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, 1997
Commission File Number: 0-21900
SUNDANCE HOMES, INC.
(Exact name of registrant as specified in its charter)
Illinois 36-3111764
(State or other jurisdiction of (IRS Employer Identification
incorporation or organization) Number)
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 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).
Yes X No
Indicate by check mark whether the registrant has been subject to
such filing requirements for the past 90 days.
Yes X No
At August 10, 1997, there were 7,807,000 shares outstanding of
the registrant's Common Stock ($0.01 par value).
<PAGE>
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, 1997 (unaudited) and September 30, 1996.............1
Consolidated Statements of Income (unaudited) -
three months and nine months ended June 30, 1997 and 1996....2
Consolidated Statements of Cash Flows (unaudited) -
nine months ended June 30, 1997 and 1996.....................3
Notes to Consolidated Financial Statements....................4-6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.......................7-10
Item 3. Quantitative and Qualitative Disclosures About Market Risk.....10
PART II OTHER INFORMATION
Item 1. Legal Proceedings..............................................11
Item 2. Changes in Securities..........................................11
Item 3. Defaults Upon Senior Securities................................11
Item 4. Submission of Matters to a Vote of Security Holders............11
Item 5. Other Information..............................................11
Item 6. Exhibits and Reports on Form 8-K...............................11
SIGNATURE PAGE...........................................................12
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
SUNDANCE HOMES, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
<CAPTION>
June 30, September 30,
1997 1996
(unaudited)
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 1,511 $ 4,501
Real estate inventories 84,658 76,101
Deferred income taxes 573 461
Prepaid expenses and other assets 2,037 751
Property and equipment, net 3,139 2,520
Deferred project start-up costs 3,911 2,072
Total assets $ 95,829 $ 86,406
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable and accrued construction liabilities $ 14,345 $ 23,067
Other accrued expenses 3,142 6,182
Customer deposits 3,196 1,433
Notes and mortgages payable 44,746 23,027
Subordinated notes payable to Principal Shareholder 4,193 4,193
Total liabilities 69,622 57,902
Minority interest (29) 111
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,
7,807,000 shares issued and outstanding 78 78
Additional paid-in capital 26,977 26,977
Retained earnings (deficit) (819) 1,338
Total shareholders' equity 26,236 28,393
Total liabilities and shareholders' equity $ 95,829 $ 86,406
<FN>
The accompanying notes are an integral part of these financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
CONSOLIDATED STATEMENTS OF INCOME (LOSS)
(in thousands, except per share data)
(unaudited)
<CAPTION>
Three months ended, Nine months ended,
June 30, June 30,
1997 1996 1997 1996
<S> <C> <C> <C> <C>
Residential sales $ 23,739 $ 28,016 $ 61,582 $ 80,295
Cost of sales 21,003 24,676 56,464 72,239
Gross profit 2,736 3,340 5,118 8,056
Selling expenses 1,932 1,506 5,543 5,226
General and administrative expenses 853 1,052 3,255 3,069
Other (income) expense, net (82) 33 (106) 8
Income (Loss) before minority interest
and provision (benefit) for income taxes 33 749 (3,574) (247)
Minority interest (3) 9 21 67
Income (Loss) before provision (benefit)
for income taxes 36 740 (3,595) (314)
Provision (benefit) for income taxes 14 296 (1,438) (125)
Net income (loss) $ 22 $ 444 $ (2,157) $ (189)
Net income (loss) per share $ 0.00 $ 0.06 $ (0.28) $ (0.02)
Weighted average number
of shares outstanding 7,807 7,805 7,807 7,805
<FN>
The accompanying notes are an integral part of these financial statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
<CAPTION>
Nine months ended
June 30,
1997 1996
<S> <C> <C>
Operating activities:
Net loss
Adjustments to reconcile net loss to net cash $ (2,157) $ (189)
provided by (used for) operating activities:
Depreciation and amortization 654 567
Minority interest 21 66
Deferred income taxes (112) -
Changes in operating assets and liabilities:
Real estate inventories (8,557) 4,598
Prepaid expenses and other assets (1,286) (466)
Income tax receivables - (244)
Deferred project start up costs (1,839) 252
Accounts payable and accrued construction liabilities (8,722) 1,717
Other accrued expenses (3,040) 680
Customer deposits 1,763 153
Net cash provided by (used for) operating activities (23,275) 7,134
Investing activities - Property and equipment, net (1,273) (836)
Financing activities:
Borrowings under line of credit 80,775 70,892
Repayments of line of credit (57,708) (78,483)
Borrowings under notes payable 650 978
Repayments of notes payable (1,998) (1,151)
Contributions from minority interest - 24
Distributions to minority interest (161) -
Net cash provided by (used for) financing activities 21,558 (7,740)
Net decrease in cash and cash equivalents (2,990) (1,442)
Cash and cash equivalents:
Beginning of period 4,501 4,687
End of period $ 1,511 $ 3,245
<FN>
The accompanying notes are an integral part of these financial statements.
</FN>
</TABLE>
<PAGE>
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 investment in a majority-
owned limited partnership. 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 year ended September 30, 1996 included
in the Company's Annual Report on Form 10-K, as filed with the
Securities and Exchange Commission on December 24, 1996.
The results of operations for the nine months ended June 30,
1997 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,
1997 1996
<S> <C> <C>
Work-in-process:
Land and development $ 52,039 $ 49,382
Construction inventory 26,363 20,226
Completed homes:
Models 6,256 6,493
$ 84,658 $ 76,101
</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, 1997 and September 30, 1996 aggregated $7.2 million
and $5.4 million, respectively.
<PAGE>
NOTE 3 - PROPERTY AND EQUIPMENT
<TABLE>
Property and equipment are summarized as follows (in thousands):
<CAPTION>
June 30, September 30,
1997 1996
<S> <C> <C>
Model home upgrades and furnishings $ 4,324 $ 3,318
Equipment and furniture 3,031 2,740
Vehicles 366 402
Leasehold improvements 52 41
7,773 6,501
Accumulated depreciation (4,634) (3,981)
$ 3,139 $ 2,520
</TABLE>
NOTE 4 - NOTES PAYABLE
<TABLE>
Notes and mortgages payable are summarized as follows (in thousands):
<CAPTION>
June 30, September 30,
1997 1996
<S> <C> <C>
Revolving line of credit $ 42,292 $ 19,225
Notes payable to land sellers 2,454 3,802
$ 44,746 $ 23,027
</TABLE>
On February 1, 1997 the Company entered into the Second Amended
and Restated Revolving Credit Loan Agreement, as amended on April
11, 1997, (the "Loan Agreement"), with two banks that replaced
the previous financing arrangements with the banks. The Loan
Agreement provides a $60.0 million line of credit. The
borrowings are secured by the real estate assets of the Company,
with certain exceptions. Borrowings under the Loan Agreement
bear interest at LIBOR plus 275 basis points for borrowings up to
$40 million, and prime plus 1/2% for borrowings in excess of $40
million, plus certain customary fees. The Loan Agreement is
scheduled to mature on February 1, 1999. Available borrowings
under the Loan Agreement are reduced by the amount of letters of
credit outstanding. 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. Repayment of the principal obligations
under the subordinated notes payable to the Principal Shareholder
(see Note 5 to the Notes to Consolidated Financial Statements)
may only be released upon achievement of certain financial
results by the Company as outlined in the Amended and Restated
Subordination Agreement between the Lenders and the Principal
Shareholder.
Notes payable to land sellers are non-interest bearing and are
repaid through application of agreed upon amounts from the
proceeds of individual home sale closings.
<PAGE>
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 1/2% per annum,
compounded daily, and originally matured in two equal annual
installments on the first and second anniversaries of the
offering. On September 30, 1996, the maturity date of the notes
was extended to September 30, 1997. Payment of the outstanding
principal balances are subject to certain restrictions under the
Loan Agreement (Note 4).
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.
These obligations are typically extinguished through the
Company's completion of specified subdivision improvements and
infrastructure. In the event any such obligations are drawn
upon, the Company would be obligated to reimburse the issuing
surety company or bank. There have been no such draws during the
nine months ended June 30, 1997 or the year ended September 30,
1996.
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.
<PAGE>
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 for the year ended September 30, 1996, as
filed with the Securities and Exchange Commission on December 24,
1996.
OVERVIEW
The Company experienced reduced sales revenue and gross profit
for the quarter and nine month periods ended June 30, 1997 as
compared to the same periods in 1996. Sales, which are
recognized upon the closing and delivery of the homes, decreased
$4.3 million (15.3%) to $23.7 million (140 homes), for the three
months ended June 30, 1997, as compared to $28.0 million (162
homes) for the same period in 1996. Gross profit as a percent of
sales decreased to 11.5% for the quarter ended June 30, 1997,
compared to 11.9% for the same period in 1996. For the nine
months ended June 30, 1997, sales decreased $18.7 million (23.3%)
to $61.6 million (362 homes) as compared to $80.3 million (461
homes) for the same period in 1996. Net new orders increased to
204 for the quarter ended June 30, 1997 as compared to 158 for
the quarter ended June 30, 1996. The sales backlog increased by
$18.4 million or 35% as of June 30, 1997 to $71.4 million (396
homes) compared to $53.0 million (311 homes) as of June 30, 1996.
Urban Development
The Company's wholly owned division which develops property under
the name Chicago Urban Properties, Inc. has expanded its
operations during the first 9 months of Fiscal 1997, including
the continued development of the St. Paul Loft project, the Erie
Loft project and the Michigan Avenue Loft project.
The St. Paul Loft project consisting of 82 loft units is sold out
and the first 9 units were delivered during June, 1997. The
remainder of the units are scheduled to be delivered prior to
December 31, 1997.
The Erie Loft project consisting of 106 units is over 80% sold
out and the first deliveries are scheduled to occur during Fall
1997. The Michigan Avenue Loft project consisting of 60 units is
over 60% sold out. Construction has begun and deliveries are
scheduled for the spring of 1998.
On a lot contiguous to the Erie Center Lofts, Chicago Urban
Division is in the process of constructing a 23-story high rise
which will include 6 floors of parking and 17 floors of
residential condominium apartments consisting of 126 living
units. This new construction project is currently over 30% sold
out with construction beginning during the Summer, 1997. The
building is scheduled for completion by Fall, 1998. The Company
is currently in discussion with its banks to expand its current
credit facility to finance this project. The Company anticipates
that the financing will be completed by Fall 1997, although there
can be no assurances that such financing will be obtained.
<PAGE>
Results of Operations
<TABLE>
The following table sets forth, for the three months and nine
months ended, 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,
1997 1996 1997 1996
<S> <C> <C> <C> <C>
Residential sales 100.0 % 100.0 % 100.0 % 100.0 %
Cost of sales 88.5 % 88.1 % 91.7 % 90.0 %
Gross profit 11.5 % 11.9 % 8.3 % 10.0 %
Selling expenses 8.1 % 5.4 % 9.0 % 6.5 %
General and administrative expenses 3.6 % 3.8 % 5.3 % 3.8 %
Other (income) expense, net (0.3)% 0.1 % (0.2)% 0.0 %
Income (Loss) before minority interest
and provision (benefit) for income taxes 0.1 % 2.6 % (5.8)% (0.3)%
Minority interest (0.0)% 0.0 % 0.0)% 0.1 %
Provision (benefit) for income taxes 0.1 % 1.1 % (2.3)% (0.2)%
Net income (loss) 0.0 % 1.5 % (3.5)% (0.2)%
</TABLE>
Residential Sales
The decrease in sales revenue for the three months ended June 30,
1997, as compared to the prior year period, was primarily due to
the decrease in homes closed to 140 homes for the three months
ended June 30, 1997 as compared to 162 homes for the same quarter
in 1996. The Company also experienced reduced sales revenue for
the nine months ended June 30, 1997 as compared to the comparable
period in 1996. Sales revenue decreased from $80.3 million (461
homes) in the nine months ended June 30, 1996 to $61.6 million
(362 homes) in the nine months ended June 30, 1997. The
reduction in sales revenue was primarily due to reduced backlog
at September 30, 1996 (197 homes) as compared to September 30,
1995 (274 homes).
Cost of Sales
Cost of sales decreased $3.7 million or 15% from $24.7 million to
$21.0 million for the three months ended June 30, 1997 as
compared to the same prior year period. For the nine months
ended June 30, 1997, cost of sales decreased $15.8 million or 22%
to $56.5 million as compared to $72.2 million for the same period
in 1996. As a percent of sales revenue, cost of sales for the
quarter ended June 30, 1997 increased 0.4% as compared to the
same prior year period. For the nine month period ended June 30,
1997, cost of sales, as a percent of sales, increased 1.7% as
compared to the same period in 1996. The increase for both
periods reflects the impact of closing homes at three communities
which were substantially complete and the close-out of certain of
the communities' model homes at reduced gross margins.
<PAGE>
Selling, General and Administrative Expenses
Selling expenses increased by 28.3% from $1.5 million to $1.9
million for the three months ended June 30, 1997 as compared to
the prior year period. There was an increase in selling expenses
for the nine months ended June 30, 1997 to $5.5 million from $5.2
million. These increases were primarily a result of increased
advertising spending for new projects.
General and administrative expenses decreased $0.2 million for
the three months ended June 30, 1997 from the comparable period
in 1996. There was an increase of $0.2 million for the nine
months ended June 30, 1997 compared to the same period in 1996.
Income Taxes
The provision for income taxes for the three months and nine
months ended June 30, 1997 and 1996 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 houseline
inventory activity, land acquisition and development requirements
and in lesser part to the Company's net income. Net cash used
for operating activities for the nine months ended June 30, 1997
was approximately $23.3 million primarily due to the increase in
real estate inventories as well as the reduction in accounts
payable and accrued construction liabilities during the period,
compared to net cash provided by operating activities of $7.1
million in the comparable period in 1996.
On February 1, 1997 the Company entered into the Second Amended
and Restated Revolving Credit Loan Agreement, as amended on April
11, 1997, (the "Loan Agreement"), with two banks that replaced
the previous financing arrangements with the banks. The Loan
Agreement provides a $60.0 million line of credit. The
borrowings are secured by the real estate assets of the Company,
with certain exceptions. Borrowings under the Loan Agreement
bear interest at LIBOR plus 275 basis points for borrowings up to
$40 million, and prime plus 1/2% for borrowings in excess of $40
million, plus certain customary fees. The Loan Agreement is
scheduled to mature on February 1, 1999. Available borrowings
under the Loan Agreement are reduced by the amount of letters of
credit outstanding. 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. Repayment of the principal obligations
under the subordinated notes payable to the Principal Shareholder
(see Note 5 to the Notes to Consolidated Financial Statements)
may only be released upon achievement of certain financial
targets by the Company as outlined in the Amended and Restated
Subordination Agreement between the Lenders and the Principal
Shareholder. As of June 30, 1997, the Company had borrowed $42.3
million under the Loan Agreement and had $10.9 million
outstanding letters of credit leaving $6.8 million available for
future borrowings.
<PAGE>
The Company is currently negotiating with its banks, along with
the inclusion of a third bank, to increase its line of credit
from $60 million to $75 million in order to provide adequate
funding for the construction of the expansion of its Chicago
Urban Division including the construction of a 23-story high rise
which will include 6 floors of parking and 17 floors of
residential condominium apartments. There can be no assurances
that the Company will be able to secure such financing or
acceptable terms.
The Company believes that the current facility when expanded
together with its cash flow from operations will be sufficient to
fund projected near term requirements including land and building
acquisitions and any relevant market opportunities as well as its
plans to expand its inventory of developed land.
Item 3. Quantitative and Qualitative Disclosures About Market
Risks
Not applicable.
<PAGE>
PART II. OTHER INFORMATION
Item 1. 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
Exhibit No. 27.1 - Financial Data Schedule
<PAGE>
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/ Joseph R. Atkin Date: August 13, 1997
Joseph R. Atkin, Vice President
and Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<PERIOD-START> OCT-01-1996
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-END> JUN-30-1997
<CASH> 1,511
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 84,658
<CURRENT-ASSETS> 86,169
<PP&E> 2,037
<DEPRECIATION> 0
<TOTAL-ASSETS> 95,829
<CURRENT-LIABILITIES> 24,876
<BONDS> 44,746
0
0
<COMMON> 78
<OTHER-SE> 26,977
<TOTAL-LIABILITY-AND-EQUITY> 95,829
<SALES> 61,582
<TOTAL-REVENUES> 61,582
<CGS> 56,464
<TOTAL-COSTS> 65,262
<OTHER-EXPENSES> (106)
<LOSS-PROVISION> (3,574)
<INTEREST-EXPENSE> 21
<INCOME-PRETAX> (3,595)
<INCOME-TAX> (1,438)
<INCOME-CONTINUING> (2,157)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,157)
<EPS-PRIMARY> (0.28)
<EPS-DILUTED> 0
</TABLE>
