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WASHINGTON, D.C. 20549
FORM 10-K
(X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 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.
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(Exact name of registrant as specified in its charter)
OHIO 31-1071348
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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 ('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 24, 1997, there were 4,781,080 common shares issued and
outstanding, and the aggregate market value of those shares held by
non-affiliates of the registrant was approximately $16,479,417. 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, 1996 (Parts II and IV).
2. Portions of the registrant's Proxy Statement and Prospectus for the
Annual Meeting of Shareholders to be held on May 8, 1997 (Part III).
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PART I
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ITEM 1. BUSINESS
GENERAL
Zaring Homes, Inc. (the "Company") is a leading builder of single-family
detached homes in the Cincinnati, Ohio/Northern Kentucky; Nashville, Tennessee;
Raleigh, North Carolina; and Indianapolis, Indiana metropolitan areas. In the
second quarter 1996, the Company entered the metropolitan markets of Charlotte,
North Carolina and Louisville, Kentucky. In the fourth quarter of 1996, it
entered the Knoxville, Tennessee market.
The Company identifies existing markets for housing, then purchases and develops
land, and designs, constructs and sells single-family detached homes to meet
demand. The Company focuses upon building distinctive, quality communities. The
Company designs and develops communities with homes with varying architectural
styles and models with the goal of creating inviting neighborhoods. The Company
builds homes with an emphasis on classic exterior elevations, innovative
interior design and quality construction with attention to detail. The Company
has a reputation for on-time, on-budget construction.
The Company traditionally has marketed to the "move-up" market, comprised of
individuals who previously owned a principal residence. In executing this
strategy, the Company has broadened its range of products, building homes that
range in size from 1,400 square feet to 4,300 square feet at prices that range
from approximately $140,000 to $400,000.
The Company was founded in 1964 and 1996 was its thirty-second consecutive year
of profitability. On June 2, 1993, the Company completed its initial public
offering of 2,000,000 Common Shares.
OPERATING STRATEGY
The Company's business strategy focuses on three elements:
Professional Management and Employee Involvement. The Company places a high
value on, and dedicates substantial resources to, the continual development of a
professional management team and the motivated involvement of all of its
employees. Each aspect of the Company's operations is managed by experienced
homebuilding professionals who are guided by proven systems and procedures
refined through years of interactive experience with customers, suppliers and
employees. Examples include the use of Quality Teams and other total quality
management concepts, just-in-time inventory, and employee incentive programs
which include substantially all of the employees of the Company. The Company
strives to involve all of its employees in its mission to achieve complete
customer satisfaction.
Diversified Product Offering. The Company has a number of architectural styles
and floor plans. Quality construction, on-time delivery, and customer
satisfaction are hallmarks of the Company's products. The Company's diversified
product offering allows access to a broad market and provides the flexibility
to respond quickly to changes in market demand and preferences. This diversified
product line increases the number of sites available for development by the
Company. This allows the Company to concentrate on developing a specific
geographic market through several price points thereby increasing its presence,
knowledge, growth opportunities and overall efficiency in such market.
Return on Investment-Based Financial Discipline. The Company follows a
well-defined financial policy governed by targeted return on investment
criteria. This approach influences critical management decisions including land
acquisition, inventory levels, debt financing, capital expenditures and employee
compensation. Up to one-half of the annual compensation that can be earned by
members of senior management is based on the achievement of return on
investment goals.
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MARKETS
Prior to 1994, the Company 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 addition, in 1996 the Company expanded into Charlotte, North
Carolina, Louisville, Kentucky and Knoxville, Tennessee. The Company believes
that each of these metropolitan areas have similar characteristics such as
relatively low unemployment, steady job growth, diversification of industry, and
satisfactory infrastructure and transportation facilities.
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 $143,000
to $400,000 in 27 communities. The Company believes that the continued
customer response in this market supports the Company's strategy of offering
multiple product lines differentiated by price point in the same market.
Nashville
The Company operates in two of the eight counties in the Nashville metropolitan
statistical area, offering homes that range in price from $170,000 to $300,000
in ten communities. Since entering the Nashville market in 1986, the Company has
sold more than 1,000 homes in over twenty communities. The product line has been
expanded to now encompass homes ranging from 1,700 square feet to 3,200 square
feet, and such expansion has provided the Company with significant growth
opportunities within the area.
Indianapolis
The Company operates in one of the nine counties in the Indianapolis
metropolitan statistical area, offering homes that range in price from $174,000
to $400,000 in five communities. The product line has been expanded to
encompass homes ranging from 2,000 square feet to 3,500 square feet.
Raleigh
The Company operates in one of the six counties which comprise the
Raleigh-Durham-Chapel Hill metropolitan statistical area, offering homes ranging
in price from $177,000 to $350,000 in seven communities.
Charlotte
The Company operates in two of the seven counties which comprise the greater
Charlotte-Gastonia-Rockhill metropolitan statistical area, offering homes
ranging in price from $215,000 to $350,000 in two communities.
Louisville
The Company operates in one of the seven counties in the Louisville metropolitan
statistical area, offering homes ranging in price from $195,000 to $400,000 in
one community.
Knoxville
The Company operates in one of the six counties which comprise the Knoxville
metropolitan statistical area. The Company will market homes ranging from
$190,000 to $250,000 in one community.
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THE COMPANY'S PRODUCTS
The Company's homes generally 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
effort to ensure that its homes are responsive to 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 attempt 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. The Company also shows the
prototype to potential customers and actively seeks customer input.
MARKETING AND SALES
The Company markets its homes primarily to customers who previously have
purchased a principal residence (the so-called "move-up" buyer), emphasizing
high quality construction, distinctive communities and customer satisfaction.
However, the Company has expanded its product line into more moderately priced
homes to offer homes that appeal to first-time buyers and others desiring a home
in this price range.
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 emphasize 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, 1996, the Company maintained 51 furnished model homes.
The Company cooperates with outside real estate agents to whom it pays
commissions at market rates. The Company utilizes other marketing tools
including the Multiple Listing Service, local newspaper advertisements,
promotions, newsletters to realtors, entrance signs and illustrated brochures,
all of which utilize the Zaring name.
The Company's homes are sold pursuant to standard sales contracts. These
contracts generally require a customer to make a deposit of approximately 2% to
20% at the time of 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. 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
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MARKETING AND SALES (CONTINUED)
no longer needed for the Company's marketing efforts. At December 31, 1996, the
Company had 116 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, 1996, the
Company had a backlog of 263 units under contract, with a sales value of $64.2
million, substantially all of which will be completed within 120 days.
Construction of homes in backlog is financed using cash flow from operations and
not through construction loans.
CONSTRUCTION
The Company enjoys a reputation as a quality builder, and has for some time
practiced Total Quality Management. The Company acts as its own general
contractor and engages subcontractors for substantially all of the construction
of its homes under the supervision of on-site Quality Teams employed by the
Company. Each Quality Team is composed of a Builder and two to four Associate
Builders. The Quality Team coordinates subcontracting activities and supervises
construction work and quality control. The Quality Team also is responsible for
delivery of the new home it has constructed and Quality Teams are rewarded with
incentive bonuses for achieving a high level of customer satisfaction. A
Customer Care Team is assigned to service the homes after it has closed.
The Company selects subcontractors and 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 sales contract. Many of
the Company's subcontractors have worked with the Company for 10 years or more.
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. It utilizes
subcontractors and suppliers 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 120 days from the date a building permit is issued. A
Market Home normally can be completed within 60 days after a contract is signed.
The Company utilizes building components, such as wall panels, roof trusses,
prehung 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.
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CONSTRUCTION (CONTINUED)
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 its materials, suppliers and subcontractors, it
has not experienced significant construction delays due to the unavailability of
materials or subcontractors. The Company believes its relationships with its
suppliers and subcontractors to be good.
The Company builds homes on a year-round basis, with minimal seasonal impact on
its construction operations.
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 was $1,372,283, $312,934, and $398,570 in 1996, 1995,
and 1994, respectively. The increase in warranty expense in 1996 resulted in
part from an increased number of warranty claims and from a shortening of the
time to respond to warranty claims and make repairs. The Company's warranty
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. A Customer Care Manager 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.
In the past, the Company also has utilized joint ventures with both affiliated
and non-affiliated parties to develop land. The Company anticipates that any
future land development joint ventures will be with non-affiliated parties. The
Company and the joint ventures in which it participates occasionally sell lots
to other builders. 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 such as sewers, water,
gas, electricity and schools; 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, recreational facilities and other improvements. In
general, the Company has been able to obtain the government approvals required
for the development of land and 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 communities.
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 made 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.
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LAND ACQUISITION AND DEVELOPMENT (CONTINUED)
At December 31, 1996, the Company owned approximately 879 lots and undeveloped
land which will be developed into approximately 414 lots. The Company also had
under contract, subject to the satisfaction of the Company's purchase
contingencies and exercise of option agreements, 510 lots and undeveloped land
which, if purchased, would be developed into approximately 1,880 lots. Of
the lots under contract below 582 of the 2,390 are subject to performance
contracts.
<TABLE>
<CAPTION>
December 31, 1996
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Land Owned Land Under Contract
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Raw Land Raw Land
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Finished (Estimated Sub- Finished (Estimated Sub-
-------- ---------- ---- -------- ---------- ----
Lots Lots) Total Lots Lots Total Total
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<S> <C> <C> <C> <C> <C> <C> <C>
Mid-West........................... 530 128 658 433 856 1,289 1,947
Mid-South.......................... 349 286 635 77 1,024 1,101 1,736
--- --- ----- --- ----- ----- -----
Company Totals................... 879 414 1,293 510 1,880 2,390 3,683
=== === ===== === ===== ===== =====
</TABLE>
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
requires 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 1996, Blue Chip Mortgage Company assisted approximately 15% of
the Company's customers in obtaining mortgages. Revenues from the operations of
Blue Chip Mortgage Company are not material to the Company.
OTHER OPERATIONS
The Company entered into a joint venture in 1996 to complete the
development/marketing of a limited number of lots in Tampa, Florida. The Company
also has limited lot inventory in Salt Lake City, Utah. The majority of the lots
in both cities are under separate contracts to sell. The Company has no present
intentions of building homes in either of these markets.
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. The Company 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 home
construction.
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EMPLOYEES
At December 31, 1996, the Company had 307 full-time employees and 27 part-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>
Nashville, Tennessee Charlotte, North Carolina
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<S> <C>
One Brentwood Commons, Suite 220 1043 East Morehead Street, Suite 200
750 Old Hickory Blvd. Charlotte, NC 28204
Brentwood, TN 37027 Size: 3,272 Sq. Ft.
Size: 3,607 Sq. Ft. Lease Expiration Date: June 1999
Lease Expiration Date: October 1998
Louisville, Kentucky
--------------------
5115 Maryland Way, Suites 39 and 209 303 Hurstbourne Parkway, Suite 100
Brentwood, TN 37027 Louisville, KY 40222
Size: N/A Size: 2,601 Sq. Ft.
Lease Expiration Date: September 1997 Lease Expiration Date: June 2001
Raleigh, North Carolina Zaring Homes Design Center Cincinnati
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4700 Homewood Court, Suite 115 5883-5885 Pfeiffer Road
Raleigh, NC 27609 Cincinnati, OH 45242
Size: 3,878 Sq. Ft. Size: 7,512 Sq. Ft.
Lease Expiration Date: October 1997 Lease Expiration Date: November 2001
Indianapolis, Indiana Zaring Holdings, Inc.
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11555 N. Meridian Street, Suite 530 181 Wind Chime Court, Suite 204
Carmel, IN 46032 Raleigh, NC 27615
Size: 2,776 Sq. Ft. Size: 544 Sq. Ft.
Lease Expiration Date: November 1999 Lease Expiration Date: February 1999
</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.
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EXECUTIVE OFFICERS OF THE REGISTRANT (DURING 1996).
The names, ages and positions of the executive officers of the Company are as
follows:
<TABLE>
<CAPTION>
Name Age Title
(as of 1/1/96)
--------------
<S> <C> <C>
Allen G. Zaring, III 54 Chairman of the Board and Executive Committee
George E. Casey, Jr. 50 President and Chief Executive Officer
Ronald G. Gratz 49 Vice President and Chief Financial Officer
Jeffrey T. Hebeler 33 Senior Vice President of Land Development
J. Stephen Jellicorse 39 HomeMax, Inc. President
Matthew S. Massarelli 29 Vice President and General Counsel
Mary F. Miller 28 Treasurer
Patricia A. Payne 47 Corporate Vice President of Marketing
Theresa J. Peard 46 Assistant Vice President of Administration and Secretary
Richard J. Bell 41 Mid-South Regional President
Daniel W. Jones 37 Mid-West Regional President
David P. Clark 41 Indianapolis Divisional President
Peter A. Hils 38 Cincinnati Divisional President
John H. Hodsdon 42 Nashville Divisional President
Richard K. Johnsen 53 Louisville Divisional President
Michael E. McLendon 40 Charlotte Divisional President
Stephen J. Tuckerman 29 Raleigh Divisional President
</TABLE>
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ALLEN G. ZARING III formed the principal predecessor to the Company in 1964 and
is currently Chairman of the Board. Mr. Zaring has a B.S. in Economics and
Finance from Babson College. He 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.
GEORGE E. CASEY, JR. joined the Company in 1995 as President and Chief Executive
Officer. He was Senior Vice President of Operations of Realen Homes, and since
1989, served as Vice President, Corporate Operations, and Chief Financial
Officer. He also served as Senior Vice President for Toll Brothers. Mr. Casey
has an M.B.A. from The Wharton School of the University of Pennsylvania and a
B.S. in Environmental Engineering from Rensselaer Polytechnic Institute.
RONALD G. GRATZ joined the Company in 1995 as Vice President and Chief Financial
Officer. He 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.
JEFFREY T. HEBELER joined the Company in 1986 as Development Superintendent. He
served as Vice President of Land Development from 1992 to 1994. Mr. Hebeler
became Senior Vice President of Land Development in 1994. He received a B.S. in
Urban Planning from the University of Cincinnati.
J. STEPHEN JELLICORSE joined the Company in 1994 as Raleigh Regional President.
In November 1995, Mr. Jellicorse became President of Zaring Holdings, Inc. In
1996, Mr. Jellicorse became President of HomeMax, Inc. He was President and
Owner of Development Research Corporation and Southern Heritage Homes in Wake
Forest, North Carolina for five years prior to joining the Company. Mr.
Jellicorse has an M.B.A. from the University of North Carolina, a B.S. in
Business and Finance from the University of Texas, and a B.S. in Chemical
Engineering from Tennessee Technological University.
MATTHEW S. MASSARELLI joined the Company in 1996 as Vice President and General
Counsel. He 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 Attorney with Frost & Jacobs LLP,
Cincinnati, Ohio. Mr. Massarelli received a J.D. from Case Western Reserve
University and a B.S in Finance from Miami University.
MARY F. MILLER joined the Company in 1995 as Accounting Manager and Director of
Internal Audit. In September 1995, Ms. Miller was promoted to Treasurer. Prior
to joining the Company, she was Controller of Continental Broadcasting, Ltd.
From 1989 to 1993, Ms. Miller was Senior Auditor with Deloitte and Touche. Ms.
Miller is a Certified Public Accountant registered in the State of Ohio and has
a B.S. in Accounting from Miami University.
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. She received a B.A. from Edgecliff College.
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
and Secretary. She received a B. S. degree in Business Administration and Human
Services from the College of Notre Dame of Maryland.
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RICHARD J. BELL was the Nashville Divisional President of the Company's
operations in Nashville, Tennessee from 1989 to 1996. In 1996, he was promoted
to Mid-South Regional President. Prior to joining the Company, he was the
Division President of Catalina Homes located in Ft. Meyers, Florida and was
associated with U.S. Home Corporation in Tampa, Florida. Mr. Bell received a
B.A. and a B.S. from the University of South Florida.
DANIEL W. JONES joined the Company in 1982 as a production superintendent. He
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, he
was promoted to Mid-West Regional President. He received a B.S. in Construction
from the University of Cincinnati.
DAVID P. CLARK joined the Company in 1994 as Indianapolis Divisional President.
He was President of NUCO Homes of Carmel, Indiana for four years prior to
joining the Company. He also served as Market Manager for Ryan Homes in both
Indianapolis, Indiana and Pittsburgh, Pennsylvania. Mr. Clark has a B.S. in
Industrial Management from the University of Akron.
PETER A. HILS joined the Company in 1986 as an Assistant Superintendent. He
served as Vice President of Construction from 1994 to 1995. Mr. Hils became
Corporate Vice President of Process Improvement in August 1995. In 1996, Pete
was promoted to Divisional President in Cincinnati. He received an Associate of
Construction Management from the University of Cincinnati.
JOHN H. HODSDON joined the Company in 1994 as Operations Manager. In 1996, he
was promoted to Divisional President in Nashville. Prior to joining the Company,
Mr. Hodsdon was Account Manager for PRC, Inc. from 1992 to 1993. He received a
B. S. degree in Architectural Engineering from the University of Texas.
RICHARD K. JOHNSEN joined the Company in 1996 as Louisville Divisional
President. He was President of NTS Residential Development Company in
Louisville, Kentucky from 1986 to 1995. Mr. Johnsen received a B.S. in Business
from Colorado State University.
MICHAEL E. MCLENDON joined the Company in 1996 as Charlotte Divisional
President. He was Divisional Production Manager for M/I Homes in Charlotte,
North Carolina from 1994 until 1996. He served as Area Construction Manager for
Fortis Homes in Charlotte, North Carolina from 1990 to 1994. Mr. McLendon
received a B.A. from Lenoir Rhyne University.
STEPHEN J. TUCKERMAN joined the Company in 1991 as Director of Product
Development in the Cincinnati Division. In 1995, he was promoted to Vice
President of Marketing in the Nashville Division. He currently is the Raleigh
Divisional President. Mr. Tuckerman received an M.B.A. in Finance from Xavier
University and a B.S. from the University of Cincinnati.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
The information required by this item is set forth under the caption "1995 and
1996 Common Stock Price Range" on Page 32 of the registrant's Annual Report to
Shareholders for the year ended December 31, 1996, and incorporated herein by
reference.
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ITEM 6. SELECTED FINANCIAL DATA
The information required by this item is set forth under the caption "Selected
Financial Data" at Pages 30 through 31 of the registrant's Annual Report to
Shareholders for the year ended December 31, 1996, 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 16 of the registrant's Annual Report to
Shareholders for the year ended December 31, 1996, and incorporated herein by
reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by this item is set forth under the captions
"Consolidated Financial Statements," "Notes to Consolidated Financial
Statements", "Management's Responsibility For Financial Statements" and "Report
of Independent Accountants" at Pages 17 through 29 of the registrant's Annual
Report to Shareholders for the year ended December 31, 1996, and incorporated
herein by reference.
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.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is set forth under the caption "Executive
Compensation" 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 under the caption "Security
Ownership," 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" of the registrant's
definitive proxy statement, and incorporated herein by reference.
PAGE 12
<PAGE> 13
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS AND SCHEDULES, AND REPORTS ON FORM 8-K
(a)1. Consolidated financial statements and the report of independent public
accountants incorporated herein by reference to the registrant's Annual
Report to Shareholders for the fiscal year ended December 31, 1996
(Pages 17 through 29) filed as Exhibit 13.1:
Report of Independent Public Accountants
Consolidated Balance Sheets as of December 31, 1995 and 1996
Consolidated Statements of Income for the Years Ended December 31,
1994, 1995 and 1996
Consolidated Statements of Shareholders' Equity for the Years Ended
December 31, 1994, 1995 and 1996
Consolidated Statements of Cash Flows for the Years Ended December
31, 1994, 1995 and 1996
Notes to Consolidated Financial Statements
(a)2. Financial Statement Schedules
None
PAGE 13
<PAGE> 14
(a)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 Incorporated by
reference to Exhibit
3.1 to Form S-1,
Registration Number
33-60512, effective
May 25, 1993.
3.2 Amended Regulations Incorporated by
reference to Exhibit
3.2 to Form S-1.
4.1 Specimen Common Share Certificate Incorporated by
reference to Exhibit
4.1 to Form S-1.
10.1 Key Employees Stock Option Plan Incorporated by
reference to Proxy
Statement for Annual
Meeting held
April 20, 1995.
10.2 Outside Directors Stock Option Plan Incorporated by
reference to Exhibit
10.2 to Form S-1.
10.3 Form of Option Agreement for Key Incorporated by
Employees Stock Option Plan reference to Exhibit
10.3 to Form S-1.
10.4 Zaring Homes Retirement Benefit Plan and the Incorporated by
Zaring Homes Inc. Retirement Benefit Plan reference to Exhibit
4.b to Form S-8,
Registration Number
33-85588, effective
October 26, 1994.
10.7 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.
10.8 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.
</TABLE>
PAGE 14
<PAGE> 15
<TABLE>
<CAPTION>
Exhibit Number Description Location
-------------- ----------- --------
<S> <C> <C>
10.9 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.
10.11 Tax Indemnification Agreement Incorporated by
reference to Exhibit
10.11 to Form S-1.
10.12 Operating Agreement of Zaring Homes of Incorporated by
Indiana, L.L.C. reference to Exhibit
10.12 to Form 10-K 1994.
10.13 Zaring Homes Executive Deferred Incorporated by
Compensation Plan reference to Exhibit
10.13 to Form 10-K
1995.
10.14 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 Homes, Inc. 1996 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 32, which material is incorporated
herein by reference).
21.1 List of Subsidiaries *
23 Consent of Independent Public Accountant *
</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.
* Filed herewith.
<PAGE> 16
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 28, 1997 By: /s/ Allen G. Zaring III
---------------------------------
Allen G. Zaring III
Chairman of the Board
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 28, 1997 By: /s/ Allen G. Zaring III
---------------------------------
Allen G. Zaring III
Chairman of the Board
Date: March 28, 1997 By: /s/ George E. Casey, Jr.
---------------------------------
George E. Casey, Jr.
Director, President and
Chief Executive Officer
(Principal Executive Officer)
Date: March 28, 1997 By: /s/ Ronald G. Gratz
---------------------------------
Ronald G. Gratz
Vice President and
Chief Financial Officer
(Principal Financial Officer)
Date: March 28, 1997 By: /s/ Daniel W. Geeding
---------------------------------
Daniel W. Geeding
Director
<PAGE> 17
Date: March 28, 1997 By: /s/ Robert N. Sibcy
---------------------------------
Robert N. Sibcy
Director
Date: March 28, 1997 By: /s/ John H. Wyant
---------------------------------
John H. Wyant
Director
Date: March 28, 1997 By: /s/ John R. Brooks
---------------------------------
John R. Brooks
Director
Date: March 28, 1997 By: /s/ Murat H. Davidson
---------------------------------
Murat H. Davidson
Director
<PAGE> 1
EXHIBIT 13.1
[LOGO} MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
The Company's business and the home building industry in general are
subject to changes in national and local economic conditions, as well
as other factors. Those factors include 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 home building industry.
RESULTS OF OPERATIONS
The following table sets forth the Company's income statement line items as a
percentage of the Company's net revenues for the periods indicated.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, 1996 1995 1994
(DOLLARS IN THOUSANDS) AMOUNT PERCENTAGE AMOUNT PERCENTAGE AMOUNT PERCENTAGE
------ ---------- ------ ---------- ------ ----------
<S> <C> <C> <C> <C> <C> <C>
Net revenues $ 174,793 100.0% $127,084 100.0% $101,611 100.0%
Cost of sales 145,515 83.2 103,799 81.7 81,454 80.2
--------- ---- ------- ---- -------- ----
Gross profit 29,278 16.8 23,285 18.3 20,157 19.8
Selling, general and
administrative expenses 21,648 12.4 16,479 13.0 14,167 13.9
Other income 195 .1 175 .2 610 .6
--------- ---- ------- ---- -------- ----
Income before income taxes 7,825 4.5 6,981 5.5 6,600 6.5
Provision for income taxes 2,998 1.7 2,701 2.1 2,651 2.6
--------- ---- ------- ---- -------- ----
Net income $ 4,827 2.8% $ 4,280 3.4% $ 3,949 3.9%
========= ==== ======== ==== ======== ====
</TABLE>
The table below sets forth new orders (net of cancellations), closings
and year-end backlog in units and dollars.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, 1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
New orders 800 676 468
Closings 754 583 465
Backlog 263 217 124
Sales value of backlog
at end of period (000's omitted) $64,193 $47,033 $24,566
Average revenue per closing (000's omitted) $ 228 $ 215 $ 214
</TABLE>
A home is included in "New Orders" when the Company's standard sales
contract is executed. A home is included in "Closings" when the title
is transferred to the buyer. Revenue and cost of sales for a home are
recognized at the date of closing. A home is in "Backlog" during the
time after a new order contract is executed and prior to the transfer
of title to the purchaser.
Sales of the Company's homes generally are made pursuant to a standard
sales contract, which requires a down payment of approximately 2% 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. The Company utilizes the Quality
Time Masters(TM) scheduling system that generally enables the Company
to complete its homes in less than 120 days from the date a building
permit is issued. A partially constructed home (one held "under roof")
normally can be completed within 60 days after a contract is signed.
Although the Company believes that substantially all backlog at
December 31, 1996 will be completed and closed during 1997, there can
be no assurance that such closings will occur. The Company experienced
cancellations of its contracts at a rate of 23.4% during 1996 compared
to 17.8% during 1995. The higher level of cancellations is the result
of, among other factors, 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.
ZARING HOMES, INC., ANNUAL REPORT 1996
Management's Discussion and Analysis of
Financial Condition and Results of Operations
<PAGE> 2
[LOGO} MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS
OF OPERATIONS
FISCAL 1996 COMPARED TO FISCAL 1995
Net revenues in 1996 increased by $47.7 million, or 37.5% over 1995.
The Company delivered 754 homes in 1996 compared to 583 in 1995, a
29.3% increase. This increase is attributable to the strength of the
housing market, primarily in the first half of 1996, and the continued
growth in the Company's 1994 expansion cities of Raleigh and
Indianapolis, which combined to deliver 107 additional homes in 1996 as
compared to 1995.
Although the Company's gross profit increased $5,993, or 26%, over
1995, the gross profit percentage decreased from 18.3% in 1995 to 16.8%
in 1996. The decline in the gross margin percentage is attributable to,
among other factors, increased subcontractor costs due to demand for
their services, the mix of units sold and increases in certain other
production and warranty costs, which the Company was unable to pass
through to its customers.
Selling, general and administrative expense increased approximately
31.4% to $21.6 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
decreased as a percentage of revenues from 5.8% in 1995 to 5.5% in
1996, as a result of continuing to realize the economies of scale
associated with expansion.
Other income increased slightly in 1996 due to increases in joint
venture income.
As a result of the foregoing, income before taxes for 1996 increased
$844, or approximately 12% over 1995. As a percentage of revenue,
income before taxes decreased from 5.5% in 1995 to 4.5% in 1996.
FISCAL 1995 COMPARED TO FISCAL 1994
Net revenues in 1995 increased $25.5 million, or 25.1% over 1994. The
Company delivered 583 homes in 1995 compared to 465 homes in 1994, a
25.4% increase. The increase in homes delivered is attributable to the
increasing strength in the housing market during the second half of
1995 and the geographic expansion in Raleigh, North Carolina and
Indianapolis, Indiana. The Company's Cincinnati operations closed 340
homes in 1995 compared to 339 homes in 1994. The Nashville operations
closed 191 homes in 1995 compared to 126 in 1994, a 51.6% increase. The
Raleigh and Indianapolis operations closed 43 homes and 9 homes,
respectively, in 1995. These two divisions had no closings in 1994.
Gross profit percentage decreased from 19.8% in 1994 to 18.3% in 1995,
a reduction of 7.6%. As consumer traffic declined during the second
half of 1994 and the first half of 1995, the Company discounted certain
home prices to reduce inventory. Also contributing to the decline in
gross profit is an increase in net interest expense within cost of
goods sold as a result of higher average levels of borrowings and
interest rates during the year. In addition, the expansion of
operations in the Raleigh and Indianapolis divisions negatively
impacted the gross margin in 1995.
Selling, general and administrative expenses decreased as a percentage
of net revenues from 13.9% in 1994 to 13.0% in 1995, a 6.5% decrease.
Selling expenses increased to 7.1% of revenues for the year ended
December 31, 1995 from 7.0% for the comparable period in 1994. This
increase is attributable to start-up marketing costs in the Company's
Raleigh and Indianapolis operations and increased costs related to
model homes in all divisions. General and administrative expenses
decreased as a percentage of revenue from 6.9% in 1994 to 5.8% in 1995.
The Company has achieved economies of scale through its expansion to
Raleigh and Indianapolis.
ZARING HOMES, INC., ANNUAL REPORT 1996
Management's Discussion and Analysis of
Financial Condition and Results of Operations
<PAGE> 3
[LOGO} MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS
OF OPERATIONS
The decrease in other income in 1995 is primarily due to the Company
realizing $105 in income from joint ventures compared to $424 in 1994.
As a result of the above, income before taxes for 1995 increased
approximately $381 or 5.8% over 1994. As a percentage of net revenues,
income before taxes decreased from 6.5% in 1994 to 5.5% in 1995.
INCOME TAXES
The Company's effective tax rate for 1995 and 1996 was approximately
38% to 40%, which reflects the federal statutory rate plus state tax
rates, net of federal tax benefit.
LOAN AGREEMENTS
In March 1996, the Board of Directors of the Company approved and the
Company entered into a new 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
defined in the agreement. As of December 31, 1996, $15.5 million was
borrowed by the Company against the revolving credit facility ($13.4
million was available). The $15 million term debt is payable in 20
equal quarterly installments beginning in July 1996 (balance of $13.5
million as of December 31, 1996). Approximately $11.8 million of the
term credit facility was used to refinance the preexisting subordinated
notes with the remainder available for expansion and land development.
The other term notes payable to banks ($5.2 million as of December 31,
1996) are payable in 12 equal quarterly installments beginning in
September 1998 and bear interest at a fixed rate of 7.95%.
COMMITMENTS
As of December 31, 1996, and December 31, 1995, the Company had
commitments to purchase residential lots from third parties in the
aggregate amounts of $23,278 and $19,434, respectively, through 2000.
At December 31, 1996, the Company also had commitments under various
operating leases in the aggregate amount of $8,769 payable over a ten
year period. It is anticipated that funding for these commitments will
be funded through the Company's working capital.
CAPITAL RESOURCES AND LIQUIDITY
Fiscal 1996 Compared to Fiscal 1995
Net cash used by operating activities increased by $11,674 from a net
cash provided of $6,880 in 1995 to net cash used of $4,794 in 1996. The
increase in net income was offset by larger investments in inventories.
Net cash used for investing activities increased by $1,013 due to
greater purchases of property and equipment. Net cash provided by
financing activities was $4,080, an increase of $9,884 over 1995 due to
net bank borrowings of $4,684 offset by the net purchase of treasury
stock.
The Company believes that its present cash balances, with amounts
available from its borrowing agreements and amounts generated from
future operations, will provide adequate funds for its future plans.
FISCAL 1995 COMPARED TO FISCAL 1994
Net cash provided by operating activities increased by $29,033 from a
net use of cash of $22,153 in 1994 to cash provided of $6,880 in 1995.
The increase in inventory in the Raleigh and Indianapolis divisions has
been offset by the reduction of speculative homes in the Cincinnati
division.
Net cash provided by financing activities decreased by approximately
$24,208 due to a reduction in bank borrowings needed to fund operations
and payments on subordinated notes.
ZARING HOMES, INC., ANNUAL REPORT 1996
Management's Discussion and Analysis of
Financial Condition and Results of Operations
<PAGE> 4
[LOGO} MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS
OF OPERATIONS
PROVISIONS 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.
ZARING HOMES, INC., ANNUAL REPORT 1996
Management's Discussion and Analysis of
Financial Condition and Results of Operations
<PAGE> 5
[LOGO] CONSOLIDATED BALANCE
SHEETS AS OF DECEMBER 31,
1996 AND 1995
(all amounts in thousands except share data)
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 2,440 $ 4,513
Receivables:
Related parties 227 --
Other 326 108
Inventories
Residential housing completed or under construction 47,664 35,628
Land, development costs and finished lots 35,988 38,532
Property and equipment, net 2,619 1,798
Investments in and advances to unconsolidated joint ventures 1,086 1,578
Future tax benefit 675 801
Cash surrender value of life insurance and other assets 3,672 2,480
-------- --------
$ 94,697 $ 85,438
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Revolving credit facility $ 15,500 $ 12,500
Term notes payable 18,745 5,245
Subordinated notes payable -- 11,816
Accounts payable and other accrued liabilities 9,115 9,009
Customer deposits 2,549 1,703
Income taxes payable 107 854
-------- --------
Total liabilities 46,016 41,127
-------- --------
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,
5,036,480 and 5,035,520 issued and 4,781,110 and 4,850,159
outstanding in 1996 and 1995, respectively 25,146 25,136
Additional paid-in capital 7,687 7,533
Retained earnings 17,854 13,027
-------- --------
50,687 45,696
Less - Treasury shares, at cost, 255,370 and 185,361 shares
at December 31, 1996 and 1995, respectively (2,006) (1,385)
-------- --------
Total shareholders' equity 48,681 44,311
-------- --------
$ 94,697 $ 85,438
======== ========
</TABLE>
The accompanying notes to consolidated financial statements are an
integral part of these consolidated balance sheets.
ZARING HOMES, INC., ANNUAL REPORT 1996
Consolidated balance Sheets
<PAGE> 6
[LOGO] CONSOLIDATED BALANCE
SHEETS AS OF DECEMBER 31,
1996 AND 1995
(all amounts in thousands except share data)
<TABLE>
<CAPTION>
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
NET REVENUES $ 174,793 $ 127,084 $ 101,611
COST OF SALES 145,515 103,799 81,454
---------- ---------- ----------
Gross profit 29,278 23,285 20,157
OPERATING EXPENSES:
Selling 12,012 9,063 7,072
General and administrative 9,636 7,416 7,095
---------- ---------- ----------
Income from operations 7,630 6,806 5,990
OTHER INCOME:
Investment income 33 62 184
Income from unconsolidated joint ventures 159 105 424
Other, net 3 8 2
---------- ---------- ----------
Total other income 195 175 610
---------- ---------- ----------
Income before provision for income taxes 7,825 6,981 6,600
PROVISION FOR INCOME TAXES 2,998 2,701 2,651
---------- ---------- ----------
Net income $ 4,827 $ 4,280 $ 3,949
========== ========== ==========
EARNINGS PER SHARE $ 1.01 $ 0.88 $ 0.80
========== ========== ==========
WEIGHTED AVERAGE SHARES OUTSTANDING 4,778,826 4,850,159 4,933,206
========== ========== ==========
</TABLE>
The accompanying notes to consolidated financial statements are an
integral part of these consolidated statements.
ZARING HOMES, INC., ANNUAL REPORT 1996
Consolidated Statements of Income
<PAGE> 7
[LOGO] CONSOLIDATED BALANCE
SHEETS AS OF DECEMBER 31,
1996, 1995, AND 1994
(all amounts in thousands except share data)
<TABLE>
<CAPTION>
Shares Additional
----------------------- Common Paid-In Retained Treasury
Common Treasury Shares Capital Earnings Shares Total
---------- -------- ------- ------ ------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1993 5,035,520 (35,340) $25,136 $7,533 $ 4,798 $ (179) $ 37,288
Purchase of treasury shares -- (150,021) -- -- -- (1,206) (1,206)
Net income -- -- -- -- 3,949 -- 3,949
---------- -------- ------- ------ ------- ------- --------
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
========== ======== ======= ====== ======= ======= ========
Number of common
shares authorized 18,000,000
==========
</TABLE>
The accompanying notes to consolidated financial statements are an
integral part of these consolidated statements.
ZARING HOMES, INC., ANNUAL REPORT 1996
Consolidated Statements of Shareholders' Equity
<PAGE> 8
[LOGO] CONSOLIDATED STATEMENTS OF
CASH FLOWS AS OF DECEMBER 31,
1996, 1995, AND 1994
(all amounts in thousands)
<TABLE>
<CAPTION>
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 4,827 $ 4,280 $ 3,949
Adjustments to reconcile net income to cash
provided by (used for) operating activities-
Depreciation 1,189 929 575
Income from unconsolidated joint ventures (159) (105) (424)
Compensation associated with sale of treasury stock 147 -- --
Change in assets and liabilities-
Future tax benefit 126 -- 95
Receivables (445) 454 648
Inventories (9,492) (388) (27,744)
Cash surrender value of life insurance and other assets (1,192) (559) (441)
Accounts payable and other accrued liabilities 106 1,258 1,916
Customer deposits 846 804 (791)
Income taxes payable (747) 207 64
-------- -------- --------
Net cash provided by (used for) operating activities (4,794) 6,880 (22,153)
======== ======== ========
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment (2,010) (973) (1,657)
Sales of marketable securities -- -- 2,167
Distributions from unconsolidated joint ventures, net 651 627 800
-------- -------- --------
Net cash provided by (used for) investing activities (1,359) (346) 1,310
======== ======== ========
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings on notes payable 48,320 23,195 35,865
Repayments on notes payable (43,636) (28,999) (16,255)
Sale of treasury stock 594 -- --
Purchase of treasury stock (1,198) -- (1,206)
-------- -------- --------
Net cash provided by (used for) financing activities 4,080 (5,804) 18,404
======== ======== ========
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (2,073) 730 (2,439)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 4,513 3,783 6,222
-------- -------- --------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 2,440 $ 4,513 $ 3,783
======== ======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for
Interest $ 2,051 $ 2,884 $ 1,633
Income taxes $ 3,507 $ 2,503 $ 2,290
SUPPLEMENTAL DISCLOSURE OF NON-CASH INFORMATION:
During 1996, the Company incurred non-cash charges to general and
administrative expense of $147 (Note 9)
</TABLE>
The accompanying notes to consolidated financial statements are an
integral part of these consolidated statements.
ZARING HOMES, INC., ANNUAL REPORT 1996
Consolidated Statements of Cash Flows
<PAGE> 9
[LOGO]NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS AS OF
DECEMBER 31, 1996 AND 1995
(all amounts in thousands except share and per share data)
1 BASIS OF PRESENTATION
The accompanying consolidated financial statements include the accounts
of Zaring Homes, Inc. (an Ohio corporation) and subsidiaries (the
Company) that are composed of the following: Zaring Holdings, Inc.,
Zaring Homes of Indiana, LLC, Zaring Homes Kentucky, LLC, and HomeMax,
Inc. The Company's principal business is the designing, constructing,
marketing and selling of single-family homes and the acquisition and
development of land for sale as residential lots in the midwest and
southeastern United States. The Company began operations in Cincinnati,
Ohio in 1964 and commenced operations in Nashville, Tennessee in 1986.
During the three year period ended December 31, 1996, operations
commenced in Louisville, Kentucky, Charlotte, North Carolina, and
Knoxville, Tennessee (1996 cities) and in Raleigh/Durham, North
Carolina and Indianapolis, Indiana (1994 cities).
In November 1996, the Company formed HomeMax, Inc., a wholly-owned
subsidiary, for the purpose of entering into the retail distribution of
manufactured housing. The accounts of HomeMax, Inc. have been
consolidated in the accompanying financial statements.
Subsequent to December 31,1996, the Company's Board of Directors
authorized, subject to shareholder approval, a plan to restructure the
corporate organization of the Company. The restructuring, if approved,
would result in the current holders of the Company's common shares
converting their shares into shares of Zaring National Corporation (the
Holding Company). The Company will become a wholly-owned subsidiary of
the Holding Company.
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 full market value as of
December 31, 1996 and 1995.
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.
The following table summarizes the components of residential housing
inventory as of December 31:
ZARING HOMES, INC., ANNUAL REPORT 1996
Note to Consolidated Financial Statements
<TABLE>
<CAPTION>
1996 1995
------- -------
<S> <C> <C>
RESIDENTIAL HOUSING UNDER A CONTRACT OF SALE $24,884 $15,120
RESIDENTIAL HOUSING UNDER CONSTRUCTION 12,355 11,834
MODEL HOMES 10,425 8,674
------- -------
$47,664 $35,628
======= =======
</TABLE>
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.
ZARING HOMES, INC., ANNUAL REPORT 1996
Note to Consolidated Financial Statements
<PAGE> 10
[LOGO]NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS AS OF
DECEMBER 31, 1996 AND 1995
(all amounts in thousands except share and per share data)
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, 1996 1995 1994
------- ------- -------
<S> <C> <C> <C>
Capitalized interest, beginning of year $ 1,123 $ 751 $ 405
Interest incurred 2,310 2,920 1,662
Interest expensed (2,359) (2,548) (1,316)
------- ------- -------
Capitalized interest, end of year $ 1,074 $ 1,123 $ 751
======= ======= =======
</TABLE>
d) DEPRECIATION
Property and equipment are depreciated over the estimated useful lives
of the assets using accelerated and straight-line methods.
e) REVENUE AND COST RECOGNITION
Revenues and costs of sales are recognized upon closing the sale, at
which time title is transferred to the purchaser.
f) EARNINGS PER SHARE
Earnings per share are computed by dividing net income by the weighted
average number of common shares outstanding during the period increased
by the effect of dilutive stock options, if any.
g) SERVICE AND WARRANTY LIABILITIES
Service and warranty costs are estimated and provided for at the time
of closing on a home.
h) ADVERTISING
The Company expenses the costs of advertising as incurred. Advertising
expense for the years ended December 31, 1996, 1995 and 1994
approximated $1,019, $663 and $849, respectively.
i) 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.
j) 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.
k) RECLASSIFICATIONS
Certain reclassifications have been made to the prior years' financial
statements to conform with the 1996 presentation.
ZARING HOMES, INC., ANNUAL REPORT 1996
Note to Consolidated Financial Statements
<PAGE> 11
[LOGO]NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS AS OF
DECEMBER 31, 1996 AND 1995
(all amounts in thousands except share and per share data)
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.
The following tables summarize unaudited financial information related
to the Company's joint venture activities:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, 1996 1995 1994
STATEMENTS OF INCOME
------ ------ ------
<S> <C> <C> <C>
REVENUES $3,442 $1,460 $2,988
COSTS AND EXPENSES 3,124 1,250 2,139
------ ------ ------
PRETAX INCOME $ 318 $ 210 $ 849
====== ====== ======
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1996 1995
BALANCE SHEETS
------ ------
<S> <C> <C>
ASSETS, PRIMARILY LAND AND LAND IMPROVEMENTS $1,720 $3,196
LIABILITIES, INCLUDING AMOUNTS DUE TO THE COMPANY OF $559 IN 1996 $ 666 $ 40
EQUITY $1,054 $3,156
</TABLE>
4 NOTES PAYABLE
On May 13, 1996, the Company entered into an unsecured, $87.5 million
syndicated credit facility with PNC Bank as agent. The new credit
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.
ZARING HOMES, INC., ANNUAL REPORT 1996
Note to Consolidated Financial Statements
<PAGE> 12
[LOGO]NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS AS OF
DECEMBER 31, 1996 AND 1995
(all amounts in thousands except share and per share data)
The Company's notes payable consist of the following at December 31:
<TABLE>
<CAPTION>
1996 1995
---- ----
<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
(b) THE EURO-RATE PLUS 1.25% TO 1.625%, DEPENDING ON THE COMPANY'S
LEVERAGE RATIO (BORROWINGS OUTSTANDING AT DECEMBER 31, 1996 ARE AT 7.6%),
EXPIRING IN JULY 1999. THE 1995 REVOLVING CREDIT FACILITY WAS REFINANCED
IN 1996 $15,500 $12,500
------- -------
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 (b) THE EURO-RATE PLUS 1.375% TO 1.75%, DEPENDING
ON THE COMPANY'S LEVERAGE RATIO (BORROWINGS OUTSTANDING AT DECEMBER 31,
1996 ARE AT 7.2%),
PAYABLE IN 20 QUARTERLY INSTALLMENTS BEGINNING JULY 1, 1996 $13,500 $ --
OTHER TERM NOTES PAYABLE:
NOTES PAYABLE TO BANKS, INTEREST AT 7.95%, PAYABLE IN 12 EQUAL
QUARTERLY INSTALLMENTS BEGINNING IN SEPTEMBER 1998 5,245 5,245
------- -------
$18,745 $ 5,245
======= =======
SUBORDINATED NOTES PAYABLE:
SUBORDINATED NOTES PAYABLE TO BANKS, PAID IN 1996 $ -- $11,816
======= =======
</TABLE>
At December 31, 1996, the Company had approximately $13,400 of
borrowings available per the terms of its revolving credit agreement.
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 ratio
of debt to equity.
The Company is contingently liable under letters of credit of
approximately $5,112 issued as a result of lot and land acquisition and
development activities through December 31, 1996. 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 term and subordinated notes payable
as of December 31, 1996 and 1995 was approximately $5,275 and $17,300,
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.
Scheduled maturities of notes payable are summarized as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
<S> <C> <C>
1997 $ 3,000
1998 3,874
1999 20,248
2000 4,748
2001 2,375
-------
$34,245
=======
</TABLE>
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.
ZARING HOMES, INC., ANNUAL REPORT 1996
Note to Consolidated Financial Statements
<PAGE> 13
[LOGO]NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS AS OF
DECEMBER 31, 1996 AND 1995
(all amounts in thousands except share and per share data)
The following summarizes the provision for income taxes:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, 1996 1995 1994
------- ------ ------
<S> <C> <C> <C>
CURRENTLY PAYABLE:
FEDERAL $ 2,484 $2,071 $1,994
STATE AND LOCAL 640 630 562
DEFERRED:
FEDERAL (104) -- 70
STATE AND LOCAL (22) -- 25
------- ------ ------
$ 2,998 $2,701 $2,651
======= ====== ======
</TABLE>
The following is a reconciliation between the statutory federal income
tax rate and the provision for income taxes:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, 1996 1995 1994
----------------------- ----------------------- ---------------------
AMOUNT RATE AMOUNT RATE AMOUNT RATE
------- ---- ------- ---- ------ ----
<S> <C> <C> <C> <C> <C> <C>
COMPUTED PROVISION FOR
FEDERAL INCOME TAXES AT
THE STATUTORY RATE $ 2,661 34.0% $ 2,374 34.0% $2,244 34.0%
STATE AND LOCAL INCOME
TAXES, NET OF FEDERAL
INCOME TAX BENEFIT 386 4.9 378 5.4 362 5.5
OTHER (49) (.6) (51) (.7) 45 .7
------- ---- ------- ---- ------ ----
$ 2,998 38.3% $ 2,701 38.7% $2,651 40.2%
======= ==== ======= ==== ====== ====
</TABLE>
At December 31, 1996 and 1995, the future tax benefit consists of the
following:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
COSTS CAPITALIZED TO INVENTORY $ 88 $120
RECOGNITION OF WARRANTY EXPENSE 130 116
INVENTORY RESERVES 37 116
CURRENTLY NONDEDUCTIBLE EXPENSES 420 449
---- ----
$675 $801
==== ====
</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 in 1996, $28 in 1995 and $200 in
1994.
7 RELATED PARTY TRANSACTIONS
In 1996, 1995 and 1994, the Company sold residential lots to two
companies that are owned by related parties for approximately $105,
$247, and $146, respectively. The Company also sold finished
residential homes to members of management for total sales of
approximately $375, $1,156 and $1,564 for the years ended December 31,
1996, 1995 and 1994, 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 purchases in
1994. Also in 1996, the Company purchased residential lots and land
from a company owned by a member of the Zaring Board of Directors for
$1,845. There were no such purchases in 1995 or 1994.
ZARING HOMES, INC., ANNUAL REPORT 1996
Note to Consolidated Financial Statements
<PAGE> 14
[LOGO]NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS AS OF
DECEMBER 31, 1996 AND 1995
(all amounts in thousands except share and per share data)
In 1994, as part of a separation agreement, the Company purchased a
residential home from an officer and member of management. The total
purchase price was $475. Also, as part of this agreement, the Company
advanced to the officer $100, which was secured by a residential lot.
This advance was repaid in full in 1995.
Interest expense related to the subordinated notes to shareholders was
approximately $453 for the year ended December 31, 1994. There was no
such interest in 1996 or 1995 as the notes were refinanced during 1994.
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> <C>
1997 295 $12,437
1998 174 7,090
1999 78 2,719
2000 35 1,032
--- -------
582 $23,278
=== =======
</TABLE>
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 $439, $329
and $215 for the years ended December 31, 1996, 1995 and 1994,
respectively. Future minimum lease payments under these operating lease
agreements are as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
<S> <C> <C>
1997 $ 813
1998 960
1999 839
2000 800
2001 767
Thereafter 4,590
------
$8,769
======
</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 1994, the Company purchased on the open market 150,021 common
shares at an average price of $8.04 per share for a total value of
approximately $1,206.
During 1996, the Company purchased an additional 135,009 common shares
at a price of $8.875 per share. During 1996, 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. These transactions brought the total number of treasury
shares to 255,370.
ZARING HOMES, INC., ANNUAL REPORT 1996
Note to Consolidated Financial Statements
<PAGE> 15
[LOGO]NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS AS OF
DECEMBER 31, 1996 AND 1995
(all amounts in thousands except share and per share data)
In 1996, the Company issued as an incentive three shares to each full
time employee (960 common shares with a total market value of $10).
10 STOCK OPTION PLANS
The Company has adopted stock option plans (the Plans) for employees
and non employee directors in 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, 1996 DECEMBER 31, 1995
----------------- -----------------
<S> <C> <C>
NET INCOME
AS REPORTED $ 4,827 $ 4,280
PRO FORMA $ 4,703 $ 4,277
EARNINGS PER SHARE
AS REPORTED $ 1.01 $ .88
PRO FORMA $ .98 $ .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 300,000 shares under the Plans.
The Company has granted options on 66,383 shares through December 31,
1996. The option exercise prices approximated the stock's market price
on the date of grant. Of the options granted, 23,863 will vest subject
to the Company's annual performance and conformity with certain other
performance criteria. These options expire ten years from grant date.
25,000 of the options vest in three annual installments beginning in
1997 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, 1996 and 1995 and changes during the years then ended is presented
in the table and narrative below:
<TABLE>
<CAPTION>
Years Ended December 31, 1996 1995
----------------------------- -----------------------------
SHARES PRICE SHARES PRICE
------- ----- ------- -----
<S> <C> <C> <C> <C>
OUTSTANDING, BEGINNING OF YEAR 15,020 $12.67 94,000 $13.50
GRANTED 77,500 11.63 2,000 7.25
EXERCISED -- -- -- --
FORFEITED/EXPIRED (26,137) 11.15 (80,980) 13.50
------- ----- ------- -----
OUTSTANDING, END OF YEAR 66,383 $12.05 15,020 $12.67
====== ====== ====== ======
EXERCISABLE, END OF YEAR 25,854 $12.60 15,020 $12.67
====== ====== ====== ======
</TABLE>
At December 31, 1996, 13,020 of the options have an exercise price of
$13.50 and remaining contractual life of 7 years. 4,500 of the
outstanding options have exercise prices of $7.25 to $13.50, a weighted
average fair value of $5.21, and a remaining contractual life of
approximately 8.6 years. 25,000 of these options have an exercise price
of $12.50, a fair value of $6.41, and a remaining contractual life of
10 years. The remaining 23,863 options have an exercise price of
$11.15, a fair value of $5.72 and a remaining contractual life of 10
years.
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 1996 and 1995:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, 1996 1995
--- ------ -----
<S> <C> <C>
DIVIDEND YIELD 0% 0%
EXPECTED VOLATILITY 36% 36%
RISK-FREE INTEREST RATE 6.5% 6.5%
EXPECTED LIVES 7 years 7 years
</TABLE>
ZARING HOMES, INC., ANNUAL REPORT 1996
Note to Consolidated Financial Statements
<PAGE> 16
[LOGO} MANAGEMENT'S RESPONSIBILITY
FOR FINANCIAL STATEMENTS
Zaring Homes, Inc. 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,
1996, the Company maintained an effective system of internal control
over the preparation of its financial statements.
/s/ Allen G. Zaring /s/ Ronald G. Gratz
------------------------ --------------------------
Allen G. Zaring, III Ronald G. Gratz
Chairman Chief Financial Officer
ZARING HOMES, INC., ANNUAL REPORT 1996
Management's Responsibility for Financial Statements
<PAGE> 17
[LOGO] REPORT OF INDEPENDENT
PUBLIC ACCOUNTANTS
TO THE BOARD OF DIRECTORS
AND SHAREHOLDERS OF
ZARING HOMES, INC.:
We have audited the accompanying consolidated balance sheets of ZARING
HOMES, INC. (an Ohio corporation) AND SUBSIDIARIES as of December 31,
1996 and 1995, and the related consolidated statements of income and
shareholders' equity and cash flows for each of the three years in the
period ending December 31, 1996. 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
Homes, Inc. and subsidiaries as of December 31, 1996 and 1995, and the
results of their operations and their cash flows for each of the three
years in the period ended December 31, 1996 in conformity with
generally accepted accounting principles.
/s/ Arthur Andersen LLP
Cincinnati, Ohio,
February 3, 1997
ZARING HOMES, INC., ANNUAL REPORT 1996
Report of Independent Public Accountants
<PAGE> 18
[LOGO] SELECTED FINANCIAL DATA
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
(Dollars in Thousands, Except Per Share Data)
YEARS ENDED DECEMBER 31, 1996 1995 1994 1993 1992
-------- -------- -------- ------- --------
<S> <C> <C> <C> <C> <C>
Income Statement Data:
Net Revenues 1 $174,793 $127,084 $101,611 $88,544 $ 66,476
Cost of Sales 145,515 103,799 81,454 67,989 50,503
-------- -------- -------- ------- --------
Gross Profit 29,278 23,285 20,157 20,555 15,973
Selling, General and
Administrative Expenses 21,648 16,479 14,167 10,879 8,334
-------- -------- -------- ------- --------
Operating Income 7,630 6,806 5,990 9,676 7,639
Other Income (Expense) 195 175 610 448 (155)
-------- -------- -------- ------- --------
Income Before Taxes 7,825 6,981 6,600 10,124 7,484
Provision for Income Taxes
(Pro Forma 1992 - 1993) 2,998 2,701 2,651 3,983 3,008
-------- -------- -------- ------- --------
Net Income
(Pro Forma 1992 - 1993) $ 4,827 $ 4,280 $ 3,949 $ 6,141 $ 4,476
======== ======== ======== ======= ========
Earnings Per Share
(Pro Forma 1992 - 1993) $ 1.01 $ 0.88 $ 0.80 $ 1.48 $ 1.49
======== ======== ======== ======= ========
Weighted Average Shares
Outstanding (000's) 2 4,779 4,850 4,933 4,150 3,001
======== ======== ======== ======= ========
</TABLE>
SELECTED QUARTERLY FINANCIAL DATA
<TABLE>
<CAPTION>
(Dollars in Thousands, Except Per Share Data)
THREE MONTHS ENDED DEC. 31, SEPT. 30, JUNE 30, MARCH 31,
1996 1996 1996 1996
------- ------- ------- -------
<S> <C> <C> <C> <C>
Income Statement Data:
Net Revenues (1) $48,607 $55,516 $43,415 $27,255
Cost of Sales 41,227 46,085 35,739 22,464
------- ------- ------- -------
Gross Profit 7,380 9,431 7,676 4,791
Selling, General and Administrative Expenses 5,540 6,609 5,276 4,223
------- ------- ------- -------
Operating Income 1,840 2,822 2,400 568
Other Income 18 14 113 50
------- ------- ------- -------
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>
<TABLE>
<CAPTION>
THREE MONTHS ENDED DEC. 31, SEPT. 30, JUNE 30, MARCH 31,
1995 1995 1995 1995
------- -------- ------- --------
<S> <C> <C> <C> <C>
Income Statement Data:
Net Revenues (1) $43,420 $ 33,459 $29,975 $ 20,230
Cost of Sales 35,072 27,353 24,830 16,544
------- -------- ------- --------
Gross Profit 8,348 6,106 5,145 3,686
Selling, General and Administrative Expenses 4,695 4,317 3,780 3,687
------- -------- ------- --------
Operating Income (Loss) 3,653 1,789 1,365 (1)
Other Income (Expense) 36 (17) 44 112
------- -------- ------- --------
Income Before Taxes 3,689 1,772 1,409 111
Provision for Income Taxes 1,397 701 556 47
------- -------- ------- --------
Net Income $ 2,292 $ 1,071 $ 853 $ 64
======= ======== ======= ========
Earnings Per Share $ 0.47 $ 0.22 $ 0.18 $ 0.01
======= ======== ======= ========
Weighted Average Shares Outstanding (000's) 4,850 4,850 4,850 4,850
======= ======== ======= ========
</TABLE>
ZARING HOMES, INC., ANNUAL REPORT 1996
Selected Financial Data
<PAGE> 19
[LOGO] SELECTED FINANCIAL DATA
BALANCE SHEET DATA
(Dollars in Thousands)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, 1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Total Assets $94,697 $85,438 $84,693 $61,150 $44,280
Notes Payable $34,245 $29,561 $35,365 $15,755 $12,118
Total Liabilities $46,016 $41,127 $44,662 $23,862 $21,980
Shareholders' Equity $48,681 $44,311 $40,030 $37,288 $22,300
</TABLE>
SELECTED OPERATING DATA
(Dollars in Thousands)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, 1996 1995 1994 1993 1992
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Operating Data:
Units
New Orders (3) 800 676 468 449 345
Closings 754 583 465 402 311
Backlog (4) 263 217 124 121 74
Average Revenue Per Closing $ 228 $ 215 $ 214 $ 214 $ 209
Sales Value of Backlog at End of Year $64,193 $47,033 $24,566 $27,498 $18,551
Percent of Net Revenues:
Gross Profit 16.8% 18.3% 19.8% 23.2% 24.0%
Selling, General and
Administrative Expenses 12.4% 13.0% 13.9% 12.3% 12.5%
</TABLE>
SELECTED OPERATING DATA (IN UNITS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED DEC. 31, SEPT. 30, JUNE 30, MARCH 31,
1996 1996 1996 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
New orders (3) 160 152 184 304
Closings 206 237 191 120
Backlog (4) 263 309 394 401
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED DEC. 31, SEPT. 30, JUNE 30, MARCH 31,
1995 1995 1995 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
New orders (3) 167 173 193 143
Closings 189 163 138 93
Backlog (4) 217 239 229 174
</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.
ZARING HOMES, INC., ANNUAL REPORT 1996
Selected Financial Data
<PAGE> 20
[LOGO] DIRECTORS AND OFFICERS, AND
SHAREHOLDER INFORMATION
BOARD OF DIRECTORS
Allen G. Zaring, III
Chairman of the Board
Chairman of the Executive Committee
John R. Brooks (1), (2)
Private Investor
George E. Casey, Jr.
President and Chief Executive Officer,
Zaring Homes, Inc.
Murat H. Davidson
Managing Director,
Regan Partners, L.P.
Daniel W. Geeding (1), (2), (3)
Dean, College of Business Administration,
Xavier University
Robert N. Sibcy
President,
Sibcy Cline Realtors
John H. Wyant (1), (2), (3)
President,
Blue Chip Ventune Company
OFFICERS
George E. Casey, Jr. (4)
President and Chief Executive Officer
Ronald G. Gratz (4)
Vice President and Chief Financial Officer
Jeffrey T. Hebeler (4)
Senior Vice President, Land Development
J. Stephen Jellicorse (4)
President, HomeMax, Inc.
Mary F. Miller
Treasurer
Patricia A. Payne (4)
Senior Vice President, Marketing
Theresa J. Peard
Secretary, Corporate Assistant Vice President, Administration
REGIONAL PRESIDENTS
Richard J. Bell (4)
Midsouth - Nashville, Raleigh, Charlotte, and Knoxville
Daniel W. Jones (4)
Midwest - Cincinnati, Indianapolis, and Louisville
DIVISIONAL PRESIDENTS
David P. Clark
Indianapolis
Peter A. Hils
Cincinnati
John H. Hodsdon
Nashville and Knoxville
Richard K. Johnsen
Louisville
Michael E. McLendon
Charlotte
Stephen J. Tuckerman
Raleigh
(1) Audit Committee Member
(2) Compensation Committee Member
(3) Executive Committee Member
(4) Corporate Executive Committee Member
ANNUAL SHAREHOLDERS' MEETING May 8, 1997, 9:00 am EST The Blue Ash Conference
Center 5901 Pfeiffer Road Cincinnati, Ohio 45242-1825
CORPORATE OFFICE
Zaring Homes, Inc.
11300 Cornell Park Drive
Cincinnati, Ohio 45242-1825
STOCK LISTING
The common shares of Zaring Homes, Inc. are traded
on NASDAQ under the symbol "ZHOM."
INVESTMENT BANKERS
Dillon, Read & Co., Inc.
New York, New York
McDonald & Company Securities, Inc.
Cleveland, Ohio
FORM 10-K
The Form 10-K Annual Report, filed with the Securities and Exchange
Commission, is available without charge upon written request from:
Ronald G. Gratz,
Chief Financial Officer
Zaring Homes, Inc.
11300 Cornell Park Drive
Cincinnati, Ohio 45242-1825
SECURITIES COUNSEL
Frost & Jacobs LLP, Cincinnati, Ohio
TRANSFER AGENT AND REGISTRAR
Fifth Third Bank, Cincinnati, Ohio
INDEPENDENT AUDITORS
Arthur Andersen LLP
1995 AND 1996 COMMON STOCK
PRICE RANGE
<TABLE>
<CAPTION>
Year Ended December 31, 1996:
High Low
- - --------------------------------------------------
<S> <C> <C>
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>
<TABLE>
<CAPTION>
Year Ended December 31, 1995:
High Low
- - -------------------------------------------------
<S> <C> <C>
Fourth Quarter 10 3/4 8 1/4
Third Quarter 9 1/2 6 3/4
Second Quarter 8 1/16 6 1/2
First Quarter 7 1/4 5 13/16
--------------------------------------------------
</TABLE>
As of March 1, 1997, 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.
ZARING HOMES, INC., ANNUAL REPORT1996
Directors and Officers, and Shareholder Information
<PAGE> 1
EXHIBIT 21
Date of
Incorporation Name State of Incorporation
- - ------------- ---- ----------------------
9/27/94 Zaring Homes of Indiana, LLC Indiana
4/15/96 Zaring Homes Kentucky, LLC Kentucky
1/02/96 Zaring Holdings, Inc. Ohio
11/26/96 HomeMax, Inc. Delaware
12/30/96 HomeMax North Carolina, Inc. North Carolina
<PAGE> 1
Exhibit 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of our
reports, included in this Form 10-K, into the Company's previously filed
Registration Statements File No. 33-85588 and File No. 333-22679.
March 28, 1997
