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: December 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 February 17, 1998, 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 -
December 31, 1997 (unaudited) and September 30, 1997 1
Consolidated Statements of Income (unaudited) -
three months ended December 31, 1997 and 1996 2
Consolidated Statements of Cash Flows (unaudited) -
three months ended December 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 7-10
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>
December 31, September 30,
1997 1997
(unaudited)
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 3,768 $ 4,615
Real estate inventories 92,143 80,787
Prepaid expenses and other assets 2,311 1,566
Property and equipment, net 3,305 3,289
Deferred project start-up costs 3,462 3,726
Income tax receivable 160 565
Total assets $ 105,149 $ 94,548
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable and accrued construction liabilities $ 19,555 $ 23,711
Other accrued expenses 2,291 1,976
Customer deposits 2,094 2,116
Notes and mortgages payable 48,056 33,087
Deferred income taxes payable 1,394 1,604
Subordinated notes payable to Principal Shareholder 4,193 4,193
Total liabilities 77,583 66,687
Minority interest (186) (182)
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 697 988
Total shareholders' equity 27,752 28,043
Total liabilities and shareholders' equity $ 105,149 $ 94,548
<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
December 31,
1997 1996
<S> <C> <C>
Residential sales $ 19,633 $ 22,712
Cost of sales 17,141 20,962
Gross profit 2,492 1,750
Selling expenses 1,853 1,810
General and administrative expenses 1,124 898
Income (loss) before provision (benefit)
for income taxes (485) (958)
Provision (benefit) for income taxes (194) (383)
Net income (loss) $ (291) $ (575)
Net income (loss) per share ($0.04) ($0.07)
Weighted average number
of shares outstanding 7,807 7,807
<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>
Three months ended
December 31,
1997 1996
<S> <C> <C>
Operating activities:
Net loss $ (291) $ (575)
Adjustments to reconcile net loss to net cash
provided by (used for) operating activities:
Depreciation and amortization 334 392
Deferred income taxes (210) (112)
Changes in operating assets and liabilities:
Real estate inventories (11,356) 3,370
Prepaid expenses and other assets (745) (655)
Income tax receivables 405 -
Deferred project start up costs 264 (449)
Accounts payable and accrued construction liabilities (4,156) (10,899)
Other accrued expenses 32 (1,631)
Customer deposits (22) (40)
Net cash provided by (used for) operating activities (15,466) (10,599)
Investing activities - Property and equipment, net (350) (295)
Financing activities:
Borrowings under line of credit 32,099 34,300
Repayments of line of credit (17,067) (23,571)
Repayments of notes payable (63) (1,792)
Distributions to minority interest - (111)
Net cash provided by (used for) financing activities 14,969 8,826
Net decrease in cash and cash equivalents (847) (2,068)
Cash and cash equivalents:
Beginning of period 4,615 4,501
End of period $ 3,768 $ 2,433
<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"). 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, 1997 included
in the Company's Annual Report on Form 10-K, as filed with the
Securities and Exchange Commission on December 23, 1997.
The results of operations for the three months ended December
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>
December 31, September 30,
1997 1997
<S> <C> <C>
Work-in-process:
Land and development $ 42,518 $ 38,337
Construction inventory 40,498 33,948
Completed homes:
Models 6,898 7,590
Speculative homes 2,229 912
$ 92,143 $ 80,787
</TABLE>
Model homes are constructed to help market a development and
include allocations of land and development and other
allocable costs. Speculative homes represent non-model homes
which are substantially complete and are not subject to a
sales contract.
Capitalized interest included in real estate inventories at
December 31, 1997 and September 30, 1997 aggregated $6.8
million and $6.6 million, respectively.
<PAGE>
NOTE 3 - PROPERTY AND EQUIPMENT
<TABLE>
Property and equipment are summarized as follows (in thousands):
<CAPTION>
December 31, September 30,
1997 1997
<S> <C> <C>
Model home upgrades and furnishings $ 4,617 $ 4,307
Equipment and furniture 3,170 3,147
Vehicles 393 379
Leasehold improvements 54 52
8,234 7,885
Accumulated depreciation 4,929 4,596
$ 3,305 $ 3,289
</TABLE>
NOTE 4 - NOTES PAYABLE
<TABLE>
Notes and mortgages payable are summarized as follows (in thousands):
<CAPTION>
December 31, September 30,
1997 1997
<S> <C> <C>
Revolving line of credit $ 45,850 $ 30,818
Notes payable to land sellers 2,206 2,269
$ 48,056 $ 33,087
</TABLE>
On February 7, 1997 the Company entered into an Amended and
Restated Revolving Credit Loan Agreement (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. As of December 31,
1997, the Company had violated certain covenants as set forth in
the Loan Agreement, including those related to the Company's
projects exceeding three stories, and certain financial
covenants, specifically, those related to net worth and net
income. The Company believes that it will be able to either cure
these defaults and events of default or revise the terms of the
Loan Agreement or negotiate a replacement facility, but there can
be no assurance of such cure, revised agreement or replacement
facility. Failure by the Company to cure these defaults, revise
the terms of the Loan Agreement or negotiate a replacement
facility on a timely basis could have a material adverse effect
on the Company's operations. The subordinated notes payable to
the Principal Shareholder, as well as any interest thereto, are
not allowed to be repaid until all defaults are cured and certain
minimum net worth levels are maintained. As of February 13,
1998, the Company was negotiating with its banks in order to
provide adequate funding for the expansion of its Chicago Urban
Division including the construction of a 24-story high rise which
would include 5 floors of parking and 17 floors of residential
condominium apartments. There can be no assurance that the
Company will be able to secure such financing on acceptable
terms.
<PAGE>
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.
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, 1997, the maturity date of the notes
was extended to September 30, 1998. 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
three months ended December 31, 1997 or the year ended September
30, 1997.
The Company currently leases 25,000 square feet of office space
under a lease which terminates on March 31, 1998. A new
renewable five year lease for 15,500 square feet which begins
April 1, 1998 has been entered into. 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, 1997, as
filed with the Securities and Exchange Commission on December 23,
1997.
OVERVIEW
Although the Company experienced reduced revenues for the quarter
ended December 31, 1997, as compared to the quarter ended
December 31, 1996, the average sales price per home closed
increased by $10,200 from $173,300 in the quarter ended December
31, 1996 to $183,500 in the quarter ended December 31, 1997. The
primary reason for the increase in the average sales price was
due to the Company's first closings in its new custom suburban
project in its Rembrandt Homes division, which delivered homes
from about $380,000 to $580,000. Sales, which are recognized
upon the closing and delivery of homes, decreased $3.1 million
or 13.6% to $19.6 million, for the three months ended December
31, 1997, as compared to $22.7 million for the same period ended
December 31, 1996. The Company closed 107 homes in the quarter
ended December 31, 1997 compared to 131 in the quarter ended
December 31, 1996.
Gross profit as a percent of sales increased to 12.7% for the
quarter ended December 31, 1997, compared to 7.7% for the same
period in 1996. This increase is attributable to the Company's
continued closings in its urban division, the first closings in
the Company's new custom suburban project and increased margins
in the Company's suburban homes.
The sales backlog as of December 31, 1997 increased by 16.7% or
$5.4 million to $37.7 million representing 202 homes at an
average sales price of $186,600 compared to $32.3 million
representing 186 homes at an average sales price of $173,700 as
of December 31, 1996.
Urban Development
The Company's wholly owned division which develops property under
the name Chicago Urban Properties, Inc. has continued to expand
its operations during Fiscal 1998.
The St. Paul Loft project consisting of 82 loft units is sold out
and all units were delivered prior to December 31, 1997.
The Erie Centre Loft project consisting of 106 units is over 90%
sold out and over 50% of the units were delivered as of December
31, 1997 with the remaining units scheduled for delivery in the
first half of 1998.
The Michigan Avenue Loft project consisting of 60 units is over
90% sold out, and deliveries are scheduled for spring of 1998.
<PAGE>
Immediately contiguous to the Erie Centre Lofts, the Company is
constructing a 24-story building which will contain 126
condominium apartments and 251 parking spaces. This project is
currently over 30% sold with initial occupancy scheduled for
early 1999. 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 during March, 1998, although there can be no assurances
that such financing will be obtained.
In the second quarter of Fiscal 1998 the Company will be offering
for sale units in three new projects located in or near downtown
Chicago. These projects include two new loft conversion projects
of 48 and 90 units and one additional new construction project
consisting of 132 units.
Suburban Communities
During the quarter ended December 31, 1997 the Company delivered
the last home in two suburban communities, Deloraine and Spring
Lake Farm South. Also during the quarter, initial home
deliveries occurred in Georgian Court, a townhome and single
family development; Hometown at Oswego Square, the Company's neo-
classical development in Oswego and in St. Andrews, the Company's
first custom-home development, located in Vernon Hills.
In the second quarter of Fiscal 1998 the Company will be opening
for sale in two new communities located in the southwest suburbs
of Chicago, Walnut Pointe located in Bolingbrook, and Cedar Creek
located in Matteson.
Results of Operations
<TABLE>
The following table sets forth, for the three months ended, the
percentage of the Company's residential sales represented by each
income statement line item presented.
<CAPTION>
Three Months Ended
December 31, December 31,
1997 1996
<S> <C> <C>
Residential sales 100.0% 100.0%
Cost of sales 87.3% 92.3%
Gross profit 12.7% 7.7%
Selling expenses 9.5% 8.0%
General and administrative expenses 5.7% 3.9%
Income (Loss) before provision (benefit) for
income taxes (2.5)% (4.2)%
Provision (Benefit) for income taxes (1.0)% (1.7)%
Net income (loss) (1.5)% (2.5)%
</TABLE>
<PAGE>
Residential Sales
The decrease in sales revenue for the three months ended December
31, 1997, as compared to the three months ended December 31,
1996, was due primarily to the reduction in homes closed from 131
during the three months ended December 31, 1996 to 107 in the
three months ended December 31, 1997.
Cost of Sales
Cost of sales decreased $3.8 million from $20.9 million to $17.1
million for the three months ended December 31, 1997 as compared
to the three months ended December 31, 1996. As a percent of
sales revenue, cost of sales decreased 5.0% during the period
ended December 31, 1997 compared to the period ended December 31,
1996. The overall decrease in total dollars was primarily due to
fewer home closings.
Selling, General and Administrative Expenses
Selling expenses increased nominally from $1,810,000 for the
three months ended December 31, 1996 to $1,853,000 for the three
months ended December 31, 1997. As a percentage of sales
revenue, selling expenses increased from 8.0% to 9.5% for the
three months ended December 31, 1997 as compared to the prior
year period. The increase in selling expenses as a percent of
sales was a direct result of the decrease in sales revenue during
the quarter.
General and Administrative expenses increased by $226,000 to
$1,124,000 for the three months ended December 31, 1997 compared
to $898,000 for the three months ended December 31, 1996. This
increase was primarily due to certain expenses related to the
Company's Chicago Urban division which was only in the formative
stage during the three month period ended December 31, 1996 and
the Company's new Rembrandt Homes division which began operations
in the second quarter of Fiscal 1997.
Income Taxes
The provision for income taxes for the three months ended
December 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 and building acquisition and development
requirements, and in lesser part to the Company's net income.
Net cash used for operating activities for the three months ended
December 31, 1997 increased by approximately $4.9 million to
$15.5 million compared to net cash used for operating activities
of $10.6 million in the comparable period in 1996 primarily due
to the increase in real estate inventories and the reduction in
accounts payable and accrued construction liabilities.
On February 7, 1997 the Company entered into an Amended and
Restated Revolving Credit Loan Agreement (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. As of December 31,
1997, the Company had violated certain covenants as set forth in
the Loan Agreement, including those related to the Company's
projects exceeding three stories, and certain financial
covenants, specifically, those related to net worth and net
income. The Company believes that it will be able to either cure
these defaults and events of default or revise the terms of the
Loan Agreement or negotiate a replacement facility, but there can
be no assurance of such cure, revised agreement or replacement
facility. Failure by the Company to cure these defaults, revise
the terms of the Loan Agreement or negotiate a replacement
facility on a timely basis could have a material adverse effect
on the Company's operations. The subordinated notes payable to
the Principal Shareholder, as well as any interest thereto, are
not allowed to be repaid until all defaults are cured and certain
minimum net worth levels are maintained. As of February 13,
1998, the Company was negotiating with its banks in order to
provide adequate funding for the expansion of its Chicago Urban
Division including the construction of a 23-story high rise which
would 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 on acceptable
terms.
The Company believes that the current facility (as revised or
replaced with a similar 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.
<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: February 17, 1998
Joseph R. Atkin, Vice President
and Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-END> DEC-31-1997
<CASH> 3,768
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 92,143
<CURRENT-ASSETS> 95,911
<PP&E> 3,305
<DEPRECIATION> 0
<TOTAL-ASSETS> 105,149
<CURRENT-LIABILITIES> 29,527
<BONDS> 48,056
0
0
<COMMON> 78
<OTHER-SE> 26,977
<TOTAL-LIABILITY-AND-EQUITY> 105,149
<SALES> 19,633
<TOTAL-REVENUES> 19,633
<CGS> 17,141
<TOTAL-COSTS> 20,118
<OTHER-EXPENSES> 0
<LOSS-PROVISION> (485)
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (485)
<INCOME-TAX> (194)
<INCOME-CONTINUING> (291)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (291)
<EPS-PRIMARY> (0.04)
<EPS-DILUTED> 0
</TABLE>
