SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarter ended August 31, 1996
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission file no. 1-8846
CALTON, INC.
(Exact name of registrant as specified in its charter)
New Jersey 22-2433361
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
500 Craig Road
Manalapan, New Jersey 07726-8790
(Addresses of principal Zip Code
executive offices)
Registrant's telephone number,
including area code: (908) 780-1800
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes X No
As of October 1, 1996, 26,527,000 shares of Common Stock were outstanding.
CALTON, INC. AND SUBSIDIARIES
INDEX
Page No.
PART I. Financial Information
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheet at
August 31, 1996 and November 30, 1995 . . . . . . . 3
Consolidated Statement of Operations for the
Three Months Ended August 31, 1996 and 1995 . . . . 4
Consolidated Statement of Operations for the
Nine Months Ended August 31, 1996 and 1995. . . . . 5
Consolidated Statement of Cash Flows for the
Nine Months Ended August 31, 1996 and 1995. . . . . 6
Consolidated Statement of Changes in Shareholders'
Equity for the Nine Months Ended August 31, 1996. . 7
Notes to Consolidated Financial Statements. . . . . 8-10
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations . . . 11-14
PART II. Other Information
Item 6. Exhibits and reports on Form 8-K. . . . . . . . . . 15
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Certain information included in this report and other Company filings
(collectively, "SEC filings") under the Securities Act of 1933, as amended, and
the Securities Exchange Act of 1934, as amended (as well as information
communicated orally or in writing between the dates of such SEC filings)
contains or may contain forward looking information that is subject to certain
risks, trends and uncertainties that could cause actual results to differ
materially from expected results. 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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PART I. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS.
CALTON, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
August 31, November 30,
1996 1995
----------- -----------
(Unaudited)
Assets
Cash and cash equivalents. . . . . . . . . . . $ 4,333,000 $ 5,161,000
Receivables. . . . . . . . . . . . . . . . . . 8,283,000 8,964,000
Inventories. . . . . . . . . . . . . . . . . . 63,849,000 64,246,000
Commercial land and buildings. . . . . . . . . 8,442,000 9,439,000
Prepaid expenses and other assets. . . . . . . 2,580,000 3,606,000
----------- -----------
Total assets. . . . . . . . . . . . . . . . . $87,487,000 $91,416,000
=========== ===========
Liabilities and Shareholders' Equity
Revolving credit agreement . . . . . . . . . . $43,000,000 $45,000,000
Mortgages payable. . . . . . . . . . . . . . . 2,676,000 1,227,000
Accounts payable . . . . . . . . . . . . . . . 2,411,000 3,270,000
Accrued expenses and other liabilities . . . . 13,407,000 14,906,000
----------- -----------
Total liabilities . . . . . . . . . . . . . . 61,494,000 64,403,000
----------- -----------
Commitments and contingencies
Shareholders' equity
Common stock . . . . . . . . . . . . . . . . . 265,000 264,000
Paid in capital. . . . . . . . . . . . . . . . 22,359,000 22,822,000
Retained earnings. . . . . . . . . . . . . . . 3,369,000 3,927,000
----------- -----------
Total shareholders' equity. . . . . . . . . . 25,993,000 27,013,000
----------- -----------
Total liabilities and shareholders' equity. . $87,487,000 $91,416,000
=========== ===========
See accompanying notes to consolidated financial statements.
-3-
CALTON, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
Three Months Ended August 31,
(Unaudited)
1996 1995
----------- -----------
Revenues. . . . . . . . . . . . . . . . . . . . $33,355,000 $60,362,000
Costs and expenses
Cost of revenues . . . . . . . . . . . . . . . 28,609,000 52,944,000
Selling, general and administrative. . . . . . 3,677,000 4,906,000
----------- -----------
32,286,000 57,850,000
----------- -----------
Income from operations. . . . . . . . . . . . . 1,069,000 2,512,000
Interest expense, net . . . . . . . . . . . . . 193,000 537,000
----------- -----------
Income before income taxes. . . . . . . . . . . 876,000 1,975,000
Provision in lieu of income taxes . . . . . . . 491,000 967,000
----------- -----------
Net income. . . . . . . . . . . . . . . . . . . $ 385,000 $ 1,008,000
=========== ===========
Income per share. . . . . . . . . . . . . . . . $ .01 $ .04
=========== ===========
Weighted average number of
shares outstanding . . . . . . . . . . . . . . 26,519,000 26,255,000
=========== ===========
See accompanying notes to consolidated financial statements.
-4-
CALTON, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
Nine Months Ended August 31,
(Unaudited)
1996 1995
----------- -----------
Revenues. . . . . . . . . . . . . . . . . . . . $81,486,000 $137,413,000
Costs and expenses
Cost of revenues . . . . . . . . . . . . . . . 71,211,000 121,181,000
Selling, general and administrative. . . . . . 10,619,000 14,144,000
----------- -----------
81,830,000 135,325,000
Income (loss) from operations . . . . . . . . . (344,000) 2,088,000
Interest expense, net . . . . . . . . . . . . . 715,000 1,468,000
----------- -----------
Income (loss) before income taxes . . . . . . . (1,059,000) 620,000
(Benefit) provision in lieu of income taxes . . (501,000) 303,000
----------- -----------
Net income (loss) . . . . . . . . . . . . . . . $ (558,000) $ 317,000
=========== ===========
Income (loss) per share . . . . . . . . . . . . $ (.02) $ .01
=========== ===========
Weighted average number of
shares outstanding . . . . . . . . . . . . . . 26,480,000 26,299,000
=========== ===========
See accompanying notes to consolidated financial statements.
-5-
CALTON, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
Nine Months Ended August 31,
(Unaudited)
1996 1995
----------- -----------
Cash Flows from Operating Activities
Net income (loss). . . . . . . . . . . . . . . $ (558,000) $ 317,000
Adjustments to reconcile net income
(loss) to net cash used by
operating activities
(Benefit) provision for income taxes . . . . (501,000) 303,000
Issuance of stock under 401(k) Plan. . . . . 39,000 181,000
Depreciation and amortization. . . . . . . . 989,000 1,322,000
Decrease (increase) in receivables . . . . . 531,000 (989,000)
Decrease in inventories. . . . . . . . . . . 4,020,000 12,279,000
Decrease in commercial land and buildings. . 953,000 7,479,000
Decrease (increase) in prepaid expenses
and other assets. . . . . . . . . . . . . . 59,000 (178,000)
Decrease in accounts payable, accrued
expenses and other liabilities. . . . . . . (4,159,000) (4,980,000)
----------- -----------
1,373,000 15,734,000
----------- -----------
Cash Flows from Investing Activities
Distribution from joint venture. . . . . . . . 553,000 --
Increase in property and equipment . . . . . . (37,000) (208,000)
----------- -----------
516,000 (208,000)
----------- -----------
Cash Flows from Financing Activities
Repayments under Revolving Credit
Agreement . . . . . . . . . . . . . . . . . . (6,000,000) (13,500,000)
Proceeds under Revolving Credit
Agreement . . . . . . . . . . . . . . . . . . 4,000,000 4,500,000
Repayments of mortgages payable. . . . . . . . (717,000) (7,046,000)
----------- -----------
(2,717,000) (16,046,000)
----------- -----------
Net decrease in cash and cash equivalents . . . (828,000) (520,000)
Cash and cash equivalents at
beginning of period. . . . . . . . . . . . . . 5,161,000 5,759,000
----------- -----------
Cash and cash equivalents at
end of period. . . . . . . . . . . . . . . . . $ 4,333,000 $ 5,239,000
=========== ===========
See accompanying notes to consolidated financial statements.
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CALTON, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
Nine Months Ended August 31, 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. . . . . . . . . . -- -- (558,000) (558,000)
Benefit for
income taxes . . . . . . . -- (501,000) -- (501,000)
Issuance of stock
under 401(k) Plan. . . . . 1,000 38,000 -- 39,000
-------- ----------- ---------- -----------
Balance,
August 31, 1996. . . . . .$265,000 $22,359,000 $3,369,000 $25,993,000
======== =========== ========== ===========
See accompanying notes to consolidated financial statements.
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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 and nine month periods ended August 31, 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, results of
operations or cash flows.
2. Inventories
Inventories consisted of the following (amounts in thousands):
August 31, November 30,
1996 1995
----------- -----------
Land and land development costs . . . . . . . . $19,064 $ 20,496
Homes, lots and improvements in production. . . 37,915 39,251
Land purchase options and costs of
projects in planning . . . . . . . . . . . . . 6,870 4,499
----------- -----------
$63,849 $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.
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 and nine month periods ended August 31,
1996 and August 31, 1995 is as follows (amounts in thousands):
-8-
Three Months Six Months
Ended Ended
August 31, August 31,
1996 1995 1996 1995
------ ------ ------ ------
Interest expense incurred . . . . . . . . . $1,426 $1,877 $4,131 $5,637
Interest capitalized. . . . . . . . . . . . 1,079 1,301 3,084 3,980
------ ------ ------ ------
Interest expense-net . . . . . . . . . . . 347 576 1,047 1,657
Capitalized interest amortized in
cost of revenues . . . . . . . . . . . . . 1,077 1,245 2,631 3,198
------ ------ ------ ------
Interest cost reflected in pre-tax loss . . $1,424 $1,821 $3,678 $4,855
====== ====== ====== ======
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. As of August 31, 1996, of the 1,493,000 shares
authorized for issuance, options with respect to 1,468,000 shares have been
granted and none have been exercised.
On April 24, 1996, the Company's Compensation Committee approved the grant to
various employees of the Company options to acquire 783,000 shares of Common
Stock under the Company's Equity Incentive Plan, of which 130,000 options have
terminated. The options are awarded to eligible employees based upon a number
of criteria including years of employment and base compensation. Each of such
options has an exercise price of $.53125 per share, the fair market value of
the Common Stock on the date of the grant, vests in equal annual installments
over a period of five years and has a term of ten years. 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 options granted to Mr. Caldarone
have a term of five years. In addition, 30,000 stock options were granted, at
an exercise price of $.53125 per share, to the outside directors of the Company
pursuant to the formula award provision of the Plan. Of the two million shares
reserved under the Equity Incentive Plan, options with respect to 1,183,000
shares have been granted (net of cancellation) and none have been exercised.
4. Unusual Items
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 $1,050,000 that is
reflected in Cost of Revenues. Also included in Cost of Revenues is $1,100,000
pre-tax credit realized from the reversal of a reserve previously provided on a
community substantially completed in the second quarter of 1995. This reserve
related to a $1,100,000 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.
-9-
5. Commercial Land and Buildings
In August 1996, the Company sold two parcels of land located in Florida and
southern New Jersey for an aggregate amount of $1,819,000. The sales resulted
in net cash proceeds of $750,000 and a secured interest-bearing note of
$1,050,000 that becomes due in 1997. The sales resulted in pre-tax gains of
approximately $670,000.
During the nine months ended August 31, 1995, the Company completed the sale of
two office buildings for combined proceeds and pre-tax gains of $8,000,000 and
$500,000, respectively. The sales provided approximately $850,000 in cash for
operations after the repayment of the mortgage debt.
The Company's remaining commercial properties consist primarily of land located
in Pennsylvania, New Jersey, Florida and California. These properties are
available for sale as a result of management's focus on residential
homebuilding.
6. Contingent Liabilities
(a) In July 1994, an action was filed against Calton Homes, Inc., the Township
of Plainsboro, New Jersey and its planning board, certain real estate brokers
and certain unnamed officers of Calton Homes, Inc., by approximately 60
purchasers in the Company's Princeton Manor development seeking compensatory
and punitive damages arising out of an alleged failure to disclose that a
portion of the property adjacent to the community could be developed by
Plainsboro Township as a public works site. The Company is vigorously
contesting this matter and, although there can be no assurances, does not
believe that the case will have any material effect on the financial position,
results of operations or cash flows of the Company. In addition, the Company
believes that it is contractually entitled to indemnification from Plainsboro
Township in the event that any liability should arise.
(b) In June 1996, the Federal Deposit Insurance Corporation (the "FDIC"), in
its capacity as Liquidating Agent/Receiver of Eliot Savings Bank, instituted an
action in the United States District Court, District of Massachusetts, seeking
recovery of amounts owed under a $5.7 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. ("Talcon") subsidiary had
an interest. This action relates to a loan on property owned by the Joint
Venture. The loan was placed on the property before Talcon was formed.
Accordingly, in connection with the creation of Talcon, the interest in the
Joint Venture was transferred upstream to Calton, Inc. and then transferred
downstream into Talcon, and eventually into the Talcon subsidiary. In its suit,
the FDIC alleges, among other things, that Calton, by virtue of the assignment
of the interest in the Joint Venture to Calton in 1987, has liability as a
general partner in the Joint Venture and is seeking to collect approximately
$8.7 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
assignment of the interest in the Joint Venture to Calton or otherwise. The
Company will vigorously contest this matter but there can be no assurances that
the case will not have a material adverse effect on the Company's financial
position, results of operations or cash flows.
-10-
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
RESULTS OF OPERATIONS FOR THE THREE AND NINE MONTHS ENDED AUGUST 31, 1996 AND
1995
Revenues for the three and nine month periods ended August 31, 1996 were $33.4
million and $81.5 million, respectively, compared to revenues of $60.4 million
and $137.4 million for the three and nine month periods ended August 31, 1995,
respectively. Deliveries of 145 and 376 homes resulted in housing revenues of
$30.2 million and $77.4 million, respectively, for the three and nine months
ended August 31, 1996. For the comparable periods of 1995, the Company
delivered 227 and 555 homes which generated $52.8 million and $128.0 million of
housing revenues. Revenues include the sales of land and commercial land and
buildings in the three and nine month periods ended August 31, 1996 of $3.1
million and $4.0 million, respectively, compared to revenues of $7.4 million
and $8.4 million from the sale of land and commercial land and buildings in the
comparable periods of 1995.
Housing revenues decreased by $22.6 million for the quarter ended August 31,
1996 primarily due to a fifty-eight percent (58%) decrease in homes delivered
by the Company's Northeast division. Northeast deliveries were adversely
impacted by a significantly lower level of backlog entering the quarter in 1996
compared to the same period in 1995, the effect of deliveries from six
communities that are winding down and will be substantially complete by the end
of the fiscal year and sluggish market conditions. The primary reason for the
decrease in average sales price to $208,000 for the quarter ended August 31,
1996 from $233,000 for the comparable period of 1995 is attributable to the mix
of homes delivered reflecting a greater proportion of homes delivered and
housing revenues derived from the Florida division where average sales prices
are lower than in the Northeast. Florida home deliveries, which increased
fifty-four percent (54%) in quantity of homes delivered and seventy-seven (77%)
in housing revenues, respectively, over the corresponding period in 1995,
benefited from a higher unit and revenue level in backlog entering the third
quarter in 1996 compared to 1995 and, to a lesser extent, a greater number of
active communities from which the Florida division was delivering. The Company
anticipates that the Florida division will continue to exceed prior year
deliveries and revenues through the balance of the year.
Housing revenues decreased by $50.6 million for the nine month period ended
August 31, 1996 primarily due to a thirty-two percent (32%) decrease in the
number of homes delivered compared to the prior year and, to a lesser extent, a
reduction of average sales price. The decrease in the number of homes delivered
by the Company is primarily attributable to a fifty-one percent (51%) decrease
in homes delivered by the Company's Northeast division. The volume of Northeast
division deliveries was affected by a significantly lower level of homes in
backlog entering 1996 compared to 1995 and deliveries from fewer communities,
six of which are winding down as previously discussed. The decrease in the
average sales price to $206,000 for the nine months ended August 31, 1996 from
$231,000 for the comparable period of 1995 is primarily attributable to a
greater proportion of home deliveries from the Florida division as previously
discussed.
The Company's gross profit margin on homes delivered was approximately 13% and
12% during the three and nine month periods ended August 31, 1996,
respectively. The margins have remained approximately the same as margins in
comparable periods of the prior year. The Company markets its homes in
locations where competition is intensifying, resulting in an inability to raise
home selling prices and often requiring the Company to provide incentives to
buyers in order to achieve sales volume levels. Included in the Company's gross
profit is the profit from the sales of land and commercial land and buildings
during the third quarter of 1996 and 1995 of $762,000 and $375,000,
respectively. Due to the factors discussed above and other variables, the
number and average selling prices of homes sold and delivered and gross profit
realized in the first nine months of 1996 may not be indicative of future
results.
-11-
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 $1,050,000 that is
reflected in Cost of Revenues. Also included in Cost of Revenues is $1,100,000
pre-tax credit realized from the reversal of a reserve previously provided on a
community substantially completed in the second quarter of 1995. This reserve
related to a $1,100,000 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.
Selling, general and administrative expenses decreased by $1.2 million to $3.7
million in the three months ended August 31, 1996 compared with $4.9 million in
the same period of 1995. This decrease is primarily due to the effect on
selling costs from lower levels of home deliveries, fewer communities open for
sales, the reduction of operating and advertising costs attributable to the
winddown of the Chicago division and management's continued efforts to reduce
fixed operating costs. Selling, general and administrative expenses decreased
by $3.5 million to $10.6 million for the nine month period ended August 31,
1996 from $14.1 million for the nine month period ended August 31, 1995. The
decrease is principally due to the effect on selling costs from the lower
levels of home deliveries, reductions in employee levels and lower advertising
costs due to the winddown of the Chicago operations during 1996 and the
consolidation of the Northeast division in March 1995 that resulted in fewer
communities open for sales and deliveries in 1996. Selling, general and
administrative expenses were 11% and 13% of revenue for the three month and
nine month periods ended August 31, 1996, respectively, compared to 8% and 10%
for the same periods in the prior year. The increase in selling, general and
administrative expenses as a percentage of revenues is primarily due to lower
delivery levels and related revenues for the three and nine month periods ended
August 31, 1996.
Gross interest cost was approximately $1.4 million and $4.1 million for the
three and nine month periods ended August 31, 1996, compared to $1.9 million
and $5.6 million, respectively, in the corresponding periods of the prior year.
The decrease in gross interest cost resulted from significantly lower debt
levels under the Company's revolving credit agreement. Interest capitalized in
the three and nine month periods ended August 31, 1996 was $1.1 million and
$3.1 million compared to $1.3 million and $4.0 million, respectively, in the
corresponding periods of the prior year. These reductions resulted primarily
from decreased inventory levels subject to interest capitalization. The
capitalized amounts will reduce future gross profit levels assuming no relative
increases in selling prices.
Included in the net income for the nine months ended August 31, 1996 is a
benefit for income taxes of $501,000 reflecting the Company's effective tax
rate based on estimates of annual results for 1996. Realization of the benefit
is dependent on generating sufficient income including profits on land sales in
the fourth quarter. Although realization is not assured, management believes it
is more likely than not that the benefit will be realized.
Net sales activity amounted to $23.7 million (114 homes) and $83.3 million (418
homes) for the three month and nine month periods ended August 31, 1996,
respectively. The value and quantity of net sales activity for the comparable
periods of fiscal 1995 were $31.5 million (143 homes) and $84.1 million (385
homes). The decrease in net sales activity for the third quarter is
attributable to fewer communities open for sales in the Northeast. As of August
31, 1996, six communities remain open for sales as compared to ten in the prior
year. The Company plans on opening two new communities in the Northeast in the
fourth quarter of fiscal year 1996. Partially offsetting the decrease in the
Northeast net sales is improved sales activity in the Florida division where
more communities are open for sales including five new communities opened
during the first nine months of fiscal 1996. The increase in net sales housing
volume for the nine month period is attributable to a sixty-four percent (64%)
and seventy-eight percent (78%) increase in net sales homes and dollars,
respectively, in the Florida division, which was partially offset by decreased
-12-
net sales activity in the Northeast. At August 31, 1996, the backlog of homes
under contract totalled 208 having an aggregate dollar value of $42.0 million,
reflecting decreases in the number of homes in backlog and in backlog value of
16% and 23%, respectively, over the levels at August 31, 1995 of 249 having an
aggregate dollar value of $54.6 million. The average price per home in backlog
at August 31, 1996 decreased to $202,000 compared to $219,000 at August 31,
1995 primarily due to the increased impact of the Florida division on the mix
of homes in the backlog. At August 31, 1996, the Florida division represented
approximately forty-seven (47%) and sixty- five percent (65%) of total backlog
sales dollars and homes, respectively, compared to eighteen percent (18%) and
twenty-six percent (26%), respectively, of total backlog dollars and homes at
August 31, 1995. The higher proportion of Florida homes in backlog at August
31, 1996 is attributable to the increase in Florida net sales activity and
corresponding decrease in Northeast net sales activity as previously discussed.
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 the current and
prior periods may not be indicative of those to be realized in succeeding
periods.
LIQUIDITY AND CAPITAL RESOURCES
In February 1996, the Company amended its Revolving Credit Facility (the
"Facility") to meet anticipated operating results through the remainder of the
term of the Facility. 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. 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 amended Facility permits borrowings of up to $55.0 million until November
1, 1996, when the commitment will be reduced to $50.0 million, subject to
borrowing base and other limitations. As of August 31, 1996, approximately $1.2
million was available to be borrowed under the Facility. The unused Facility
commitment of $10.3 million is available as of August 31, 1996 to the Company
for investment in inventory that results in the corresponding growth of its
borrowing base. The amended Facility increased the interest rate charged to the
Company to the lender's prime rate (8.25% at August 31, 1996) plus two percent
(2%). The Company believes that 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, certain covenant levels may not be met based upon the level of sales
contract backlog, the current level of net sales activity, and the ultimate
outcome of projected land sales and sales of certain commercial land and
buildings during the fourth quarter. 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. There can be no assurance that the Company will
be successful in obtaining either an extension or replacement of the existing
facility on terms favorable to the Company.
-13-
CASH FLOWS FROM OPERATING ACTIVITIES
Inventories amounted to $63.8 million at August 31, 1996 compared to $64.2
million at November 30, 1995. The decrease in inventories resulted primarily
from a $11.4 million reduction from the delivery of homes and sales of land
offset by $8.8 million of land acquisitions and $2.0 million of inventory
accruals. Approximately $2.2 million of the land acquisitions were financed by
a purchase money mortgage. These transactions resulted in $4.0 million of
operating cash flows. The land acquisitions resulted in the opening of six new
communities during the nine-month period and one additional community opened
early in the fourth quarter of fiscal 1996, including five in Florida and two
in the Northeast. The Company anticipates opening a total of two additional
communities in the Northeast and four communities in the Orlando, Florida
market during the fourth quarter of 1996. The Company will continue to focus on
the acquisition of new land at advantageous prices and terms. Funds generated
by the Company's operations will be utilized for the acquisitions of land as
needed, and to the extent available. Also, options will be utilized to the
extent possible to minimize risks, conserve cash and maximize the Company's
land pipeline. The Facility requires approval of the lenders for all land
acquisitions.
Commercial land and buildings decreased from $9.4 million at November 30, 1995
to $8.4 million at August 31, 1996 as a result of the sale of existing
commercial land and buildings (Note 5).
Accrued expenses and other liabilities decreased by $1.5 million from November
30,1995 to August 31, 1996, primarily attributable to the reduction of home
deliveries as compared to the fourth quarter of 1995 and the payment of
severance to the Company's former President.
CASH FLOWS FROM INVESTING ACTIVITIES
The Company received a $553,000 distribution in the second quarter from a joint
venture which is substantially complete.
CASH FLOWS FROM FINANCING ACTIVITIES
The aggregate principal amount of loans outstanding under the Facility was
$43.0 million at August 31, 1996 compared to $45.0 million at November 30, 1995
and $51.0 million at August 31, 1995. The decrease is attributable to the
Company's strategy to reduce debt in order to reduce carry costs of inventory
and interest expense. In addition, mortgages payable increased by approximately
$1.4 million, representing a $2.2 million purchase money mortgage to partially
fund the acquisition of one new community in the Northeast partially offset by
the payments of $717,000 under a previous mortgage.
-14-
PART II - OTHER INFORMATION
Item 6. Exhibits and reports on Form 8-K.
A) Exhibits
27. Financial Data Schedule as of August 31, 1996.
B) Reports on Form 8-K
None.
-15-
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Calton, Inc.
-----------------------------
(Registrant)
By: /s/ Bradley A. Little
-----------------------------
Bradley A. Little
Senior Vice President-Finance, Treasurer
and Chief Financial Officer
(Principal Financial and Accounting Officer)
Date: October 11, 1996
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