<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, 1999
-------------
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.)
3065 Centre Pointe Drive, Roseville, MN 55113
---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
(651) 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 4, 1999 was 5,804,444 shares.
<PAGE>
THE ROTTLUND COMPANY, INC. AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION PAGE
<S> <C> <C>
Item 1. Financial Statements
Consolidated balance sheets - June 30, 1999
and March 31, 1999 3
Consolidated statements of operations - Three
months ended June 30, 1999 and 1998 4
Consolidated statements of cash flows - Three
months ended June 30, 1999 and 1998 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
<PAGE>
Part I. Financial Information
Item 1. Financial Statements
THE ROTTLUND COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS - UNAUDITED
AS OF
<TABLE>
<CAPTION>
June 30, 1999 March 31, 1999
-------------------------- --------------------------
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 1,599,446 $ 6,557,573
Escrow and other receivables 2,448,636 2,651,613
Land, development costs and finished lots 49,811,533 46,315,283
Residential housing completed and under construction 29,919,534 23,727,213
Property and equipment, net 828,342 941,435
Deferred financing costs and other assets 9,233,889 9,171,851
-------------------------- --------------------------
$93,841,380 $89,364,968
-------------------------- --------------------------
-------------------------- --------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Revolving credit facility $22,635,000 $10,285,000
Senior notes payable 25,548,328 26,731,226
Mortgage notes payable 1,155,342 1,450,932
Accounts payable 7,294,241 8,904,918
Accrued liabilities 4,865,532 6,131,513
Income taxes payable 428,704 4,262,903
-------------------------- --------------------------
Total liabilities 61,927,147 57,766,492
-------------------------- --------------------------
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 5,804,444
and 5,772,913 respectively 146,428 143,291
Paid-in capital 11,848,067 11,851,204
Retained earnings 19,919,738 19,603,981
-------------------------- --------------------------
Total shareholders' equity 31,914,233 31,598,476
-------------------------- --------------------------
$93,841,380 $89,364,968
-------------------------- --------------------------
-------------------------- --------------------------
</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
Ended June 30,
--------------------------------------------------------
1999 1998
-------------------------- --------------------------
<S> <C> <C>
Net sales $49,586,875 $51,354,453
Cost of sales 42,444,005 44,484,220
-------------------------- --------------------------
7,142,870 6,870,234
Selling, general and
administrative expense 6,227,817 5,621,086
-------------------------- --------------------------
Operating income 915,053 1,249,147
Other (income) expense:
Interest expense 487,886 717,201
Other income (108,590) (56,208)
-------------------------- --------------------------
Income before provision for income taxes 535,757 588,154
Provision for income taxes 220,000 241,000
-------------------------- --------------------------
Net income $315,757 $347,154
========================== ==========================
Net income per share $0.05 $0.06
========================== ==========================
Weighted average
shares outstanding 5,804,444 5,772,913
========================== ==========================
</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,
---------------------------------------------
1999 1998
-------------------- --------------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 315,757 $ 347,154
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation 167,151 180,690
Changes in operating items:
Escrow and other receivables 202,977 (619,577)
Land, development costs and finished lots (3,496,250) (3,964,349)
Residential housing completed and under construction (6,192,321) (1,805,134)
Deferred financing costs and other assets (62,038) 312,316
Accounts payable (1,610,677) 67,724
Accrued liabilities (1,265,980) 887,012
Income taxes payable (3,834,200) 240,800
-------------------- --------------------
Net cash provided by(used for) operating activities (15,775,581) (4,353,364)
-------------------- --------------------
INVESTING ACTIVITIES:
Purchase of property and equipment, net (54,058) (54,641)
-------------------- --------------------
FINANCING ACTIVITIES:
Proceeds from mortgage notes payable 24,000 45,000
Repayments of mortgage notes payable (319,590) (126,330)
Proceeds from (repayments of) revolving credit facility, net 12,350,000 2,375,000
Stock options exercised 0 0
Repayment of Senior Notes Payable (1,182,898) (788,958)
-------------------- --------------------
Net cash provided by (used for) financing activities 10,871,512 1,504,712
-------------------- --------------------
NET DECREASE IN CASH AND CASH EQUIVALENTS (4,958,127) (2,903,293)
CASH AND CASH EQUIVALENTS:
Beginning of period 6,557,573 4,246,674
-------------------- --------------------
End of period $ 1,599,446 $ 1,343,381
-------------------- --------------------
-------------------- --------------------
SUPPLEMENTAL DISCLOSURES OF CASH FLOWS
INFORMATION:
Cash paid for interest, net of amounts $ 487,886 $ 717,201
capitalized
Cash paid for income taxes 4,054,200 200
-------------------- --------------------
-------------------- --------------------
</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, 1999 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, 1999 are not necessarily
indicative of the results that may be expected for the year ending March 31,
2000.
Note 2. Revolving Credit Facility to Bank
As of June 30, 1999, the Company had a line-of-credit arrangement with a bank
totaling $30,000,000, with interest at the bank's prime rate plus .5%.
Borrowings outstanding at June 30, 1999 were $22,635,000 under this
arrangement. In addition, there were no letters of credit outstanding under
this arrangement at June 30, 1999. As of June 30, 1999 the Company was in
compliance with debt covenants under this revolving facility.
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
Ended June 30
-----------------------
<S> <C> <C>
1999 1998
---- ----
Net sales 100.0% 100.0%
Cost of sales 85.6 86.6
----- -----
Gross profit 14.4 13.3
Selling, general and
administrative expense 12.6 10.9
----- -----
Operating income 1.8 2.4
Other (income) expense:
Interest expense 1.0 1.4
Other income (.2) (.1)
----- -----
Income before provision
for income taxes 1.0 1.1
Provision for income taxes .4 .4
----- -----
Net income .6% .7%
----- -----
----- -----
Number of homes closed 302 347
----- -----
----- -----
</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>
1999 698 $118,692,000
1998 725 $117,100,000
</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, 1999 COMPARED TO THREE MONTHS ENDED
JUNE 30, 1998
Revenues for the three months ended June 30, 1999, decreased by 3.5%, to
$49.6 million, from $51.4 million for the comparable period of 1998. The
number of homes closed by the Company decreased by 13.0% to 302 units for the
three months ended June 30, 1999, from 347 units during the same period in
1998. The average selling price of a home increased 10.9% to $164,200, during
the three months ended June 30, 1999 from $148,000 for the comparable period
in 1998. This increase was due to an overall increase in prices for homes
sold by the Company.
Gross profit increased by 2.9%, to $7.1 million for the three months ended
June 30, 1999, from $6.9 million for the comparable period of 1998. Gross
profit as a percentage of net sales increased to 14.4% from 13.4% primarily
due to higher margin homes closing during the current quarter compared to
those closing in the comparable period of 1998.
Selling, general and administrative expenses increased by 10.7% to $6.2
million in the three months ended June 30, 1999, from $5.6 million for the
comparable period of 1998. The increase is due to increased marketing and
advertising costs as a result of preopening costs for the large number of new
communities opening for sales over the next six months. As a percentage of
net sales, selling, general and administrative expense increased to 12.6% for
the three month period ended June 30, 1999, from 10.9% for the same period in
1998.
Interest expense decreased to $488,000 for the three months ended June 30,
1998, from $717,000 for the comparable period in 1998. The decrease in
interest expense is primarily due to the Company's lower borrowing needs for
the three months ended June 30, 1999 compared to the three months ended June
30, 1998. 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
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1999, the Company had available cash and cash equivalents of
approximately $1,584,000.
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
through December 2003.
At June 30, 1999, the Company also had a $30.0 million unsecured revolving
credit facility from a commercial lender. Borrowings under this facility's
line of credit totaled $22.6 million at June 30, 1999. The Company has the
capacity as of June 30, 1999 to borrow an additional $7.4 million of
short-term debt, if otherwise available, without violating the terms of the
Senior Notes. 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.
As of June 30, 1999 the Company is in compliance with covenants under both
its Senior Note agreements and its revolving credit facility.
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.
YEAR 2000 CONSIDERATIONS
Management believes that the Company's core selling and construction
operations are largely unautomated and would continue uninterrupted even in
the event of Year 2000 problems. As for accounting and administration, the
Company has already upgraded its software, which has been tested and found to
be Year 2000 compliant.
The manufacturer of the computer system on which Rottlund central accounting
and management information systems resides has certified that its hardware
and operating system software are Year 2000 compliant. The Company's
applications software has been tested in the course of normal maintenance.
Equipment and software peripheral to Rottlund's central system are being
tested for Year 2000 compliance. Any replacements or upgrades required are
expected to be complete by mid-1999.
The cost and timing of upgrades to hardware and software corrections are not
deemed to be materially different than normally scheduled upgrades.
Expenditures to date and future expenditures are not expected to exceed
$100,000.
Management's contingency plans, which are intended to enable the Company to
continue to operate normally, include performing some procedures manually,
changing suppliers, if necessary, and repairing or obtaining replacement
systems.
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, 1999.
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 11, 1999 By: /s/ David H. Rotter
-------------------------------
DAVID H. ROTTER
President and
Chief Executive Officer
Date: August 11, 1999 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-31-2000
<PERIOD-START> APR-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 1,599,446
<SECURITIES> 0
<RECEIVABLES> 2,448,636
<ALLOWANCES> 0
<INVENTORY> 79,736,067
<CURRENT-ASSETS> 83,779,149
<PP&E> 1,873,714
<DEPRECIATION> 1,045,372
<TOTAL-ASSETS> 93,841,380
<CURRENT-LIABILITIES> 36,378,819
<BONDS> 25,548,328
0
0
<COMMON> 146,428
<OTHER-SE> 31,767,805
<TOTAL-LIABILITY-AND-EQUITY> 93,841,380
<SALES> 49,586,875
<TOTAL-REVENUES> 49,586,875
<CGS> 42,444,005
<TOTAL-COSTS> 42,444,005
<OTHER-EXPENSES> 6,227,817
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 487,886
<INCOME-PRETAX> 535,757
<INCOME-TAX> 220,000
<INCOME-CONTINUING> 315,757
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 315,757
<EPS-BASIC> .05
<EPS-DILUTED> .05
</TABLE>
