<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 June 30, 1998
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OR
TRANSITION REPORT PURSUANT TO SECTION 13 OF 15(d) OF THE SECURITIES
- ----
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
- -------------------------------- --------------------
(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)
(651) 638-0500
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(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
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The number of shares outstanding of the Registrant's common stock, par value
$.10 per share, at August 4, 1998 was 5,772,913 shares.
1
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THE ROTTLUND COMPANY, INC. AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
PAGE
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<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated balance sheets -- June 30, 1998
and March 31, 1998 3
Consolidated statements of operations -- Three
months ended June 30, 1998 and 1997 4
Consolidated statements of cash flows -- Three
months ended June 30, 1998 and 1997 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
</TABLE>
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, 1998 March 31, 1998
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<S> <C> <C>
ASSETS
Cash and cash equivalents $ 1,343,381 $ 4,246,674
Escrow and other receivables 3,139,490 2,519,913
Land, development costs and finished lots 51,211,469 47,247,120
Residential housing completed and under 28,937,589 27,132,455
construction
Property and equipment, net 1,124,661 1,250,710
Deferred financing costs and other assets 5,571,811 5,884,127
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$91,328,401 $88,280,999
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----------- -----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Revolving credit facility $17,385,000 $15,010,000
Senior notes payable 30,135,678 30,924,636
Mortgage notes payable 1,891,072 1,972,402
Accounts payable 11,620,474 11,552,749
Accrued liabilities 3,393,187 2,506,176
Income taxes payable 240,800 0
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Total liabilities 64,666,211 61,965,963
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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 5,772,913
and 5,745,110 respectively 143,291 140,511
Paid-in capital 11,744,428 11,747,208
Retained earnings 14,774,471 14,427,317
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Total shareholders' equity 26,662,190 26,315,036
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$91,328,401 $88,280,999
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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,
---------------------
1998 1997
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<S> <C> <C>
Net sales $ 51,354,453 $ 42,704,063
Cost of sales 44,484,220 36,629,265
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6,870,234 6,074,797
Selling, general and
administrative expense 5,621,086 5,038,845
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Operating income 1,249,147 1,035,953
Other (income) expense:
Interest expense 717,201 279,505
Other income (56,208) (13,197)
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Income before provision for income taxes 588,154 769,645
Provision for income taxes 241,000 316,000
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Net income $ 347,154 $ 453,645
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Net income per share $ 0.06 $ 0.08
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Weighted average
shares outstanding 5,772,913 5,745,110
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</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 Three Months Ended
June 30,
--------------------------
1998 1997
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<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 347,154 $ 453,645
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation 180,690 101,397
Changes in operating items:
Escrow and other receivables (619,577) 123,548
Land, development costs and finished lots (3,964,349) (304,160)
Residential housing completed and under construction (1,805,134) 3,608,957
Deferred financing costs and other assets 312,316 (597,740)
Accounts payable 67,724 (745,496)
Accrued liabilities 887,012 (513,256)
Income taxes payable 240,800 66,079
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Net cash provided by (used for) operating activities (4,353,364) 2,192,974
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INVESTING ACTIVITIES:
Purchase of property and equipment, net (54,641) (11,771)
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FINANCING ACTIVITIES:
Proceeds from mortgage notes payable 45,000 572,529
Repayments of mortgage notes payable (126,330) (677,452)
Proceeds from (repayments of) revolving credit facility, net 2,375,000 (4,850,000)
Stock options exercised 0 0
Repayment of Senior Notes Payable (788,958) (705,120)
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Net cash provided by (used for) financing activities 1,504,712 (5,660,043)
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NET DECREASE IN CASH AND CASH EQUIVALENTS (2,903,293) (3,478,840)
CASH AND CASH EQUIVALENTS:
Beginning of period 4,246,674 7,015,543
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End of period $ 1,343,381 $ 3,536,703
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SUPPLEMENTAL DISCLOSURES OF CASH FLOWS
INFORMATION:
Cash paid for interest, net of amounts capitalized $ 717,201 $ 279,505
Cash paid for income taxes 35,200 250,000
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</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, 1998 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 month period ending June 30, 1998 are not necessarily indicative of the
results that may be expected for the year ending March 31, 1999.
Note 2. Revolving Credit Facility to Bank
As of June 30, 1998, the Company had a line-of-credit arrangement with a bank
totaling $23,000,000, with interest at the bank's prime rate plus .5%.
Borrowings outstanding at June 30, 1998 were $17,385,000 under this arrangement.
In addition, letters of credit totaling approximately $1,069,000 were
outstanding under this arrangement at June 30, 1998.
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
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For The Three Months
Ended June 30
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1998 1997
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<S> <C> <C>
Net sales 100.0% 100.0%
Cost of sales 86.6 85.8
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Gross profit 13.3 14.2
Selling, general and
administrative expense 10.9 11.8
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Operating income 2.4 2.4
Other (income) expense:
Interest expense 1.4 .6
Other income (.1) (.0)
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Income before provision
for income taxes 1.1 1.8
Provision for income taxes .4 .7
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Net income .7% 1.1%
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Number of homes closed 347 311
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</TABLE>
BACKLOG
The following table sets forth the Company's backlog as of the dates indicated:
<TABLE>
<CAPTION>
Number of
June 30, Homes Sales Value
-------- --------- -----------
<S> <C> <C>
1998 725 $117,100,000
1997 380 $ 57,400,000
</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 JUNE 30, 1998 COMPARED TO THREE MONTHS ENDED
JUNE 30, 1997
Revenues for the three months ended June 30, 1998, increased by 20.4%, to $51.4
million, from $42.7 million for the comparable period of 1997. The number of
homes closed by the Company increased by 11.6% to 347 units for the three months
ended June 30, 1998, from 311 units during the same period in 1997. The average
selling price of a home increased 7.8% to $148,000, during the three months
ended June 30, 1998 from $137,300 for the comparable period in 1997. 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 13.1%, to $6.9 million for the three months ended June
30, 1998, from $6.1 million for the comparable period of 1997. Gross profit as a
percentage of net sales decreased to 13.3% from 14.2% primarily due to older
lower margin homes closing during the current quarter, and continued start up
costs in some of the Company's newer markets. The majority of lower margin homes
that were in backlog at the beginning of the quarter were closed during the
current quarter, and margins should improve through the balance of the year.
Selling, general and administrative expenses increased by 12.0% to $5.6 million
in the three months ended June 30, 1998, from $5.0 million for the comparable
period of 1997. The 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 decreased to 10.9% for the three month period
ended June 30, 1998, from 11.8% for the same period in 1997.
Interest expense increased to $717,000 for the three months ended June 30, 1997,
from $280,000 for the comparable period in 1997. The increase in interest
expense is primarily due to the Company terminating capitalizing interest on a
piece of commercial land that is has held for approximately ten years. The land
is currently for sale and has a book value of about $9.0 million. 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 Company's effective tax rate for both periods was approximately 41% 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, 1998, the Company had available cash and cash equivalents of
approximately $1,343,000.
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, 1998, the Company also had a $23.0 million revolving credit facility
from a commercial lender. Borrowings under this facility's line of credit
totaled $17.4 million at June 30, 1998. The Company has the capacity as of June
30, 1998 to borrow an additional $1.5 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 including the Company's recent
expansions to Iowa, Florida, New Jersey and Indiana.
Due to the lower than expected financial results for the fiscal year ended March
31, 1998, the Company was not in compliance with certain covenants under both
its Senior Note agreements and its revolving credit facility. All of the
Company's lenders have agreed to waive the violations and in addition the
agreements have been amended. Certain financial covenants have been reset over
the next fiscal year in order to give the Company time to reach original
covenant levels. The Company will pay an additional $100,000 principal per month
amortization on the Senior Notes for the remaining life of the notes.
The Company has generally been able to secure financing for its acquisition,
development and construction activities, and management believes such
arrangements will continue to be available on terms satisfactory to the Company.
There can be no assurance, however, that continued financing for land
acquisitions will be available or, if available, will be on terms satisfactory
to the Company.
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. Not applicable.
(b) Reports on Form 8-K.
The registrant filed no reports on Form 8-K during the three
months ended June 30, 1998.
10
<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: August 10, 1998 By: /s/ David H. Rotter
-------------------------------
DAVID H. ROTTER
President and
Chief Executive Officer
Date: August 10, 1998 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-31-1999
<PERIOD-START> APR-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 1,343,381
<SECURITIES> 0
<RECEIVABLES> 3,139,490
<ALLOWANCES> 0
<INVENTORY> 80,149,058
<CURRENT-ASSETS> 84,631,929
<PP&E> 2,085,351
<DEPRECIATION> 960,690
<TOTAL-ASSETS> 91,328,401
<CURRENT-LIABILITIES> 34,530,533
<BONDS> 30,135,678
0
0
<COMMON> 143,291
<OTHER-SE> 26,518,899
<TOTAL-LIABILITY-AND-EQUITY> 91,328,401
<SALES> 51,354,453
<TOTAL-REVENUES> 51,354,453
<CGS> 44,484,220
<TOTAL-COSTS> 44,484,220
<OTHER-EXPENSES> 5,621,086
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 717,201
<INCOME-PRETAX> 588,154
<INCOME-TAX> 241,000
<INCOME-CONTINUING> 347,154
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 347,154
<EPS-PRIMARY> .06
<EPS-DILUTED> .06
</TABLE>
