Registration No. 33-60022
Rule 424(b)3
CALTON, INC.
Seventh Supplement to Prospectus
dated October 12, 1994
Results of Three and Nine Month Periods Ended August 31, 1995
Calton, Inc. (the "Company") announced net income of $1.0
million ($.04 per share) on record third quarter revenues of $60.4
million for the three months ended August 31, 1995 compared to net
income of $1.4 million ($.05 per share) on revenues of $47.1
million for the same period in 1994. The lower net income reported
in the current quarter reflects intensifying competitive conditions
in the Company's markets resulting in lower gross margins. The
Company also reported that the record level of revenues is
attributable to higher average revenue per home delivered and to
the closing of the sale of a shopping mall which contributed $7.2
million to total revenues. The higher average revenue per home is
consistent with management's strategic plan to focus primarily on
marketing to first and second time move-up homebuyers. The sale of
the shopping mall reflects management's continued focus on the sale
of non-homebuilding assets. The transaction resulted in a pre-tax
profit of $425,000 and provided $850,000 of additional cash for
operations. The remaining commercial land and buildings targeted
for disposition have a combined book value of approximately $8.9
million, which is unencumbered and, therefore, will be a source of
additional cash as the properties are sold over the next few years.
The Company also reported net income of $317,000 ($.01 per
share) on revenues of $137.4 million for the nine months ended
August 31, 1995 compared to net income of $2.8 million ($.11 per
share) on revenues of $112.4 million for the same period in 1994.
The $25.0 million or 22% increase in revenues is attributable to
higher average revenue per home delivered and the sale of the
commercial properties. The decline in net income in the current
period is due to the decrease in gross margins resulting from
intensifying competitive conditions, a decline in consumer
confidence levels resulting from a poor outlook for job growth,
higher borrowing costs and the higher relative cost of replacement
land acquired to refill the land pipeline late in the last cycle.
At August 31, 1995, the backlog of homes under contract
totalled 249 units having an aggregate dollar value of $54.6
million compared to 452 units having an aggregate dollar value of
$107.2 million in 1994. Prior year results benefitted from lower
interests rates and a better economic environment 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 46% decline in the number of homes in
backlog from August 31, 1994 levels reflects a 26% lower average
absorption rate achieved in each community and 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 on
maintaining lower debt levels in an effort to improve the Company's
balance sheet and position it for a recapitalization.
In addition to the $6.1 million reduction in mortgage debt
generated by the sale of the shopping mall, the Company also
reduced the amounts outstanding under its Revolving Credit
Agreement by $13.5 million realizing a total debt reduction during
the quarter of more than $19.5 million or 27% of total debt during
the quarter. The reduction in the amount outstanding under the
Revolving Credit Agreement is due to the number of homes delivered
in the third quarter and the reduced level of land purchases in
recent months reflecting management's concern about preserving the
Company's capital resources late in the current business cycle.
The Company anticipates reinvesting amounts available under the
facility as the cycle begins to reflect improvement and plans to
open six (6) new communities during the next two quarters.
October 16, 1995
