FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarter ended August 31, 1995
[ ] 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
(Address of principal Zip Code
executive office)
Registrant's telephone number,
including area code: (908) 780-1800
Indicate by check mark whether the registrant (l) has filed all
reports required to be filed by Section l3 or l5(d) of the
Securities Exchange Act of l934 during the preceding l2 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 Sections 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 September 29, 1995, 26,371,000 shares of Common Stock were
outstanding.
CALTON, INC. AND SUBSIDIARIES
INDEX
PART I. Financial Information Page
No.
Item l. Financial Statements (Unaudited)
Consolidated Balance Sheet at
August 31, 1995 and November 30, 1994................
Consolidated Statement of Income for the
Three Months Ended August 31, 1995 and 1994..........
Consolidated Statement of Income for the
Nine Months Ended August 31, 1995 and 1994...........
Consolidated Statement of Cash Flows for the
Nine Months Ended August 31, 1995 and 1994...........
Consolidated Statement of Changes in Shareholders'
Equity for the Nine Months Ended August 31, 1995.....
Notes to Consolidated Financial Statements...........
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations.........
PART II. Other Information
Item 6. Exhibits and reports on Form 8-K.....................
SIGNATURES..........................................................
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
CALTON, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
August 31, November 30,
1995 1994
Assets (Unaudited)
Cash and cash equivalents.................. $ 5,239,000 $ 5,759,000
Receivables................................ 8,812,000 7,823,000
Inventories................................ 75,652,000 88,802,000
Commercial land and buildings (Note 2)..... 8,878,000 16,597,000
Investments in and advances
to joint ventures........................ 850,000 850,000
Property and equipment, net................ 493,000 402,000
Prepaid expenses and other assets.......... 2,026,000 1,911,000
Total assets............................. $101,950,000 $122,144,000
Liabilities and Shareholders' Equity
Revolving credit agreement................. $ 51,000,000 $ 60,000,000
Mortgages payable.......................... 2,352,000 9,398,000
Accounts payable........................... 3,731,000 6,968,000
Accrued expenses and other liabilities..... 14,990,000 16,733,000
Total liabilities........................ 72,073,000 93,099,000
Commitments and contingencies
Shareholders' equity
Common stock............................... 264,000 260,000
Paid in capital............................ 22,231,000 21,720,000
Retained earnings.......................... 7,382,000 7,065,000
Total shareholders' equity............... 29,877,000 29,045,000
Total liabilities and shareholders'
equity................................. $101,950,000 $122,144,000
See accompanying notes to consolidated financial statements.
CALTON, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
Three Months Ended August 31,
(Unaudited)
1995 1994
Revenues..................................... $ 60,362,000 $ 47,129,000
Costs and expenses
Cost of revenues........................... 52,944,000 38,849,000
Selling, general and administrative........ 4,906,000 5,464,000
57,850,000 44,313,000
Income from operations....................... 2,512,000 2,816,000
Interest expense, net........................ 537,000 306,000
Income before income taxes .................. 1,975,000 2,510,000
Provision in lieu of income taxes............ 967,000 1,155,000
Net income .................................. $ 1,008,000 $ 1,355,000
Income per share............................. $ .04 $ .05
Weighted average number of shares outstanding 26,255,000 25,991,000
See accompanying notes to consolidated financial statements.
CALTON, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
Nine Months Ended August 31,
(Unaudited)
1995 1994
Revenues....................................... $137,413,000 $112,375,000
Costs and expenses
Cost of revenues............................. 121,181,000 92,096,000
Selling, general and administrative.......... 14,144,000 14,195,000
135,325,000 106,291,000
Income from operations......................... 2,088,000 6,084,000
Interest expense, net.......................... 1,468,000 908,000
Income before income taxes .................... 620,000 5,176,000
Provision in lieu of income taxes.............. 303,000 2,370,000
Net income .................................... $ 317,000 $ 2,806,000
Income per share............................... $ .01 $ .11
Weighted average number of shares outstanding.. 26,299,000 26,151,000
See accompanying notes to consolidated financial statements.
CALTON, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF
CASH FLOWS
Nine Months Ended August 31,
(Unaudited)
1995 1994
Cash Flows from Operating Activities
Net income................................ $ 317,000 $ 2,806,000
Adjustments to reconcile net income
to net cash provided by operating
activities
Provision in lieu of taxes............. 303,000 2,250,000
Issuance of stock under 401(k) Plan.... 181,000 144,000
Depreciation and amortization.......... 1,322,000 1,364,000
Increase in receivables................ (989,000) (2,118,000)
Decrease (increase) in inventories..... 12,279,000 (3,348,000)
Decrease (increase) in commercial
land and buildings................... 7,479,000 (55,000)
(Increase) decrease in prepaid
expenses and other assets............ (178,000) 197,000
(Decrease) increase in accounts
payable, accrued expenses
and other liabilities................ (4,980,000) 887,000
Other increase......................... -- (5,000)
15,734,000 2,122,000
Cash Flows from Investing Activities
Increase in property and equipment ........ (208,000) (19,000)
Cash Flows from Financing Activities
Repayments of Revolving Credit Agreement... (13,500,000) (6,000,000)
Proceeds under Revolving Credit Agreement.. 4,500,000 4,000,000
Repayments of mortgages payable............ (7,046,000) (109,000)
(16,046,000) (2,109,000)
Net decrease in cash and cash
equivalents................................ (520,000) (6,000)
Cash and cash equivalents at beginning of
period..................................... 5,759,000 5,355,000
Cash and cash equivalents at end of period... $ 5,239,000 $ 5,349,000
See accompanying notes to consolidated financial statements.
CALTON, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
Nine Months Ended August 31, 1995
(Unaudited)
Common
Stock Paid In Retained
Amount Capital Earnings
Balance,
November 30, 1994 ........ $ 260,000 $21,720,000 $ 7,065,000
Net income................. -- -- 317,000
Provision in lieu of
income taxes ............. -- 303,000 --
Issuance of
stock under
401(k) Plan............... 4,000 177,000 --
Amortization
of deferred
compensation
related to
stock option
plan...................... -- 31,000 --
Balance,
August 31, 1995........... $ 264,000 $22,231,000 $ 7,382,000
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 and the November 30,
1994 balance sheet derived from the November 30, 1994 audited 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,
1994. Operating results for the three and nine month periods ended August
31, 1995 are not necessarily indicative of the results that may be expected
for the year ended November 30, 1995.
Certain reclassifications have been made to prior period's financial
statements in order to conform with the 1995 presentations.
2. Commercial Land and Buildings
During the nine months ended August 31, 1995, the Company had sold
approximately $7.0 million of its commercial building property and reduced
related mortgage payables of $6.9 million, in accordance with management's
plan to focus on its core business of residential homebuilding.
The sales were consummated in April 1995 and July 1995 for proceeds of
$880,000 and $7,200,000, respectively. The sales resulted in pre-tax gains
of approximately $80,000 and $425,000 and provided approximately $850,000 of
additional cash for operations after the retirement of the mortgage debt.
The remaining amount of $8.9 million consists primarily of commercial
land located in Pennsylvania and New Jersey. These properties are available
for sale as a result of management's focus on residential homebuilding.
3. Unusual Items
During the second quarter of fiscal 1995, the Company performed a
detailed review and analysis of many properties controlled under option. The
review was necessitated by the consolidation of the New Jersey-North and New
Jersey-South divisions in March 1995 and by economic and market conditions.
As a result, the Company decided not to incur further pre-acquisition costs
on nine properties controlled under option and has either terminated or
expects to terminate the related purchase agreements. These actions resulted
in a pre-tax charge of approximately $1,050,000 that is reflected in cost of
revenues.
The Company finalized the accounting for a community during the second
quarter of fiscal 1995 that delivered its last home earlier in 1995. It was
determined, in conjunction with advice from legal counsel, that a reserve
previously provided during the delivery period of the community was not
required and the likelihood of payment of the amount reserved was remote. As
a result, a pre-tax credit of $1,113,000 is reflected in cost of revenues and
reduced Accrued Expenses and Other Liabilities.
4. Shareholders' Equity
During the second quarter of fiscal 1995, the Company's Board of
Directors reviewed the outstanding options granted under the Company's
Amended and Restated 1993 Non-Qualified Stock Option Plan. The Board
considered that the outstanding options were granted in more favorable
economic periods. Therefore, the Board determined that in order to continue
to provide incentive to management, the exercise price of all outstanding
options held by current employees were adjusted to $.50 per share, the fair
market value of the Company's Common Stock at the date of the Board action.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
RESULTS OF OPERATIONS FOR THE THREE AND NINE MONTHS ENDED AUGUST 31, 1995 AND
1994
Revenues for the three and nine months ended August 31, 1995 were $60.4
million and $137.4 million, respectively, compared to revenues of $47.1
million and $112.4 million for the three and nine month periods ended August
31, 1994, respectively. Home deliveries of 227 and 555 homes resulted in
housing revenues of $52.8 million and $128.0 million, respectively, for the
three and nine month periods ended August 31, 1995. For the three and nine
month periods ended August 31, 1994, the Company delivered 255 and 626 homes
which generated $46.1 million and $110.4 million of housing revenues. During
the third quarter of 1995, the Company sold one of its commercial properties
of which $7.2 million is included in revenues.
Housing revenues increased fourteen percent (14%) and sixteen percent
(16%) in the three and nine month periods ended August 31, 1995,
respectively, compared to the same periods in 1994, reflecting an average
sales price of $232,000 and $231,000 compared to $181,000 and $176,000 for
homes delivered in the same periods of 1994. The increase in average sales
price is a result of the mix of homes delivered reflecting a greater
percentage of the Company's deliveries coming from the Northeast division
where the primary target market has been the move-up homebuyer. Home
deliveries decreased eleven percent (11%) for the three and nine month
periods ended August 31, 1995, respectively, from the same periods in the
prior year. The decreases in home deliveries are primarily due to the wind
down of the California division and a fifty-two percent (52%) and thirty-nine
percent (39%) decrease in home deliveries in the Florida division for the
three and nine month periods ended August 31, 1995 compared to the same
periods of 1994. The primary reason for the decrease in homes delivered in
the Florida division is due to the timing of the opening of new communities.
The Company's gross profit margin on homes delivered was approximately
13% and 12% during the three and nine month periods ended August 31, 1995,
respectively, compared to 17% and 18% during the three and nine month periods
ended August 31, 1994. The decrease in the housing gross profit from
approximately $7.8 million and $19.3 million to $6.9 million and $15.2
million for the three and nine month periods ended August 31, 1995 is
primarily due to intensifying competitive conditions resulting in an
inability to raise home selling prices, a lower level of consumer confidence
resulting from a poor outlook for job growth, higher borrowing costs, the
number of communities open for sales and delivery, and the higher relative
cost of replacement land acquired to refill the land pipeline late in the
cycle. The sale of one of the commercial properties in the third quarter
resulted in a pre-tax profit of $425,000 that is included in the Company's
gross profit. Previously capitalized interest amortized to cost of revenues
was $1.2 million and $3.2 million in the three and nine month periods ended
August 31, 1995 as compared to $682,000 and $1.4 million in the same periods
last year. The number and average selling prices of homes sold and delivered
and gross profit realized in the first nine months of 1995 may not be
indicative of future results, due to prevailing economic and housing market
conditions, the timing of land acquisitions and development, the type of
homes sold, labor and material costs, interest rates, and weather conditions.
The Company decided not to incur further pre-acquisition costs on nine
properties controlled under option and has either terminated or expects to
terminate the related purchase agreements. These actions resulted in a pre-
tax charge of approximately $1,050,000 in the second quarter of 1995 that is
reflected in cost of revenues for the nine month period ended August 31,
1995. In addition, the Company finalized the accounting for a community
during the second quarter of fiscal 1995 that delivered its last home earlier
in 1995. It was determined, in conjunction with advice from legal counsel,
that a reserve previously provided during the delivery period of the
community was not required and the likelihood of payment of the amount
reserved was remote. As a result, a pre-tax credit of $1,113,000 is
reflected in cost of revenues for the nine month period ended August 31,
1995.
Selling, general and administrative expenses decreased to $4.9 million
from $5.5 million for the three months ended August 31, 1995 and 1994,
respectively. The decrease is principally due to lower employee costs
resulting from reductions in employee levels and consolidation of operations
in the Northeast completed early in the second quarter of 1995. Selling,
general and administrative expenses decreased from $14.2 million to $14.1
million for the nine months ended August 31, 1994 and 1995, respectively.
The net decrease of $100,000 was primarily attributable to approximately $1.0
million reduction in salaries and benefits resulting primarily from the
consolidation of the Northeast division which occurred in the second quarter
of 1995, largely offset by increases in marketing and sales related costs due
to the increased competitive environment and increased revenues.
Gross interest cost was approximately $1.9 million and $5.6 million, for
the three and nine month periods ended August 31, 1995, compared to $1.4
million and $3.9 million, respectively, in the corresponding periods of the
prior year. The increase in gross interest cost resulted from higher
interest rates and to a lessor extent, higher average loan balances.
Interest capitalized in the three and nine month periods ended August 31,
1995 was $1.3 million and $4.0 million compared to $1.0 million and $2.8
million in the corresponding periods of the prior year, primarily as a result
of higher interest rates. The capitalized amounts will reduce future gross
profit levels assuming no relative increases in selling prices.
Fresh-start accounting and reporting requires the Company to report a
provision in lieu of income taxes when there is book taxable income and a
pre-reorganization net operating loss carryforward. This requirement applies
despite the fact that the Company's pre-reorganization net operating loss
carryforward and other deferred tax assets would eliminate the related
federal income tax payable. The current and future year tax benefit related
to the carryforward is recorded as a direct increase to paid in capital.
Based upon the Company's expectations of a pre-tax profit for the year ended
November 30, 1995, a provision in lieu of income taxes was recorded using a
forecasted effective rate of forty-nine percent (49%).
The dollar value of the Company's sales backlog decreased by $52.6
million or forty-nine percent (49%) at August 31, 1995 to approximately $54.6
million from $107.2 million at August 31, 1994. Homes in backlog also
decreased by 203 homes to 249 homes from 452 homes at August 31, 1994, a
forty-five percent (45%) decrease. Prior year results benefited from a
better economic environment and increasing interest rates which may have
accelerated home purchase decisions in the first nine months of 1994 compared
to the current period and by lower delivery levels experienced in the year
earlier period resulting from severe winter weather in early 1994. The
decrease in the number of homes in backlog from August 31, 1994 levels
reflects a twenty-six percent (26%) lower average absorption rate achieved in
each community and twenty percent (20%) fewer communities open for sales and
delivery during the current period. The decline in absorption rates resulted
from an unprecedented run-up in mortgage rates which began early in 1994
creating an increasingly competitive market environment as prospective
homebuyer's reacted cautiously to higher interest rates and a poor outlook
for job growth. In addition, the decline in the number of communities open
for sale is primarily due to management's decision to conserve existing
capital during a period of slower sales absorption levels, higher interest
rates and a low level of consumer confidence. The Company will continue to
focus on increasing activity levels in existing communities and plans to open
six (6) new communities during the next two quarters while maintaining low
debt levels in an effort to improve the Company's balance sheet and position
it for a recapitalization. The backlog in both years includes contracts
containing financing and other contingencies customary in the industry,
including, in certain instances, contracts that are contingent on purchasers
selling their existing homes. Due to the uncertainty of future market
conditions and the general economic environment, the sales backlog, housing
units 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.
LIQUIDITY AND CAPITAL RESOURCES
In February 1995, the Company entered into an agreement extending the
maturity date of the Amended Credit Agreement (the "Facility") from June 1,
1995 to February 28, 1997. The amended Facility permits borrowings of up to
$68.5 million, subject to borrowing base and other limitations. The terms of
the agreement include a commitment amortization schedule of $200,000 per
month beginning June 1, 1996 and a one half percent (1/2%) increase in the
interest rate charged to the Company to the prime rate (8.75% at August 31,
1995) plus one and one half percent (1-1/2%). Additionally, due to the
downturn in the housing market and its impact on expected deliveries over the
term of the Facility, the Lenders entered into an agreement effective May 31,
1995, to adjust certain covenant levels. Recent market conditions have
resulted in a determination to conserve capital. At August 31, 1995,
approximately $53.0 million (including approximately $2.0 million of letters
of credit) was outstanding under the Facility. The Facility includes a
borrowing base (based upon a percentage of the Company's eligible inventory)
which restricted borrowings to $56.2 million at August 31, 1995. The
remaining $12.3 million of the Facility is available as of August 31, 1995 to
the Company for investment in inventory that results in the corresponding
growth of its borrowing base. The extension of the existing Facility provides
a stabilized capital base for the Company until such time as market
conditions permit the Company to re-enter the financial markets to obtain
longer term capital. The Company anticipates re-investing amounts now
available under the Facility as the business cycle begins to reflect
improvement and plans to open six (6) new communities during the next two
quarters.
Interest rate changes will continue to impact the Company's cost of
capital and related costs. Increases in capitalized interest could reduce
the future gross profit levels assuming no relative increases in housing
selling prices.
Cash Flows from Operating Activities
Inventories amounted to $75.7 million at August 31, 1995 compared to
$88.8 million at November 30, 1994. The decrease in inventory is primarily
attributable to the deliveries on existing Northeast communities exceeding
the acquisitions of new land. The activity is in line with the Company's
current acquisition strategy which focuses on the conservation of capital.
Commercial land and buildings decreased from $16.6 million at November 30,
1994 to $8.9 million at August 31, 1995 primarily as a result of the
divestitures of existing commercial building properties (Note 2). The
decrease in accounts payable, accrued expenses and other liabilities of $5.0
million from November 30, 1994 to August 31, 1995 was primarily a result of
less production related activities and related home closings as compared to
the fourth quarter of 1994. The increase in receivables of $1.0 million was
primarily due to the timing of house closings offset by a reduction in cash
portions of performance guarantees.
Cash Flows from Financing Activities
The aggregate principal amount of loans outstanding under the Amended
Credit Agreement was $51.0 million at August 31, 1995, compared to $60.0
million at November 30, 1994 and $53.0 million at August 31, 1994. The loan
amount was reduced by $13.5 million during the third quarter of 1995
primarily from proceeds generated from operations in conjunction with the
Company's current strategy to reduce debt levels and improve the Company's
financial condition in order to position it for a recapitalization.
Mortgage debt was reduced by $6.1 million in the third quarter from
proceeds from the sale of commercial property.
PART II - OTHER INFORMATION
Item 6. Exhibits and reports on Form 8-K.
A) Exhibits
27 Financial Data Schedule as of August 31, 1995.
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 and Treasurer
(Principal Financial and Accounting Officer)
Date: October 13, 1995
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