**FORM 10-Q**

 

**SECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C.  20549**

 

 

**(MarkOne)**

**ý****                                ****QUARTERLY REPORTPURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**

**For the Quarterly Period Ended December 31, 2001**

** **

**                                                                                               ****       OR**

** **

**o****                                ****TRANSITION REPORT PURSUANTTO SECTION 13 OF 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**

**For the Transition Period From __________ To __________**

** **

** **

**Commission file number  0-20614**

** **

**THEROTTLUND COMPANY, INC.**

(Exact name of registrants as specifiedin 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’stelephone number, including area code)

 

 

**Not Applicable**

(Former name, former address and formerfiscal year, if changed since last report)

 

Indicate by check mark whether theregistrant (1) has filed all reports required to be filed by Section 13 or15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (orfor 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  ý   No o  

 

 

The number of shares outstanding of theRegistrant’s common stock, par value $.10 per share, at January 14, 2002, was5,852,572 shares.

 

 

 

 

**THE ROTTLUND COMPANY, INC. ANDSUBSIDIARIES**

 

**INDEX**

 

 
| PART I.    | FINANCIAL INFORMATION                                                                            |
|------------|--------------------------------------------------------------------------------------------------|
|       |                                                                                             |
| Item 1.    | Financial Statements                                                                             |
|       |                                                                                             |
|       | Consolidated balance  sheets – December 31, 2001 and March 31, 2001                         |
|       |                                                                                             |
|       | Consolidated  statements of operations - Three and nine months ended December 31, 2001 and  2000 |
|       |                                                                                             |
|       | Consolidated  statements of cash flows - Nine months ended December 31, 2001 and 2000            |
|       |                                                                                             |
|       | Notes  to consolidated financial statements                                                      |
|       |                                                                                             |
| Item 2.    | Management's  Discussion and Analysis of Financial Condition and Results of Operations           |
|       |                                                                                             |
|       |                                                                                             |
| PART II.   | OTHER INFORMATION                                                                                |
|       |                                                                                             |
|       |                                                                                             |
| SIGNATURES |                                                                                             |

 

 

 

Part I.  FinancialInformation

Item 1.  Financial Statements

 

 

**THE ROTTLUNDCOMPANY, INC. AND SUBSIDIARIES**

Consolidated Balance Sheets 

As of

(In thousands, except per share data)

 
|                                                                                                                      |   | **(Unaudited)**       |    |               |   |
|---------------------------------------------------------------------------------------------------------------------------|--------|-----------------------|---------|--------------------|--------|
|                                                                                                                      |   | **December 31, 2001** |    | **March 31, 2001** |   |
|                                                                                                                      |   |                  |    |               |   |
| **ASSETS**                                                                                                                |   |                  |    |               |   |
|                                                                                                                      |   |                  |    |               |   |
| Cash and cash equivalents                                                                                                 |   | $                     | 1,465   |               | $      | 7,079 |   |
| Escrow and other receivables                                                                                              |   | 1,547                 |    | 2,444              |   |
| Notes receivable                                                                                                          |   | 6,743                 |    | -                  |   |
| Land, development costs and  finished lots                                                                                |   | 57,493                |    | 55,254             |   |
| Residential housing completed and  under construction                                                                     |   | 34,380                |    | 29,421             |   |
| Property and equipment, net                                                                                               |   | 632                   |    | 634                |   |
| Deferred income taxes                                                                                                     |   | 3,499                 |    | 3,499              |   |
| Land deposits and other assets                                                                                            |   | 9,894                 |    | 5,416              |   |
|                                                                                                                      |   | $                     | 115,653 |               | $      | 103,747 |   |
|                                                                                                                      |   |                  |    |               |   |
|                                                                                                                      |   |                  |    |               |   |
| **LIABILITIES AND SHAREHOLDERS' EQUITY**                                                                                  |   |                  |    |               |   |
|                                                                                                                      |   |                  |    |               |   |
| Liabilities:                                                                                                              |   |                  |    |               |   |
| Revolving credit facility                                                                                                 |   | $                     | 33,900  |               | $      | 29,950 |   |
| Mortgage notes payable                                                                                                    |   | 3,413                 |    | -                  |   |
| Accounts payable                                                                                                          |   | 11,163                |    | 15,823             |   |
| Accrued expenses                                                                                                          |   | 13,979                |    | 9,535              |   |
| Income taxes payable                                                                                                      |   | 1,053                 |    | 3,493              |   |
| Total liabilities                                                                                                         |   | 63,508                |    | 58,801             |   |
|                                                                                                                      |   |                  |    |               |   |
| 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 5,852,572 and 5,851,572  respectively |   | 585                   |    | 585                |   |
| Paid-in capital                                                                                                           |   | 11,516                |    | 11,512             |   |
| Other comprehensive income (loss),  net of tax                                                                            |   | (353                  | )       | -                  |   |
| Retained earnings                                                                                                         |   | 40,397                |    | 32,848             |   |
| Total shareholders' equity                                                                                                |   | 52,145                |    | 44,946             |   |
|                                                                                                                      |   | $                     | 115,653 |               | $      | 103,747 |   |

 

 

See accompanying notes to consolidated financialstatements

 

**THE ROTTLUND COMPANY, INC. AND SUBSIDIARIES**

 Consolidated Statements of Operations – Unaudited

(In thousands, except per sharedata)

 

 

 
|                                                   |   | **For the Three  Months   Ended December 31,** |   | **For the Nine  Months   Ended December 31,** |   |
|--------------------------------------------------------|--------|------------------------------------------------|--------|-----------------------------------------------|--------|
|                                                   |   | **2001**                                       |   | **2000**                                      |   | **2001** |   | **2000** |   |
|                                                   |   |                                           |   |                                          |   |   |   |   |   |
| Net sales – home sales                            |   | $                                              | 60,224 |                                          | $      | 59,641 |   | $ | 173,584 |   | $ | 181,602 |   |
| Net sales – land/lot sales                        |   | -                                              |   | 4,658                                         |   | 13,365 |   | 8,068 |   |
|                                                   |   | 60,224                                         |   | 64,299                                        |   | 186,949 |   | 189,670 |   |
|                                                   |   |                                           |   |                                          |   |   |   |   |   |
| Cost of sales – home sales                        |   | 49,196                                         |   | 48,559                                        |   | 141,491 |   | 150,502 |   |
| Cost of sales – land/lot sales                    |   | -                                              |   | 4,658                                         |   | 13,524 |   | 7,901 |   |
|                                                   |   | 49,196                                         |   | 53,217                                        |   | 155,015 |   | 158,403 |   |
|                                                   |   |                                           |   |                                          |   |   |   |   |   |
| Gross profit – home sales                         |   | 11,028                                         |   | 11,082                                        |   | 32,093 |   | 31,100 |   |
| Gross profit (loss) – land/lot  sales             |   | -                                              |   | -                                             |   | (159 | ) | 167 |   |
|                                                   |   | 11,028                                         |   | 11,082                                        |   | 31,934 |   | 31,267 |   |
|                                                   |   |                                           |   |                                          |   |   |   |   |   |
| Selling, general and administrative  expense           |   | 6,522                                          |   | 7,400                                         |   | 20,128 |   | 20,444 |   |
| Operating income                                       |   | 4,506                                          |   | 3,682                                         |   | 11,806 |   | 10,823 |   |
|                                                   |   |                                           |   |                                          |   |   |   |   |   |
| Other (income) expense:                                |   |                                           |   |                                          |   |   |   |   |   |
| Interest expense                                       |   | -                                              |   | 155                                           |   | 2 |   | 1,046 |   |
| Other income                                           |   | (354                                           | )      | (89                                           | )      | (777 | ) | (343 | ) |
|                                                   |   |                                           |   |                                          |   |   |   |   |   |
| Income before income taxes &  extraordinary charge |   | 4,860                                          |   | 3,616                                         |   | 12,581 |   | 10,120 |   |
|                                                   |   |                                           |   |                                          |   |   |   |   |   |
| Provision for income taxes                             |   | 1,944                                          |   | 1,447                                         |   | 5,032 |   | 4,049 |   |
| Net income before extraordinary  charge                |   | 2,916                                          |   | 2,169                                         |   | 7,549 |   | 6,071 |   |
| Extraordinary charge, net of tax                       |   | -                                              |   | -                                             |   | - |   | 612 |   |
|                                                   |   |                                           |   |                                          |   |   |   |   |   |
| Net income                                             |   | $                                              | 2,916  |                                          | $      | 2,169 |   | $ | 7,549 |   | $ | 5,459 |   |
|                                                   |   |                                           |   |                                          |   |   |   |   |   |
| Basic earnings per share:                              |   |                                           |   |                                          |   |   |   |   |   |
| Net income per share before  extraordinary charge      |   | $                                              | 0.50   |                                          | $      | 0.37 |   | $ | 1.29 |   | $ | .1.04 |   |
| Extraordinary charge                                   |   | -                                              |   | -                                             |   | - |   | (.11 | ) |
| Net income per share                                   |   | $                                              | 0.50   |                                          | $      | 0.37 |   | $ | 1.29 |   | $ | 0.93 |   |
|                                                   |   |                                           |   |                                          |   |   |   |   |   |
| Weighted average shares  outstanding                   |   | 5,853                                          |   | 5,852                                         |   | 5,853 |   | 5,852 |   |
|                                                   |   |                                           |   |                                          |   |   |   |   |   |
| Diluted earnings per share:                            |   |                                           |   |                                          |   |   |   |   |   |
| Net income per share before  Extraordinary charge      |   | $                                              | 0.49   |                                          | $      | 0.37 |   | $ | 1.28 |   | $ | .1.04 |   |
| Extraordinary charge                                   |   | -                                              |   | -                                             |   | - |   | (.11 | ) |
| Net income per share                                   |   | $                                              | 0.49   |                                          | $      | 0.37 |   | $ | 1.28 |   | $ | 0.93 |   |
|                                                   |   |                                           |   |                                          |   |   |   |   |   |
| Weighted average shares  outstanding                   |   | 5,903                                          |   | 5,852                                         |   | 5,888 |   | 5,852 |   |

 

 

See accompanying notes toconsolidated financial statements

 

 

**THE ROTTLUNDCOMPANY, INC. AND SUBSIDIARIES**

**ConsolidatedStatements of Cash Flows – Unaudited**

**(Inthousands)**

** **

 
|                                                                                          |   | **For the Nine  Months Ended December 31,** |   |
|-----------------------------------------------------------------------------------------------|--------|---------------------------------------------|--------|
|                                                                                          |   | **2001**                                    |   | **2000** |   |
|                                                                                          |   |                                        |   |   |   |
| OPERATING ACTIVITIES:                                                                         |   |                                        |   |   |   |
|                                                                                          |   |                                        |   |   |   |
| Net income                                                                                    |   | $                                           | 7,549  |   | $ | 5,459 |   |
| Adjustments to reconcile net  income tonet cash  provided by (used for) operating activities: |   |                                        |   |   |   |
| Depreciation & amortization                                                               |   | 257                                         |   | 309 |   |
| Changes in operating items:                                                                   |   |                                        |   |   |   |
| Escrow and other receivables                                                                  |   | 897                                         |   | 758 |   |
| Land, development costs and  finished lots                                                    |   | 1,333                                       |   | (1,057 | ) |
| Residential housing completed and  under construction                                         |   | (4,960                                      | )      | 120 |   |
| Other assets                                                                                  |   | (4,478                                      | )      | (449 | ) |
| Accounts payable                                                                              |   | (5,013                                      | )      | (1,155 | ) |
| Accrued expenses                                                                              |   | 871                                         |   | 2,032 |   |
| Income taxes payable                                                                          |   | (2,439                                      | )      | 496 |   |
| Net cash provided by (used for)  operating activities                                         |   | (5,983                                      | )      | 6,513 |   |
|                                                                                          |   |                                        |   |   |   |
| INVESTING ACTIVITIES:                                                                         |   |                                        |   |   |   |
| Increase in notes receivable                                                                  |   | (6,743                                      | )      | - |   |
| Purchase of property and  equipment, net                                                      |   | (255                                        | )      | (193 | ) |
| Net cash provided by (used for)  investing activities                                         |   | (6,998                                      | )      | (193 | ) |
|                                                                                          |   |                                        |   |   |   |
| FINANCING ACTIVITIES:                                                                         |   |                                        |   |   |   |
| Proceeds from (repayments of)  notes payable, net                                             |   | 3,413                                       |   | (1,094 | ) |
| Proceeds from revolving credit  facility, net                                                 |   | 3,950                                       |   | 9,090 |   |
| Proceeds from stock options  exercised                                                        |   | 4                                           |   | - |   |
| Repayment of senior notes payable                                                             |   | -                                           |   | (21,845 | ) |
| Net cash provided by (used for)  financing activities                                         |   | 7,367                                       |   | (13,849 | ) |
|                                                                                          |   |                                        |   |   |   |
| NET DECREASE IN CASH AND CASH  EQUIVALENTS                                                    |   | (5,614                                      | )      | (7,529 | ) |
|                                                                                          |   |                                        |   |   |   |
| CASH AND CASH EQUIVALENTS:                                                                    |   |                                        |   |   |   |
| Beginning of period                                                                           |   | 7,079                                       |   | 8,087 |   |
|                                                                                          |   |                                        |   |   |   |
| End of period                                                                                 |   | $                                           | 1,465  |   | $ | 558 |   |
|                                                                                          |   |                                        |   |   |   |
| SUPPLEMENTAL DISCLOSURES OF CASH  FLOWS INFORMATION:                                          |   |                                        |   |   |   |
| Cash paid for interest, net of  $2,165 and $1,941 capitalized, respectively                   |   | $                                           | 2      |   | $ | 1,046 |   |
| Cash paid for income taxes                                                                    |   | $                                           | 7,471  |   | $ | 3,144 |   |
|                                                                                          |   |                                        |   |   |   |
| NON CASH TRANSACTION                                                                          |   |                                        |   |   |   |
| Increase in land and financing  liability                                                     |   | $                                           | 3,572  |   | - |   |

 

 

See accompanying notes to consolidated financialstatements

**THE ROTTLUND COMPANY, INC. AND SUBSIDIARIES**

 

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)**

 

Note 1.                    General

 

The financial statements included hereinhave been prepared by the Company without audit, in accordance with generallyaccepted accounting principles, and pursuant to the rules and regulations ofthe Securities and Exchange Commission. These interim financial statements should be read in conjunction withthe consolidated financial statements and notes in the Company's annual reporton Form 10-K for the year ended March 31, 2001 as filed with the Securities andExchange Commission.  In the opinion ofmanagement of the Company, these financial statements contain all adjustmentsof a normal recurring nature necessary to present fairly the financialposition, results of operations and cash flows of the Company for the interimperiods presented.

 

The Company has experienced, and expectsto continue to experience, significant variability in quarterly net sales andnet income.  Operating results for thethree and nine months ending December 31, 2001 are not necessarily indicativeof the results that may be expected for the year ending March 31, 2002.

 

Note 2.       RevolvingCredit Facility to Bank

 

TheCompany has an unsecured revolving credit agreement, which expires December 31,2003 and  provides borrowings of up to$60 million, of which $8 million may be used for letters of credit.  Borrowings under this agreement are subjectto a borrowing base calculation based on a defined percentage of land,development costs, finished lots and the working capital of the Company.  As of December 31, 2001, borrowings underthis facility’s line of credit totaled $33.9 million, and $­19.9 million wasavailable for borrowing under the calculation described above. On October 4,2001, the Company entered into a new interest rate swap which superceded theJuly  2000 interest rate swap.  The new swap is for $15 million and expireson December 31, 2003 and has a fixed interest rate of 8.34%.  The Company believes the amounts availableunder its existing borrowing arrangements and amounts generated from operationswill provide funds adequate for its home building activities and debt servicefor the foreseeable future.

 

Therevolving credit facility contains various restrictive covenants including,among others, certain financial covenants relating to minimum consolidatedtangible net worth and earnings levels, as well as funding, borrowing baserequirements, payment of dividends and maximum land and constructionlimitations.  The Company was in compliancewith all financial covenants as of December 31, 2001.

 

 

Note 3. Derivatives

 

TheCompany adopted SFAS No. 133, “Accounting for Derivative Instruments andHedging Activities,” as of April 1, 2001. SFAS No. 133 establishes accounting and reporting standards requiringthat every derivative instrument be recorded in the balance sheet as either anasset or liability measured at its fair value. SFAS No. 133 requires that changes in the derivative’s fair value berecognized currently in earnings unless specific hedge criteria are met andrequires that a company must formally document, designate and assess theeffectiveness of transactions that receive hedge accounting.

TheCompany’s revolving credit agreement has variable rate borrowings based on theprime rate. To minimize the Company’s exposure to the risk of changes in itsinterest payments attributable to changes in interest rates, the Companyentered into an interest rate swap. The Company has designated this interestrate swap as a hedge.

Asa result of the adoption of SFAS No. 133, the Company recorded in the firstnine months of fiscal 2002, the cumulative effect of a change in accountingprinciple to other comprehensive loss of $590,000, net of $237,000 tax benefit,which will be reclassified to expense through the expiration of the interestrate swap on December 31, 2003.

Note4.  Sale of Subsidiary Assets

OnAugust 24, 2001, the Company sold substantially all of the assets of itssubsidiary, Rottlund Homes of New Jersey, Inc. The purchase price approximated $14.7 million, of which $8.4 million wascash and $6.3 million was in notes, due within one year.  In connection with the sale and relatedclosure expenses, the Company recorded an after tax loss of approximately$420,000 ($0.07 per share) in the nine months ending December 31, 2001.

 

 

Item2.

**MANAGEMENT'S DISCUSSION ANDANALYSIS OF**

**FINANCIAL CONDITION AND RESULTSOF OPERATIONS**

**General**

Thefollowing table sets forth certain information regarding the Company'soperations for the periods indicated.

 
|                                                        |   |                                           |   | **Percentage of Net Sales**                   |   |     |   |
|-------------------------------------------------------------|--------|------------------------------------------------|--------|-----------------------------------------------|--------|----------|--------|
|                                                        |   |                                           |   |                                          |   |     |   |   |   |
|                                                        |   | **For the Three  Months   Ended December 31,** |   | **For the Nine  Months   Ended December 31,** |   |
|                                                        |   | **2001**                                       |   | **2000**                                      |   | **2001** |   | **2000** |   |
|                                                        |   |                                           |   |                                          |   |     |   |   |   |
| Net sales – home sales                                 |   | 100.0                                          | %      | 92.7                                          | %      | 92.9     | %      | 95.7 | % |
| Net sales – land/lot sales                             |   | -                                              |   | 7.3                                           |   | 7.1      |   | 4.3 |   |
|                                                        |   | 100.0                                          |   | 100.0                                         |   | 100.0    |   | 100.0 |   |
|                                                        |   |                                           |   |                                          |   |     |   |   |   |
| Cost of sales – home sales                             |   | 81.7                                           |   | 75.5                                          |   | 75.7     |   | 79.3 |   |
| Cost of sales – land/lot sales                         |   | -                                              |   | 7.3                                           |   | 7.2      |   | 4.2 |   |
|                                                        |   | 81.7                                           |   | 82.8                                          |   | 82.9     |   | 83.5 |   |
|                                                        |   |                                           |   |                                          |   |     |   |   |   |
| Gross profit – home sales                              |   | 18.3                                           |   | 17.2                                          |   | 17.2     |   | 16.4 |   |
| Gross profit (loss) – land/lot  sales                  |   | -                                              |   | -                                             |   | (0.1     | )      | 0.1 |   |
|                                                        |   | 18.3                                           |   | 17.2                                          |   | 17.1     |   | 16.5 |   |
|                                                        |   |                                           |   |                                          |   |     |   |   |   |
| Selling, general and  administrative expense                |   | 10.8                                           |   | 11.5                                          |   | 10.8     |   | 10.8 |   |
| Operating income                                            |   | 7.5                                            |   | 5.7                                           |   | 6.3      |   | 5.7 |   |
|                                                        |   |                                           |   |                                          |   |     |   |   |   |
| Other (income) expense:                                     |   |                                           |   |                                          |   |     |   |   |   |
| Interest                                                    |   | -                                              |   | .2                                            |   | -        |   | 0.6 |   |
| Other                                                       |   | (.5                                            | )      | (.1                                           | )      | (.4      | )      | (.2 | ) |
|                                                        |   |                                           |   |                                          |   |     |   |   |   |
| Income before income taxes  & extraordinary charge |   | 8.0                                            |   | 5.6                                           |   | 6.7      |   | 5.3 |   |
|                                                        |   |                                           |   |                                          |   |     |   |   |   |
| Provision for income taxes                                  |   | 3.2                                            |   | 2.2                                           |   | 2.7      |   | 2.1 |   |
| Net income before extraordinary  charge                     |   | 4.8                                            |   | 3.4                                           |   | 4.0      |   | 3.2 |   |
| Extraordinary charge, net of tax                            |   | -                                              |   | -                                             |   | -        |   | .3 |   |
|                                                        |   |                                           |   |                                          |   |     |   |   |   |
| Net income                                                  |   | 4.8                                            | %      | 3.4                                           | %      | 4.0      | %      | 2.9 | % |
|                                                        |   |                                           |   |                                          |   |     |   |   |   |
| Number of homes closed                                      |   | 306                                            |   | 312                                           |   | 829      |   | 1001 |   |

 

**Backlog**

Thefollowing table sets forth the Company's backlog as of the dates indicated:

 
|             |   | **Number of** |   |            |   |
|------------------|--------|---------------|--------|-----------------|--------|
| **December 31,** |   | **Homes**     |   | **Sales Value** |   |
|             |   |          |   |            |   |
| 2001             |   | 620           |   | $116  million   |   |
| 2000             |   | 534           |   | $116  million   |   |

 

Asa cautionary note to investors, certain matters discussed in this management’sdiscussion and analysis are forward looking statements within the meaning ofthe Private Securities Litigation Act of 1995. Such matters involve risks and uncertainties, including changes ineconomic conditions and interest rates, increases in raw material and labor costs,weather conditions, and general competitive factors that may cause actualresults to differ materially.

 

 

 

**ThreeMonths Ended December 31, 2001 Compared to Three Months Ended**

**December31, 2000**

 

Netsales were $60.2 million for the three months ended December 31, 2001 ascompared to $64.3 million for the comparable period of 2000, a decrease of $4.1million or 6.3%.  Sales of homes were$60.2 million compared to $59.6 million in the previous year, an increase of$0.6 million. During the past twelve months the Company has sold its operationsin Indianapolis and New Jersey.  Homesales comparisons for the Company’s continuing markets were $60.0 million in2001 versus $54.5 million in 2000, an increase of $5.5 million or 10.1% .  The Company occasionally has an opportunityto sell land it owns prior to building homes. The current quarter included no revenue from land sales versus $4.7million in the prior year ended.  Thenumber of homes closed by the Company decreased by 1.9% to 306 homes for thethree months ended December 31, 2001, from 312 homes during the same period in2000.  The number of homes closed bycontinuing operations of the Company increased by 8.2% to 305 homes for the three months ended December 31,2001, from 282 for the same period in 2000. The average selling price of homes closed increased 2.9% to $196,800,during the three months ended December 31, 2001 from $191,200 for thecomparable period in 2000.  Thisincrease was due to an overall increase in prices of homes closed in the currentquarter and the mix of styles of homes compared to last year.

 

Grossprofit was $11.0 million for the three months ended December 31, 2001, comparedto $11.1 million for the comparable period of 2000, a decrease of 0.9%.  Gross profit as a percentage of net salesincreased to 18.3% from 17.2% primarily as a result of no land sales in thecurrent quarter in 2001 versus land sales of $4.7 million, which resulted in nogross profit on land sales for the comparable period in 2000.  The land sales relate to land sold inIndiana and New Jersey in the quarter ended December 31, 2000.  Gross profit on home sales was $11.0 million(18.3%) in 2001 compared to $11.1 million (18.6%) in 2000.

 

Selling,general and administrative expenses decreased by 12.2% to $6.5 million in thethree months ended December 31, 2001, from $7.4 million for the comparableperiod of 2000.  This decrease wasprimarily due to exiting the New Jersey market which accounted for $0.7 millionin selling, general and administrative expenses for the three months endedDecember 31, 2000.  As a percentage ofnet sales, selling, general and administrative expense decreased to 10.8% forthe three month period ended December 31, 2001, from 11.5% for the same periodin 2000.

 

Interestexpense before capitalization, decreased to $630,100 for the three months endedDecember 31, 2001, from $867,500 for the comparable period in 2000.  The decrease in interest expense isprimarily due to a lower interest rate, compared to the three months endedDecember 31, 2000.  The Companycapitalizes certain interest costs for land development and includes suchcapitalized interest in the cost of home sales when the related homes aredelivered to purchasers and in land development costs and finished lots priorto delivery of the home.  Interestexpense, net of interest capitalization, was $0 in the quarter ended December31, 2001, as compared to $155,000 in the same period in 2000.

 

TheCompany’s effective tax rate for both periods was approximately 40%, whichreflects the federal statutory rate plus state taxes, net federal income taxbenefit.

 

Asa result of the above, net income was $2,916,000 ($0.50 per share basic and$0.49 diluted) in fiscal 2001, compared to $2,169,000 ($.37 per share basic anddiluted) in fiscal 2000.

 

 

**NineMonths Ended December 31, 2001 Compared to Nine Months Ended**

**December31, 2000**

 

 

Netsales were $186.9 million for the nine months ended December, 2001 as comparedto $189.7 million for the comparable period of 2000, a decrease of $2.8 millionor 1.5%.  Sales of homes were $173.6million compared to $181.6 million in the previous year, a decrease of $8.0million.  The prior year included a $6.4million sale and leaseback of model homes. During the past twelve months the Company sold operations in Indianapolisand New Jersey.  Home sale comparisonsfor the Company’s continuing markets were $167.6 million in 2001 versus $155.4million in 2000, an increase of $12.2 million or 7.9%.  The Company occassionally has an opportunityto sell land it owns prior to building homes. Included in the current nine months ended December 31 was revenue fromland sales of $13.4 million versus $8.1 million in the prior year ended. Duringthe current nine months ended December 31 the Company sold substantially all ofthe assets of Rottlund Homes of New Jersey, Inc. for $14.7 million, of whichapproximately $8.4 million was in cash and $6.3 million was in notesreceivable.  Included in the land salesin the nine months ended December 31 are $12.6 million related to the land soldin New Jersey.  The number of homesclosed by the Company decreased by 17.2% to 829 homes for the nine months endedDecember 31, 2001, from 1001 homes during the same period in 2000.  The number of homes closed by continuingoperations of the Company decreased by 6.7% to 795 homes for the nine monthsended December 31, 2001, from 852 for the same period in 2000.  The average selling price of a homeincreased 15.4% to $209,400, during the nine months ended December 31, 2001from $181,400 for the comparable period in 2000.  This increase was due to an overall increase in prices of homesclosed in the period and the mix of styles of homes compared to last year.

 

Grossprofit was $31.9 million for the nine months ended December 31, 2001, comparedto $31.3 million for the comparable period of 2000, an increase of 1.9%.  Gross profit as a percentage of net salesincreased to 17.1% from 16.4% primarily due to higher average selling pricesand decreased direct costs as a percentage of sales.  Included in the current period was a gross profit loss on landsales of $159,000 in 2001 versus a gross profit on land sales of $167,000 in2000.  The loss relates to the land soldin New Jersey.  Gross profit on homesales was $32.1 million (18.5%) in 2001 compared to $31.1 million (17.1%) in2000.  The increase was the result ofhigher selling prices and improvement in direct construction costs on homesclosing in the current period compared to last year.

 

Selling,general and administrative expenses decreased by 1.5% to $20.1 million in thenine months ended December 31, 2001, from $20.4 million for the comparableperiod of 2000.  This decrease wasprimarily due to exiting the New Jersey market which accounted for $1.8 millionin selling, general and administrative expenses for the nine months endedDecember 31, 2000.  As a percentage ofnet sales, selling, general and administrative expense remained the same at10.8% for the nine month period ended December 31, 2001, compared to the sameperiod in 2000.

 

Inconnection with the sale and related closure expenses of Rottlund Homes of NewJersey, Inc., the Company recorded an after tax loss of approximately $420,000($.07) per share in the period ending December 31, 2001.

 

Interestexpense before capitalization, decreased to $2,167,000 for the nine monthsended December 31, 2001, from $2,988,000 for the comparable period in2000.  The decrease in interest expenseis primarily due to a lower interest rate, compared to the nine months endedDecember 31, 2000.  The Company capitalizescertain interest costs for land development and includes such capitalizedinterest in cost of home sales when the related homes are delivered topurchasers and in land development costs and finished lots on the balance sheetprior to delivery of the home.  Interestexpense, net of interest capitalization, was $2,000 in the period endedDecember 31, 2001, as compared to $1,046,000 in the same period in 2000.

 

TheCompany’s effective tax rate for both periods was approximately 40%, whichreflects the federal statutory rate plus state taxes, net federal income taxbenefit.

 

Asa result of the above, net income was $7,549,000 ($1.29 per share basic and$1.28 diluted) in fiscal 2001 from $5,459,000 ($.93 per share basic anddiluted) in fiscal 2000.

 

 

**Liquidityand Capital Resources**

 

Fundingfor the Company’s operations has been principally provided by cash flows fromoperations, sale and leaseback of model homes, seller financing of land andbank borrowings.  In addition theCompany has utilized and will continue to utilize land options as a method ofcontrolling and subsequently acquiring land. The Company’s financing needs depend primarily upon sales volume, assetturnover, land acquisition and inventory balances.

 

AtDecember 31, 2001, the Company had available cash and cash equivalents ofapproximately $1.5 million compared to $7.1 million at March 31, 2001.

 

Forthe nine months ended December 31, 2001, $6.0 million in cash was used byoperations.  Financing activitiesincluded a $4.0 million increase in the amounts borrowed under the revolvingline of credit and $3.4 million in mortgages assumed related to landpurchases.  Investing activitiesincluded an increase of $6.7 million related to notes receivable from the saleof the the assets in New Jersey and a land sale of a parcel in Minnesota.

 

TheCompany has an unsecured revolving credit agreement, which expires December 31,2003 and  provides borrowings of up to$60 million, of which $8 million may be used for letters of credit.  Borrowings under this agreement are subjectto a borrowing base calculation based on a defined percentage of land,development costs, finished lots and the working capital of the Company.  As of December 31, 2001, borrowings underthis facility’s line of credit totaled $33.9 million, and $­19.9 million wasavailable for borrowing under the calculation described above. On October 4,2001, the Company entered into a new interest rate swap which superceded theJuly  2000 interest rate swap.  The new swap is for $15 million and expireson December 31, 2003 and has a fixed interest rate of 8.34%.  The Company believes the amounts availableunder its existing borrowing arrangements and amounts generated from operationswill provide funds adequate for its home building activities and debt servicefor the foreseeable future.

 

Therevolving credit facility contains various restrictive covenants including,among others, certain financial covenants relating to minimum consolidatedtangible net worth and earnings levels, as well as funding, borrowing baserequirements, payment of dividends and maximum land and constructionlimitations.  The Company was incompliance with all financial covenants as of December 31, 2001.

 

TheCompany’s land purchase agreements are typically subject to numerous conditionsincluding, but not limited to, the Company’s ability to obtain necessary zoningand other governmental approvals for the proposed developments.  The Company believes it has been successfulin obtaining local governmental approvals through proactive interaction withneighborhood and citizen groups.  TheCompany maintains a policy of holding neighborhood meetings to gain support forits development activities.  During theinitial municipal approval process, the Company confirms the availability of utilities,conducts environmental reviews, arranges acquisition development and financing,and completes its marketing construction feasibility studies.  As a result, the Company is generally ableto begin marketing immediately after closing the land purchase.  This results in reduced carrying costs andincreased liquidity for future development opportunities.

 

Tominimize the business risk associated with developing land and to maximize theuse of the Company’s available capital, the Company has been able to acquire asubstantial amount of its developments and lots by means of optioncontracts.  Option contracts generallyrequire the payment of cash deposit or issuance of a letter of credit for theright to acquire lots during a specified period of time at a certainprice.  The Company’s option contractshave expiration periods ranging from 30 to 60 months.  On December 31, 2001 the Company has options to purchase 2,736lots aggregating $71.9 million.

 

TheCompany has generally been able to secure financing for its land acquisitions,model homes, development and construction activities, and management believessuch arrangements will continue to be available on terms satisfactory to theCompany.  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**

 

TheCompany, as well as the homebuilding industry in general, may be adverselyaffected during periods of high inflation, primarily because of higher land,material and labor costs.  Whilemortgage rates are currently favorable for buyers, higher mortgage interestrates may significantly affect the affordability of permanent mortgagefinancing to prospective purchasers. The Company attempts to pass through to its customers any increase inits costs through increased selling prices, and to date, inflation has not hada material adverse effect on the Company's results of operations.  However, there is no assurance thatinflation will not have a material adverse impact on the Company's futureresults of operations.

 

**Part II - Other Information**

 

 

Items1 through 5. Not applicable.

 

Item6.  Exhibits and Reports on Form 8-K.

 

                                                                                    (a)                  Exhibits.  Not applicable.

 

                                                                                    (b)                 Reports onForm 8-K.

 

Therewere no reports on form 8-K filed during the quarter ending December 31,2001.

 

**SIGNATURES**

 

 

 

Pursuantto the requirements of the Securities Exchange Act of 1934, the registrant hasduly caused this report to be signed on its behalf by the undersigned thereuntoduly authorized.

 

 

 
|   |             | THE ROTTLUND COMPANY,  INC.    |
|--------|------------------|--------------------------------|
|   |             |                           |
|   |             |                           |
|   |             |                           |
| Date:  | January 17, 2002 | By:                       | /s/ David H. Rotter |
|   |             |  **David H. Rotter**      |
|   |             |  President and            |
|   |             |  Chief Executive Officer  |
|   |             |                           |
|   |             |                           |
|   |             |                           |
| Date:  | January 17, 2002 | By:                       | /s/ Steven A. Kahn |
|   |             |  **S****teven A.  Kahn**  |
|   |             |  Chief Financial Officer  |
|   |             |  (Principal Financial and |
|   |             |  Accounting Officer)      |