<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended September 30, 1996
or
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 0-21692
ZARING HOMES, INC.
- - --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
OHIO 31-1071348
- - --------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
11300 Cornell Park Drive, Suite 300, Cincinnati, Ohio 45242-1825
- - --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
513-489-8849
- - --------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(g) of the Act:
Common Shares, without par value
- - --------------------------------------------------------------------------------
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding twelve months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to the filing
requirements for the past 90 days.
YES X NO
------------- ------------
Number of common shares outstanding as of September 30, 1996: 4,780,150
Total Pages: 16
PAGE 1
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ZARING HOMES, INC.
INDEX
<TABLE>
<CAPTION>
Page
----
PART I FINANCIAL INFORMATION
<S> <C>
Item 1 Consolidated Financial Statements
Consolidated Balance Sheets,
September 30, 1996 and 1995 (unaudited),
and December 31, 1995 (audited)......................................................3
Consolidated Statements of Income (unaudited),
Three Months Ended September 30, 1996 and 1995
Nine Months Ended September 30, 1996 and 1995........................................5
Consolidated Statement of Shareholders' Equity,
Nine Months Ended September 30, 1996 (unaudited).....................................6
Consolidated Statements of Cash Flows,
Nine Months Ended September 30, 1996 and 1995 (unaudited)............................7
Notes to Consolidated Financial Statements (unaudited)...................................8
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations.................................................11
PART II OTHER INFORMATION.................................................................................15
SIGNATURES........................................................................................16
</TABLE>
PAGE 2
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PART I. FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
ZARING HOMES, INC.
CONSOLIDATED BALANCE SHEETS
ASSETS
(Dollars in Thousands)
<TABLE>
<CAPTION>
Unaudited Audited
September 30, December 31,
------------------- ------------
1996 1995 1995
---- ---- ----
<S> <C> <C> <C>
Cash and cash equivalents........................................ $3,369 $2,313 $4,513
Receivables:
Related parties ............................................. 68 24 0
Other........................................................ 305 15 108
Inventories:
Residential housing completed or
under construction........................................ 47,007 41,831 35,628
Land, development costs and finished lots 33,471 38,320 38,532
Property and equipment, net...................................... 1,931 1,937 1,798
Investments in and advances to unconsolidated
joint ventures............................................... 1,082 1,565 1,578
Future tax benefits.............................................. 801 801 801
Cash surrender value of life insurance and
other assets................................................. 3,747 2,392 2,480
------- ------- -------
$91,781 $89,198 $85,438
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
PAGE 3
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ZARING HOMES, INC.
CONSOLIDATED BALANCE SHEETS - (continued)
LIABILITIES AND SHAREHOLDERS' EQUITY
(Dollars in Thousands)
<TABLE>
<CAPTION>
Unaudited Audited
September 30, December 31,
-------------------- ------------
1996 1995 1995
---- ---- ----
<S> <C> <C> <C>
LIABILITIES:
Term notes payable.............................................. $19,495 $5,245 $5,245
Revolving promissory notes...................................... 12,500 20,200 12,500
Subordinated notes payable...................................... 0 11,816 11,816
Accounts payable and unbilled amounts due
contractors................................................... 4,707 4,294 6,046
Accrued expenses................................................ 3,576 3,074 2,963
Customer deposits............................................... 3,169 2,043 1,703
Income tax payable.............................................. 846 507 854
------- ------- -------
Total liabilities........................................... 44,293 47,179 41,127
SHAREHOLDERS' EQUITY:
Common shares, no par value, 18,000,000
shares authorized, 5,035,520 issued, and
4,850,159 outstanding at September 30, 1995
and December 31, 1995, and 4,780,150
outstanding at September 30, 1996 ............................ 25,136 25,136 25,136
Additional paid-in capital...................................... 7,687 7,533 7,533
Retained earnings............................................... 16,672 10,735 13,027
------- -------- -------
49,495 43,404 45,696
Less Treasury shares, at cost, 185,361 shares
at September 30, 1995 and December 31, 1995,
and 255,370 shares at September 30, 1996 (2,007) (1,385) (1,385)
------ ------- ------
Total shareholders' equity................................. 47,488 42,019 44,311
------- ------- ------
$91,781 $89,198 $85,438
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
PAGE 4
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ZARING HOMES, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(Dollars in Thousands)
<TABLE>
<CAPTION>
Three Months Nine Months
Ended September 30, Ended September 30,
--------------------- --------------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
REVENUES...................................... $ 55,516 $ 33,459 $ 126,187 $ 83,664
COST OF SALES................................. 46,085 27,353 104,288 68,726
----------- ----------- ----------- -----------
Gross profit......................... 9,431 6,106 21,899 14,938
OPERATING EXPENSES:
Selling................................... 3,305 2,424 8,687 6,104
General and administrative................ 3,304 1,893 7,422 5,681
----------- ----------- ----------- -----------
Income from operations............... 2,822 1,789 5,790 3,153
----------- ----------- ----------- -----------
OTHER INCOME (EXPENSE):
Investment income......................... 2 10 20 40
Income (loss) from unconsolidated
joint ventures....................... 12 (30) 155 91
Other, net................................ 0 3 2 8
----------- ----------- ----------- -----------
Total other income (expense)......... 14 (17) 177 139
----------- ----------- ----------- -----------
Income before provision for income taxes.. 2,836 1,772 5,967 3,292
Provision for income taxes................ 1,092 701 2,322 1,304
----------- ----------- ----------- -----------
Net income........................... $ 1,744 $ 1,071 $ 3,645 $ 1,988
=========== =========== =========== ===========
Earnings per share........................ $ 0.36 $ 0.22 $ 0.76 $ 0.41
=========== =========== =========== ===========
Weighted average shares outstanding....... 4,778,307 4,850,159 4,778,307 4,850,159
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
PAGE 5
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ZARING HOMES, INC.
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(Unaudited)
(Dollars in Thousands)
<TABLE>
<CAPTION>
Additional TREASURY SHARES
Shares Common Paid-In # of Retained
Issued Shares Capital Shares Amount Earnings Total
------ ------ ------- ------ ------ -------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1995 5,035,520 $25,136 $7,533 185,361 ($1,385) $13,027 $44,311
Purchase of Treasury Shares -- -- -- 135,009 (1,199) -- (1,199)
Sale of Treasury Shares -- -- 154 (65,000) 577 -- 731
Net Income -- -- -- -- -- 3,645 3,645
------------ ---------- -------- ---------- --------- -------- --------
Balance, September 30, 1996 5,035,520 $25,136 $7,687 255,370 ($2,007) $16,672 $47,488
========= ======= ====== ======= ======= ======== ========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
PAGE 6
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ZARING HOMES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Dollars in Thousands)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
---------------------------
1996 1995
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income............................................................................. $3,645 $1,988
Adjustments to reconcile net income to cash
provided by operating activities --
Depreciation........................................................................ 732 649
Income from unconsolidated joint ventures........................................... (155) (92)
Change in assets and liabilities:
Receivables......................................................................... (265) 522
Inventories......................................................................... (6,318) (6,380)
Cash surrender value of life insurance and other assets............................. (1,267) (470)
Accounts payable.................................................................... (1,339) (1,031)
Accrued expenses.................................................................... 613 649
Income taxes payable................................................................ (8) (140)
Customer deposits................................................................... 1,466 1,144
------- -------
Net cash used by operating activities.......................................... (2,896) (3,161)
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment.................................................... (865) (836)
Disposal of property and equipment..................................................... 0 4
Distributions from and (investments in) unconsolidated joint ventures.................. 651 627
------- -------
Net cash provided (used) by investing activities.................................... (214) (205)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings (repayments) on notes payable............................................... 2,434 1,896
Purchase (sale) of treasury shares..................................................... (468) --
------- -------
Net cash provided (used) by financing activities.................................... 1,966 1,896
------- -------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........................................... (1,144) (1,470)
CASH AND CASH EQUIVALENTS, beginning of year............................................... 4,513 3,783
------- -------
CASH AND CASH EQUIVALENTS, end of period................................................... $ 3,369 $2,313
======= =======
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for --
Interest............................................................................ $1,279 $2,013
------ -------
Income taxes........................................................................ $2,335 $1,457
------ -------
</TABLE>
The accompanying notes are an integral part of these
condensed financial statements.
PAGE 7
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ZARING HOMES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. BASIS OF PRESENTATION
The accompanying consolidated financial statements include the accounts of
Zaring Homes, Inc. (the Company), an Ohio corporation, whose principal business
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 Cincinnati, Ohio including Northern Kentucky, Nashville, Tennessee,
Indianapolis, Indiana, and Raleigh/Durham, North Carolina. In May 1996, the
Company announced its entry into the Louisville, Kentucky market, and in June
1996, announced its entry into the Charlotte, North Carolina market.
In December 1995, the Company formed Zaring Holdings, Inc. (Holdings), an Ohio
corporation, and a wholly-owned subsidiary, for the purpose of corporate
expansion in the southeastern United States market. The accounts of Holdings
have been consolidated in the accompanying consolidated financial statements.
The Company is the majority shareholder in Zaring Homes of Indiana, L.L.C.
(ZHILLC), an Indiana corporation, and exercises control over all decisions as
set forth in the operating agreement. ZHILLC was formed in 1994 for the purpose
of designing, constructing, marketing and selling single-family homes and the
acquisition and development of land for sale as residential building lots in
Indianapolis, Indiana. The accounts of ZHILLC have been consolidated in the
accompanying financial statements.
The Company is the sole shareholder in Zaring Homes Kentucky, LLC (ZHKLLC), a
Kentucky corporation. ZHKLLC was formed in 1996 for the purpose of designing,
constructing, marketing and selling single-family homes, and the acquisition and
development of land for sale as residential building lots in Louisville,
Kentucky. The accounts of ZHKLLC have been consolidated in the accompanying
financial statements.
The accompanying consolidated financial statements have been prepared in
accordance with the rules and regulations of the Securities and Exchange
Commission for interim financial information. Since such financial statements do
not include all the information and footnotes required by generally accepted
accounting principles for complete financial statements, they should be read in
conjunction with the consolidated financial statements and related footnotes
included in the Form 10-K for the fiscal year ended December 31, 1995 filed with
the Securities and Exchange Commission. The financial statements are unaudited,
but in the opinion of management, all adjustments (consisting of normal
recurring adjustments) considered necessary for a fair presentation of the
Company's unaudited consolidated financial statements as of September 30, 1996,
and for the nine months ended September 30, 1996 have been included. Operating
results for the nine months ended September 30, 1996, are not necessarily
indicative of the results for the entire year.
2. CAPITALIZED INTEREST
Interest is capitalized on land in the process of development and residential
housing construction costs during the development and construction period. The
following table summarizes the activity with respect to capitalized interest:
PAGE 8
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ZARING HOMES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Nine Months
Ended September 30, Ended September 30,
----------------------- -------------------
(Dollars in Thousands) 1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Capitalized interest, beginning of period.. $ 923 $ 1,028 $ 1,123 $ 751
Interest incurred.......................... 577 720 1,716 2,232
Interest expensed.......................... (559) (609) (1,898) (1,844)
------- ------- ------- -------
Capitalized interest, end of period........ $ 941 $ 1,139 $ 941 $ 1,139
======= ======= ======= =======
</TABLE>
3. NOTES PAYABLE
On May 13, 1996, the Company entered into a new unsecured $87.5 million credit
agreement. The new credit agreement consists of a $72.5 million revolving credit
facility and a $15 million term loan. Ten million of the revolving credit
facility may be used for letters of credit. The credit agreement bears interest
in accordance with various options, including prime rate, Federal Fund rate,
and/or LIBOR (as defined), plus 125 to 175 basis points depending upon the
Company's debt-to-equity ratio. The revolving credit facility is a three-year
commitment expiring July 1, 1999, and the term loan is a five-year commitment
expiring April 1, 2001.
As of September 30, 1996, the Company had outstanding balances of $12.5 million
under the revolving credit facility, and $4.1 million in letters of credit.
Term notes payable, at September 30, 1996, include a $14.3 million term loan
and existing term loans of $5.2 million which bear interest at a fixed rate of
7.95% and are payable in 12 equal quarterly installments beginning in September
1998.
4. SHAREHOLDERS' EQUITY
Preferred Shares - The Company is authorized to issue up to 2,000,000 preferred
shares of which 1,000,000 are voting. No preferred shares have been issued.
5. NEW PRONOUNCEMENTS
In 1995, the Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 121, Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to be Disposed of (SFAS 121), effective for fiscal
years beginning after December 15, 1995. The new standard requires that
long-lived assets be reviewed for impairment whenever events or changes in
circumstances indicate that their carrying amount may not be recoverable. The
adoption of SFAS 121 had no material impact on the financial statements.
Also in 1995, Statement of Financial Accounting Standards No. 123, Accounting
for Stock-Based Compensation (SFAS 123) was issued. SFAS 123 encourages, but
does not require, companies to measure and record as compensation expense the
fair value of stock-based compensation granted to employees, directors and
others.
PAGE 9
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ZARING HOMES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
NEW PRONOUNCEMENTS (continued)
SFAS 123 permits companies electing not to record compensation expense to
provide disclosure of net income and earnings per share as if the compensation
expense had been recorded. The Company adopted SFAS 123 as required and elected
the disclosure option.
PAGE 10
<PAGE> 11
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
The Company's business and the homebuilding industry are subject to changes in
national and local economic conditions, as well as other factors, including
employment levels, availability of financing, interest rates, consumer
confidence and housing demand. The Company's results of operations for the
periods presented reflect the cyclical nature of the homebuilding industry.
RESULTS OF OPERATIONS
The following table sets forth for the periods indicated certain information
regarding the Company's operations.
<TABLE>
<CAPTION>
(Dollars in thousands, except per share amounts)
Three Months Nine Months
Ended September 30, Ended September 30,
---------------------------- ----------------------------
1996 1995 1996 1995
---- ---- ---- ----
Amount % Amount % Amount % Amount %
------ - ------ - ------ - ------ -
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net revenues (1) $55,516 100.0 $33,459 100.0 $126,187 100.0 $83,664 100.0
Cost of sales 46,085 83.0 27,353 81.7 104,288 82.6 68,726 82.1
------ ----- ------ ----- ------- ----- ------ -----
Gross profit 9,431 17.0 6,106 18.3 21,899 17.4 14,938 17.9
Selling, general and
administrative expenses 6,609 11.9 4,317 12.9 16,109 12.8 11,785 14.1
------ ----- ------ ----- ------- ----- ------ -----
Operating income 2,822 5.1 1,789 5.4 5,790 4.6 3,153 3.8
Other income (expense) 14 -- (17) (0.1) 177 0.1 139 0.2
------ ----- ------ ----- ------- ----- ------ -----
Income before provision
for income taxes 2,836 5.1 1,772 5.3 5,967 4.7 3,292 4.0
Provision for income taxes 1,092 2.0 701 2.1 2,322 1.8 1,304 1.6
------ ----- ------ ----- ------ ----- ------ -----
Net income $1,744 3.1 $1,071 3.2 $3,645 2.9 $1,988 2.4
====== ===== ====== ===== ====== ===== ====== =====
EPS $ 0.36 $ 0.22 $ 0.76 $ 0.41
====== ====== ====== ======
Weighted average shares
outstanding 4,778,307 4,850,159 4,778,307 4,850,159
========= ========= ========= =========
- - ------------------------
<FN>
(1) Revenue from a sale is recognized upon the closing of the sale.
</TABLE>
PAGE 11
<PAGE> 12
Three Months Ended September 30, 1996 Compared to September 30,1995
- - -------------------------------------------------------------------
Net revenues for the three months ended September 30, 1996 increased by 65.7%
to $55.5 million from $33.5 million for the comparable period in 1995. The
number of homes closed by the Company increased by 45.4% to 237 homes for the
three months ended September 30, 1996 from 163 homes during the same period in
1995. The Company experienced increases in homes closed in all divisions
primarily due to the greater number of communities from which the Company was
offering homes for sale. Homes closed in Cincinnati increased from 96 for the
three months ended September 30, 1995 to 133 closings for the same period in
1996. During the three months ended September 30, 1996, the Company's Nashville
operation closed 62 homes compared to 51 closings for the same period in 1995.
The Company's Raleigh operation closed 20 homes for the three months ended
September 30, 1996 versus 15 for the same period in 1995. Indianapolis'
operation closed 22 homes in the third quarter of 1996 compared to one unit in
the third quarter of 1995. The Company's revenue increase for the three months
ended September 30, 1996 was also due to a 13.2% increase in the average
selling price of homes closed from $204,000 for the three months ended
September 30, 1995 to $231,000 for the same period in 1996. The average selling
price of homes closed is affected by various factors such as the size of the
home, changes in selling price, lot premiums and the amount of options selected
by the homebuyer.
Net new sales contracts for the three months ended September 30, 1996 decreased
by 12.1%, to 152 units from 173 units for the comparable period in 1995. New
sales contracts for the third quarter of 1996 decreased in Cincinnati and
Indianapolis from 91 and 13 to 58 and 6, respectively, compared to the same
period in 1995. New sales contracts for the Company's Nashville operations
increased to 57 units in the three months ended September 30, 1996 from 43 units
for the same period in 1995. The Company's Raleigh operation had 28 net unit
sales for the three months ended September 30, 1996, compared to 26 net unit
sales for the same period in 1995. The Company's Charlotte operation had 3 net
unit sales for the three months ended September 30, 1996. The Company's backlog
consists of homes for which the Company has entered into a sales contract, but
which it has not yet delivered. The sales backlog on September 30, 1996 was 309
homes with a total sales value of $73 million compared to a sales backlog of 239
homes with a total sales value of $51 million on September 30, 1995.
Gross profit for the three months ended September 30, 1996 increased by
$3.3 million from the three months ended September 30, 1995. This increase
was the result of increased closings in the 1996 period. The gross profit
percentage decreased to 17.0% for the three months ended September 30, 1996
compared to 18.3% for the same period in 1995. The decrease is attributable to
increases in indirect expenses and market-driven changes in mix of product and
home closings among the Company's communities. This decrease is offset by a
decrease in net interest expense included in cost of goods sold due to lower
borrowing levels.
Selling, general and administrative ("SG&A") expense increased 53.1% to $6.6
million for the three months ended September 30, 1996 from $4.3 million
for the comparable period of 1995; however, as a percentage of revenue, SG&A
decreased from 12.9% for the three months ended September 30, 1995 to 11.9% for
the same period in 1996. Selling expenses decreased to 6.0% of revenue for the
three months ended September 30, 1996 from 7.2% for the comparable period in
1995. This percentage decrease was primarily due to improving economies of scale
in the Raleigh and Indianapolis operations. General and administrative expenses
increased by approximately $1.4 million or .2% of net revenues for the three
months ended September 30, 1996 compared with the same period in 1995. The
increase was primarily attributable to an increase in additional staffing in
connection with the Company's expansion into new cities.
As a result of the foregoing, income before taxes for the three months ended
September 30, 1996 increased $1 million to $2.8 million from $1.8 million for
the three months ended September 30, 1995.
PAGE 12
<PAGE> 13
Nine Months Ended September 30, 1996 Compared to Nine Months Ended September 30,
- - --------------------------------------------------------------------------------
1995
- - ----
Net revenues for the nine month period ended September 30, 1996 increased by
50.8% to $126.2 million from $83.7 million for the comparable period in 1995.
The number of homes closed by the Company increased by 39.1% to 548 homes from
394 homes for the same period in 1995. The Company experienced increases in
homes closed in all divisions primarily due to the greater number of
communities from which the Company was offering homes for sale. The Company's
Cincinnati operation closed 286 homes for the nine months ended September 30,
1996 compared to 238 homes for the same period in 1995. The Company's Nashville
operation closed 159 homes for the nine months ended September 30, 1996
compared to 138 homes for the same period in 1995. The Company's Raleigh
operation had 65 closings for the nine months ended September 30, 1996 compared
to 17 closings for the same period in 1995. The Company's Indianapolis
operation had 38 closings for the nine months ended September 30, 1996, and one
for the same period 1995. The Company's revenue increase for the nine months
ended September 30, 1996 was also due to a 8.1% increase in the average selling
price of homes closed from $210,000 for the nine months ended September 30,
1995 to $227,000 for the same period in 1996. The average selling price of
homes closed is affected by various factors such as the size of the home,
changes in selling price, lot premiums and the amount of options selected by
the homebuyer.
Net new sales contracts for the nine months ended September 30, 1996 increased
by 25.7%, to 640 units from 509 units for the comparable period in 1995. An
increase in sales contracts occurred in all of the Company's operations due to
an increase in the number of communities in which the Company was offering
homes for sale and an increase in the number of contracts signed per community.
The Company's Cincinnati operation had 304 unit sales for the nine months ended
September 30, 1996 compared to 278 units for the same period in 1995. The
Company's Nashville operation had 185 unit sales for the nine months ended
September 30, 1996 compared to 150 unit sales for the same period in 1995. The
Company's Raleigh operation had 102 unit sales, and the Indianapolis operation
had 46 unit sales for the nine months ended September 30, 1996 compared to 61
unit sales and 20 units sales, respectively, for the same period in 1995. The
Company's Charlotte operation had 3 net unit sales for the nine months ended
September 30, 1996.
Gross profit for the nine months ended September 30, 1996 increased $7.0 million
to $21.9 million from $14.9 million in the same period in 1995. This increase
was the result of an increase in the number of homes closed. The gross profit
percentage decreased from 17.9% for the nine months ended September 30, 1995 to
17.4% for the same period in 1996, primarily due to increases in indirect
construction costs and market-driven changes in mix of product and home closings
among the Company's communities.
Selling, General and Administrative ("SG&A") expenses increased 36.7% to $16.1
million for the nine months ended September 30, 1996 from $11.8 million for the
comparable period of 1995. Selling expenses as a percent of revenue decreased
from 7.3% for the nine months ended September 30, 1995 to 6.9% for the
comparable period of 1996. General and administrative expenses, as a percentage
of net revenues, decreased for the nine months ended September 30, 1996, to
5.9% from 6.8% for the same period in 1995. The decrease in SG&A expenses is
primarily attributable to improving economies of scale in Raleigh and
Indianapolis operations.
As a result of the foregoing, income before taxes for the nine months ended
September 30, 1996 increased by $2.7 million from $3.3 million to $6.0 million.
PAGE 13
<PAGE> 14
CAPITAL RESOURCES AND LIQUIDITY
- - -------------------------------
Inventories at September 30, 1996 increased to $80.5 million compared to $74.2
million on December 31, 1995. This increase is primarily due to the additional
work in process inventory associated with the increased sales volume in all
locations. Also contributing to this increase is the acquisition of finished
lots and the purchase and development of raw land for new neighborhoods.
On May 13, 1996, the Board of Directors approved and the Company entered into a
new Loan Agreement which consists of an unsecured revolving credit facility of
$72.5 million and term debt of $15 million. The Loan Agreement bears interest in
accordance with various options, including prime rate, Federal Funds rate,
and/or LIBOR (as defined), plus 125 to 175 basis points depending upon the
Company's debt-to-equity ratio. The revolving credit facility expires July 1,
1999. The term debt is payable in 20 quarterly installments of $750 beginning
July 1, 1996 through April 1, 2001.
The Company's financing needs depend upon its sales volume and inventory levels.
Historically, the Company has financed its operations through retained earnings
and unsecured lines of credit from financial institutions. None of the Company's
inventories are pledged as collateral to secure any borrowings. As of September
30, 1996, the Company has $53 million of unused, unsecured lines of credit
available. The Company believes that it will be able to fund its future
activities through a combination of operating cash flows, existing cash
balances, working capital management and its available credit.
PROVISIONS FOR WRITEDOWN TO NET REALIZABLE VALUE
- - ------------------------------------------------
The Company periodically reviews the value of land and inventories and
determines whether any writedowns need to be recorded to reflect declines in
value. For the nine months ended September 30, 1995, the Company wrote down
$510,000 of land to reflect net realizable value. No significant writedowns have
been made in 1996. The estimated net realizable value of real estate inventories
represents management's estimate based on present plans and intentions, selling
prices in the ordinary course of business and anticipated economic and market
conditions. Accordingly, the realization of the value of the Company's real
estate inventories is dependent upon future events and conditions that may cause
actual results to differ from amounts presently estimated.
INFLATION
- - ---------
Housing demand, in general, is affected adversely by increases in interest
rates. If mortgage interest rates, material and labor costs increase
significantly, the Company's revenues, gross profit, and net income could be
adversely effected.
FORWARD LOOKING INFORMATION; CERTAIN CAUTIONARY STATEMENTS
- - ----------------------------------------------------------
Certain statements contained in this "Management's Discussion and Analysis
of Financial Condition and Results of Operations" section that are not related
to historical results are forward looking statements. Actual results may differ
materially from those projected or implied in the forward looking statements.
Further, certain forward looking statements are based upon assumptions of future
events which may not prove to be accurate. These forward looking statements
involve risks and uncertainties including but not limited to those referred to
under the caption "Management's Discussion and Analysis of Financial Condition
and Results of Operations; Cautionary Statements" in the Company's Quarterly
Report on Form 10-Q for the quarter ended June 30, 1996, filed with the
Securities and Exchange Commission. Readers should carefully review those risk
factors and uncertainties in conjunction with reading this Management's
Discussion and Analysis of Financial Condition and Results of Operations.
PAGE 14
<PAGE> 15
PART II - OTHER INFORMATION
Item 1. LITIGATION
The Company is subject to various claims, lawsuits and administrative
proceedings arising in the ordinary course of business activities 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 operation.
Items 2-5. None
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibit 27, Financial Data Schedule
b) The Company did not file a report on
Form 8-K during the quarter for which
this report is filed.
PAGE 15
<PAGE> 16
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ZARING HOMES, INC.
(Registrant)
Date: November 13, 1996 By: /s/ George E. Casey. Jr.
------------------------------------
George E. Casey, Jr.
President and Chief Executive Officer
Date: November 13, 1996 By:/s/ Ronald G. Gratz
-----------------------------------
Ronald G. Gratz
Vice President and Chief Financial
Officer
(Principal Financial and Accounting
Officer)
PAGE 16
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