<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended March 31, 1997
or
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 0-21692
ZARING HOMES, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
OHIO 31-1071348
- --------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
11300 Cornell Park Drive, Suite 500, Cincinnati, Ohio 45242-1825
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
513-489-8849
- --------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(g) of the Act:
Common Shares, without par value
- --------------------------------------------------------------------------------
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding twelve months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to the filing
requirements for the past 90 days.
YES X NO
-------- --------
Number of common shares outstanding as of March 31, 1997: 4,781,080
Total Pages: 14
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ZARING HOMES, INC.
INDEX
<TABLE>
<CAPTION>
Page
----
<S> <C>
PART I FINANCIAL INFORMATION
Item 1 Consolidated Financial Statements
Consolidated Balance Sheets,
March 31, 1997, March 31, 1996 (unaudited),
and December 31, 1996 (audited)......................................................3
Consolidated Statements of Income,
Three Months Ended March 31, 1997 and 1996 (unaudited)...............................5
Consolidated Statement of Shareholders' Equity,
Three Months Ended March 31, 1997 (unaudited)........................................6
Consolidated Statements of Cash Flows,
Three Months Ended March 31, 1997 and 1996 (unaudited)...............................7
Notes to Consolidated Financial Statements (unaudited)...................................8
Item 2 Management's Discussion and Analysis of Financial Condition and
Results of Operations...............................................................10
PART II OTHER INFORMATION................................................................................12
SIGNATURES.......................................................................................14
</TABLE>
PAGE 2
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
ZARING HOMES, INC.
CONSOLIDATED BALANCE SHEETS
ASSETS
(Dollars in Thousands)
<TABLE>
<CAPTION>
Unaudited
March 31, December 31,
---------------------------- ------------
1997 1996 1996
---- ---- ----
<S> <C> <C> <C>
Cash and cash equivalents........................................ $ 3,659 $ 4,322 $ 2,440
Receivables:
Related parties ............................................. 90 19 227
Other........................................................ 669 165 326
Inventories:
Residential housing completed or
under construction........................................ 50,381 45,521 47,664
Land, development costs and finished lots.................... 37,336 32,100 35,988
Property and equipment, net...................................... 3,082 1,860 2,619
Investments in and advances to unconsolidated
joint ventures............................................... 689 1,374 1,086
Future tax benefit............................................... 675 801 675
Cash surrender value of life insurance and
other assets................................................. 4,417 2,771 3,672
-------- ------- -------
$100,998 $88,933 $94,697
======== ======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
PAGE 3
<PAGE> 4
ZARING HOMES, INC.
CONSOLIDATED BALANCE SHEETS - (continued)
LIABILITIES AND SHAREHOLDERS' EQUITY
(Dollars in Thousands)
<TABLE>
<CAPTION>
Unaudited
March 31, December 31,
------------------------------ ------------
1997 1996 1996
---- ---- ----
<S> <C> <C> <C>
LIABILITIES:
Revolving credit facility................................... $ 21,000 $ 13,700 $15,500
Term notes payable.......................................... 17,996 5,245 18,745
Subordinated notes payable.................................. -0- 11,816 -0-
Accounts payable and other accrued liabilities.............. 10,013 10,069 9,115
Customer deposits........................................... 2,681 3,405 2,549
Income taxes payable........................................ 147 477 107
-------- ------- -------
Total liabilities................................... 51,837 44,712 46,016
-------- ------- -------
SHAREHOLDERS' EQUITY:
Common shares, no par value, 18,000,000
shares authorized, 5,035,520 issued
and 4,780,150 outstanding at March 31, 1996;
5,036,480 issued and 4,781,110 and
4,781,080 outstanding at December 31,
1996 and March 31, 1997, respectively............... 25,146 25,136 25,146
Additional paid-in capital.................................. 7,687 7,687 7,687
Retained earnings........................................... 18,334 13,405 17,854
-------- ------- -------
51,167 46,228 50,687
Less Treasury shares, at cost, 255,370 shares
at March 31, 1996 and December 31, 1996,
and 255,400 shares at March 31, 1997................ (2,006) (2,007) (2,006)
-------- ------- -------
Total shareholders' equity.......................... 49,161 44,221 48,681
-------- ------- -------
$100,998 $88,933 $94,697
======== ======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
PAGE 4
<PAGE> 5
ZARING HOMES, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(Dollars in Thousands)
<TABLE>
<CAPTION>
Three Months
Ended March 31,
--------------------------
1997 1996
---- ----
<S> <C> <C>
REVENUES $ 44,157 $ 27,255
COST OF SALES 37,051 22,464
----------- -----------
Gross profit 7,106 4,791
OPERATING EXPENSES:
Selling 3,252 2,420
General and administrative 3,048 1,803
----------- -----------
Income from operations 806 568
----------- -----------
OTHER INCOME (Expense):
Investment income 16 5
Income (loss) from unconsolidated
joint ventures (25) 43
Other, net 5 2
----------- -----------
Total other income (expense) (4) 50
----------- -----------
Income before provision for income taxes 802 618
Provision for income taxes 322 240
----------- -----------
Net income $ 480 $ 378
=========== ===========
Earnings per share $ 0.10 $ 0.08
=========== ===========
Weighted average shares outstanding 4,781,090 4,774,601
=========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
PAGE 5
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ZARING HOMES, INC.
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(Unaudited)
(Dollars in Thousands)
<TABLE>
<CAPTION>
Additional Treasury Shares
Shares Common Paid-in # of Retained
Issued Shares Capital Shares Amount Earnings Total
------ ------ ------- ------ ------ -------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1996 5,036,480 $25,146 $7,687 255,370 $(2,006) $17,854 $48,681
Net Income 480 480
Purchase of Treasury Shares 30 --
--------- ------- ------- ------- ------- ------- -------
Balance, March 31, 1997 5,036,480 $25,146 $7,687 255,400 $(2,006) $18,334 $49,161
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
PAGE 6
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ZARING HOMES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Dollars in Thousands)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
------------------
1997 1996
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 480 $ 378
Adjustments to reconcile net income to cash
provided by operating activities --
Depreciation and amortization 359 247
Income from unconsolidated joint ventures 25 (43)
Change in assets and liabilities:
Receivables (206) (76)
Inventories (4,065) (3,461)
Cash surrender value of life insurance and other assets (754) (291)
Accounts payable and other accrued liabilities 898 1,060
Customer deposits 132 1,702
Income taxes payable 40 (377)
-------- --------
Net cash provided (used) by operating activities (3,091) (861)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment (812) (309)
Distributions from unconsolidated joint ventures 372 247
-------- --------
Net cash provided (used) by investing activities (440) (62)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings on notes payable 12,000 4,670
Repayments on notes payables (7,250) (3,470)
Purchase of Treasury Shares -- (1,199)
Reissuance of Treasury Shares -- 731
-------- --------
Net cash provided by financing activities 4,750 732
-------- --------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 1,219 (191)
CASH AND CASH EQUIVALENTS, beginning of period 2,440 4,513
-------- --------
CASH AND CASH EQUIVALENTS, end of period $ 3,659 $ 4,322
======== ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 606 $ 440
Income taxes $ 381 $ 617
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
PAGE 7
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ZARING HOMES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Basis of Presentation
---------------------
The accompanying consolidated financial statements include the accounts of
Zaring Homes, Inc. 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 is an Ohio corporation, whose
principal business is the designing, constructing, marketing, and selling of
single-family homes and the acquisition and development of land for sale as
residential building lots in the Midwest and Southeastern United States. The
Company began operations in Cincinnati, Ohio in 1964 and commenced operations in
Nashville, Tennessee in 1986. In 1994, operations commenced in Raleigh/Durham,
North Carolina and Indianapolis, Indiana. In 1996, operations began in
Louisville, Kentucky, Charlotte, North Carolina, and Knoxville, Tennessee.
In November 1996, the Company formed HomeMax, Inc., a wholly-owned subsidiary,
for the purpose of entering into the retail distribution of manufactured
housing.
In February, 1997, 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.
The accompanying consolidated financial statements have been prepared in
accordance with the rules and regulations of the Securities and Exchange
Commission for interim financial information. Since such financial statements do
not include all the information and footnotes required by generally accepted
accounting principles for complete financial statements, they should be read in
conjunction with the consolidated financial statements and related footnotes
included in the Form 10-K for the fiscal year ended December 31, 1996 filed with
the Securities and Exchange Commission. The financial statements are unaudited,
but in the opinion of management, all adjustments (consisting of normal
recurring adjustments) considered necessary for a fair presentation of the
Company's unaudited consolidated financial statements as of March 31, 1997, and
for the three months ended March 31, 1997 have been included. Operating results
for the three months ended March 31, 1997, are not necessarily indicative of the
results for the entire year.
2. Capitalized Interest
--------------------
Interest is capitalized on land in the process of development and residential
housing construction costs during the development and construction period. The
following table summarizes the activity with respect to capitalized interest:
<TABLE>
<CAPTION>
Three Months Ended March 31, 1997 1996
- ---------------------------- ---- ----
(Dollars in Thousands)
<S> <C> <C>
Capitalized interest, beginning of period................... $1,074 $1,123
Interest incurred........................................... 731 556
Interest expensed........................................... (739) (672)
------ ------
Capitalized interest, end of period......................... $1,066 $1,007
====== ======
</TABLE>
PAGE 8
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ZARING HOMES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
(Unaudited)
3. Notes Payable
-------------
On May 13, 1996, the Company entered into a new unsecured $87.5 million
syndicated credit facility. The new credit facility consists of a $72.5 million
revolving credit facility and a $15 million term loan. Ten million of the
revolving credit facility may be used for letters of credit. The revolving
credit facility bears interest at a) the greater of the prime rate or the
Federal Funds rate plus .5% or b) Euro-rate plus 1.25% to 1.625% depending on
the Company's leverage ratio. The revolving credit facility is a three-year
facility expiring July 1, 1999.
As of March 31, 1997, the Company had outstanding balances of $21.0 million
under the revolving credit facility, and $5.0 million in letters of credit.
Term notes payable, at March 31, 1997, include a $12.8 million term loan,
expiring April 1, 2001, which bears interest at a) the greater of the Prime
Rate or the Federal Funds rate plus .5% or b) Euro-rate plus 1.375% to 1.75%
depending on the Company's leverage ratio and is payable in quarterly
installments of $750,000, and other term loans of $5.2 million which bear
interest at a fixed rate of 7.95% and are payable in 12 equal quarterly
installments beginning September 1998.
4. Shareholders' Equity
--------------------
Preferred Shares - The Company is authorized to issue up to 2,000,000 preferred
shares of which 1,000,000 are voting. No preferred shares have been issued.
5. New Pronouncements
------------------
In 1997, the Financial Accounting Standards Board (FASB) issued Statement of
Financial Accounting Standards No. 128, "Earnings Per Share" (SFAS 128),
effective for fiscal years ending after December 15, 1997. The new standard
replaces primary Earnings Per Share (EPS) with basic EPS, simplifies EPS
calculations, and requires restatement of prior year earnings. Although the
Company has not adopted SFAS 128 at this time, management does not anticipate a
material impact on the financial statements.
PAGE 9
<PAGE> 10
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The Company's business and the homebuilding industry are subject to changes in
national and local economic conditions, as well as other factors, including
employment levels, availability of financing, interest rates, consumer
confidence and housing demand. The Company's results of operations for the
periods presented reflect the cyclical nature of the homebuilding industry.
RESULTS OF OPERATIONS
- ---------------------
The following table sets forth for the periods indicated certain information
regarding the Company's operations.
<TABLE>
<CAPTION>
(Dollars in thousands, except per share amounts)
Three Months
Ended March 31,
-----------------------------------------------------------------------------
1997 1996
---- ----
Amount % Amount %
------ - ------ -
<S> <C> <C> <C> <C>
Net revenues (1) $44,157 100.0 $27,255 100.0
Cost of sales 37,051 83.9 22,464 82.4
------- ----- -------- -----
Gross profit 7,106 16.1 4,791 17.6
Selling, general and
administrative expenses 6,300 14.3 4,223 15.5
------- ----- -------- -----
Operating income (loss) 806 1.8 568 2.1
Other income (expense) (4) -- 50 0.2
------- ----- -------- -----
Income before provision
for income taxes 802 1.8 618 2.3
Provision for income taxes 322 0.7 240 0.9
------- ----- -------- -----
Net income $ 480 1.1 $ 378 1.4
======= ===== ======== =====
Earnings Per Share $ 0.10 $ 0.08
======= ========
Weighted average shares
outstanding 4,781,090 4,774,601
========= =========
</TABLE>
- ------------------------
(1) Revenue from a sale is recognized upon the closing of the sale.
PAGE 10
<PAGE> 11
Three Months Ended March 31, 1997 Compared to March 31, 1996
- ------------------------------------------------------------
Net revenues for the three months ended March 31, 1997 increased by 62.0% to
$44.2 million from $27.3 million for the comparable period in 1996. The number
of homes closed by the Company increased 80% to 216 homes for the three months
ended March 31, 1997 from 120 homes during the same period in 1996. The Company
experienced increases in homes closed in all divisions primarily due to the
greater number of communities from which the Company was offering homes for
sale. Homes closed in the Midwest region, Cincinnati, Indianapolis, and
Louisville, increased from 60 units for the three months ended March 31, 1996 to
84 units for the same period in 1997. Homes closed in the Midsouth region,
Nashville, Raleigh, Charlotte, and Knoxville, increased from 60 units for the
three months ended March 31, 1996 to 94 units for the same period in 1997. The
average selling price of homes closed increased 6.2% from $225,000 for the
three months ended March 31, 1996 to $239,000 for the same period in 1997.
The average selling price of homes closed is affected by various factors such
as the size of the home, changes in selling price, lot premiums and the amount
of options selected by the home buyer. First quarter operations of HomeMax,
Inc., the Company's newly formed manufactured housing distributor, met
expectations with 38 closed homes and 21 new orders.
Net new orders for the three months ended March 31, 1997 decreased by 28.0%, to
219 units from 304 units for the comparable period in 1996. New orders in the
Midwest region decreased from 178 units for the three months ended March 31,
1996 to 116 units for the same period in 1997. New orders in the Midsouth region
decreased from 126 units for the first quarter of 1996 to 82 units for the same
period in 1997. The Company's backlog consists of homes for which the Company
has entered into a sales contract, but which it has not yet delivered. The sales
backlog on March 31, 1997 was 294 homes with a total sales value of $70.6
million compared to a sales backlog of 401 homes with a total sales value of
$90.0 million on March 31, 1996.
Gross profit for the three months ended March 31, 1997 increased by $2.3 million
from the three months ended March 31, 1996. This increase was the result of
increased closings in the 1997 period. The gross profit percentage decreased to
16.1% for the three months ended March 31, 1997 compared to 17.6% for the same
period in 1996. The decrease is attributable to increases in indirect expenses,
market-driven changes in mix of product and home closings, and increase in lot
costs among the Company's communities.
Selling, general and administrative ("SG&A") expense increased 49.2% to $6.3
million for the three months ended March 31, 1997 from $4.2 million for the
comparable period of 1996; however, as a percentage of revenue, SG&A decreased
from 15.5% for the three months ended March 31, 1996 to 14.3% for the same
period in 1997. Selling expenses decreased to 7.4% of revenue for the three
months ended March 31, 1997 from 8.9% for the comparable period in 1996. This
percentage decrease was primarily due to improving economies of scale in the
Raleigh and Indianapolis operations. General and administrative expenses
increased by approximately $1.2 million or .3% of net revenues for the three
months ended March 31, 1997 compared with the same period in 1996. The increase
was primarily attributable to an increase in additional staffing in connection
with the Company's expansion into new cities.
As a result of the foregoing, income before taxes for the three months ended
March 31, 1997 increased $184,000 to $802,000 from $618,000 for the three months
ended March 31, 1996.
PAGE 11
<PAGE> 12
CAPITAL RESOURCES AND LIQUIDITY
- -------------------------------
Net cash used by operating activities increased by $2.3 million from $861,000
for the first quarter of 1996 to $3.1 million in 1997. The increase in net
income was offset by larger investments in inventories. Net cash used by
investing activities increased by $378,000 in the first quarter of 1997 from
the first quarter of 1996 due to purchases of property and equipment. Net cash
provided by financing activities increased by $4.0 million in the first quarter
of 1997 from the first quarter of 1996 due to net bank borrowings.
The Company believes its present cash balance with amounts available from its
borrowing agreements and amounts generated from future operations will provide
adequate funds for its future plans.
PROVISIONS FOR WRITEDOWN TO NET REALIZABLE VALUE
- ------------------------------------------------
The Company periodically reviews the value of land and inventories and
determines whether any writedowns need to be recorded to reflect declines in
value. The Company did not record significant writedowns during the three month
periods ended March 31, 1997 or 1996. The estimated net realizable value of real
estate inventories represents management's estimate based on present plans and
intentions, selling prices in the ordinary course of business and anticipated
economic and market conditions. Accordingly, the realization of the value of the
Company's real estate inventories is dependent upon future events and conditions
that may cause actual results to differ from amounts presently estimated.
INFLATION
- ---------
Housing demand, in general, is affected adversely by increases in interest
rates. If mortgage interest rates, material and labor costs increase
significantly, the Company's revenues, gross profit, and net income could be
adversely affected.
FORWARD LOOKING INFORMATION; CERTAIN CAUTIONARY STATEMENTS
- ----------------------------------------------------------
Certain statements contained in this "Management's Discussion and Analysis of
Financial Condition and Results of Operations" section that are not related to
historical results are forward looking statements. Actual results may differ
materially from those projected or implied in the forward looking statements.
Further, certain forward looking statements are based upon assumption 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.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
-----------------
The Company is subject to various claims, lawsuits and administrative
proceedings arising in the ordinary course of business which seek remedies
or damages. The Company believes that any liability that may finally be
determined will not have a material effect on its financial position or
results of operation.
Items 2-4 None.
PAGE 12
<PAGE> 13
Item 5. Other Information
-----------------
The employment relationship between Richard J. Bell and the Company ended on May
2, 1997.
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibit 27, Financial Data Schedule
(b) The Company filed a report on Form 8-K on March 14, 1997,
which contained the Company's audited financial statements
for the year ended December 31, 1996.
PAGE 13
<PAGE> 14
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ZARING HOMES, INC.
(Registrant)
Date: May 7, 1997 By: /s/George E. Casey
--------------------------------------
George E. Casey
President and Chief Executive Officer
Date: May 7, 1997 By: /s/Ronald G. Gratz
--------------------------------------
Ronald G. Gratz
Vice President and
Chief Financial Officer
(Principal Financial and Accounting Officer)
PAGE 14
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 3,659
<SECURITIES> 0
<RECEIVABLES> 759
<ALLOWANCES> 0
<INVENTORY> 87,717
<CURRENT-ASSETS> 0
<PP&E> 3,082
<DEPRECIATION> 0
<TOTAL-ASSETS> 100,998
<CURRENT-LIABILITIES> 0
<BONDS> 38,996
<COMMON> 25,146
0
0
<OTHER-SE> 24,015
<TOTAL-LIABILITY-AND-EQUITY> 100,998
<SALES> 44,157
<TOTAL-REVENUES> 44,157
<CGS> 37,051
<TOTAL-COSTS> 43,351
<OTHER-EXPENSES> 4
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 802
<INCOME-TAX> 322
<INCOME-CONTINUING> 480
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 480
<EPS-PRIMARY> .10
<EPS-DILUTED> 0
</TABLE>
