive Officer of HomeMax. Mr. Massarelli was Associate Attorney for
Caterpillar Financial Services Corporation, Nashville, Tennessee from April 1996
to September 1996. From 1991 to April 1996, Mr. Massarelli was an Associate
Attorney for Frost & Jacobs, Cincinnati, Ohio. Mr. Massarelli received a B.S. in
Finance from Miami University and a J.D. from Case Western Reserve University.
JAMES C. MILLER joined the Company in 1997 as Senior Vice President, Marketing
of HomeMax. Mr. Miller was Director of Sales and Marketing for Fleetwood Homes
- - Eastern Region. Mr. Miller has a B.S. in Marketing from the University of
Georgia.
LLOYD C. MCCASKILL, JR. joined the Company in 1997 as Chief Financial Officer of
HomeMax. From 1995 to 1997, Mr. McCaskill was Director of Interim Financial
Management Division, Ostrande Burch & Company, Raleigh, North Carolina. From
1982 to 1995, Mr. McCaskill was Chief Financial Officer of MCNC in Raleigh,
North Carolina. Mr. McCaskill is a Certified Public Accountant registered in the
State of North Carolina, has a B.S. in Accounting from the University of
North Carolina and a M.B.A. from the Kenan-Flagler School of Business in North
Carolina.
12
<PAGE> 13
MR. ROLLY BANNISTER, III joined the Company in 1997 as Vice President of Retail
Operations of HomeMax. From 1986 to 1997 Mr. Bannister was President and Chief
Executive Officer of Royal Homes, Inc. Mr. Bannister has a B.S. in Business
Administration from East Carolina University.
ERIC SCOTT DAVES joined the Company in 1996 as Divisional President of Zaring
Homes, Raleigh. In 1997, Mr. Daves transferred to HomeMax as Vice President,
Development. From 1994 to 1996 Mr. Daves was Division President at John Wieland
Homes in Raleigh, North Carolina. From 1987 to 1994 Mr. Daves was Area Manager
for Centex Homes in Charleston, South Carolina. Mr. Daves has a B.A. in Business
Administration from the University of Tennessee.
ALLEN G. ZARING, IV joined the Company in 1996 as Director of Acquisition and
Development and in 1997 was promoted to President and Chief Executive Officer of
Hearthside Homes. From 1990 to 1996 Mr. Zaring, IV was President and Chief
Executive Officer of A Z Homes, Inc. Mr. Zaring, IV has a B.S. in Business
Administration from Babson College.
DIANA BINFORD joined the Company in 1997 as Executive Vice President and Chief
Operating Officer of Hearthside Homes. From 1989 to 1997, Ms. Binford was the
President and Chief Executive Officer of Legacy, Inc. Ms. Binford has a B.A. in
Education and Mathematics from McKenree College.
13
<PAGE> 14
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Shares are traded on the NASDAQ Stock Market. The
information required by this item is set forth under the caption "1996 and 1997
Common Stock Price Range" on Page 36 of the registrant's Annual Report to
Shareholders for the year ended December 31, 1997 and incorporated herein by
reference.
ITEM 6. SELECTED FINANCIAL DATA
The information required by this item is set forth under the caption "Selected
Financial Data" at Pages 34 through 36 of the registrant's Annual Report to
Shareholders for the year ended December 31, 1997 and incorporated herein by
reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The information required by this item is set forth under the caption
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" at Pages 13 through 18 of the registrant's Annual Report to
Shareholders for the year ended December 31, 1997 and incorporated herein by
reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Item 14(a) hereof.
ITEM 9. CHANGE IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
No disagreements with accountants on any accounting or financial disclosure
occurred during the period covered by this report.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information regarding executive officers required by Item 401 of Regulation S-K
is furnished in a separate disclosure in Part I of this report under the caption
"Executive Officers of the Registrant" since the registrant did not furnish such
information in its definitive proxy statement prepared in accordance with
Schedule 14A. Information regarding directors required by Item 401 of Regulation
S-K is set forth under the caption "Information Concerning Nominees" at page 2
and 3 of the registrant's definitive proxy statement, and incorporated herein by
reference.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is set forth under the caption "Executive
Compensation" at Page 5 of the registrant's definitive proxy statement, and
incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is set forth at Page 3 through Page 4 of
the registrant's definitive proxy statement, and incorporated herein by
reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is set forth under the caption
"Transactions Involving Directors and Executive Officers" at Page 11 of the
registrant's definitive proxy statement, and incorporated herein by reference.
14
<PAGE> 15
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS AND SCHEDULES, AND REPORTS ON FORM 10-K
(a) FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
<TABLE>
<CAPTION>
<S> <C>
1. Consolidated Financial Statements................................................................................... Page
Report of Independent Public Accountants............................................................................ *
Consolidated Balance Sheets as of December 31, 1997 and 1996 ....................................................... *
Consolidated Statements of Income for the Years Ended December 31, 1997, 1996 and 1995 ............................. *
Consolidated Statements of Shareholders' Equity for the Years Ended December 31, 1997, 1996
and 1995.......................................................................................................... *
Consolidated Statements of Cash Flows for the Years Ended December 31, 1997, 1996 and 1995 ......................... *
Notes to Consolidated Financial Statements.......................................................................... *
</TABLE>
* Incorporated herein by reference to the appropriate portions of the
registrant's Annual Report to Shareholders for the fiscal year ended
December 31, 1997.
2. Financial Statement Schedules
None
3. Exhibits required to be filed by Item 601 of Regulation S-K:
<TABLE>
<CAPTION>
Exhibit Number Description Location
-------------- ----------- --------
<S> <C> <C>
3.1 Amended Articles of Incorporation Filed herewith
3.2 Amended Regulations Filed herewith
10.1 Key Employees Stock Option Plan Incorporated by
reference to Proxy
Statement for Annual
Meeting to be held
April 23, 1998.
10.2 Outside Directors Stock Option Plan Incorporated by
reference to Proxy
Statement for Annual
Meeting to be held April
23, 1998.
10.3 Zaring Homes Retirement Benefit Plan Incorporated by
reference to Exhibit
4.b to Form S-8,
Registration Number
33-85588, effective
October 26, 1994.
10.4 Amendments to Zaring Homes, Inc. Retirement Filed herewith
Benefit Plan, effective as of January 1, 1996
and as of May 8, 1997
</TABLE>
15
<PAGE> 16
<TABLE>
<CAPTION>
<S> <C> <C>
10.5 Loan Agreement between the Company and The Incorporated by
Fifth Third Bank dated as of March 31, 1994 reference to Exhibit
10.7 to Form 10-K 1994.
10.6 Loan Agreement between the Company and The Incorporated by
Provident Bank dated as of March 31, 1994 reference to Exhibit
10.8 to Form 10-K 1994.
10.7 Loan Agreement between the Company and PNC Incorporated by
Bank, Ohio, National Association dated reference to Exhibit
as of March 31, 1994 10.9 to Form 10-K 1994.
10.8 Tax Indemnification Agreement Incorporated by
reference to Exhibit
10.11 to Form S-1.
10.9 Zaring Homes Inc. Executive Deferred Incorporated by
Compensation Plan reference to Exhibit
10.13 to Form 10-K
10.10 Amendment to Zaring Homes, Inc. Filed herewith
Executive Deferred Compensation Plan, effective
as of May 8, 1997
10.11 Credit Agreement between the Company, Incorporated by
Zaring Holdings, Inc., Zaring Homes of reference to Exhibit
Indiana, LLC, Zaring Homes Kentucky, LLC 10.14 to Form 10-Q
and PNC Bank, Ohio National Association, March 31, 1996.
as Agent, NationsBank, N.A. and The First
National Bank of Chicago as Co-Agents
dated as of May 9, 1996.
13.1 Zaring National Corporation 1997 Annual Report to
Shareholders (furnished for the information of the
Securities and Exchange Commission only and not to be deemed
to be filed as part of this Report, except for Pages 13
through 37, which material is incorporated
herein by reference).
21.1 List of Subsidiaries
23 Consent of Independent Public Accountants
</TABLE>
(b) REPORTS ON FORM 8-K
No reports on Form 8-K were filed during the last quarter of the period
covered by this report.
16
<PAGE> 17
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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 HOMES, INC.
Date: March 31, 1998 By: /s/ ALLEN G. ZARING, III
------------------------
Allen G. Zaring, III
Chairman of the Board, President
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed by the following persons on behalf of the registrant and in the
capacities and on the dates indicated.
Date: March 31, 1998 By: /s/ ALLEN G. ZARING, III
-------------------------
Allen G. Zaring, III
Chairman of the Board, President
Date: March 31, 1998 By: /s/ RONALD G. GRATZ
--------------------
Ronald G. Gratz
Chief Financial Officer
Secretary and Treasurer
(Principal Financial and
Accounting Officer)
Date: March 31, 1998 By: /s/ DANIEL W. GEEDING
----------------------
Daniel W. Geeding
Director
Date: March 31, 1998 By: /s/ ROBERT NELSON SIBCY
------------------------
Robert Nelson Sibcy
Director
Date: March 31, 1998 By: /s/ JOHN H. WYANT
------------------
John H. Wyant
Director
Date: March 31, 1998 By: /s/ JOHN R. BROOKS
------------------
John R. Brooks
Director
Date: March 31, 1998 By: /s/ MURAT H. DAVIDSON
----------------------
Murat H. Davidson
Director
17
<PAGE> 1
EXHIBIT 3.1
AMENDED ARTICLES OF INCORPORATION
OF
ZARING NATIONAL CORPORATION
AS AMENDED MAY 6, 1997
FIRST: The name of the corporation is Zaring National Corporation.
SECOND: The place in Ohio where the principal office of the corporation
is to be located is Cincinnati, Hamilton County, Ohio.
THIRD: The purpose for which the corporation is formed is to engage in
any lawful act or activity for which corporations may be formed under Sections
1701.01 to 1701.98 inclusive, of the Ohio Revised Code.
FOURTH: The number of shares that the corporation is authorized to have
outstanding is 18,000,000 common shares, without par value (the "Common
Shares"), 1,000,000 voting preferred shares without par value (the "Voting
Preferred Shares") and 1,000,000 non-voting preferred shares, without par value
(the "Non-Voting Preferred Shares"). The Voting Preferred Shares and the
Non-Voting Preferred Shares are sometimes collectively referred to herein as
"Preferred Shares". The express terms of the shares of each of such classes are
as follows:
1. COMMON SHARES.
(a) Except as otherwise provided in the express terms of any
class or series of the Voting Preferred Shares issued pursuant to these
Articles of Incorporation, the holders of the Common Shares shall
possess all voting power. Each holder of Common Shares shall be entitled
to one vote for each share held.
(b) When there shall have been paid or declared and set aside
for payment to the holders of any class or series of Preferred Shares
the full amount of dividends and sinking fund or retirement fund or
other retirement payments, if any, to which such holders are entitled in
preference to the Common Shares, then dividends may be paid on the
Common Shares and on any class or series of shares entitled to
participate therewith as to dividends, out of any assets legally
available for the payment of dividends, but only when and as declared by
the Board of Directors of the corporation.
(c) In the event of any liquidation, dissolution or winding up
of the corporation, after there shall have been paid or declared and set
aside for payment to the holders of the
<PAGE> 2
outstanding shares of any class or series of the Preferred Shares the
full preferential amounts to which the Preferred Shares are entitled,
the holders of the Common Shares shall be entitled, after payment or
provision for payment of all debts and liabilities of the corporation,
including the payment of all fees, taxes and other expenses incidental
thereto, to receive the remaining assets of the corporation available
for distribution, in cash or in kind.
(c) Each Common Share shall have the same rights, preferences
and limitations as, and shall be identical in all respects with, all the
other common shares of the corporation.
2. SERIAL PREFERRED SHARES. Preferred Shares may be issued from time to
time in one or more series. All Preferred Shares of all series shall rank
equally and be identical in all respects, except that only Voting Preferred
Shares shall be voting shares and except that the board of directors is
authorized to adopt amendments to the Articles in respect of any unissued or
treasury Preferred Shares and thereby to divide such shares into one or more
series and to fix or change, to the full extent now or hereafter permitted by
the laws of Ohio, the designation and authorized number of shares of each series
and, subject to the provisions of this Article Fourth, the relative rights,
preferences and limitations of each series and the variations of such rights,
preferences and limitations as between series, including specifically the
authority to fix or change with respect to each series:
(a) the dividend rate or the amount of dividends to be paid on
the shares of such series, whether dividends shall be cumulative and, if
so, date or dates from which such cumulation shall be effective, the
payment date or dates for dividends, and the participating or other
special rights, if any, with respect to dividends;
(b) the times when, the prices at which, and all other terms and
conditions upon which, shares of such series shall be redeemable;
(c) the amounts that the holders of shares of such series shall
be entitled to receive upon the liquidation, dissolution or winding up
of the corporation;
(e) whether the shares of such series shall be entitled to the
benefits of a sinking or retirement fund to be applied to the purchase
or redemption of such shares, and, if so entitled, the amount of such
fund and the manner of its application, including the price or prices at
which such shares may be redeemed or purchased through the application
of such funds;
(e) whether or not the shares of such series shall be
convertible into or exchangeable for shares of any other class or series
and, if so, the price or prices or the rate or rates of conversion or
exchange and the method, if any, of adjusting the same;
(f) restrictions, if any, on the issuance of shares of the same
or any other class or series; and
<PAGE> 3
(g) such other rights, preferences and limitations as shall not
be inconsistent with this Article Fourth.
All shares of any particular series shall rank equally and be identical
in all respects except that shares of any one series issued at different
times may differ as to the date from which dividends shall be
cumulative.
3. Each outstanding Common Share and each outstanding Voting Preferred
Share shall entitle the holder thereof to one vote on each matter properly
submitted to the shareholders for their vote, consent, waiver, release or other
action. Except as otherwise required by law or by this Article Fourth,
Non-Voting Preferred Shares shall not entitle the holders thereof to vote,
consent, waive, release or otherwise act on any question or in any proceeding or
to be represented at or receive notice of any meeting of shareholders.
FIFTH: The corporation, by action of its board of directors, may
purchase its own shares at any time and from time to time to the extent
permitted by law.
SIXTH: No holder of any shares of any class of the corporation shall
have any pre-emptive rights to subscribe for or to purchase any shares of the
corporation of any series or class, whether now or hereafter authorized.
SEVENTH: Notwithstanding any provision of the Ohio Revised Code now or
hereafter in force requiring for any purpose the vote, consent, waiver or
release of the holders of shares entitling them to exercise two-thirds, or any
other proportion, of the voting power of the corporation or of any class or
classes of shares thereof, such action, unless otherwise expressly required by
statute or by these Articles, may be taken by the vote, consent, waiver or
release of the holders of shares entitling them to exercise a majority of the
voting power of the corporation or of such class or classes.
EIGHTH: The provisions of Section 1701.831 of the Ohio Revised Code
shall not apply to control share acquisitions of shares of the corporation.
NINTH: The provisions of Chapter 1704 of the Ohio Revised Code do not
apply to the corporation.
TENTH: No holder of any shares of any class of the corporation shall
have any rights to cumulate the voting power that they possess in the election
of directors.
<PAGE> 1
EXHIBIT 3.2
AMENDED REGULATIONS OF
ZARING NATIONAL CORPORATION
ARTICLE I
---------
SHAREHOLDERS
------------
SECTION 1.1. PLACE OF MEETINGS. Meetings of shareholders, whether
annual or special, shall be held at such place within or out of the State of
Ohio as shall be determined by the Board of Directors. In the absence of such
determination, meetings shall be held at the principal office of the
corporation.
SECTION 1.2. ANNUAL MEETING. The annual meeting of shareholders of the
corporation shall be held on such date following the close of the corporation's
fiscal year as shall be designated by the Board of Directors. In the absence of
such designation, the annual meeting shall be held at 10:00 A.M. on the third
Wednesday of the fifth month following the close of the corporation's fiscal
year if not a legal holiday, and, if a legal holiday, then on the next day not a
legal holiday. At the annual meeting, directors shall be elected, reports of the
affairs of the corporation shall be considered, and such other business shall be
transacted as may properly be brought before the meeting.
SECTION 1.3. SPECIAL MEETINGS. Special meetings of the shareholders may
be called at any time by any of the following:
(a) The Chairman of the Board or the President, or in case
of the President's absence, death or disability, the Vice President authorized
to exercise the President's authority;
(b) The Board of Directors by action at a meeting or by a
majority of the directors acting without a meeting; or
(c) At the request of persons holding twenty-five percent of
all outstanding shares entitled to vote.
Upon the receipt of a request in writing for a special meeting that
states the purpose or purposes of the meeting and is delivered either in person
or by registered mail to the President or the Secretary by any person(s)
entitled to call a meeting of shareholders, such officer shall promptly give
notice of such meeting as provided in Section 1.5 hereof. If such notice is not
given within 30 days after the delivery or making of such request, the person(s)
calling the meeting may fix the time of meeting and give notice thereof as
provided in Section 1.5 hereof or cause such notice to be given by any
designated representative.
SECTION 1.4. ACTIONS WITHOUT MEETING. Any action that may be
authorized or taken at a meeting of the shareholders may be authorized or taken
without a meeting in a writing or
<PAGE> 2
writings signed by all the shareholders who would be entitled to vote at a
meeting of shareholders held for such purpose, which writing or writings shall
be filed with or entered upon the records of the corporation.
SECTION 1.5. NOTICE OF MEETINGS. Written notice of each meeting of
shareholders, stating the time, place and purposes of the meeting, shall be
given not less than seven nor more than sixty days before the date of the
meeting by or at the direction of the President, the Secretary or any other
person required or permitted by these Amended Regulations to give the notice.
Notice of adjournment of a meeting need not be given if the time and place to
which it is adjourned are fixed and announced at the meeting.
SECTION 1.6. WAIVER OF NOTICE. Notice of the time, place, and
purposes of any meeting of shareholders may be waived in writing by any
shareholder, either before or after the holding of such meeting. Such writing
shall be filed with or entered upon the records of the meeting. The attendance
of any shareholder at any meeting without protesting, prior to or at the
commencement of the meeting, the lack of proper notice shall be deemed to be a
waiver by the shareholder of notice of the meeting.
SECTION 1.7. QUORUM. The holders of a majority of the shares of each
class of shares of the corporation entitled to vote at any meeting of
shareholders, present in person or by proxy, shall constitute a quorum at such
meetings. If a quorum is not present at a meeting of the shareholders, those
shareholders present in person or by proxy and entitled to vote at the meeting
shall have the power to adjourn the meeting without notice other than
announcement at the meeting of the place, date and hour of the adjourned
meeting, until a quorum is present in person or by proxy at the adjourned
meeting. At an adjourned meeting at which a quorum is present in person or by
proxy, the corporation may transact any business which might have been
transacted at the original meeting.
SECTION 1.8. VOTING. When a quorum is present at any meeting, except
as otherwise expressly required by statute, the Articles of Incorporation or
these Amended Regulations, a majority of the votes cast at a meeting of
shareholders shall control. Unless the express terms of any class of shares
provide otherwise, each share shall entitle the holder of such share to one vote
upon each matter properly submitted to the shareholders for their vote at a
meeting of shareholders.
SECTION 1.9. PROXIES. Persons entitled to vote shares or to act with
respect to shares may vote or act in person or by proxy. The person appointed as
a proxy need not be a shareholder. A proxy must be appointed in a writing signed
by the shareholder. No appointment of a proxy is valid after the expiration of
eleven months after it is made, unless the writing specifies the date on which
it is to expire or the length of time it is to continue in force. Every
appointment of a proxy shall be revocable, unless the appointment is coupled
with an interest, except as otherwise provided in Section 1701.48 of the Ohio
General Corporation Law with respect to proxies appointed in connection with a
control share acquisition.
-2-
<PAGE> 3
A telegram, cablegram or telecopy appointing a proxy that appears to
have been transmitted by a shareholder shall be a sufficient writing.
ARTICLE II
----------
DIRECTORS
---------
SECTION 2.1. GENERAL POWERS. All of the authority of the corporation
shall be exercised by or under the direction of the Board of Directors, subject
to limitations imposed by law, the Articles of Incorporation or these Amended
Regulations.
SECTION 2.2. NUMBER AND ELECTION. The election of directors shall
take place at the annual meeting of shareholders or at a special meeting called
for that purpose. The Board of Directors shall consist of such number, not less
than five nor more than nine, determined by the affirmative vote of a majority
of the whole Board of Directors present at any meeting of the Board of Directors
at which a quorum is present. No reduction in the number of directors shall have
the effect of shortening the term of any incumbent director.
SECTION 2.3. TERMS OF DIRECTORS. Each director shall hold office
until the next annual meeting of shareholders, or the absence of an annual
meeting until the next special meeting of shareholders at which directors are
elected, and until such director's successor is elected, or until such
director's earlier resignation, removal from office or death.
SECTION 2.4. PLACE OF MEETINGS. All meetings of the Board of
Directors shall be held at the principal office of the corporation or at such
place within or without the State of Ohio as may be designated from time to time
by a majority of the whole Board of Directors, or as may be designated in the
notice or in the waiver of notice of such meeting.
SECTION 2.5. ORGANIZATIONAL MEETINGS. An organizational meeting of
the Board of Directors shall be held, without call or notice, immediately
following each annual meeting of the shareholders of this corporation.
SECTION 2.6. OTHER MEETINGS; NOTICE. Other meetings of the Board of
Directors may be held at any time on the call of the Chairman of the Board, the
President, any Vice President or any two directors. Written notice of any such
meeting, unless waived, shall be given not less than two days prior to the day
of the meeting. The notice shall state the time and place, but need not state
the purposes, of the meeting. If the Secretary fails or refuses to give such
notice promptly, the notice may be given by the person who called the meeting.
Notice of adjournment of a meeting of the Board of Directors need not be given
if the time and place to which it is adjourned are fixed and announced at such
meeting.
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SECTION 2.7. WAIVER OF NOTICE. Notice of the time and place of any
meeting of the Board of Directors may be waived in writing, either before or
after the meeting takes place, by any director, which writing shall be filed
with or entered upon the records of the meeting. The attendance of any director
at any meeting without protesting, prior to or at the commencement of the
meeting, the lack of proper notice, shall be deemed to be a waiver by such
director of notice of the meeting.
SECTION 2.8. QUORUM. A majority of the whole authorized number of
directors is necessary to constitute a quorum for a meeting of the Board of
Directors, except that a majority of the directors in office constitutes a
quorum for filling a vacancy in the Board of Directors. The act of a majority of
the directors present at a meeting at which a quorum is present is the act of
the Board of Directors, except as otherwise provided by law, the Articles of
Incorporation or these Amended Regulations.
SECTION 2.9. TELEPHONIC MEETINGS. Meetings of the directors may be
held by means of any communications equipment if all persons participating can
hear each other, and participation in a meeting in such manner shall constitute
presence at such meeting.
SECTION 2.10. ACTIONS WITHOUT MEETING. Any action that may be
authorized or taken at a meeting of the Board of Directors of the corporation
may be authorized or taken without a meeting in a writing or writings signed by
all the directors, provided that such writing or writings shall be filed with or
entered upon the records of the corporation.
SECTION 2.11. VACANCIES. All vacancies in the Board of Directors,
whether caused by resignation, death or removal of any director, or by the
failure of the shareholders at any time to elect the whole authorized number of
directors, may be filled by a majority of the remaining directors. A director
thus elected to fill any vacancy shall hold office for the unexpired term of
such director's predecessor.
SECTION 2.12. EXECUTIVE AND OTHER COMMITTEES. The Board of Directors
may create an executive committee or other committees of no fewer than three
member directors. Such committees shall have and may exercise such powers of the
Board of Directors in the management of the corporation as may be conferred or
authorized by the resolutions appointing them; however, no committee shall have
the power to fill vacancies among the directors or in any committee. The Board
of Directors shall have the power at any time to fill vacancies in, to change
the membership of, or to discharge any such committee.
Such committees shall act only during the intervals between meetings
of the Board of Directors and subject to the direction of the Board of
Directors. Acts of any committee within the authority delegated to it shall be
effective for all purposes as the act or authorization of the directors. A
majority of the members of any committee may fix the time and place of its
meetings. Committee members may participate at meetings by means of
communications equipment if all participants can hear each other, and such
participation shall constitute presence
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at the meeting. Such committees may act by a majority of their respective
members at meetings or by a writing or writings signed by all members of such
committee.
ARTICLE III
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OFFICERS
--------
SECTION 3.1. OFFICERS. The Board of Directors must elect a Chairman,
President, Secretary and Treasurer. The Board of Directors may appoint such Vice
Presidents, Assistant Secretaries, Assistant Treasurers, a Controller and such
other officers and agents as the Board of Directors may determine. All officers
shall be elected by the directors, and they shall hold office for such period,
with such authority and perform such duties as the Board of Directors may from
time to time determine. Any two or more offices may be held by the same person,
but no officer shall execute, acknowledge, or verify any instrument in more than
one capacity if such instrument is required by law, the Articles of
Incorporation or these Amended Regulations to be executed, acknowledged or
verified by two or more officers.
SECTION 3.2. ELECTION, TERM, ELIGIBILITY AND REMOVAL. The officers of
the corporation shall be elected annually by the Board of Directors at its
annual meeting or at a special meeting held for such purpose. New or additional
officers may be elected at any meeting of the Board of Directors. Each officer
shall serve at the pleasure of the Board of Directors, and each officer shall
hold office until his or her successor is chosen or until his or her death,
resignation or removal. Only the Chairman of the Board need be a member of the
Board of Directors. Any officer may be removed, with or without cause, by the
Board of Directors without prejudice to the contract rights of such officer.
SECTION 3.3. VACANCIES. If any office shall become vacant by reason
of death, resignation, removal or otherwise, the Board of Directors shall elect
a successor to fill such office.
SECTION 3.4. CHAIRMAN OF THE BOARD. The Chairman of the Board shall
be the chief executive officer of the corporation and shall preside at all
meetings of shareholders and of the Board of Directors. He or she shall have
executive authority to see that all orders and resolutions of the Board of
Directors are carried into effect and, subject to the control vested in the
Board of Directors by law, the Articles of Incorporation or by these Amended
Regulations, shall administer and be responsible for the management of the
business and affairs of the corporation. He or she shall have such other powers
and duties as the Board of Directors shall assign to him or her from time to
time.
SECTION 3.5. THE PRESIDENT. Unless the Board of Directors determines
otherwise, the President shall be the chief operating officer of the corporation
and in such capacity shall be
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charged with responsibility for the day-to-day management of the business and
affairs of the corporation, subject to the authority of the Board of Directors
and the Chairman of the Board. He or she shall perform all duties incident to
the office of the President and such other duties as from time to time may be
assigned to him or her by the Board of Directors.
SECTION 3.6. VICE PRESIDENTS. In the absence of the President or in
the event of his or her inability to act, the Vice President, if any (or in the
event that there is more than one Vice President, the Vice Presidents in the
order designated, or in the absence of any designation, then in order of
seniority), shall perform the duties of the President. When so acting, the Vice
President shall have all the powers of and be subject to all restrictions upon
the President. Each Vice President shall perform such other duties and have such
other powers as the Board of Directors or the President may from time to time
prescribe.
SECTION 3.7. THE SECRETARY. The Secretary shall:
(a) keep the minutes of the meetings of the shareholders and
of the Board of Directors;
(b) see that all notices are given according to the
provisions of these Amended Regulations and as required by law;
(c) be custodian of the records and of the seal, if any, of
the corporation and see that the seal or a facsimile or equivalent is affixed to
or reproduced on all documents as may be required by law, the Articles of
Incorporation, these Amended Regulations or by contract;
(d) have charge of the stock register of the corporation;
and
(e) in general, perform all duties incident to the office of
Secretary and such other duties as are provided by these Amended Regulations and
as the Board of Directors or the President may assign to him or her from time to
time.
SECTION 3.8. ASSISTANT SECRETARIES. If one or more Assistant
Secretaries shall be appointed pursuant to the provisions of Section 3.1 of this
Article, then at the request of the Secretary, or in his or her absence or
disability, the Assistant Secretary designated by the Secretary (or in the
absence of designation, then any one of such Assistant Secretaries) shall
perform the duties of the Secretary. When so acting, he or she shall have all
the powers of and be subject to all the restrictions upon the Secretary. The
Assistant Secretaries shall perform such other duties and have such other powers
as the Board of Directors, the President or the Secretary may from time to time
prescribe.
SECTION 3.9. THE TREASURER. The Treasurer shall:
(a) receive and be responsible for all funds of and
securities owned or held by
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the corporation and, in connection therewith, among other things: keep or cause
to be kept full and accurate records and accounts for the corporation; deposit
or cause to be deposited to the credit of the corporation all moneys, funds and
securities so received in such bank or other depository as the Board of
Directors or an officer designed by the Board of Directors may establish from
time to time; and disburse or supervise the disbursement of the funds of the
corporation as may be properly authorized;
(b) render financial and other appropriate reports on the
condition of the corporation at any meeting, or from time to time whenever the
Board of Directors or the President may require; and
(c) in general, perform all the duties incident to the
office of Treasurer and such other duties as the President or Board of Directors
may assign to him or her from time to time.
SECTION 3.10. ASSISTANT TREASURERS. If one or more Assistant
Treasurers shall be appointed pursuant to the provisions of Section 3.1 of this
Article, then, at the request of the Treasurer, or in his or her absence or
disability, the Assistant Treasurer designed by the Treasurer (or in the absence
of such designation, then any one of such Assistant Treasurers) shall perform
the duties of the Treasurer. When so acting, he or she shall have all the powers
of and be subject to all the restrictions upon the Treasurer. The Assistant
Treasurers shall perform such other duties and have such other powers as the
Board of Directors, the President or the Treasurer may from time to time
prescribe.
SECTION 3.11. DELEGATION OF DUTIES. In case of the absence of any
officer of the corporation or for any other reason that may seem sufficient to
the Board of Directors, the Board of Directors may, for such time as the Board
determines, delegate powers and duties of such officer to any other officer or
to any director.
ARTICLE IV
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SHARES
------
SECTION 4.1. SHARE CERTIFICATE. Certificates for shares of the
corporation shall be in such form and style as the Board of Directors may
determine, and each certificate shall set forth the following:
(a) the name of the corporation and that the corporation is
organized under the laws of the State of Ohio;
(b) the name of the holder of the shares represented by the
certificate;
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(c) the number and class (or series of any class)
represented by such certificate;
(d) the par value of each share represented by such
certificate or a statement that such shares are without par value; and
(e) any restrictions upon transfer of the shares represented
by such certificate.
Certificates for shares of the corporation shall be numbered serially for each
class of shares (or series thereof) as they are issued, and shall be signed by
the Chairman of the Board, the President or a Vice President, and by the
Secretary, an Assistant Secretary, the Treasurer or an Assistant Treasurer. When
the certificate is countersigned by an incorporated transfer agent or registrar,
the signature of any officer may be facsimile, engraved, stamped or printed.
SECTION 4.2. UNCERTIFICATED SHARES. The Board of Directors may
provide by resolution that some or all of any or all classes and series of
shares of the corporation shall be uncertificated shares, provided that such
resolution shall not apply to shares represented by a certificate until such
certificate is surrendered to the corporation as provided in division (B) of
Section 1308.43 of the Ohio Revised Code, and that such resolution shall not
apply to a certificated security issued in exchange for an uncertificated
security as provided in division (C) of Section 1308.43 of the Ohio Revised
Code. Within a reasonable time after the issuance or transfer of uncertificated
shares, the corporation shall send to the registered owner a written notice
containing the information described in Section 5.2 hereof. Except as otherwise
expressly provided by law, the rights and obligations of the holders of
certificates representing shares of the same class and series shall be
identical.
SECTION 4.3. TRANSFER OF SHARES. Subject to any restrictions imposed
pursuant to Section 4.1(e) of this Article IV, shares of the corporation shall
be transferrable on the books of the corporation by their holder, in person or
by his agent or attorney, upon surrender or cancellation of the certificates
representing those shares. As against the corporation, a transfer of shares can
be made only on the books of the corporation and in the manner hereinabove
provided, and the corporation shall be entitled to treat the holder of any share
registered on the books of the corporation as the owner. The corporation shall
not be bound to recognize any equitable or other claim to or interest in such
share on the part of any other person, whether or not it has express or other
notice, save as expressly provided by Ohio General Corporation Law.
SECTION 4.4. RECORD DATE. The Board of Directors may fix a record
date to determine the shareholders entitled to notice of or to vote at any
meeting or adjourned meeting of shareholders, or to express consent to corporate
action in writing without a meeting, or to receive payment of any dividend or
other distribution or allotment of any rights, or to exercise any rights in
respect of any change, conversion or exchange of shares or for the purpose of
any other lawful action. The record date shall not be earlier than the date on
which the record date is fixed and shall not be more than 75 days before the
date of such meeting or consent, the date fixed for payment of such dividend or
distribution or allotment, the date fixed for exercise or receipt of
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<PAGE> 9
such rights, or the date of such other action, as the case may be.
If no record date is fixed by the Board of Directors:
(a) the record date for determining the shareholders
entitled to receive notice of or to vote at a meeting of shareholders shall be
at the close of business on the day next preceding the day on which notice is
given, or if notice is waived, at the close of business on the day next
preceding the day on which the meeting is held.
(b) the record date for determining the shareholders
entitled to express their consent to corporate action in writing without a
meeting, when prior action by the Board of Directors is necessary, shall be the
day on which the first written consent is duly executed.
(c) the record date for determining the shareholders for any
other purpose shall be at the close of business on the day on which the Board of
Directors adopts the resolution relating thereto.
A determination of the shareholders of record entitled to receive
notice of or to vote at a meeting of shareholders shall apply to any adjournment
of the meeting, unless the Board of Directors fixes a new record date for the
adjourned meeting.
SECTION 4.5. LOST CERTIFICATE. Any shareholder claiming that a
certificate for shares has been lost, stolen or destroyed may make an affidavit
or affirmation of the fact. Subject to any requirement established by the Board
of Directors, a new certificate may be issued of the same tenor and representing
the same number, class or series of shares, or any combination thereof, as were
represented by the certificate alleged to have been lost, stolen or destroyed.
ARTICLE V
---------
INDEMNIFICATION
---------------
SECTION 5.1. INDEMNIFICATION OF DIRECTORS AND OFFICERS. Any person
who is a party or is threatened to be made a party to or is otherwise involved
in any action, suit or proceeding, whether civil, criminal, administrative or
investigative (a "Proceeding"), by reason of the fact that he or she is or was a
director or officer of the corporation or, as a director or officer of the
corporation, is or was serving at the request of the corporation as a director,
officer, trustee, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise (including service with respect to employee
benefit plans), whether the basis of such Proceeding is alleged action in one or
more of such official capacities or in any other capacity, shall be indemnified
and held harmless by the corporation to the fullest extent authorized by law, as
the same exists or may hereafter be amended (but, in the case of any such
amendment, only to the
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extent that such amendment permits the corporation to provide broader
indemnification rights than such law permitted the corporation to provide prior
to such amendment), against all expenses, liability and loss (including
attorneys' fees, and, in respect of claims not made by or in the right of the
corporation, judgments, fines, ERISA excise taxes or penalties and amounts paid
in settlement) actually and reasonably incurred by such person in connection
with the Proceeding; PROVIDED, HOWEVER, that the corporation shall indemnify any
person seeking indemnity in connection with a Proceeding initiated by such
person only if such Proceeding was authorized by the Board of Directors. Such
right:
(a) shall include the right to the payment by the
corporation of expenses, including attorneys' fees, as they are incurred by a
director in defending a Proceeding; and
(b) may, if approved by the affirmative vote of a majority
of the directors in office (excluding for such purpose any director having an
interest in such decision) include the right to the payment by the corporation
of expenses, including attorneys' fees, as they are incurred by an officer of
the corporation in defending a Proceeding;
PROVIDED, HOWEVER, that such advance payment of expenses shall be made only upon
delivery to the corporation of an undertaking by such director or officer (i) to
repay all amounts so advanced if it should be ultimately determined by clear and
convincing evidence in a court of competent jurisdiction that such director's or
officer's action or failure to act involved an act or omission undertaken with
deliberate intent to cause injury to the corporation or undertaken with reckless
disregard for the best interests of the corporation, and (ii) to cooperate
reasonably with the corporation concerning the Proceeding.
SECTION 5.2. INDEMNIFICATION OF EMPLOYEES OR AGENTS. The corporation
may, to such extent and in such manner as is determined by the Board of
Directors, but in no event to an extent greater than is permitted by the General
Corporation Law of Ohio, indemnify any employees or agents of the corporation
permitted to be indemnified by provisions of the General Corporation Law of Ohio
whose right to indemnification is not covered by Section 5.1, above.
SECTION 5.3. CONTRACTUAL RIGHTS; APPLICABILITY. The right to be
indemnified under Section 5.1 (but not Section 5.2), including any right to the
reimbursement or advancement of expenses pursuant thereto, (i) is a contract
right based upon good and valuable consideration, (ii) is intended to be
retroactive and shall be available with respect to events occurring prior to the
adoption hereof, and (iii) shall continue to exist after the rescission or
restrictive modification hereof with respect to events occurring prior thereto.
SECTION 5.4. NON-EXCLUSIVITY OF RIGHTS. The rights conferred on any
person by Sections 5.1, 5.2 and 5.3 hereof shall not be exclusive, and shall be
in addition to, any other right of indemnification or reimbursement which such
person may have under any statute, provision of the Articles of Incorporation of
the corporation, agreement, vote of shareholders or disinterested directors or
otherwise.
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SECTION 5.5. INSURANCE. The corporation may maintain insurance, at
its expense, to protect itself and any director, officer, employee or agent of
the corporation against expenses, liability or loss incurred in respect of the
Proceeding, whether or not the corporation would have the power to indemnify
such person against such expense, liability or loss under the Ohio General
Corporation Law.
SECTION 5.6. DETERMINATIONS. Any determination to be made under this
Article V by the Board of Directors shall be made as follows:
(a) by a majority vote of a quorum consisting of directors
of the corporation who were not and are not parties to or threatened with any
such action, suit, or proceeding;
(b) if the quorum described in paragraph (a) of this Section
5.6 is not obtainable or if a majority vote of a quorum of disinterested
directors so directs, in a written opinion by independent legal counsel other
than an attorney, or a firm having associated with it an attorney, who has been
retained by or who has performed services for the corporation or any person to
be indemnified within the past five years;
(c) by the shareholders; or
(d) by the court of common pleas or the court in which such
action, suit, or proceeding was brought.
ARTICLE VI
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MISCELLANEOUS PROVISIONS
------------------------
SECTION 6.1. FISCAL YEAR. The fiscal year of the corporation shall
end on such date as the Board of Directors may determine from time to time. In
the absence of such a determination, the fiscal year shall end on the 31st day
of December.
SECTION 6.2. NOTICE. Whenever provisions of law, the Articles of
Incorporation or these Amended Regulations require notice to be given to any
director or shareholder, personal or hand delivery of such notice shall not be
required. Any such notice may be given in writing, by mail (by deposit in a post
office or letter box, in an envelope with postage affixed), by courier, by
overnight package delivery, by telegraph or by telecopier, in any case addressed
to such director or shareholder at such address as appears on the records of the
corporation. Notice given by any one of the above methods shall be sufficient,
and the method of giving notice to all directors or to all shareholders, as the
case may be, need not be uniform. If otherwise permitted by these Amended
Regulations, notice to directors may also be given by telephone. Such notice
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shall be deemed to be given at the time when it is so mailed, or delivered to a
courier, an overnight package delivery company or a telegraph company, or, in
the case of a telecopy, when transmission has been confirmed. In computing the
period of time for the giving of notice, the day on which notice is given shall
be excluded, and the day when the act for which notice is given is to be done is
included, unless the instrument calling for the notice otherwise provides.
ARTICLE VII
-----------
SEAL
----
A corporate seal shall not be required. If the Board of Directors
elects to provide a seal, failure to affix such seal to any document shall not
affect the validity thereof.
ARTICLE VIII
------------
AMENDMENT
---------
These Amended Regulations may be altered, amended or repealed, or new
Regulations may be adopted, (i) at any annual or special meeting of the
shareholders called for that purpose, by the affirmative vote of the holders of
a majority of the corporation's common shares present, in person or by proxy, at
such meeting, or (ii) without a meeting by the written consent of the holders of
the corporation's common shares entitling them to exercise a majority of the
voting power of the corporation on such proposal.
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EXHIBIT 10.4
AMENDMENT TO
ZARING HOMES, INC. RETIREMENT BENEFIT PLAN
The Zaring Homes, Inc. Retirement Benefit Plan (the "Plan") is hereby
amended, effective as of January 1, 1996, in the following respect:
A new paragraph reading as follows shall be added immediately after the
first paragraph under "401(k) Provisions, Item 11.1" which is contained in Part
I of the Plan:
Notwithstanding any other provision of the Plan to
the contrary, no Employee who is a Key Employee (as defined in
Section 10.2(b) of the Plan) for any Plan Year based on his
pay, officer status, and/or ownership interest in the Employer
prior to the start of such Plan Year (or prior to the first
Entry Date which otherwise applies to him if such Entry Date
occurs in such Plan Year), or who otherwise is reasonably
determined by the Plan Administrator (based on his rate of
pay, officer status, and/or ownership interest in the Employer
prior to the first day of such Plan Year (or prior to such
Entry Date)) will be a Key Employee for such Plan Year if he
remains employed by the Employer throughout such Plan Year
(without such rate of pay, officer status, and/or ownership
interest changing), shall be in any event ineligible to elect
to have Elective Contributions or Matching Contributions made
on his behalf for such Plan Year.
IN WITNESS WHEREOF, the Plan sponsor has caused its name to be
subscribed to this Plan amendment.
AMENDMENT TO
ZARING HOMES, INC. RETIREMENT BENEFIT PLAN
The Zaring Homes, Inc. Retirement Benefit Plan (the "Plan") is hereby
amended, effective as of May 8, 1997, in the following respects:
1. The name of the Plan is amended to be "Zaring National Corporation
Retirement Benefit Plan."
2. Section 1.12 of the Plan is amended in its entirety to read as
follows:
1.12. The term "Employee" shall mean Zaring National
Corporation (or any corporate successor thereto) and Zaring Homes, Inc.
(or any corporate successor thereto); except that Zaring Homes, Inc.
(or any corporate successor thereto) shall be part of the Employer only
while at least 80% of the total voting power of its stock is owned by
Zaring National Corporation (or any corporate successor thereto).
Notwithstanding the foregoing, any reference contained in this Plan to
the Employer which concerns the administrator or the administration of
the Plan, the appointment or removal of the Trustee or the amendment or
termination of the Plan shall be deemed to refer just to Zaring
National Corporation (or any corporate successor thereto).
IN WITNESS WHEREOF, both the current sponsor of the Plan and the Plan's
prior sponsor have caused their names to be subscribed to this Plan amendment,
effective as of May 8, 1997.
<PAGE> 1
EXHIBIT 10.10
AMENDMENT TO ZARING HOMES, INC.
EXECUTIVE DEFERRED COMPENSATION PLAN
The Zaring Homes, Inc. Executive Deferred Compensation Plan (the
"Plan") is hereby amended in the following respects:
1. Effective as of May 8, 1997, the name of the Plan is amended to be
"Zaring National Corporation Executive Deferred Compensation Plan."
2. Effective as of May 8, 1997, Section 1.1 of the Plan is amended in
its entirety to read as follows:
1.1 NAME. The plan set forth herein shall be known as the
Zaring National Corporation Executive Deferred Compensation Plan (the
"Plan").
3. Effective as of May 8, 1997, the reference contained in Section
2.1.12 of the Plan to "Zaring Homes, Inc. Retirement Benefit Plan" shall be
deemed to refer to "Zaring National Corporation Retirement Benefit Plan."
4. Effective as of May 8, 1997, Section 2.1.13 of the Plan is amended
in its entirety to read as follows:
2.1.13 "Zaring National" means Zaring National Corporation, or
any corporate successor thereto.
5. Effective as of May 8, 1997, each reference contained in the Plan to
"Zaring Homes" shall be deemed to refer to "Zaring National."
6. Effective as of the date this Plan amendment is signed below by the
Plan sponsor, a new Section 6.7 reading as follows is added to the Plan
immediately after Plan Section 6.6:
6.7 UNFORSEEABLE EMERGENCY.
6.7.1 Notwithstanding any other provisions of the
Plan to the contrary, if a Participant ceases to be an Employee for any
reason and, pursuant to the foregoing provisions of this Section 6, his
or her Account is to be paid to the Participant (or his or her
Beneficiary) in annual installments, the Participant (or, if
applicable, his or her Beneficiary) and the Committee may agree to
accelerate the payment to the Participant (or, if applicable, his or
her Beneficiary) of any portion or all of the Participant's Account to
an earlier time than such Account or Account portion would otherwise be
paid pursuant to the foregoing provisions of this Section 6, provided:
(1) the Participant (or, if applicable, his or her Beneficiary)
provides a written representation, and evidence satisfactory to the
Committee, that
<PAGE> 2
the payment of a portion or all of the Account must be accelerated
because of an unforeseeable emergency, (2) no payment of the Account is
made prior to the date the Participant ceases to be an Employee, and
(3) the portion of the Account that is being accelerated as to its
payment is limited to the amount reasonably needed to satisfy the
emergency.
6.7.2 For purposes of the Plan, an "unforeseeable
emergency" of a Participant or Beneficiary means a severe financial
hardship to the Participant or Beneficiary resulting from a sudden and
unexpected illness or accident of such person (or a dependent, as
defined in Section 152(a) of the Code, of such person), loss of such
person's property due to casualty, or other similar extraordinary and
unforeseeable circumstances arising as a result of events beyond the
control of such person. Acceleration of the payment of any portion of
the Account may not be made to the extent that the emergency may be
relieved through reimbursement or compensation by insurance or
otherwise or by liquidation of such person's assets (to the extent such
liquidation would not itself cause severe financial hardship). Examples
of what are not considered to be unforeseeable emergencies for purposes
of the Plan include the need to send a child to college or the desire
to purchase a home.
IN WITNESS WHEREOF, the sponsor of the Plan has caused its name to be
subscribed to this Plan amendment.
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<PAGE> 1
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
OVERVIEW Exhibit 13.1
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 include
luxury site-built homes, entry level site-built homes, retail
distribution of manufactured homes and reflect the cyclical nature
of the housing industry.
The Company reported consolidated net revenues of $224.0 million
for the year ending December 31, 1997 compared to $174.8 million in
1996, an increase of $49.2 million or 28%. Net income for 1997 was
$2.1 million or $.43 per share, compared to $4.8 million or $1.01
per share in 1996.
The following tables set forth, for the years indicated, certain
information regarding the Company's operations:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
YEARS ENDED DECEMBER 31, 1997 1996 1995
- -----------------------------------------------------------------------------------------------------------------
(Dollars in thousands)
<S> <C> <C> <C>
ZARING HOMES, INC. LUXURY SITE-BUILT HOMES
Revenues $ 214,042 $174,793 $ 127,084
Cost of Sales 179,568 143,039 101,172
Interest 5,563 5,930 5,145
Selling, General and Administrative Expenses 24,346 20,463 15,104
----------------------------------
Operating Income 4,565 5,361 5,663
Other Income 15 162 113
----------------------------------
Pretax Luxury Site-Built Income 4,580 5,523 5,776
HOMEMAX, INC. RETAIL DISTRIBUTION
MANUFACTURED HOMES
Revenues 8,209 -- --
Cost of Sales 6,920 -- --
Interest 312 -- --
Selling, General and Administrative Expenses 3,370 -- --
----------------------------------
Operating Loss (2,393) -- --
Other Income 48 -- --
----------------------------------
Pretax Retail Distribution Loss (2,345) -- --
HEARTHSIDE HOMES, LLC ENTRY LEVEL
SITE-BUILT HOMES
Revenues 1,706 -- --
Cost of Sales 1,424 -- --
Interest 21 -- --
Selling, General and Administrative Expenses 209 -- --
----------------------------------
Operating Loss 52 -- --
Other Income 2 -- --
----------------------------------
Pretax Entry Level Site-Built Income 54 -- --
CORPORATE (INCOME) AND EXPENSES
Interest Income from Subsidiaries, net (2,866) (3,571) (2,597)
General and Administrative Expenses 1,786 1,269 1,392
----------------------------------
Income Before Taxes 3,369 7,825 6,981
Income Taxes 1,317 2,998 2,701
----------------------------------
Net Income $ 2,052 $ 4,827 $ 4,280
==================================
</TABLE>
Management's Discussion and Analysis of Financial Condition and Results of
Operations
1997 ZARING NATIONAL CORPORATION ANNUAL REPORT
<PAGE> 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
YEARS ENDED DECEMBER 31, 1997 1996 1995
- -----------------------------------------------------------------------------------------------
(Dollars in thousands)
<S> <C> <C> <C>
LUXURY SITE-BUILT HOMES
Operating Data:
Units
New Orders (2) 856 800 676
Closings (1) 879 754 583
Backlog (3) 240 263 217
Average Revenue Per Closing $ 241 $ 228 $ 215
Sales Value of Backlog $ 60,779 $ 64,193 $ 47,033
RETAIL DISTRIBUTION MANUFACTURED HOMES
Operating Data:
Units
New Orders (2) 180 -- --
Closings (1) 208 -- --
Backlog (3) (4) 40 -- --
Average Revenue Per Closing $ 41 -- --
Sales Value of Backlog $ 2,365 -- --
ENTRY LEVEL SITE-BUILT HOMES
Operating Data:
Units
New Orders (2) 19 -- --
Closings (1) 13 -- --
Backlog (3) (5) 24 -- --
Average Revenue Per Closing $ 127 -- --
Sales Value of Backlog $ 3,060 -- --
<FN>
(1) Revenue from a sale is recognized upon the closing of the sale.
(2) New orders represent total new home orders received during the
period, net of cancellations.
(3) Backlog includes new orders which have not yet closed.
(4) 68 contracts with a sales value of $4,245 were acquired through
acquisition.
(5) 18 contracts with a sales value of $2,248 were acquired through
acquisition.
</FN>
</TABLE>
Sales of the Company's homes generally are made pursuant to a
standard sales contract, which requires a down payment up to 20% of
the sales price. The standard sales contract typically includes a
financing contingency that permits the purchaser to cancel if
mortgage financing is unattainable within a specified period,
usually less than six weeks. The contract may also include other
contingencies such as the sale of an existing house.
Although the Company believes that substantially all backlogs at
December 31, 1997 will be completed and closed during 1998, there
can be no assurance that such closings will occur. The Company
experienced cancellations of its contracts at a rate of 19.9%
during 1997 compared to 23.4% in 1996 and 17.8% in 1995.
Cancellations fluctuate, among other factors, as a result of
buyers' expectations of mortgage interest rates. Trends in the
Company's backlog are subject to change from period to period
based upon economic conditions including consumer confidence
levels, interest rates, and the availability of mortgages.
Management's Discussion and Analysis of Financial Condition and Results of
Operations
1997 ZARING NATIONAL CORPORATION ANNUAL REPORT
<PAGE> 3
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
FISCAL 1997 COMPARED TO FISCAL 1996
ZARING HOMES, INC.,
------------------------------------
LUXURY SITE-BUILT HOMES--
------------------------------------
Net revenues in 1997 increased by $39.2 million or 22.5% over 1996.
The Company delivered 879 homes in 1997 compared to 754 in 1996, a
16.6% increase. This increase is attributable to the strength of
the luxury housing market and the first year deliveries of the
expansion cities Charlotte and Louisville, which combined to
deliver 77 homes in 1997.
Gross profit increased $2.7 million or 8.5% over 1996. Gross
profit as a percentage of revenues declined 2.0% to 16.1% of
revenues. The decline in gross profit is attributable to, among
other factors, increased subcontractor costs, other production and
warranty costs which the Company was unable to pass on to the
consumer, increased lot costs and the general competitive market.
Interest expense decreased $0.3 million in 1997. As a percentage
of revenues, interest declined 0.8% to 2.6% in 1997 from 3.4% in
1996. This decline is principally related to the reduction in the
construction cycle time between the receipt of a new contract and
the delivery of the completed home. Selling, general and
administrative expenses increased $3.9 million in 1997, or 19.0%,
compared to 1996. As a percent, selling, general and
administrative expenses declined 0.3%. Selling expenses, as a
percentage of revenues, remained relatively flat at 7.0% versus
6.9% in 1996. General and administrative expenses as a percentage
of revenues declined 0.4%.
Zaring Homes reported pretax income of $4.6 million, or 2.1%
of revenues in 1997, down $0.9 million from 1996.
HOMEMAX, INC., RETAIL DISTRIBUTION
------------------------------------
MANUFACTURED SINGLE-FAMILY HOMES--
------------------------------------
HomeMax closed 208 manufactured homes in 1997 with total revenues
of $8.2 million. The gross profit percentage for the twelve months
ended December 31, 1997 was 15.7%.
Selling, general and administrative expenses for HomeMax,
including infrastructure costs to leverage continued expansion
efforts, totaled $3.4 million in 1997. During 1997, HomeMax
acquired the assets of three manufactured housing retailers and,
in the fourth quarter of 1997, opened its first Super Model Home
Village in the Wake Forest area. As a result, selling, general and
administrative expenses were 41.1% of revenues. Selling expenses
were $0.9 million, 11.0% of revenue, primarily due to start-up
marketing costs. General and administrative expenses were $2.5
million, 30.5% of revenue due to the above mentioned expansion
efforts.
As a result of the foregoing, HomeMax reported a pretax loss of
$2.3 million in 1997.
HEARTHSIDE HOMES, LLC,
------------------------------------
ENTRY LEVEL SITE-BUILT HOMES--
------------------------------------
Net revenues in 1997 were $1.7 million from October 1, 1997, the
date the Company acquired the operating assets of entry level
site-builder Legacy, Inc. Thirteen homes were delivered in the
three-month period following the asset acquisition.
Gross profit was $0.3 million, or 16.5%. Selling, general and
administrative expenses were $0.2 million, or 12.2% of net
revenues. As a result of the foregoing, Hearthside reported pretax
income of $54, 3.2% of net revenues, from the date of acquisition
to December 31, 1997.
<PAGE> 4
Management's Discussion and Analysis of Financial Condition and Results of
Operations
1997 ZARING NATIONAL CORPORATION ANNUAL REPORT
<PAGE> 5
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
OTHER OPERATING RESULTS--
------------------------------------
Interest income from subsidiaries represents the allocation of
interest costs to the subsidiaries.
General and administrative expenses increased $0.5 million in
fiscal 1997 compared to fiscal 1996. These increases are primarily
due to additions to the management team as well as certain other
support costs incurred to facilitate the expansions of Zaring
Homes, HomeMax and Hearthside.
FISCAL 1996 COMPARED TO FISCAL 1995
LUXURY SITE-BUILT HOMES--
------------------------------------
Net revenues in 1996 increased by $47.7 million, or 37.5% over
1995. Zaring Homes delivered 754 luxury site-built homes in 1996
compared to 583 in 1995, a 29.3% increase. The increase is
attributable to the strength of the housing market, primarily in
the first half of 1996, and the continued growth in the 1994
expansion cities of Raleigh and Indianapolis, which combined to
deliver 107 additional homes in 1996 as compared to 1995.
Although the gross profit increased $5.8 million or 22.5% over
1995, the gross profit percentage decreased from 20.4% in 1995 to
18.2% in 1996. The decline in the gross margin percentage is
attributable to, among other factors, increased subcontractor
costs due to the demand for their services; the mix of units
sold and increases in certain other production and warranty costs,
which were not able to be passed through to customers.
Selling, general and administrative expenses increased
approximately 35.4% to $20.4 million in 1996. Selling expenses
decreased to 6.9% of revenues for 1996 compared to 7.1% of
revenues in 1995, primarily due to start-up marketing costs
incurred in the Company's Raleigh and Indianapolis operations in
1995 and increased costs related to model homes in all divisions
in 1995. General and administrative expense as a percentage of
revenues remained constant between years at 4.8% of revenues.
OTHER OPERATING RESULTS--
------------------------------------
Interest income from subsidiaries represents the allocation of
interest costs to the subsidiaries. General and administrative
expenses decreased $0.1 million in fiscal 1996 compared to 1995.
INCOME TAXES
The Company's effective tax rate for 1997 and 1996 was
approximately 39.1% and 38.3% respectively, which reflects the
federal statutory rate plus state and local tax rates, net of
federal tax benefit.
LOAN AGREEMENTS
In March 1996, the Company entered into an unsecured $87.5 million
syndicated credit facility with commercial banks. This agreement
consists of a revolving credit facility providing for borrowings up
to $72.5 million and term debt of $15 million. This revolving
facility enables the Company to borrow funds depending upon its
borrowing base, as defined, at interest rates up to the prime rate.
Available borrowings are limited by the Company's outstanding
letters of credit and its borrowing base. As of December 31, 1997,
$46.4 million was borrowed by the Company against the revolving
credit facility ($7.8 million was available). The $15 million term
debt is payable in 20 equal quarterly installments beginning in
July 1996 (balance of $10.5 million as of December 31, 1997). The
other term notes payable to banks ($5.2 million as of December 31,
1997) are payable in 12 equal quarterly installments beginning in
September 1998 and bear interest at a fixed rate of 7.95%.
Management's Discussion and Analysis of Financial Condition and Results of
Operations
1997 ZARING NATIONAL CORPORATION ANNUAL REPORT
<PAGE> 6
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Subsequent to December 31, 1997, the Company entered into three
additional syndicated credit facilities with commercial banks. The
new facilities consist of:
- A $33.9 million manufactured housing floor plan financing
facility for inventory and display models with interest
equal to the prime rate or Euro-rate plus 2.35%. Retail
inventory borrowings are subject to repayment upon the
earlier of sale, 10% at the end of six months following
initial borrowing and the balance after nine months.
Borrowings for the cost of display models are subject to
payments of 10% after twelve months, with the balance due
no later than twenty-four months after the date of initial
borrowing.
- A $12 million sales village mortgage loan for sales
village development, interest at prime plus 2%,
convertible into twenty-eight separate fifteen year
amortization loans in amounts ranging from $250 to $500
per village, balloon payments due five years after the
initial borrowing for each village, secured by mortgages.
- A $15 million unsecured two-year revolving credit note
expiring March 2000 for working capital needs of HomeMax,
Inc. and subsidiaries with interest equal to the prime
rate or Euro-rate plus 1.75%. This note is guaranteed by
Zaring Homes, Inc.
COMMITMENTS
As of December 31, 1997 and December 31, 1996, the Company had
committed to purchase residential lots from third parties in the
aggregate amount of $22.8 and $19.4 million, respectively, through
2001. As of December 31, 1997, the Company also had commitments
under various operating leases in the aggregate amount of $10.4
million payable over a fifteen-year period. It is anticipated that
these commitments will be funded through the Company's working
capital.
YEAR 2000 AND ACCOUNTING FOR SOFTWARE COSTS
The Company has several information improvement initiatives in
process. In particular, the Company plans to replace its core
management information system over the next three years in order to
be year 2000 compliant. Management's current estimate of the cost
of the system replacement approximates $3 million. Certain of these
costs will be capitalized in accordance with the guidelines
established in Statement of Position 98-1 "Accounting for the Costs
of Computer Software Developed or Obtained for Internal Use" issued
in March 1998.
CAPITAL RESOURCES AND LIQUIDITY
FISCAL 1997 COMPARED TO FISCAL 1996--
------------------------------------
Net cash used by operating activities increased by $10.8 million
from net cash used in 1996 of $4.8 million to net cash used of
$15.6 million in 1997. This is a result of the decrease in net
income and larger investments in both site-built and manufactured
housing inventories. Net cash used for investing activities
increased by $11.3 million due to greater purchases of property and
equipment, the acquisition of three manufactured housing retailers,
and the assets of an entry level site-builder. Net cash provided by
financing activities was $30.0 million, an increase of $25.9
million over 1996 due to net bank borrowings of $29.5 million.
The Company believes its present cash balances, amounts available
from existing borrowing agreements coupled with credit facilities
added in 1998, and amounts generated from future operations, will
provide adequate funds for its future plans.
Management's Discussion and Analysis of Financial Condition and Results of
Operations
1997 ZARING NATIONAL CORPORATION ANNUAL REPORT
<PAGE> 7
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Fiscal 1996 Compared to Fiscal 1995--
------------------------------------
Net cash used by operating activities increased by $11.7 million
from net cash provided of $6.9 million in 1995 to net cash used of
$4.8 million in 1996. The increase in net income was offset by
larger investments in inventories. Net cash used for investing
activities increased by $1.0 million due to greater purchases of
property and equipment. Net cash provided by financing activities
was $4.0 million, an increase of $9.9 million over 1995 due to net
bank borrowings of $4.7 million offset by the net purchase of
treasury stock.
PROVISION FOR WRITEDOWN TO
NET REALIZABLE VALUE
The Company periodically reviews the value of land and inventories
and records writedowns necessary to reflect declines in value. The
provision for writedown to net realizable value represents reserves
recorded after these evaluations to reflect such declines in value.
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
forecasted 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 increase significantly,
the Company's revenues, gross profit, and net income could be
adversely affected.
CAUTIONARY STATEMENT
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.
Management's Discussion and Analysis of Financial Condition and Results of
Operations
1997 ZARING NATIONAL CORPORATION ANNUAL REPORT
<PAGE> 8
CONSOLIDATED
BALANCE SHEETS
As of December 31, 1997 and 1996 (amounts in thousands, except share
information)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
1997 1996
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
CASH AND CASH EQUIVALENTS $ 4,160 $ 2,440
RECEIVABLES:
Related parties 363 227
Other 476 326
INVENTORIES:
Luxury site-built homes 42,405 37,239
Entry level site-built homes 1,547 --
Retail distribution manufactured homes 672 --
Model homes 16,890 10,425
Land, development costs and finished lots 46,907 35,988
PROPERTY AND EQUIPMENT, net 9,526 2,619
INVESTMENTS IN AND ADVANCES TO UNCONSOLIDATED
JOINT VENTURES 622 1,086
FUTURE TAX BENEFIT 1,058 675
CASH SURRENDER VALUE OF LIFE INSURANCE AND OTHER ASSETS 5,161 3,672
GOODWILL 2,356 --
-------- ---------
$132,143 $ 94,697
======== =========
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES:
Revolving credit facility $ 46,425 $ 15,500
Term notes payable 17,641 18,745
Accounts payable 8,453 5,370
Accrued liabilities 6,292 3,745
Customer deposits 2,178 2,549
Income taxes payable -- 107
-------- ---------
Total liabilities 80,989 46,016
-------- ---------
MINORITY INTEREST 424 --
-------- ---------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Preferred shares, no par value, 2,000,000 shares authorized,
none issued or outstanding -- --
Common shares, no par value, 18,000,000 shares authorized,
4,780,788 and 5,036,480 issued and 4,780,788 and
4,781,110 outstanding in 1997 and 1996, respectively 25,146 25,146
Additional paid-in capital 5,678 7,687
Retained earnings 19,906 17,854
-------- ---------
50,730 50,687
Less- Treasury shares, at cost, 255,370 shares at December 31, 1996 -- (2,006)
-------- ---------
Total shareholders' equity 50,730 48,681
-------- ---------
$132,143 $ 94,697
======== =========
The accompanying notes to consolidated financial statements are an integral part
of these consolidated statements.
</TABLE>
Consolidated Balance Sheets
1997 ZARING NATIONAL CORPORATION ANNUAL REPORT
<PAGE> 9
CONSOLIDATED
STATEMENTS OF INCOME
For the Years Ended December 31, 1997, 1996 and 1995 (amounts in thousands,
except share information)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
1997 1996 1995
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NET REVENUES:
Luxury site-built homes $ 214,042 $ 174,793 $ 127,084
Entry level site-built homes 1,706 -- --
Retail distribution manufactured homes 8,209 -- --
-----------------------------------
Total net revenues 223,957 174,793 127,084
EXPENSES:
Cost of sales luxury site-built homes 179,568 143,039 101,172
Cost of sales entry level site-built homes 1,424 -- --
Cost of sales retail distribution manufactured homes 6,920 -- --
Interest 3,031 2,359 2,548
Selling 14,909 12,012 9,063
General and administrative 14,829 9,720 7,433
-----------------------------------
Total expenses 220,681 167,130 120,216
-----------------------------------
Operating income 3,276 7,663 6,868
OTHER INCOME (EXPENSE):
Income from unconsolidated joint ventures 33 159 105
Other, net (16) 3 8
-----------------------------------
17 162 113
-----------------------------------
Income before minority interest and
provision for income taxes 3,293 7,825 6,981
MINORITY INTEREST IN LOSS OF SUBSIDIARY 76 -- --
-----------------------------------
Income before provision for income taxes 3,369 7,825 6,981
PROVISION FOR INCOME TAXES 1,317 2,998 2,701
-----------------------------------
Net income $ 2,052 $ 4,827 $ 4,280
===================================
BASIC AND DILUTED EARNINGS PER
COMMON SHARE (NOTE 11) $ 0.43 $ 1.01 $ 0.88
===================================
WEIGHTED AVERAGE SHARES OUTSTANDING 4,780,931 4,778,826 4,850,159
===================================
The accompanying notes to consolidated financial statements are an integral part of these consolidated
statements.
</TABLE>
Consolidated Statements of Income
1997 ZARING NATIONAL CORPORATION ANNUAL REPORT
<PAGE> 10
CONSOLIDATED STATEMENTS OF
SHAREHOLDERS' EQUITY
For the Years Ended December 31, 1997, 1996 and 1995 (amounts in thousands,
except share information)
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------
additional
------------------------------------------------------------------------------------
shares common paid-in retained treasury
------------------------------------------------------------------------------------
common treasury shares capital earnings shares total
------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, December 31, 1994 5,035,520 (185,361) $ 25,136 $ 7,533 $ 8,747 $ (1,385) $ 40,031
Net income -- -- -- -- 4,280 -- 4,280
------------------------------------------------------------------------------------
BALANCE, December 31, 1995 5,035,520 (185,361) 25,136 7,533 13,027 (1,385) 44,311
Purchase of treasury shares -- (135,009) -- -- -- (1,198) (1,198)
Sale of treasury shares -- 65,000 -- 154 -- 577 731
Issuance of common shares 960 -- 10 -- -- -- 10
Net income -- -- -- -- 4,827 -- 4,827
------------------------------------------------------------------------------------
BALANCE, December 31, 1996 5,036,480 (255,370) 25,146 7,687 17,854 (2,006) 48,681
Purchase of treasury shares -- (322) -- (3) -- -- (3)
Retirement of treasury shares (255,692) 255,692 -- (2,006) -- 2,006 --
Net income -- -- -- -- 2,052 -- 2,052
------------------------------------------------------------------------------------
BALANCE, December 31, 1997 4,780,788 -- $ 25,146 $ 5,678 $ 19,906 $ -- $ 50,730
====================================================================================
The accompanying notes to consolidated financial statements are an integral part
of these consolidated statements.
</TABLE>
Consolidated Statements of Shareholders' Equity
1997 ZARING NATIONAL CORPORATION ANNUAL REPORT
<PAGE> 11
CONSOLIDATED STATEMENTS OF
CASH FLOWS
For the Years Ended December 31, 1997, 1996 and 1995 (amounts in thousands,
except share information)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 2,052 $ 4,827 $ 4,280
Adjustments to reconcile net income
to cash provided by operating activities-
Depreciation and amortization 2,138 1,189 929
Income from unconsolidated joint ventures (33) (159) (105)
Compensation associated with sale of treasury shares -- 147 --
Minority interest in loss of subsidiary (76) -- --
Change in assets and liabilities, excluding
effects of acquisitions-
Future tax benefit (383) 126 --
Receivables (107) (445) 454
Inventories (18,542) (9,492) (388)
Cash surrender value of life insurance and other (1,489) (1,192) (559)
Accounts payable and other accrued liabilities 1,543 106 1,258
Customer deposits (641) 846 804
Income taxes payable (107) (747) 207
------------------------------------------------
Net cash provided by (used for)
operating activities (15,645) (4,794) 6,880
------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment (8,817) (2,010) (973)
Distributions from unconsolidated joint ventures, net 497 651 627
Acquisitions, net of cash acquired (4,313) -- --
------------------------------------------------
Net cash provided by (used for)
investing activities (12,633) (1,359) (346)
------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings on notes payable 55,609 48,320 23,195
Repayments on notes payable (26,108) (43,636) (28,999)
Sale of treasury shares -- 594 --
Purchase of treasury shares (3) (1,198) --
Proceeds from minority interest, net 500 -- --
------------------------------------------------
Net cash provided by (used for)
financing activities 29,998 4,080 (5,804)
------------------------------------------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 1,720 (2,073) 730
CASH AND CASH EQUIVALENTS, beginning of year 2,440 4,513 3,783
------------------------------------------------
CASH AND CASH EQUIVALENTS, end of year $ 4,160 $ 2,440 $ 4,513
================================================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for-
Interest $ 3,202 $ 2,051 $ 2,884
Income taxes $ 1,844 $ 3,507 $ 2,503
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING
AND FINANCING ACTIVITIES:
During 1997 and 1996, the Company incurred non-cash
charges to general and administrative expenses of $12
and $147, respectively (Note 9)
Detail of the acquisitions discussed in Note 1:
Fair value of assets acquired $ 9,121 $ -- $ --
Liabilities assumed 4,683 -- --
------------------------------------------------
Cash paid 4,438 -- --
Cash acquired (125) -- --
------------------------------------------------
Net cash paid for acquisitions $ 4,313 $ -- $ --
================================================
The accompanying notes to consolidated financial statements are an integral part
of these consolidated statements.
</TABLE>
Consolidated Statements of Cash Flows
1997 ZARING NATIONAL CORPORATION ANNUAL REPORT
<PAGE> 12
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
December 31, 1997 and 1996 (amounts in thousands, except share information)
I Basis of Presentation
Effective in May 1997, Zaring National Corporation (an Ohio
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), formerly Zaring Homes, Inc. The
formation of the holding company had no effect on the carrying
values of assets, liabilities or equity of the Company. The
subsidiaries of the Company include the following: Zaring Homes,
Inc. and its subsidiaries, Zaring Homes of Indiana, LLC, Zaring
Homes Kentucky, LLC; Zaring Holdings, Inc.; HomeMax, Inc. and its
subsidiaries, HomeMax North Carolina, Inc., HomeMax Tennessee,
Inc., HomeMax South Carolina, HomeMax Ohio, Inc., HomeMax Indiana,
LLC and HomeMax Kentucky, LLC; Hearthside Homes, LLC (formerly
Zaring Acquisition Company of Indiana, LLC); and Legacy Mortgage
Corporation.
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, and Charlotte,
North Carolina.
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. During 1997,
HomeMax acquired the assets of three manufactured housing
retailers for approximately $2,440 in cash. The acquisitions were
recorded using the purchase method of accounting. Accordingly, the
Company has made preliminary allocations of the purchase price
based on fair values as of the dates of purchase. The excess of
the cost of the acquired assets over their estimated fair
value has been recorded as goodwill.
Effective October 1, 1997, the Company, through its newly formed
subsidiary Hearthside Homes, LLC, acquired substantially all of
the net operating assets of Legacy, Inc., an Indianapolis-based
builder of entry level single-family homes for approximately
$1,860 in cash and a note. The Company also acquired the stock of
Legacy Mortgage Corporation for approximately $138. Legacy
Mortgage Corporation originates, processes and sells mortgages to
third-party investors. The acquisitions were recorded using
the purchase method of accounting, as discussed above.
All significant intercompany transactions and balances have been
eliminated in consolidation.
2 Summary of Significant Accounting Policies
(a) CASH AND CASH EQUIVALENTS--
------------------------------------
The Company considers all highly liquid investments with an
original maturity of three months or less to be cash equivalents.
The carrying value of all cash equivalents approximates fair market
value as of December 31, 1997 and 1996.
(b) INVENTORIES--
------------------------------------
Inventories are stated at the lower of cost or market. Costs
include acquisition, land development, direct and indirect
production costs, land deposits, interest, taxes and certain other
carrying costs related to development and construction activities.
Market represents estimates based on management's present plans and
intentions of sale prices less development and disposition costs,
assuming that disposition occurs in the normal course of business.
Residential housing completed or under construction is not pledged
as collateral under any of the Company's financing arrangements.
Notes to Consolidated Financial Statements
1997 ZARING NATIONAL CORPORATION ANNUAL REPORT
<PAGE> 13
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
December 31, 1997 and 1996 (amounts in thousands, except share information)
(c) 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>
- ----------------------------------------------------------------------------------------------
Years Ended December 31, 1997 1996 1995
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Capitalized interest, beginning of year $ 1,074 $ 1,123 $ 751
Interest incurred 3,635 2,310 2,920
Interest expensed (3,031) (2,359) (2,548)
---------------------------------
Capitalized interest, end of year $ 1,678 $ 1,074 $ 1,123
</TABLE>
(d) DEPRECIATION AND AMORTIZATION--
------------------------------------
Property and equipment are depreciated over the estimated useful
lives of the assets (2-15 years) using accelerated and
straight-line methods. Goodwill is amortized over twenty years
using the straight-line method.
(e) REVENUE AND COST RECOGNITION--
------------------------------------
Revenues and costs of sales related to homes are recognized upon
closing the sale, at which time title is transferred to the
purchaser.
(f) SERVICE AND WARRANTY LIABILITIES--
------------------------------------
Service and warranty costs are estimated and provided for at the
time of closing on a home.
(g) ADVERTISING--
------------------------------------
The Company expenses the costs of advertising as incurred.
Advertising expense for the years ended December 31, 1997, 1996 and
1995 approximated $1,193, $1,019 and $663, respectively.
(h) SFAS 123 "ACCOUNTING FOR
------------------------------------
STOCK-BASED COMPENSATION"--
------------------------------------
The Company has elected to account for the cost of its stock
options utilizing the intrinsic value method prescribed in
Accounting Principles Board Opinion No. 25 (APB 25) as allowed by
Statement of Financial Accounting Standards No. 123 "Accounting for
Stock-Based Compensation" (SFAS 123). Accordingly, no compensation
cost has been recognized for stock options as substantially all
stock options were granted at prices that approximated fair market
value, as defined by the plans, at the measurement date. The pro
forma disclosures required by SFAS 123 are presented in Note 10.
(i) USE OF ESTIMATES--
------------------------------------
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
Notes to Consolidated Financial Statements
1997 ZARING NATIONAL CORPORATION ANNUAL REPORT
<PAGE> 14
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
December 31, 1997 and 1996 (amounts in thousands, except share information)
(j) NEW PRONOUNCEMENTS--
------------------------------------
In June 1997, the FASB issued Statement of Financial Accounting
Standards No. 130, "Reporting Comprehensive Income" (SFAS 130),
which establishes standards for reporting and display of
comprehensive income and its components (revenues, expenses, gains,
and losses) in a full set of general-purpose financial statements.
SFAS 130 is effective for financial statements for annual periods
beginning after December 15, 1997. The Company does not expect
adoption to have a significant impact on its 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 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 131 in fiscal 1998.
In April 1997, the American Institute of Certified Public
Accountants, issued proposed Statement of Position (SOP)
"Reporting on the Costs of Start-Up Activities." The proposed SOP
requires the cost of start-up activities, such as preopening
expenses, to be expensed as incurred. Under the Company's current
accounting policies, these preopening expenses are deferred until
the manufactured housing village has opened and then amortized
over a one-year period. As the SOP is not yet effective, the
Company has not yet adopted this SOP. The effect of adopting the
SOP during 1997 would have been approximately $507 of additional
amortization expense in the accompanying 1997 statement of income.
In March 1998, the American Institute of Certified Public
Accountants issued Statement of Position 98-1, "Accounting for the
Costs of Computer Software Developed or Obtained for Internal Use"
(SOP 98-1). SOP 98-1 requires computer software costs incurred in
the preliminary project stage to be expensed and provides
capitalization criteria for costs incurred subsequent to the
preliminary project stage. The Company intends to adopt SOP 98-1
in the first quarter of fiscal 1998.
(k) RECLASSIFICATIONS--
------------------------------------
Certain reclassifications have been made to the prior years'
financial statements to conform with the 1997 presentation.
3 Investments in Joint Ventures
The Company participates in two joint ventures to develop and sell
residential property to third parties or to the venture partners
who construct residential housing on the property. In addition, the
Company also participates in a partnership which provides mortgage
brokering services.
For each venture, the Company has a 50% ownership interest and its
venture partner has the other 50% interest. All key decisions
regarding venture activities are made jointly by both ventures.
Accordingly, the Company uses the equity method to account for the
investments in these joint ventures.
Fees received by the Company for services provided to the joint
ventures are offset against costs to the extent incurred in
providing these services. Any excess is deferred by the Company to
the extent of its ownership interest in the venture and recognized
as income as the venture closes on sales of properties to third
parties.
Notes to Consolidated Financial Statements
1997 ZARING NATIONAL CORPORATION ANNUAL REPORT
<PAGE> 15
Notes to Consolidated
Financial Statements
December 31, 1997 and 1996 (amounts in thousands, except share information)
<TABLE>
<CAPTION>
The following tables summarize unaudited financial information
related to the Company's joint venture activities:
- -----------------------------------------------------------------------------------------------
Years Ended December 31, 1997 1996 1995
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Statements of Income
Revenues $ 1,264 $ 3,442 $ 1,460
Costs and expenses 1,199 3,124 1,250
---------------------------------
Pretax income $ 65 $ 318 $ 210
=================================
<CAPTION>
- -----------------------------------------------------------------------------------------------
As Of December 31, 1997 1996
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
Balance Sheets
Assets, primarily land and land improvements $ 1,580 $ 1,720
Liabilities $ 1,039 $ 666
Equity $ 541 $ 1,054
</TABLE>
4 Notes Payable
The Company has an unsecured, $87.5 million syndicated credit
facility with PNC Bank acting as agent. This facility consists of a
revolving credit facility, providing for borrowings up to $72.5
million, depending on the Company's borrowing base, as defined in
the agreement, and a $15 million term loan. $10 million of the
revolving credit facility may be used for letters of credit. The
credit agreement bears interest in accordance with various options,
depending upon the Company's debt-to-equity ratio, as detailed
below: The Company's notes payable consist of the following at
December 31:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
1997 1996
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
REVOLVING CREDIT FACILITY, payable to PNC Bank, as agent, $72.5 million
maximum available borrowings at interest rate options of (a) the greater
of the prime rate or the Federal Funds rate plus .5% or the (b) Euro-rate
plus 1.25% to 1.625%, depending on the Company's leverage ratio
(borrowings outstanding at December 31, 1997 are at an average rate of
7.8%), expiring in July 1999 $ 46,425 $ 15,500
======================
TERM LOAN, payable to PNC Bank, as agent, borrowings at interest rate
options of (a) the greater of the prime rate or the Federal Funds rate
plus .5% or the (b) Euro-rate plus 1.375% to 1.75%, depending on the
Company's leverage ratio (borrowings outstanding at December 31, 1997 are
at an average rate of 8.0%), payable in 20 quarterly installments
beginning July 1, 1996 $ 10,500 $ 13,500
NOTES PAYABLE TO FORMER SHAREHOLDERS, interest at 6.0% to 8.5%, payable in
equal annual installments, due December 1999 and
August 2001 1,896 -
OTHER TERM NOTES, payable to banks, interest at 7.95%, payable
in 12 equal quarterly installments beginning in September 1998 5,245 5,245
----------------------
$ 17,641 $ 18,745
======================
At December 31, 1997, the Company had $7.8 million of borrowings
available per the terms of its revolving credit agreement.
The Company is contingently liable under letters of credit of
approximately $5.2 million issued as a result of lot and land
acquisition and development activities through December 31, 1997.
</TABLE>
Notes to Consolidated Financial Statements
1997 ZARING NATIONAL CORPORATION ANNUAL REPORT
<PAGE> 16
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
December 31, 1997 and 1996 (amounts in thousands, except share information)
The carrying value of the revolving credit facility and term loan
approximates fair market value as these notes are priced at current
market rates. The fair market value of the Company's other notes
payable as of December 31, 1997 and 1996 was approximately $5,382
and $5,275, respectively. The fair market value of these securities
was estimated by discounting the expected cash flows at the rates
currently offered to the Company for debt of the same remaining
maturities.
Subsequent to December 31, 1997, the Company entered into three
additional syndicated credit facilities with NationsBank as the
agent. The new facilities consist of:
- A $33.9 million manufactured housing floor plan financing
facility for inventory and display models with interest
equal to the prime rate or Euro-rate plus 2.35%. Retail
inventory borrowings are subject to repayment upon the
earlier of sale, 10% at the end of six months following
initial borrowing and the balance after nine months.
Borrowings for the cost of display models are subject to
payments of 10% after twelve months, with the balance due
no later than twenty-four months after the date of initial
borrowing.
- A $12 million sales village mortgage loan for sales
village development, interest at prime plus 2%,
convertible into twenty-eight separate fifteen year
amortization loans in amounts ranging from $250 to $500
per village, balloon payments due five years after the
initial borrowing for each village, secured by mortgages.
- A $15 million unsecured two-year revolving credit note
expiring March 2000 for working capital needs of HomeMax,
Inc. and subsidiaries with interest equal to the prime
rate or Euro-rate plus 1.75%. This note is guaranteed by
Zaring Homes, Inc.
The bank credit agreements include provisions which require, among
others, that the Company maintain certain levels of tangible net
worth and cash flow from operations as well as limiting the
Company's dividends and ratio of debt to equity.
Scheduled maturities of notes payable, after giving effect to the
refinancing discussed above are summarized as follows:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------
Years Ended December 31,
- -------------------------------------------------------------------
<S> <C>
1998 $ 4,402
1999 48,302
2000 8,568
2001 2,794
---------
$ 64,066
5 Income Taxes
The Company has adopted Statement of Financial Accounting Standards
No. 109, "Accounting for Income Taxes" (SFAS 109). This statement
requires deferred tax recognition for all temporary difference in
accordance with the liability method and requires adjustments of
future tax benefits and deferred tax liabilities for enacted
changes in tax laws and rates. The following summarizes the
provision for income taxes:
</TABLE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
Years Ended December 31, 1997 1996 1995
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Currently payable:
Federal $ 1,250 $ 2,484 $ 2,071
State and local 365 640 630
Deferred:
Federal (233) (104) --
State and local (65) (22) --
----------------------------------
Provision for income taxes $ 1,317 $ 2,998 $ 2,701
==================================
</TABLE>
Notes to Consolidated Financial Statements
1997 ZARING NATIONAL CORPORATION ANNUAL REPORT
<PAGE> 17
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
December 31, 1997 and 1996 (amounts in thousands, except share information)
<TABLE>
<CAPTION>
The following is a reconciliation between the statutory federal
income tax rate and the provision for income taxes:
- ---------------------------------------------------------------------------------------------------------------
1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------
AMOUNT RATE AMOUNT RATE AMOUNT RATE
----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Computed provision for
federal income taxes
at the statutory rate $ 1,145 34.0% $ 2,661 34.0% $ 2,374 34.0%
State and local income taxes,
net of federal income
tax benefit 167 5.0 386 4.9 378 5.4
Other 5 .1 (49) (.6) (51) (.7)
----------------------------------------------------------------------
$ 1,317 39.1% $ 2,998 38.3% $ 2,701 38.7%
======================================================================
<CAPTION>
At December 31, 1997 and 1996, the net deferred tax asset consists of the following:
- ----------------------------------------------------------------------------------------------------------------
1997 1996
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Goodwill and other intangibles $ (158) $ --
Costs capitalized to inventory 90 88
Recognition of warranty expense 373 130
Inventory reserves 14 37
Currently nondeductible expenses 739 420
---------------------
$ 1,058 $ 675
=====================
</TABLE>
6 Retirement Plan
The Company has established a defined contribution plan for all
eligible employees. The plan provides for voluntary contributions
by the Company's employees up to a specified maximum percentage of
gross pay. Company contributions are discretionary. Company
contributions accrued and expensed approximated $54, $54 and $28 in
each 1997, 1996 and 1995, respectively.
7 Related Party Transactions
In 1997, the Company sold residential lots to a company which is
owned by a related party for approximately $165. In 1996 and 1995,
the Company sold residential lots to two companies owned by related
parties for approximately $105 and $247, respectively. The Company
also sold finished residential homes to members of management for
total sales of approximately $732, $375 and $1,156 in 1997, 1996
and 1995, respectively. In 1996 and 1995, the Company purchased
residential lots from a company related through common ownership
for $1,834 and $69, respectively. There were no such purchases in
1997.
Also in 1997 and 1996, the Company purchased residential lots
and/or land from a company owned by a member of the Company's
Board of Directors for $480 and $1,845, respectively. There were
no such purchases in 1995.
Notes to Consolidated Financial Statements
1997 ZARING NATIONAL CORPORATION ANNUAL REPORT
<PAGE> 18
Notes to Consolidated
Financial Statements
December 31, 1997 and 1996 (amounts in thousands, except share information)
8 Commitments and Contingencies
(a) LOT PURCHASES--
------------------------------------
In addition to land under development, the Company has commitments
to purchase residential lots from various outside parties as
follows:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------
Years Ended December 31, NUMBER OF LOTS AMOUNT
- ---------------------------------------------------------------------------
<S> <C> <C>
1998 305 $ 11,815
1999 188 6,757
2000 114 3,784
2001 15 453
------------------------
622 $ 22,809
========================
(b) Litigation--
------------------------------------
The Company is subject to various claims, lawsuits and
administrative proceedings arising in the ordinary course of
business with respect to real estate, environmental zoning and
other matters, which seek remedies or damages. The Company believes
that any liability that may finally be determined will not have a
material effect on its financial position or results of operations.
(c) Operating Leases--
------------------------------------
The Company is obligated under noncancelable operating lease
agreements for office space. Rental expense under these agreements
was $973, $439 and $329 for the years ended December 31, 1997, 1996
and 1995, respectively. Future minimum lease payments under these
operating lease agreements are as follows:
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------
Years Ended December 31,
- --------------------------------------------------------------------------
<S> <C>
1998 $ 1,524
1999 1,401
2000 1,340
2001 1,158
2002 821
Thereafter 4,173
--------
$ 10,417
========
</TABLE>
9 Shareholders' Equity
(a) Preferred Shares--
------------------------------------
The Company is authorized to issue up to 2,000,000 preferred shares
of which 1,000,000 are voting and 1,000,000 are nonvoting. No
preferred shares have been issued.
(b) Common Shares--
------------------------------------
During 1997, the Company retired 255,692 treasury shares.
During 1996, the Company purchased 135,009 common shares at a price
of $8.875 per share. In addition, the Company sold 65,000 shares
out of treasury to directors and employees for $9.15 per share
which was less than the then current market value. The difference
between the amounts received and the market value has been recorded
as compensation expense and included in general and administrative
expenses.
In each 1997 and 1996, the Company issued as an incentive
three shares to each full-time employee (1,218 common shares with a
total market value of $12 in 1997 and 960 common shares with a
total market value of $10 in 1996).
Notes to Consolidated Financial Statements
1997 ZARING NATIONAL CORPORATION ANNUAL REPORT
<PAGE> 19
Notes to Consolidated
Financial Statements
December 31, 1997 and 1996 (amounts in thousands, except share information)
10 Stock Option Plans
The Company adopted stock option plans (the Plans) for employees
and non-employee directors in 1997, 1996 and 1993. Had compensation
cost for these plans been determined consistent with SFAS 123, the
Company's net income and earnings per share would have been reduced
to the following pro forma amounts:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
Years Ended December 31, 1997 1996 1995
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Income
As reported $ 2,052 $ 4,827 $ 4,280
Pro forma $ 1,865 $ 4,703 $ 4,277
Earnings Per Share
As reported $ 0.43 $ 1.01 $ 0.88
Pro forma $ 0.39 $ 0.98 $ 0.88
</TABLE>
Because the method of accounting as prescribed by SFAS 123 has not
been applied to options granted prior to January 1, 1995, the pro
forma net income and earnings per share information may not be
representative of that to be expected in future years.
The Company may grant options for up to 813,000 shares under the
Plans. The Company has granted options on 375,611 shares through
December 31, 1997. The option exercise prices approximated the
stock's market price on the date of grant. Of the options granted,
63,901 will vest subject to the Company's annual performance and
conformity with certain other performance criteria. These options
expire ten years from grant date. 60,000 of the options vest in
three annual installments beginning in 1998 and expire in ten
years. 43,602 vest in 1998 and expire in ten years. The remaining
options vest at their grant date and expire ten years from date of
grant.
A summary of the status of the Company's stock option plans at
December 31, 1997, 1996 and 1995 and changes during the years then
ended is presented below:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
Years Ended
December 31, 1997 1996 1995
- -----------------------------------------------------------------------------------------------------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding, beginning of year 66,383 $ 12.05 15,020 $ 12.67 94,000 $ 13.50
Granted 200,250 10.00 77,500 11.63 2,000 7.25
Exercised -- -- -- -- -- --
Forfeited/Expired (57,905) 11.03 (26,137) 11.15 (80,980) 13.50
----------------------------------------------------------------------
Outstanding, end of year 208,728 $ 10.35 66,383 $ 12.05 15,020 $ 12.67
======================================================================
Exercisable, end of year 41,225 $ 11.91 25,854 $ 12.60 15,020 $ 12.67
======================================================================
Weighted average fair value
of option shares granted $ 5.85 $ 5.95 $ 7.25
======================================================================
</TABLE>
Notes to Consolidated Financial Statements
1997 ZARING NATIONAL CORPORATION ANNUAL REPORT
<PAGE> 20
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
December 31, 1997 and 1996 (amounts in thousands, except share information)
The following table summarizes information related to options
outstanding and options exercisable as of December 31, 1997:
<TABLE>
<CAPTION>
Weighted Weighted Weighted
Average Average Average
Options Exercise Exercise Contractual Options Exercise
Outstanding Price Price Life Exercisable Price
-------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
2,000 $7.25 $ 7.25 7.3 2,000 $ 7.25
170,003 $9.50-$10.61 9.96 9.4 2,500 9.50
10,118 $11.15 11.15 8.2 10,118 11.15
26,607 $12.50-$13.50 12.78 1.0 26,607 12.78
-------------------------------------------------------------------------------------
208,728 $10.35 8.2 41,225 $11.91
=====================================================================================
</TABLE>
The fair value of each option grant is estimated on the date of
grant using the Black-Scholes option pricing model with the
following weighted average assumptions used for grants in 1997,
1996 and 1995:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
Years Ended December 31, 1997 1996 1995
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Dividend yield 0% 0% 0%
Expected volatility 36% 36% 36%
Risk-free interest rate 6.5% 6.5% 6.5%
Expected lives 10 years 7 years 7 years
</TABLE>
11 Earnings Per Share
In 1997, the Company adopted Statement of Financial Accounting
Standards No. 128 "Earnings per Share" (SFAS 128). In accordance
with SFAS 128, basic earnings per common share are computed by
dividing net income by the weighted average number of common shares
outstanding during the year. Diluted earnings per common share are
computed similar to basic except the denominator is increased to
include the number of additional common shares that would have been
outstanding if the dilutive potential common shares had been
issued.
Options to purchase 208,728 and 66,383 shares of common stock at an
average price of $10.35 and $12.05 per share were outstanding
during 1997 and 1996, respectively but were not included in the
computation of diluted earnings per share since the options'
exercise prices were greater than the average market price of the
common shares.
Since there are no antidilutive securities, basic and diluted
earnings per share are identical thus a reconciliation of the
numerator and denominator is not necessary.
SFAS 128 requires the Company to restate reported earnings per
share for all periods presented. This accounting change had no
effect on previously reported earnings per share.
Notes to Consolidated Financial Statements
1997 ZARING NATIONAL CORPORATION ANNUAL REPORT
<PAGE> 21
MANAGEMENT'S RESPONSIBILITY
FOR FINANCIAL STATEMENTS
Zaring National Corporation maintains a system of internal control
over the preparation of its financial statements. It should be
recognized that even an effective internal control system, no
matter how well designed, cannot ensure the elimination of errors
with respect to the preparation of financial statements; further,
because of changes in conditions, internal control system
effectiveness may vary over time.
The independent public accountants provide an objective opinion as
to whether the financial statements present fairly the financial
position, results of operations and cash flows of the Company. In
this process, they evaluate the system of internal accounting
controls and perform such tests and other procedures as they
deem necessary.
The Audit Committee of the Board of Directors, composed of
non-employee directors, meets periodically with the independent
public accountants to evaluate the effectiveness of the work
performed by the independent public accountants in discharging
their respective responsibilities and to assure their
independent and free access to the Audit Committee.
The Company has implemented a formal internal auditing function
that evaluated and formally reported to the Audit Committee on the
adequacy and effectiveness of internal accounting controls,
policies and procedures.
Based on this assessment, management believes that, as of December
31, 1997, the Company maintained an effective system of internal
control over the preparation of its financial statements.
/s/ Allen G. Zaring, III /s/ Ronald G.Gratz
------------------------- -----------------------
Allen G. Zaring, III Ronald G. Gratz
Chairman Chief Financial Officer
Management's Responsibility for Financial Statements
1997 ZARING NATIONAL CORPORATION ANNUAL REPORT
<PAGE> 22
REPORT OF INDEPENDENT
PUBLIC ACCOUNTANTS
TO THE BOARD OF DIRECTORS AND SHAREHOLDERS
OF ZARING NATIONAL CORPORATION
We have audited the accompanying consolidated balance sheets of
Zaring National Corporation and Subsidiaries (Note 1) as of
December 31, 1997 and 1996, and the related consolidated statements
of income and shareholders' equity and cash flows for each of the
three years in the period ended December 31, 1997. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements. An audit also
includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Zaring
National Corporation and subsidiaries as of December 31, 1997 and
1996, and the results of their operations and their cash flows for
each of the three years in the period ended December 31, 1997 in
conformity with generally accepted accounting principles.
/s/ Arthur Andersen LLP
--------------------------
Cincinnati, Ohio,
February 24, 1998
Report of Independent Public Accountants
1997 ZARING NATIONAL CORPORATION ANNUAL REPORT
<PAGE> 23
SELECTED FINANCIAL DATA
(dollars in thousands, except share information)
<TABLE>
<CAPTION>
BALANCE SHEET DATA
- -----------------------------------------------------------------------------------------------------------------
1997 1996 1995 1994 1993
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Total Assets $132,143 $94,697 $ 85,438 $ 84,693 $ 61,150
Notes Payable $ 64,066 $34,245 $ 29,561 $ 35,365 $ 15,755
Total Liabilities $ 81,413 $46,016 $ 41,127 $ 44,663 $ 23,862
Shareholders' Equity $ 50,730 $48,681 $ 44,311 $ 40,030 $ 37,288
----------------------------------------------------------------------
Selected Financial Data
- --------------------------------------------------------------------------------------------------------------------------
Years Ended December 31, 1997 1996 1995 1994 1993
- --------------------------------------------------------------------------------------------------------------------------
INCOME STATEMENT DATA:
Net Revenues (1) $ 223,957 $174,793 $ 127,084 $ 101,611 $ 88,544
Cost Of Sales 187,912 143,039 101,172 79,959 67,136
Interest 3,031 2,359 2,548 1,495 979
Selling, General and
Administrative Expenses 29,738 21,732 16,496 13,950 11,095
----------------------------------------------------------------------
Operating Income 3,276 7,663 6,868 6,207 9,334
Other Income 17 162 113 393 790
----------------------------------------------------------------------
Income Before Minority Interest
and Taxes 3,293 7,825 6,981 6,600 10,124
Minority Interest 76 -- -- -- --
----------------------------------------------------------------------
Income Before Taxes 3,369 7,825 6,981 6,600 10,124
Provision For Income
Taxes (Pro Forma 1993) 1,317 2,998 2,701 2,651 3,983
----------------------------------------------------------------------
Net Income (Pro Forma 1993) $ 2,052 $ 4,827 $ 4,280 $ 3,949 $ 6,141
----------------------------------------------------------------------
Earnings Per Share (Pro Forma 1993) $ 0.43 $ 1.01 $ 0.88 $ 0.80 $ 1.48
----------------------------------------------------------------------
Weighted Average Shares
Outstanding (000's) (2) 4,781 4,779 4,850 4,933 4,150
----------------------------------------------------------------------
</TABLE>
Selected Operating Data
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
Years Ended December 31, 1997 1996 1995 1994 1993
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
LUXURY SITE-BUILT HOMES
Operating Data (Units):
New Orders (3 856 800 676 468 449
Closings 879 754 583 465 402
Backlog (4) 240 263 217 124 121
Average Revenue Per Closing $ 241 $ 228 $ 215 $ 214 $ 214
Sales Value Of Backlog $60,779 $64,193 $47,033 $24,566 $27,498
RETAIL DISTRIBUTION
MANUFACTURED HOMES
Operating Data (Units):
New Orders (3) 180 -- -- -- --
Closings 208 -- -- -- --
Backlog (4) (5) 40 -- -- -- --
Average Revenue Per Closing $ 41 -- -- -- --
Sales Value Of Backlog $ 2,365 -- -- -- --
ENTRY LEVEL SITE-BUILT HOMES
Operating Data (Units):
New Orders (3) 19 -- -- -- --
Closings 13 -- -- -- --
Backlog (4) (6) 24 -- -- -- --
Average Revenue Per Closing $ 127 -- -- -- --
Sales Value of Backlog $ 3,060 -- -- -- --
Selected Financial Data
</TABLE>
1997 ZARING NATIONAL CORPORATION ANNUAL REPORT
<PAGE> 24
SELECTED FINANCIAL DATA
(dollars in thousands, except share information)
<TABLE>
<CAPTION>
SELECTED QUARTERLY FINANCIAL DATA
- ----------------------------------------------------------------------------------------------------
Three Months Ended Dec. 31, Sept. 30, June 30, March 31,
- ----------------------------------------------------------------------------------------------------
1997 1997 1997 1997
----------------------------------------------
<S> <C> <C> <C> <C>
INCOME STATEMENT DATA:
NET REVENUES (1) $ 67,992 $ 57,979 $ 53,873 $ 44,113
COST OF SALES 58,189 48,329 45,059 36,335
INTEREST 645 1,045 587 754
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 9,832 7,143 6,471 6,292
----------------------------------------------
OPERATING INCOME (LOSS) (674) 1,462 1,756 732
OTHER INCOME (EXPENSE) (6) (18) (29) 70
----------------------------------------------
INCOME (LOSS) BEFORE MINORITY INTEREST AND TAXES (680) 1,444 1,727 802
MINORITY INTEREST 76 -- -- --
INCOME (LOSS) BEFORE TAXES (604) 1,444 1,727 802
----------------------------------------------
INCOME TAX PROVISION (CREDIT) FOR INCOME TAXES (258) 558 695 322
----------------------------------------------
NET INCOME (LOSS) $ (346) $ 886 $ 1,032 $ 480
----------------------------------------------
EARNINGS (LOSS) PER SHARE $ (0.07) $ 0.18 $ 0.22 $ 0.10
----------------------------------------------
WEIGHTED AVERAGE SHARES OUTSTANDING (000'S) 4,781 4,781 4,781 4,781
----------------------------------------------
- ----------------------------------------------------------------------------------------------------
Three Months Ended Dec. 31, Sept. 30, June 30, March 31,
- ----------------------------------------------------------------------------------------------------
1996 1996 1996 1996
----------------------------------------------
INCOME STATEMENT DATA:
NET REVENUES (1) $ 48,607 $ 55,516 $ 43,415 $ 27,255
COST OF SALES 40,649 45,526 35,066 21,798
INTEREST 461 559 673 666
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 5,643 6,609 5,262 4,218
----------------------------------------------
OPERATING INCOME 1,854 2,822 2,414 573
OTHER INCOME (EXPENSE) 4 14 99 45
----------------------------------------------
INCOME BEFORE TAXES 1,858 2,836 2,513 618
PROVISION FOR INCOME TAXES 676 1,092 990 240
----------------------------------------------
NET INCOME $ 1,182 $ 1,744 $ 1,523 $ 378
----------------------------------------------
EARNINGS PER SHARE $ 0.25 $ 0.36 $ 0.32 $ 0.08
----------------------------------------------
WEIGHTED AVERAGE SHARES OUTSTANDING (000'S) 4,779 4,778 4,777 4,775
----------------------------------------------
</TABLE>
(1) Revenue from a sale is recognized upon the closing of the sale.
(2) Adjusted to give effect to the 620-for-1-share split in 1993.
(3) New orders represent total new home orders received during the period, net
of cancellations.
(4) Backlog includes new orders which have not yet closed.
(5) 68 contracts with a sales value of $4,245 were acquired through
acquisition.
(6) 18 contracts with a sales value of $2,248 were acquired through
acquisition.
Selected Financial Data
1997 ZARING NATIONAL CORPORATION ANNUAL REPORT
<PAGE> 25
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
SELECTED OPERATING DATA (IN UNITS)
- --------------------------------------------------------------------------------------------------------------------
Three Months Ended Dec. 31, Sept. 30, June 30, March 31,
- --------------------------------------------------------------------------------------------------------------------
1997 1997 1997 1997
-------------------------------------------------
<S> <C> <C> <C> <C> <C>
LUXURY SITE-BUILT HOMES
NEW ORDERS (3) 184 231 243 198
CLOSINGS 263 226 212 178
BACKLOG (4) 240 319 314 283
RETAIL DISTRIBUTION MANUFACTURED HOMES
NEW ORDERS (3) 59 60 40 21
CLOSINGS 72 61 37 38
BACKLOG (4) (5) 40 53 42 11
ENTRY LEVEL SITE-BUILT HOMES
NEW ORDERS (3) 19 -- -- --
CLOSINGS 13 -- -- --
BACKLOG (4) (6) 24 -- -- --
- --------------------------------------------------------------------------------------------------------------------
Three Months Ended Dec. 31, Sept. 30, June 30, March 31,
- --------------------------------------------------------------------------------------------------------------------
1996 1996 1996 1996
-------------------------------------------------
LUXURY SITE-BUILT HOMES
NEW ORDERS (3) 160 152 184 304
CLOSINGS 206 237 191 120
BACKLOG (4) 263 309 394 401
</TABLE>
(1) Revenue from a sale is recognized upon the closing of the sale.
(2) Adjusted to give effect to the 620-for-1-share split in 1993.
(3) New orders represent total new home orders received during the period, net
of cancellations.
(4) Backlog includes new orders which have not yet closed.
(5) 68 contracts with a sales value of $4,245 were acquired through
acquisition.
(6) 18 contracts with a sales value of $2,248 were acquired through
acquisition.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
1997 AND 1996 COMMON STOCK PRICE RANGE
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Year Ended December 31, 1997 high low
Fourth Quarter 10 1/2 7 1/4
Third Quarter 10 1/2 9 1/8
Second Quarter 10 3/4 9 5/16
First Quarter 12 9 3/4
- --------------------------------------------------------------------------------------------------------------------
Year Ended December 31, 1997 high low
- --------------------------------------------------------------------------------------------------------------------
Fourth Quarter 11 3/4 10
Third Quarter 13 3/4 11
Second Quarter 13 3/4 11 1/2
First Quarter 11 3/4 8 3/4
</TABLE>
As of March 6, 1998, there were approximately 560 shareholders of record,
and the Company estimates that, as of that date, there were an additional
1,200 beneficial shareholders in "street" name.
The Company did not declare any dividends on its common shares since the
completion of its initial public offering.
Selected Financial Data
1997 ZARING NATIONAL CORPORATION ANNUAL REPORT
<PAGE> 1
Exhibit 21.1
List of Subsidiaries
Zaring National Corporation
Ohio Corporation
Zaring Holdings, Inc.
Ohio Corporation
Zaring Homes, Inc.
Ohio Corporation
Zaring Homes Kentucky, LLC
Kentucky LLC
Zaring Homes Indiana, LLC
Indiana LLC
Blue Chip Mortgage
Ohio LLC
Hearthside Homes, LLC
Indiana LLC
Legacy Mortgage Corporation
(dba Hearthside Home Mortgage)
Indiana Corporation
Centron Financial Services Corp.
North Carolina Corporation
HomeMax, Inc.
Delaware Corporation
HM Services, Inc.
Delaware Corporation
HM Properties, Inc.
Delaware Corporation
HomeMax Tennessee, Inc.
Tennessee Corporation
HomeMax South Carolina, Inc.
South Carolina Corporation
HomeMax Ohio, Inc.
Ohio Corporation
HomeMax Indiana, LLC
Indiana LLC
HomeMax Kentucky, LLC
Kentucky LLC
HomeMax North Carolina, Inc.
North Carolina Corporation
<PAGE> 1
Exhibit 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of our
report, incorporated by reference in this Form 10-K, into the Company's
previously filed Registration Statements File No. 33-85588 and File No.
333-22679.
Cincinnati, Ohio
March 31, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM ZARING
NATIONAL CORPORATION CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 1997
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 4,160
<SECURITIES> 0
<RECEIVABLES> 839
<ALLOWANCES> 0
<INVENTORY> 108,421
<CURRENT-ASSETS> 0
<PP&E> 9,526
<DEPRECIATION> 0
<TOTAL-ASSETS> 132,143
<CURRENT-LIABILITIES> 0
<BONDS> 64,066
0
0
<COMMON> 25,146
<OTHER-SE> 25,584
<TOTAL-LIABILITY-AND-EQUITY> 132,143
<SALES> 223,957
<TOTAL-REVENUES> 223,957
<CGS> 190,943
<TOTAL-COSTS> 190,943
<OTHER-EXPENSES> 29,645
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 3,369
<INCOME-TAX> 1,317
<INCOME-CONTINUING> 2,052
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,052
<EPS-PRIMARY> .43
<EPS-DILUTED> 0
</TABLE>
