<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A
Amendment No. 1
---------------
Quarterly Report Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
For the Quarterly Period Ended: June 30, 1998
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)
201 N. Wells, Suite 1800, Chicago, Illinois 60606
---------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (312) 338-3300
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, 1998, there were 7,809,125 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, 1998 (unaudited) and September 30, 1997...........1
Consolidated Statements of Income (unaudited) -
three months and nine months ended June 30, 1998 and 1997..2
Consolidated Statements of Cash Flows (unaudited) -
nine months ended June 30, 1998 and 1997...................3
Notes to Consolidated Financial Statements......................4-7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations ....................8-13
PART II OTHER INFORMATION
Item 1. Legal Proceedings................................................14
Item 6. Exhibits and Reports on Form 8-K.................................14
SIGNATURE PAGE...............................................................15
EXHIBIT INDEX................................................................16
<PAGE>
PART I. FINANCIAL INFORMATION
As discussed in Note 1 to the Consolidated Financial Statements, certain amounts
for the three and nine months ended June 30, 1998 have been restated.
Item 1. Financial Statements
SUNDANCE HOMES, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
<TABLE>
<CAPTION>
June 30, September 30,
1998 1997
(restated)
--------- ---------
(unaudited)
<S> <C> <C>
ASSETS
- ------
Cash and cash equivalents $ 2,099 $ 4,615
Real estate inventories 104,545 80,787
Deferred income taxes 1,032 --
Prepaid expenses and other assets 2,703 1,566
Property and equipment, net 5,903 3,289
Deferred project start-up costs -- 3,726
Income tax receivable -- 565
--------- ---------
Total assets $ 116,282 $ 94,548
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
Accounts payable and accrued construction liabilities $ 13,255 $ 23,711
Other accrued expenses 2,050 1,976
Customer deposits 3,122 2,116
Notes payable 67,236 33,087
Notes payable to Principal Shareholder 2,500 --
Deferred income taxes payable -- 1,604
Subordinated notes payable to Principal Shareholder 4,193 4,193
--------- ---------
Total liabilities 92,356 66,687
--------- ---------
Minority interest (192) (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,
7,809,125 shares issued and outstanding 78 78
Additional paid-in capital 26,980 26,977
Retained earnings (deficit) (2,940) 988
--------- ---------
Total shareholders' equity 24,118 28,043
--------- ---------
Total liabilities and shareholders' equity $ 116,282 $ 94,548
========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
1
<PAGE>
CONSOLIDATED STATEMENTS OF INCOME (LOSS)
(in thousands, except per share data)
(unaudited)
<TABLE>
<CAPTION>
Three months ended Nine months ended
June 30, June 30,
----------------------- ------------------------
(restated) (restated)
1998 1997* 1998 1997*
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Residential sales 35,019 $ 23,739 $ 79,498 $ 61,582
Land and building sales 6,950 -- 6,950 --
-------- -------- -------- --------
Total sales 41,969 23,739 86,448 61,582
Cost of residential sales 32,160 20,863 73,442 56,174
Cost of land and building sales 5,898 -- 5,898 --
-------- -------- -------- --------
Total cost of sales 38,058 20,863 79,340 56,174
-------- -------- -------- --------
Gross profit 3,911 2,876 7,108 5,408
Selling expenses 2,575 2,072 6,622 5,833
General and administrative expenses 977 768 3,307 3,170
Income (loss) before minority interest and provision
(benefit) for income taxes 359 36 (2,821) (3,595)
Provision (benefit) for income taxes 144 14 (1,127) (1,438)
-------- -------- -------- --------
Income (loss) before cumulative effect of change in
accounting policy $ 215 $ 22 $ (1,694) $ (2,157)
Cumulative effect of change in accounting policy, net
of related tax effect -- -- (2,234) --
-------- -------- -------- --------
Net income (loss) $ 215 $ 22 $ (3,928) $ (2,157)
======== ======== ======== ========
Net income (loss) per share $ 0.03 $ 0.00 ($ 0.50) $ (0.28)
======== ======== ======== ========
Weighted average number of shares outstanding 7,808 7,807 7,808 7,807
======== ======== ======== ========
</TABLE>
* As discussed in Note 1 to the Consolidated Financial Statements, certain
amounts for the three and nine month periods ended June 30, 1997 have been
reclassified to conform to the 1998 financial presentation.
The accompanying notes are an integral part of these financial statements.
2
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
Nine months ended
June 30,
----------------------
1998 1997*
(restated)
--------- ---------
<S> <C> <C>
Operating activities:
Income (loss) before cumulative effect of change in accounting policy $ (3,928) $ (2,179)
Adjustments to reconcile net income (loss) to net cash
provided by (used for)
operating activities:
Depreciation and amortization 1,555 463
Deferred income taxes 1,090 (112)
Minority interest (10) --
Changes in operating assets and liabilities:
Real estate inventories (25,621) (118)
Prepaid expenses and other assets (1,137) (1,071)
Income tax receivables 565 --
Deferred project start up costs -- (1,132)
Accounts payable and accrued construction liabilities (10,456) (12,073)
Other accrued expenses 74 (3,332)
Customer deposits 1,006 888
--------- ---------
Net cash provided (used for) operating activities (36,862) (18,666)
--------- ---------
Investing activities:
Property and equipment, net (2,306) (732)
--------- ---------
Net cash provided by (used for) investing activities (2,306) (732)
--------- ---------
Financing activities:
Borrowings under notes payable 113,998 55,450
Repayments of notes payable (79,849) (38,653)
Borrowings under notes payable to Principal Shareholder 5,479 --
Repayments of notes payable to Principal Shareholder (2,979) --
Proceeds of stock options exercised 3 --
Contributions from minority interest -- 8
Distributions to minority interest -- (119)
--------- ---------
Net cash provided by (used for) financing activities 36,652 16,686
--------- ---------
Net increase (decrease) in cash and cash equivalents (2,516) (2,712)
Cash and cash equivalents:
Beginning of period 4,615 4,501
--------- ---------
End of period $ 2,099 $ 1,789
========= =========
</TABLE>
* As discussed in Note 1 to the Consolidated Financial Statements, certain
amounts for the nine month period ended June 30, 1997 have been reclassified to
conform to the 1998 financial presentation.
The accompanying notes are an integral part of these financial statements.
3
<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 nine months ended June 30, 1998 are not
necessarily indicative of the results to be expected for the entire fiscal year.
Reclassification of Results of Operations
Certain amounts for three and nine months ended June 30, 1997 were reclassified
to conform to the 1998 financial presentation.
Change in Accounting Policy
Effective October 1, 1997 the Company adopted Statement of Position (SOP) No
98-5, reporting on the costs of start-up activities. Costs of start up
activities and organization costs are expensed as incurred. The cumulative
effect of this change in accounting decreased net assets at October 1, 1997 by
$2,234,000.
Restatement of Results of Operations
Residential Sales have been adjusted to defer the recognition of certain parking
unit sales until legal title transfers to the buyer.
Gross Profit has been adjusted to reflect the deferral of certain parking unit
sales until legal title transfers to the buyer. Additionally, gross profit has
been adjusted to reflect changes in construction estimates not recognized on a
timely basis and to reflect the change in the Company's method of accounting for
pre-operative start-up costs.
Selling expenses have been adjusted to reflect the change in the Company's
method of accounting for pre-operative start-up costs.
4
<PAGE>
NOTE 2 - REAL ESTATE INVENTORIES
- --------------------------------
Real estate inventories are summarized as follows (in thousands):
June 30, September 30,
1998 1997
(restated)
------------- -------------
Work-in-process:
Land and development $47,397 $33,682
Construction inventory 40,480 29,732
Completed homes:
Models 1,557 6,668
Speculative homes 2,621 912
Capitalized overhead 4,949 3,146
Capitalized interest 7,541 6,647
============ ============
$104,545 $80,787
============ ============
Model homes are constructed to help market a project and include allocations of
land, land development and other allocable costs. Speculative homes represent
non-model homes which are substantially complete and are not subject to a sales
contract.
NOTE 3 - PROPERTY AND EQUIPMENT
- -------------------------------
Property and equipment are summarized as follows (in thousands):
June 30, September 30,
1998 1997
-------------- --------------
Model home upgrades and furnishings $7,979 $4,307
Equipment and furniture 3,226 3,147
Vehicles 393 379
Leasehold improvements 446 52
-------------- --------------
12,044 7,885
Accumulated depreciation 6,141 4,596
-------------- --------------
$5,903 $3,289
============== ==============
5
<PAGE>
NOTE 4 - NOTES PAYABLE
- ----------------------
Notes and mortgages payable are summarized as follows (in thousands):
June 30, September 30,
1998 1997
---------------- ---------------
Revolving credit loan $65,443 $30,818
Notes payable to Land Sellers 1,793 2,269
---------------- ---------------
$67,236 $33,087
================ ===============
On April 30, 1998, the Company entered into a new $80 million Revolving Credit
Loan Agreement (the "Loan Agreement") with LaSalle National Bank, American
National Bank and BankBoston, which replaced the Company's existing credit loan
agreement which provided for a $60 million line of credit. The three banks
participate in the $80 million facility as follows: LaSalle National Bank, $35
million; American National Bank, $25 million; and BankBoston, $20 million. 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 300
basis points for borrowings up to $70 million and prime plus 3/4% for borrowings
in excess of $70 million, plus certain customary fees. The Loan Agreement is
scheduled to mature on February 1, 2000. Available borrowings under the Loan
Agreement are reduced by the amount of letters of credit outstanding. The Loan
Agreement includes certain representations and covenants, including restrictions
on the Company's ability to pay dividends and the maintenance of certain
financial ratios. As of June 30, 1998, the Company had borrowed $65.4 million
under the Loan Agreement and had $3.8 million outstanding letters of credit,
leaving $10.8 available for future borrowings.
While the Company was securing its Loan Agreement, the Company entered into
certain interim financing arrangements to provide funding for certain projects
which were not provided for under the Company's prior credit agreement.
On March 16, 1998, the Company entered into a $15 million Construction Loan
Agreement with LaSalle National Bank with a maturity date of February 20, 1999,
at a rate of Prime plus 1.0%. Advances under this loan totaled $4,931,562 and
were used to provide construction funds for the Company's Erie Tower Project
located at 375 West Erie Street, Chicago, Illinois. Concurrent with the funding
of the Loan Agreement, on May 12, 1998, this loan was repaid in full.
On March 17, 1998, the Company entered into an interim financing agreement with
Cohen Financial Corporation in the amount of $1.6 million at a rate of prime
plus 1.0% with a maturity date of October 1, 1998. This promissory note was
secured by a mortgage on the property located at 3228-3244 North Halsted Street,
Chicago, Illinois. Concurrent with the funding of the Loan Agreement, on May 12,
1998, this note was repaid in full.
The Company entered into interim financing arrangements with the Principal
Shareholder as described in Note 5.
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.
6
<PAGE>
NOTE 5 - SUBORDINATED NOTES PAYABLE TO PRINCIPAL SHAREHOLDER
- ------------------------------------------------------------
SECURED NOTE PAYABLE
- --------------------
On May 1, 1998, Erie Center Lofts, Inc., a wholly owned subsidiary of the
Company, entered into a $2.5 million Secured Subordinated Promissory Note with a
maturity date of June 30, 1999, and an interest rate of 20% with Maurice
Sanderman, the Company's Chairman and President. The note is secured by a junior
mortgage on the property commonly known as Erie Tower located at 421 West Erie
Street in Chicago, Illinois. Principal payments under this note may only be paid
out of net sales proceeds from the sale of units within Erie Tower only after
all advances made under the New Loan Agreement related to the Erie Tower project
have been repaid.
UNSECURED NOTES PAYABLE
- -----------------------
On February 24, 1998, the Company borrowed $487,000 on an unsecured basis from
Maurice Sanderman, the Company's Chairman and President. The unsecured note was
at a rate of prime plus 3.0% with a maturity date of October 1, 1998. These
funds were used to pay property taxes for 1996 and 1997 which became due on a
building owned by the Company at 201 N. Wells, Chicago, Illinois. The payment of
these taxes was not provided for under the terms of the prior credit agreement.
This loan was repaid on June 30, 1998 concurrently with the closing of the sale
of the building.
On March 17, 1998, in order to acquire the property located at 3228-3244 North
Halsted, Chicago, Illinois, the Company borrowed $890,000 on an unsecured basis
from Maurice Sanderman, the Company's Chairman and President. The unsecured note
was at a rate of prime plus 3.0% with an expiration date of October 1, 1998. The
purchase of this property was not provided for under the terms of the prior
credit agreement. Concurrent with the funding of the Loan Agreement, on May 12,
1998, this note was repaid in full.
On May 26, 1998 the Company borrowed $1,602,241 on an unsecured basis from
Maurice Sanderman, the Company's Chairman and President. The unsecured note was
at a rate of prime plus 3.0% with a maturity date of October 1, 1998. These
funds were used to pay property taxes for 1990, 1991 and 1992, which became due
through a court settlement on a building owned by the Company at 201 N. Wells,
Chicago, Illinois. The payment of these taxes was not provided for under the
terms of the Loan Agreement. This loan was repaid in full concurrent with the
closing of the sale of the building on June 30, 1998.
As part of the public offering and recapitalization of the Company on July 9,
1993, the Company issued promissory notes to the Company's 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. On April 30, 1998 concurrent with the execution of the Loan Agreement
these notes were extended to February 1, 2000. Payment of the outstanding
principal balances are subject to certain restrictions under the Loan Agreement.
(See Note 4)
7
<PAGE>
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, 1998 or the
year ended September 30, 1997.
The Company currently leases 15,500 square feet of office space in Schaumburg,
Illinois where its Suburban Properties Division is located. The Company also
leases approximately 6,000 square feet of office space in Chicago, Illinois,
where the Chicago Urban Properties Division and the Corporate Headquarters are
located. Certain equipment is also currently leased under non-cancelable
operating leases. During the quarter, the Company sold certain model homes to an
unrelated third party and is leasing them back from the buyer.
Additionally, the Company is involved in various routine legal proceedings which
the Company believes to be incidental to the conduct of its business.
8
<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
During the quarter ended June 30, 1998 as compared to the quarter ended June 30,
1997 the Company's residential sales increased by approximately $11.3 million or
47.5%. In addition, the average sales price per home closed increased by $21,700
from $166,300 to $188,000.
The Company closed 186 homes during the quarter ended June 30, 1998, a 32.9%
increase over the 140 homes closed during the quarter ended June 30, 1997.
The Company's aggregate sales value in backlog at June 30, 1998 increased by
9.2% or $6.6 million to $78.0 million when compared to $71.4 million at June 30,
1997. In addition, the average sales price per home of the 402 homes in backlog
at June 30, 1998 increased by $14,000 per home to $194,300 from $180,300 related
to the 396 homes in backlog at June 30, 1997.
During the quarter ended June 30, 1998, the Company sold its position in two
separate land parcels located in the City of Chicago. The Company sold its
contractual rights to purchase a parcel of land located at 1300 West Diversey
Parkway and secondly, sold the building and land located at 201 North Wells in
Chicago. Revenue derived from these transactions during the quarter ended June
30, 1998 totaled $6,950,000.
The overall gross profit increased by $1.0 million or 36% and the Company's net
profit increased by $193,000 to $215,000 for the quarter ended June 30, 1998.
Urban Development
The Company's wholly owned division which develops property under the name
Chicago Urban Properties, Inc. took 46 new contracts totalling $7.1 million and
delivered 46 units during the quarter ended June 30, 1998.
The Erie Centre Loft project consisting of 106 units is currently 99% sold with
88% of the units delivered as of June 30, 1998. The remaining units are
scheduled for delivery in the fourth quarter of Fiscal 1998.
The Michigan Avenue Loft project consisting of 60 units is presently sold out.
By the end of the quarter ended June 30, 1998 a total of 44 units were
delivered. The remaining units are scheduled for delivery during the fourth
quarter of Fiscal 1998.
Adjacent 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 almost 50% sold with initial occupancy scheduled for
early 1999.
9
<PAGE>
The Company's three new projects in the Chicago urban market took 27 new
contracts during the quarter. These projects include two new loft conversion
projects located at 625 West Jackson Street, Chicago, IL and 942 West Madison
Street, Chicago, IL. In addition, the Company's 130 unit new construction
mid-rise condominium project at 3232 North Halsted, Chicago, IL opened for sale
and is currently over 50% sold. Initial deliveries for each of these three new
projects are
Suburban Communities
During the quarter ended June 30, 1998, the Company's suburban properties
division, Sundance Suburban Properties, Inc., took 186 new contracts, a 58%
increase over the same period the prior year. Sutton on the Lake in Lake County
and Bellchase in Lake in the Hills took 30 and 38 new contracts, respectively.
During the quarter ended June 30, 1998, the Company continued its expansion to
the suburbs south of Chicago by purchasing approximately 400 lots in Orland Park
and Lockport. The new communities, The Preserve in Orland Park and Arrowhead in
Lockport, along with the existing south suburban communities of Cedar Creek in
Matteson and Walnut Pointe in Bolingbrook took 89 new contracts during the
quarter.
The Company's custom home division, Rembrandt Homes delivered 19 homes and took
30 new contracts during the quarter in its two primary projects, The Conservancy
in Gurnee and St. Andrews in Vernon Hills.
During the quarter the Company opened a new state of the art 4,000 square foot
Design Center, centrally located in suburban Chicago. This new facility is
currently serving both Sundance Suburban and Rembrandt Homes customers.
10
<PAGE>
Results of Operations
The following table sets forth, for the three months and nine months ended, the
percentage of the Company's total sales represented by each income statement
line item presented.
<TABLE>
<CAPTION>
Three months ended Nine months ended
June 30, June 30,
------------------ ------------------
1998 1997 1998 1997
(restated) (restated)
----- ------ ------ ------
<S> <C> <C> <C> <C>
Residential sales 83.4% 100.0% 92.0% 100.0%
Land sales 16.6% 8.0%
------ ------ ------ ------
Total sales 100.0% 100.0% 100.0% 100.0%
Cost of residential sales 76.6% 87.9% 85.0% 91.2%
Cost of land sales 14.1% 6.8%
------ ------ ------ ------
Total cost of sales 90.7% 87.9% 91.8% 91.2%
------ ------ ------ ------
Gross Profit 9.3% 12.1% 8.2% 8.8%
Selling expenses 6.1% 8.7% 7.7% 9.5%
General and administrative expenses 2.3% 3.2% 3.8% 5.1%
------ ------ ------ ------
Income (loss) before minority interest and
provision (benefit) for income taxes 0.9% 0.2% (3.3)% (5.8)%
Provision (benefit) for income taxes 0.3% 0.1% (1.3)% (2.3)%
------ ------ ------ ------
Income (loss) before cumulative effect of change
in accounting policy 0.5% 01.% (2.0)% (3.5)%
Cumulative effect of change in accounting policy,
net of related tax effect (2.6)%
------ ------ ------ ------
Net income (loss) 0.5% 01.% (4.5)% (3.5)%
====== ====== ====== ======
</TABLE>
Residential Sales
Residential sales, which are recognized upon the closing and delivery of homes,
increased $11.3 million or 47.5%, to $35.0 million, for the three months ended
June 30, 1998 as compared to $23.7 million for the three months ended June 30,
1997. The Company also experienced increased sales revenue for the nine months
ended June 30, 1998 as compared to the comparable period in 1997. Sales revenue
increased $17.9 million, or 29.1%, from $61.6 million for the nine months ended
June 30, 1997 to $79.5 million for the nine months ended June 30, 1998. This
increase, for the quarter ended June 30, 1998, when compared to the quarter
ended June 30, 1997 is due primarily to the increase in the number of units
closed in the quarter. In addition, the average selling price increased by
$21,700 from $166,300 for the quarter ended June 30, 1997 to $188,000 for the
quarter ended June 30, 1998.
Land Sales
During the quarter ended June 30, 1998, the Company sold the land and the 28
story building located at 201 North Wells in Chicago, Illinois. In February,
1997, the Company purchased the note and mortgage on this property and on April
13, 1998 obtained title through a foreclosure sale. In addition, the Company
sold its contractual rights to purchase a land parcel located at 1300 West
Diversey in Chicago, Illinois. Revenue derived from these transactions totaled
$6,950,000.
11
<PAGE>
Cost of Residential Sales
Cost of residential sales, as a percentage of residential sales, increased by
3.9 percentage points to 91.8% for the quarter ended June 30, 1998 as compared
to 87.9% for the quarter ended June 30, 1997. Cost of residential sales, as a
percentage of residential sales, increased by 1.1 percentage points to 92.3% for
the nine months ended June 30, 1998 as compared to 91.2% for the nine months
ended June 30, 1997. Cost of residential sales increased by $11.3 million from
$20.9 million for the quarter ended June 30, 1997 to $32.2 million for the
quarter ended June 30, 1998. Cost of residential sales increased by $17.3
million from $56.2 million for the nine months ended June 30, 1997 to $73.4
million for the nine months ended June 30, 1998. The primary reason for the
increase in the cost of residential sales was the increased number of
residential units closed during the quarter and the nine month period ended June
30, 1998. The primary reason for the increase in cost of residential sales as a
percentage of residential sales, was the sale of 31 model homes to an unrelated
third party at reduced margins.
Gross Profit
Gross profit as a percentage of total sales was 9.3% for the quarter ended June
30, 1998, compared to 12.1% for the same period in 1997. Gross profit as a
percentage of total sales decreased to 8.2% for the nine months ended June 30,
1998, compared to 8.7% for the same period in 1997. Gross profit increased by
$1.0 million from $2.9 million for the quarter ended June 30, 1997 to $3.9
million for the quarter ended June 30, 1998. Gross profit increased by $1.7
million from $5.4 million for the nine months ended June 30, 1997 to $7.1
million for the nine months ended June 30, 1998. The increase in the gross
profit for the quarter and the nine month period ended June 30, 1998 was
attributable to the Company's land sales during the period, the Company's
continued closings in its urban division, continued closings in the Company's
new custom suburban project, and increased margins in the Company's suburban
homes. The increase in gross profit was partially offset by the sale of model
homes to an unrelated third party at reduced margins.
Selling, General and Administrative Expenses
Selling expenses as a percentage of total sales decreased by 2.6 percentage
points from 8.7% for the quarter ended June 30, 1997 to 6.1% for the quarter
ended June 30, 1998. Selling expenses as a percentage of total sales decreased
by 1.8 percentage points from 9.5% for the nine months ended June 30, 1997 to
7.7% for the nine months ended June 30, 1998. The decrease in selling expenses
for the quarter ended June 30, 1998, as a percentage of total sales, was
primarily a result of the increase in sales revenue during the quarter. Actual
selling expenses increased by $0.5 million from $2.1 million for the quarter
ended June 30, 1997 to $2.6 million for the quarter ended June 30, 1998 and
increased by $.8 million from $5.8 million during the nine months ended June 30,
1997 to $6.6 million for the nine months ended June 30, 1998. This increase, for
the quarter and nine months ended June 30, 1998, resulted primarily from
variable costs associated with increased deliveries, as well as increased
advertising expenditures resulting from the opening of new communities.
12
<PAGE>
General and administrative expenses increased by $0.2 million to $1.0 million
for the quarter ended June 30, 1998 compared to $0.8 million for the quarter
ended June 30, 1997. General and administrative expenses increased by $0.1
million to $3.3 million for the nine months ended June 30, 1998 compared to $3.2
million for the nine months ended June 30, 1997. As a percentage of total sales,
general and administrative expenses decreased from 3.2% for the quarter ended
June 30, 1997 to 2.3% for the quarter ended June 30, 1998. As a percentage of
total sales, general and administrative expenses decreased from 5.1% for the
nine months ended June 30, 1997 to 3.8% for the nine months ended June 30, 1998.
This decrease was due primarily to the Company's continued efforts to control
general and administrative expenses.
Income Taxes
The provision for income taxes for the three and nine months ended June 30, 1998
and 1997 reflect management's estimate of the Company's effective tax rate of
approximately 40.0%.
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 and
building 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, 1998 increased by approximately $13.6 to $36.9 million compared
to net cash used for operating activities of $23.2 million in the comparable
period in 1997 primarily due to the increase in real estate inventories.
On April 30, 1998, the Company entered into a new $80 million Revolving Credit
Loan Agreement (the "Loan Agreement") with LaSalle National Bank, American
National Bank and BankBoston, which replaced the Company's existing credit loan
agreement which provided for a $60 million line of credit. The three banks
participate in the $80 million facility as follows: LaSalle National Bank, $35
million; American National Bank, $25 million; and BankBoston, $20 million. 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 300
basis points for borrowings up to $70 million and prime plus 3/4% for borrowings
in excess of $70 million, plus certain customary fees. The Loan Agreement is
scheduled to mature on February 1, 2000. Available borrowings under the Loan
Agreement are reduced by the amount of letters of credit outstanding. The Loan
Agreement includes certain representations and covenants, including restrictions
on the Company's ability to pay dividends and the maintenance of certain
financial ratios. As of June 30, 1998, the Company had borrowed $65.4 million
under the Loan Agreement and had $3.8 million outstanding letters of credit,
leaving $10.8 available for future borrowings.
While the Company was securing its Loan Agreement, the Company entered into
certain interim financing arrangements to provide funding for certain projects
which were not provided for under the Company's prior credit agreement.
13
<PAGE>
On February 24, 1998, the Company borrowed $487,000 on an unsecured basis from
Maurice Sanderman, the Company's Chairman and President. The unsecured note was
at a rate of prime plus 3.0% with a maturity date of October 1, 1998. These
funds were used to pay property taxes for 1996 and 1997 which became due on a
building owned by the Company at 201 N. Wells, Chicago, Illinois. The payment of
these taxes was not provided for under the terms of the prior credit agreement.
This loan was repaid on June 30, 1998 concurrently with the closing of the sale
of the building.
On March 16, 1998, the Company entered into a $15 million Construction Loan
Agreement with LaSalle National Bank with a maturity date of February 20, 1999,
at a rate of Prime plus 1.0%. Advances under this loan totaled $4,931,562 and
were used to provide construction funds for the Company's Erie Tower Project
located at 375 West Erie Street, Chicago, Illinois. Concurrent with the funding
of the Loan Agreement, on May 12, 1998, this loan was repaid in full.
On March 17, 1998, in order to acquire the property located at 3228-3244 North
Halsted, Chicago, Illinois, the Company entered into two interim financing
arrangements. The first was a promissory note with Cohen Financial Corporation
in the amount of $1.6 million at a rate of prime plus 1.0% with a maturity date
of October 1, 1998. This note was secured by a mortgage on the property located
at 3228-3244 North Halsted Street, Chicago, Illinois. The second was an
unsecured note in the amount of $890,000 from Maurice Sanderman, the Company's
Chairman and President. The unsecured note was at a rate of prime plus 3.0% with
an expiration date of October 1, 1998. Concurrent with the funding of the Loan
Agreement, on May 12, 1998, both notes were repaid in full.
On May 26, 1998 the Company borrowed $1,602,241 on an unsecured basis from
Maurice Sanderman, the Company's Chairman and President. The unsecured note was
at a rate of prime plus 3.0% with a maturity date of October 1, 1998. These
funds were used to pay property taxes for 1990, 1991 and 1992, which became due
through a court settlement on a building owned by the Company at 201 N. Wells,
Chicago, Illinois. The payment of these taxes was not provided for under the
terms of the Loan Agreement. This loan was repaid in full concurrent with the
closing of the sale of the building on June 30, 1998.
In addition to the interim financing arrangements, on May 1, 1998, Erie Center
Lofts, Inc., a wholly owned subsidiary of the Company, entered into a $2.5
million Secured Subordinated Promissory Note with a maturity date of June 30,
1999, and an interest rate of 20% with Maurice Sanderman, the Company's Chairman
and President. The note is secured by a junior mortgage on the property commonly
known as Erie Tower located at 421 West Erie Street in Chicago, Illinois.
Principal payments under this note may only be paid out of net sales proceeds
from the sale of units within Erie Tower only after all advances made under the
New Loan Agreement related to the Erie Tower project have been repaid.
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.
The Company believes that its current credit 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.
14
<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 6. Exhibits and Reports on Form 8-K
Exhibit No. 10.1 - Revolving Loan Credit Agreement dated April 30, 1998
by and between the Company and LaSalle National
Bank, American National Bank and BankBoston(1)
Exhibit No. 10.2 - Secured Subordinated Promissory Note dated May 1,
1998 by and between Maurice Sanderman and Erie
Centre Lofts, Inc.(1)
Exhibit No. 27.1 - Financial Data Schedule
(1) Exhibits were previously filed with the original Form 10Q, filed August 14,
1998.
15
<PAGE>
SIGNATURE PAGE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this amendment to this report to be signed on its
behalf by the undersigned thereunto duly authorized.
SUNDANCE HOMES, INC.
By: /S/ Joseph R. Atkin Date: January 13, 1999
--------------------------------
Joseph R. Atkin, Vice President
and Chief Financial Officer
16
<PAGE>
EXHIBIT INDEX
Exhibit No. 10.1 - Revolving Loan Credit Agreement dated April 30, 1998 by
and between the Company and LaSalle National Bank,
American National Bank and BankBoston
Exhibit No. 10.2 - Secured Subordinated Promissory Note dated May 1, 1998 by
and between Maurice Sanderman and Erie Centre Lofts, Inc.
Exhibit No. 27.1 - Financial Data Schedule
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