8-K 1 l86878ae8-k.txt FIRST CINCINNATI, INC(FORMERLY ZARING NATIONAL)8-K 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 8-K CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Date of report (date of earliest event report) March 6, 2001 ------------- FIRST CINCINNATI, INC. ---------------------- (Exact name of registrant as specified in its charter) Ohio 000-22331 31-1506058 ---------------------------- ------------ ------------------- (State or other jurisdiction (Commission (IRS Employer of incorporation) File number) Identification No.) 11300 Cornell Park Drive, Suite 500, Cincinnati, Ohio 43215 ----------------------------------------------------- ----------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (513) 489-8849 -------------- Zaring National Corporation --------------------------- (Former name or former address, if changed since last report) 2 ITEM 5. OTHER EVENTS AND REGULATION FD DISCLOSURE On February 2, 2001, substantially all of the assets of Zaring National Corporation, now known as First Cincinnati, Inc. ("First Cincinnati"), and certain of its subsidiaries were sold to Drees Preferred Collection, Inc. ("Drees"). On that same day, Daniel W. Geeding, John H. Wyant and John R. Brooks resigned as directors of First Cincinnati. Pursuant to an action without a meeting of the remaining directors, Allen G. Zaring IV and Ronald Gratz were appointed to serve as directors. On February 2, 2001, certain officers also resigned, and new officers were elected. Daniel W. Jones resigned as President and Chief Operating Officer of First Cincinnati. The following officers resigned from their respective positions with Zaring Homes, Inc., a subsidiary of First Cincinnati: Douglas C. Hinger, Vice President of Operations and Process Control; Patricia A. Payne, Senior Vice President, Marketing and Sales; and David E. Metz, Executive Vice President. These individuals thereafter commenced employment with Drees. Pursuant to an action without a meeting of the directors of First Cincinnati, Allen G. Zaring III was elected Chairman of the Board, Ronald G. Gratz was elected President and Tracey D. Meyers was elected Secretary and Treasurer. SIGNATURES Pursuant to the requirements of the Securities Exchange of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. Date: March 6, 2001 FIRST CINCINNATI, INC. By: /s/ Ronald G. Gratz ---------------------------- Ronald G. Gratz President

SELECTED FINANCIAL DATA (IN THOUSANDS, EXCEPT PER SHARE INFORMATION) BALANCE SHEET DATA AS OF DECEMBER 31, ------------------------------------------ 1999 1998 1997 1996 1995 ---- ---- ---- ---- ---- Total Assets $70,201 $69,670 $53,765 $48,681 $44,311 Net Assets of Discontinued Operations $20,598 $21,719 $30,918 $48,681 $44,311 Notes Payable $24,855 $22,082 $ -- $ -- $ -- Subordinated Debt $ 9,000 $ -- $ -- $ -- $ -- Total Liabilities $43,158 $26,887 $ 3,035 $ -- $ -- Shareholders' Equity $27,043 $42,783 $50,730 $48,681 $44,311 STATEMENT OF OPERATIONS DATA YEARS ENDED DECEMBER 31, ------------------------ 1999 1998 1997 1996 1995 ---- ---- ---- ---- ---- Net Revenues(1) $ 20,551 $ 12,411 $ 8,209 $ -- $ -- Cost Of Sales 19,451 10,724 6,920 -- -- Asset Impairment 753 5,674 -- -- -- Interest 3,255 2,598 312 -- -- Selling, General and Administrative Expenses 16,274 14,830 5,183 1,269 1,392 -------- -------- -------- -------- -------- Operating Loss (19,182) (21,415) (4,206) (1,269) (1,392) Other Income (Expense) 78 112 -- -- -- -------- -------- -------- -------- -------- Loss Before Minority Interest and Income Taxes (19,104) (21,303) (4,206) (1,269) (1,392) Minority Interest 2,406 263 76 -- -- -------- -------- -------- -------- -------- Loss from Continuing Operations Before Income Taxes (16,698) (21,040) (4,130) (1,269) (1,392) Benefit For Income Taxes (2,688) (8,184) (1,615) (485) (539) -------- -------- -------- -------- -------- Loss from Continuing Operations (14,010) (12,856) (2,515) (784) (853) Net Income (Loss) from Discontinued Operations (1,730) 6,490 4,567 5,611 5,133 -------- -------- -------- -------- -------- Net Income (Loss) $(15,740) $ (6,366) $ 2,052 $ 4,827 $ 4,280 ======== ======== ======== ======== ======== Loss Per Share From Continuing Operations $ (3.05) $ (2.71) $ (0.53) $ (0.16) $ (0.18) Earnings (Loss) Per Share From Discontinued Operations (0.38) 1.37 0.96 1.17 1.06 -------- -------- -------- -------- -------- Earnings (Loss) Per Share $ (3.43) $ (1.34) $ 0.43 $ 1.01 $ 0.88 ======== ======== ======== ======== ======== Weighted Average Shares Outstanding 4,591 4,737 4,781 4,779 4,850 ======== ======== ======== ======== ======== SELECTED OPERATING DATA (DOLLARS IN THOUSANDS) YEARS ENDED DECEMBER 31, ------------------------ 1999 1998 1997 1996 1995 ---- ---- ---- ---- ---- RETAIL DISTRIBUTION MANUFACTURED HOMES Operating Data (Units): New Orders(2) 390 366 180 -- -- Closings(1) 356 239 208 -- -- Backlog(3)(5) 201 167 40 -- -- Average Revenue Per Closing $ 58 $ 52 $ 41 -- -- Sales Value Of Backlog $15,801 $10,889 $ 2,365 -- --

SELECTED QUARTERLY FINANCIAL DATA (IN THOUSANDS, EXCEPT PER SHARE INFORMATION) THREE MONTHS ENDED ------------------ DEC. 31, SEPT. 30, JUNE 30, MARCH 31, 1999 1999 1999 1999 ---- ---- ---- ---- INCOME STATEMENT DATA: Net Revenues(1) $ 5,479 $ 4,858 $ 5,641 $ 4,573 Cost Of Sales 6,027 4,495 5,039 3,890 Asset Impairment 753 -- -- -- Interest 886 672 721 976 Selling, General and Administrative Expenses 4,791 4,220 3,708 3,555 -------- -------- -------- -------- Operating Loss (6,978) (4,529) (3,827) (3,848) Other Income (Expense) (4) 27 36 19 -------- -------- -------- -------- Loss Before Minority Interest and Income Taxes (6,982) (4,502) (3,791) (3,829) Minority Interest 1,191 616 542 57 -------- -------- -------- -------- Loss From Continuing Operations Before Income Taxes (5,791) (3,886) (3,249) (3,772) Provision (Benefit) For Income Taxes 445 (838) (856) (1,439) -------- -------- -------- -------- Loss from Continuing Operations (6,236) (3,048) (2,393) (2,333) Income (Loss) from Discontinued Operations: Loss of entry level home segment, net of tax (3,537) (304) (428) (261) Income (loss) of luxury site built home segment, net of tax (3,465) 3,348 2,738 228 Income (loss) of financial services segment, net of tax (98) 30 (16) 35 -------- -------- -------- -------- Net Income (Loss) $(13,336) $ 26 $ (99) $ (2,331) ======== ======== ======== ======== Loss Per Share From Continuing Operations $ (1.36) $ (0.66) $ (0.52) $ (0.51) Earnings (Loss) Per Share From Discontinued Operations (1.54) 0.67 0.50 -- -------- -------- -------- -------- Earnings (Loss) Per Share $ (2.90) $ 0.01 $ (0.02) $ (0.51) ======== ======== ======== ======== Weighted Average Shares Outstanding 4,591 4,591 4,591 4,591 ======== ======== ======== ======== THREE MONTHS ENDED ------------------ DEC. 31, SEPT. 30, JUNE 30, MARCH 31, 1998 1998 1998 1998 ---- ---- ---- ---- INCOME STATEMENT DATA: Net Revenues(1) $ 4,892 $ 4,542 $ 2,047 $ 930 Cost Of Sales 4,255 3,837 1,845 787 Asset Impairment 5,674 -- -- -- Interest 811 1,074 469 244 Selling, General and Administrative Expenses 4,993 3,654 3,493 2,690 -------- -------- -------- -------- Operating Loss (10,841) (4,023) (3,760) (2,791) Other Income (Expense) (135) 70 116 61 -------- -------- -------- -------- Loss Before Minority Interest and Income Taxes (10,976) (3,953) (3,644) (2,730) Minority Interest 20 60 102 81 -------- -------- -------- -------- Loss From Continuing Operations Before Income Taxes (10,956) (3,893) (3,542) (2,649) Benefit For Income Taxes (4,137) (1,550) (1,415) (1,082) -------- -------- -------- -------- Loss from Continuing Operations (6,819) (2,343) (2,127) (1,567) Income (Loss) from Discontinued Operations: Income (loss) of entry level home segment, net of tax (66) (7) (166) 20 Income (loss) of luxury site built home segment, net of tax 1,112 2,913 2,252 435 Income (loss) of financial services segment, net of tax (3) -- -- -- -------- -------- -------- -------- Net Income (Loss) $ (5,776) $ 563 $ (41) $ (1,112) ======== ======== ======== ======== Loss Per Share From Continuing Operations $ (1.46) $ (0.49) $ (0.45) $ (0.33) Earnings Per Share From Discontinued Operations 0.22 0.61 0.44 0.10 -------- -------- -------- -------- Earnings (Loss) Per Share $ (1.24) $ 0.12 $ (0.01) $ (0.23) ======== ======== ======== ======== Weighted Average Shares Outstanding 4,655 4,752 4,765 4,776 ======== ======== ======== ========

SELECTED OPERATING DATA (UNITS) THREE MONTHS ENDED ------------------ DEC. 31, SEPT. 30, JUNE 30, MARCH 31, 1999 1999 1999 1999 ---- ---- ---- ---- RETAIL DISTRIBUTION MANUFACTURED HOMES New Orders(2) 96 106 64 124 Closings(1) 94 83 102 77 Backlog(3) 201 199 176 214 THREE MONTHS ENDED ------------------ DEC. 31, SEPT. 30, JUNE 30, MARCH 31, 1998 1998 1998 1998 ---- ---- ---- ---- RETAIL DISTRIBUTION MANUFACTURED HOMES New Orders(2) 76 127 90 73 Closings(1) 97 82 41 19 Backlog(3) 167 188 143 94

YEARS ENDED DECEMBER 31, ------------------------ 1999 1998 1997 ---- ---- ---- HOMEMAX Retail Distribution Manufactured Homes Revenues $ 20,551 $ 12,411 $ 8,209 Cost of sales 19,451 10,724 6,920 Asset impairment 753 5,674 -- Interest 1,568 1,807 312 Selling, general and administrative 11,688 11,704 3,370 -------- -------- -------- Operating loss (12,909) (17,498) (2,393) Other income (expense) 43 (5) (28) Minority interest 2,406 263 76 -------- -------- -------- Pretax Retail Distribution Loss (10,460) (17,240) (2,345) CORPORATE Interest 1,687 790 -- General and administrative 4,551 3,010 1,785 -------- -------- -------- Loss before income taxes and discontinued operations (16,698) (21,040) (4,130) Benefit for income taxes (2,688) (8,184) (1,615) -------- -------- -------- Net loss before discontinued operations (14,010) (12,856) (2,515) Income (loss) from discontinued operations, net of tax (1,730) 6,490 4,567 -------- -------- -------- Net income (loss) $(15,740) $ (6,366) $ 2,052 ======== ======== ======== Other pertinent information regarding the Company's segment operations are as follows: HOMEMAX RETAIL DISTRIBUTION CORPORATE TOTAL ------------ --------- ----- Segment assets: 1999 $24,004 $18,432 $42,436 1998 23,152 10,671 33,823 1997 12,044 6,643 18,687 Depreciation and amortization expense: 1999 $ 946 $ 183 $ 1,129 1998 2,024 -- 2,024 1997 134 -- 134 Expenditures for long-lived assets (excluding acquisitions): 1999 $ 675 $ -- $ 675 1998 14,064 -- 14,064 1997 5,252 -- 5,252 Reconciliation of segment assets to total assets: 1999 1998 1997 ---- ---- ---- Total segment assets $ 42,436 $ 33,823 $ 18,687 Elimination of inter-entity investments 65 (5) -- Cash* 7,102 14,133 4,160 Net assets of discontinued operations 20,598 21,719 30,918 -------- -------- -------- Total assets $ 70,201 $ 69,670 $ 53,765 ======== ======== ========

YEARS ENDED DECEMBER 31, ------------------------ 1999 1998 1997 ---- ---- ---- Revenues $284,602 $241,599 $214,042 Cost of sales 237,792 199,867 179,568 Incremental warranty provision 2,806 -- -- Interest allocation 2,698 2,479 2,698 Selling, general and administrative 36,880 28,256 24,346 -------- -------- -------- Operating income 4,426 10,997 7,430 Other income (expense) 82 (14) 15 -------- -------- -------- Pretax income 4,508 10,983 7,445 Provision for income taxes 1,659 4,271 2,911 -------- -------- -------- Net income $ 2,849 $ 6,712 $ 4,534 ======== ======== ========

YEARS ENDED DECEMBER 31, ------------------------ 1999 1998 1997 ---- ---- ---- Revenues $ 30,231 $ 11,354 $ 1,706 Cost of sales 31,399 9,697 1,424 Interest allocation 952 264 12 Selling, general and administrative 3,296 1,755 216 -------- -------- -------- Operating income (loss) (5,416) (362) 54 Provision for discontinued operations (1,752) -- -- -------- -------- -------- Pretax income (loss) (7,168) (362) 54 Provision (benefit) for income taxes (2,638) (143) 21 -------- -------- -------- Net income (loss) $ (4,530) $ (219) $ 33 ======== ======== ========

YEARS ENDED DECEMBER 31, ------------------------ 1999 1998 1997 ---- ---- ---- Revenues $ 1,677 $ 526 $ -- Expenses 1,707 531 -- Interest 48 -- -- ------- ------- ------ Pretax loss (78) (5) -- Benefit for income taxes (29) (2) -- ------- ------- ------ Net loss $ (49) $ (3) $ -- ======= ======= ======

YEARS ENDED DECEMBER 31, ------------------------ 1999 1998 1997 ---- ---- ---- Revenues $2,836 $2,308 $ -- Cost of Sales 2,436 1,887 -- Interest 1,221 465 -- Selling, general and administrative 178 112 -- ------ ------ ----- Operating loss (999) (156) -- Other income 750 560 $ -- Minority interest 249 (404) -- ------ ------- ------ $ -- $ -- $ -- ====== ====== ======

INDEX TO FINANCIAL STATEMENTS Report of Independent Public Accountants F-1 Consolidated Balance Sheets as of December 31, 1999 and 1998 (as restated) F-2 Consolidated Statements of Operations for the Years Ended December 31, 1999, 1998 and 1997 (as restated) F-3 Consolidated Statements of Shareholders' Equity for the Years Ended December 31, 1999, 1998 and 1997 (as restated) F-4 Consolidated Statements of Cash Flows for the Years Ended December 31, 1999, 1998 and 1997 (as restated) F-5 Notes to Consolidated Financial Statements (as restated) F-6

1999 1998 ------ ------ ASSETS CASH $ 7,102 $ 14,133 RECEIVABLES: Related parties 828 67 Note from American Homestar Corporation 4,400 -- Manufactured housing rebates and other 124 531 INVENTORIES: Retail distribution manufactured homes 6,147 2,457 Model homes 6,556 5,911 Finished lots -- 379 PROPERTY AND EQUIPMENT, net 954 832 HOMEMAX SALES VILLAGES, net 9,352 12,687 INVESTMENTS IN AND ADVANCES TO UNCONSOLIDATED JOINT VENTURES -- 201 FUTURE TAX BENEFIT AND ESTIMATED TAX REFUNDS 10,856 6,053 CASH SURRENDER VALUE OF LIFE INSURANCE AND OTHER ASSETS 3,284 4,700 NET ASSETS OF DISCONTINUED OPERATIONS (Note 13) 20,598 21,719 -------- -------- $ 70,201 $ 69,670 ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY LIABILITIES: Manufactured housing floor plan facility $ 9,855 $ 7,082 Term notes payable 15,000 15,000 Accounts payable 2,083 1,995 Accrued liabilities 3,539 2,218 Customer deposits 1,150 592 Deferred gain 1,765 -- -------- -------- Total liabilities before subordinated debt and minority interest 33,392 26,887 -------- -------- SUBORDINATED DEBT 9,000 -- -------- -------- MINORITY INTEREST IN CONSOLIDATED ENTITIES 766 -- -------- -------- COMMITMENTS AND CONTINGENCIES SHAREHOLDERS' EQUITY: Preferred shares, no par value, 2,000,000 shares authorized, none issued or outstanding -- -- Common shares, no par value, 18,000,000 shares authorized, 4,591,488 issued and outstanding at December 31, 1999 and 1998 24,957 24,957 Additional paid-in capital 4,286 4,286 Retained earnings (deficit) (2,200) 13,540 -------- -------- Total shareholders' equity 27,043 42,783 -------- -------- $ 70,201 $ 69,670 ======== ========

1999 1998 1997 ------ ------ ------ NET REVENUES: Retail distribution manufactured homes $ 20,551 $ 12,411 $ 8,209 ----------------------------------------------- Total net revenues 20,551 12,411 8,209 ----------------------------------------------- EXPENSES: Cost of sales retail distribution manufactured homes 19,451 10,724 6,920 Asset impairment (Note 2 (d)) 753 5,674 -- Interest 3,255 2,598 312 Selling 3,544 3,080 881 General and administrative 12,730 11,750 4,302 ----------- ----------- ----------- Total expenses 39,733 33,826 12,415 ----------- ----------- ----------- Operating loss (19,182) (21,415) (4,206) OTHER INCOME (EXPENSE): Income from unconsolidated joint ventures 51 242 33 Other, net 27 (130) (33) ----------- ----------- ----------- 78 112 -- ----------- ----------- ----------- Loss from continuing operations before minority interest and benefit for income taxes (19,104) (21,303) (4,206) MINORITY INTEREST IN CONSOLIDATED ENTITIES 2,406 263 76 ----------- ----------- ----------- Loss from continuing operations before benefit for income taxes (16,698) (21,040) (4,130) BENEFIT FOR INCOME TAXES (2,688) (8,184) (1,615) ----------- ----------- ----------- Net loss from continuing operations (14,010) (12,856) (2,515) DISCONTINUED OPERATIONS (Note 13): Income (loss) of entry level home segment, net of tax (4,530) (219) 33 Income of luxury site built home segment, net of tax 2,849 6,712 4,534 Income (loss) of financial services segment, net of tax (49) (3) -- ----------- ----------- ----------- Net income (loss) $ (15,740) $ (6,366) $ 2,052 =========== =========== =========== BASIC AND DILUTED LOSS PER COMMON SHARE FROM CONTINUING OPERATIONS $ (3.05) $ (2.71) $ (0.53) =========== =========== =========== BASIC AND DILUTED EARNINGS (LOSS) PER COMMON SHARE FROM DISCONTINUED OPERATIONS $ (0.38) $ 1.37 $ 0.96 =========== =========== =========== BASIC AND DILUTED EARNINGS (LOSS) PER COMMON SHARE $ (3.43) $ (1.34) $ 0.43 =========== =========== =========== WEIGHTED AVERAGE SHARES OUTSTANDING 4,591,488 4,737,220 4,780,931 =========== =========== ===========

SHARES ADDITIONAL RETAINED ------------------------ COMMON PAID-IN EARNINGS TREASURY COMMON TREASURY SHARES CAPITAL (DEFICIT) SHARES TOTAL ---------- -------- -------- ------- -------- ------- -------- BALANCE, December 31, 1996 5,036,480 (255,370) $ 25,146 $ 7,687 $ 17,854 $(2,006) $ 48,681 Purchase of common and treasury shares (253) (30) -- (3) -- -- (3) Retirement of common and treasury shares (255,439) 255,400 -- (2,006) -- 2,006 -- Net income -- -- -- -- 2,052 -- 2,052 ---------- -------- -------- ------- -------- ------- -------- BALANCE, December 31, 1997 4,780,788 -- 25,146 5,678 19,906 -- 50,730 Purchase and retirement of common shares (189,300) -- (189) (1,392) -- -- (1,581) Net loss -- -- -- -- (6,366) -- (6,366) ---------- -------- -------- ------- -------- ------- -------- BALANCE, December 31, 1998 4,591,488 -- 24,957 4,286 13,540 -- 42,783 Net loss -- -- -- -- (15,740) -- (15,740) ---------- -------- -------- ------- -------- ------- -------- BALANCE, December 31, 1999 4,591,488 -- $ 24,957 $ 4,286 $ (2,200) $ -- $ 27,043 ========== ======== ======== ======= ======== ======= ========

1999 1998 1997 ------ ------- ------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) $(15,740) $ (6,366) $ 2,052 Adjustments to reconcile net income (loss) to cash used in continuing operations -- Loss (income) from discontinued operations 1,730 (6,490) (4,567) Depreciation and amortization 1,129 2,024 134 Asset impairment 753 5,674 -- Tax valuation allowance 1,106 -- -- Income from unconsolidated joint ventures (51) (242) (33) Minority interest in consolidated entities (2,406) (263) (76) Changes in assets and liabilities, excluding effects of acquisitions-- Future tax benefit and estimated tax refunds (5,909) (4,995) (383) Receivables (354) 1,087 (1,517) Inventories (3,956) (5,232) 273 Cash surrender value of life insurance and other assets 1,166 (1,414) (1,547) Accounts payable and accrued liabilities 1,295 1,747 (1,145) Customer deposits 558 447 (112) Income taxes payable -- -- (107) -------- -------- -------- Net cash used in operating activities of continuing operations (20,679) (14,023) (7,028) -------- -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES: Additions to property and equipment and sales villages, net (565) (13,835) (5,252) Proceeds from the sale of property and equipment 2,146 1,139 -- Distributions from unconsolidated joint ventures 252 663 497 Acquisitions of manufactured housing retailers -- -- (2,438) -------- -------- -------- Net cash provided by (used in) investing activities of continuing operations 1,833 (12,033) (7,193) -------- -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES: Borrowings on notes payable 27,574 27,429 -- Repayments on notes payable (15,801) (5,347) -- Purchase and retirement of treasury shares -- (1,581) (3) Proceeds from (purchase of) minority interest, net 651 (161) 500 -------- -------- -------- Net cash provided by financing activities of continuing operations 12,424 20,340 497 -------- -------- -------- DECREASE IN CASH (6,422) (5,716) (13,724) Net cash provided by (used in) discontinued operations (609) 15,689 17,884 CASH, beginning of year 14,133 4,160 -- -------- -------- -------- CASH, end of year $ 7,102 $ 14,133 $ 4,160 ======== ======== ======== SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid during the year for-- Interest, net of amounts capitalized $ 8,036 $ 5,818 $ 3,202 Income taxes $ 1,171 $ 915 $ 1,844

1999 1998 ------ ------ Retail distribution manufactured homes Under a contract of sale $ 3,967 $ 1,935 Held for sale 2,180 522 -------- -------- $ 6,147 $ 2,457 ======== ========

YEAR ENDED DECEMBER 31, ----------------------- 1999 1998 1997 ------ ------ ------ Capitalized interest, beginning of year $ 2,139 $ 1,678 $ 1,074 Interest incurred 2,992 2,940 3,302 Interest expensed (2,698) (2,479) (2,698) -------- -------- ------- Capitalized interest, end of year $ 2,433 $ 2,139 $ 1,678 ======== ======== =======

1999 1998 ------ ------ Office furniture and equipment $ 730 $ 523 Leasehold improvements 387 386 ------- ------- 1,117 909 Less - accumulated depreciation and amortization (163) ( 77) -------- -------- $ 954 $ 832 ======= ======= HomeMax sales villages $10,876 $13,447 Less - accumulated depreciation and amortization (1,524) (760) -------- -------- $ 9,352 $12,687 ======== =======

YEARS ENDED DECEMBER 31, ------------------------ STATEMENTS OF INCOME 1999 1998 1997 -------------------- ------ ------ ------ Revenues $ 550 $ 1,635 $ 1,264 Costs and expenses 448 1,209 1,199 ------- ------- ------- Pretax income $ 102 $ 426 $ 65 ======= ======= ======= DECEMBER 31, ------------ BALANCE SHEETS 1999 1998 -------------- ---- ---- Assets, primarily land and land improvements $ -- $478 Liabilities $ -- $ -- Equity $ -- $478

DECEMBER 31, ------------ 1999 1998 ------ ------ Manufactured Housing Floor Plan Facility for inventory and display models, payable to Bombardier Capital, Inc., variable interest rates (9.0% at December 31, 1999), subject to repayment upon the earlier of sale or fifteen months from the date of initial borrowing, secured by the inventory, an irrevocable letter of credit from American Homestar and a repurchase agreement with American Homestar in the event of default $ 9,511 $ -- Manufactured Housing Floor Plan Facility, payable to Nations Bank, $12.9 million financing facility for inventory and display models, interest at the Prime Rate or the Euro-rate plus 2.35% (8.78% at December 31, 1999) and subject to repayment upon the earlier of sale or the end of, in certain circumstances, six months if held in inventory. Borrowings for the cost of certain models held for more than twelve months accrue interest at 10% and are subject to repayment no later than twenty-four months after the date of initial borrowing. 344 7,082 -------- -------- $ 9,855 $ 7,082 ======== ======== Credit Agreement, payable to the Provident Bank, $15.0 million available for working capital needs of HomeMax and subsidiaries, interest at the Prime Rate plus 1.0%, (9.5% at December 31, 1999), payable in three annual installments of $1.47 million commencing March 15, 2000, entire balance payable at the earlier of September 15, 2002 or 90 days following the sale of the remaining 50% of HomeMax (Note 4), secured by $8.4 million of promissory notes, prepayment penalty equal to a percentage of the gain, if any, upon the sale of additional interest in HomeMax, as defined per the Credit Agreement, $10.0 million guaranteed by Zaring Homes, Inc. $ 15,000 $ 15,000 ======== ========

DISCONTINUED OPERATIONS DECEMBER 31, ------------ 1999 1998 ------ ------ Obligations of Zaring Homes: Revolving Credit Facility, payable to PNC Bank, as agent, $72.5 million available at December 31, 1999, borrowings outstanding at December 31, 1999 and December 31, 1998 are at 8.77% and 7.19%, respectively, expiring in March 2001 $61,250 $44,500 Term Loans, payable to PNC Bank, as agent, borrowings outstanding at December 31, 1999 and December 31, 1998 are at 8.76% and 7.88, respectively, payable in quarterly installments of $750 through March 2001 4,500 6,750 Other Term Notes, payable to banks, interest at 7.95%, payable in quarterly installments of $437 through March 2001 2,739 4,371 Other Term Notes, interest at 7.0% to 12.0%, principal installments of $72 due January 2002, $2,425 due April 2003 and $692 due April 2005, secured by certain land 2,949 -- ------- ------- $71,438 $55,621 ======= ======= Obligations of Leasing LLC, Land LLC and Leasing 99 LLC: Notes payable by Leasing LLC to The Huntington National Bank, permitted borrowings of up to $10.0 million, interest at LIBOR plus 1.75% (8.21% and 6.75% at December 31, 1999 and 1998, respectively, payable monthly, secured by model homes and a personal guarantee, payable upon sale of the models or in annual installments through June 2001 $ 6,072 $ 8,237 Notes payable by Leasing 99 LLC to The Huntington National Bank, permitted borrowings of up to $3.0 million, interest at LIBOR plus 1.75% (8.21% at December 31, 1999), payable monthly, secured by model homes, a personal guarantee and a guarantee by Leasing LLC, payable upon sale of the models or in annual installments through March 2002 2,859 -- Notes payable by Land LLC to the Provident Bank, permitted borrowings of up to $10.0 million, interest at LIBOR plus 2.25% (8.71% and 7.25% at December 31, 1999 and December 31, 1998, respectively) payable monthly, secured by land and a personal guarantee, payable in July 2001 8,663 5,710 ------- ------- $17,594 $13,947 ======= ======= Obligation of Zaring Financial Services: Revolving line of credit payable to the Provident Bank, permitted borrowings of up to $5.0 million, $1.8 million available at December 31, 1999, interest at the Prime Rate minus 0.25% (8.25% at December 31, 1999), expiring May 2002 $ 3,181 $ -- ======= =======

YEARS ENDED DECEMBER 31, ------------------------ 1999 1998 1997 ------ ------ ------ Currently payable (receivable) $(1,250) $ -- $ -- Deferred (1,438) (8,184) (1,615) ------- ------- ------- $(2,688) $(8,184) $(1,615) ======= ======= =======

1999 1998 1997 ---- ---- ---- AMOUNT RATE AMOUNT RATE AMOUNT RATE ------ ---- ------ ---- ------ ---- Computed benefit for federal income taxes at the statutory rate $(5,677) (34.0)% $(7,154) (34.0)% $(1,404) (34.0)% State and local income taxes, net of federal income tax benefit (835) (5.0) (1,052) (5.0) (207) (5.0) HomeMax losses subsequent to March 15, 1999 which are not included in the consolidated return of the Company 2,806 16.8 -- -- -- -- Valuation allowance 1,106 6.6 -- -- -- -- Other (88) (.5) 22 .1 (4) (.1) ------- ------ ------- ------ ------- ------ $(2,688) (16.1)% $(8,184) (38.9)% $(1,615) (39.1)% ======= ====== ======= ====== ======= ======

1999 1998 ------ ------ Goodwill and other intangibles $ -- $ (251) Recognition of warranty expense 1,791 409 Currently nondeductible expenses 1,075 424 Asset impairment and discontinued operations 3,536 2,213 Inventory and equipment costs not currently deductible 322 863 Estimated refunds 3,131 2,395 Estimated net operating loss carryforwards 2,107 -- Valuation allowance (1,106) -- ------- ------ $10,856 $6,053 ======= ======

1999 1998 1997 ------ ------ ------ Sale of residential lots $ -- $ -- $165 ====== ====== ==== Sales of residential homes to management and other related parties, including $554 and $1,680 related to employees who were relocated during 1999 and 1998, respectively $2,722 $3,393 $732 ====== ====== ==== Purchase of residential lots $ -- $ -- $480 ====== ====== ==== American Homestar: Rebates receivable $ 489 $ -- N/A Interest receivable 272 -- N/A Interest payable on subordinated loan 121 -- N/A Management fee payable 942 -- N/A Interest income 272 -- -- Interest expense 191 -- -- Management fee expense 942 -- -- Allen G. Zaring III: Interest payable on subordinated loan $ 43 $ -- $ N/A Interest expense 127 -- -- Temporary financing provided to the Company and repaid during the year 2,000 -- -- Receivable 16 16 N/A Blue Chip: Receivable $ -- $ 66 $ N/A Employees: Receivables $ 15 $ -- $ N/A

YEARS ENDED DECEMBER 31, Continuing Operations Discontinued Operations --------------------- ----------------------- 2000 $2,090 $ 1,178 2001 1,500 1,125 2002 680 856 2003 250 779 2004 109 622 Thereafter 339 2,592 ----- ------- $4,968 $ 7,152 ====== =======

YEARS ENDED DECEMBER 31, NUMBER OF LOTS AMOUNT -------------- -------- 2000 237 $11,560 2001 287 12,652 2002 144 6,003 2003 116 4,840 2004 111 4,615 Thereafter 76 3,040 --- ------- 971 $42,710 === =======

YEARS ENDED DECEMBER 31, ------------------------ 1999 1998 1997 ------ ------ ------ Net Income (Loss) As reported $ (15,740) $ (6,366) $ 2,052 Pro forma $ (15,916) $ (7,692) $ 1,865 Earnings (Loss) Per Share As reported $ (3.43) $ (1.34) $ 0.43 Pro forma $ (3.47) $ (1.62) $ 0.39

YEAR ENDED DECEMBER 31, ----------------------- 1999 1998 1997 --------------------- ---------------------- ---------------------- WEIGHTED WEIGHTED WEIGHTED AVERAGE AVERAGE AVERAGE EXERCISE EXERCISE EXERCISE SHARES PRICE SHARES PRICE SHARES PRICE -------- ------- -------- ------- -------- ------- Outstanding, beginning of year 321,946 $10.15 208,728 $10.35 66,383 $12.05 Granted 223,808 8.39 223,956 10.25 200,250 10.00 Exercised -- -- -- -- -- -- Forfeited/Expired (100,270) 9.86 (110,738) 10.72 (57,905) 11.03 --------- ------ ---------- ------ --------- ------ Outstanding, end of year 445,484 $ 9.33 321,946 $10.15 208,728 $10.35 ========= ====== ========== ====== ========= ====== Exercisable, end of year 226,541 $10.14 89,577 $10.18 41,225 $11.91 ========= ====== ========== ====== ========= ====== Weighted average fair value of option shares granted $ 5.86 $ 6.27 $ 5.85 ========= ========== =========

WEIGHTED WEIGHTED WEIGHTED AVERAGE AVERAGE AVERAGE OPTIONS EXERCISE EXERCISE CONTRACTUAL OPTIONS EXERCISE OUTSTANDING PRICE PRICE LIFE EXERCISABLE PRICE ----------- ------- ------- ------ ----------- ------- 2,000 $7.25 $ 7.25 6.3 2,000 $ 7.25 198,943 8.00-9.45 8.39 9.3 -- -- 229,061 9.50-10.25 9.99 8.0 209,061 10.03 9,260 11.15 11.15 6.2 9,260 11.15 6,220 12.50-13.50 13.10 4.6 6,220 13.10 ------- ------ --- ------- ------ 445,484 $ 9.33 8.5 226,541 $10.14 ======= ====== === ======= ======

YEARS ENDED DECEMBER 31, ------------------------ 1999 1998 1997 ------ ------ ------ Dividend yield 0% 0% 0% Expected volatility 36% 36% 36% Risk-free interest rate 6.5% 6.5% 6.5% Expected lives 10 years 10 years 10 years

YEARS ENDED DECEMBER 31, ------------------------ 1999 1998 1997 ------ ------ ------ Net revenues $30,231 $11,354 $1,706 Interest allocation $ 952 $ 264 $ 12 Pretax operating income (loss) $(7,168) $ (362) $ 54 Provision (benefit) for income taxes (2,638) (143) 21 -------- -------- ------ Net income (loss) $(4,530) $ (219) $ 33 ======== ======== ======

AS OF DECEMBER 31, ------------------ 1999 1998 ------ ------ Land and home inventories $ 9,814 $ 9,816 Other assets 812 493 Liabilities (4,887) (2,463) -------- -------- Net assets of discontinued operations $ 5,739 $ 7,846 ======== ========

YEARS ENDED DECEMBER 31, ------------------------ 1999 1998 1997 ------ ------ ------ Revenues $284,602 $241,599 $214,042 Cost of sales 237,792 199,867 179,568 Incremental warranty provision 2,806 -- -- Interest allocation 2,698 2,479 2,698 Selling, general and administrative 36,880 28,256 24,346 -------- -------- ------- Operating income 4,426 10,997 7,430 Other income (expense) 82 (14) 15 -------- -------- ------- Pretax operating income 4,508 10,983 7,445 Provision for taxes 1,659 4,271 2,911 -------- -------- ------- Net income $ 2,849 $ 6,712 $ 4,534 ======== ======== ======= AS OF DECEMBER 31, ------------------ 1999 1998 ------ ------ Land $49,090 $ 41,737 Luxury site-built home inventory 66,300 32,365 Model homes 6,243 5,240 Property and equipment, net 6,199 6,634 Other assets 4,445 2,285 Accounts payable (26,971) (12,080) Accrued expenses (12,691) (4,037) Customer deposits (6,851) (2,667) Notes payable (71,438) (55,621) -------- -------- Net assets of discontinued operations $ 14,326 $ 13,856 ======== ========

YEARS ENDED DECEMBER 31, ------------------------ 1999 1998 1997 ---- ---- ---- Revenues $ 1,677 $ 526 $ -- Pretax operating income (loss) $ (78) $ (5) $ -- Benefit for income taxes (29) (2) -- ------- ----- ------ Net loss $ (49) $ (3) $ -- ======= ===== ====== AS OF DECEMBER 31, ------------------ 1999 1998 ---- ---- Mortgage receivables $ 3,721 $ 71 Other assets 263 88 Revolving credit note (3,181) -- Other liabilities (270) (142) ------- ----- Net assets of discontinued operations $ 533 $ 17 ======= =====

YEARS ENDED DECEMBER 31, ------------------------ 1999 1998 1997 ---- ---- ---- Revenues $ 2,836 $2,308 $ -- Cost of sales 2,436 1,887 -- Interest, net 1,221 465 -- Selling, general and administrative 178 112 -- ------ ------ ------- Operating loss (999) (156) -- Other income 750 560 -- Minority interest 249 (404) -- ------ ------- ------- $ -- $ -- $ -- ====== ====== ======= AS OF DECEMBER 31, ------------------ 1999 1998 ---- ---- Model homes $ 9,923 $ 9,153 Land 7,853 5,784 Other assets 1,063 739 Notes payable (17,594) (13,947) Other liabilities (170) (75) Minority interest (1,075) (1,654) -------- -------- Net assets of discontinued operations $ -- $ -- ======== ========

YEARS ENDED DECEMBER 31, ------------------------ 1999 1998 1997 ------ ------ ------ HOMEMAX Retail Distribution Manufactured Homes Revenues $ 20,551 $ 12,411 $ 8,209 Cost of sales 19,451 10,724 6,920 Asset impairment 753 5,674 -- Interest 1,568 1,807 312 Selling, general and administrative 11,688 11,704 3,370 --------- --------- -------- Operating loss (12,909) (17,498) (2,393) Other income (expense) 43 (5) (28) Minority interest 2,406 263 76 --------- --------- -------- Pretax Retail Distribution Loss (10,460) (17,240) (2,345) CORPORATE Interest 1,687 790 -- General and administrative 4,551 3,010 1,785 -------- -------- -------- Loss before income taxes and discontinued operations (16,698) (21,040) (4,130) Benefit for income taxes (2,688) (8,184) (1,615) --------- ---------- --------- Net loss before discontinued operations (14,010) (12,856) (2,515) Income (loss) from discontinued operations, net of tax (1,730) 6,490 4,567 --------- -------- ------- Net income (loss) $(15,740) $ (6,366) $ 2,052 ========= ========= =======

HOMEMAX RETAIL DISTRIBUTION MANUFACTURED HOMES CORPORATE TOTAL ----- --------- ----- Segment assets: 1999 $24,004 $18,432 $42,436 1998 23,152 10,671 33,823 1997 12,044 6,643 18,687 Depreciation and amortization expense: 1999 946 183 1,129 1998 2,024 -- 2,024 1997 134 -- 134 Expenditures for long-lived assets (excluding acquisitions): 1999 675 -- 675 1998 14,064 -- 14,064 1997 5,252 -- 5,252

1999 1998 1997 ------ ------ ------ Total segment assets $ 42,436 $ 33,823 $ 18,687 Elimination of inter-entity investments 65 (5) -- Cash and cash equivalents* 7,102 14,133 4,160 Net assets of discontinued operations 20,598 21,719 30,918 -------- -------- ------- Total assets $ 70,201 $ 69,670 $53,765 ======== ======== =======

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