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: March 31, 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 May 14, 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-
March 31, 1997 (unaudited) and September 30, 1996 1
Consolidated Statements of Income (unaudited) -
three months and six months ended March 31, 1997 and 1996 2
Consolidated Statements of Cash Flows (unaudited) -
six months ended March 31, 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 7-9
Item 3. Quantitative and Qualitative Disclosures AboutMarket Risk 9
PART II OTHER INFORMATION
Item 1. Legal Proceedings 10
Item 2. Changes in Securities 10
Item 3. Defaults Upon Senior Securities 10
Item 4. Submission of Matters to a Vote of Security Holders 10
Item 5. Other Information 10
Item 6. Exhibits and Reports on Form 8-K 10
SIGNATURE PAGE 11
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
SUNDANCE HOMES, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
<CAPTION>
March 31, September 30,
1997 1996
(unaudited)
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 1,789 $ 4,501
Real estate inventories 76,219 76,101
Deferred income taxes 573 461
Prepaid expenses and other assets 1,822 751
Property and equipment, net 2,789 2,520
Deferred project start-up costs 3,204 2,072
Total assets $ 86,396 $ 86,406
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable and accrued construction liabilities $ 10,994 $ 23,067
Other accrued expenses 2,827 6,182
Customer deposits 2,321 1,433
Notes and mortgages payable 39,824 23,027
Subordinated notes payable to Principal Shareholder 4,193 4,193
Total liabilities $ 60,159 $ 57,902
Minority interest 23 111
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) (841) 1,338
Total shareholders' equity 26,214 28,393
Total liabilities and shareholders' equity $ 86,396 $ 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 Six months ended
March 31, March 31,
1997 1996 1997 1996
<S> <C> <C> <C> <C>
Residential sales $ 15,131 $ 19,831 $ 37,843 $ 52,279
Cost of sales 14,499 18,120 35,461 47,565
Gross profit 632 1,711 2,382 4,714
Selling expenses 1,801 2,083 3,611 3,719
General and administrative expenses 1,514 1,084 2,402 2,016
Other (income) expense, net (19) (14) (24) (25)
Income (loss) before minority interest
and benefit (expense) for income taxes (2,664) (1,442) (3,607) (996)
Minority interest 9 12 24 57
Income (loss) before benefit for income taxes (2,673) (1,454) (3,631) (1,053)
Benefit (expense) for income taxes (1,069) (581) (1,452) (421)
Net income (loss) $ (1,604) $ (873) $ (2,179) $ (632)
Net income (loss) per share $ (0.21) $ (0.11) $ (0.28) $ (0.08)
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>
Six months ended
March 31,
1997 1996
<S> <C> <C>
Operating activities:
Net loss $ (2,179) $ (632)
Adjustments to reconcile net loss to net cash
provided by (used for) operating activities:
Depreciation and amortization 464 412
Minority interest 23 57
Deferred income taxes (112) -
Changes in operating assets and liabilities:
Real estate inventories (118) 11,012
Prepaid expenses and other assets (1,071) (113)
Income tax receivables - 388
Deferred project start up costs (1,132) 34
Accounts payable and accrued construction liabilities (12,073) (7,457)
Other accrued expenses (3,355) 737
Customer deposits 888 (77)
Net cash provided by (used for) operating activities (18,665) 4,361
Investing activities - Property and equipment, net (732) (511)
Financing activities:
Borrowings under line of credit 55,450 44,440
Repayments of line of credit (36,772) (51,379)
Repayments of notes payable (1,882) (416)
Contributions from minority interest 8 24
Distributions to minority interest (119) -
Net cash provided by (used for) financing activities 16,686 (7,331)
Net decrease in cash and cash equivalents (2,712) (3,481)
Cash and cash equivalents:
Beginning of period 4,501 4,687
End of period $ 1,789 $ 1,206
<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 six months ended March 31,
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>
March 31, September 30,
1997 1996
<S> <C> <C>
Work-in-process:
Land and development $ 55,013 $ 49,382
Construction inventory 15,060 20,226
Completed homes:
Models 6,146 6,493
$ 76,219 $ 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
March 31, 1997 and September 30, 1996 aggregated $6.6 million
and $5.4 million, respectively.
<PAGE>
NOTE 3 - PROPERTY AND EQUIPMENT
<TABLE>
Property and equipment are summarized as follows (in thousands):
<CAPTION>
March 31, September 30,
1997 1996
<S> <C> <C>
Model home upgrades and furnishings $ 3,879 $ 3,318
Equipment and furniture 2,911 2,740
Vehicles 402 402
Leasehold improvements 41 41
7,233 6,501
Accumulated depreciation 4,444 3,981
$ 2,789 $ 2,520
</TABLE>
NOTE 4 - NOTES PAYABLE
<TABLE>
Notes and mortgages payable are summarized as follows (in thousands):
<CAPTION>
March 31, September 30,
1997 1996
<S> <C> <C>
Revolving line of credit $ 37,904 $ 19,225
Notes payable to land sellers 1,920 3,802
$ 39,824 $ 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 .5% 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
six months ended March 31, 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 six month periods ended March 31, 1997 as
compared to the same periods in 1996. Sales, which are
recognized upon the closing and delivery of the homes, decreased
$4.7 million (23.7%) to $15.1 million (91 homes), for the three
months ended March 31, 1997, as compared to $19.8 million (114
homes) for the same period in 1996. Gross profit as a percent of
sales decreased to 4.2% for the quarter ended March 31, 1997,
compared to 8.6% for the same period in 1996. For the six months
ended March 31, 1997, sales decreased $14.4 million (27.6%) to
$37.8 million (222 homes) as compared to $52.3 million (299
homes) for the same period in 1996. Gross profit as a percent of
sales, for the six months ended March 31, 1997, decreased 2.7% to
6.3% as compared to 9.0% for the same period in 1996. Net new
orders increased to 237 for the quarter ended March 31, 1997 as
compared to 200 for the quarter ended March 31, 1996. The sales
backlog as of March 31, 1997 was $58.2 million (332 homes) compared
to $53.2 million (315 homes) as of March 31, 1996.
Results of Operations
<TABLE>
The following table sets forth, for the three months and six
months ended, the percentage of the Company's residential sales
represented by each income statement line item presented.
<CAPTION>
Three months ended Six months ended
March 31, March 31,
1997 1996 1997 1996
<S> <C> <C> <C> <C>
Residential sales 100.0 % 100.0 % 100.0 % 100.0 %
Cost of sales 95.8 % 91.4 % 93.7 % 91.0 %
Gross profit 4.2 % 8.6 % 6.3 % 9.0 %
Selling expenses 11.9 % 10.5 % 9.5 % 7.1 %
General and administrative expenses 10.0 % 5.5 % 6.3 % 3.9 %
Other (income) expense, net (0.1)% (0.1)% (0.1)% (0.1)%
Income (loss) before minority interest
and benefit (expense) for income taxes (17.6)% (7.3)% (9.4)% (1.9)%
Minority interest 0.1 % 0.0 % 0.1 % 0.1 %
Income (loss) before benefit
(expense) for income taxes (17.7)% (7.3)% (9.5)% (2.0)%
Benefit (expense) for income taxes 7.1 % 2.9 % 3.8 % 0.8 %
Net income (loss) (10.6)% (4.4)% (5.7)% (1.2)%
</TABLE>
<PAGE>
Residential Sales
The decrease in sales revenue for the three months ended March
31, 1997, as compared to the prior year period, was primarily due
to the decrease in homes closed to 91 homes for the three months
ended March 31, 1997 as compared to 114 homes for the same
quarter in 1996. The Company also experienced reduced sales
revenue for the six months ended March 31, 1997 as compared to
the comparable period in 1996. Sales revenue decreased from
$52.3 million (299 homes) in the six months ended March 31, 1996
to $37.8 million (222 homes) in the six months ended March 31,
1997. The reduction in sales revenue is 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 $3.6 million from $18.1 million to $14.5
million for the three months ended March 31, 1997 as compared to
the prior year period. For the six months ended March 31, 1997,
cost of sales decreased $12.1 million to $35.5 million as
compared to $47.6 million for the same period in 1996. As a
percent of sales revenue, cost of sales for the quarter ended
March 31, 1997 increased 4.4% as compared to the same prior year
period. For the six month period ended March 31, 1997, cost of
sales, as a percent of sales revenue, increased 2.7% 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.
Selling, General and Administrative Expenses
Selling expenses decreased by 13.5% from $2.1 million to $1.8
million for the three months ended March 31, 1997 as compared to
the prior year period. There was a decrease in selling expenses
for the six months ended March 31, 1997 to $3.6 million from $3.7
million. Selling expenses decreased primarily due to reduced
sales commission as a result of reduced sales revenue.
General and administrative expenses increased $0.4 million for
both the three and six months ended March 31, 1997. These increases
were primarily due to costs associated with the Company's new computer
system as well as increases in personnel and related costs.
Income Taxes
The provision for income taxes for the three months and six
months ended March 31, 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.
<PAGE>
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 six months ended March 31, 1997
was approximately $18.7 million primarily due to the reduction in
accounts payable and accrued construction liabilities, compared
to net cash provided by operating activities of $4.4 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 .5% 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 May 12, 1997, the Company had borrowed $44.7
million under the Loan Agreement and had $11.3 million
outstanding letters of credit leaving $4.0 million available for
future borrowings.
The Company believes that the current facility 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.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
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
The Company's Annual Meeting of Shareholders was held
on March 4, 1997. As described in the Company's Proxy
Statement Dated January 31, 1997, the only matter
submitted to a vote of security holders was the
election of two directors as Class III directors of the
Company.
In the election of directors, each holder of Common
Stock was entitled to vote the number of shares owned
by such shareholder for as many persons as there were
directors to be elected (in this case 2 directors), or
to cumulate such votes and give one candidate as many
votes as equaled the number of directors being elected
(in this case 2 directors) multiplied by the number of
such shares or to distribute such cumulative votes in
any proportion among any number of candidates.
Nominees who received the greatest number of votes, up
to the number of directors to be elected, were elected.
<TABLE>
The following summarizes the results of the shareholder vote:
<CAPTION>
Votes in Votes Authority Broker Non-
Name of Director Nominee favor Opposed Abstentions Withheld Votes
<S> <C> <C> <C> <C> <C>
Class III (Terms Expire in 2000)
Maurice Sanderman 7,683,011 - - 40,900 -
Charles Engles 7,683,011 - - 40,900 -
</TABLE>
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: May 14, 1997
Joseph R. Atkin, Vice President
and Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<PERIOD-START> OCT-01-1996
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-END> MAR-31-1997
<CASH> 1,789
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 76,219
<CURRENT-ASSETS> 78,008
<PP&E> 2,789
<DEPRECIATION> 0
<TOTAL-ASSETS> 86,396
<CURRENT-LIABILITIES> 20,335
<BONDS> 39,824
0
0
<COMMON> 78
<OTHER-SE> 26,977
<TOTAL-LIABILITY-AND-EQUITY> 86,396
<SALES> 37,843
<TOTAL-REVENUES> 37,843
<CGS> 35,461
<TOTAL-COSTS> 41,474
<OTHER-EXPENSES> (24)
<LOSS-PROVISION> (3,607)
<INTEREST-EXPENSE> 24
<INCOME-PRETAX> (3,631)
<INCOME-TAX> (1,452)
<INCOME-CONTINUING> (2,179)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,179)
<EPS-PRIMARY> (0.28)
<EPS-DILUTED> 0
</TABLE>
