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Previous: GE FUNDS, 485APOS, 2000-02-09 |
Next: MICROTEST INC, SC 13G/A, 2000-02-09 |
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(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, 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 (State or other jurisdiction of incorporation or organization |
41-1228259 (I.R.S. Employer Identification No.) |
|
| 3065 Centre Pointe Drive, Roseville, MN (Address of principal executive offices) |
|
55113 (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 February 4, 2000 was 5,804,444 shares.
THE ROTTLUND COMPANY, INC. AND SUBSIDIARIES
INDEX
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Page |
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|---|---|---|---|---|
| PART I. | FINANCIAL INFORMATION | |||
| Item 1. |
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Financial Statements |
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Consolidated balance sheets—December 31, 1999 and March 31, 1999 |
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3 |
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Consolidated statements of operations—Three and nine months ended December 31, 1999 and 1998 |
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4 |
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Consolidated statements of cash flows—Nine months ended December 31, 1999 and 1998 |
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5 |
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Notes to consolidated financial statements |
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6 |
| Item 2. |
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Management's Discussion and Analysis of Financial Condition and Results of Operations |
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7 |
| PART II. |
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OTHER INFORMATION |
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11 |
| SIGNATURES |
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12 |
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Part I. Financial Information
Item 1. Financial Statements
THE ROTTLUND COMPANY, INC. AND SUBSIDIARIES
Consolidated Balance Sheets—Unaudited
As of
| |
December 31, 1999 |
March 31, 1999 |
||||
|---|---|---|---|---|---|---|
| ASSETS | ||||||
| Cash and cash equivalents | $ | 0 | $ | 6,557,573 | ||
| Escrow and other receivables | 2,597,180 | 2,651,613 | ||||
| Land, development costs and finished lots | 56,136,272 | 46,315,283 | ||||
| Residential housing completed and under construction | 38,264,227 | 23,727,213 | ||||
| Property and equipment, net | 834,391 | 941,435 | ||||
| Deferred financing costs and other assets | 8,495,138 | 9,171,851 | ||||
| $ | 106,327,208 | $ | 89,364,968 | |||
| LIABILITIES AND SHAREHOLDERS' EQUITY |
||||||
| Liabilities: | ||||||
| Revolving credit facility | $ | 28,910,000 | $ | 10,285,000 | ||
| Senior notes payable | 23,106,191 | 26,731,226 | ||||
| Notes payable | 891,686 | 1,450,932 | ||||
| Accounts payable | 11,264,811 | 8,904,917 | ||||
| Accrued liabilities | 6,476,460 | 6,131,513 | ||||
| Income taxes payable | 1,538,249 | 4,262,904 | ||||
| Total liabilities | 72,187,397 | 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 | 22,145,316 | 19,603,981 | ||||
| Total shareholders' equity | 33,139,811 | 31,598,476 | ||||
| $ | 106,327,208 | $ | 89,364,968 | |||
See accompanying notes to consolidated financial statements
THE ROTTLUND COMPANY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS—UNAUDITED
| |
For the Three Months Ended December 31, |
For the Nine Months Ended December 31, |
|||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| |
1999 |
1998 |
1999 |
1998 |
|||||||||
| Net sales—home sales | $ | 55,711,366 | $ | 58,786,225 | $ | 166,602,649 | $ | 173,923,107 | |||||
| Net sales—land/lot sales | 2,283,627 | 0 | 2,283,627 | 0 | |||||||||
| 57,994,993 | 58,876,225 | 168,886,276 | 173,923,107 | ||||||||||
| Cost of sales—home sales |
|
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47,798,527 |
|
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50,057,759 |
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142,333,963 |
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148,624,285 |
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| Cost of sales—land/lot sales | 1,548,982 | 0 | 1,548,982 | 0 | |||||||||
| 49,347,509 | 50,057,759 | 143,882,945 | 148,624,285 | ||||||||||
| Gross Profit—home sales |
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7,912,839 |
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8,728,466 |
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24,268,686 |
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25,298,822 |
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| Gross Profit—land/lot sales | 734,645 | 0 | 734,645 | 0 | |||||||||
| 8,647,484 | 8,728,466 | 25,003,331 | 25,298,822 | ||||||||||
| Selling, general and Administrative expense |
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6,199,092 |
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6,415,036 |
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19,320,176 |
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18,857,750 |
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| Operating income | 2,448,392 | 2,313,429 | 5,683,155 | 6,441,072 | |||||||||
| Other (income) expense: |
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| Interest expense | 718,179 | 669,195 | 1,887,414 | 2,085,599 | |||||||||
| Other income | (95,060 | ) | (88,335 | ) | (511,594 | ) | (198,914 | ) | |||||
| Income before provision for income taxes |
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1,825,273 |
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1,732,569 |
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4,307,335 |
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4,554,388 |
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| Provision for taxes | 748,000 | 710,000 | 1,766,000 | 1,867,000 | |||||||||
| Net income | $ | 1,077,273 | $ | 1,022,569 | $ | 2,541,335 | $ | 2,687,388 | |||||
| Net income per share |
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$ |
0.19 |
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$ |
0.18 |
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$ |
0.44 |
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$ |
0.47 |
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| Weighted average shares outstanding |
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5,804,444 |
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5,772,913 |
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5,804,444 |
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5,772,913 |
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See accompanying notes to consolidated financial statements
THE ROTTLUND COMPANY, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows—Unaudited
| |
For the Nine Months Ended December 31, |
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|---|---|---|---|---|---|---|---|
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1999 |
1998 |
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| OPERATING ACTIVITIES: | |||||||
| Net income | $ | 2,541,335 | $ | 2,687,388 | |||
| Adjustments to reconcile net income to net cash provided by operating activities: | |||||||
| Depreciation | 309,895 | 548,247 | |||||
| Changes in operating items: | |||||||
| Escrow and other receivables | 54,432 | 218,150 | |||||
| Land, development costs and finished Lots | (9,820,989 | ) | (2,888,351 | ) | |||
| Residential housing completed and Under construction | (14,537,014 | ) | (4,311,824 | ) | |||
| Deferred financing costs and other Assets | 676,713 | (1,463,223 | ) | ||||
| Accounts payable | 2,359,894 | (3,258,880 | ) | ||||
| Accrued liabilities | 344,947 | 2,750,163 | |||||
| Income taxes payable | (2,724,655 | ) | 1,265,836 | ||||
| Net cash (used for) Operating activities | (20,795,441 | ) | (4,452,494 | ) | |||
| INVESTING ACTIVITIES: | |||||||
| Purchase of property and equipment, net | (202,851 | ) | (178,620 | ) | |||
| FINANCING ACTIVITIES: | |||||||
| Proceeds from notes payable | 24,000 | 120,000 | |||||
| Repayments of notes payable | (583,246 | ) | (925,560 | ) | |||
| Proceeds from revolving credit facility, net | 18,625,000 | 4,225,000 | |||||
| Repayment of senior notes payable | (3,625,035 | ) | (3,035,000 | ) | |||
| Net cash used for financing activities | 14,440,719 | 384,440 | |||||
| NET DECREASE IN CASH AND CASH EQUIVALENTS | (6,557,573 | ) | (4,246,674 | ) | |||
| CASH AND CASH EQUIVALENTS: | |||||||
| Beginning of period | 6,557,573 | 4,246,674 | |||||
| End of period | $ | 0 | $ | 0 | |||
| SUPPLEMENTAL DISCLOSURES OF CASH FLOWS INFORMATION: | |||||||
| Cash paid for interest, net of amounts capitalized | $ | 1,169,235 | $ | 2,085,599 | |||
| Cash paid for income taxes | $ | 4,460,700 | $ | 1,164 | |||
See accompanying notes to consolidated financial statements
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 and nine months ending December 31, 1999 are not necessarily indicative of the results that may be expected for the year ending March 31, 2000.
Note 2. Note Payable to Bank
As of December 31, 1999, the Company had a line-of-credit arrangement with a bank totaling $35,000,000, with interest at the bank's prime rate plus .5%. Borrowings outstanding at December 31, 1999 were $28,910,000 under this arrangement. In addition, letters of credit totaling approximately $1,000,000 were outstanding under this arrangement at December 31, 1999.
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.
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Percentage of Net Sales |
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|---|---|---|---|---|---|---|---|---|---|
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For the Three Months Ended December 31, |
For The Nine Months Ended December 31, |
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1999 |
1998 |
1999 |
1998 |
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| Net sales—home sales | 96.1 | % | 100.0 | % | 98.6 | % | 100.0 | % | |
| Net sales—land/lot sales | 3.9 | 0.0 | 1.4 | 0.0 | |||||
| 100.0 | 100.0 | 100.0 | 100.0 | ||||||
| Cost of sales—home sales |
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82.4 |
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85.2 |
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84.3 |
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85.5 |
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| Cost of sales—land/lot sales | 2.7 | 0.0 | 0.9 | 0.0 | |||||
| 85.1 | 85.2 | 85.2 | 85.5 | ||||||
| Gross profit—home sales |
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13.6 |
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14.8 |
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14.4 |
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14.5 |
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| Gross profit—land/lot sales | 1.3 | 0.0 | .4 | 0.0 | |||||
| 14.9 | 14.8 | 14.8 | 14.5 | ||||||
| Selling, general and Administrative expense |
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10.7 |
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10.9 |
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11.4 |
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10.8 |
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| Operating income | 4.2 | 3.9 | 3.4 | 3.7 | |||||
| Other (income) expense: |
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| Interest | 1.2 | 1.1 | 1.1 | 1.2 | |||||
| Other | (.2 | ) | (.1 | ) | (.3 | ) | (.1 | ) | |
| Income before provision for income taxes | 3.2 | 2.9 | 2.6 | 2.6 | |||||
| Provision for income Taxes | 1.3 | 1.2 | 1.1 | 1.1 | |||||
| Net income | 1.9 | % | 1.7 | % | 1.5 | % | 1.5 | % | |
| Number of homes closed | 339 | 364 | 1017 | 1126 | |||||
Backlog
The following table sets forth the Company's backlog as of the dates indicated:
| December 31, |
Number of Homes |
Sales Value |
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|---|---|---|---|---|---|
| 1999 | 665 | $ | 118,579,000 | ||
| 1998 | 624 | $ | 104,651,000 | ||
As a cautionary note to investors, certain matters discussed in this management's 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.
Three Months Ended December 31, 1999 Compared to Three Months Ended December 31, 1998
Net sales for the three months ended December 31, 1999, decreased by 1.4%, to $58.0 million, from $58.8 million for the comparable period of 1998. Included in the current quarter was revenue from land sales of $2.3 million versus none in the prior year period. The number of homes closed by the Company decreased by 6.9% to 339 homes for the three months ended December 31, 1999, from 364 homes during the same period in 1998. The average selling price of a home increased 1.7% to $164,300, during the three months ended December 31, 1999 from $161,500 for the comparable period in 1998. This increase was due to an overall increase in prices for homes sold by the Company.
Gross profit decreased by .1%, to $8.6 million for the three months ended December 31, 1999, from $8.7 million for the comparable period of 1998. Gross profit as a percentage of net sales increased to 14.9% from 14.8% primarily as a result of the sale of land in the current quarter.
Selling, general and administrative expenses decreased by 3.1% to $6.2 million in the three months ended December 31, 1999, from $6.4 million for the comparable period of 1998. The decrease is a result of the lower revenues in the current quarter versus the prior period. As a percentage of net sales, selling, general and administrative expense decreased to 10.7% for the three month period ended December 31, 1999, from 10.9% for the same period in 1998.
Interest expense increased to $718,000 for the three months ended December 31, 1999, from $669,000 for the comparable period in 1998. The increase in interest expense is primarily due to an increase in borrowings under the Company's revolving credit facility for the three months ended December 31, 1999 compared to the three months ended December 31, 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.
Nine Months Ended December 31, 1999 Compared to Nine Months Ended December 31, 1998
Net sales for the nine month period ended December 31, 1999, decreased by 2.9%, to $168.9 million, from $173.9 million for the comparable period of 1998. Included in the current period was revenue from land sales of $2.3 million versus none for the prior year period. The number of homes closed by the Company decreased by 9.7%, to 1017 homes for the nine months ended December 31, 1999, from 1126 homes during the same period in 1998. The average selling price of a home increased 6.0% to $163,800, in 1999 from $154,500 for the same period in 1998. This increase was due to an overall increase in prices for homes sold by the Company.
Gross profit decreased by 1.2%, to $25.0 million for the nine month period ended December 31, 1999, from $25.3 million for the comparable period of 1998. Gross profit as a percentage of revenue increased to 14.8% from 14.5%, primarily as a result of higher selling prices during the current year due to strong market conditions partially offset by lower revenues.
Selling, general and administrative expenses increased by 2.1%, to $19.3 million in the nine month period ended December 31, 1999, from $18.9 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 sale over the last nine months. As a percentage of net sales, selling, general and administrative expenses increased to 11.4% for the nine months ended December 31, 1999, from 10.8% for the same period in 1998.
Interest expense decreased to $1,887,000 for the nine months ended December 31, 1999, from $2,086,000 for the same period in 1998. The decrease in interest expense is primarily due to the Company's lower borrowing needs for the nine months ended December 31, 1999 compared to the nine months ended December 31, 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.
Liquidity and Capital Resources
At December 31, 1999, the Company had available cash and cash equivalents of approximately $0.
The Company's financing needs depend primarily upon sales volume, asset turnover, and 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. During the second quarter of fiscal 2000, the Company paid an additional 0.5% of interest on each of the senior notes. Monthly payments of varying amounts are due on the Senior Notes through December 2003.
At December 31, 1999, the Company also had a $35.0 million revolving credit facility from a commercial lender. Borrowings under this facility's line of credit totaled $28.9 million at December 31, 1999. The Company has the capacity as of December 31, 1999 to borrow an additional$5.0 million of short-term debt, if otherwise available, without violating the terms of the Senior Notes. The Company believes those 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.
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 Issues
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 have been completed.
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.
Part II—Other Information
Items 1 through 5. Not applicable.
Item 6. Exhibits and Reports on Form 8-K.
The registrant filed no reports on Form 8-K during the three months ended December 31, 1999.
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 4, 2000 |
|
By: |
/s/ DAVID H. ROTTER David H. Rotter President and Chief Executive Officer |
| Date: February 4, 2000 |
|
By: |
/s/ LAWRENCE B. SHAPIRO Lawrence B. Shapiro Vice President of Finance Chief Financial Officer (Principal Financial and Accounting Officer) |
THE ROTTLUND COMPANY, INC. AND SUBSIDIARIES INDEX
THE ROTTLUND COMPANY, INC. AND SUBSIDIARIES Consolidated Balance Sheets—Unaudited As of
THE ROTTLUND COMPANY, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS—UNAUDITED
THE ROTTLUND COMPANY, INC. AND SUBSIDIARIES Consolidated Statements of Cash Flows—Unaudited
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|
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