SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarter ended February 28, 1997
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission file no. 1-8846
CALTON, INC.
(Exact name of registrant as specified in its charter)
New Jersey 22-2433361
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification
Number)
500 Craig Road
Manalapan, New Jersey 07726-8790
(Addresses of principal executive offices) Zip Code
Registrant's telephone number,
including area code: (908) 780-1800
Indicate by check mark whether the registrant (1) 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), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes X No
As of March 31, 1997, 26,538,000 shares of Common Stock were outstanding.
CALTON, INC. AND SUBSIDIARIES
INDEX
Page No.
PART I. Financial Information
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheet at
February 28, 1997 and November 30, 1996. . . . . . . . . . . . . .3
Consolidated Statement of Operations for the
Three Months Ended February 28, 1997 and February 29, 1996 . . . .4
Consolidated Statement of Cash Flows for the
Three Months Ended February 28, 1997 and February 29, 1996 . . . .5
Consolidated Statement of Changes in Shareholders'
Equity for the Three Months Ended February 28, 1997 . . . . . . . 6
Notes to Consolidated Financial Statements. . . . . . . . . . . 7-8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations . . . . . . . . .9-11
PART II. Other Information
Item 6. Exhibits and reports on Form 8-K. . . . . . . . . . . . . . . . .12
SIGNATURES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .13
Certain information included in this report and other Company filings
(collectively, "SEC filings") under the Securities Act of 1933, as amended, and
the Securities Exchange Act of 1934, as amended (as well as information
communicated orally or in writing between the dates of such SEC filings)
contains or may contain forward looking information that is subject to certain
risks, trends and uncertainties that could cause actual results to differ
materially from expected results. Such forward looking statements include the
statements pertaining to the Company's ability to comply with the covenants
contained in its revolving credit facility. Among these risks, trends and
uncertainties are matters related to national and local economic conditions,
the effect of governmental regulation on the Company, the competitive
environment in which the Company operates, changes in interest rates, home
prices, availability and cost of land for future growth, the timing of land
acquisition and project development, availability of working capital and the
availability and cost of labor and materials. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
PART I. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS.
CALTON, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
February 28, November 30,
1997 1996
(Unaudited)
Assets ------------ ------------
Cash and cash equivalents $ 3,615,000 $ 4,292,000
Receivables 6,497,000 9,274,000
Inventories 68,249,000 65,525,000
Commercial land and buildings 7,527,000 7,512,000
Prepaid expenses and other assets 2,110,000 2,154,000
------------ ------------
Total assets $ 87,998,000 $ 88,757,000
============ ============
Liabilities and Shareholders' Equity
Revolving credit agreement $ 42,000,000 $ 39,500,000
Mortgages payable 4,412,000 4,445,000
Accounts payable 2,956,000 4,811,000
Accrued expenses and other liabilities 11,494,000 11,915,000
------------ ------------
Total liabilities 60,862,000 60,671,000
------------ ------------
Commitments and contingencies
Shareholders' equity
Common stock 265,000 265,000
Paid in capital 22,969,000 23,441,000
Retained earnings 3,902,000 4,380,000
------------ ------------
Total shareholders' equity 27,136,000 28,086,000
------------ ------------
Total liabilities and
shareholders' equity $ 87,998,000 $ 88,757,000
============ ============
See accompanying notes to consolidated financial statements.
CALTON, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
Three Months Ended February 28, 1997
and February 29, 1996
(Unaudited)
1997 1996
------------ ------------
Revenues $ 22,609,000 $ 19,456,000
------------ ------------
Costs and expenses
Cost of revenues 20,255,000 17,382,000
Selling, general and administrative 3,030,000 3,094,000
------------ ------------
23,285,000 20,476,000
Loss from operations (676,000) (1,020,000)
Interest expense, net 280,000 246,000
Loss before income taxes (956,000) (1,266,000)
Benefit in lieu of income taxes (478,000) (617,000)
------------ ------------
Net loss $ (478,000) $ (649,000)
============ ============
Net loss per share (.02) (.02)
============ ============
Weighted average number of shares outstanding 26,533,000 26,431,000
============ ============
See accompanying notes to consolidated financial statements.
CALTON, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
Three Months Ended February 28, 1997
and February 29, 1996
(Unaudited)
1997 1996
------------ ------------
Cash Flows from Operating Activities
Net loss $ (478,000) $ (649,000)
Adjustments to reconcile net loss to
net cash used by operating activities
Benefit in lieu of income taxes (478,000) (617,000)
Issuance of stock under 401(k) Plan 6,000 33,000
Depreciation and amortization 279,000 241,000
Decrease in receivables 2,777,000 4,130,000
Increase in inventories (2,858,000) (2,541,000)
Increase in commercial land and buildings (15,000) (24,000)
Increase (decrease) in prepaid expenses
and other assets (60,000) 228,000
Decrease in accounts payable, accrued
expenses and other liabilities (2,273,000) (3,393,000)
------------ ------------
(3,100,000) (2,592,000)
------------ ------------
Cash Flows from Financing Activities
Proceeds under Revolving Credit Agreement 2,500,000 2,000,000
Repayments of mortgages payable (77,000) (45,000)
------------ ------------
2,423,000 1,955,000
------------ ------------
Net decrease in cash and cash equivalents (677,000) (637,000)
Cash and cash equivalents at beginning of period
4,292,000 5,161,000
------------ ------------
Cash and cash equivalents at end of period $ 3,615,000 $ 4,524,000
============ ============
See accompanying notes to consolidated financial statements.
CALTON, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
Three Months Ended February 28, 1997
(Unaudited)
Common Paid In Retained
Stock Capital Earnings Total
-------- ----------- ---------- -----------
Balance,
November 30, 1996.$265,000 $23,441,000 $4,380,000 $28,086,000
Net loss. . . . . . -- -- (478,000) (478,000)
Benefit in lieu of
income taxes . . . -- (478,000) -- (478,000)
Issuance of stock under
401(k) Plan. . . . -- 6,000 -- 6,000
Balance,
February 28, 1997.$265,000 $22,969,000 $3,902,000 $27,136,000
======== =========== ========== ===========
See accompanying notes to consolidated financial statements.
CALTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Basis of Presentation
- --------------------------
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and in accordance with the instructions to Form 10-Q and Rule 10-01
of Regulation S-X. Accordingly, they do not include all the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. These interim financial statements should be read in conjunction
with the Company's annual report for the year ended November 30, 1996.
Operating results for the three month period ended February 28, 1997 are not
necessarily indicative of the results that may be expected for the year ended
November 30, 1997.
2. Inventories
- ----------------
Inventories consist of the following (amounts in thousands):
February 28, November 30,
1997 1996
------------ ------------
Land and land development costs $23,648 $22,969
Homes, lots and improvements in production 38,468 33,819
Land purchase options and costs of
projects in planning 6,133 8,737
------------ ------------
$68,249 $65,525
============ ============
Homes, lots and improvements in production represents all costs of homes
under construction, including model homes, land and land development costs, and
the related carrying costs of these lots.
Interest capitalized in inventories is charged to interest expense as part
of Cost of revenues when the related inventories are closed. Interest incurred,
capitalized and expensed for the three month periods ended February 28, 1997
and February 29, 1996 is as follows (amounts in thousands):
1997 1996
------------ ------------
Interest expense incurred $1,249 $1,348
Interest capitalized (965) (1,045)
------------ ------------
Interest expense-net 284 303
Capitalized interest amortized in
Cost of revenues 723 584
------------ ------------
Interest cost reflected in pre-tax loss $1,007 $887
============ ============
Effective December 1, 1996, the Company has adopted the Financial Accounting
Standards Board Statement No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of," which requires impairment
losses to be recorded on long-lived assets used in operations when indicators
of impairment are present and the undiscounted cash flows estimated to be
generated by those assets are less than the assets' carrying amount. The
Company's adoption of this statement on December 1, 1996 did not have a
material effect on the Company's financial position, results of operations and
cash flows.
3. Commitments and Contingent Liabilities
- -------------------------------------------
(a) In July 1994, an action was filed against Calton Homes, Inc., the
Township of Plainsboro, New Jersey and its planning board, certain real estate
brokers and certain unnamed officers of Calton Homes, Inc., by approximately 60
purchasers in the Company's Princeton Manor development seeking compensatory
and punitive damages arising out of an alleged failure to disclose that a
portion of the property adjacent to the community could be developed by
Plainsboro Township as a public works site. The Company is vigorously
contesting this matter and, although there can be no assurances, does not
believe that the case will have any material effect on the financial position,
results of operations or cash flows of the Company. In addition, the Company
believes that it is contractually entitled to indemnification from Plainsboro
Township in the event that any liability should arise.
(b) In June 1996, the Federal Deposit Insurance Corporation (the "FDIC"),
in its capacity as Liquidating Agent/Receiver of Eliot Savings Bank, instituted
an action in the United States District Court, District of Massachusetts,
seeking recovery of amounts owed under a $5,700,000 promissory note (the
"Note") issued to Eliot Savings Bank by the Residences at the Surf joint
venture (the "Joint Venture"), an entity in which a Talcon, L.P. ("Talcon")
subsidiary had an interest. This action relates to a loan on property owned by
the Joint Venture. The loan was placed on the property before Talcon was
formed. Accordingly, in connection with the creation of Talcon, the interest in
the Joint Venture was transferred upstream to Calton, Inc. and then transferred
downstream into Talcon, and eventually into the Talcon subsidiary. In its suit,
the FDIC alleges, among other things, that Calton, by virtue of the assignment
of the interest in the Joint Venture to Calton in 1987, has liability as a
general partner in the Joint Venture and is seeking to collect approximately
$8,700,000 in principal and interest from Calton and other parties. While no
discovery has occurred to date, based upon a preliminary analysis of this
matter, Calton believes that the FDIC's position is contrary to applicable law
and that Calton does not have any obligations under the Note by virtue of the
assignment of the interest in the Joint Venture to Calton or otherwise. The
Company will vigorously contest this matter but there can be no assurances that
the case will not have a material adverse effect on the Company's financial
position, results of operations or cash flows.
(c) The Company is involved from, time to time, in other litigation in the
ordinary course of business. Management presently believes that the resolution
of any such matter should not have a material, adverse effect on the financial
condition, results of operations or cash flows of the Company.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
RESULTS OF OPERATIONS FOR THE THREE MONTH PERIODS ENDED FEBRUARY 28, 1997 AND
FEBRUARY 29, 1996
Revenues for the three months ended February 28, 1997 were $22.6 million
compared to revenues of $19.5 million for the three months ended February 29,
1996. Deliveries of 88 homes resulted in housing revenues of $19.3 million for
the three months ended February 28, 1997. For the comparable period of 1996,
the Company delivered 92 homes which generated $19.4 million of housing
revenues. Housing revenues remained flat despite a slight decrease in the
number of homes delivered primarily due to an increase in the average selling
price realized on the deliveries to $220,000 in 1997 from $211,000 in 1996.
Average selling prices increased in 1997 compared to the prior year primarily
due to the mix of home deliveries from the Company's Northeast division
reflecting increased deliveries from the division's newer communities opened
primarily in 1996. The impact of these communities on average home sales prices
represents the division's current strategy to focus on the second and third
time move-up buyer. Partially offsetting the increase in revenue per home from
the Northeast division is the total mix of homes delivered during the period
ended February 28, 1997 compared to the same period in 1996 reflecting a
greater proportion of homes delivered and housing revenues derived from the
Florida division where average sales prices are lower than in the Northeast.
Florida home deliveries and revenues, which increased approximately eighty
percent (80%) over the corresponding period in 1996, benefited from a higher
quantity of homes in backlog entering fiscal year 1997 compared to the prior
year. Revenues in the first quarter of 1997 include the sale of a parcel of
land under option for $3.3 million that resulted in no significant gain or
loss. No such sale occurred in the first quarter of 1996.
The Company's gross profit margin on homes delivered was approximately twelve
percent (12%) for the three months ended February 28, 1997 compared to eleven
percent (11%) for the comparable period of 1996. The gross profit margin on
homes delivered for the period ended February 28, 1997 was favorably impacted
by the increased proportion and quantity of home deliveries and related gross
profit margin contribution from the Company's Florida division as compared to
the same period in 1996.
Selling, general and administrative expenses remained flat in the first
quarter of 1997 as compared to the corresponding period of the prior year.
Selling, general and administrative costs as a percentage of housing revenue
remained constant at sixteen percent (16%) for the quarter compared to the
comparable period of the prior year.
Gross interest cost was approximately $1.2 million for the three month period
ended February 28, 1997 compared to $1.3 million in the corresponding period of
the prior year. The decrease in gross interest cost resulted from lower debt
levels. Interest capitalized in the three month period ended February 28, 1997
was $965,000 compared to approximately $1.0 million in the corresponding period
of the prior year primarily as a result of decreased inventory levels subject
to interest capitalization. The capitalized amounts will reduce future gross
profit levels assuming no relative increases in selling prices.
Included in the net loss for the three month period ended February 28, 1997
is a benefit for income taxes of $478,000 reflecting the Company's effective
tax rate based on estimates of annual results for 1997. Realization of the
benefit is dependent on generating sufficient income through the remainder of
1997. Although realization is not assured, management believes the benefit will
be realized.
At February 28, 1997, the backlog of homes under contract totalled 171 having
an aggregate dollar value of $40.2 million compared to 197 homes in backlog
having a $40.5 million aggregate dollar value as of February 29, 1996. The
decrease in the number of homes in backlog is primarily attributable to the
wind down of the Chicago division coupled with a reduction in the number of
homes in backlog from the Company's Northeast division. Compared to the prior
year, the Northeast division was impacted by fewer communities open for sales
and deliveries and the effect from the wind down of two communities during the
quarter. As of February 28, 1997, the Northeast division had six active
communities open for sales, compared to ten at February 29, 1996. In March
1997, the Company's Renaissance community, which contains up to 2,000 lots,
began as an active community. Within this community, three product lines are
available for sales. The average sales price in backlog increased from $205,000
in 1996 to $235,000 in 1997 that resulted in comparable total backlog dollar
value when compared to the prior year, despite the reduction in the number of
homes in backlog. The increase in average sales price per home in backlog of
approximately fifteen percent (15%) is attributable to a greater proportion and
quantity of higher priced homes in the Northeast division's backlog, reflecting
the sales activity in the division's newer communities that focus on the second
and third time move-up buyer and strategy to emphasize quality, features and
value. Net sales contracts of $19.4 million (94 homes) were recorded by the
Company for the first quarter ended February 28, 1997 representing a decrease
in the dollar value of contracts of nineteen percent (19%) and the number of
homes under contract of twenty-four percent (24%) compared to $23.9 million
(123 homes) for the same period in 1996. The primary net sales activity is
attributable to the reduction of Northeast division net sales where fewer
communities were open for sales and deliveries. The backlog in both years
includes contracts containing financing and other contingencies customary in
the industry, including contracts that are contingent on the purchaser selling
their existing home. Due to changes in product offerings, the uncertainty of
future market conditions and the general economic environment, the sales
backlog, homes delivered, average selling prices and gross profit achieved in
the current and prior periods may not be indicative of those to be realized in
succeeding periods.
The Company has begun its entry into the active adult housing market in Ocean
County, New Jersey, in a community marketed under the name Renaissance. The
Company has the contractual right to purchase up to 2,000 finished lots on a
rolling option basis, with the land seller funding the construction of the
amenities that will be offered in this 600 acre community. The first fifty lots
were purchased in February and March of 1997 and the Company has entered into a
total of approximately twenty-five (25) sales contracts during the first five
weeks of activity in addition to another twenty (20) non-binding sales
agreements. The Company expects Renaissance, which will be a major part of the
Northeast division's new focus on both the active adult community and move-up
buyer markets, to be a significant contributor to the division's future
results.
Effective December 1, 1996, the Company has adopted the Financial Accounting
Standards Board Statement No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of," which requires impairment
losses to be recorded on long-lived assets used in operations when indicators
of impairment are present and the undiscounted cash flows estimated to be
generated by those assets are less than the assets' carrying amount. The
Company's adoption of this statement on December 1, 1996 did not have a
material effect on the Company's financial position, results of operations and
cash flows.
In February 1997, the Financial Accounting Standards Board issued Statement
Financial Accounting Standards No. 128, "Earnings per Share." The provisions of
this statement are effective for financial statements issued for periods ending
after December 15, 1997. Although early adoption is not permitted, when the
Company adopts this statement in fiscal year 1998, the basic earnings per share
calculation should approximate the current primary earnings per share
calculation; however, the diluted earnings per share calculation, when adopted,
may be lower than the basic.
LIQUIDITY AND CAPITAL RESOURCES
In April 1997, the Company and its lenders amended the Company's revolving
credit facility (the "Facility") to extend the term of the Facility through
February 28, 1998 and, if certain conditions are satisfied, August 31, 1998.
The amended Facility (the "Amended Facility") reduced the loan commitment level
to $46.0 million initially and requires amortization of $3.0 million by July
15, 1997, another $3.0 million by August 31, 1997 and a further reduction of
$10.0 million by November 30, 1997. In addition, the Amended Facility increased
the interest rate charged to the Company to the lender's prime rate (8.25% at
February 28, 1997) plus two and one-half percent (2.5%). The Company is required
to pay the lenders, in five (5) installments, a commitment fee, which the
Company will amortize over the extension period ending February 28, 1998, equal
to three percent (3%) of the lenders' initial commitment level under the
Amended Facility.
The Amended Facility provides the Company an option to extend the term to
August 31, 1998 if outstanding borrowings and the commitment level are reduced
to $20.0 million or less by February 28, 1998. In such event, the interest rate
charged to the Company will be reduced to prime plus two percent (2%).
The Amended Facility changed various restrictions and financial covenants
with which the Company is required to comply, including covenants relating to
cash basis interest coverage, EBITDA and tangible net worth, and continues to
impose limits on the amount which can be expended on land acquisition and land
development. For the year ended November 30, 1996, the Company's EBITDA was
$7.3 million compared to $8.6 million in 1995. For the twelve-month period
ended February 28, 1997, the Company's EBIDTA was $7.8 million. Purchase money
financing from other sources continues to be limited to $5.0 million under the
Amended Facility. Certain subsidiaries of the Company are guarantors of the
obligations under the Amended Facility. The lenders have a security interest in
substantially all of the assets of the Company and its subsidiaries, subject
only to certain permitted liens approved by the lenders. The Amended Facility
prohibits the payment of dividends by the Company.
Management believes that it will be able to comply with the covenant levels
and other terms set forth in the Company's agreement with the lenders based
upon meeting the levels anticipated in its business plan. However, there can be
no assurance that if market or other conditions deteriorate, that the Company
will meet the covenant levels.
The Company is pursuing and will continue to pursue long-term financing to
replace the Amended Facility. Pending such replacement, the Company believes
that funds generated by operating activities, income tax payment reductions
derived from NOL utilization, the sale of certain assets during fiscal 1997 and
borrowing availability under the Amended Facility will provide sufficient
capital to support the Company's operations through the term of the Amended
Facility. If a more favorable long-term credit facility is not obtained, the
rate at which the Company can open new communities may be adversely affected
and the Company would be required to effect sales of substantial assets in
order to obtain an extension of the Amended Facility beyond February 28, 1998.
As of February 28, 1997, approximately $1.6 million was available to be
borrowed under the Facility based on the Company's eligible inventory and $42.0
million was outstanding. An additional $1.4 million of letters of credit were
outstanding under the facility as of such date. The unused Facility of $2.6
million was available as of February 28, 1997 (based upon the Amended
Facility's initial loan commitment level) to the Company for reinvestment in
inventory that results in the corresponding growth of its borrowing base.
Interest rate increases will continue to impact the Company's cost of capital
and related interest costs. Increases in capitalized interest could reduce
future gross profit levels assuming no relative increases in home selling
prices. EBITDA, however, would not be adversely impacted.
Cash Flows from Operating Activities
- ------------------------------------
Operating activities resulted in the use of $3.1 million of cash compared to
$2.6 million in the prior year. The utilization of cash by operations can be
attributable to the increase in inventory of approximately $2.9 million
primarily due to new acquisitions of approximately $4.9 million, offset to a
certain extent by the sale of a parcel of land under option and the timing of
the construction and delivery of homes between the fourth quarter of 1996 and
the first quarter of 1997. The timing of such activities resulted in the
decrease in receivables of $2.8 million and the reduction of accounts payable,
accrued expenses and other liabilities of $2.3 million.
The Company will continue to seek opportunities to obtain control of land for
future communities at advantageous prices and terms. Funds generated by the
Company's operations will be utilized for the acquisition of such properties.
In addition, borrowings from the Facility will be utilized for acquisitions as
needed, and to the extent available. Also, options will continue to be utilized
to the extent possible to minimize risks, conserve cash and maximize the
Company's land pipeline.
Cash Flows from Financing Activities
- ------------------------------------
The Company utilized approximately $2.4 million of cash primarily from its
revolving line of credit to finance the acquisitions of new land in the quarter
and the timing of home building activities.
PART II - OTHER INFORMATION
Item 6. Exhibits and reports on Form 8-K.
A) Exhibits
27. Financial Data Schedule as of February 28, 1997.
B) Reports on Form 8-K.
None.
SIGNATURES
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.
Calton, Inc.
--------------------
(Registrant)
By:/s/ Bradley A. Little
--------------------
Bradley A. Little
Senior Vice President-
Finance, Treasurer and Chief
Financial Officer
(Principal Financial and Accounting
Officer)
Date: April 14, 1997