13
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15 (d) of
The Securities Exchange Act of 1934
For the Quarterly Period Ended: June 30, 1996
Commission File Number: 0-21900
SUNDANCE HOMES, INC.
(Exact name of registrant as specified in its charter)
Illinois 36-3111764
(State or other (IRS Employer
Jurisdiction of Identification
incorporation or Number)
organization)
1375 East Woodfield Road, Suite 600, Schaumburg, Illinois
60173
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (847)
255-5555
Indicate by check mark whether the registrant has: 1) filed
all reports required to be filed by Section 13 or 15 (d) of
the Securities Exchange Act of 1934 during the preceding 12
months (or for such shorter period that the registrant was
required to file such reports) and 2) has been subject to
such filing requirements for the past 90 days.
YES X NO
At August 13, 1996, there were 7,805,000 shares outstanding
of the registrant's Stock ($0.01) par value).
SUNDANCE HOMES, INC
QUARTERLY REPORT ON FORM 10-Q
INDEX
Page
No.
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets-
June 30, 1996 (unaudited) and September 30, 1995...........2
Consolidated Statements of Income (Loss) (unaudited) -
three months and nine months ended June 30, 1996 and 1995..3
Consolidated Statements of Cash Flows (unaudited) -
nine months ended June 30, 1996 and 1995...................4
Notes to Consolidated Financial Statements......................5-7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations........................8-11
PART II OTHER INFORMATION
Item 1. Legal Proceedings.........................................12
Item 2. Changes in Securities.....................................12
Item 3. Defaults Upon Senior Securities...........................12
Item 4. Submission of Matters to a Vote of Security Holders.......12
Item 5. Other Information.........................................12
Item 6. Exhibits and Reports on Form 8-K..........................12
SIGNATURE PAGE...........................................................13
PART I. FINANCIAL INFORMATION
<TABLE>
Item 1. Financial Statements
SUNDANCE HOMES, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
<CAPTION>
June 30, September 30,
1996 1995
(unaudited)
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 3,245 $ 4,687
Real estate inventories 81,836 86,434
Prepaid expenses and other assets 1,495 1,029
Property and equipment, net 2,335 2,066
Income tax receivable 2,208 1,964
Deferred project start-up costs 2,448 2,700
Total assets $ 93,567 $ 98,880
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable and accrued $ 18,233 $ 16,516
construction liabilities
Other accrued expenses 5,795 5,115
Customer deposits 2,802 2,649
Notes and mortgages payable 35,023 42,787
Deferred income taxes 201 201
Subordinated notes payable to Principal Shareholder 4,193 4,193
Total liabilities 66,247 71,461
Minority interest 356 266
Shareholders' equity:
Preferred stock, $0.01 par value, 1,000,000 shares
authorized, none issued or outstanding - -
Common stock, $0.01 par value, 20,000,000 shares
authorized, 7,805,000 shares issued and outstanding 78 78
Additional paid-in capital 26,972 26,972
Retained earnings (deficit) (86) 103
Total shareholders' equity 26,964 27,153
Total liabilities and shareholders' equity $ 93,567 $ 98,880
<FN>
The accompanying notes are an integral part of these financial statements.
</FN>
</TABLE>
<TABLE>
SUNDANCE HOMES, INC.
CONSOLIDATED STATEMENTS OF INCOME (LOSS)
(in thousands, except per share data)
(unaudited)
<CAPTION>
Three months ended Nine months ended
June 30, June 30,
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Residential sales $28,016 $16,280 $80,295 $74,976
Cost of sales 24,676 15,104 72,239 69,201
Reduction in carrying value of real
estate assets - 3,657 - 3,657
Gross profit 3,340 (2,481) 8,056 2,118
Selling expenses 1,506 1,649 5,226 4,824
General and administrative expenses 1,052 1,067 3,069 3,983
Other expense, net 33 57 8 177
Income (loss) before minority interest
and provision (benefit) for income taxes 749 (5,254) (247) (6,866)
Minority interest 9 (72) 67 (73)
Income (loss) before benefit for inc taxes 740 (5,182) (314) (6,793)
Provision (benefit) for income taxes 296 (2,073) (125) (2,735)
Net income (loss) $444 $(3,109) $(189) $(4,058)
Net income (loss) per share $0.06 ($0.40) ($0.02) ($0.52)
Weighted average number
of shares outstanding 7,805 7,805 7,805 7,805
<FN>
The accompanying notes are an integral part of these financial statements.
</FN>
</TABLE>
<TABLE>
SUNDANCE HOMES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
<CAPTION>
Nine months ended
June 30,
1996 1995
<S> <C> <C>
Operating activities:
Net loss $ (189) $ (4,058)
Adjustments to reconcile net loss to net cash
provided by (used for) operating activities:
Depreciation and amortization 567 933
Reduction in carrying value of real estate assets - 3,657
Minority interest 66 (73)
Deferred income taxes - (1,198)
Changes in operating assets and liabilities:
Real estate inventories 4,598 (4,868)
Prepaid expenses and other assets (466) (2,240)
Income tax receivable (244) -
Deferred project start up costs 252 503
Accounts payable and accrued construction liab. 1,717 (3,509)
Other accrued expenses 680 2,274
Customer deposits 153 (1,377)
Net cash provided by (used for) operating activities 7,134 (9,956)
Investing activities - Property and equipment, net (836) (502)
Financing activities:
Borrowings under line of credit 70,892 84,490
Repayments of line of credit (78,483) (74,653)
Borrowings under notes payable 978 535
Repayments of notes payable (1,151) (1,108)
Contributions from minority interest 24 226
Distributions from minority interest - (870)
Net cash (used for) provided by financing activities (7,740) 8,620
Net decrease in cash and cash equivalents (1,442) (1,838)
Cash and cash equivalents:
Beginning of period 4,687 2,146
End of period $ 3,245 $ 308
<FN>
The accompanying notes are an integral part of these financial statements.
</FN>
</TABLE>
SUNDANCE HOMES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - PRINCIPLES OF CONSOLIDATION
The accompanying interim consolidated financial statements
include the accounts of Sundance Homes, Inc. and its
subsidiaries ("the Company") and investments in majority-
owned limited partnerships. These financial statements are
unaudited, but in the opinion of management contain all
adjustments, consisting only of normal recurring
adjustments, necessary to present fairly the financial
condition and results of operations of the Company.
The interim consolidated financial statements should be read
in conjunction with the consolidated financial statements
and notes thereto for the nine month stub period ended
September 30, 1995 included in the Company's Annual Report
on Form 10-K/A, Amendment No. 1, as filed with the
Securities and Exchange Commission on April 2, 1996.
The results of operations for the nine months ended June 30,
1996 are not necessarily indicative of the results to be
expected for the entire fiscal year.
NOTE 2 - REAL ESTATE INVENTORIES
<TABLE>
Real estate inventories are summarized as follows (in
thousands):
<CAPTION>
June 30, September 30,
1996 1996
<S> <C> <C>
Work-in-process
Land and development $ 57,093 $ 57,736
Construction inventory 17,580 16,275
Completed homes:
Models 7,163 12,423
$ 81,836 $ 86,434
</TABLE>
Completed homes include models constructed to help market a
development. Completed homes include allocations of land
and development and other allocable costs.
Capitalized interest included in real estate inventories at
June 30, 1996 and September 30, 1995 aggregated $6.1 million
and $5.4 million, respectively.
NOTE 3 - PROPERTY AND EQUIPMENT
<TABLE>
Property and equipment are summarized as follows (in
thousands):
<CAPTION>
June 30, September 30,
1996 1996
<S> <C> <C>
Model home upgrades and furnishings $ 2,962 $ 2,612
Equipment and furniture 2,289 1,884
Vehicles 249 286
Leasehold improvements 41 41
5,541 4,823
Accumulated depreciation 3,206 2,757
$ 2,335 $ 2,066
</TABLE>
NOTE 4 - NOTES PAYABLE
<TABLE>
Notes and mortgages payable are summarized as follows (in
thousands):
<CAPTION>
June 30, September 30,
1996 1996
<S> <C> <C>
Revolving line of credit $ 27,932 $ 35,523
Notes payable 7,091 7,264
$ 35,023 $ 42,787
</TABLE>
The Company has a Revolving Credit Loan Agreement (the "Loan
Agreement"), as amended, with two banks that provides a
$45.0 million line of credit plus a $5.0 million overline
facility, each secured by the non-real estate assets of the
Company. The $5.0 million overline facility may be utilized
from time to time, but can remain outstanding for no more
than 90 days without a 30 day interim waiting period. The
revolving line of credit and overline note bear interest at
prime plus one percent and prime plus one and one half
percent, respectively, plus certain customary fees, and was
originally scheduled to mature on July 14, 1996. Available
borrowings under the Loan Agreement are reduced by the
amount of Letters of Credit outstanding. As of June 30,
1996, the Company had borrowed $27.9 million under the Loan
Agreement and had $7.2 million of outstanding Letters of
Credit, resulting in available borrowings of $14.9 million.
The Loan Agreement includes certain customary
representations and covenants, including restrictions on the
Company's ability to pay dividends and maintenance of
certain financial ratios. In addition, each installment
under the subordinated notes payable to the Principal
Shareholder (Note 4) is required to be placed in escrow with
the banks, and may only be released upon demonstration of
Company compliance with the contractual provisions of the
Loan Agreement. As of June 30, 1996, the Company had
violated net worth and net income financial covenants.
NOTE 4 - NOTES PAYABLE (cont)
As of July 14, 1996, the Company had completed verbal
negotiations with the two banks related to the maturity date
and terms of the Loan Agreement. The Company and the two
banks have entered into an agreement which provides for the
extension of the maturity date of the Loan Agreement to
September 12, 1996. The extension was provided in order to
complete final documentation of the amended loan agreement,
the terms of which are expected to include an extension of
the maturity of the date of the facility until July 1997.
Additional terms are expected to include revisions of the
financial covenants and a waiver of past covenant defaults.
NOTE 5 - SHAREHOLDER NOTES PAYABLE
As part of the public offering and recapitalization of the
Company on July 9, 1993, the Company issued promissory notes
to the Principal Shareholder. The notes are subordinate to
the Company's bank indebtedness, bear interest at 7.5% per
annum and mature in two equal, annual installments on the
first and second anniversaries of the public offering.
Demand for the first and second installments, that became
due on July 9, 1994 and July 9, 1995, has not been made by
the Principal Shareholder. Payment of the annual
installments is subject to certain restrictions under the
Loan Agreement (Note 3).
NOTE 6 - CONTINGENCIES
The Company is frequently required, in connection with the
development of its projects, to obtain performance or other
maintenance bonds or letters of credit in lieu thereof. The
amount of such obligations outstanding at any time varies in
connection with the Company's pending development
activities. In the event any such obligations are drawn
upon, the Company would be obligated to reimburse the
issuing surety company or bank.
The Company currently leases its office space under a five-
year renewable lease. Certain equipment is also currently
leased under non-cancelable operating leases.
Additionally, the Company is involved in various routine
legal proceedings incidental to the conduct of its business.
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
The following discussion of the Company's results of
operations and financial condition should be read in
conjunction with the consolidated interim financial
statements of the Company and the notes thereto contained
herein, as well as the Company's Annual Report on Form 10-K,
as filed with the Securities and Exchange Commission on
December 22, 1995, and as amended on Form 10-K/A filed on
April 2, 1996.
OVERVIEW
The Company posted gains in sales revenue, gross profit and
net new orders for the third quarter of fiscal 1996, as
compared to the prior year period. Sales, which are
recognized upon the closing and delivery of the homes,
increased $11.7 million to $28.0 million (162 homes) for the
quarter ended June 30, 1996, as compared to $16.3 million
(98 homes) for the same period in 1995. Gross profit for
the quarter ended June 30, 1996 increased to 11.9% of sales
revenue, compared to (15.3)% in the same period in 1995.
Results for the nine month period ended June 30, 1996
included a net loss of $189,000 or ($0.02) per share,
compared with a net loss of $4.1 million, or ($0.52) per
share, for the nine month period a year ago. Excluding the
impact of the $3.7 million charge for reduction in the
carrying value of certain real estate assets, Sundance Homes
was able to reduce its net loss before income taxes by $2.8
million in fiscal 1996, compared to the year-ago nine month
period. The increase in sales revenue and gross profit
resulted in net income for the quarter of $444,000, or $0.06
per share, compared to a net loss of $3.1 million in the
1995 quarter. Sales in the first nine months of fiscal 1996
were $80.3 million, an increase of 7.1%, from $75.0 million
for the nine months period ended June 1995. Gross profit
for the first nine months ended June 30, 1996, was $8.1
million, or 10.0% of sales revenue, an increase of 7.2
percentage points from 2.8% in the comparable period a year
earlier. Net new orders increased almost 19.0% to 158 for
the 1996 quarter, as compared to 133 units in the prior year
quarter. The sales backlog as of June 30, 1996 was $53.0
million (311 homes) compared to $62.7 million (350 homes) as
of June 30, 1995.
During the third quarter of fiscal 1996, the Company
completed the acquisition of two projects in Chicago,
Illinois. The acquisitions represent the establishment of a
Chicago division, Chicago Urban Properties, Inc. The
buildings are multi-story structures formerly used as
commercial space. The Chicago division will focus on
developments emphasizing townhome and condominium loft
conversion projects. The construction/renovation of the
buildings has begun and the division expects to begin
offering the units for sale in Fall 1996. Additionally, the
Company entered into an agreement for the sale and option of
certain partially developed land. The Company completed the
sale of a portion of the land in July 1996, and expects to
complete the sale of the remaining portions in September
1996 and September 1997, respectively.
<TABLE>
Results of Operations
The following table sets forth, for the periods indicated,
the percentage of the Company's residential sales
represented by each income statement line item presented.
<CAPTION>
Three months ended Nine months ended
June 30 June 30
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Residential Sales 100.0 % 100.0 % 100.0 % 100.0 %
Cost of sales 88.1 92.8 90.0 92.3
Reduction in carrying value of
real estate assets 0.0 22.5 0.0 4.9
Gross profit 11.9 (15.3) 10.0 2.8
Selling expenses 5.4 10.1 6.5 6.4
General and Administrative expenses 3.8 6.5 3.8 5.3
Other expense, net 0.1 0.4 0.0 0.2
Income (Loss) before minority int.
and prov. (benefit) for inc taxes 2.6 (32.3) (0.3) (9.1)
Minority interest 0.0 (0.5) 0.1 (0.1)
Provision (benefit) for income taxes 1.1 (12.7) (0.2) (3.6)
Net income (loss) 1.5 % (19.1) % (0.2) % (5.4) %
</TABLE>
Residential Sales
Sales revenue increased 72.1% to $28.0 million for the
quarter ended June 30, 1996, as compared to $16.3 million in
the same period in 1995. The increase is primarily due to
an increase in the number of deliveries in the quarter. Net
new orders increased to 158 for the three months ended June
30, 1996 compared to 133 for the prior year quarter.
Sales revenue increased 7.1% to $80.3 million for the nine
months ended June 30, 1996, as compared to $75.0 million in
the same period in 1995. For the nine month period, new
orders increased to 498 from 200 in the prior year period.
In August, 1996, the Company opened for sale its' Cherry
Hill project in Schaumburg, Illinois (an in-fill townhome
community) and expects to begin offering units for sale in
Fall 1996 in the Chicago division. Management believes that
the new order pace for 1996 will be at a comparable level or
continue to exceed the 1995 level.
Cost of Sales
Cost of sales decreased to 88.1% of sales revenue for the
three months ended June 30, 1996 as compared to 92.8% of
sales revenue in the prior year quarter. The decrease
reflects the reduction in houseline direct construction
costs as a percentage of sales revenue, combined with
reductions in indirect overhead, particularly reductions in
field production expenditures. Cost of sales decreased 2.3
percentage points from 92.3% of sales revenue for the nine
months ended June 30, 1995, excluding the reduction in
carrying value of real estate assets of $3.7 million, to
90.0% of sales revenue, for the nine months ended June 30,
1996. This increase was primarily due to the increase in
closings from 387 homes in 1995 to 461 homes in 1996.
Selling, General and Administrative Expenses
Selling expenses decreased $0.1 million to $1.5 million for
the three months ended June 30, 1996, as compared to the
1995 quarter. Selling expenses as a percent of sales
decreased from 10.1% in the 1995 quarter to 5.4% in the 1996
period primarily as a result of the increased number of
deliveries combined with management's efforts to streamline
promotional spending. Selling expenses increased to $5.2
million from $4.8 million for the nine months ended June 30,
1996. The increase in the nine months ended June 30, 1996
was due primarily to increased promotional expenditures for
print advertising and sales brochures.
General and administrative expenses decreased 0.01% to $1.1
million for the three months ended June 30, 1996 from the
comparable period in 1995. Included in the 1996 quarter are
certain charges related to severance and other termination
benefits. General and administrative expenses as a percent
of sales decreased form 5.3% to 3.8% for the nine months
ended June 30, 1996. This decrease was achieved primarily
through continued cost control initiatives and staff
reductions. Management believes that the organizational
changes will continue to support the Company's growth
initiatives over the remainder of the year.
Income Taxes
The provision for income taxes for the three and nine months
ended June 30, 1996 and 1995 reflect management's estimate
of the Company's effective tax rate of approximately 40%.
Seasonality and Variability in Quarterly Results
The Company has experienced, and expects to continue to
experience, significant seasonal and quarterly variability
in residential sales and net income.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by or used for operating activities varies
from period to period, due primarily to the Company's land
acquisition and development needs and to a lessor extent to
the Company's net income or loss. Net cash provided by
operating activities for the nine months ended June 30, 1996
was approximately $7.2 million, compared to net cash used by
operating activities of $10.0 million in the comparable
period in 1995.
The Company has a Revolving Credit Loan Agreement (the "Loan
Agreement"), as amended, with two banks that provides a
$45.0 million line of credit plus a $5.0 million overline
facility, each secured by the non-real estate assets of the
Company. The $5.0 million overline facility may be utilized
from time to time, but can remain outstanding for no more
than 90 days without a 30 day interim waiting period. The
revolving line of credit and overline note bear interest at
prime plus one percent and prime plus one and one half
percent, respectively, plus certain customary fees, and was
scheduled to mature on July 14, 1996. Available borrowings
under the Loan Agreement are reduced by the amount of
Letters of Credit outstanding. As of June 30, 1996, the
Company had borrowed $27.9 million under the Loan Agreement
and had $7.2 million of outstanding Letters of Credit,
resulting in available borrowings of $20.7 million. The
Loan Agreement includes certain customary representations
and covenants, including restrictions on the Company's
ability to pay dividends and maintenance of certain
financial ratios. In addition, each installment under the
subordinated notes payable to the Principal Shareholder
(Note 4) is required to be placed in escrow with the banks,
and may only be released upon demonstration of Company
compliance with the contractual provisions of the Loan
Agreement. As of June 30, 1996, the Company had violated
net worth and net income financial covenants. The Company
and the two banks have entered into an agreement which
provides for the extension of the maturity date of the Loan
Agreement to September 12, 1996. The extension was provided
in order to complete final documentation of the amended loan
agreement, the terms of which are expected to include an
extension of the maturity of the date of the facility until
July 1997. Additional terms are expected to include
revisions of the financial covenants and a waiver of past
covenant defaults.
The Company believes that the current facility as proposed
to be amended, together with its cash flow from operations,
will be sufficient to fund projected near term requirements
including land acquisition and any relevant market
opportunities, as well as, its plans to expand its inventory
of developed land.
PART II. OTHER INFORMATION
Item I. Legal Proceedings
The Company is involved in various routine legal
proceedings incidental to the conduct of its
business. Management believes that none of these
legal proceedings will have a material adverse
impact on the financial condition or results of
operations of the Company.
Item 2. Changes in Securities None
Item 3. Defaults Upon Senior Securities None
Item 4. Submission of Matters to a Vote of
Security Holders None
Item 5. Other Information None
Item 6. Exhibits and Reports on Form 8-K None
SIGNATURE PAGE
Pursuant to the requirements of the Securities Exchange Act
of 1934, the Registrant has duly caused this report to be
signed on its behalf by the undersigned thereunto duly
authorized.
SUNDANCE HOMES, INC.
By: /S/ Arthur L. Titus Date: August 14, 1996
Arthur L. Titus, President and
Chief Operating Officer
