PROSPECTUS Rule 424(b)(3)
CALTON, INC.
5,240,226 Shares of Common Stock
Of the securities being offered hereby, all of the shares of Common
Stock, .01 par value per share ("Common Stock"), are being sold by certain
securityholders (the "Selling Securityholders") of Calton, Inc. ("Calton" or
the "Company"). Certain of the shares of Common Stock offered hereby were
acquired by the Selling Securityholders in connection with the joint plan of
reorganization (the "Plan of Reorganization") of Calton and certain of its
subsidiaries (the "Reorganizing Subsidiaries") which was confirmed by the
United States Bankruptcy Court in May 1993. See "The Company-Plan of
Reorganization."
The shares of Common Stock offered hereby by the Selling Securityholders
may be offered in transactions on the American Stock Exchange ("AMEX"), in
negotiated transactions, or in a combination of such methods of sale, at fixed
prices which may be changed, at market prices prevailing at the time of sale,
at prices related to such prevailing market prices or at negotiated prices. The
Selling Securityholders may effect such transactions to or through
broker-dealers and such broker-dealers may receive compensation in the form of
discounts, concessions or commissions from the Selling Securityholders and/or
the purchasers of such securities for whom such broker-dealers may act as agent
or to whom they may sell as principals, or both. In addition, the Selling
Securityholders may pledge the shares of Common Stock to broker-dealers and
such broker-dealers may resell the shares of Common Stock in privately
negotiated transactions, transactions on AMEX or otherwise. See "Plan of
Distribution" and "Principal and Selling Securityholders."
The Company will not receive any proceeds from the sale of Common Stock by
the Selling Securityholders.
The Company has agreed to bear certain expenses in connection with the
registration and sale of the Common Stock registered hereunder and has agreed
to indemnify the Selling Securityholders against certain liabilities, including
liabilities under the Securities Act of 1933, as amended. See "Plan of
Distribution" and "Principal and Selling Securityholders."
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The Common Stock of the Company is currently traded on AMEX under the
symbol CN. On July 5, 1996, the last reported sales price of the Company's
Common Stock, as reported on AMEX, was $.438 per share.
SEE "RISK FACTORS" FOR CERTAIN INFORMATION THAT SHOULD BE CONSIDERED BY
PROSPECTIVE INVESTORS.
___________________________
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED
BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
The date of this Prospectus is July 8, 1996.
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TABLE OF CONTENTS
Page
Available Information............................................... 3
Prospectus Summary.................................................. 5
Risk Factors........................................................ 9
The Company......................................................... 13
Price Range of Common Stock and Dividend Policy..................... 16
Capitalization...................................................... 17
Selected Historical Consolidated
Financial Information.............................................. 18
Management's Discussion and Analysis of
Financial Condition and Results of Operations...................... 21
Business............................................................ 36
Management.......................................................... 52
Principal and Selling Securityholders............................... 62
Description of Capital Stock........................................ 65
Shares Eligible for Future Sale..................................... 66
Plan of Distribution................................................ 66
Legal Matters....................................................... 67
Experts............................................................. 67
Index to Financial Statements....................................... F-1
AVAILABLE INFORMATION
Calton has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form S-1 under the Securities Act of
1933, as amended (the "Securities Act"), with respect to the securities offered
hereby. As permitted by the rules and regulations of the Commission, this
Prospectus omits certain information, exhibits and undertakings contained in
the Registration Statement. Such additional information, exhibits and
undertakings can be inspected at the Commission's public reference room, Room
1024, 450 Fifth Street, N.W., Washington, D.C. 20549, as well as the
Commission's regional offices located at Northwestern Atrium Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661-2511 and at Seven World
Trade Center, New York, New York 10048. Copies of such material can also be
obtained from the Public Reference Section of the Commission, Washington, D.C.,
at prescribed rates. Statements made in the Prospectus as to the contents of
any contract, agreement or other document referred to are not necessarily
complete; with respect to each such contract, agreement or other document filed
as an exhibit to the Registration Statement, reference is made to the exhibit
for a more complete description of the matter involved, and each such statement
shall be deemed qualified in its entirety by such reference.
Calton is subject to the informational reporting requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"). In accordance
therewith, Calton files annual and quarterly reports, proxy statements and
other information with the Commission. Such reports, proxy statements and other
information may be inspected and copied at prescribed rates, at the public
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reference facilities maintained by the Commission at the addresses set forth
above and at the offices of the American Stock Exchange, 86 Trinity Place, New
York, New York 10006-1881.
Certain information included in this prospectus 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. 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."
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PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information, financial statements (including the notes thereto) and pro forma
information appearing elsewhere in this Prospectus. Unless the context requires
otherwise, references to the "Company" include Calton and its consolidated
subsidiaries.
The Company
The Company designs, constructs and sells single family attached and
detached homes primarily in central New Jersey, central Florida and eastern
Pennsylvania. The Company has an established reputation in its markets, having
constructed and sold over 16,700 homes in 138 residential communities during
the last 26 years. The Company markets primarily to first time buyers and first
and second time move-up buyers and delivered 749 homes in fiscal 1995 having an
average sales price of approximately $229,000.
The Company was offering homes for sale in 21 residential communities at
February 29, 1996 with prices ranging from $94,000 to $476,000. At February 29,
1996, the backlog of homes under contract was $40.5 million, compared to $80.1
million at February 29, 1995, and consisted of 197 homes having an average
sales price of $205,000 compared to 323 homes having an average sales price of
$248,000 in 1995. The 1995 backlog levels benefitted from operating two
divisions in the Northeast and the effects of an increasing interest rate
environment which may have accelerated home purchase decisions in 1994 that
resulted in higher backlog levels entering the first quarter of 1995. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
At February 29, 1996, the Company owned or controlled approximately 2,966
lots, consisting of 1,243 lots in its 21 residential communities and 1,723 lots
located on 12 parcels of land which primarily are controlled through option
agreements and which, in a number of cases, are subject to the satisfactory
completion of feasibility studies and the receipt of all required approvals.
The Company's operating strategy consists of: (i) targeting the first time
homebuyer and the first and second time move-up buyer; (ii) conducting
homebuilding activities in markets that, based on economic and demographic
trends, demonstrate strong growth potential; (iii) designing each residential
community to meet the needs of the particular market based on local conditions
and demographic factors; (iv) minimizing land risks by purchasing entitled
tracts of well-located property through options or
contingent purchase contracts and limiting land holdings to those which can be
developed within two years from the date of purchase; (v) developing
residential projects in phases which enables the Company to reduce financial
exposure, control construction and operating expenses and adapt quickly to
changes in customer demands and other market conditions; (vi) utilizing
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subcontractors to perform land development and home construction on a fixed
price basis; and (vii) emphasizing the quality and value of its homes.
In March 1993, Calton and certain of its subsidiaries filed petitions
under Chapter 11 of the United States Bankruptcy Code. The United States
Bankruptcy Court confirmed the Company's Plan of Reorganization on May 6, 1993
and the Company's financial reorganization (the "Reorganization") was
consummated on May 28, 1993. The Reorganization resulted in the elimination of
approximately $84.4 million in indebtedness and accrued interest owed to
certain creditors. See "The Company--Plan of Reorganization.
The Offering
Common Stock offered by the Selling Securityholders................. 5,240,226
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Summary Consolidated
Financial Information of the Company
(Dollars in thousands, except unit data)
The summary information below presents summary consolidated financial
information of the Company. This summary information should be read in
conjunction with the Consolidated Financial Statements and related notes
thereto appearing elsewhere in this Prospectus and "Management's Discussion and
Analysis of Financial Condition and Results of Operations." As a result of the
consummation of the Company's Plan of Reorganization, effective May 28, 1993,
and the application of fresh-start accounting in accordance with Statement of
Position 90-7 of the American Institute of Certified Public Accountants ("SOP
90-7"), the Company's financial results for periods ending on or prior to May
31, 1993 are not comparable with results experienced by the Company in
subsequent periods. Financial results for the six months ended May 31, 1993 are
separated from subsequent periods by a black line.
Six Six Fiscal Fiscal Three Three
Months Months Year Year Months Months
Ended Ended Ended Ended Ended Ended
Statement of May 31, Nov. 30, Nov. 30, Nov. 30, Feb. 28, Feb. 29,
Operations Data: 1993 1993 1994 1995 1995 1996
- ------------------- -------- -------- -------- -------- -------- --------
Revenues.......... $ 76,555 $ 83,351 $168,273 $180,843 $ 38,215 $ 19,456
Gross profit(1)... 4,867 15,878 28,984 19,560 4,411 2,074
Selling, general
and adminis-
trative expenses. 10,785 10,100 20,183 18,845 4,588 3,094
Restructuring
charges.......... -- -- -- 1,940 200 --
Income (loss)
from operations.. (15,593) 5,560 8,595 (1,225) (377) (1,020)
Interest expense,
net.............. 3,338 879 1,235 1,847 358 246
Reorganization
charges.......... 37,493 -- -- -- -- --
Other (income)
expense.......... 70 (75) 800 (765) -- --
Income (loss)
before income
taxes and extra-
ordinary gain.... (56,494) 4,756 6,560 (2,307) (735) (1,266)
Net income
(loss)........... 1,817 2,872 4,193 (3,138) (375) (649)
Six Six Fiscal Fiscal Three Three
Months Months Year Year Months Months
Ended Ended Ended Ended Ended Ended
May 31, Nov. 30, Nov. 30, Nov. 30, Feb. 28, Feb. 29,
Operating Data: 1993 1993 1994 1995 1995 1996
- ------------------- -------- -------- -------- -------- -------- --------
Homes delivered (2):
Number of homes.. 410 450 899 749 179 92
Aggregate dollar
value........... $ 75,400 $ 81,900 $165,000 $171,300 $ 37,800 $ 19,400
Average price
per home........ $184,000 $182,000 $184,000 $229,000 $211,000 $211,000
Homes sold, net (3):
Number of homes.. 448 442 951 496 83 123
Aggregate dollar
value........... $ 80,400 $ 83,900 $188,900 $108,700 $ 19,400 $ 23,900
Average price
per home........ $179,000 $190,000 $199,000 $219,000 $230,000 $194,000
Backlog (4):
Number of homes.. 375 367 419 166 323 197
Aggregate dollar
value.......... $ 73,000 $ 75,000 $ 98,500 $ 36,000 $ 80,100 $ 40,500
Average price
per home........ $195,000 $205,000 $235,000 $217,000 $248,000 $205,000
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At
February 29, 1996
Balance Sheet Data:
Inventories......................... $ 68,716
Commercial land and buildings....... 9,451
Total assets........................ 90,818
Long-term debt...................... 47,000
Mortgages payable................... 3,260
Shareholders' equity................ 25,780
(1) The gross profit margin including the impact of the Provision for
estimated net realizable value for the six months ended May 31, 1993
and the years ended November 30, 1994 and 1995 was 6%, 17% and 11%,
respectively.
(2) Reflects homes for which the closing of sale has occurred and the risk
of ownership has been transferred to the buyer. Revenues from homes
delivered are recognized at closing.
(3) Homes sold, net, reflects new sales orders, net of cancellations,
received during the applicable period for homes for which a contract
has been signed by a customer and a full deposit has been received.
(4) Backlog represents homes which have been sold but not delivered at the
end of a period.
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RISK FACTORS
The Homebuilding Industry
Homebuilders, including the Company, are subject to various risks, such as
economic recession, competitive overbuilding, government regulation, increases
in real estate taxes or costs of materials and labor, the availability of
suitable land on reasonable terms (including price), weather conditions,
unanticipated changes in customer preference and the availability of
construction funds or mortgage loans at rates acceptable to builders and home
buyers. Such factors (and thus the homebuilding business) have tended to be
cyclical in nature. As a result, the Company's operating results can vary
significantly from quarter to quarter and from year to year.
The Company's business and earnings are substantially dependent on its
ability to obtain financing on acceptable terms for its construction and
development activities. Over the last few years, financing has become less
available to the real estate industry in general. Moreover, increases in
interest rates could reduce the funds available to the Company for its future
operations and would increase the Company's expenses. The Company's revolving
credit agreement with a consortium of lenders (the "Amended Credit Agreement")
will expire in February 1997. It will be necessary for the Company to extend or
replace the Amended Credit Agreement prior to its expiration in February 1997.
No assurance can be given that the Company will be able to arrange for an
extension or replacement of the Amended Credit Agreement. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Liquidity and Capital Resources."
The homebuilding industry is subject to extensive environmental, building,
zoning and sales regulation by various federal, state and local authorities,
which affects construction activities as well as sales activities and other
dealings with consumers. The Company must obtain for its development activities
the approval of numerous governmental authorities, and changes in local
circumstances or applicable law may necessitate the application for additional
approvals or the modification of existing approvals. As a result of these
regulations, the time required to market the Company's products is increased by
prolonging the time between the execution of a contract to acquire a parcel of
land and the commencement of marketing and completion of construction. See
"Business--Regulation and Environmental Matters."
The homebuilding housing industry is highly competitive, and the Company
competes in each of its markets with a large number of homebuilding companies.
Some of these companies are larger than the Company and have greater financial
resources. See "Business--Competition."
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Any one of the factors referred to above could materially adversely affect
the Company's results of operation and the levels of cash flow necessary or
available to meet its fixed obligations.
Geographic Concentration
During the five year period ended November 30, 1995, approximately 71% of
the Company's revenues were generated by its homebuilding and land development
activities in New Jersey and eastern Pennsylvania. The determination made in
1993 to wind down the Company's California operations and the Company's recent
determination to wind down its Chicago operations may increase in the short
term the percentage of revenues derived from the Company's homebuilding
activities in New Jersey. The depressed economic and real estate conditions in
New Jersey and the contraction of financing available to the homebuilding
industry over the last few years adversely affected the Company's results of
operations. Any prolonged or further downturn in the national or New Jersey
economy may have a material adverse effect on the Company's sales and
profitability and consequently its ability to service its debt obligations,
including its obligations under the Amended Credit Agreement.
Leverage
The Company is and expects to remain highly leveraged. As of February 29,
1996, $47 million was outstanding under the Amended Credit Agreement and the
Company's total indebtedness was approximately $53.1 million. Amounts
outstanding under the Amended Credit Agreement are and will be collateralized
by security interests and liens on substantially all of the assets of the
Company.
Based upon market conditions in the Northeast, certain covenant levels
set forth in the Amended Credit Agreement may not be met. A failure to satisfy
such covenants could result in an inability to borrow funds under the Amended
Credit Agreement. The Company expects to generate sufficient cash flow from
operations to meet its debt service obligations. However, the ability of the
Company to meet its obligations will be dependent upon the future performance
of the Company and will be subject to financial, business and other factors
affecting the business and operations of the Company, including factors beyond
its control, as well as prevailing economic conditions. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."
Operating Losses in Recent Fiscal Years
The Company has incurred operating losses in certain recent fiscal
periods. During fiscal 1995, the Company incurred an operating loss of
$1,225,000. Prior to the consummation of the Reorganization (as defined
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herein), the Company incurred an operating loss of $15.6 million for the six
month period ended May 31, 1993, compared to an operating loss of $5.8 million
for the corresponding period of the prior year, and operating losses of $25.6
million and $43.2 million, respectively, for the fiscal years ended November
30, 1992 and November 30, 1991. The Company's ability to achieve financial
stability will depend on a number of factors, including conditions in the
housing industry. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
Shares Eligible for Future Sale
Future sales of substantial amounts of Calton's Common Stock in the public
market could adversely affect prevailing market prices. As of March 31, 1996,
there were approximately 26,511,000 shares of Common Stock outstanding, all of
which have been registered under the Act and are tradeable without restriction
(except as to affiliates of Calton) or further registration under the
Securities Act. The Company has registered 5,240,226 shares held by the Selling
Securityholders for public sale by means of a shelf registration statement (of
which this Prospectus forms a part) (the "Shelf Registration Statement") filed
under the Securities Act which the Company, under the terms of a registration
rights agreement (the "Registration Rights Agreement") executed pursuant to the
Plan of Reorganization, is obliged to keep effective until August 1996. See
"The Company -- Plan of Reorganization" and "Principal and Selling
Securityholders -- Registration Rights Agreement."
Calton has reserved an aggregate of 3,492,605 shares of Common Stock for
issuance upon the exercise of options granted pursuant to the Calton, Inc.
Amended and Restated 1993 Non-Qualified Stock Option Plan (the "1993 Stock
Option Plan") and the Calton, Inc. 1996 Equity Incentive Plan. All of these
shares, and 800,000 shares reserved for issuance in connection with the
Company's 401(k) Plan, have been or will be registered pursuant to the
Securities Act. See "Shares Eligible for Future Sale."
Certain Anti-takeover Provisions
The New Jersey Business Corporation Act contains certain provisions that
could have the effect of making it more difficult for a third party to acquire,
or discouraging a third party from attempting to acquire, control of Calton. In
addition, Calton's Amended and Restated Certificate of Incorporation authorizes
10,000,000 shares of Class A Preferred Stock, and provides that the Calton
Board of Directors (the "Board") may issue such stock with such dividend,
liquidation, conversion, voting, redemption and other rights as the Board
establishes at that time. As a result, the Board may issue such stock with such
rights as would discourage possible acquirors of Calton from making a tender
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offer or other attempt to gain control of Calton. These provisions of the New
Jersey Business Corporation Act and Calton's Amended and Restated Certificate
of Incorporation could limit the price that certain investors might be willing
to pay in the future for shares of Calton's Common Stock and could make it more
difficult for shareholders to effect certain corporate actions.
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THE COMPANY
General
The Company designs, constructs and sells single family attached and
detached homes primarily in central New Jersey, central Florida and eastern
Pennsylvania. The Company has an established reputation in its markets, having
constructed and sold over 16,700 homes in 138 residential communities during
the last 26 years. The Company markets primarily to first time buyers and first
and second time move-up buyers and delivered 749 homes in fiscal 1995 having an
average sales price of approximately $229,000.
The Company was offering homes for sale in 21 residential communities at
February 29, 1996 with prices ranging from $94,000 to $476,000. At February 29,
1996, the backlog of homes under contract was $40.5 million, compared to $80.1
million at February 29, 1995, and consisted of 197 homes having an average
sales price of $205,000 compared to 323 homes having an average sales price of
$248,000 in 1995. The 1995 backlog levels benefitted from operating two
divisions in the Northeast and the effects of an increasing interest rate
environment which may have accelerated home purchase decisions in 1994 that
resulted in higher backlog levels entering the first quarter of 1995. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
At February 29, 1996, the Company owned or controlled approximately 2,966
lots, consisting of 1,243 lots in its 21 residential communities and 1,723 lots
located on 12 parcels of land which primarily are controlled through option
agreements and which, in a number of cases, are subject to the satisfactory
completion of feasibility studies and the receipt of all required approvals.
The Company's operating strategy consists of: (i) targeting the first time
homebuyer and the first and second time move-up buyer; (ii) conducting
homebuilding activities in markets that, based on economic and demographic
trends, demonstrate strong growth potential; (iii) designing each residential
community to meet the needs of the particular market based on local conditions
and demographic factors; (iv) minimizing land risks by purchasing entitled
tracts of well-located property through options or contingent purchase
contracts and limiting land holdings to those which can be developed within two
years from the date of purchase; (v) developing residential projects in phases
which enables the Company to reduce financial exposure, control construction
and operating expenses and adapt quickly to changes in customer demands and
other market conditions; (vi) utilizing subcontractors to perform land
development and home construction on a fixed price basis; and (vii) emphasizing
the quality and value of its homes.
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Calton was incorporated in 1981 for the purpose of acquiring
all of the issued and outstanding capital stock of Kaufman and Broad of New
Jersey, Inc., a New Jersey corporation, from Kaufman and Broad, Inc., a
Maryland corporation. After the acquisition, the name of Kaufman and Broad of
New Jersey, Inc. was changed to Calton Homes, Inc. ("Calton Homes"), which
continues as a wholly owned subsidiary of Calton. Calton maintains its
executive offices at 500 Craig Road, Manalapan, New Jersey 07726 and its
telephone number is (908) 780-1800.
Plan of Reorganization
On March 9, 1993, Calton and certain of its subsidiaries filed petitions
under Chapter 11 of the United States Bankruptcy Code. The United States
Bankruptcy Court for the District of New Jersey confirmed the Plan of
Reorganization of Calton and these subsidiaries on May 6, 1993, and the Plan of
Reorganization was consummated on May 28, 1993 (the "Effective Date"). A
description of the events leading to the filing of the petitions and the
transactions effected pursuant to the Plan of Reorganization is provided below.
During the years preceding the bankruptcy filing, the homebuilding
industry was adversely affected by a variety of factors which resulted in a
decline in the demand for new homes and made it difficult for homebuilders,
such as the Company, to complete the development of existing projects and
pursue new development opportunities. In 1989, these factors contributed to
Calton's inability to comply with certain covenants and payment provisions
contained in its $100.0 million credit agreement with a group of bank lenders
(the "Credit Agreement") and the indentures which governed Calton's 16-5/8%
Senior Subordinated Notes due 1992 (the "Senior Subordinated Notes") and
12-5/8% Subordinated Notes due 1996 (the "Subordinated Notes" and, together
with the Senior Subordinated Notes, the "Old Notes"). As a result of these
defaults, Calton engaged in extensive negotiations with certain of its
creditors which resulted in the formulation of the Plan of Reorganization. The
Plan of Reorganization resulted in, among others, the following transactions:
- the holders of the Old Notes received a combination of cash, equity
securities and short-term notes in exchange for the Old Notes which
resulted in the discharge of $61.5 million aggregate principal amount
of indebtedness and $22.9 million of accrued interest thereon. The
equity securities issued to the holders of the Old Notes represented
approximately 93.5% of the voting power represented by the Company's
Common Stock and Redeemable Convertible Preferred Stock on the
Effective Date.
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- the Credit Agreement was amended, resulting in the Amended Credit
Agreement, which, among other things, extended the maturity date of the
indebtedness thereunder to June 1, 1995 and increased borrowing
availability thereunder from approximately $61.0 million to $73.5
million (subject to "borrowing base" limitations and periodic and other
reductions of borrowing availability during the term of the agreement).
See "Management's Discussion and Analysis of Financial Condition and
Results of Operations - Liquidity and Capital Resources";
- a new Board of Directors was appointed and a new senior management team
was put in place. See "Management."
See Note 11 to the Company's Consolidated Financial Statements
for additional information with respect to transactions effected
pursuant to the Plan of Reorganization.
Pursuant to the Plan of Reorganization, the Company entered into the
Registration Rights Agreement with each Selling Securityholder. Pursuant to the
Registration Rights Agreement, the Company is required to effect the
registration of the Common Stock issued to the Selling Securityholders pursuant
to the Plan of Reorganization. The Registration Rights Agreement also provides
the Selling Securityholders certain "piggyback" registration rights. Upon the
request of the Selling Securityholders who own not less than 5% of the shares
subject to the Registration Rights Agreement, Calton is required to amend the
registration statement, of which this Prospectus forms a part, to provide for
underwritten offerings of the Common Stock. See "Principal and Selling
Securityholders--Registration Rights Agreement" and "Plan of Distribution."
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PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY
Calton's Common Stock is currently traded on the American Stock Exchange
("AMEX") under the symbol CN. Set forth below are the high and low sales prices
of the Common Stock for the periods indicated.
Fiscal 1994
First Quarter.................. $2-5/16 $1-1/2
Second Quarter................. 2-11/16 1-1/2
Third Quarter.................. 1-11/16 1-3/8
Fourth Quarter................. 1-13/16 7/8
Fiscal 1995
First Quarter.................. $1-1/8 $ 5/8
Second Quarter................. 11/16 3/8
Third Quarter.................. 1/2 3/8
Fourth Quarter................. 9/16 5/16
Fiscal 1996
First Quarter.................. $ 7/16 $ 5/16
Second Quarter................. 3/4 3/8
On July 5, 1996, the last reported sale price for the Common Stock on AMEX
was $.438 per share, and there were approximately 657 record holders of Common
Stock.
Calton has not paid any cash dividends on its Common Stock to date, and
the payment of dividends is prohibited by the Amended Credit Agreement.
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CAPITALIZATION
The following table presents the capitalization of the Company as of
February 29, 1996.
February 29, 1996
-----------------
Notes and Mortgages Payable: (Dollars in thousands)
Mortgages payable(1)............................... $ 3,260
Amended Credit Agreement........................... 47,000
-------
Total debt..................................... 50,260
Shareholders' Equity
Common stock, par value $.01 per share; 53,700,000
shares authorized; 26,445,000 shares issued and
outstanding(2).................................. 265
Preferred Stock, par value $.10 per share;
2,600,000 shares authorized; none outstanding --
Class A Preferred Stock, par value $.10 per
share; 10,000,000 shares authorized; none
outstanding..................................... --
Paid in capital................................... 22,237
Retained earnings................................. 3,278
-------
Total shareholders' equity.................... 25,780
-------
Total capitalization.......................... $90,818
=======
(1) Mortgages payable are non-recourse to Calton.
(2) Does not include approximately 1,990,000 shares of Common Stock
issuable upon exercise of options granted under the Company's
stock option plans.
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SELECTED HISTORICAL CONSOLIDATED FINANCIAL INFORMATION
(Dollars in thousands, except per share data)
The following tables set forth selected historical consolidated financial
information of the Company. The selected statement of operations data and
balance sheet data have been derived from the Company's Consolidated Financial
Statements for each of the years in the two year period ended November 30,
1992, the six month periods ended May 31 and November 30, 1993 and each of the
years in the two year period ended November 30, 1995 and the notes thereto
which have been audited by Coopers & Lybrand L.L.P., independent auditors. The
selected historical consolidated financial data as of and for the three months
ended February 28, 1995 and February 29, 1996 is derived from unaudited
consolidated financial statements which, in the opinion of management, include
all material adjustments considered necessary for fair presentation of the
results of the interim periods. The selected historical consolidated financial
data should be read in conjunction with, and is qualified in its entirety by,
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Consolidated Financial Statements and related notes
included elsewhere in this Prospectus. Certain amounts for the prior years have
been reclassified to conform with the current period presentation. In light of
the effects of fresh-start accounting under SOP 90-7 and the Reorganization,
the Company's results for periods ending on or prior to May 31, 1993 are not
comparable with results experienced by the Company in subsequent periods and
are separated by a black line. In addition, the consolidated balance sheet data
as of and subsequent to November 30, 1993 are separated from all prior
consolidated balance sheet data by a black line since due to the adoption of
fresh-start accounting, such data are not comparable.
-18-
Statement of Fiscal Years Six Six Fiscal Fiscal
Operations Data Ended Months Months Year Year
November 30, Ended Ended Ended Ended
May 31, Nov. 30, Nov. 30, Nov. 30,
1991 1992 1993 1993 1994 1995
- ------------------- -------- -------- -------- -------- -------- --------
Revenues........... $117,980 $135,421 $ 76,555 $ 83,351 $168,723 $180,843
Equity in op-
erations of
Talcon, L.P.
and joint
ventures.......... (14,211) (6,300) (9,422) -- -- --
-------- -------- -------- -------- -------- --------
103,769 129,121 67,133 83,351 168,723 180,843
Costs and expenses
Cost of revenues(1) 105,471 116,296 68,304 67,473 139,339 159,690
Provision for esti-
mated net realiz-
able value(1) 17,319 13,665 3,384 -- 400 1,593
Selling, general
and admin-
istrative........ 23,660 24,285 10,785 10,100 20,183 18,845
Restructuring
charges.......... -- -- -- -- -- 1,940
Amortization of
values in excess
of amounts alloc-
able as identi-
fiable net
assets........... 505 505 253 218 206 --
-------- -------- -------- -------- -------- --------
146,955 154,751 82,726 77,791 160,128 182,068
Income (loss) from
operations........ (43,186) (25,630) (15,593) 5,560 8,595 (1,225)
Other charges (credits)
Interest expense,
net.............. 10,113 10,094 3,338 879 1,235 1,847
Other (income)
expense.......... 817 2,669 37,445 (75) -- (765)
Reorganization
charges........... -- -- 37,493 -- -- --
Amortization of
deferred charges.. 1,604 218 108 -- -- --
Write-off of
financing costs... -- -- -- -- 800 --
Income (loss) be-
fore income taxes
and extra-
ordinary gain..... (55,720) (38,611) (56,494) 4,756 6,560 (2,307)
Provision in lieu
of income taxes/
(benefit)......... (12,182) -- -- 1,884 2,367 831
Income (loss)
before extra-
ordinary gain..... (43,538) (38,611) (56,494) 2,872 4,193 (3,138)
Extraordinary gain. -- -- 58,311 -- -- --
Net income (loss).. $(43,538) $(38,611) $ 1,817 $ 2,872 $ 4,193 $(3,138)
======== ======== ======== ======== ======== ========
Income (loss) per
share before
extraordinary
gain.............. $ (1.28) $ (1.14) $ (1.67) $ .11 $ .16 $ (.12)
Net income (loss)
per share......... $ (1.28) $ (1.14) $ .05 $ .11 $ .16 $ (.12)
At November 30, 1991 1992 1993 1994 1995
- ------------------- -------- -------- -------- -------- --------
Balance Sheet Data:
Inventories....... $126,194 $110,329 $ 78,187 $ 88,802 $ 64,246
Commercial land
and buildings..... 18,814 17,230 14,443 16,597 9,439
Total assets...... 230,978 187,909 110,930 122,144 91,416
Long-term debt.... 130,994 130,994 55,000 60,000 45,000
Mortgages pay-
able............. 16,620 10,834 7,792 9,398 1,227
Shareholders'
equity
(deficit)........ 38,082 (452) 23,893 29,045 7,013
(Table continued on next page)
(1) The gross profit margin including the impact of the Provision for
estimated net realizable value for the years ended November 30, 1991 and
1992, the six month period ended May 31, 1993 and the years ended
November 30, 1994 and 1995 was (4)%, 4%, 6%, 17% and 11%, respectively.
-19-
Three Three
Months Months
Ended Ended
Statement of Feb. 28, Feb. 29,
Operations Data 1995 1996
- ------------------- -------- --------
Revenues $ 38,215 $ 19,456
Equity in op-
erations of
Talcon, L.P.
and joint
ventures.......... -- --
-------- --------
38,215 19,456
Costs and expenses
Cost of revenues.. 33,804 17,382
Provision for esti-
mated net realiz-
able value....... -- --
Selling, general
and admin-
istrative........ 4,588 3,094
Restructuring
charges.......... 200 --
Amortization of
values in excess
of amounts alloc-
able as identi-
fiable net
assets........... -- --
-------- --------
38,592 20,476
Income (loss)
from operations... (377) (1,020)
Other charges (credits)
Interest expense,
net.............. 358 246
Other (income)
expense.......... -- --
Reorganization
charges.......... -- --
Amortization of
deferred charges. -- --
Write-off of
financing costs.. -- --
Income (loss)
before income
taxes and extra-
ordinary gain..... (735) (1,266)
Provision in lieu of
income taxes/
(benefit)......... (360) (617)
Income (loss)
before extra-
ordinary gain..... (375) (649)
Extraordinary
gain.............. -- --
Net income (loss).. $ (375) $ (649)
======== ========
Income (loss) per
share before
extraordinary
gain.............. $ ( .01) $ ( .02)
Net income (loss)
per share......... $ ( .01) $ ( .02)
Feb. 28, Feb. 29,
Balance Sheet Data: 1995 1996
- ------------------- -------- --------
Inventories....... $ 87,105 $ 68,716
Commercial land
and buildings.... 16,545 9,451
Total assets...... 117,262 90,818
Long-term debt.... 61,000 47,000
Mortgages payable. 9,332 3,260
Shareholders'
equity
(deficit)......... 28,397 25,780
-20-
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED FEBRUARY 29, 1996 AND FEBRUARY
28, 1995
Revenues for the three months ended February 29, 1996 were $19.5 million
compared to revenues of $38.2 million for the same period in 1995. Deliveries
of 92 homes resulted in housing revenues of $19.4 million for the three months
ended February 29, 1996. For the comparable period of 1995, the Company
delivered 179 homes which generated $37.8 million of housing revenues. The
decrease of $18.4 million is primarily due to a forty-nine (49%) decrease in
the number of homes delivered, principally due to fewer communities open for
sales and deliveries primarily due to the consolidation of operations in the
Northeast in March 1995 and the timing of communities open for sales and
deliveries in the Florida division. In addition, record-breaking snow storms
impacted the Northeast in the first quarter of fiscal 1996. Home deliveries in
the Northeast will be pushed into the later part of fiscal 1996 as a result of
the winter weather conditions. Average revenue per home delivered for the first
quarter of fiscal 1996 of $211,000 was approximately the same as the prior
year, primarily due to a similar mix of homes delivered.
The Company's gross profit margin on homes delivered was approximately 11%
for both the three month periods ended February 29, 1996 and 1995. Current
gross profit levels continue to be negatively impacted by a number of factors,
including increased carrying costs and higher land costs incurred in refilling
the Company's land pipeline which was depleted prior to the 1993
Reorganization. These higher costs could not be entirely passed along to buyers
in an increasingly competitive market. The number and average selling prices of
homes sold and delivered and gross profit realized in the first quarter of 1996
may not be indicative of future results, due to prevailing economic and housing
market conditions, consumer confidence, the timing of land acquisition and
project development, the type of homes sold, labor and material costs and
interest rates.
Selling, general and administrative expenses decreased by $1.7 million to
$3.1 million in the first quarter ended February 29, 1996 compared with $4.8
million in the same period of 1995. The reduction is primarily due to lower
levels of home deliveries, advertising and employees, while the first quarter
1995 results included a $200,000 special charge from staff reductions and
consolidation of operations in the Northeast. Selling, general and
administrative expenses were 15.9% of revenue in 1996 compared to 12.5% of
revenue in 1995. The increase in selling, general and administrative expenses
-21-
as a percentage of revenues is primarily due to the low delivery levels in the
first quarter of 1996.
Gross interest cost was approximately $1.3 million for the three month
period ended February 29, 1996, compared to $1.8 million in the corresponding
period of the prior year. The decrease in gross interest cost resulted from
lower debt levels offset to a lesser extent from higher interest rates charged
on the Company's revolving credit agreement. Interest capitalized in the three
month period ended February 29, 1996 was $1.0 million compared to $1.3 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.
As a result of the above factors, the Company reported a net loss of
$649,000 ($.02 per share) for the three month period ended February 29, 1996,
compared to a net loss of $375,000 ($.01 per share) for the corresponding per-
iod of the prior year. Included in the net loss is a benefit for income taxes of
$617,000 for the three months ended February 29, 1996. The Company utilized an
effective tax rate benefit of 49% based on estimates of annual results for
1996.
At February 29, 1996, the backlog of homes under contract totalled 197
having an aggregate dollar value of $40.5 million, reflecting decreases in the
number of homes in backlog and in backlog value of 39% and 49%, respectively,
as compared to the levels at February 28, 1995 of 323 having an aggregate
dollar value of $80.1 million. Prior year results benefited from a greater
number of communities open for sales in the Northeast from operating two
divisions, and the effects of an increasing interest rate environment which may
have accelerated home purchase decisions in 1994 that resulted in higher
backlog levels entering the first quarter of 1995. The Company continues to be
impacted by a sluggish economy, especially in the markets served in the
Northeast. Net sales activity for the quarter was 123 contracts for $23.9
million compared to 83 contracts for $19.4 million for the corresponding period
of the prior year. The current quarter of sales activity reflects the Company's
opening of three new communities, two in Florida and one in the Northeast. The
average price per home in backlog at February 29, 1996 decreased to $205,000
compared to $248,000 at February 28, 1995 primarily due to the backlog in the
Florida division representing a higher proportion of the total backlog at
February 29, 1996. 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 the purchasers selling
their existing homes. 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
-22-
the current and prior periods may not be indicative of those to be realized in
succeeding periods.
RESULTS OF OPERATIONS FOR THE YEARS ENDED NOVEMBER 30, 1995 AND 1994.
Revenues for the year ended November 30, 1995 were $180.8 million compared
to revenues of $168.7 million for the year ended November 30, 1994. Deliveries
of 749 homes resulted in housing revenues of $171.3 million for the year ended
November 30, 1995. For the year ended November 30, 1994, the Company delivered
899 homes which generated $165.5 million of housing revenues. Housing revenues
in 1995 increased four percent (4%) reflecting an increase in average selling
prices to $229,000 for the homes delivered during the year compared to $184,000
for the homes delivered in 1994. This increase in average revenue per home is
consistent with the Company's plan to position itself in middle and upscale
market segments in the Northeast and Orlando, Florida markets with enhanced
margin potential and reduce its former concentration in entry level,
multi-family products because of unfavorable demographic trends and increasing
regulatory costs. Deliveries in the Northeast division comprised seventy
percent (70%) of the Company's total deliveries in fiscal 1995 where average
selling prices increased to $265,000 from $226,000 in 1994. Deliveries in the
Orlando division comprised twenty-four percent (24%) of total deliveries in
fiscal 1995, where average selling prices increased to $125,000 in 1995 from
$109,000 in 1994. The seventeen percent (17%) decrease in home deliveries in
fiscal 1995 is primarily attributable to a thirty-nine percent (39%) decrease
of home deliveries in the Orlando, Florida division primarily due to the timing
of new project openings.
The Company's gross profit margin on homes delivered, excluding the pro-
vision for estimated net realizable value discussed below, was approximately
twelve percent (12%) during the year ended November 30, 1995, compared to
seventeen percent (17%) in the year ended November 30, 1994. The gross profit
margin on homes delivered in 1995 was impacted by increased competition in a
difficult market while the homes delivered in 1994 reflected the revaluation of
the Company's inventory as a result of the application of fresh-start
accounting and reporting in connection with the Company's 1993 Plan of
Reorganization. In addition, gross profit margins have been, and will continue
to be, unfavorably impacted by increased carrying costs resulting from lower
absorption rates. Gross profit margins have also been impacted by the fact that
the Company's land pipeline, which was severely depleted when it completed its
Reorganization in May 1993, has been refilled in a transitional market
environment that reflected upward price pressures on land that could not be
entirely passed along to buyers. As a result of the factors discussed above and
other variables, the number and average selling prices of homes sold and
delivered and gross profit realized in 1995 may not be indicative of future
deliveries. In the year ended November 30, 1995, the Company recorded non-cash
-23-
charges to the provision for estimated net realizable value of $1.6 million to
reflect certain inventory, primarily two properties, at their estimated net
realizable value. This determination was based upon decreased sales absorption
levels in the Northeast which continued into the fourth quarter of 1995 and the
reevaluation of the ultimate use of a parcel in Florida. For the year ended
November 30, 1994, $400,000 was recorded as a provision for estimated net
realizable value. Estimated net realizable value has been determined based upon
the amount the Company expects to realize through sale or development based on
management's plans for each property. The estimation process involved in the
determination of estimated net realizable value is inherently subjective since
it requires estimates as to future events and conditions. The estimated net
realizable value of a property may exceed the value which could be obtained
through the immediate sale of the property if development plans for such prop-
erty support a higher cost recovery.
During the second quarter of fiscal 1995, as a result of the consolidation
of the New Jersey-North and New Jersey-South divisions and economic and market
conditions including a decreased sales pace, the Company decided not to incur
further preacquisition costs on nine properties controlled under option. These
actions resulted in a pre-tax charge of approximately $1.1 million that is
reflected in Cost of Revenues. Also included in Cost of Revenues is a $1.1
million pre-tax credit realized from the reversal of a reserve previously
provided on a community completed in 1995. This reserve related to a $1.1
million payable that the Company, in finalizing the accounting for this
community in the second quarter of 1995, determined, based upon further review
and advice of counsel, had been discharged by reason of the creditor's failure
to take certain actions in connection with the Company's bankruptcy
reorganization.
In November 1995, The Company decided to wind down the Chicago Division
due to unfavorable results and prospects. As a result, a primarily non-cash
$1.1 million charge was recorded in the fourth quarter of 1995 and is included
in Restructuring charges. The Company plans to dispose of the remaining
inventory primarily through the sale and buildout of single family homes and
the bulk sale of the remaining finished lots. Of the $1.1 million charge,
$727,000 was applied as a reduction to inventory as a result of the anticipated
market reaction to the wind down and not proceeding with the scheduled lot
takedowns at the division's two communities. As a start-up division since March
1994, the Chicago division did not have a significant effect on the Company's
financial position and results of operations. The Company anticipates the
termination of its Chicago office lease, with annual lease payments of $42,516
through the year 2000 and the termination of all of the Chicago division's
twelve employees. The Company anticipates that all of the inventory of the
-24-
Chicago division will be disposed of by the end of fiscal 1996. The disposition
of Chicago assets, primarily inventory, in the Chicago division will provide an
estimated $4.0 million in cash. The cash generated from the liquidation will be
utilized to satisfy the division's wind down liabilities included in the $1.1
million charge (approximately $400,000), and the balance reinvested in the
Northeast and Florida divisions. Also included in Restructuring charges is
$840,000 in severance benefits, $200,000 of which resulted from the March 1995
rightsizing, primarily from the consolidation of the New Jersey-North and New
Jersey-South divisions, that resulted in the reduction of approximately twenty
percent (20%) of the Company's workforce; and $640,000 that resulted from a
severance arrangement entered into with the Company's former President in
November 1995, which required the Company to make a lump sum payment and pay
the remaining premium on a whole life insurance policy in January 1996.
Selling, general and administrative expenses decreased to $18.8 million
(10% of revenues) for the year ended November 30, 1995, compared to $20.2
million (12% of revenues) for the year ended November 30, 1994. 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.
Gross interest cost was approximately $7.1 million for the year ended
November 30, 1995, compared to $5.5 million for the year ended November 30,
1994, respectively. The increase in gross interest cost for the year ended
November 30, 1995 resulted from higher interest rates and to a lesser extent
higher average loan balances compared to the year ended November 30, 1994.
Interest capitalized in the year ended November 30, 1995 was $5.0 million
compared to $4.0 million in the year ended November 30, 1994. The increase of
capitalized interest is primarily a result of higher interest rates. The
capitalized amounts will reduce future gross profit levels assuming no relative
increases in selling prices.
Included in Other income (expense) in 1995 is $890,000 which represents
payments received primarily in the fourth quarter in connection with the
dissolution and liquidation of Talcon, L.P. ("Talcon") in complete satisfaction
of Talcon's debt obligations to the Company. The Company had previously
established a reserve for all amounts owed to it by Talcon due to the
uncertainty of collection that resulted from the fact that Talcon had commenced
dissolution proceedings in 1994 and was in default with respect to
approximately $8.3 million of borrowings under a loan agreement with its bank
lender.
The Company, primarily as a result of the adoption of fresh-start
accounting and reporting in connection with its Reorganization in 1993, has a
tax basis in its assets held as it exited its Reorganization substantially in
excess of the carrying value of these assets used for financial reporting
purposes. As a result of this difference in basis, the Company will realize a
-25-
tax benefit over time against future earnings. In accordance with The American
Institute of Certified Public Accountants Statement of Position 90-7 ("SOP
90-7"), the Company is required to provide a provision in lieu of taxes
notwithstanding the fact that there are no significant taxes payable and must
record a corresponding reduction in the amount of values in excess of amounts
allocable to identifiable net assets ("goodwill"), until exhausted, then as a
direct increase to Paid in capital. Results for the year ended November 30,
1995 reflect a provision in lieu of taxes for financial reporting purposes of
$831,000, due to recording the above-mentioned non-cash charges, and which is
primarily non-cash, and therefore does not impact the Company's cash position,
tangible net worth or earnings before interest, taxes, depreciation and
amortization ("EBITDA"). Goodwill was fully extinguished during the year ended
November 30, 1994 and an increase of $719,000 was recorded to Paid in capital.
The 1994 provision in lieu of income taxes was reduced by approximately
$700,000 as a result of a reduction in tax reserves that was appropriate when
the Company obtained clearance on a state tax position with the New Jersey
Division of Taxation. The net operating loss carryforwards and other deferred
tax assets are subject to utilization limitations as a result of the changes in
control of the Company that occurred in 1993 and 1995.
The distribution of the Company's stock has been shifting significantly
since May 31, 1993. This activity accelerated in the last half of 1995 when the
Company realized a greater than fifty percent (50%) change in its ownership
since its Reorganization in 1993. The recognition of this event requires that
the Company recalculate the amount of the annual net operating loss ("NOL")
limitation. The preliminary estimate of the Company's ability to use the NOL to
offset future income is approximately $1.7 million per year or approximately
$22.0 million. See note 12 to the Company's consolidated financial statements.
While the change in ownership impacted the NOL, management believes that the
wider distribution of stock represents a more positive and liquid ownership
base for the Company's common equity.
Net sales contracts of $108.7 million (496 homes) were recorded by the
Company during the year ended November 30, 1995, representing decreases in the
dollar value of contracts of 42% compared to $188.9 million (951 homes) in the
same period in 1994. At November 30, 1995, the backlog of homes under contract
totalled 166 homes having an aggregate dollar value of $36.0 million,
reflecting decreases in the number of homes in backlog and in backlog value of
60% and 63%, respectively, over the levels at November 30, 1994 of 419 homes
having an aggregate dollar value of $98.5 million. Prior year results benefited
from a greater number of communities open for sale in the Florida division,
operating two divisions in the Northeast, and an increasing interest rate
environment which may have accelerated home purchase decisions in the first
-26-
nine months of 1994. Due to market conditions, the number of new communities
opened for sales during fiscal 1995 decreased forty-two percent (42%) to seven
communities, six of which were in the Florida market. This resulted in fewer
communities open for sales during 1995 and a reduction in the amount
outstanding under the credit facility by $15.0 million to $45.0 million by
November 30, 1995. The average price per home in backlog at November 30, 1995
decreased 8% to approximately $217,000 compared to $235,000 at November 30,
1994 primarily due to the backlog in the Florida division representing a higher
proportion of the total backlog in 1995. 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 its
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.
Pursuant to management's continued focus on its core homebuilding
business, the Company sold two of its commercial properties in 1995 for
approximately $8.1 million in addition to the sale of one of its commercial
properties in the fourth quarter of 1994 for $800,000. The 1995 sales resulted
in an aggregate pre-tax gain of approximately $500,000 and provided
approximately $850,000 of additional cash for operations after retirement of
$6.9 million of mortgage debt.
In March 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards 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
provisions of this statement are effective for fiscal years beginning after
December 15, 1995. If the Company adopted this statement currently, it would
not have a material effect on the Company's financial position, results of
operations or cash flows.
In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 123, "Accounting for Stock Based
Compensation." The provisions of this statement are effective for fiscal years
beginning after December 15, 1995. The Company intends to implement the
disclosure-only provision of this statement. Accordingly, if the Company
adopted this statement currently, it would not have a material effect on the
Company's financial position, results of operations or cash flows.
-27-
RESULTS OF OPERATIONS FOR THE YEAR ENDED NOVEMBER 30, 1994 AND THE SIX MONTH
PERIODS ENDED NOVEMBER 30, 1993 AND MAY 31, 1993
Economic and industry conditions including increased unemployment and
declining real estate values caused the Company to file and consummate a
"pre-packaged" plan of reorganization under Chapter 11 of the United States
Bankruptcy Code in the second quarter of 1993. As a result of the
Reorganization, the Company's financial statements were restated to reflect the
estimated fair market value of individual assets in accordance with the SOP
90-7. A reorganization value of $21.0 million as of May 31, 1993 was
established by the Company after consideration of a range of values furnished
by the Company's independent advisors.
Due to the adoption of fresh-start accounting and reporting in accordance
with SOP 90-7, the Company's results of operations for periods ending on or
prior to May 31, 1993 are not comparable to results experienced by the Company
in subsequent periods particularly in the areas of interest expense, cost of
revenues and gross profit. Accordingly, operating results for periods
subsequent to May 31, 1993 are separated by a black line from periods ending on
or prior to such date. The following discussion of the results of operations is
presented on a comparative basis with reference to the impact of fresh-start
accounting and reporting where appropriate.
Revenues for the year ended November 30, 1994 were $168.7 million compared
to revenues of $159.9 million for the year ended November 30, 1993. Deliveries
of 899 homes resulted in housing revenues of $165.5 million for the year ended
November 30, 1994. For the year ended November 30, 1993, the Company delivered
860 homes which generated $157.3 million of housing revenues. Revenues in 1994
increased five percent (5%) reflecting an increase in deliveries and average
selling prices to $184,000 for the homes delivered during the year compared to
$183,000 for the homes delivered in 1993. This increase in average revenue per
home is consistent with the Company's plan to position itself in upscale market
segments in the Northeast with enhanced margin potential and reduce its former
concentration in entry level, multi-family products in part, because of
unfavorable demographic trends and increasing regulatory costs. The five
percent (5%) increase in home deliveries in fiscal 1994 is attributable to the
improved land pipeline, a fifty-four percent (54%) increase of home deliveries
in the Florida division and the opening of sixteen (16) new communities since
the Reorganization in May 1993. The Company delivered substantially all of the
remainder of the California division's homebuilding inventory (50 home
deliveries) in fiscal 1994 compared to 116 homes delivered in 1993.
The Company's gross profit margin on homes delivered, excluding the pro-
vision for estimated net realizable value discussed below, was approximately
seventeen percent (17%) during the year ended November 30, 1994 compared to
-28-
nineteen percent (19%) in the six month period ended November 30, 1993. The
Company had confronted increased competition in a housing market that showed
further signs of slowing due, among other things, to increases in mortgage
rates. In addition, gross profit margins were unfavorably impacted by
construction labor and material cost increases, interest rate increases and the
impact of the timing of certain start-up costs associated with opening a number
of new communities for sales within a short time span. Gross profit margins
were also impacted by the fact that the Company's land pipeline, which was
severely depleted when it completed its Reorganization in May 1993, had been
refilled in a transitional market environment that reflected upward price
pressures on land that could not be entirely passed along to buyers in a rising
interest rate environment. The Company's gross profit margin on homes delivered
was approximately ten percent (10%) for the six month period ended May 31,
1993. The increase in gross profit margin in the six months ending November 30,
1993 was primarily due to the adoption of fresh-start accounting and reporting
as of May 31, 1993 which included the revaluation of inventory to fair market
value. In the six months ended May 31, 1993, the Company recorded non-cash
charges to the provision for estimated net realizable value of approximately
$3.4 million to reflect certain inventory and receivables at their estimated
net realizable value. For the year ended November 30, 1994, $400,000 was
recorded as a provision for net realizable value. There were no such charges to
the provision for estimated net realizable value for the six months ended
November 30, 1993.
Selling, general and administrative expenses decreased to $20.2 million
(12% of revenues) for the year ended November 30, 1994, compared to $10.1
million (12% of revenues) and $20.9 million (13% of revenues) for the six and
twelve month periods ended November 30, 1993. The decrease is principally due
to lower insurance costs and a reduction of legal and professional fees.
Gross interest cost was approximately $5.5 million for the year ended
November 30, 1994, compared to $2.5 million and $7.2 million for the six and
twelve month periods ended November 30, 1993, respectively. The decrease in
gross interest cost for the year ended November 30, 1994 resulted from lower
average loan balances (primarily due to the impact of the Reorganization)
compared to the year ended November 30, 1993. The increase of $500,000 to $3.0
million for the six month period ended November 30, 1994 compared to the six
month period ended November 30, 1993 is due to interest rate increases in the
revolving credit agreement during 1994. Interest capitalized in the year ended
November 30, 1994 was $4.0 million compared to $1.5 million and $2.6 million in
the six and twelve month periods ended November 30, 1993. The increase of
capitalized interest is primarily a result of higher inventory levels subject
to capitalization and, to a lesser extent, higher interest rates.
-29-
Equity in operations of joint ventures resulted in a loss of $9.4 million
for the six month period ended May 31, 1993. These reflected non-cash
write-offs primarily from Talcon investments in certain joint ventures which
resulted from the illiquidity of such joint ventures and continued
deterioration in the markets in which they operate. Talcon's results had no
effect on the results of the Company for the year ended November 30, 1994 and
the six months ended November 30, 1993.
Reorganization charges for the six month period ended May 31, 1993 of
$37.5 million reflects the successful consummation of the Reorganization and
the corresponding fresh-start accounting and reporting which includes a $23.9
million inventory adjustment to fair market value, $11.4 million write-off of
the values in excess of amounts allocable to identifiable net assets and $2.2
million of restructuring costs and other reserves incurred in the debt
restructuring. No such additional charges were reflected in the year ended
November 30, 1994 and the six months ended November 30, 1993.
The Company recorded a charge against earnings of $800,000 in fiscal 1994
relating to a proposed offering of securities and related working capital
facility. The proposed offering was terminated due to unfavorable conditions in
the financial markets. Results for the year ended November 30, 1994 and the six
month period ended November 30, 1993 reflected a provision in lieu of income
taxes for financial reporting purposes of $2.4 million and $1.9 million,
respectively. This provision was primarily non-cash and, therefore, did not
impact the Company's cash position, tangible net worth or EBITDA.
The Reorganization resulted in the discharge of approximately $83.4
million of principal and interest due the holders of 12-5/8% Subordinated and
16-5/8% Senior Subordinated Notes in exchange for stock, warrants to purchase
common stock, cash and short term notes. An extraordinary gain of $58.3 million
resulted for the six month period ended May 31, 1993 since the value of debt
discharged was greater than the consideration given in the exchange.
During the year ended November 30, 1994, the Company recorded net sales
contracts of $188.9 million (951 homes), representing increases in the dollar
value of contracts of fifteen percent (15%) compared to $164.3 million (890
homes) in the same period in 1993. At November 30, 1994, the backlog of homes
under contract totalled 419 homes having an aggregate dollar value of $98.5
million, a record level at a fiscal year end, reflecting increases in the
number of homes in backlog and in backlog value of fourteen percent (14%) and
thirty-one percent (31%), respectively, over the levels at November 30, 1993 of
367 homes having an aggregate dollar value of $75.0 million. The average price
per home in backlog at November 30, 1993 increased fifteen percent (15%) to
approximately $235,000 compared to $205,000 at November 30, 1993. Management
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attributes these favorable results to an improved land pipeline, the opening of
sixteen (16) new communities from May 31, 1993 through November 30, 1994 and
the Company's strategic plan, including emphasis on marketing and building
higher priced single family detached homes in the Northeast.
Pursuant to management's continued focus on its core homebuilding
business, the Company sold one of its commercial properties in the fourth
quarter of 1994 for approximately $800,000. Although this sale did not generate
any significant profit or loss, it did result in a reduction of mortgages
payable of approximately $750,000.
Liquidity and Capital Resources
During the past several years, the Company has financed its operations
primarily from internally generated funds from home sales and borrowings under
its Amended Credit Agreement (the "Facility"), which became effective upon the
consummation of the Reorganization. In February 1996, the Company amended its
Facility to meet anticipated operating results through the remainder of the
term of the Facility. In conjunction with the Company's decision to exit from
the Chicago market, the amended Facility will permit borrowings of up to $55.0
million until November 1, 1996, when the commitment is reduced to $50.0
million, subject to borrowing base and other limitations. The amended Facility
increased the interest rate charged to the Company to the lender's prime rate
(8.25% at February 29, 1996) plus two percent (2%). The Company believes that
the funds generated by its operating activities, income tax payment reductions
derived from NOL utilization and borrowing availability under the Facility will
provide sufficient capital to support the Company's operations and near term
plans through the term of the Facility; however, the Company will have to seek
an extension of the Facility or arrange replacement financing prior to the
expiration of the Facility on February 28, 1997. As of February 29, 1996,
approximately $1.9 million was available to be borrowed under the Facility. The
unused Facility commitment of $6.5 million is available as of February 29, 1996
to the Company for investment in inventory that results in the corresponding
growth of its borrowing base.
The February 1996 amendment to the 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 limits the amount which can be expended on land acquisition and land
development. Purchase money financing from other sources is limited to $5.0
million under the Facility. Although these limitations will restrict the
Company's ability to expand its business, the Company believes it should be
able to comply with the amended financial covenants, however, based upon market
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conditions in the Northeast, certain covenant levels may not be met. Certain
subsidiaries of the Company are guarantors of the obligations under the
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 number of lenders under the Facility has recently decreased to four
participants with Foothill Capital acquiring thirty-seven and one-half percent
(37-1/2%) of the Facility from the Apollo Group and Fidelity Investments.
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 housing
selling prices, EBITDA however, would not be adversely impacted.
Cash Flows from Operating Activities
Inventories amounted to $68.7 million at February 29, 1996 compared to
$64.2 million at November 30, 1995 and $88.8 million at November 30, 1994. The
increase in inventory of $4.5 million since November 30, 1995 is attributable
to the acquisition of new land primarily in the Northeast of which $2.1 million
was financed by a purchase money mortgage. The decrease of $24.6 million from
November 30, 1995 to November 30, 1994 was primarily a result of home
deliveries, offset to a lesser extent by land acquisitions totalling $10.5
million. Commercial properties were reduced by approximately $7.2 million from
the sale of two commercial buildings during 1995. In addition, inventories
decreased by $1.6 million at November 30, 1995 from non-cash writedowns to
adjust primarily two properties to estimated net realizable value and the
abandonment of nine properties under option resulting in a charge of $1.1
million during the second quarter of 1995. The net effect of reductions in
residential and commercial inventories in 1995 was $27.9 million. Inventories
amounted to $78.2 million at November 30, 1993, $73.4 million at May 31, 1993
and $110.3 million at November 30, 1992. The increase in inventory from
November 30, 1993 to November 30, 1994 of $10.6 million was a result of land
acquisitions of $25.8 million during the year which were offset by reductions
in inventory levels through deliveries. Of the $25.8 million in land
acquisitions, approximately $2.5 million was financed with purchase money
mortgage debt. The increase in inventory from May 31, 1993 to November 30, 1993
of $4.8 million included: (i) the purchase of $16.6 million of additional land
primarily in New Jersey, and (ii) the depletion of existing inventories of
$11.8 million which includes the effects of the wind down of the California
operations. The decrease in inventory from November 30, 1992 to May 31, 1993
was primarily due to $23.9 million in non-cash charges to adjust to fair market
value in accordance with SOP 90-7 and, to a lesser extent, certain non-cash
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writedowns to estimated net realizable value, partially offset with the
acquisition of approximately $8.2 million of land.
The decrease in receivables of $4.1 million from $8.9 million at November
30, 1995 to $4.8 million at February 29, 1996 is attributable to the timing of
home closings. Receivables increased by approximately $1.1 million from
November 30, 1994 to November 30, 1995, primarily due to the timing of home
closings, offset to a lesser extent by reductions in cash collateral held for
performance guarantees that were released in conjunction with the completion of
communities during the year. The $900,000 increase in receivables in 1994 is
attributable to the timing of home closings. Receivables decreased by
approximately $7.3 million at November 30, 1993 compared to November 30, 1992
primarily due to the refund of cash collateral held for performance guarantees
returned in exchange for $4.0 million in letters of credit, and the timing of
home closings.
The Company will continue to seek opportunities to obtain control of land
for future projects 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 be utilized to the
extent possible to minimize risk, conserve cash and maximize the Company's land
pipeline. The Facility requires approval of the Lenders for land acquisitions.
A $3.0 million decrease in accrued expenses and other liabilities from
November 30, 1995 to February 29, 1996 is attributable to a decreased level of
homebuilding operations during the first quarter of 1996 and the payment of
severance to the Company's former President. A $3.7 million decrease in
accounts payable from $7.0 million at November 30, 1994, to $3.3 million at
November 30, 1995, was the result of a decreased level of homebuilding
operations and communities under development. The decrease in accrued expenses
and other liabilities of $1.8 million from $16.7 million at November 30, 1994,
to $14.9 million at November 30, 1995, was primarily the result of a $1.1
million credit taken in the second quarter of 1995 from the reversal of a
reserve provided during the delivery period of a community that closed out in
early 1995. A $2.4 million increase in accounts payable from $4.5 million at
November 30, 1993 to $7.0 million at November 30, 1994 was a result of an
increased level of homebuilding operations and communities under development.
The decrease in accrued expenses and other liabilities of $3.0 million from
$19.7 million at November 30, 1993 to $16.7 million at November 30, 1994 was
the result of payments made in conjunction with litigation settlements, the
Talcon dissolution and the California winddown. In addition, a $700,000 reserve
related to a certain tax issue was reversed.
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Cash Flows from Investing Activities
At February 29, 1996 and November 30, 1995, 1994 and 1993, investments in
joint ventures amounted to $850,000, which consists primarily of a partnership
interest in a joint venture located in Maryland. The Company expects to realize
this amount when the joint venture activities are completed in 1996.
In 1995, Talcon, a limited partnership formed by the Company in 1987, paid
the Company $890,000 in full satisfaction of its debt obligations to the
Company. The Company had previously established a reserve for all amounts owed
to it by Talcon and, as a result, the payment received in 1995 was classified
in Other (income) expense.
Cash Flows from Financing Activities
The aggregate principal amount of loans outstanding under the Facility was
$47.0 million at February 29, 1996 compared to $45.0 million at November 30,
1995. In addition, mortgages payable increased by $2.1 million to partially
fund the acquisition of one new community in the Northeast. The additional
borrowings under the Facility were utilized to purchase land, primarily in the
Northeast. The aggregate principal amount of loans outstanding under the
Facility was $45.0 million at November 30, 1995, $60.0 million at November 30,
1994, and $55.0 million at November 30, 1993. The $15.0 million decrease from
November 30, 1994 to November 30, 1995 occurred during the second half of 1995
in conjunction with the Company's recent strategy to reduce inventory levels,
improve the Company's financial condition and due to a restrictive covenant of
the Facility. This covenant requires the Company to reduce outstanding
borrowings to the extent that the amount held in its collateral deposit account
with the lenders' collateral agent exceeds $6.5 million. The amount outstanding
had increased from November 30, 1993, to November 30, 1994, primarily due to
land acquisitions.
The Company utilizes mortgages payable, when available, to finance a
portion of its acquisitions. Mortgages payable decreased to $1.2 million at
November 30, 1995, from $9.4 million at November 30, 1994, as a result of the
repayment of approximately $6.9 million of the proceeds from the sale of two of
its commercial properties and payment under a purchase money mortgage of $1.3
million.
Inflation
The Company, as well as the homebuilding industry in general, may be
adversely affected by inflation, which can cause increases in the price of
land, raw materials and labor. Unless cost increases are recovered through
higher sales prices, gross margins can decrease. Increases in interest rates
result in higher construction and financing costs which can also adversely
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affect gross margins. In addition, increases in home mortgage interest rates
make it more difficult for the Company's customers to qualify for mortgage
loans, potentially reducing the demand for homes. Historically, the Company, in
periods of high inflation, has generally been able to recover increases in
land, construction, labor and interest expenses through increases selling
prices; however, the Company believes that its gross margins in 1994 and 1995
were adversely impacted by increased costs which could not be entirely passed
through to buyers. See "Results of Operations."
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BUSINESS
The Company designs, constructs and sells single family attached and
detached homes primarily in central New Jersey, central Florida and eastern
Pennsylvania . The Company has an established reputation in its markets, having
constructed and sold over 16,700 homes in 138 residential communities during
the last 26 years. The Company markets primarily to first time buyers and first
and second time move-up buyers and delivered 749 homes in fiscal 1995 having an
average sales price of approximately $229,000.
The Company was offering homes for sale in 21 residential communities at
February 29, 1996 with prices ranging from $94,000 to $476,000. At February 29,
1996, the backlog of homes under contract was $40.5 million, compared to $80.1
million at February 29, 1995, and consisted of 197 homes having an average
sales price of $205,000 compared to 323 homes having an average sales price of
$248,000 in 1995. The 1995 backlog levels benefitted from operating two
divisions in the Northeast and the effects of an increasing interest rate
environment which may have accelerated home purchase decisions in 1994 that
resulted in higher backlog levels entering the first quarter of 1995. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
At February 29, 1996, the Company owned or controlled approximately 2,966
lots, consisting of 1,243 lots in its 21 residential communities and 1,723 lots
located on 12 parcels of land which primarily are controlled through option
agreements and which, in a number of cases, are subject to the satisfactory
completion of feasibility studies and the receipt of all required approvals.
The Company's operating strategy consists of: (i) targeting the first time
homebuyer and the first and second time move-up buyer; (ii) conducting
homebuilding activities in markets that, based on economic and demographic
trends, demonstrate strong growth potential; (iii) designing each residential
community to meet the needs of the particular market based on local conditions
and demographic factors; (iv) minimizing land risks by purchasing entitled
tracts of well-located property through options or contingent purchase
contracts and limiting land holdings to those which can be developed within two
years from the date of purchase; (v) developing residential projects in phases
which enables the Company to reduce financial exposure, control construction
and operating expenses and adapt quickly to changes in customer demands and
other market conditions; (vi) utilizing subcontractors to perform land
development and home construction on a fixed price basis; and (vii) emphasizing
the quality and value of its homes.
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Operating Strategy
Key elements of the Company's operating strategy include:
Acquiring Tracts of Well-Located Property. The Company selects locations
for its residential housing communities that have ready access to metropolitan
areas by public transportation and major arterial highways and which have
experienced industrial and commercial growth. The Company acquires land for
future development principally through the use of land options which need not
be exercised before the completion of the regulatory approval process. The
Company structures these options in most cases with flexible takedown schedules
rather than with an obligation to take down the entire parcel at one time.
Before acquiring a parcel of land the Company completes extensive studies and
analyses as to the economic feasibility and environmental suitability of the
proposed community and generally obtains substantially all governmental
approvals required for the development of the property. This strategy enables
the Company to minimize the economic costs and risks of carrying a land
inventory, while maintaining the Company's ability to commence new developments
during favorable market periods.
Limiting Land Holdings. The Company generally limits the amount of land it
owns to amounts expected to be developed within two years or less in an effort
to match land costs with current market prices for finished homes.
Controlling Costs. The Company controls costs by: (i) developing
residential communities of a size which permits the Company to take advantage
of certain economies of scale; (ii) generally beginning construction only when
homes are under contract; (iii) hiring subcontractors on a fixed-price basis;
and (iv) limiting the size of each construction phase to reduce inventory
carrying costs. In addition, the Company generally standardizes and limits the
number of home designs within any given product line. This standardization
improves the quality of construction and permits efficient production
techniques and bulk purchasing of materials and components, thus reducing
construction costs and the time required to build a home.
Building in Phases. By developing its projects in phases, the Company
believes it is able to adapt quickly to changes in customer demands and other
market conditions. The Company monitors its sales activity and varies its
product mix and/or focuses more heavily upon particular projects and products
to meet perceived changes in demand.
Corporate Operations
The Company operates through separate divisions, which are located within
or near the areas in which they operate. Each division is managed by executives
with substantial experience in the markets served. In addition, each division
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is staffed with personnel equipped with the skills to complete the functions of
land acquisition, entitlement processing, land development, construction,
marketing, sales and product service.
The Company's corporate staff is responsible for: (i) evaluating the
suitability of and selecting geographic markets; (ii) allocating capital
resources among divisions; (iii) maintaining the Company's relations with its
lenders to regulate the flow of financial resources; and (iv) monitoring the
decentralized operations of the Company's divisions. Capital commitments are
determined through consultation among senior management and division managers.
Centralized financial controls are also maintained through the standardization
of accounting and financial policies and procedures, which are applied
uniformly throughout the Company.
Geographic Markets
The Company's current business operations are principally located in
central New Jersey, the greater Orlando area and eastern Pennsylvania.
Generally, the Company has organized divisions to be located in markets that
demonstrate a strong growth profile. The Company selects locations within these
markets for its residential housing communities that have ready access to
metropolitan areas by public transportation and major arterial highways and
which have experienced industrial and commercial growth.
In March 1995, the Company consolidated its New Jersey-North and New
Jersey-South divisions into a single division (the Northeast division). See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations." The Company's Northeast Division conducts homebuilding activities
in Burlington, Monmouth, Middlesex and Mercer counties in New Jersey and Bucks
County in Pennsylvania. The Company's Florida division conducts homebuilding
activities in the Orange and Seminole county areas, concentrating on the
suburban Orlando area.
In November 1995, the Company decided to wind down its Chicago division
due to unfavorable results and prospects. The Company plans to dispose of its
remaining Chicago inventory through the sale and buildout of homes and the bulk
sale of the remaining lots. In connection with the wind down, the Company will
terminate the lease for its Chicago office and the employment of the division's
12 employees. As a start-up division, the Chicago division did not have a
significant effect on the Company's financial position and results of
operations. The Company anticipates that the Chicago wind down will generate
positive cash flows of approximately $4 million. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations."
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The Company does not anticipate that it will expand into any new markets
in fiscal 1996 and, therefore, plans to focus its operating locations and
available capital in the Northeast and Florida divisions.
Land Acquisition, Planning and Development
Substantially all of the land acquired by the Company is purchased only
after necessary entitlements have been obtained so that the Company has certain
rights to begin development or construction as market conditions dictate. The
term "entitlements" refers to developmental approvals, tentative maps or
recorded plats, depending on the jurisdiction within which the land is located.
Entitlements generally give a developer the right to obtain building permits
upon compliance with certain conditions that are usually within the developer's
control. Although entitlements are ordinarily obtained prior to the Company's
purchase of the land, the Company is still required to obtain a variety of
other governmental approvals and permits during the development process. The
Company primarily buys finished lots that are ready for construction in the
Florida market while finished lots are generally not available in the Northeast
market.
The Company's general policy has been to control land for future
development through the use of purchase options or contingent purchase
contracts whenever practicable and where market conditions permit. The Company
endeavors to acquire property either on an installment method, with closings on
a portion of a project on a periodic basis, or subject to purchase money
mortgages. These policies enable the Company to limit its financial
commitments, including cash expenditures and interest and other carrying costs,
and avoid large land inventories which exceed the Company's immediate
development needs. At the same time, the Company retains any appreciation in
the value of the parcel prior to exercising the option or closing the
contingent purchase contract. During the option or contingency period, the
Company performs feasibility studies, technical, engineering and environmental
surveys and obtains the entitlements.
In making land acquisitions, the Company considers such factors as: (i)
current market conditions; (ii) internal and external demographic and marketing
studies; (iii) environmental conditions; (iv) proximity to developed and
recreational areas; (v) availability of mass transportation and ready access to
metropolitan areas and other employment centers; (vi) industrial and commercial
growth patterns; (vii) financial review as to the feasibility of the proposed
community, including projected profit margins, returns on capital employed and
payback periods; (viii) the ability to secure governmental approvals and
entitlements; (ix) customer preferences; (x) access to materials and
subcontractors; and (xi) management's judgment as to the real estate market,
economic trends and the Company's experience in a particular market. The
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Company's development activities include land planning and securing
entitlements. These activities are performed by the Company's employees,
together with independent engineers, architects and other consultants. The
Company's employees also carry out long-term planning for future communities.
Homebuilding
Products. The Company offers a variety of homestyles tailored to meet the
specific needs of the particular geographic and demographic markets served,
including the first-time and second-time move-up buyer and, to a lesser extent,
the first-time buyer. The Company believes that this diversified product
strategy enables it to mitigate some of the risks inherent in the homebuilding
industry by providing it with the flexibility to adjust its product mix to suit
particular markets and changing market conditions. Homestyles, prices and sizes
vary from community to community based upon the Company's assessment of
specific market conditions and the restrictions imposed by local jurisdictions.
In certain projects, recreational amenities such as tennis courts and
playground areas are constructed by the Company.
The Company generally standardizes and in recent years has limited the
number of home designs within any given product line. This standardization
improves the quality of construction and permits efficient production
techniques and bulk purchasing of materials and components, thus reducing
construction costs and the time required to build a home. The Company offers a
variety of options and upgrades for each of its homes, thereby permitting
buyers to tailor the homes to their particular tastes while enabling the
Company to maintain the efficiency of a production builder.
Construction. The Company employs production managers who are responsible
for coordinating all functions pertaining to the construction process. All
construction work for the Company is performed by subcontractors on a fixed
price basis, with the Company acting as general contractor. In order to
maintain control over costs, quality and work schedules, the Company employs an
on-site superintendent for each project who is responsible for supervising
subcontractor work.
The Company's housing is constructed according to standardized design
plans. Generally, the Company seeks to develop communities having a minimum
number of lots to absorb deliveries over at least a two year period in order to
reduce the per home cost of the housing products which it sells. Advantages
achieved by volume building include lower home prices paid to subcontractors
and reduced material costs per home. From time to time, the Company purchases
smaller sized projects in order to more efficiently deploy Company resources.
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Generally, the Company's policy is to commence construction of: (i) a
detached home beyond the foundation after a sales contract for that home has
been signed; and (ii) a multi-unit townhouse building after 50% of the units in
that building are under sales contracts. The Company does, however, ordinarily
attempt to maintain a predetermined inventory of units in process and model
homes in order to match the construction time of homes with the mortgage
application process and to accommodate customers who require immediate
occupancy, such as relocation buyers. In addition, in order to permit construc
tion and delivery of housing units on a year round basis, the Company, in
anticipation of winter, starts construction of foundations prior to having
signed sales contracts in affected market locations.
Materials and Subcontractors. The Company attempts to maintain efficient
operations by utilizing standardized material available from a variety of
sources. Prices for materials may fluctuate due to various factors, including
demand or supply shortages. During 1995, major building material prices for
lumber, asphalt and appliances remained flat while prices for concrete and
plastic increased modestly. The price for gypsum increased sharply during the
first half of the year and decreased gradually during the second half of the
year.
The Company contracts with numerous subcontractors representing all
building trades in connection with the construction of its housing units, and
has established long-term relationships with a number of subcontractors. These
subcontractors bid competitively for each phase of the work at each project and
are selected based on quality, price and reliability. Subcontractor bids are
solicited after an internal job cost budget estimate has been prepared based on
estimated material quantities and home prices. These internal estimates serve
as the formal baseline budget against which job cost performance is measured.
Each division is responsible for contracting all work on its projects.
Production costs are monitored monthly to assess variances from contracted
amounts. The Company closely monitors subcontractor performance and
expenditures on each project to assess project profitability. Additionally, the
Company is generally able to obtain reduced prices from many of its
subcontractors due to the high volume of work it provides to its
subcontractors. Agreements with subcontractors are generally short term,
running from six to twelve months, and provide a fixed price for labor and
materials.
The Company has, from time to time, experienced temporary construction
delays due to delays in the delivery of materials or availability of
subcontractors. Such construction delays may in turn delay the closing of
dwelling unit sales, thereby extending the period of time between the signing
of a purchase contract with respect to a dwelling unit and the receipt of
revenues by the Company. To date, the Company has experienced no material
adverse financial effects as a result of construction delays. Currently,
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sufficient materials and subcontractors are available to meet the Company's
demands; however, the Company cannot predict the extent to which shortages in
necessary materials or labor may occur in the future.
Sales and Marketing
Sales Personnel/Advertising. Each division establishes marketing
objectives, determines retail pricing, formulates sales strategies and develops
advertising programs which, in each case are subject to periodic market
analyses conducted by the division. The Company typically constructs, furnishes
and landscapes model homes for each project and maintains on-site sales offices
staffed by its own sales personnel. The Company makes use of newspaper,
billboard and direct mail advertising, special promotional events and
illustrated brochures in a comprehensive marketing program. In marketing its
products, the Company emphasizes quality and value and provides a 15 year
warranty on its homes.
During the fourth quarter of 1995, the "Your Home Your Way" customization
program was introduced in order to make the products the Company builds more
attractive to homebuilders by tailoring them to individual customer needs.
The Company's sales personnel participate in an intensive sales training
program to develop their skills and knowledge. The Company consults with these
personnel in the product development process regarding feedback from customers
and information with respect to the Company's competitors.
Customer Financing. The Company sells its homes to customers who generally
finance their purchase through conventional and government insured mortgages.
The Company provides its customers with information on a wide selection of
conventional mortgage products and various mortgage lenders to assist the
homebuyer through the mortgage process. Mortgages arranged by the mortgage
providers in recent years have been mortgage loans underwritten and made
directly by a lending institution to the customer. The Company is not liable
for repayment of any mortgage loans.
Sales Agreements. Sales of the Company's housing units are made pursuant
to standard sales contracts that are normal and customary in the markets served
by the Company. Such contracts require a customer deposit (generally 5% unless
limited by local law) at time of contract signing and provide the customer with
a mortgage contingency. The contingency period typically is 60 days following
the execution of the contract. In certain instances, contracts are contingent
on the sale of a purchaser's existing home. In such cases, the Company retains
the right to sell the home to a different buyer during the period in which the
"house to sell" condition is not satisfied. The cancellation rate for new
contracts signed was approximately 23% for fiscal 1995. Cancellation rates may
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vary from year to year. The Company attempts to limit cancellations by training
its sales force to determine at the sales office the qualifications of
potential homebuyers and by obtaining financial information about the
prospective purchaser.
Residential Development
The Company markets and sells varying types of residential housing units
ranging in base selling prices from $94,000 to $476,000. Current average base
selling prices for the Company's homes are approximately $256,000 in New
Jersey, $146,000 in Orlando and $229,000 in Chicago. Average base selling
prices of units sold in any period or unsold at any point in time will vary
depending on the specific projects and style of homes under development. The
Company continually monitors prevailing market conditions, including interest
rates and the level of resale activity in the markets in which it operates. The
Company may from time to time, sell all or a portion of any residential project
prior to its development by the Company.
At February 29, 1996, the Company had 21 residential communities which
include an aggregate of 1,243 single family detached homes to be delivered.
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The following sets forth certain information as of February 29, 1996 with
respect to communities being developed by each of the Company's operating
divisions:
Homes
Deliv- Homes
ered Un-
Year Period der
of Lots Ended Con-
First Ap- Homes Feb. tract Un-
Deliv- proved Deliv- 29, (Back- sold
ery (a) ered 1996 log) Lots Price Range
------ ----- ----- ---- ---- ---- -----------------
Northeast
Belmont at
Steeplechase
(Burlington)...... 1995 382 30 6 5 347 $174,990-$227,990
Burlington
(Burlington Twp).. 1990 433 399 5 15 19 $144,990-$168,990
Crown Pointe
(W. Windsor)...... 1996 94 0 0 2 92 $384,990-$475,990
Four Maples
(Freehold) ....... 1995 56 38 5 9 9 $314,990-$410,990
Jockey Club at
Steeplechase
(Burlington) ..... 1995 177 62 15 9 106 $146,990-$170,990
Manalapan Chase
(Manalapan) ...... 1996 52 0 0 8 44 $311,990-$415,990
Monmouth Ridings
(Howell) ......... 1994 144 96 9 17 31 $194,990-$249,990
Oakleigh Farm
(Buckingham PA) .. 1994 48 39 2 3 6 $273,990-$380,990
Regency Oaks
(Marlboro) ....... 1995 39 19 2 3 17 $333,990-$421,990
Waterford Estates
(W. Windsor) ..... 1994 66 48 2 7 11 $345,990-$417,990
----- ----- ---- ---- ----
Total 1,491 731 46 78 682
Orlando, Florida
Beechwoods
(Altamonte Spr)... 1995 57 17 6 10 30 $132,900-$169,990
Cambridge Commons
(Apopka).......... 1995 87 27 4 11 49 $ 98,990-$120,990
Churchill Downs
(Orange).......... 1995 32 5 2 15 12 $122,990-$160,990
Crescent Park
(Orlando)......... 1995 108 17 5 14 77 $151,990-$184,990
Cypress Lakes
(Orange).......... 1996 79 0 0 8 71 $ 93,990-$112,990
Eastwood (Orange).. 1996 27 0 0 10 17 $126,990-$169,990
The Meadows
(Oricho).......... 1995 49 12 3 5 32 $139,990-$175,990
Saddlebrook (Ocoee/
Windmere)......... 1995 52 21 3 13 18 $129,990-$182,990
Wekiva Park B
(Apopka) ......... 1994 51 32 1 2 17 $ 99,990-$121,990
----- ----- ---- ---- ----
Total 542 131 24 88 323
Chicago, Illinois
Braeburn (Crystal
Lake) ............ 1995 43 17 7 9 17 $192,400-$227,990
Delaware Crossing
(Gurnee) ......... 1995 65 37 4 9 19 $195,000-$232,990
----- ----- ---- ---- ----
Total 108 54 11 18 36
Other
(Communities with
less than five
unsold homes
each)(b) .......... 334 316 11 13 5 $106,990-$126,990
----- ----- ---- ---- -----
TOTAL 2,475 1,232 92 197 1,046
===== ===== ==== ==== =====
(a) Includes homes completed and delivered, homes under
construction and homes designated on subdivision or site
plans where preliminary and final subdivision or site plan
approvals, which in certain instances may be subject to the
fulfillment of certain conditions imposed thereby, have been
received. Also includes approximately 383 planned homes
under option in 5 communities in New Jersey and Florida
currently being developed and marketed by the Company, and
will require cash of $3.3 million in 1996, $1.4 million in
1997 and $850,000 in 1998.
(b) Represents communities open with less than five homes unsold
as of February 29, 1996.
-44-
Land Inventory
The Company acquires options or contingent purchase contracts on land
whenever practicable and where market conditions and lending availability
permit. In other instances, the Company has endeavored to acquire property
either subject to purchase money mortgages, or on an installment method, with
closings on a portion of a project on a periodic basis. In order to ensure the
availability of land for future development, the Company believes it is
necessary to control land in New Jersey at an earlier point in time than in
other markets. As of February 29, 1996 if all of the options held by the
Company were exercised and all of the contingent purchase contracts to which
the Company is a party were closed, the Company would have sufficient land to
maintain its anticipated level of sale activity for the next five years in the
Northeast market. The Company believes that additional acquisitions will be
required for deliveries in 1997 and beyond in the Florida market. The Company's
Amended Credit Agreement contains provisions limiting the amount of land which
the Company may acquire in any one year (other than land acquisitions utilizing
proceeds of purchase money mortgages) to $18.8 million in 1996. In addition,
the Amended Credit Agreement provides that total expenditures with respect to
projects which have not received all requisite development approvals cannot
exceed $2 million without the consent of the Company's lenders.
The following table sets forth certain information, as of February 29,
1996 with respect to: (i) options held by the Company and contingent purchase
contracts to which the Company is a party; and (ii) land owned by the Company
with respect to which construction of housing units has not commenced.
Number of
Proposed
Residential Planned
Communities Homes(1)
----------- --------
Northeast:
Under option .................. 9 1,428
Owned ......................... -- --
Total ........................ 9 1,428
Orlando, Florida:
Under option .................. 3 295
Owned ......................... -- --
Total ........................ 3 295
----- --------
Combined Total ................. 12 1,723
===== ========
(1) Final development approvals have not been obtained with respect to
certain properties included in the above table. Accordingly, the number
of units approved for development, if any, may differ from the number of
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planned units reflected in the table. In addition, prior to exercising
an option or closing a contingent purchase contract, the Company
conducts feasibility studies and other analyses with respect to a
proposed community. In certain instances, a determination is made by the
Company not to proceed with the project. Accordingly, no assurance can
be given that the Company will ultimately pursue the development of
every community reflected in the table above.
During the second quarter of fiscal 1995, as a result of the consolidation
of the New Jersey-North and New Jersey-South divisions and economic and market
conditions, the Company decided not to incur further preacquisition costs on
nine properties controlled under option. These actions resulted in a pre-tax
charge of approximately $1.1 million.
As of February 29, 1996 the Company held options or was a party to
contingent contracts to purchase 12 parcels of land in New Jersey and Florida
for which it has paid option fees and earnest money aggregating $2.5 million. A
total of 1,723 homes of varying types are planned for these parcels. Through
February 29, 1996, the Company has spent an additional $1.4 million in
predevelopment costs on such land, which costs would not be recoverable in the
event these options were not exercised or the contracts were not closed, as the
case may be. Assuming that in each year the Company makes payments with respect
to either options or contingent contracts, exercises options or closes such
contracts with respect to the minimum amount of land necessary to retain its
rights to acquire the remainder of the subject properties, the aggregate amount
required to retain or exercise such options or close or extend such contingent
contracts in periods subsequent to February 29, 1996 is approximately $14.8
million in 1996, $11.7 million in 1997, $9.6 million in 1998, $2.2 million in
1999 and $1.9 million in 2000. In addition, the acquisition of one of the
parcels will be financed through a purchase money mortgage. The terms of
payment call for mortgage releases as homes close in the communities with a
minimum of $450,000 due in 1999 and $450,000 due in 2000. Assuming the Company
exercises such options and contingent contracts, the Company will be in a
position to acquire title to approximately 401, 504, 318, 191 and 272 lots
during fiscal years 1996 through 2000 and 37 lots thereafter.
Commercial Land and Buildings
The Company currently owns a 12,800 square foot office building in
Manalapan, Monmouth County, New Jersey. Pursuant to management's continued
focus on its core homebuilding business, the Company sold two of its commercial
properties in 1995 for approximately $8.1 million which reduced related
mortgages payable of $6.9 million. The sales resulted in an aggregate pre-tax
gain of approximately $500,000 and provided approximately $850,000 of
-46-
additional cash for operations after retirement of the mortgage debt.
In addition, the Company owns certain undeveloped properties in New
Jersey, Florida, California and Pennsylvania. These properties include 60 acres
of commercial property in Manalapan, New Jersey, 27 acres consisting of three
parcels in Orange County, Florida and five other properties, two in
Pennsylvania, two in New Jersey and one in California. Each of these properties
are currently available for sale.
Joint Ventures
The Company has historically participated in joint ventures engaged in
land and residential housing development. The Company currently has a 50%
equity interest in one joint venture formed to develop and market an 80 unit
townhouse project in Maryland, which had delivered 78 homes through February
29, 1996. In addition, $550,000 of the amount reflected on the Company's
Consolidated Balance Sheet at November 30, 1995 as Investments in Joint
Ventures is held as collateral by a lender to collateralize letters of credit
issued for the benefit of this joint venture. Talcon, L.P., a Delaware limited
partnership ("Talcon") was formed by the Company in 1987 to succeed to its
interest in certain joint ventures. In January 1994, Calton Capital, Inc. (a
wholly owned subsidiary of Calton and the general partner of Talcon) determined
that it was no longer in the best interest of Talcon or its partners to
continue Talcon's business and dissolved the partnership. In 1995, the Company
received $890,000 of payments in full satisfaction of Talcon's debt obligations
to the Company.
Competition
The Company's business is highly competitive. Homebuilders compete for
desirable properties, financing, raw materials and skilled labor, among other
things. The Company competes in each of the geographic areas in which it
operates with numerous real estate developers, ranging from small local to
larger regional and national builders and developers, some of which have
greater sales and greater financial resources than the Company. Resales of
housing provide additional competition. The Company competes primarily on the
basis of reputation, price, location, design, quality and amenities.
Regulation and Environmental Matters
General. The Company is subject to various local, state and federal
statutes, ordinances, rules and regulations concerning zoning, building design,
construction and similar matters, including local regulation which imposes
restrictive zoning and density requirements in order to limit the number of
homes that can eventually be built within the boundaries of a particular
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locality. In addition, the Company is subject to registration and filing
requirements in connection with the construction, advertisement and sale of its
communities in certain states and localities in which it operates even if any
or all necessary government approvals have been obtained. Generally, the
Company must obtain numerous governmental approvals, licenses, permits and
agreements before it can commence development and construction. Certain
governmental authorities impose fees as a means of defraying the cost of
providing certain governmental services to developing areas, or have required
developers to donate land to the municipality or to make certain off-site land
improvements. The Company may also be subject to periodic delays or may be
precluded entirely from developing communities due to building moratoriums that
could be implemented in the future in the states in which it operates.
Generally, such moratoriums relate to insufficient water or sewage facilities
or inadequate road capacity.
Environmental. The Company is also subject to a variety of local, state
and federal statutes, ordinances, rules and regulations concerning protection
of health and the environment ("environmental laws"). The particular
environmental laws which apply to any given community vary greatly according to
the community site, the site's environmental conditions and the present and
former uses of the site. These environmental laws may result in delays, may
cause the Company to incur substantial compliance and other costs, and can
prohibit or severely restrict development in certain environmentally sensitive
regions or areas. For example, in July 1987, New Jersey adopted the Fresh Water
Wetlands Protection Act which restricts building in or near certain protected
geographic areas designated as wetlands. The preservation of wetlands located
within a project may lessen the number of units that may be built in a
particular project. The Company has planned all of its projects containing
wetlands to comply with the regulations adopted under the Fresh Water Wetlands
Protection Act and does not believe that this legislation will adversely affect
its present development activities in New Jersey.
The State of Florida has adopted a wide variety of other environmental
protection laws. The laws regulate developments of substantial size and
developments in or near certain specified geographic areas within the State of
Florida, including the Big Cypress, Green Swamp and Florida Keys areas,
imposing requirements for development approvals which are more stringent than
those which the Company would have to meet in Florida for development outside
of these geographic areas. Further, the State of Florida regulates certain
types of developments and developments located in or near certain types of
geographic areas, plant life or animal life. The Company does not believe that
any land owned by it that is planned for development is the site of any
protected plant or animal life. Although the Company owns land in or near
certain protected types of geographic areas, the Company designs its various
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projects to avoid disturbing such areas so that certain regulations with
respect to these areas are not applicable. When the Company undertakes
development activity in or near or which may have an impact on any protected
areas, it is required to satisfy more stringent requirements for developmental
approval than would otherwise be applicable. In addition, the laws of the State
of Florida require the use of construction materials which reduce the energy
consumption required for heating and cooling.
Florida Growth Management Act. The Florida Growth Management Act of 1985
requires that an infrastructure, including roads, sewer and water lines, must
be in existence concurrently with the construction of the development. If such
infrastructure will not be concurrently available, then the project cannot be
developed. This will have an effect on limiting the amount of land available
for development and may delay construction and completion of some developments.
Fair Housing Act. In July 1985, New Jersey adopted the Fair Housing Act
which established an administrative agency to adopt criteria by which
municipalities will determine and provide for their fair share of low and
moderate income housing. This agency promulgated regulations with respect to
such criteria effective August 1986. The Fair Housing Act could result in the
reduction in the number of units available for future New Jersey properties
acquired.
The Company may be required to set aside units at prices affordable to
persons of low and moderate income (Mt. Laurel units) in certain municipalities
in which it owns or has the right to acquire land. In order to comply with such
requirements, the Company may be required to: (i) sell some units at prices
which would result in no gain or loss and an operating margin less than would
have resulted otherwise; or (ii) contribute to public funding of affordable
housing, which contribution will increase the costs of units to be developed in
a project. The Company attempts to recover some of these potential losses or
reduced margins through increased density, certain cost saving construction
measures and reduced land prices for the sellers of property. The Company has
currently set aside 56 Mt. Laurel units in one New Jersey project for sale in
future years.
Summation. Despite the Company's past ability to obtain necessary permits
and development approvals for its projects, it can be anticipated that
increasingly stringent requirements will be imposed on developers and
homebuilders in the future. Although the Company cannot predict the effect of
these requirements, they could result in time consuming and expensive
compliance programs and substantial expenditures for pollution and water
quality control, which could materially adversely affect the Company. In
addition, the continued effectiveness of permits already granted or development
approvals already obtained is dependent upon many factors, some of which are
-49-
beyond the Company's control, such as changes in policies, rules and
regulations and their interpretation and application.
The foregoing does not purport to be a full description of all of the
legislation and regulations impacting the business of the Company. The Company
may be subject to numerous other governmental rules and regulations regarding
building standards, labor practices, environmental matters and other aspects of
real estate development in each jurisdiction in which it does business.
Employees
As of April 1, 1996, the Company employed approximately 113 full-time
personnel, including 15 corporate employees, 62 employees in the Northeast
Division, 34 employees in the Florida Division and two employees in the Chicago
Division. The Company also employs approximately 19 part-time employees in
various locations. The Company believes its employee relations are
satisfactory.
Company Facilities
The Company leases approximately 19,413 square feet of office space (of
which 3,629 are sublet to tenants) and 6,200 square feet of storage space in a
two-story office building in Manalapan, New Jersey which houses the Company's
corporate headquarters and its New Jersey division. In addition, the Company
leases 7,200 square feet of office space in Florida and 2,400 square feet of
office space in Illinois. The Company intends to terminate the remainder of its
lease in Illinois in connection with the wind down of its Chicago division.
Management believes that these arrangements provide adequate space for the
Company to conduct its operations.
The Company has remote sales offices and construction offices on each of
its project sites, some of which include mobile units which are leased for
terms varying from one month to 48 months. From time to time the Company also
leases model homes in some of its projects which the Company has previously
sold to third parties under a lease-back arrangement. The current leases on the
model homes do not obligate the Company beyond six months.
Legal Proceedings
FDIC. 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, seek-
ing recovery of amounts owed under a $5.7 million 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. subsidiary had an interest.
-50-
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, L.P. and
eventually into the Talcon, L.P. 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 $8.7 million 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 assigment 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.
Princeton Manor. In July 1994, an action was filed against Calton Homes,
the Township of Plainsboro, New Jersey and its planning board, certain real
estate brokers and certain unnamed officers of Calton Homes in the Superior
Court of New Jersey, Middlesex County, by approximately 60 purchasers of homes
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 court has denied the plaintiffs' motion to have the
matter certified as a class action and has also denied the plaintiffs' motion
for a preliminary injunction. No significant discovery has occurred to date. 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
Company. In addition, the Company believes that it is contractually entitled to
indemnification from Plainsboro Township in the event that any liability should
arise.
-51-
MANAGEMENT
Directors and Executive Officers of Calton
The directors and executive officers of Calton as of May 2, 1996 are
listed below. Brief summaries of the business experience and certain other
information with respect to the directors and executive officers of Calton is
set forth in the following table and in the information which follows the
table.
Name Age Position
- -------------------- --- --------
Anthony J. Caldarone 58 Chairman, President, Chief
Executive Officer and Director
Robert A. Fourniadis 38 Senior Vice President-
Legal & Secretary
Bradley A. Little 45 Senior Vice President-
Finance, Treasurer and
Chief Financial Officer
J. Ernest Brophy 71 Director
Mark N. Fessel 39 Director
Frank Cavell Smith, Jr. 51 Director
_______________
There are no family relationships among the executive officers or
directors of the Company. In addition, there are no arrangements or
understandings between any of the above named executive officers or directors
and any other persons pursuant to which any of the above named persons was
elected as an officer or director. Although certain of the current directors
were originally designated by the holders of the Old Notes pursuant to the Plan
of Reorganization, such arrangements are no longer in effect.
Mr. Caldarone was reappointed as Chairman, President, Chief Executive
Officer and a Director of Calton in November 1995, having previously served in
such capacities from the inception of the Company in 1981 through May 1993 when
the Company consummated the Plan of Reorganization. From June 1993 through
October 1995, Mr. Caldarone served as a Director of the Company.
Mr. Fourniadis was named Senior Vice President-Legal, Secretary and
Corporate Counsel of Calton in June 1993. Prior thereto, Mr. Fourniadis served
as Vice President and Corporate Counsel of Calton Homes from 1988 to 1993. Mr.
Fourniadis joined the Company in 1987.
Mr. Little was named Senior Vice President-Finance, Treasurer and Chief
Financial Officer of Calton in June 1993. Prior thereto, Mr. Little had served
as Vice President of Accounting of Calton from 1989 to June 1993. From 1986 to
1989, Mr. Little was employed by Amerada Hess Corporation as Manager, Corporate
Accounting and Reporting.
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Mr. Brophy, a self-employed attorney and certified public accountant
specializing in tax consultation to clients engaged in the construction
business, was reappointed as a Director of Calton in November 1995, having
served in such capacity from March 1983 through November 1985 and from April
1986 until through May 1993 when the Company and certain of its subsidiaries
consummated a joint plan of reorganization under Chapter 11 of the United
States Bankruptcy Code (the "Plan of Reorganization"). Since 1992, Mr. Brophy
has served as Chief Financial Officer and a director of Hurdy-Gurdy
International, Inc., a company that markets sorbet products.
Mr. Fessel was designated as a Director of Calton by the holders of a
majority in outstanding principal amount of the Subordinated Notes pursuant to
the Plan of Reorganization in May 1993. Since 1985, Mr. Fessel has owned and
operated a real estate company and has acted as principal in numerous
commercial and residential real estate developments throughout the Northeast.
In 1984, Mr. Fessel served as the Vice President of Acquisitions of the
Meredith Organization, a nationally recognized real estate developer.
Mr. Smith was designated as a Director of Calton by the holders of a
majority in outstanding principal amount of the Subordinated Notes pursuant to
the Plan of Reorganization in May 1993. Since 1990, Mr. Smith has been
associated with the M&G Companies as a Senior Consultant responsible for
corporate real estate consulting activities. From 1977 to 1990, Mr. Smith
served as a Real Estate Consultant and Real Estate Development Manager for The
Spaulding Co., Inc. Mr. Smith also is an adjunct faculty member at Boston
University and a member of the Board of Trustees of Shelter, Inc.
Provisions Affecting Liability of Officers and Directors
Calton's Amended and Restated Certificate of Incorporation contains a
provision which limits the personal liability of Calton's officers and
directors for monetary damages to Calton and its shareholders for breaches of
any duty owed to Calton or its shareholders except for those breaches based
upon an act or omission (a) in breach of such person's duty of loyalty to
Calton or its shareholders, (b) not in good faith or involving a knowing
violation of law or (c) resulting in receipt by such person of an improper
personal benefit. This provision absolves Calton's directors and officers of
liability for negligence in the performance of their duties, including gross
negligence involving business decisions.
Calton's by-laws contain provisions which provide indemnification rights
to officers, directors and employees of Calton under certain circumstances.
-53-
Executive Compensation
The following table sets forth information concerning the annual and
long-term compensation for services in all capacities to the Company and its
subsidiaries for the fiscal years ended November 30, 1995, 1994 and 1993, of
the Chief Executive Officer of the Company and the other executive officers of
the Company who earned salary and bonuses in fiscal 1995 in excess of $100,000
(collectively, the "Named Officers"):
SUMMARY COMPENSATION TABLE
Long
Term
Compen-
sation
Awards
Other Securities All Other
Name and Annual Under- Compen-
Principal Salary Bonus Compen- lying sation
Position (1) Year ($)(2) ($)(3) sation Options (#) ($)(4)(5)
- ---------- ---- -------- -------- -------- ---------- ----------
Anthony J.
Caldarone 1995 $ 7,692 $ -- -- 500,000(6) $ 240
Chairman,
Chief
Executive 1994 -- -- -- -- --
Officer and
President(7) 1993 131,731 -- $20,406(8) -- 452,201
- -----------------------------------
Douglas T.
Noakes 1995 291,000 -- -- 684,564(9) 587,121
(10)(11)
Former Chief
Executive 1994 270,000 170,000 -- 120,000 36,347
Officer and
President 1993 245,000 155,000 91,556(12)564,564 450
- -----------------------------------
Bradley A.
Little 1995 137,917 -- -- 185,000(13) 14,004
(14)
Senior Vice
President 1994 126,250 100,000 -- 60,000 11,922
Finance and
Treasurer 1993 110,667 70,000 -- 100,000 4,255
- -----------------------------------
Robert A.
Fourniadis 1995 120,417 -- -- 185,000(13) 13,812
(14)
Senior Vice
President- 1994 108,333 90,000 -- 60,000 11,470
Legal and
Secretary 1993 90,667 60,000 -- 100,000 3,706
- -----------------------------------
-54-
(1) Each of the individuals named in the above table served as an officer of
the Company's wholly owned subsidiary, Calton Homes, Inc. ("Calton Homes"),
during all or a portion of the three years ended November 30, 1995. All cash
compensation included in the above table was paid or accrued by Calton Homes.
(2) Includes amounts paid to officers of the Company for services rendered to
Talcon, L.P. in fiscal 1993 as follows: Mr. Little - $17,000; and Mr.
Fourniadis - $4,000. All such amounts were reimbursed to Calton by Talcon, L.P.
through the issuance of Class A Limited Partnership Interests in Talcon, L.P.
See "Talcon, L.P. Transactions."
(3) Represents amounts accrued in fiscal 1994 and fiscal 1993 and payable in
the subsequent fiscal year to the Named Officers pursuant to the Company's
Incentive Compensation Plan (the "Incentive Plan"). No Incentive Plan Awards
were made with respect to fiscal 1995. The Incentive Plan provides for an
incentive compensation pool equal to ten percent (10%) of the Company's annual
pre-tax income, subject to certain adjustments to pre-tax income that may be
made by the Compensation Committee to remove the effect of events or
transactions not in the ordinary course of the Company's operations. No such
adjustments were made for the fiscal years 1994 or 1993, and the incentive
compensation pools for such years were $656,000 in fiscal 1994 (of which
$620,000 was awarded) and $475,000 in fiscal 1993 (all of which was awarded).
Key operations and senior corporate management employees (the "Eligible
Employees") of the Company and its subsidiaries are eligible for participation
in the Incentive Plan. The Eligible Employees are determined each fiscal year
by the Compensation Committee based on the recommendations of the President and
Chief Executive Officer of the Company. An Eligible Employee may not receive a
distribution from the incentive compensation pool for any fiscal year that
exceeds the lesser of twenty percent (20%) of the available incentive
compensation pool or one hundred percent (100%) of the Eligible Employee's base
salary for such fiscal year, unless otherwise provided in the Eligible
Employee's employment agreement with the Company. The Compensation Committee
ultimately determines the percentage, if any, of the incentive compensation
pool for a fiscal year to be awarded to an Eligible Employee.
(4) Includes amounts contributed by the Company under its 401(k) Plan (the
"401(k) Plan"). All full-time employees who have completed more than one year
of service with the Company are eligible to participate in the 401(k) Plan
which allows eligible employees to save up to 18% of their pre-tax compensation
(subject to a maximum amount per year established annually pursuant to the
Internal Revenue Code of 1986, as amended) through a payroll deduction. Subject
to the discretion of its Board of Directors, the Company may make matching
contributions to the 401(k) Plan in the form of cash or Common Stock. The
Company's matching contribution for fiscal 1995 was made primarily in Common
Stock and the Company anticipates that its matching contribution for the next
fiscal year will be made in the form of Common Stock. Amounts contributed by
the Company to the accounts of the Named Officers for fiscal 1995 (including
the dollar value of contributions made in the form of Common Stock) were as
follows: Mr. Noakes - $6,930; Mr. Little - $6,930; and Mr. Fourniadis -
$7,100.
(5) Includes the reimbursement by the Company of automobile expenses in
fiscal 1995 as follows: Mr. Caldarone - $240; Mr. Noakes - $5,500; Mr. Little
- - $6,000; and Mr. Fourniadis - $6,000.
(6) Represents options to purchase Common Stock which were granted to Mr.
Caldarone effective January 31, 1996 pursuant to his employment agreement with
the Company.
-55-
(7) Mr. Caldarone was reappointed Chairman, President and Chief Executive
Officer of the Company on November 21, 1995 having previously served in such
capacities from the Company's inception until June 1993.
(8) Includes the reimbursement by the Company of automobile expenses of $714.
Also includes reimbursement by the Company of medical and dental expenses paid
on behalf of Mr. Caldarone and members of his immediately family in the
aggregate amount of $19,692.
(9) Represents shares of Common Stock underlying options granted in respect
of services rendered in prior fiscal years which were repriced by the Company
during fiscal 1995.
(10) Includes compensation payable pursuant to a severance agreement entered
into by the Company and Mr. Noakes in connection with the termination of his
employment effective November 21, 1995. Such amount includes (i) a $350,000
severance payment, (ii) $155,140 representing the dollar value of benefits of
premiums paid under a whole life insurance policy (the "Insurance Policy")
insuring the life of Mr. Noakes, (iii) $18,000 of bonus compensation and (iv)
$25,221 payable in respect of accrued and unused vacation pay. As required
under the terms of such agreement, all such amounts were paid in January 1996.
The Company is entitled to recover all premiums paid in respect of the
Insurance Policy from the death benefit or cash surrender value of the policy.
Under the terms of the severance agreement, the Company is required to pay the
cost of COBRA benefits for Mr. Noakes for a period of 18 months following the
termination of his employment.
(11) Includes $26,330 which represents the dollar value of benefits of
premiums paid (other than in connection with the termination of Mr. Noakes'
employment) under the Insurance Policy purchased by the Company in accordance
with the terms of Mr. Noakes' employment agreement.
(12) Includes $85,556 paid by the Company to Mr. Noakes for relocation
expenses incurred in fiscal 1993.
(13) Represents 25,000 shares underlying options granted in January 1996 for
services rendered in fiscal 1995 and 160,000 shares underlying options granted
in respect of prior fiscal years which were repriced in 1995.
(14) Includes cost of premiums paid by the Company under a program which
provides officers of the Company with additional life insurance (supplementing
the coverage available under the Company's group life insurance plan) as
follows: Mr. Little - $1,074; and Mr. Fourniadis - $712.
Directors' Compensation
Members of the Board of Directors who are not full time employees of
Calton were each entitled in fiscal 1995 to annual compensation of $20,000 for
service as a director. Calton paid or accrued a total of $142,000 in director
fees to members of the Board of Directors during fiscal year 1995. Directors
are reimbursed for travel expenses incurred in connection with attendance at
Board and committee meetings. Directors who are not full time employees are
paid a participation fee of $1,000 for each committee meeting attended. If the
proposal to adopt the Equity Incentive Plan is approved by the Company's
shareholders, each non-employee director who has attended 75% or more of the
Board meetings and meetings of the committees on which he serves during the
-56-
prior year will be awarded options to purchase 10,000 shares of the Company's
Common Stock each time such director is re-elected to the Board of Directors.
Employment Agreement with Chief Executive Officer.
Effective November 21, 1995, the Company entered into an Employment
Agreement (the "Employment Agreement") with Anthony J. Caldarone, Chairman,
President and Chief Executive Officer of the Company. The term of the
Employment Agreement will end on November 30, 1998; provided, that such term
will be automatically extended annually for periods of one (1) year unless a
notice of non-extension is issued by the Company or Mr. Caldarone. Pursuant to
the Employment Agreement, Mr. Caldarone will receive a minimum annual salary of
$250,000 ("Base Compensation") which may be increased by the Board or a
committee thereof. Mr. Caldarone is entitled to participate in any bonus
compensation or benefit plan or arrangement provided by the Company to its
employees or senior level executives, including the Company's Incentive Plan.
Under the Employment Agreement, Mr. Caldarone may be awarded up to thirty
percent (30%) of the Incentive Plan's designated incentive compensation for any
fiscal year and, subject to such limitation, is entitled to not less than
one-half of the average percentage that all awards to other Eligible
Participants are of the respective Eligible Participants' base salary for the
relevant fiscal year. Mr. Caldarone is entitled to be reimbursed by the Company
for certain automobile expenses. The Employment Agreement provides for the
grant of options to purchase 500,000 shares of Common Stock to Mr. Caldarone.
The grant of such options became effective January 31, 1996.
If the Employment Agreement is terminated by reason of Mr. Caldarone's
death, the Company is obliged to reimburse Mr. Caldarone's designated
beneficiaries the cost of COBRA benefits, other than long-term disability
coverage, for a period of 18 months following the date of death. If the
Employment Agreement is terminated by reason of Mr. Caldarone's disability,
Mr. Caldarone will be entitled to receive a lump sum cash payment equal to one
years' Base Compensation (the "Severance Compensation") from the Company as
well as the cost of COBRA benefits, other than long-term disability, for him
and his family for a period of 18 months following the date of termination, and
continue to participate in any group life insurance or supplemental life
insurance program of the Company then in effect for a period of 18 months
following the date of termination (collectively, the "Severance Benefits"). The
Company may terminate the Employment Agreement for just cause in the event Mr.
Caldarone is convicted of a felony in connection with his duties as an officer
of the Company, if the commission of such felony resulted in a personal
financial benefit to Mr. Caldarone. Upon termination for just cause by the
Company, Mr. Caldarone is not entitled to receive any Severance Compensation or
Severance Benefits. If the Company terminates the Employment Agreement without
just cause, Mr. Caldarone is entitled to the Severance Compensation and
Severance Benefits. If the Company terminates the Employment Agreement by
-57-
issuing a notice of non-extension, Mr. Caldarone is entitled to receive a lump
sum cash payment equal to one years' Base Compensation as well as the Severance
Benefits. Mr. Caldarone may terminate the Employment Agreement for just cause
and receive Severance Compensation and Severance Benefits, if (i) the Board
fails to re-elect him as each of Chairman, President and Chief Executive
Officer of the Company, (ii) the Board significantly reduces the nature and
scope of his authorities, powers, duties and functions, (iii) the Company
breaches any material covenant of the Employment Agreement, or (iv) the Company
consents to Mr. Caldarone's retirement. If Mr. Caldarone terminates the
Employment Agreement without just cause or by issuing a notice of
non-extension, he is not entitled to the Severance Compensation or Severance
Benefit. After the date of termination of Mr. Caldarone' employment for any of
the reasons specified herein and in the Employment Agreement, Mr. Caldarone
will not receive any further salary payments under the Employment Agreement.
For the term of the Employment Agreement and for a period of twelve (12)
months following termination of Mr. Caldarone' employment, other than for just
cause by the Company or without just cause by Mr. Caldarone, Mr. Caldarone is
restricted from competing with the Company in certain regions in which the
Company is actively engaged in business.
Severance Policy and Change in Control Arrangements For Senior Executives
The Company has established a severance compensation policy for senior
level executives who have been employed by the Company for more than one year
(the "Severance Policy"). To become eligible to participate in the Severance
Policy, a senior level executive must be selected by the Company's Compensation
Committee and approved by the Board of Directors ("Eligible Participants").
Under the Severance Policy, an Eligible Participant whose employment is
terminated is entitled to receive one month's base salary for each year
employed by the Company, pro rated for any partial year, but in no event less
than six month's base salary; provided, however, that the Eligible Participants
who were designated to participate in the Severance Policy in August 1993 (Mr.
Little and Mr. Fourniadis) are entitled to receive twelve month's base salary.
In addition, the Company will pay all amounts required to be paid by the
Eligible Participants to continue insurance coverage under COBRA for a period
of time equal to the number of months on which the severance compensation is
based. The severance compensation for Eligible Participants who are parties to
employment agreements will be governed by the terms of such agreements.
Eligible Participants who resign voluntarily or who are terminated for cause
-58-
(as defined in the Severance Policy) will not be eligible for severance
compensation.
Under the terms of certain agreements approved by the Board of Directors
of the Company in May 1995, each of Douglas T. Noakes, the former President and
Chief Executive Officer of the Company, Bradley A. Little and Robert A.
Fourniadis will be entitled to be paid the amount, if any, by which $150,000
($200,000 in the case of Mr. Noakes) exceeds the value of the stock options
held by such officer and granted prior to December 31, 1995 in the event of (i)
a merger, consolidation, recapitalization or other reorganization in which
Calton is not the surviving entity or in which the Company is the surviving
entity and which results in the Company's shareholders immediately prior to the
transaction not holding securities representing 65% or more of the voting power
of the Company's outstanding securities, (ii) a sale of substantially all of
the Company's assets, (iii) a change in control of the Company which results in
a person or group of affiliated persons owning in excess of 35% of the voting
power of the Company's outstanding voting securities, prior to May 1996 (or
such a transaction or change of control involves a party from whom it received
a written offer or entered into a letter of intent prior to May 1996). Under
the terms of these agreements, the amount payable to the officer will be
proportionately adjusted if the officer exercises any options prior to an event
which triggers the Company's payment obligation.
Option Grants
Shown below is further information with respect to grants of stock options
to the Named Officers by the Company which are reflected in the Summary
Compensation Table set forth under the caption "Executive Compensation."
-59-
Individual Grants
------------------
% of
Total Potential
Options Realizable
Granted Value at Assumed
to Exer- Annual Rates
No. of Employ- cise of Stock Price
Securities ees or Appreciation for
Underlying in Base Option Term
Options Fiscal Price Expiration -----------------
Name Granted (#) Year ($/Sh) Date (1) 5% ($) 10% ($)
- -------------------- ---------- ----- ------- ---------- -------- --------
Anthony J. Caldarone 500,000(1) 27.6% $.34375 1/30/2001 $ 27,547 $ 82,641
Douglas T. Noakes 684,564(2) 37.8% .50 11/21/1998 77,065 139,870
Bradley A. Little 25,000(3) 1.4% .3125 1/30/2006 4,913 12,450
100,000(4) 5.5% .50 7/23/2005 24,798 59,859
60,000(5) 3.3% .50 1/25/2005 18,285 46,042
Robert A. Fourniadis 25,000(3) 1.4% .3125 1/30/2006 4,913 12,450
100,000(4) 5.5% .50 7/23/2005 24,798 59,859
60,000(5) 3.3% .50 1/25/2005 18,285 46,042
(1) Represents shares of Common Stock underlying options granted to Mr.
Caldarone effective January 31, 1996. Options with respect to 320,000 shares
are currently exercisable, and options with respect to the remaining 180,000
shares will become exercisable on January 31, 1997.
(2) Represents shares of Common Stock underlying options which were repriced
in 1995. Each of such options is immediately exercisable.
(3) Represents shares of Common Stock underlying options granted in January
1996 for services rendered in fiscal 1995. The options are exercisable
cumulatively in three equal annual installments commencing on the first
anniversary of the date of grant.
(4) Represents shares of Common Stock underlying options which were granted
in July 1993 and repriced in April 1995. The options are exercisable
cumulatively in three equal annual installments commencing on the first
anniversary of the original date of grant.
(5) Represents shares of Common Stock underlying options which were granted
in January 1995 for services rendered in fiscal 1994 and repriced in April
1995. The options are exercisable cumulatively in three equal annual
installments commencing on the first anniversary of the original date of grant.
-60-
Option Exercises and Fiscal Year-End Values
Shown below is information with respect to unexercised options to purchase
the Company's Common Stock held by the Named Officers at November 30, 1995. On
such date, the exercise price of each of such options exceeded the closing
price of the Company's Common Stock on the American Stock Exchange ($.4375 per
share).
Number of Securities
Underlying Unexercised
Options Held at FY-End (#)(1)
-----------------------------
Exercisable Unexercisable
----------- -------------
Anthony J. Caldarone . . . . . . -- --
Douglas T. Noakes . . . . . . . . 684,564 --
Bradley A. Little . . . . . . . . 86,667 73,333
Robert A. Fourniadis . . . . . . 86,667 73,333
(1) Does not include options granted to the Named Officers in January 1996.
See the table presented under the section captioned "Option Grants."
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PRINCIPAL AND SELLING SECURITYHOLDERS
The following table sets forth information concerning beneficial ownership
of Calton's Common Stock as of March 1, 1996 by: (i) persons known by the
Company to own beneficially more than 5% of the outstanding shares of Common
Stock; (ii) each of the Company's directors; (iii) each of the Named Officers
who was employed by the Company as of May 1, 1996; (iv) the Selling
Securityholders; and (v) all directors and officers of the Company as a group.
Except as set forth in the footnotes to the table, the shareholders have sole
voting and investment power over such shares.
Number of Beneficial Ownership
Beneficial Ownership Shares of of Common Stock
of Common Stock Common After Opening
Name of --------------------- Stock -----------------------
Beneficial Number % of Being Number % of
Owner of Shares Class Offered Of Shares Class
- ------------- ------------ ------ ---------- ------------ --------
Anthony J.
Caldarone(1) 7,224,781(2) 26.9% 1,237,626 3,349,155(3) 12.5%(3)
Joyce P.
Caldarone(1) 4,546,781(4) 16.9% 1,237,626 3,349,155(3) 12.5%(3)
Apollo Homes
Partners,
L.P.(5) 2,658,000(6) 10.0% 2,658,000 --(7) --(7)
Frederick J.
Jaindl(8) 1,616,700 6.1% -- 1,616,700 6.1%
Goldman, Sachs
& Co.(9) 1,344,600(10) 5.1% 1,344,600 --(7) --(7)
Robert A.
Fourniadis(11) 105,277(12) (13) -- 105,227 (13)
Bradley A.
Little(11) 99,863(14) (13) -- 99,863 (13)
J. Ernest
Brophy(11) 13,770 (13) -- 13,770 (13)
Mark N.
Fessel -- -- -- -- --
Frank Cavell
Smith, Jr. -- -- -- -- --
All Directors
and Executive
Officers as
a Group (6
persons)(1)
(12)(14) 7,463,391 27.6% 1,237,626 3,567,765(3) 13.2%(3)
(1) Mr. Caldarone, Chairman, President and Chief Executive Officer of the
Company, and his wife Joyce P. Caldarone, maintain a mailing address at c/o
Calton, Inc., 500 Craig Road, Manalapan, New Jersey 07726-8790.
(2) Includes an aggregate of 1,395,209 shares held by Joyce P. Caldarone, Mr.
Caldarone's wife, as to which shares he disclaims any beneficial interest,
320,000 shares subject to currently exercisable options granted under the 1996
Equity Incentive plan and 2,658,000 shares held by Apollo Homes Partners, L.P.
("Apollo Homes"), which Mr. Caldarone has the right to vote in the election of
directors pursuant to a proxy granted to him by Apollo Homes. In addition,
under the terms of a stock purchase agreement between Mr. Caldarone and Apollo
Homes, Mr. Caldarone was granted certain rights of first offer with respect to
the shares of Calton Common Stock owned by Apollo. The agreement also grants
Apollo certain "tag-along rights" to sell shares of Calton Common Stock in the
event of, and along with, certain transfers of Common Stock made by Mr. and/or
Mrs. Caldarone, and contains provisions requiring (a) Apollo, under certain
circumstances, to sell the Common Stock owned by it in the event that Mr. and
Mrs. Caldarone sell all of the securities of the Company that they own and (b)
Mr. and Mrs. Caldarone to offer to Apollo, under certain circumstances, the
opportunity to purchase a pro rata portion of additional securities acquired by
Mr. and/or Mrs. Caldarone from the Company.
(3) Assumes that all shares of Common Stock being offered by Mr. and Mrs.
Caldarone and Apollo Homes are sold.
(4) Includes an aggregate of 3,191,572 shares of Common Stock held by Anthony
J. Caldarone, Mrs. Caldarone's husband, as to which shares she disclaims any
beneficial interest.
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(5) The sole general partner of Apollo Homes is AIF II, L.P., a Delaware
limited partnership. The managing general partner of AIF II, L.P. is Apollo
Advisors, L.P. ("Apollo Advisors") whose principal offices are located at Two
Manhattanville Road, Purchase, New York 10577. Apollo Capital Management, Inc.
("ACM") is the general partner of Apollo Advisors. Shareholdings information is
based upon Apollo Homes' Schedule 13D, as amended to November 21, 1995.
(6) See note 2 above for a description of certain rights granted by Apollo
Homes to Anthony J. Caldarone with respect to these shares. Prior to the
commencement of the offering of the securities pursuant to this Registration
Statement, the number of shares of Common Stock owned by Apollo Homes was
5,316,855.
(7) Assumes that all shares of Common Stock being offered by such shareholder
are sold.
(8) Such holder maintains an address at c/o Jaindl Farms, 3150 Coffeetown
Road, Orefield, Pennsylvania 18609. Shareholdings information is based upon the
Schedule 13D of such holder dated July 28, 1995.
(9) The principal offices of such shareholder are located at 85 Broad Street,
New York, New York 10004. Shareholdings information is based upon the Schedule
13D, as amended to April 28, 1995 of Goldman, Sachs & Co., the direct owner,
and The Goldman Sachs Group, L.P., which indicates that each of such entities
are the beneficial owners of such shares.
(10) Prior to the commencement of the offering of the securities pursuant to
this Registration Statement, the number of shares of Common Stock owned by
Goldman, Sachs & Co. was 2,082,600 shares.
(11) Such holder is an officer or director of the Company and maintains a
mailing address at c/o Calton, Inc., 500 Craig Road, Manalapan, New Jersey
07726-8790.
(12) Includes 86,667 shares subject to currently exercisable options granted
under Calton's 1993 Stock Option Plan and 18,610 shares held through the
Company's 401(k) Plan.
(13) Shares beneficially owned do not exceed 1% of the Company's outstanding
Common Stock.
(14) Includes 86,667 shares subject to currently exercisable options granted
under Calton's 1993 Stock Option Plan and 13,196 shares held through the
Company's 401(k) Plan.
Registration Rights Agreement
Prior to the Effective Date of the Plan of Reorganization, Calton entered
into a Registration Rights Agreement with each of the Selling Securityholders.
In accordance with the terms of the Registration Rights Agreement, Calton filed
a registration statement, of which this Prospectus forms a part (the "Shelf
Registration Statement"), under which the Common Stock held by the Selling
Securityholders was registered. Calton is obliged to keep the Shelf
Registration Statement effective for a period of three years from its effective
date. The filing of the Shelf Registration Statement under the Securities Act
was a condition to the consummation of the Plan of Reorganization. Pursuant to
the Registration Rights Agreement, this Prospectus will be used in connection
with the resales of the Common Stock.
Upon the request of Selling Securityholders who own not less than 5% of
the outstanding Common Stock of the Company (on a fully diluted basis) that is
subject to the Registration Rights Agreement, Calton will be obliged to amend
the Shelf Registration Statement to provide for underwritten offerings of
Common Stock.
-63-
The Registration Rights Agreement also provides the Selling
Securityholders certain "piggyback" registration rights which will entitle the
Selling Securityholders to have all or a portion of the Common Stock owned by
them included in any registered public offering of Common Stock conducted by
the Company.
Calton will be obligated to bear all expenses incurred by it in connection
with any registration effected pursuant to the Registration Rights Agreement,
except underwriting discounts and commissions applicable to the sale of
securities by the Selling Securityholders. The Registration Rights Agreement
contains provisions requiring, under certain circumstances, Calton to indemnify
the Selling Securityholders against certain liabilities arising out of or
incident to a registration effected pursuant to the terms of the Registration
Rights Agreement.
-64-
DESCRIPTION OF CAPITAL STOCK
Common Stock
Calton is authorized to issue 53,700,000 shares of Common Stock, $.01 par
value, of which approximately 26,445,000 shares were outstanding as of March 1,
1996 (not including 1,990,000 shares of Common Stock issuable upon exercise of
options granted under the Company's Stock Option Plans). Holders of Common
Stock are entitled to one vote for each share on all matters voted upon by
shareholders and have no preemptive or other rights to subscribe for additional
securities of Calton. Each share of Common Stock has an equal and ratable right
to receive dividends when, as and if declared by the Board of Directors out of
assets legally available therefor. In the event of a liquidation, dissolution
or winding up of Calton, the holders of Common Stock will be entitled to share
equally and ratably in the assets available for distribution to holders of
Common Stock after the payment of liabilities.
Preferred Stock and Class A Preferred Stock
Calton's Amended and Restated Certificate of Incorporation, as amended
(the "Certificate"), authorizes 2,600,000 shares of Preferred Stock, $.10 par
value (the "Preferred Stock") and 10,000,000 shares of Class A Preferred Stock,
par value $.10 per share (the "Class A Preferred Stock"). The Preferred Stock
is undesignated as to series and no series thereof may be created without the
requisite vote of Calton's shareholders. The Certificate authorizes the Calton
Board of Directors to issue the Class A Preferred Stock in one or more series
with such dividend, liquidation, conversion, voting, redemption and other
rights as the Board establishes at that time. As a result, the Board of
Directors may issue the Class A Preferred Stock with such rights as would
discourage possible acquirors of Calton from making a tender offer or other
attempt to gain control of Calton. To the extent that it impedes any such
takeover attempts, the Class A Preferred Stock may serve to perpetuate
management.
Certain Anti-takeover Provisions
The New Jersey Business Corporation Act contains certain provisions that
could have the effect of making it more difficult for a third party to acquire,
or discouraging a third party from attempting to acquire, control of Calton.
Such provisions could limit the price that certain investors might be willing
to pay in the future for shares of Calton's Common Stock and could make it more
difficult for shareholders to effect certain corporate actions.
-65-
Transfer Agent and Registrar
The Transfer Agent and Registrar for Calton's Common Stock is Midlantic
National Bank, Edison, New Jersey.
SHARES ELIGIBLE FOR FUTURE SALE
There are approximately 26,511,000 shares of Common Stock outstanding as
of March 31, 1996, all of which have been registered under the Act and are
tradeable without restriction (except as to affiliates of Calton) or further
registration under the Securities Act. The Company has registered 5,240,226
shares held by the Selling Securityholders for public sale by means of the
Shelf Registration Statement (of which this Prospectus forms a part) filed
under the Securities Act which the Company, under the terms of the Registration
Rights Agreement, is obliged to keep effective until August 1996.
Calton has reserved 3,492,605 shares of Common Stock for issuance upon the
exercise of options granted pursuant to its 1993 Stock Option Plan and the
1996 Equity Incentive Plan and has granted options with respect to 1,990,000 of
such shares. All of these shares and 800,000 shares reserved for issuance in
connection with the Company's 401(k) Plan, have been registered pursuant to
the Act.
PLAN OF DISTRIBUTION
Shares of Common Stock may be offered by the Selling Securityholders in
transactions on AMEX, in negotiated transactions, or in a combination of such
methods of sale, at fixed prices which may be changed, at the market price
prevailing at the time of sale, at prices related to such prevailing market
prices or at negotiated prices. The Selling Securityholders may effect such
transactions to or through registered broker-dealers, and such broker-dealers
may receive compensation in the form of discounts, concessions or commissions
from the Selling Securityholders and or the purchaser of such securities for
whom such broker-dealers may act as agent or to whom they may sell as
principals, or both. In addition, the Selling Securityholders may pledge the
shares of Common Stock to broker-dealers and such broker-dealers may resell the
shares of Common Stock in privately negotiated transactions, transactions on
AMEX or otherwise. Any broker-dealers that participate with the Selling
Securityholders in offers and sales of shares covered hereby may be deemed to
be "underwriters" within the meaning of the Securities Act and any commissions
or discounts received by such broker-dealers and any profit on the sale of the
shares by such broker-dealers might be deemed to be underwriting discounts and
commissions under the Securities Act.
The Company will not receive any proceeds from the sale of the shares of
Common Stock. The Company has agreed to bear all expenses (except certain legal
-66-
expenses) in connection with the registration of Common Stock by the respective
Selling Securityholders and has agreed to indemnify the Selling Shareholders
against certain liabilities, including liabilities under the Securities Act.
LEGAL MATTERS
Certain legal matters with respect to the Common Stock offered hereby will
be passed upon for Calton by Giordano, Halleran & Ciesla, a Professional
Corporation, Middletown, New Jersey.
EXPERTS
The consolidated balance sheet as of November 30, 1995 and 1994 and the
consolidated statements of income, changes in shareholders' equity and cash
flows for the years ended November 30, 1995 and 1994 and the six month periods
ended May 31, 1993 and November 30, 1993, included in this Prospectus have
been included herein in reliance on the report of Coopers and Lybrand L.L.P.
independent accountants, given on the authority of that firm as experts in
accounting and auditing.
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CALTON, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
Report of Independent Certified Public Accountants ....F-2
Consolidated Balance Sheet as of November 30, 1995
and 1994 .............................................F-3
Consolidated Statement of Income for the Years
Ended November 30, 1995 and 1994, and the Six Month
Periods Ended May 31, 1993 and November 30, 1993 .....F-4
Consolidated Statement of Cash Flows for the Years
Ended November 30, 1995 and 1994, and the Six Month
Periods Ended May 31, 1993 and November 30, 1993 .....F-5
Consolidated Statement of Changes in Share-
holders' Equity for the Years ended November 30,
1995 and 1994, and the Six Month Periods Ended
May 31, 1993 and November 30, 1993 ...................F-6
Notes to Year End Consolidated Financial Statements ...F-7
Consolidated Balance Sheet as of February 29,
1996 and November 30, 1995 ..........................F-15
Consolidated Statement of Income for the Three
Month Periods Ended February 29, 1996 and
February 28, 1995 ...................................F-16
Consolidated Statement of Cash Flows for the Three
Month Periods Ended February 29, 1996 and
February 28, 1995 ...................................F-17
Consolidated Statement of Changes in Shareholders'
Equity for the Three Month Periods Ended
February 29, 1996 and February 28, 1995 .............F-18
Notes to Quarterly Consolidated Financial Statements .F-19
F-1
REPORT OF INDEPENDENT ACCOUNTANTS
Board of Directors and Shareholders of Calton, Inc.
We have audited the accompanying consolidated balance sheet of Calton, Inc.
and Subsidiaries as of November 30, 1995 and 1994 and the related consolidated
statements of income, shareholders' equity and cash flows for the years ended
November 30, 1995 and 1994 and the six month periods ended November 30, 1995
and May 31, 1993. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidating financial
statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
On May 28, 1993, Calton, Inc. reorganized and emerged from bankruptcy.
As discussed in Note 11 to the consolidated financial statements, the financial
statements at May 31, 1993 reflect the estimated fair market value of assets
in accordance with the American Institute of Certified Public Accountants
Statement of Position 90-7. The consolidated financial statements for the
years ended November 30, 1995 and 1994 and the six month period ended
November 30, 1993 referred to above are presented on the new basis, and
accordingly, are not comparable to May 31, 1993 and prior.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Calton, Inc.
and Subsidiaries as of November 30, 1995 and 1994 and the consolidated results
of their operations and their cash flows for the years ended November 30, 1995
and 1994 and the six month periods ended November 30, 1993 and May 31, 1993 in
conformity with generally accepted accounting principles.
/S/ Coopers & Lybrand L.L.P.
Princeton, New Jersey
January 12, 1996
F-2
Consolidated Balance Sheet
November 30, 1995 And 1994
1995 1994
Assets ------------ ------------
Cash and cash equivalents $ 5,161,000 $ 5,759,000
Receivables 8,964,000 7,823,000
Inventories 64,246,000 88,802,000
Commercial land and buildings 9,439,000 16,597,000
Investments in joint ventures 850,000 850,000
Prepaid expenses and other assets 2,756,000 2,313,000
-------------- ------------
Total assets $ 91,416,000 $122,144,000
============== ============
Liabilities and Shareholders' Equity
Revolving credit agreement $ 45,000,000 $ 60,000,000
Mortgages payable 1,227,000 9,398,000
Accounts payable 3,270,000 6,968,000
Accrued expenses and other liabilities 14,906,000 16,733,000
-------------- ------------
Total liabilities 64,403,000 93,099,000
-------------- ------------
Commitments and contingent liabilities
Shareholders' Equity
Common stock, $.01 par value, 53,700,000 shares
authorized; issued and outstanding 26,371,000
in 1995 and 25,997,000 in 1994 264,000 260,000
Paid in capital 22,822,000 21,720,000
Retained earnings 3,927,000 7,065,000
-------------- ------------
Total shareholders' equity 27,013,000 29,045,000
-------------- ------------
Total liabilities and shareholders' equity $91,416,000 $122,144,000
============== ============
See accompanying notes to consolidated financial statements.
F-3
Consolidated Statement Of Income
Six Month Six Month
Period Ended Period Ended
Years Ended November 30, November 30, May 31,
1995 1994 1993 1993
------------ ------------ ------------ ------------
Revenues.............. $180,843,000 $168,723,000 $ 83,351,000 $ 76,555,000
Equity in operations
of joint ventures.... -- -- -- (9,422,000)
------------ ------------ ------------ ------------
180,843,000 168,723,000 83,351,000 67,133,000
------------ ------------ ------------ ------------
Costs and expenses
Cost of revenues..... 159,690,000 139,339,000 67,473,000 68,304,000
Provision for esti-
mated net realiz-
able value.......... 1,593,000 400,000 -- 3,384,000
Selling, general
and administrative.. 18,845,000 20,183,000 10,100,000 10,785,000
Restructuring
charges............. 1,940,000 -- -- --
Amortization of
values in excess of
amounts allocable
to identifiable net
assets.............. -- 206,000 218,000 253,000
------------ ------------ ------------ ------------
182,068,000 160,128,000 77,791,000 82,726,000
------------ ------------ ------------ ------------
Income (loss) from
operations........... (1,225,000) 8,595,000 5,560,000 (15,593,000)
Other charges (credits)
Interest expense,
net................. 1,847,000 1,235,000 879,000 3,338,000
Other (income)
expense............. (765,000) -- (75,000) 70,000
Reorganization
charges............. -- -- -- 37,493,000
Write-off of finan-
cing costs.......... -- 800,000 -- --
------------ ------------ ------------ ------------
Income (loss) before
income taxes and
extraordinary gain... (2,307,000) 6,560,000 4,756,000 (56,494,000)
Provision in lieu of
income taxes......... 831,000 2,367,000 1,884,000 --
------------ ------------ ------------ ------------
Income (loss) before
extraordinary gain... (3,138,000) 4,193,000 2,872,000 (56,494,000)
Extraordinary gain -- -- -- 58,311,000
------------ ------------ ------------ ------------
Net income (loss) $ (3,138,000) $ 4,193,000 $ 2,872,000 $ 1,817,000
============ ============ ============ ============
Income (loss) per share
Income (loss) be-
fore extraordinary
gain................ $ (.12) $ .16 $ .11 $ (1.67)
Extraordinary gain... -- -- -- 1.72
------------ ------------ ------------ ------------
Net income (loss) $ (.12) $ .16 $ .11 $ .05
============ ============ ============ ============
See accompanying notes to consolidated financial statements.
F-4
Consolidated Statement Of Cash Flows
Six Month Six Month
Period Ended Period Ended
Cash Flows from Years Ended November 30, November 30, May 31,
Operating Activities 1995 1994 1993 1993
------------ ------------ ------------ ------------
Net (loss) income.... $ (3,138,000) $ 4,193,000 $ 2,872,000 $ 1,817,000
Adjustments to recon-
cile net (loss) in-
come to net cash
provided (used)
by operating
activities..........
Restructuring
charges........... 1,940,000 -- -- --
Depreciation and
amortization...... 1,741,000 1,877,000 1,151,000 1,327,000
Provision for esti-
mated net realiz-
able value........ 1,593,000 400,000 -- 3,384,000
Option abandon-
ments............. 1,050,000 -- -- --
Provision in lieu
of income taxes... 831,000 2,928,000 1,649,000 --
Issuance of stock
under 401(k) Plan. 213,000 198,000 -- --
Reserve reversal... (1,113,000) -- -- --
Extraordinary gain. -- -- -- (58,311,000)
Equity in op-
erations of
joint ventures.... -- -- -- 9,422,000
Reorganization
charges........... -- -- -- 35,765,000
(Increase) de-
crease in receiv-
ables............. (1,141,000) (1,460,000) 6,744,000 146,000
Decrease (in-
crease) in inven-
tories............ 26,897,000 (11,345,000) (5,530,000) 11,318,000
(Decrease) inc-
rease in accounts
payable, accrued
expenses and oth-
er liabilities.... (5,508,000) (1,138,000) (1,834,000) 1,945,000
(Increase) de-
crease in prepaid
expenses and oth-
er assets......... (792,000) 633,000 616,000 11,281,000
------------ ------------ ------------ ------------
22,573,000 (3,714,000) 5,668,000 18,094,000
============ ============ ============ ============
Cash Flows from
Financing Activities
Repayment under re-
volving credit
agreement........... (19,500,000) (9,500,000) (13,479,000) (8,473,000)
Proceeds under re-
volving credit
agreement......... 4,500,000 14,500,000 7,500,000 --
Repayment of
mortgages pay-
able.............. (8,171,000) (882,000) (471,000) (2,571,000)
Repurchase of
Senior Sub-
ordinated Notes... -- -- (1,000,000) (5,000,000)
------------ ------------ ------------ ------------
(23,171,000) 4,118,000 (7,450,000) (16,044,000)
============ ============ ============ ============
Net (decrease) in-
crease in cash and
cash equivalents..... (598,000) 404,000 (1,782,000) 2,050,000
Cash and cash equiv-
alents at beginning
of period............ 5,759,000 5,355,000 7,137,000 5,087,000
Cash and cash equiv-
alents at end of
period............... $ 5,161,000 $ 5,759,000 $ 5,355,000 $ 7,137,000
============ ============ ============ ============
See accompanying notes to consolidated financial statements.
F-5
Consolidated Statement Of Shareholders' Equity
Class B Retained
Common Common Preferred Paid In Earnings
Stock Stock Stock Capital (Deficit)
---------- -------- --------- ----------- ------------
Balance,
Nov. 30, 1992 $ 321,000 $ 76,000 $ -- $43,431,000 $(28,113,000)
Net income for
the six month
period ended
May 31, 1993 -- -- -- -- 1,817,000
Elimination of
accumulated
deficit in
connection
with the
reorganization -- -- -- -- 26,296,000
Retirement of
stock in con-
nection with
the plan of
reorganization (321,000) (76,000) -- (22,925,000) --
Issuance of common
and preferred
stock 234,000 -- 260,000 -- --
Balance,
May 31, 1993 234,000 -- 260,000 20,506,000 --
Net income for
the six month
period ended
November 30, 1993 -- -- -- -- 2,872,000
Amortization of
deferred compen-
sation related
to stock option
plan -- -- -- 21,000 --
Balance,
November 30, 1993 234,000 -- 260,000 20,527,000 2,872,000
Net income -- -- -- -- 4,193,000
Conversion of
preferred stock 26,000 -- (260,000) 234,000 --
Issuance of stock
under 401(k) Plan -- -- -- 198,000 --
Tax adjustment -- -- -- 719,000 --
Amortization of
deferred compen-
sation related
to stock option
plan -- -- -- 42,000 --
Balance,
November 30, 1994 260,000 -- -- 21,720,000 7,065,000
Net loss -- -- -- -- (3,138,000)
Issuance of stock
under 401(k) Plan 4,000 -- -- 209,000 --
Provision in lieu
of income taxes -- -- -- 831,000 --
Amortization of
deferred compen-
sation related
to stock option
plan -- -- -- 62,000 --
Balance,
November 30, 1995$264,000 $ -- $ -- $22,822,000 $ 3,927,000
======== ====== ====== ============ ===========
See accompanying notes to consolidated financial statements.
F-6
Notes To Consolidated Financial Statements
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of consolidation
The consolidated financial statements include the accounts of Calton, Inc.
and all of its wholly-owned and majority-owned subsidiaries (the Company).
All significant intercompany accounts and transactions have been eliminated.
The Company accounts for its investments in its 50% or less interests in
corporate and unincorporated joint ventures by the equity method.
The accompanying financial statements for the years ended November 30,
1995 and 1994 and the six months ended November 30, 1993 are separated by a
black line from prior periods due to the adoption of fresh-start accounting and
reporting to reflect the effects of the Reorganization as of May 31, 1993, and
are not comparable to the amounts reflected for prior periods (see Note 11).
Certain reclassifications have been made to prior years' financial statements
in order to conform with the 1995 presentation.
Income recognition
Revenue and cost of revenue on sales of homes are recognized when individual
homes are completed, and title and other attributes of ownership have been
transferred by means of a closing to the buyer. Revenue and cost of revenue on
land sales are recognized when all conditions precedent to closing have been
fulfilled, a specified minimum down payment has been received and it is
expected that the resulting receivables will be collected.
Cash and cash equivalents
Cash equivalents consist of short-term, highly liquid investments, with
original maturities of three months or less, that are readily convertible into
cash.
Inventories
Inventories are stated at the lower of cost or estimated net realizable
value for each property. As of November 30, 1995, certain inventories had been
restated to reflect estimated net realizable value. Estimated net realizable
value has been determined based upon the amount the Company expects to realize
through sale or development based on management's present plans for each
property. In a buildout of a community, certain assumptions are made concerning
future sales prices and absorption of sales and closings in the community's
life span. There is an inherent risk that those assumptions made may not occur.
The estimated net realizable value of a property may exceed the value which
could be obtained through the immediate sale of the property if development
plans for such property support a higher cost recovery. Cost includes direct
and allocated indirect costs. Land and land development costs generally include
interest and property taxes incurred. Interest is capitalized using interest
rates on specifically related debt and the Company's average borrowing rate.
Inventoried costs are charged to cost of revenues based upon the estimated
average cost within each community.
In March 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards 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 provisions of this statement are effective for fiscal
years beginning after December 15, 1995. If the Company adopted this statement
currently, it would not have a material effect on the Company's financial
position, results of operations or cash flows.
Commercial land and buildings
Commercial land and buildings, stated at the lower of cost or estimated
fair market value, include certain assumptions in their ultimate disposition
such as future cash flow, the ability of the Company to obtain certain zoning
changes and regulatory or governmental approvals. There is an inherent risk
that those assumptions made may not be realized.
F-7
Income taxes
Deferred income taxes are determined on the liability method in accordance
with Statement of Financial Accounting Standards No. 109 (see Note 8).
Prepaid expenses and other assets
Prepaid expenses and other assets consist primarily of property and
equipment, prepaid architect fees and prepaid insurance. Prepaid architect fees
are amortized on a per unit basis as homes are delivered.
Risks and uncertainties
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the dates of the financial
statements and the reported amounts of revenues and expenses for the periods
reported. Actual results could differ from those estimates.
The Company, as well as the homebuilding industry in general, is very
sensitive to economic conditions. Inflation, interest rate fluctuations,
available capital and consumer confidence impact the ability of the Company to
market, sell and build homes.
Per share computations
Per share computations are based upon the weighted average number of
shares of common stock and preferred stock outstanding during each period
presented (26,281,000 and 26,095,000 for the years ended November 30, 1995 and
1994, respectively, and 26,239,000 for the six months ended November 30, 1993.
Prior to the Company's Reorganization in 1993, the weighted average number of
shares of Common Stock and Class B Common Stock was 33,819,000 for the six
months ended May 31, 1993).
2. RECEIVABLES
Receivables consist of the following (amounts in thousands):
November 30,
1995 1994
------- -------
Closing proceeds due $ 4,946 $ 2,830
Due from municipalities 2,573 3,192
Mortgages and notes receivable, net 557 524
Other 888 1,277
------- -------
$ 8,964 $ 7,823
======= =======
3. INVENTORIES
The components of inventories are as follows (amounts in thousands):
November 30,
1995 1994
-------- --------
Land and land development costs $ 37,144 $ 59,555
Direct and indirect construction costs 22,603 24,955
Land purchase options and cost of
projects in planning 4,499 4,292
-------- --------
$ 64,246 $ 88,802
======== ========
The total amount of interest costs capitalized was $5,016,000 for the year
ended November 30, 1995, $4,005,000 for the year ended November 30, 1994,
$1,467,000 for the six month period ended November 30, 1993 and $1,130,000 for
the six month period ended May 31, 1993.
In the year ended November 30, 1995, the Company recorded provisions of
$1,593,000 to state inventory, consisting primarily of two properties, to
estimated net realizable value. For the year ended November 30, 1994, $400,000
was recorded as a provision for estimated net realizable value. In the six
month period ended May 31, 1993, the Company recorded provisions of $2,200,000
to state inventory at estimated net realizable value. These charges are
reflected in the provision for estimated net realizable value. There were no
charges recorded in the six month period ended November 30, 1993. During 1995,
the Company acquired $10,511,000 of land. During 1994, the Company acquired
$25,700,000 of land, $2,486,000 of which was financed with a purchase money
mortgage.
F-8
4. COMMERCIAL LAND AND BUILDINGS
During the year ended November 30, 1995, the Company sold approximately
$7,000,000 of its commercial building property and reduced related mortgage
payables by $6,900,000, in accordance with management's plan to focus on its
core business of residential homebuilding. As a result, Commercial land and
buildings was reduced from $16,597,000 at November 30, 1994, to $9,439,000 at
November 30, 1995.
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, respectively, and provided approximately
$850,000 of cash for operations after the retirement of the mortgage debt.
The remaining properties consists primarily of land located in
Pennsylvania, New Jersey and Florida. These properties are available for sale
as a result of management's focus on residential homebuilding.
In the last month of 1994, the Company sold a commercial building for
$800,000 in cash which reduced Commercial land and buildings by $770,000. The
net proceeds of approximately $750,000 were used to reduce mortgages payable.
The sale of this building did not result in a significant gain or loss.
5. REVOLVING CREDIT AGREEMENT
In February 1995, the Company entered into an agreement with its Lenders
extending the term of the existing Amended Credit Agreement (the Facility)
from its maturity date of June 1, 1995 to February 28, 1997. In February 1996,
the Company amended its Facility to meet anticipated operating results through
the remainder of the term of the Facility. In conjunction with the Company's
decision to exit from the Chicago market, the amended Facility will permit
borrowings of up to $55,000,000 until November 1, 1996, when the commitment is
reduced to $50,000,000. The amended Facility increased the interest rate
charged to the Company to the lender's prime rate (8.75% at November 30, 1995)
plus two percent (2%). The Company believes that funds generated by its
operating activities and borrowing availability under the Facility will provide
sufficient capital to support the Company's operations through the term of the
Facility; however, the Company believes that it will have to seek an extension
of the Facility or arrange replacement financing prior to the expiration of the
Facility on February 28, 1997.
The February 1996 amendment to the Facility changed various covenants, the
most restrictive of which prescribe levels of tangible net worth (as defined),
EBITDA, and cash basis interest expense coverage and limits the acquisition of
land and land development expenditures and the incurrence of other
indebtedness. Although these limitations will restrict the Company's ability to
expand its business, the Company believes it will be able to comply with the
amended financial covenants based on its business plan. There can be no
assurance that, if market conditions deteriorate further, business plan levels
will be met.
The Facility also limits the aggregate amount of cash and letters of
credit which can be used to collateralize performance bonds to $5,000,000 of
cash (approximately $2,600,000 and $3,200,000 was outstanding as of November
30, 1995 and November 30, 1994, respectively) and up to $10,000,000 of letters
of credit ($1,500,000 and $3,000,000 were outstanding as of November 30, 1995
and November 30, 1994, respectively). At November 30, 1995, approximately
$46,500,000, including $1,500,000 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 $50,000,000
at November 30, 1995. The unused Facility commitment of $8,500,000 is available
as of November 30, 1995 to the Company for investment in inventory that results
in the corresponding growth of its borrowing base. As of November 30, 1995,
approximately $3,500,000 was available to be borrowed under the borrowing base
restriction. Substantially all of the Company's assets are pledged as
collateral under the Facility.
The number of lenders under the Facility has recently decreased to four
participants with Foothill Capital acquiring thirty-seven and one-half percent
(37.5%) of the Facility from the Apollo Group and Fidelity Investments.
Amounts borrowed under the Facility during the year ended November 30,
1995, bore interest at the lenders prime rate (8.75% at November 30, 1995) plus
one and one-half percent (1-1/2%). The weighted average interest rates for the
years ended November 30, 1995 and 1994 were 11.1% and 8.1%, respectively. The
weighted average amounts borrowed for the corresponding years were $58,105,000
and $56,704,000, respectively.
The total amount of interest paid, net of amounts capitalized, in the
years ended November 30, 1995 and 1994 was $2,124,000 and $1,440,000,
respectively; $893,000 for the six months ended November 30, 1993; and
$1,445,000 for the six months ended May 31, 1993.
F-9
6. MORTGAGES PAYABLE
Mortgages payable consist of the following (amounts in thousands):
November 30,
1995 1994
-------- --------
Mortgages payable, land (a) Prime $ 1,227 $ 2,486
Mortgages payable, other (b) Prime + 1% -- 6,912
-------- --------
$ 1,227 $ 9,398
======== ========
(a) Approximately $1,885,000 of inventories are pledged as collateral for a
purchase money mortgage to a land seller at November 30, 1995 compared to
$3,400,000 at November 30, 1994. During 1995, the purchase money mortgage was
reduced by payments in exchange for mortgage releases. The remaining mortgage
payable is due in 1996. The interest rate is prime (8.75% at November 30, 1995)
but is not to exceed 10% and interest is paid semi-annually in March and
September.
(b) Mortgages of $6,912,000 at November 30, 1994 were paid from the
proceeds from the sale of the commercial properties in April and July 1995 (see
Note 4).
The weighted average interest rate for mortgages payable during the year
ended November 30, 1995 was 9.9%.
7. SHAREHOLDERS' EQUITY
Pursuant to the Plan of Reorganization on May 28, 1993, the Company's
Restated Certificate of Incorporation was amended to (i) eliminate the
Company's Class B Stock, (ii) provide for 53,700,000 authorized shares of
Common Stock (par value $.01 per share) and (iii) 2,600,000 shares of
Redeemable Convertible Preferred Stock (par value $.10 per share). In 1994, the
Amended and Restated Certificate of Incorporation was amended to also provide
10,000,000 shares of Class A Preferred Stock (par value $.10 per share) none of
which is issued or outstanding.
The Company adopted the Calton, Inc. 1993 Non-Qualified Stock Option Plan
(the Plan) which became effective upon the consummation of the Reorganization
under which a total of 1,493,000 shares of Common Stock were reserved for
issuance. Under the terms of the Plan, options may be granted at an exercise
price designated by the Compensation Committee. The term of the option is for a
maximum term of ten years. As of November 30, 1995, 1,270,000 options had been
granted, none of which had been exercised and 1,046,000 were exercisable.
During the second quarter of fiscal 1995, the Company's Board of Directors
reviewed the outstanding options granted under the Company's Plan. The Board
considered that the outstanding options were granted in more favorable economic
periods. Therefore, in order to continue to provide an incentive to management,
the Board adjusted the exercise price of all outstanding options held by
employees to $.50 per share, the fair market value of the Company's Common
Stock at the date of the Board action. The market value of the Company's stock
at November 30, 1995 was $.4375.
In October 1995, the Financial Accounting Standards Board issued Statement
No. 123, Accounting for Stock Based Compensation. The provisions of this
statement are effective for fiscal years beginning after December 15, 1995. The
Company intends to implement the disclosure-only provision of this statement.
Accordingly, if the Company adopted this statement currently, if would not have
a material effect on the Company's financial position, result of operations, or
cash flows.
F-10
8. INCOME TAXES
The components of the provision in lieu of income taxes are as follows
(amounts in thousands):
Six Month Six Month
Period Ended Period Ended
Years Ended November 30, November 30, May 31,
1995 1994 1993 1993
------------ ------------ ------------ ------------
Federal
Current $ -- $ -- $ -- $ --
Deferred -- -- -- --
Provision in lieu
of income taxes 479 2,537 1,479 --
State
Current 79 24 235 --
Deferred -- -- -- --
Provision/(benefit)
in lieu of income
taxes 273 (194) 170 --
------------ ------------ ------------ ------------
$ 831 $ 2,367 $ 1,884 $ --
============ ============ ============ ============
The following schedule reconciles the federal provision in lieu of
income taxes computed at the statutory rate to the actual provision in lieu of
income taxes (amounts in thousands):
Six Month
Period Ended
Years Ended November 30, November 30, May 31,
1995 1994 1993 1993
------------ ------------ ------------ ------------
Computed (benefit)/
provision in lieu
of income taxes at 34% $ (784) $ 2,231 $ 1,617 $ 618
Expenses for which
deferred tax benefit
cannot be currently
recognized 1,258 409 -- 18,722
State and local tax
provision/(benefit) 352 346 267 (3,737)
State tax reserves -- (695) -- --
Nondeductible acquisition
costs and expenses -- -- -- 4,223
Gain on extinguishment
of debt -- -- -- (19,826)
Other, net 5 76 -- --
Total provision in lieu
of income taxes $ 831 $ 2,367 $ 1,884 $ --
============ ============ ============ ============
Fresh-start accounting and reporting requires the Company to report a provision
in lieu of income taxes when the Company recognizes a pre-reorganization
deferred tax asset. 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 pre-reorganization net deferred tax
asset was recorded as a reduction of values in excess of amounts allocable to
identifiable net assets until exhausted and then as a direct increase to paid
in capital. The net deferred tax asset of $18,647,000 is primarily attributable
to pre-reorganization deductible temporary differences.
F-11
Temporary differences and carryforwards which give rise to a significant
portion of deferred tax assets and liabilities at November 30, 1995 and 1994
are as follows (amounts in thousands):
November 30, 1995 November 30, 1994
Deferred Tax Deferred Tax Deferred Tax Deferred Tax
Assets Liabilities Assets Liabilities
------------ ------------ ------------ ------------
Fresh-start inventory
reserves $ 1,114 $ -- $ 2,636 $ --
Income from joint
ventures 328 417 5,344 2,040
Inventory and other
reserves 2,064 -- 5,542 --
Preproduction interest -- 536 -- 536
Federal net operating
losses 7,568 -- 14,110 --
State net operatin
losses 6,647 -- 8,483 --
Condemnation -- -- -- 245
Depreciation 285 89 306 7
Deferred state taxes 1,691 -- 3,938 957
Other 812 820 1,209 891
------------ ------------ ------------ ------------
20,509 1,862 41,568 4,676
Valuation allowance (18,647) -- (36,892) --
------------ ------------ ------------ ------------
Total deferred taxes $ 1,862 $ 1,862 $ 4,676 $ 4,676
============ ============ ============ ============
Deferred income taxes arise from temporary differences between the tax
basis of assets and liabilities and their reported amounts in the financial
statements. For federal and state tax purposes, a valuation allowance was
provided on the deferred tax assets due to uncertainty of realization. Federal
tax effects of deferred tax assets were recognized to the extent of existing
available deferred tax credits.
The federal net operating loss carryforward for tax purposes is
approximately $22,000,000 at November 30, 1995 and $43,000,000 at November 30,
1994. The decrease is related to the reduction due to the Section 382
limitation and the utilization against taxable income attributable to Talcon,
L.P. A preliminary estimate of the Company's ability to use its deferred tax
assets to offset future income is approximately $1,700,000 per year under
Section 382 of the Internal Revenue Code as a result of the recent change in
control of the Company. These federal carryforwards will expire between 2007
and 2009. The Company received an income tax refund of $50,000 in 1995. No such
amounts were received in 1994 and 1993.
9. 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 condition
or results of operations 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) 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 or results of operations of the Company.
(c) The Company is obligated under operating leases for office space
expiring between 1996 and 2000 with total annual rentals of approximately
$313,000. Rental expense for the year ended November 30, 1995, November 30,
1994, and the six and twelve month periods ended November 30, 1993 amounted to
$781,000, $715,000, $408,000 and $846,000, respectively.
(d) The Company has a qualified contributory retirement plan (401(k)
Plan) which covers all eligible full-time employees with a minimum of one year
of service. Employees may contribute up to eighteen percent (18%) of their
annual compensation with employer matching at the Company's discretion. The
Company's contribution to the plan was $213,000 in 1995 and $198,000 in 1994.
The Company's contribution to the plan was not significant in 1993. The
F-12
Company's matching contribution, in the form of registered Common Stock of the
Company, for 1995 was 75% of participant contributions. The Company's matching
contribution, in the form of registered Common Stock of the Company, for 1996
will be 5% of participant contributions.
(e) Commitments include the usual obligations of housing producers for
the completion of contracts in the ordinary course of business.
10. INVESTMENTS IN JOINT VENTURES
Investments in joint ventures at November 30, 1995 consist of a
partnership interest in a joint venture located in Maryland.
The Company previously wrote off its entire equity investment in Talcon
L.P. and recorded a reserve for $1,000,000 of indebtedness owed to it by
Talcon. In connection with Talcon's dissolution and liquidation, it paid the
Company $890,000 in 1995 in full satisfaction of its debt obligations. This
payment was classified as non-operating Other (income) expense.
Equity in operations of joint ventures was a loss of $9,422,000 for the
six months ended May 31, 1993. No such amounts were recorded for the years
ended November 30, 1995 and 1994 and the six month period ended November 30,
1993.
11. REORGANIZATION
Calton, Inc. and certain of its subsidiaries consummated a Plan of
Reorganization on May 28, 1993 (the Effective Date). The Plan of
Reorganization (the Reorganization), which was confirmed by the United States
Bankruptcy Court on May 6, 1993, resulted in the discharge of approximately
$61,542,000 of principal and $22,847,000 of interest due the holders of the 16-
5/8% Senior and 12-5/8% Subordinated Notes of Calton, Inc. and certain of its
subsidiaries in exchange for 21,709,000 shares of Common Stock, 2,600,000
Warrants to purchase Common Stock, 2,600,000 shares of Preferred Stock,
$5,000,000 of cash and $1,000,000 of the short term new notes (retired on
September 30, 1993) which were issued to the 16-5/8% Noteholders. During the
second quarter of fiscal 1994, 2,072,185 Warrants were exercised and, as
required under the terms of the Reorganization, the Company used the proceeds
to redeem 2,072,185 shares of Redeemable Convertible Preferred Stock at a
redemption price of $1.53 per share. The remaining 527,815 shares of Redeemable
Convertible Preferred Stock were automatically converted into Common Stock. The
value of the cash, notes and securities issued was less than the debt
discharged, thereby resulting in an extraordinary gain of $58,311,000.
In accounting for the effects of the Reorganization, the Company
implemented Statement of Position 90-7 (SOP 90-7), Financial Reporting by
Entities in Reorganization Under the Bankruptcy Code issued by the American
Institute of Certified Public Accountants in November 1990. SOP 90-7 requires
an allocation of the reorganization value in conformity with the procedures
specified by Accounting Principles Board Opinion No. 16, Business
Combinations for transactions reported on the basis of the purchase method.
The Company's reorganization value was determined to be $21,000,000 with
the assistance of independent advisors. The reorganization value was based upon
discounted projected cash flows for the reorganized Company over a five-year
period. The projected cash flows included assumptions as to anticipated sales
and margins, marketing plans and operating expense levels. A discount rate of
16% was used, which reflected the weighted average cost of capital, the
uncertainty of the cash flows, the general inherent risk of the housing
industry and general business conditions. In this regard, the Company incurred
$23,917,000 in charges to adjust its inventories and commercial land and
buildings to estimated fair market value. Such estimates and assumptions were
inherently subject to significant economic and competitive uncertainties beyond
the control of the Company, including, but not limited to, those with respect
to the future courses of the Company's business activity. Accordingly, there
will usually be differences between projections and actual results because
events and circumstances frequently do not occur as expected, and those
differences may be material.
As a result of the determination of the amount of reorganization value and
the fair market value of assets and liabilities (other than intangibles), a
$11,360,000 write-off of Values in excess of amounts allocable to identifiable
net assets (goodwill) was recorded and a $5,000,000 balance resulted. The
resulting goodwill was amortized and was reduced by the realization of deferred
tax assets through the recognition of the provision in lieu of income taxes. As
a result of these two factors, the amount of goodwill was reduced to zero as of
November 30, 1994.
F-13
12. QUARTERLY FINANCIAL RESULTS (UNAUDITED)
Quarterly financial results for the years ended November 30, 1995 and 1994
are as follows (amounts in thousands, except per share amounts):
Three Months Ended
February 28, May 31, August 31, November 30,
1995 1995 1995 1995
------------ ------------ ------------ ------------
Revenues $ 38,215 $ 38,836 $ 60,362 $ 43,430
Gross profit 4,411 4,403(b) 7,418 3,328(c)
Net income (loss) (375)(a) (316) 1,008 (3,455)(d)
Net income (loss)
per share (.01) (.01) .04 (.13)
Three Months Ended
February 28, May 31, August 31, November 30,
1994 1994 1994 1994
------------ ------------ ------------ ------------
Revenues $ 28,994 $ 36,252 $ 47,129 $ 56,348
Gross profit 5,558 6,441 8,280 8,705(e)
Net income 746 705 1,355 1,387(f)
Net income per share .03 .03 .05 .05
(a) Includes a $200,000 charge for costs primarily associated with the
consolidation of the New Jersey-North and New Jersey-South divisions.
(b) Includes a $1.1 million charge resulting from abandoning nine
properties under option and a credit of $1.1 million realized from the reversal
of a reserve previously provided on a community substantially completed in the
second quarter of 1995.
(c) Gross profit includes a $1.6 million charge reflecting a provision
for estimated net realizable value.
(d) Includes $1.6 million writedown of inventories to estimated net
realizable value, $1.1 million of restructuring charges related to the wind
down of the Chicago division and $640,000 in executive severance, partially
offset by the $820,000 collection of a note previously reserved. Of the $1.1
million charge, $727,000 was applied as a reduction to inventory as a result of
the anticipated market reaction to the wind down and not proceeding with the
scheduled lot takedowns at the division's two communities. All of the wind down
actions are anticipated to be completed by the end of fiscal 1996.
(e) Gross profit includes a $400,000 charge reflecting a provision
for estimated net realizable value.
(f) Includes costs of $800,000 relating to the proposed unit offering
and related working capital facility and a tax benefit of approximately
$700,000 resulting from a reduction in tax reserves that was appropriate when
the Company obtained clearance on a state tax position with the New Jersey
Division of Taxation.
F-14
CALTON, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(Unaudited)
February 29, November 30,
1996 1995
Assets ------------ ------------
Cash and cash equivalents $ 4,524,000 $ 5,161,000
Receivables 4,834,000 8,964,000
Inventories 68,716,000 64,246,000
Commercial land and buildings 9,451,000 9,439,000
Investments in joint ventures 850,000 850,000
Prepaid expenses and other assets 2,443,000 2,756,000
------------ ------------
Total assets $ 90,818,000 $ 91,416,000
============ ============
Liabilities and Shareholders' Equity
Revolving credit agreement $ 47,000,000 $ 45,000,000
Mortgages payable 3,260,000 1,227,000
Accounts payable 2,802,000 3,270,000
Accrued expenses and other liabilities 11,976,000 14,906,000
------------ ------------
Total liabilities 65,038,000 64,403,000
------------ ------------
Commitments and contingencies
Shareholders' equity
Common stock 265,000 264,000
Paid in capital 22,237,000 22,822,000
Retained earnings 3,278,000 3,927,000
------------ ------------
Total shareholders' equity 25,780,000 27,013,000
------------ ------------
Total liabilities and shareholders' equity $ 90,818,000 $ 91,416,000
============ ============
See accompanying notes to consolidated financial statements.
F-15
CALTON, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
Three Months Ended February 29, 1996
and February 28, 1995
(Unaudited)
1996 1995
------------ ------------
Revenues $ 19,456,000 $ 38,215,000
Costs and expenses
Cost of revenues 17,382,000 33,804,000
Selling, general and administrative 3,094,000 4,788,000
------------ ------------
20,476,000 38,592,000
------------ ------------
Loss from operations (1,020,000) (377,000)
Interest expense, net 246,000 358,000
Loss before income taxes (1,266,000) (735,000)
Benefit for income taxes (617,000) (360,000)
------------ ------------
Net loss $ (649,000) $ (375,000)
============ ============
Loss per share $ (.02) $ (.01)
============ ============
Weighted average number of shares outstanding 26,431,000 26,088,000
See accompanying notes to consolidated financial statements.
F-16
CALTON, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
Three Months Ended February 29, 1996
and February 28, 1995
(Unaudited)
1996 1995
------------ ------------
Cash Flows from Operating Activities
Net loss $ (649,000) $ (375,000)
Adjustments to reconcile net loss to
net cash used by operating activities
Benefit for income taxes (617,000) (360,000)
Issuance of stock under 401(k) Plan 33,000 76,000
Depreciation and amortization 241,000 358,000
Decrease in receivables 4,130,000 2,338,000
(Increase) decrease in inventories (2,565,000) 1,440,000
Decrease (increase) in prepaid expenses
and other assets 228,000 (525,000)
Decrease in accounts payable, accrued
expenses and other liabilities (3,393,000) (5,025,000)
------------ ------------
(2,592,000) (2,073,000)
------------ ------------
Cash Flows from Financing Activities
Proceeds under Revolving Credit Agreement 2,000,000 1,000,000
Repayments of mortgages payable (45,000) (66,000)
------------ ------------
1,955,000 934,000
------------ ------------
Net decrease in cash and cash equivalents (637,000) (1,139,000)
Cash and cash equivalents at beginning of period 5,161,000 5,759,000
------------ ------------
Cash and cash equivalents at end of period $ 4,524,000 $ 4,620,000
============ ============
See accompanying notes to consolidated financial statements.
F-17
CALTON, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
Three Months Ended February 29, 1996
(Unaudited)
Common Paid In Retained
Stock Capital Earnings Total
------------ ------------ ------------ ------------
Balance,
November 30, 1995 $ 264,000 $ 22,822,000 $ 3,927,000 $ 27,013,000
Net loss -- -- (649,000) (649,000)
Benefit for income
taxes -- (617,000) -- (617,000)
Issuance of stock
under 401(k) Plan 1,000 32,000 -- 33,000
Balance,
February 29, 1996 $ 265,000 $ 22,237,000 $ 3,278,000 $ 25,780,000
============ ============ ============ ============
See accompanying notes to consolidated financial statements.
F-18
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, 1995.
Operating results for the three month period ended February 29, 1996 are not
necessarily indicative of the results that may be expected for the year ended
November 30, 1996.
In March 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards 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
provisions of this statement are effective for fiscal years beginning after
December 15, 1995. If the Company adopted this statement currently, it would
not have a material effect on the Company's financial position or results of
operations.
2. Inventories
Inventories consist of the following (amounts in thousands):
February 29, November 30,
1996 1995
------------ ------------
Land and land development costs $ 23,699 $ 20,496
Homes, lots and improvements
in production 39,802 39,251
Land purchase options and costs
of projects in planning 5,215 4,499
------------ ------------
$ 68,716 $ 64,246
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. The Company acquired a parcel of
land in the Northeast in the first quarter of 1996 totaling $4,300,000, of
which a $2,100,000 purchase money mortgage was issued.
F-19
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 29, 1996
and February 28, 1995 is as follows (amounts in thousands):
1996 1995
------------ ------------
Interest expense incurred $ 1,348 $ 1,777
Interest capitalized (1,045) (1,307)
------------ ------------
Interest expense-net 303 470
Capitalized interest amortized
in cost of revenues 584 1,000
------------ ------------
Interest cost reflected in pre-tax loss $ 887 $ 1,470
============ ============
3. Shareholders' Equity
In January 1996, the Compensation Committee of the Company's Board of
Directors approved the grant to certain employees of the Company of options to
acquire 220,000 shares of Common Stock under the Company's Amended and Restated
1993 Non-Qualified Stock Option Plan. Each of such options has an exercise
price of $.3125 per share, the fair market value of the Common Stock on the
date of grant, and a term of ten years. In addition, the Company's Board of
Directors approved the grant to Anthony J. Caldarone, Chairman, President and
Chief Executive Officer of the Company, of incentive stock options to acquire
500,000 shares of Common Stock under the Company's 1996 Equity Incentive Plan
at an exercise price of $.34375 per share, (110% of the fair market value of
the Common Stock on the date of grant). The grant of the options to Mr.
Caldarone is subject to the approval of the Company's shareholders of a
proposal to adopt the 1996 Equity Incentive Plan which is being presented at
the Company's 1996 Annual Meeting of Shareholders scheduled for April 23, 1996.
If such proposal is approved, the options granted to Mr. Caldarone will have a
term of five years.
F-20
