<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 DECEMBER 31, 1997
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 February 1, 1998 was 5,745,110 shares.
1
<PAGE>
THE ROTTLUND COMPANY, INC. AND SUBSIDIARIES
INDEX
PART I. FINANCIAL INFORMATION PAGE
Item 1. Financial Statements
Consolidated balance sheets - December 31, 1997
and March 31, 1997 3
Consolidated statements of operations - Three and
nine months ended December, 1997 and 1996 4
Consolidated statements of cash flows - Nine
months ended December, 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
<PAGE>
Part I. Financial Information
Item 1. Financial Statements
THE ROTTLUND COMPANY, INC. AND SUBSIDIARIES
Consolidated Balance Sheets - Unaudited
As of
<TABLE>
<CAPTION>
December 31, March 31,
1997 1997
------------ -----------
ASSETS
<S> <C> <C>
Cash and cash equivalents $ 0 $ 7,015,543
Escrow and other receivables 1,028,627 1,512,322
Land, development costs and finished lots 50,939,265 49,236,190
Residential housing completed and under construction 25,891,675 32,588,608
Property and equipment, net 1,234,155 710,204
Deferred financing costs and other assets 5,595,862 5,171,226
----------- -----------
$84,689,584 $96,234,093
----------- -----------
----------- -----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Revolving credit facility $14,510,000 $15,185,000
Senior notes payable 31,691,732 33,867,893
Notes payable 2,258,442 5,083,554
Accounts payable 7,178,502 9,290,150
Accrued liabilities 2,652,946 4,078,617
Income taxes payable (236,878) 1,910,139
----------- -----------
Total liabilities 58,054,744 69,415,353
----------- -----------
----------- -----------
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 5,745,110
and 5,715,780 respectively 140,511 137,578
Paid-in capital 11,652,618 11,655,551
Retained earnings 14,841,711 15,025,611
----------- -----------
Total shareholders' equity 26,634,840 26,818,740
----------- -----------
$84,689,584 $96,234,093
----------- -----------
----------- -----------
</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 Nine Months
Ended December 31, Ended December 31,
-------------------------- --------------------------
1997 1996 1997 1996
----------- ----------- ------------ ------------
<S> <C> <C> <C> <C>
Net sales $32,007,826 $49,613,944 $116,385,587 $134,357,619
Cost of sales 27,926,088 43,201,588 100,585,478 116,401,962
----------- ----------- ------------ ------------
4,081,738 6,412,356 15,800,109 17,955,657
Selling, general and
administrative expense 4,793,292 4,770,184 14,940,250 14,389,520
----------- ----------- ------------ ------------
Operating income (711,554) 1,642,172 859,859 3,566,137
Other (income) expense:
Interest expense 556,857 262,954 1,276,815 570,651
Other income (38,781) (41,602) (106,056) (227,667)
----------- ----------- ------------ ------------
Income before provision
for income taxes (1,229,630) 1,420,820 (310,900) 3,223,153
----------- ----------- ------------ ------------
Provision for taxes (498,000) 598,000 (127,000) 1,319,000
----------- ----------- ------------ ------------
Net income ($731,630) $822,820 ($183,900) $1,904,153
----------- ----------- ------------ ------------
----------- ----------- ------------ ------------
Net income per share ($0.13) $0.15 ($0.03) $0.33
----------- ----------- ------------ ------------
----------- ----------- ------------ ------------
Weighted average
shares outstanding 5,745,110 5,723,879 5,745,110 5,745,884
----------- ----------- ------------ ------------
----------- ----------- ------------ ------------
</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 Nine Months Ended
December 31,
1997 1996
----------- ------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income ($183,900) $ 1,904,153
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation 334,293 258,621
Changes in operating items:
Escrow and other receivables 483,695 830,951
Land, development costs and finished lots (1,703,075) (2,609,635)
Residential housing completed and
under construction 6,696,933 (7,695,549)
Deferred financing costs and other assets (424,638) (77,993)
Accounts payable (2,111,648) (1,801,390)
Accrued liabilities (1,425,671) (763,910)
Income taxes payable (2,147,018) (1,755,601)
----------- ------------
Net cash provided by(used for)
operating activities (481,029) (11,710,353)
----------- ------------
INVESTING ACTIVITIES:
Purchase of property and equipment, net (858,242) (166,668)
----------- ------------
FINANCING ACTIVITIES:
Proceeds from mortgage notes payable 605,529 2,828,186
Repayments of mortgage notes payable (3,430,641) (5,688,576)
Proceeds from revolving credit facility, net (675,000) 12,735,000
Stock options exercised 0 58,583
Repayment of Senior Notes Payable (2,176,160) (446,501)
----------- ------------
Net cash used for financing activities (5,676,272) 9,486,692
----------- ------------
NET DECREASE IN CASH AND CASH EQUIVALENTS (7,015,543) (2,390,329)
CASH AND CASH EQUIVALENTS:
Beginning of period 7,015,543 3,437,186
----------- ------------
End of period $0 $ 1,046,857
----------- ------------
----------- ------------
SUPPLEMENTAL DISCLOSURES OF CASH FLOWS
INFORMATION:
Cash paid for interest, net of amounts
capitalized $ 1,276,815 $ 570,651
Cash paid for income taxes 2,020,096 2,574,834
----------- ------------
----------- ------------
</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, 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 and nine months ending December 31, 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 December 31, 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%.
On January 16, 1998 this line of credit was increased to $23 million.
Borrowings outstanding at December 31, 1997 were $14,510,000 under this
arrangement. In addition, letters of credit totaling approximately
$1,640,000 were outstanding under this arrangement at December 31, 1997.
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.
<TABLE>
<CAPTION>
Percentage of Net Sales
-----------------------
For The Three Months For The Nine Months
Ended December 31 Ended December 31
----------------- -----------------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of sales 87.2 87.1 86.4 86.6
----- ----- ----- -----
Gross profit 12.8 12.9 13.6 13.4
Selling, general and
administrative expense 15.0 9.6 12.9 10.7
----- ----- ----- -----
Operating income (2.2) 3.3 .7 2.7
Other (income) expense:
Interest 1.7 .5 1.1 .3
Other (.1) (.1) (.1) (.2)
----- ----- ----- -----
Income before provision
for income taxes (3.8) 2.9 (.3) 2.4
Provision for income
taxes (1.6) 1.2 (.1) 1.0
----- ----- ----- -----
Net income (2.2)% 1.7% (.2)% 1.4%
----- ----- ----- -----
----- ----- ----- -----
Number of homes closed 202 379 796 1,022
----- ----- ----- -----
----- ----- ----- -----
</TABLE>
BACKLOG
The following table sets forth the Company's backlog as of the dates
indicated:
<TABLE>
<CAPTION>
Number of
December 31, Homes Sales Value
------------ --------- -----------
<S> <C> <C>
1997 457 $71,464,000
1996 434 $63,642,000
</TABLE>
As a cautionary note to investors, certain matters discussed in this
management discussion and analysis are forward looking statements within the
meaning of the Private Securities Litigation Act of 1995. Such matters
involve risks and uncertainties, including changes in economic conditions and
interest rates, increases in raw material and labor costs, weather
conditions, and general competitive factors that may cause actual results to
differ materially.
7
<PAGE>
THREE MONTHS ENDED DECEMBER 31, 1997 COMPARED TO THREE MONTHS ENDED DECEMBER
31, 1996
Net sales for the three months ended December 31, 1997, decreased by 35.5%,
to $32.0 million, from $49.6 million for the comparable period of 1996. The
number of homes closed by the Company decreased by 46.7% to 202 homes for the
three months ended December 31, 1997, from 379 homes during the same period
in 1996. The average selling price of a home increased 21.1% to $158,500,
during the three months ended December 31, 1997 from $130,900 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 decreased by 35.9%, to $4.1 million for the three months ended
December 31, 1997, from $6.4 million for the comparable period of 1996.
Gross profit as a percentage of net sales decreased to 12.8% from 12.9%
primarily as a result of steady material and labor costs in the current
quarter versus sharply rising costs in the prior period offset by lower
revenues.
Selling, general and administrative expenses had no change at $4.8 million in
the three months ended December 31, 1997, and $4.8 million for the comparable
period of 1996. This is due to a decline in variable costs related to the
decrease in revenue during the quarter offset partially by increased overhead
due to planned growth in some of the Company's operations in newer markets
which precedes corresponding revenues. As a percentage of net sales,
selling, general and administrative expense increased to 15.0% for the three
month period ended December 31, 1997, from 9.6% for the same period in 1996.
Interest expense increased to $557,000 for the three months ended December
31, 1997, from $263,000 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 the Company's
decision to discontinue capitalizing interest on one development and to
expense that portion of the interest instead.
The Company's effective tax rate for the three month period ending December
31, 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
<PAGE>
NINE MONTHS ENDED DECEMBER 31, 1997 COMPARED TO NINE MONTHS ENDED DECEMBER
31, 1996
Net sales for the nine month period ended December 31, 1997, decreased by
13.4%, to $116.4 million, from $134.4 million for the comparable period of
1996. The number of homes closed by the Company decreased by 22.1%, to 796
homes for the nine months ended December 31, 1997, from 1,022 homes during
the same period in 1996. The average selling price of a home increased 11.2%
to $146,200, in 1997 from $131,500 for the same 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 decreased by 12.2%, to $15.8 million for the nine month period
ended December 31, 1997, from $18.0 million for the comparable period of
1996. Gross profit as a percentage of revenue increased to 13.6% from 13.4%,
primarily as a result of steady material and labor costs in the current nine
months versus sharply rising costs in the prior period.
Selling, general and administrative expenses increased by 3.5%, to $14.9
million in the nine month period ended December 31, 1997, from $14.4 million
for the comparable period of 1996. This increase is due to a decline in
variable costs related to the decrease in revenue during the nine months
offset partially by increased overhead due to planned growth in some of the
Company's operations in newer markets which precedes corresponding revenues.
As a percentage of net sales, selling, general and administrative expenses
increased to 12.9% for the nine months ended December 31, 1997, from 10.7%
for the same period in 1996.
Interest expense increased to $1,277,000 for the nine months ended December
31, 1997, from $571,000 for the same 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 the Company's decision to
discontinue capitalizing interest on one development and to expense that
portion of the interest instead.
The Company's effective tax rate for the nine month period ending December
31, 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.
9
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1997, the Company had available cash and cash equivalents of
$0.
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
from December 1996 through December 2004.
At December 31, 1997, the Company also had a $18.0 million revolving credit
facility from a commercial lender. As of January 16, 1998 this line of credit
was increased to $23 million. Borrowings under this facility's line of
credit totaled $14.5 million at December 31, 1997. The Company has the
capacity as of December 31, 1997 to borrow an additional $2.5 million 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.
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
Item 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 December 31, 1997.
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: February 5, 1998 By: /s/ David H. Rotter
------------------------------
DAVID H. ROTTER
President and
Chief Executive Officer
Date: February 5, 1998 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> 9-MOS
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-START> OCT-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 1,028,627
<ALLOWANCES> 0
<INVENTORY> 76,830,940
<CURRENT-ASSETS> 77,859,567
<PP&E> 2,293,605
<DEPRECIATION> 1,059,451
<TOTAL-ASSETS> 84,689,584
<CURRENT-LIABILITIES> 26,363,012
<BONDS> 31,691,732
0
0
<COMMON> 140,511
<OTHER-SE> 26,494,329
<TOTAL-LIABILITY-AND-EQUITY> 84,689,584
<SALES> 32,007,826
<TOTAL-REVENUES> 32,007,826
<CGS> 27,926,088
<TOTAL-COSTS> 27,926,088
<OTHER-EXPENSES> 4,793,292
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 556,857
<INCOME-PRETAX> (1,229,630)
<INCOME-TAX> (498,000)
<INCOME-CONTINUING> (731,630)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (731,630)
<EPS-PRIMARY> (.13)
<EPS-DILUTED> (.13)
</TABLE>
