FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Quarterly Period Ended June 30, 1996
OR
[] TRANSITION REPORT PURSUANT TO SECTION 13 OF 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Transition Period From __________ To __________
Commission file number 0-20614
THE ROTTLUND COMPANY, INC.
(Exact name of registrants as specified in its charter)
MINNESOTA 41-1228259
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization Identification No.)
2681 Long Lake Road, Roseville, MN 55113
(Address of principal executive offices) (Zip Code)
(612) 638-0500
(Registrant's telephone number, including area code)
Not Applicable (Former name, former address and former fiscal year, if changed
since last report)
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 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes __x__ No _____
The number of shares outstanding of the Registrant's common stock, par value
$.10 per share, at August 12, 1996 was 5,697,860 shares.
THE ROTTLUND COMPANY, INC. AND SUBSIDIARIES
INDEX
PART I. FINANCIAL INFORMATION PAGE
Item 1. Financial Statements
Consolidated balance sheets - June 30, 1996
and March 31, 1996 3
Consolidated statements of operations - Three
months ended June 30, 1996 and 1995 4
Consolidated statements of cash flows - Three
months ended June 30, 1996 and 1995 5
Notes to consolidated financial statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 7
PART II. OTHER INFORMATION 10
SIGNATURES 11
Part I. Financial Information
Item 1. Financial Statements
<TABLE>
<CAPTION>
THE ROTTLUND COMPANY, INC. AND SUBSIDIARIES
Consolidated Balance Sheets - Unaudited
As of
June 30, 1996 March 31, 1996
------------- --------------
ASSETS
<S> <C> <C>
Cash and cash equivalents $ 4,028,064 $ 3,437,186
Escrow and other receivables 1,819,989 1,995,011
Land, development costs and finished lots 52,080,194 48,938,789
Residential housing completed and under construction 26,536,203 25,710,956
Property and equipment, net 670,567 693,608
Deferred financing costs and other assets 2,543,594 2,680,725
----------- -----------
$87,678,612 $83,456,275
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Senior notes payable $35,000,000 $35,000,000
Notes payable 11,837,686 5,584,248
Accounts payable 8,762,238 11,001,052
Accrued liabilities 3,290,107 3,683,752
Income taxes payable 2,726,137 2,791,337
----------- -----------
Total liabilities 61,616,169 58,060,389
----------- -----------
Shareholders' equity:
Preferred stock, $.10 par value,
10,000,000 shares authorized;
none issued -- --
Common stock, $.10 par value,
40,000,000 shares authorized;
issued and outstanding 5,683,493
and 5,661,065 respectively 136,786 134,350
Paid-in capital 11,484,256 11,472,317
Retained earnings 14,441,402 13,789,219
----------- -----------
Total shareholders' equity 26,062,443 25,395,886
----------- -----------
$87,678,612 $83,456,275
=========== ===========
See accompanying notes to consolidated financial statements
</TABLE>
THE ROTTLUND COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS - UNAUDITED
For the Three Months
Ended June 30,
----------------------------------
1996 1995
------------ ------------
Net sales $ 38,074,484 $ 29,357,889
Cost of sales 32,502,624 25,260,613
------------ ------------
5,571,860 4,097,276
Selling, general and
administrative expense 4,422,787 3,173,239
------------ ------------
Operating income 1,149,073 924,037
Other (income) expense:
Interest expense 116,587 44
Other income (54,697) (162,686)
------------ ------------
Income before provision for income taxes 1,087,183 1,086,679
Provision for income taxes 435,000 446,000
------------ ------------
Net income $ 652,183 $ 640,679
============ ============
Net income per share $ 0.11 $ 0.11
============ ============
Weighted average
shares outstanding 5,755,191 5,749,846
============ ============
See accompanying notes to consolidated financial statements
<TABLE>
<CAPTION>
THE ROTTLUND COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS - UNAUDITED
For the Three Months Ended
June 30,
----------------------------
1996 1995
----------- -----------
OPERATING ACTIVITIES:
<S> <C> <C>
Net income $ 652,183 $ 640,679
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 84,683 42,012
Changes in operating items:
Escrow and other receivables 175,021 (438,897)
Land, development costs and finished (3,141,405) 2,104,988
lots
Residential housing completed and under (825,247) (2,207,071)
construction
Deferred financing costs and other 137,131 329,041
assets
Accounts payable (2,238,815) 456,324
Accrued liabilities (393,645) 240,013
Income taxes payable (65,200) (696,000)
----------- -----------
Net cash provided by(used for) (5,615,293) 471,089
operating activities
----------- -----------
INVESTING ACTIVITIES:
Purchase of property and equipment, net (61,642) (29,657)
----------- -----------
FINANCING ACTIVITIES:
Proceeds from mortgage notes payable 319,649 19,350
Repayments of mortgage notes payable (2,041,210) (1,899,531)
Proceeds from bank notes payable, net 7,975,000 992,000
Stock options exercised 14,375
----------- -----------
Net cash used for financing activities 6,267,814 (888,181)
----------- -----------
NET DECREASE IN CASH AND CASH EQUIVALENTS 590,878 (446,749)
CASH AND CASH EQUIVALENTS:
Beginning of period 3,437,186 5,595,500
----------- -----------
End of period $ 4,028,064 $ 5,148,751
=========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOWS
INFORMATION:
Cash paid for interest, net of amounts $ 116,587 $ 44
capitalized
Cash paid for income taxes 500,200 925,000
=========== ===========
See accompanying notes to consolidated financial statements
</TABLE>
THE ROTTLUND COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Note 1. General
The financial statements included herein have been prepared by the Company
without audit, in accordance with generally accepted accounting principles, and
pursuant to the rules and regulations of the Securities and Exchange Commission.
These interim financial statements should be read in conjunction with the
consolidated financial statements and notes in the Company's annual report for
the year ended March 31, 1996 as filed with the Securities and Exchange
Commission. In the opinion of management of the Company, these financial
statements contain all adjustments of a normal recurring nature necessary to
present fairly the financial position, results of operations and cash flows of
the Company for the interim periods presented.
North Coast Mortgage, Inc., a wholly owned subsidiary of The Rottlund Company,
Inc., is engaged in the business of originating residential mortgage loans as a
correspondent for various mortgage banking companies.
The Company has experienced, and expects to continue to experience significant
variability in quarterly net sales and net income. Operating results for the
three month period ending June 30, 1996 are not necessarily indicative of the
results that may be expected for the year ending March 31, 1997.
Note 2. Note Payable to Bank
As of June 30, 1996, the Company had a line-of-credit arrangement with a bank
totaling $12,000,000, with interest at the bank's prime rate plus 1%. Borrowings
are personally guaranteed by two shareholders/officers of the Company.
Borrowings outstanding at June 30, 1996 were $8,475,000 under this arrangement.
In addition, letters of credit totaling approximately $1,794,000 were
outstanding under this arrangement at June 30, 1996.
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
The following table sets forth certain information regarding the Company's
operations for the periods indicated.
Percentage of Net Sales
-----------------------
For The Three Months
Ended June 30
1996 1995
------- -------
Net sales 100.0% 100.0%
Cost of sales 85.4 86.0
----- -----
Gross profit 14.6 14.0
Selling, general and
administrative expense 11.6 10.8
----- -----
Operating income 3.0 3.2
Other (income) expense:
Interest expense .3 .0
Other income (.1) (.5)
----- -----
Income before provision
for income taxes 2.8 3.7
Provision for income taxes 1.1 1.5
----- -----
Net income 1.7% 2.2%
===== =====
Number of homes closed 310 273
===== =====
BACKLOG
The following table sets forth the Company's backlog as of the dates indicated:
Number of
June 30, Homes Sales Value
-------- --------- ------------
1996 638 $90,800,000
1995 514 $54,700,000
THREE MONTHS ENDED JUNE 30, 1996 COMPARED TO THREE MONTHS ENDED
JUNE 30, 1995
Revenues for the three months ended June 30, 1996, increased by 29.6%, to $38.1
million, from $29.4 million for the comparable period of 1995. The number of
homes closed by the Company increased by 13.6% to 310 units for the three months
ended June 30, 1996, from 273 units during the same period in 1995. The average
selling price of a home increased 14.2% to $122,800, during the three months
ended June 30, 1996 from $107,500 for the comparable period in 1995. This
increase was principally due to a shift in the sales mix to a greater number of
homes closed in single family developments and fewer homes sold in multi-family
developments. Sales prices in multi-family developments are typically lower than
in single family developments.
Gross profit increased by 36.6%, to $5.6 million for the three months ended June
30, 1996, from $4.1 million for the comparable period of 1995. Gross profit as a
percentage of net sales increased to 14.6% from 14.0% primarily due to decreased
sales concessions which had been used to stimulate sales activity in the last
two quarters of calendar 1994 for units closing in fiscal 1996.
Selling, general and administrative expenses increased by 37.5% to $4.4 million
in the three months ended June 30, 1996, from $3.2 million for the comparable
period of 1995. The increase is due primarily to increased advertising and
overhead costs in many of the Company's new markets where sales have occurred,
resulting in the increased backlog, but revenues have not yet been recognized.
As a percentage of net sales, selling, general and administrative expense
increased to 11.6% for the three month period ended June 30, 1996, from 10.8%
for the same period in 1995.
Interest expense increased to $116,587 for the three months ended June 30, 1996,
from $44 for the comparable period in 1995. The Company capitalizes certain
interest costs for land development and includes such capitalized interest in
cost of home sales when the related homes are delivered to purchasers. This
increase was primarily due to an increase in short-term borrowings as a result
of the sharply higher sales and backlog levels in the current period versus the
same period last year.
The Company's effective tax rate for both periods was approximately 40% which
reflects the federal statutory rate plus state taxes, net of federal income tax
benefit.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1996, the Company had available cash and cash equivalents of
approximately $4,028,000.
The Company's financing needs depend primarily upon sales volume, asset
turnover, land acquisition and inventory balances. In December 1994, the Company
issued $25 million of 12.11% Senior Notes payable and in February 1996, the
Company issued an additional $10 million of 9.42% Senior Notes payable
(collectively referred to as the "Senior Notes"). Proceeds were used to retire
certain mortgage notes payable and for working capital purposes. Interest on the
Senior Notes is due monthly through November 1996. Principal and interest
payments of approximately $552,000 are due monthly beginning December 1996
through December 2004.
At June 30, 1996, the Company also had a $12.0 million revolving credit facility
from a commercial lender. Borrowings under this facility's line of credit
totaled $8.5 million at June 30, 1996. The Company has the capacity as of June
30, 1996 to borrow an additional $5.3 of short-term debt, if otherwise
available, without violating the terms of the Senior Notes. The issuance of the
Senior Notes and the availability of the unsecured line of credit provide
additional liquidity and flexibility to the Company over the next two to three
years. The Company believes that amounts available under its existing borrowing
arrangements (assuming extensions and renewals of debt in the ordinary course of
business) and amounts generated from operations will provide funds adequate for
its home building activities and debt service including the Company's recent
expansions to Iowa, Florida,New Jersey and Indiana.
INFLATION
The Company, as well as the homebuilding industry in general, may be adversely
affected during periods of high inflation, primarily because of higher land,
material and labor costs. In addition, higher mortgage interest rates may
significantly affect the affordability of permanent mortgage financing to
prospective purchasers. The Company attempts to pass through to its customers
any increase in its costs through increased selling prices, and to date,
inflation has not had a material adverse effect on the Company's results of
operations. However, there is no assurance that inflation will not have a
material adverse impact on the Company's future results of operations.
PART II - OTHER INFORMATION
Items 1 through 5. Not applicable.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits. Not applicable.
(b) Reports on Form 8-K.
The registrant filed no reports on Form 8-K during the three
months ended June 30, 1996.
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.
THE ROTTLUND COMPANY, INC.
Date: August __, 1996 By:___________________________________
DAVID H. ROTTER
President and
Chief Executive Officer
Date: August __, 1996 By:___________________________________
LAWRENCE B. SHAPIRO
Vice President of Finance
Chief Financial Officer
(Principal Financial and
Accounting Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 4,028,064
<SECURITIES> 0
<RECEIVABLES> 1,819,989
<ALLOWANCES> 0
<INVENTORY> 78,616,397
<CURRENT-ASSETS> 84,464,451
<PP&E> 1,137,876
<DEPRECIATION> 467,309
<TOTAL-ASSETS> 87,678,612
<CURRENT-LIABILITIES> 26,616,169
<BONDS> 35,000,000
0
0
<COMMON> 136,786
<OTHER-SE> 25,925,658
<TOTAL-LIABILITY-AND-EQUITY> 87,678,612
<SALES> 38,074,484
<TOTAL-REVENUES> 38,074,484
<CGS> 32,502,624
<TOTAL-COSTS> 32,502,624
<OTHER-EXPENSES> 4,368,090
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 116,587
<INCOME-PRETAX> 1,087,183
<INCOME-TAX> 435,000
<INCOME-CONTINUING> 652,183
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 652,183
<EPS-PRIMARY> .11
<EPS-DILUTED> .11
</TABLE>
