<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
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ACT OF 1934
For the Quarterly Period Ended June 30, 1997
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OR
TRANSITION REPORT PURSUANT TO SECTION 13 OF 15(d) OF THE SECURITIES
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EXCHANGE ACT OF 1934
For the Transition Period From To
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Commission file number 0-20614
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THE ROTTLUND COMPANY, INC.
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(Exact name of registrants as specified in its charter)
MINNESOTA 41-1228259
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization Identification No.)
2681 Long Lake Road, Roseville, MN 55113
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(Address of principal executive offices) (Zip Code)
(612) 638-0500
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(Registrant's telephone number, including area code)
Not Applicable
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(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
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The number of shares outstanding of the Registrant's common stock, par value
$.10 per share, at August 7, 1997 was 5,745,110 shares.
1
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THE ROTTLUND COMPANY, INC. AND SUBSIDIARIES
INDEX
PART I. FINANCIAL INFORMATION PAGE
Item 1. Financial Statements
Consolidated balance sheets - June 30, 1997
and March 31, 1997 3
Consolidated statements of operations - Three
months ended June 30, 1997 and 1996 4
Consolidated statements of cash flows - Three
months ended June 30, 1997 and 1996 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
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Part I. Financial Information
Item 1. Financial Statements
THE ROTTLUND COMPANY, INC. AND SUBSIDIARIES
Consolidated Balance Sheets - Unaudited
As of
<TABLE>
<CAPTION>
June 30, March 31,
1997 1997
---------------- ----------------
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 3,536,703 $ 7,015,543
Escrow and other receivables 1,388,774 1,512,322
Land, development costs and finished lots 49,540,350 49,236,190
Residential housing completed and under construction 28,979,651 32,588,608
Property and equipment, net 620,578 710,204
Deferred financing costs and other assets 5,768,966 5,171,226
---------------- ----------------
$89,835,022 $96,234,093
---------------- ----------------
---------------- ----------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Revolving credit facility $ 10,335,000 $ 15,185,000
Senior notes payable 33,162,773 33,867,893
Notes payable 4,978,631 5,083,554
Accounts payable 8,544,654 9,290,150
Accrued liabilities 3,565,361 4,078,617
Income taxes payable 1,976,218 1,910,139
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Total liabilities 62,562,637 69,415,353
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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 140,511 137,578
Paid-in capital 11,652,618 11,655,551
Retained earnings 15,479,256 15,025,611
---------------- ----------------
Total shareholders' equity 27,272,385 26,818,740
---------------- ----------------
$89,835,022 $96,234,093
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---------------- ----------------
</TABLE>
See accompanying notes to consolidated financial statements
3
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THE ROTTLUND COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS - UNAUDITED
<TABLE>
<CAPTION>
For the Three Months
Ended June 30,
------------------------------
1997 1996
---------------- ----------------
<S> <C> <C>
Net sales $42,704,063 $38,074,484
Cost of sales 36,628,063 32,502,624
---------------- ----------------
6,076,000 5,571,860
Selling, general and
administrative expense 5,040,047 4,422,787
---------------- ----------------
Operating income 1,035,953 1,149,073
Other (income) expense:
Interest expense 279,505 116,587
Other income (13,197) (54,697)
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Income before provision provision
for income taxes 769,645 1,087,183
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Provision for taxes 316,000 435,000
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Net income $453,645 $652,183
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---------------- ----------------
Net income per share $0.08 $0.11
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---------------- ----------------
Weighted average
shares outstanding 5,745,110 5,755,191
---------------- ----------------
---------------- ----------------
</TABLE>
See accompanying notes to consolidated financial statements
4
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THE ROTTLUND COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS - UNAUDITED
<TABLE>
<CAPTION>
For the Three Months
Ended
June 30,
------------------------------------
1997 1996
---------------- ----------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $453,645 $ 652,183
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation 101,397 84,683
Changes in operating items:
Escrow and other receivables 123,548 175,021
Land, development costs and finished
lots (304,160) (3,141,405)
Residential housing completed and under
construction 3,608,957 (825,247)
Deferred financing costs and other
assets (597,740) 137,131
Accounts payable (745,496) (2,238,815)
Accrued liabilities (513,256) (393,645)
Income taxes payable 66,079 (65,200)
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Net cash provided by(used for)
operating activities 2,192,974 (5,615,293)
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INVESTING ACTIVITIES:
Purchase of property and equipment, net (11,771) (61,642)
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FINANCING ACTIVITIES:
Proceeds from mortgage notes payable 572,529 319,649
Repayments of mortgage notes payable (677,452) (2,041,210)
Proceeds from revolving credit facility, net (4,850,000) 7,975,000
Stock options exercised 0 14,375
Repayment of Senior Notes Payable (705,120)
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Net cash used for financing activities (5,660,043) 6,267,814
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NET DECREASE IN CASH AND CASH EQUIVALENTS
(3,478,840) 590,878
CASH AND CASH EQUIVALENTS:
Beginning of period 7,015,543 3,437,186
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End of period $ 3,536,703 $ 4,028,064
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---------------- ----------------
SUPPLEMENTAL DISCLOSURES OF CASH FLOWS
INFORMATION:
Cash paid for interest, net of amounts
capitalized 279,505 $116,587
Cash paid for income taxes 250,000 500,200
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---------------- ----------------
</TABLE>
See accompanying notes to consolidated financial statements
5
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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, 1997 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.
The Company has experienced, and expects to continue to experience,
significant variability in quarterly net sales and net income. Operating
results for the three months ending June 30, 1997 are not necessarily
indicative of the results that may be expected for the year ending March 31,
1998.
Note 2. Note Payable to Bank
As of June 30, 1997, the Company had a line-of-credit arrangement with a bank
totaling $18,000,000, with interest at the bank's prime rate plus .5%.
Borrowings outstanding at June 30, 1997 were $10,335,000 under this
arrangement. In addition, letters of credit totaling approximately $1,561,753
were outstanding under this arrangement at June 30, 1997.
6
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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
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1997 1996
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Net sales 100.0 % 100.0 %
Cost of sales 85.8 85.4
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Gross profit 14.2 14.6
Selling, general and
administrative expense 11.8 11.6
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Operating income 2.4 3.0
Other (income) expense:
Interest .6 .3
Other (.0) (.1)
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Income before provision
for income taxes 1.8 2.8
Provision for income
taxes .7 1.1
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Net income 1.1 % 1.7 %
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Number of homes closed 311 310
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BACKLOG
The following table sets forth the Company's backlog as of the dates indicated:
Number of
June 30, Homes Sales Value
-------- --------- -----------
1997 380 57,400,000
1996 638 90,800,000
7
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THREE MONTHS ENDED JUNE 30, 1997 COMPARED TO THREE MONTHS ENDED
JUNE 30, 1996
Net sales for the three months ended June 30, 1997, increased by 12.1%, to
$42.7 million, from $38.1 million for the comparable period of 1996. The
number of homes closed by the Company increased to 311 homes for the three
months ended June 30, 1997, from 310 homes during the same period in 1996.
The average selling price of a home increased 11.8% to $137,300, during the
three months ended June 30, 1997 from $122,800 for the comparable period in
1996. 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 8.9%, to $6.1 million for the three months ended
June 30, 1997, from $5.6 million for the comparable period of 1996. Gross
profit as a percentage of net sales decreased to 14.2% from 14.6% 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 13.6% to $5.0
million in the three months ended June 30, 1997, from $4.4 million for the
comparable period of 1996. 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 11.8% for the three month period ended June 30, 1997, from 11.6%
for the same period in 1996.
Interest expense increased to $280,000 for the three months ended June 30,
1997, from $117,000 for the comparable period in 1996. 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 the three month period ending June 30,
1997 was approximately 41%, compared to 40% for the same period in 1996 which
reflects the federal statutory rate plus state taxes, net of federal income
tax benefit.
8
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LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1997, the Company had available cash and cash equivalents of
approximately $3,537,000.
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.
Principal and interest payments of approximately $552,000 are due monthly
beginning December 1996 through December 2004.
At June 30, 1997, the Company also had a $18.0 million revolving credit
facility from a commercial lender. Borrowings under this facility's line of
credit totaled approximately $10.3 million at June 30, 1997. The Company has
the capacity as of June 30, 1997 to borrow an additional $4.5 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.
9
<PAGE>
PART II - OTHER INFORMATION
Items 1 through 5. Not applicable.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits. 27. Financial Data Schedule.
(b) Reports on Form 8-K.
The registrant filed no reports on Form 8-K during the three
months ended June 30, 1997.
10
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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 7, 1997 By: /s/ DAVID H. ROTTER
-------------------------------
DAVID H. ROTTER
President and
Chief Executive Officer
Date: August 7, 1997 By: /s/ LAWRENCE B. SHAPIRO
-------------------------------
LAWRENCE B. SHAPIRO
Vice President of Finance
Chief Financial Officer
(Principal Financial and
Accounting Officer)
11
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-START> APR-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 3,536,703
<SECURITIES> 0
<RECEIVABLES> 1,388,774
<ALLOWANCES> 0
<INVENTORY> 78,520,001
<CURRENT-ASSETS> 83,445,478
<PP&E> 1,447,135
<DEPRECIATION> 826,557
<TOTAL-ASSETS> 89,835,022
<CURRENT-LIABILITIES> 29,399,864
<BONDS> 33,162,773
0
0
<COMMON> 140,511
<OTHER-SE> 27,131,874
<TOTAL-LIABILITY-AND-EQUITY> 89,835,022
<SALES> 42,704,063
<TOTAL-REVENUES> 42,704,063
<CGS> 36,628,063
<TOTAL-COSTS> 36,628,063
<OTHER-EXPENSES> 5,040,047
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 279,505
<INCOME-PRETAX> 769,645
<INCOME-TAX> 316,000
<INCOME-CONTINUING> 453,645
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 453,645
<EPS-PRIMARY> .08
<EPS-DILUTED> .08
</TABLE>
