** **

**FORM 10-Q**

 

**SECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C.  20549**

 

 

**(MarkOne)**

**ý        QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THESECURITIES EXCHANGE ACT OF 1934**

** **

**For theQuarterly Period Ended September 30, 2001**

** **

**OR**

** **

**o        TRANSITION REPORT PURSUANT TO SECTION 13 OF 15(d) OF THESECURITIES EXCHANGE ACT OF 1934**

** **

### **For the TransitionPeriod From __________ To __________**

** **

** **

**Commissionfile number  0-20614**

** **

**THE ROTTLUND 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’s telephone number, includingarea 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.

 

Yesý   No o

 

 

The number of shares outstanding of theRegistrant’s common stock, par value $.10 per share, at November 2, 2001, was5,852,572 shares.

 

 

 

 

**THE ROTTLUND COMPANY, INC. ANDSUBSIDIARIES**

 

**INDEX**

 
|       |                                                                                                  |   |
|------------|-------------------------------------------------------------------------------------------------------|--------|
|       |                                                                                                  |   |
| PART I.    | FINANCIAL INFORMATION                                                                                 |   |
|       |                                                                                                  |   |
| Item 1.    | Financial Statements                                                                                  |   |
|       |                                                                                                  |   |
|       | Consolidated balance sheets  - September 30, 2001 and March 31, 2001                                  |   |
|       |                                                                                                  |   |
|       | Consolidated  statements of operations – Three and six months ended September 30, 2001 and  2000 |   |
|       |                                                                                                  |   |
|       | Consolidated  statements of cash flows – Six months ended September 30, 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

 

 

###### **THEROTTLUND COMPANY, INC. AND SUBSIDIARIES**

Consolidated Balance Sheets

As of

(In thousands, except per sharedata)

 

 
|                                                                                                                      |   | **(Unaudited)**        |    |               |   |
|---------------------------------------------------------------------------------------------------------------------------|--------|------------------------|---------|--------------------|--------|
|                                                                                                                      |   | **September 30, 2001** |    | **March 31, 2001** |   |
|                                                                                                                      |   |                   |    |               |   |
|                                                                                                                      |   |                   |    |               |   |
|                                                                                                                      |   |                   |    |               |   |
| **ASSETS**                                                                                                                |   |                   |    |               |   |
|                                                                                                                      |   |                   |    |               |   |
| Cash and cash equivalents                                                                                                 |   | $                      | 2,528   |               | $      | 7,079 |   |
| Escrow and other receivables                                                                                              |   | 2,255                  |    | 2,444              |   |
| Notes receivable                                                                                                          |   | 6,352                  |    | -                  |   |
| Land, development costs and  finished lots                                                                                |   | 62,768                 |    | 55,254             |   |
| Residential housing completed and  under construction                                                                     |   | 35,540                 |    | 29,421             |   |
| Property and equipment, net                                                                                               |   | 628                    |    | 634                |   |
| Deferred income taxes                                                                                                     |   | 3,499                  |    | 3,499              |   |
| Land deposits and other assets                                                                                            |   | 5,376                  |    | 5,416              |   |
|                                                                                                                      |   | $                      | 118,946 |               | $      | 103,747 |   |
|                                                                                                                      |   |                   |    |               |   |
|                                                                                                                      |   |                   |    |               |   |
| **LIABILITIES AND SHAREHOLDERS' EQUITY**                                                                                  |   |                   |    |               |   |
|                                                                                                                      |   |                   |    |               |   |
| Liabilities:                                                                                                              |   |                   |    |               |   |
| Revolving credit facility                                                                                                 |   | $                      | 41,425  |               | $      | 29,950 |   |
| Mortgage notes payable                                                                                                    |   | 4,395                  |    | -                  |   |
| Accounts payable                                                                                                          |   | 13,704                 |    | 15,823             |   |
| Accrued expenses                                                                                                          |   | 8,642                  |    | 9,535              |   |
| Income taxes payable                                                                                                      |   | 1,510                  |    | 3,493              |   |
| Total liabilities                                                                                                         |   | 69,676                 |    | 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)                                                                                         |   | (312                   | )       | -                  |   |
| Retained earnings                                                                                                         |   | 37,481                 |    | 32,848             |   |
| Total shareholders' equity                                                                                                |   | 49,270                 |    | 44,946             |   |
|                                                                                                                      |   | $                      | 118,946 |               | $      | 103,747 |   |

 

See accompanying notes toconsolidated financial statements

 

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

 ConsolidatedStatements of Operations – Unaudited

(In thousands, except per sharedata)

 
|                                                   |   | **For the Three Months  Ended September 30,** |           | **For the Six Months  Ended September 30,** |           |
|--------------------------------------------------------|--------|-----------------------------------------------|----------------|---------------------------------------------|----------------|
|                                                   |   | **2001**                                      |           | **2000**                                    |           | **2001** |   | **2000** |   |
|                                                   |   |                                          |           |                                        |           |   |   |   |   |
| Net sales – home sales                            |   | $                                             | 64,921         |                                        | $              | 72,355 |   | $ | 113,360 |   | $ | 121,961 |   |
| Net sales – land/lot sales                        |   | 13,105                                        |           | 3,410                                       |           | 13,365 |   | 3,410 |   |
|                                                   |   | 78,026                                        |           | 75,765                                      |           | 126,725 |   | 125,371 |   |
|                                                   |   |                                          |           |                                        |           |   |   |   |   |
| Cost of sales – home sales                        |   | 52,340                                        |           | 59,850                                      |           | 92,295 |   | 101,943 |   |
| Cost of sales – land/lot sales                    |   | 13,274                                        |           | 3,244                                       |           | 13,524 |   | 3,244 |   |
|                                                   |   | 65,614                                        |           | 63,094                                      |           | 105,819 |   | 105,187 |   |
|                                                   |   |                                          |           |                                        |           |   |   |   |   |
| Gross profit – home sales                         |   | 12,581                                        |           | 12,505                                      |           | 21,065 |   | 20,018 |   |
| Gross profit (loss) – land/lot  sales             |   | (169                                          | )              | 166                                         |           | (159 | ) | 166 |   |
|                                                   |   | 12,412                                        |           | 12,671                                      |           | 20,906 |   | 20,184 |   |
|                                                   |   |                                          |           |                                        |           |   |   |   |   |
| Selling, general and  administrative expense           |   | 7,544                                         |           | 7,323                                       |           | 13,606 |   | 13,043 |   |
| Operating income                                       |   | 4,868                                         |           | 5,348                                       |           | 7,300 |   | 7,141 |   |
|                                                   |   |                                          |           |                                        |           |   |   |   |   |
| Other (income) expense:                                |   |                                          |           |                                        |           |   |   |   |   |
| Interest expense                                       |   | 1                                             |           | 385                                         |           | 2 |   | 891 |   |
| Other income                                           |   | (250                                          | )              | (99                                         | )              | (423 | ) | (255 | ) |
|                                                   |   |                                          |           |                                        |           |   |   |   |   |
| Income before income taxes &  extraordinary charge |   | 5,117                                         |           | 5,062                                       |           | 7,721 |   | 6,505 |   |
|                                                   |   |                                          |           |                                        |           |   |   |   |   |
| Provision for income taxes                             |   | 2,046                                         |           | 2,025                                       |           | 3,088 |   | 2,602 |   |
| Net income before extraordinary  charge                |   | 3,071                                         |           | 3,037                                       |           | 4,633 |   | 3,903 |   |
| Extraordinary charge, net of tax                       |   | -                                             |           | -                                           |           | - |   | 612 |   |
|                                                   |   |                                          |           |                                        |           |   |   |   |   |
| Net income                                             |   | $                                             | 3,071          |                                        | $              | 3,037 |   | $ | 4,633 |   | $ | 3,291 |   |
|                                                   |   |                                          |           |                                        |           |   |   |   |   |
| Basic and diluted earnings per  share:                 |   |                                          |      |                                        |      |   |      |   |      |
| Net income per share before  extraordinary charge      |   | $                                             | 0.52           |                                        | $              | 0.52 |   | $ | 0.79 |   | $ | .67 |   |
| Extraordinary charge                                   |   | -                                             |           | -                                           |           | - |   | (.11 | ) |
| Net income per share                                   |   | $                                             | 0.52           |                                        | $              | 0.52 |   | $ | 0.79 |   | $ | 0.56 |   |
|                                                   |   |                                          |           |                                        |           |   |   |   |   |
| Weighted average shares outstanding                    |   | 5,893                                         |           | 5,852                                       |           | 5,881 |   | 5,852 |      |

 

See accompanying notes toconsolidated financial statements

 

 

**THE ROTTLUNDCOMPANY, INC. AND SUBSIDIARIES**

**ConsolidatedStatements of Cash Flows – Unaudited**

**(Inthousands)**

 
|                                                                                                |   | **For the Six Months Ended September 30,** |           |
|-----------------------------------------------------------------------------------------------------|--------|--------------------------------------------|----------------|
|                                                                                                |   | **2001**                                   |           | **2000** |   |
|                                                                                                |   |                                       |           |   |   |
| OPERATING ACTIVITIES:                                                                               |   |                                       |           |   |   |
|                                                                                                |   |                                       |           |   |   |
| Net income                                                                                          |   | $                                          | 4,633          |   | $ | 3,291 |   |
| Adjustments to reconcile net income to  net  cash provided by (used for) operating activities: |   |                                       |           |   |   |
| Depreciation                                                                                        |   | 11                                         |      | 193 |      |
| Changes in operating items:                                                                         |   |                                       |           |   |      |
| Escrow and other receivables                                                                        |   | 189                                        |      | 614 |   |
| Land, development costs and  finished lots                                                          |   | (7,515                                     | )              | 1,296 |   |
| Residential housing completed and  under construction                                               |   | (6,119                                     | )              | (2,950 | ) |
| Other assets                                                                                        |   | 40                                         |           | (1,228 | ) |
| Accounts payable                                                                                    |   | (2,431                                     | )              | 1,259 |   |
| Accrued expenses                                                                                    |   | (893                                       | )              | 1,449 |   |
| Income taxes payable                                                                                |   | (1,983                                     | )              | 1,994 |   |
| Net cash provided by (used for)  operating activities                                               |   | (14,068                                    | )              | 5,918 |   |
|                                                                                                |   |                                       |           |   |   |
| INVESTING ACTIVITIES:                                                                               |   |                                       |           |   |   |
| Increase in notes receivable                                                                        |   | (6,352                                     | )              | - |   |
| Purchase of property and  equipment, net                                                            |   | (5                                         | )              | (98 | ) |
|                                                                                                |   | (6,357                                     | )              | (98 | )  |
| FINANCING ACTIVITIES:                                                                               |   |                                       |           |   |   |
| Proceeds from (repayments of)  notes payable, net                                                   |   | 4,395                                      |           | (648 | ) |
| Proceeds from revolving credit  facility, net                                                       |   | 11,475                                     |           | 13,990 |   |
| Proceeds from stocks exercised                                                                      |   | 4                                          |           | - |   |
| Repayment of senior notes payable                                                                   |   | -                                          |           | (21,845 | ) |
| Net cash provided by (used for)  financing activities                                               |   | 15,874                                     |           | (8,503 | ) |
|                                                                                                |   |                                       |           |   |   |
| NET DECREASE IN CASH AND CASH  EQUIVALENTS                                                          |   | (4,551                                     | )              | (2,683 | ) |
|                                                                                                |   |                                       |           |   |   |
| CASH AND CASH EQUIVALENTS:                                                                          |   |                                       |           |   |   |
| Beginning of period                                                                                 |   | 7,079                                      |           | 8,087 |   |
|                                                                                                |   |                                       |           |   |   |
| End of period                                                                                       |   | $                                          | 2,528          |   | $ | 5,404 |   |
|                                                                                                |   |                                       |           |   |   |
| SUPPLEMENTAL DISCLOSURES OF CASH  FLOWS INFORMATION:                                                |   |                                       |      |   |      |
| Cash paid for interest, net of  $1,561 and $1,229 capitalized, respectively                         |   | $                                          | 2              |   | $ | 891 |   |
| Cash paid for income taxes                                                                          |   | $                                          | 5,070          |   | $ | 199 |   |

 

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 six months ending September 30, 2001 are not necessarily indicativeof the results that may be expected for the year ending March 31, 2002.

 

Note 2.       RevolvingCredit Facility to Bank

 

As of September 30, 2001, the Company had aline-of-credit arrangement with a bank totaling $60,000,000, with interest atthe bank’s prime rate (as of September 30, 2001 that rate was 6.00%).  In October, 2001, the Company amended itsinterest rate swap, which fixes the first $15 million of debt at 8.34% throughDecember 31, 2003, from the previous swap, which was at 9.96% and expired July,2002.  Borrowings outstanding atSeptember 30, 2001 were $41,425,000 under this arrangement.  In addition, letters of credit totalingapproximately $­­­4,519,000 were outstanding under this arrangement atSeptember 30, 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 the effectivenessof 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 in July 2000. This interest rate swap wasamended in October 2001.  The Companyhas designated this interest rate swap as a hedge.

Asa result of the adoption of SFAS No. 133, the Company recorded in the first sixmonths of fiscal 2002, the cumulative effect of a change in accountingprinciple to other comprehensive loss of $546,000, net of $234,000 tax benefit,which will be reclassified to earnings through the expiration of the interestrate swap in July, 2002.

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$360,000 ($0.06 per share) in the fiscal second quarter ending September 30,2001.

 

 

Item 2.

**MANAGEMENT'S DISCUSSION ANDANALYSIS OF**

**FINANCIALCONDITION AND RESULTS OF 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 September 30,** |           | **For the Six Months  Ended September 30,** |   |
|                                                   |   | **2001**                                      |           | **2000** |   | **2001** |   | **2000** |   |
|                                                   |   |                                          |           |   |   |   |   |   |   |
| Net sales – home sales                            |   | 83.2                                          | %              | 95.5 | % | 89.5 | % | 97.3 | % |
| Net sales – land/lot sales                        |   | 16.8                                          |           | 4.5 |   | 10.5 |   | 2.7 |   |
|                                                   |   | 100.0                                         |           | 100.0 |   | 100.0 |   | 100.0 |   |
|                                                   |   |                                          |           |   |   |   |   |   |   |
| Cost of sales – home sales                        |   | 67.1                                          |           | 79.0 |   | 72.8 |   | 81.3 |   |
| Cost of sales – land/lot sales                    |   | 17.0                                          |           | 4.3 |   | 10.7 |   | 2.6 |   |
|                                                   |   | 84.1                                          |           | 83.3 |   | 83.5 |   | 83.9 |   |
|                                                   |   |                                          |           |   |   |   |   |   |   |
| Gross profit – home sales                         |   | 16.1                                          |           | 16.5 |   | 16.6 |   | 16.0 |   |
| Gross profit (loss) – land/lot  sales             |   | (0.2                                          | )              | 0.2 |   | (0.1 | ) | 0.1 |   |
|                                                   |   | 12,412                                        |           | 16.7 |   | 16.5 |   | 16.1 |   |
|                                                   |   |                                          |           |   |   |   |   |   |   |
| Selling, general and  administrative expense           |   | 9.7                                           |           | 9.7 |   | 10.7 |   | 10.4 |   |
| Operating income                                       |   | 6.2                                           |           | 7.0 |   | 5.8 |   | 5.7 |   |
|                                                   |   |                                          |           |   |   |   |   |   |   |
| Other (income) expense:                                |   |                                          |           |   |   |   |   |   |   |
| Interest                                               |   | -                                             |           | .5 |   | - |   | 0.7 |   |
| Other                                                  |   | (.3                                           | )              | (.1 | ) | (.3 | ) | (.2 | ) |
|                                                   |   |                                          |           |   |   |   |   |   |   |
| Income before income taxes &  extraordinary charge |   | 6.5                                           |           | 6.6 |   | 6.1 |   | 5.2 |   |
|                                                   |   |                                          |           |   |   |   |   |   |   |
| Provision for income taxes                             |   | 2.6                                           |           | 2.6 |   | 2.4 |   | 2.1 |   |
| Net income before extraordinary  charge                |   | 3.9                                           |      | 4.0 |      | 3.7 |      | 3.1 |      |
| Extraordinary charge, net of tax                       |   | -                                             |           | - |   | - |   | 612 |   |
|                                                   |   |                                          |           |   |   |   |   |   |   |
| Net income                                             |   | 3.9                                           | %              | 4.0 | % | 3.7 | % | 2.6 | % |
|                                                   |   |                                          |           |   |   |   |   |   |   |
| Number of homes closes                                 |   | 295                                           |           | 392 |   | 523 |   | 689 |   |

 

**Backlog**

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

|               |   | **Number  of** |   |             |   |
|--------------------|--------|----------------|--------|------------------|--------|
| **September  30,** |   | **Homes**      |   | **Sales  Value** |   |
|               |   |           |   |             |   |
| 2001               |   | 602            |   | $112,000,000     |   |
| 2000               |   | 580            |   | $120,000,000     |   |

 

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 laborcosts, weather conditions, and general competitive factors that may causeactual results to differ materially.

 

 

 

**ThreeMonths Ended September 30, 2001 Compared to Three Months Ended September 30,2000**

 

Netsales were $78.0 million for the three months ended September 30, 2001 ascompared to $75.8 million for the comparable period of 2000, an increase of$2.2 million or 2.9%.  Sales of homeswere $64.9 million compared to $72.4 million in the previous year, a decreaseof $7.5 million.  The prior yearincluded a $6.4 million sale and leaseback of model homes.  During the past twelve months the Companyhas exited the Indianapolis and New Jersey markets.  Home sales comparisons for the remaining markets were $62.4million in 2001 versus $63.4 million in 2000, a decrease of $1.0 million or1.6% .  Included in the current quarterwas revenue from land sales of $13.1 million versus $3.4 million in the prioryear ended.  During the current quarterthe Company sold substanially all of the assets of Rottlund Homes of NewJersey, Inc. for $14.7 million, of which approximately $8.4 million was in cashand $6.3 milllion was in notes receivable. Included in the land sales in the quarter are $12.6 million related tothe land sold in New Jersey.  The numberof homes closed by the Company decreased by 24.6% to 295 homes for the threemonths ended September 30, 2001, from 392 homes during the same period in2000.  During the quarter endedSeptember 30, 2000, 38 of the homes closed were model home sale leasebacks.  The average selling price ofhomes closed increased 19.2% to $220,100, during the three months endedSeptember 30, 2001 from $184,600 for the comparable period in 2000.  This increase was due to an overall increasein prices as well as a higher percentage of single family homes, which havehigher selling prices than multi-family homes, closing in the current quartercompared to last year.

 

Grossprofit was $12.4 million for the three months ended September 30, 2001,compared to $12.7 million for the comparable period of 2000, a decrease of2.4%.  Gross profit as a percentage ofnet sales decreased to 15.9% from 16.7% primarily as a result of the higherpercentage of land sales in the current quarter which has a gross profit lossof $169,000 in 2001 versus a gross profit of $166,000 in 2000.  The loss relates to the land sold in NewJersey.  Gross profit on home sales was$12.6 million (19.4%) in 2001 compared to $12.5 million (16.5%) in 2000.  The increase was the result of higherselling prices and improvement in direct construction costs on homes closing inthe current quarter compared to last year.

 

Selling,general and administrative expenses increased by 2.7% to $7.5 million in thethree months ended September 30, 2001, from $7.3 million for the comparable periodof 2000. As a percentage of net sales, selling, general and administrativeexpense remained at 9.7% for the three month period ended September 30, 2001,compared to the the same period 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 $360,000($0.06) per share in the quarter ending September 30, 2001.

 

Interestexpense before capitalization, decreased to $823,000 for the three months endedSeptember 30, 2001, from $1,007,000 for the comparable period in 2000.  The decrease in interest expense isprimarily due to a lower interest rate, compared to the three months endedSeptember 30, 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 $1,000 in the quarter endedSeptember 30, 2001, as compared to $385,000 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 $3,071,000 ($0.52 per share basic anddiluted) in fiscal 2001, compared to $3,037,000 ($.52 per share basic anddiluted) in fiscal 2000.

 

 

**SixMonths Ended September 30, 2001 Compared to Six Months Ended September 30, 2000**

 

 

Netsales were $126.7 million for the six months ended September 30, 2001 ascompared to $125.4 million for the comparable period of 2000, an increase of$1.3 million or 1.0%.  Sales of homeswere $113.4 million compared to $122.0 million in the previous year, a decreaseof $8.6 million.  The prior yearincluded a $6.4 million sale and leaseback of model homes.  During the past twelve months the Companyexited the Indianapolis and New Jersey markets.  Home sale comparisons for the remaining markets were $107.6million in 2001 versus $100.9 million in 2000, an increase of $6.7 million or6.7%.  Included in the current quarterwas revenue from land sales of $13.4 million versus $3.4 million in the prioryear ended. During the current quarter 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 quarter are $12.6 million related to the land sold in New Jersey.  The number of homes closed by the Companydecreased by 24.1% to 523 homes for the six months ended September 30, 2001,from 689 homes during the same period in 2000. The average selling price of a home increased 22.4% to $216,700, duringthe six months ended September 30, 2001 from $177,000 for the comparable periodin 2000.  This increase was due to anoverall increase in prices as well as a higher percentage of single familyhomes, which have higher selling prices than multi-family homes, closing in thecurrent period compared to last year.

 

Grossprofit was $20.9 million for the six months ended September 30, 2001, comparedto $20.2 million for the comparable period of 2000, a decrease of 3.5%.  Gross profit as a percentage of net salesincreased to 16.5% from 16.1% 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 $166,000 in2000.  The loss relates to the land soldin New Jersey.  Gross profit on homesales was $21.1 million (18.6%) in 2001 compared to $20.0 million (16.0%) 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 increased by 4.6% to $13.6 million in thesix months ended September 30, 2001, from $13.0 million for the comparableperiod of 2000. As a percentage of net sales, selling, general andadministrative expense increased to10.7% for the six month period endedSeptember 30, 2001, from 10.4% for the same period 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 $360,000($.06) per share in the period ending September 30, 2001.

 

Interestexpense before capitalization, decreased to $1,537,000 for the six months endedSeptember 30, 2001, from $2,124,000 for the comparable period in 2000.  The decrease in interest expense isprimarily due to a lower interest rate, compared to the six months endedSeptember 30, 2000.  The Companycapitalizes certain interest costs for land development and includes suchcapitalized interest in cost of home sales when the related homes are deliveredto purchasers and in land development costs and finished lots on the balancesheet prior to delivery of the home. Interest expense, net of interest capitalization, was $2,000 in theperiod ended September 30, 2001, as compared to $891,000 in the same period in2000.

 

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 $4,633,000 ($0.79 per share basic anddiluted) in fiscal 2001 from $3,291,000 ($.56 per share basic and diluted) infiscal 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.

 

AtSeptember 30, 2001, the Company had available cash and cash equivalents ofapproximately $2.5 million compared to $7.1 million at March 31, 2001.

 

Forthe six months ended September 30, 2001, $14.1 million in cash was used byoperations.  Financing activitiesincluded a $11.5 million increase in the amounts borrowed under the revolvingline of credit and $4.4 million in mortgages assumed related to landpurchases.  Investing activitiesincluded an increase of $6.4 million related to notes receivable from the saleof the the assets in New Jersey.

 

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 September 30, 2001, borrowings underthis facility’s line of credit totaled $41.4 million, and $­14 million wasavailable for borrowing under the calculation described above.  On July 7, 2000, the Company entered into aninterest swap on $15 million of the above credit arrangement which fixed theinterest rate at 9.96% for a period of two years.   On October 4, 2001, the Company entered into a new interest rateswap which suprerceded the July  2000interest rate swap.  The new swap is for$15 million and expires on 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 September 30, 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.  The Companymaintains a policy of holding neighborhood meetings to gain support for itsdevelopment activities.  During theinitial municipal approval process, the Company confirms the availability ofutilities, conducts environmental reviews, arranges acquisition development andfinancing, 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.

 

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 mortgage financingto prospective purchasers.  The Companyattempts to pass through to its customers any increase in its costs throughincreased selling prices, and to date, inflation has not had a material adverseeffect on the Company's results of operations. However, there is no assurance that inflation will not have a materialadverse impact on the Company's future results of operations.

 

**Part II - Other Information**

 

 

Items1 through 3. Not applicable.

 

Item4.  Submission of matters to a vote ofsecurity holders.

The Company held its annual meeting ofshareholders on September 20, 2001. Each of the directors of the Company, Messrs. Bernard J. Rotter,  David H. Rotter, Todd M. Stutz, Dennis J.Doyle and Scott D. Rued were elected by amajority of the votes cast for a one-year term.  In addition, by a majority of the votes cast, the shareholdersratified Arthur Andersen LLP as the Company’s independent public accountantsfor the fiscal year ending March 31, 2002.

 

Item5.  Not applicable.

 

Item6.  Exhibits and Reports on Form 8-K.

 

                            (a)      Exhibits.  Not applicable.

 

                            (b)      Reports on Form 8-K.

 

TheCompany filed a report on Form 8-K dated August 24, 2001 related to the sale ofassets of the company’s subsidiary, Rottlund Homes of New Jersey, Inc.

 

**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:  | November 7, 2001 | By:                      | /s/ David H. Rotter |
|--------|------------------|-------------------------------|---------------------|
|   |             |  **David H. Rotter**     |
|   |             |  President and           |
|   |             |  Chief Executive Officer |

 

 
| Date:  | November 7, 2001 | By:                       | /s/ Steven A. Kahn |
|--------|------------------|--------------------------------|--------------------|
|   |             |  **Steven A. Kahn**       |
|   |             |  Chief Financial Officer  |
|   |             |  (Principal Financial and |
|   |             |  Accounting Officer)      |