<PAGE>
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 September 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
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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 November 6, 1996 was 5,707,780 shares.
<PAGE>
THE ROTTLUND COMPANY, INC. AND SUBSIDIARIES
INDEX
PART I. FINANCIAL INFORMATION PAGE
Item 1. Financial Statements
Consolidated balance sheets - September 30, 1996
and March 31, 1996 3
Consolidated statements of operations - Three and
six months ended September 30, 1996 and 1995 4
Consolidated statements of cash flows - Six
months ended September 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 11
SIGNATURES 12
2
<PAGE>
Part I. Financial Information
Item 1. Financial Statements
THE ROTTLUND COMPANY, INC. AND SUBSIDIARIES
Consolidated Balance Sheets - Unaudited
As of
<TABLE>
<CAPTION>
September 30, March 31,
1996 1996
------------- -----------
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 2,044,022 $ 3,437,186
Escrow and other receivables 783,413 1,995,011
Land, development costs and finished lots 52,273,246 48,938,789
Residential housing completed and under
construction 30,857,594 25,710,956
Property and equipment, net 615,008 693,608
Deferred financing costs and other assets 2,978,488 2,680,725
----------- -----------
$89,551,771 $83,456,275
----------- -----------
----------- -----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Senior notes payable $35,000,000 $35,000,000
Notes payable 10,334,239 5,584,248
Accounts payable 11,182,604 11,001,052
Accrued liabilities 3,186,989 3,683,752
Income taxes payable 3,312,137 2,791,337
----------- -----------
Total liabilities 63,015,969 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 137,578 134,350
Paid-in capital 11,527,672 11,472,317
Retained earnings 14,870,552 13,789,219
----------- -----------
Total shareholders' equity 26,535,802 25,395,886
----------- -----------
$89,551,771 $83,456,275
----------- -----------
----------- -----------
</TABLE>
See accompanying notes to consolidated financial statements
3
<PAGE>
THE ROTTLUND COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS - UNAUDITED
<TABLE>
<CAPTION>
For the Three Months For the Six Months
Ended September 30, Ended September 30,
---------------------------------- -------------------------------
1996 1995 1996 1995
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net sales $46,669,191 $37,458,398 $84,743,675 $66,816,287
Cost of sales 40,697,750 31,572,973 73,200,374 56,833,586
----------- ----------- ----------- -----------
5,971,441 5,885,425 11,543,301 9,982,701
Selling, general and
administrative expense 5,196,549 3,464,012 9,619,336 6,637,251
----------- ----------- ----------- -----------
Operating income 774,892 2,421,413 1,923,965 3,345,450
Other (income) expense:
Interest expense 191,110 13,066 307,697 13,110
Other income (131,368) (29,273) (186,065) (191,959)
----------- ----------- ----------- -----------
Income before provision
for income taxes 715,150 2,437,620 1,802,333 3,524,299
----------- ----------- ----------- -----------
Provision for taxes 286,000 999,000 721,000 1,445,000
----------- ----------- ----------- -----------
Net income $ 429,150 $ 1,438,620 $ 1,081,333 $ 2,079,299
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Net income per share $ 0.07 $ 0.25 $ 0.18 $ 0.36
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Weighted average
shares outstanding 5,758,581 5,765,912 5,756,886 5,757,879
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>
See accompanying notes to consolidated financial statements
4
<PAGE>
THE ROTTLUND COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS - UNAUDITED
<TABLE>
<CAPTION>
For the Six Months Ended
September 30,
----------------------------
1996 1995
----------- -----------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 1,081,333 $ 2,079,299
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation 170,428 89,696
Changes in operating items:
Escrow and other receivables 1,211,598 8,562
Land, development costs and finished
lots (3,334,457) 322,970
Residential housing completed and under
construction (5,146,638) 428,558
Deferred financing costs and other
assets 2,237 101,577
Accounts payable 418,767 (1,585,040)
Accrued liabilities (733,978) 514,621
Income taxes payable 220,800 303,000
----------- -----------
Net cash provided by(used for)
operating activities (6,109,910) 2,263,243
----------- -----------
INVESTING ACTIVITIES:
Purchase of property and equipment, net (91,828) (110,434)
----------- -----------
FINANCING ACTIVITIES:
Proceeds from mortgage notes payable 1,895,007 60,866
Repayments of mortgage notes payable (3,270,016) (4,262,065)
Proceeds from bank notes payable, net 6,125,000 800,000
Stock options exercised 58,583
----------- -----------
Net cash used for financing activities 4,808,574 (3,401,199)
----------- -----------
NET DECREASE IN CASH AND CASH EQUIVALENTS (1,393,164) (1,248,390)
CASH AND CASH EQUIVALENTS:
Beginning of period 3,437,186 5,595,500
----------- -----------
End of period $ 2,044,022 $ 4,347,110
----------- -----------
----------- -----------
SUPPLEMENTAL DISCLOSURES OF CASH FLOWS
INFORMATION:
Cash paid for interest, net of amounts
capitalized $ 191,110 $ 13,110
Cash paid for income taxes -0- 925,000
----------- -----------
----------- -----------
</TABLE>
See accompanying notes to consolidated financial statements
5
<PAGE>
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 and six months ending September 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 September 30, 1996, the Company had a line-of-credit arrangement with a
bank totaling $15,000,000, with interest at the bank's prime rate plus 1%.
Borrowings are personally guaranteed by two shareholders/officers of the
Company. Borrowings outstanding at September 30, 1996 were $6,625,000 under
this arrangement. In addition, letters of credit totaling approximately
$2,799,584 were outstanding under this arrangement at September 30, 1996.
6
<PAGE>
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 For The Six Months
Ended September 30 Ended September 30
-------------------- ------------------
1996 1995 1996 1995
---- ---- ---- ----
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of sales 87.2 84.3 86.4 85.1
----- ----- ----- -----
Gross profit 12.8 15.7 13.6 14.9
Selling, general and
administrative expense 11.1 9.2 11.3 9.9
----- ----- ----- -----
Operating income 1.7 6.5 2.3 5.0
Other (income) expense:
Interest .4 - .4
Other (.2) - (.2) (.3)
----- ----- ----- -----
Income before provision
for income taxes 1.5 6.5 2.1 5.3
Provision for income
taxes .6 2.7 .8 2.2
----- ----- ----- -----
Net income .9% 3.8% 1.3% 3.1%
----- ----- ----- -----
----- ----- ----- -----
Number of homes closed 333 335 643 608
----- ----- ----- -----
----- ----- ----- -----
BACKLOG
The following table sets forth the Company's backlog as of the dates indicated:
Number of
September 30, Homes Sales Value
------------- ---------- -----------
1996 608 $84,427,000
1995 466 $50,360,000
7
<PAGE>
THREE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED TO THREE MONTHS ENDED
SEPTEMBER 30, 1995
Net sales for the three months ended September 30, 1996, increased by 24.5%, to
$46.7 million, from $37.5 million for the comparable period of 1995. The number
of homes closed by the Company decreased by less than one percent to 333 homes
for the three months ended September 30, 1996, from 335 homes during the same
period in 1995. The average selling price of a home increased 25.3% to
$140,100, during the three months ended September 30, 1996 from $111,800 for the
comparable period in 1995. This increase was due to a greater number of
closings in single family developments where the sales price of homes is
generally higher than other homes sold by the Company, and higher sales prices
in the multi-family segment as the product mix changed to a greater emphasis on
empty nesters from a product targeted towards renters. This will vary on a
quarter by quarter basis and does not establish a trend.
Gross profit increased by 1.7%, to $6.0 million for the three months ended
September 30, 1996, from $5.9 million for the comparable period of 1995. Gross
profit as a percentage of net sales decreased to 12.8% from 15.7% primarily due
to rising material and labor costs caused by the strength in the overall
homebuilding industry, and continued start up costs in some of the Company's
newer markets.
Selling, general and administrative expenses increased by 48.6% to $5.2 million
in the three months ended September 30, 1996, from $3.5 million for the
comparable period of 1995. This increase is due to an increase in variable
costs related to the increase in revenue during the quarter as well as continued
start up costs in some of the Company's newer markets. As a percentage of net
sales, selling, general and administrative expense increased to 11.1% for the
three month period ended September 30, 1996, from 9.2% for the same period in
1995.
Interest expense increased to $191,000 for the three months ended September 30,
1996, from $13,000 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. The increase was primarily due to an increase in short term
borrowings which were used to finance the Company's increased level of business
activity.
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.
8
<PAGE>
SIX MONTHS ENDED SEPTEMBER 30, 1996 COMPARED TO SIX MONTHS ENDED
SEPTEMBER 30, 1995
Net sales for the six month period ended September 30, 1996, increased by 26.8%,
to $84.7 million, from $66.8 million for the comparable period of 1995. The
number of homes closed by the Company increased by 5.8%, to 643 homes for the
six months ended September 30, 1996, from 608 homes during the same period in
1995. The average selling price of a home increased 19.9% to $131,800, in 1996
from $109,900 for the same period in 1995. This increase was due to a greater
number of closings in single family developments where the sales price of homes
is generally higher than other homes sold by the Company, and higher sales
prices in the multi-family segment as the product mix changed to a greater
emphasis on empty nesters from a product targeted towards renters. This will
vary on a quarter by quarter basis and does not establish a trend.
Gross profit increased by 15.0%, to $11.5 million for the six month period ended
September 30, 1996, from $10.0 million for the comparable period of 1995. Gross
profit as a percentage of revenue decreased to 13.6% from 14.9%, primarily due
to rising material and labor costs caused by the strength in the overall
homebuilding industry, and continued start up costs in some of the Company's
newer markets.
Selling, general and administrative expenses increased by 45%, to $9.6 million
in the six month period ended September 30, 1996, from $6.6 million for the
comparable period of 1995. This increase is due to an increase in variable
costs related to the increase in revenue during the quarter as well as continued
start up costs in some of the Company's newer markets. As a percentage of net
sales, selling, general and administrative expenses increased to 11.3% for the
six months ended September 30, 1996, from 9.9% for the same period in 1995.
Interest expense increased to $308,000 for the six months ended September 30,
1996, from $13,000 for the same 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. The
increase was primarily due to an increase in short term borrowings which were
used to finance the Company's increased level of business activity.
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.
9
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 1996, the Company had available cash and cash equivalents of
approximately $2,044,000.
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 September 30, 1996, the Company also had a $15.0 million revolving credit
facility from a commercial lender. Borrowings under this facility's line of
credit totaled $6.6 million at September 30, 1996. The Company has the capacity
as of September 30, 1996 to borrow an additional $7.7 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.
10
<PAGE>
PART II - OTHER INFORMATION
Items 1 through 5. Not applicable.
Item 4. Submission of matters to a vote of security holders.
The Company held its annual meeting of shareholders on September 7,
1996. Messrs. Bernard J. Rotter, David H. Rotter, Todd M. Stutz, John
J. Dierbeck, Lawrence B. Shapiro, Dennis J Doyle and Scott D. Rued were
elected by a majority of the votes cast as directors for a one year
term. The shareholders also approved an amendment to the Company's
1992 Stock Option Plan to increase the number of shares reserved for
issuance under the Plan from 600,000 to 1,000,000. In addition, the
shareholders ratified Arthur Andersen LLP. as the Company's independent
public accountants for the fiscal year ending March 31, 1997.
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 September 30, 1996.
11
<PAGE>
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: November 1, 1996 By: /s/ DAVID H. ROTTER
_______________________________
DAVID H. ROTTER
President and
Chief Executive Officer
Date: November 1, 1996 By: /s/ LAWRENCE B. SHAPIRO
_______________________________
LAWRENCE B. SHAPIRO
Vice President of Finance
Chief Financial Officer
(Principal Financial and
Accounting Officer)
12
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-START> JUL-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 2,044,022
<SECURITIES> 0
<RECEIVABLES> 783,413
<ALLOWANCES> 0
<INVENTORY> 83,130,840
<CURRENT-ASSETS> 85,958,275
<PP&E> 1,168,062
<DEPRECIATION> 553,055
<TOTAL-ASSETS> 89,551,771
<CURRENT-LIABILITIES> 28,015,968
<BONDS> 35,000,000
0
0
<COMMON> 137,578
<OTHER-SE> 26,398,224
<TOTAL-LIABILITY-AND-EQUITY> 89,551,771
<SALES> 46,669,191
<TOTAL-REVENUES> 46,669,191
<CGS> 40,697,750
<TOTAL-COSTS> 40,697,750
<OTHER-EXPENSES> 5,196,549
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 191,110
<INCOME-PRETAX> 715,150
<INCOME-TAX> 286,000
<INCOME-CONTINUING> 429,150
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 429,150
<EPS-PRIMARY> .07
<EPS-DILUTED> .07
</TABLE>