SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarter ended February 29, 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 March 31, 1996, 26,511,000 shares of Common Stock were outstanding.
CALTON, INC. AND SUBSIDIARIES
INDEX
Page No.
PART I. Financial Information
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheet at
February 29, 1996 and November 30, 1995. . . . . . .3
Consolidated Statement of Income for the
Three Months Ended February 29, 1996 and 1995. . . .4
Consolidated Statement of Cash Flows for the
Three Months Ended February 29, 1996 and 1995. . . .5
Consolidated Statement of Changes in
Shareholders' Equity for the Three
Months Ended February 29, 1996 . . . . . . . . . . .6
Notes to Consolidated Financial Statements . . . .7-8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations. . 9-11
PART II. Other Information
Item 6. Exhibits and reports on Form 8-K . . . . . . . . . 12
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Certain information included in this report and other Company
filings (collectively, "SEC filings") under the Securities Act of 1933, as
amended, and the Securities Exchange Act of 1934, as amended (as well as
information communicated orally or in writing between the dates of such SEC
filings) contains or may contain forward looking information that is subject
to certain risks, trends and uncertainties that could cause actual results to
differ materially from expected results. Among these risks, trends and
uncertainties are matters related to national and local economic conditions,
the effect of governmental regulation on the Company, the competitive
environment in which the Company operates, changes in interest rates, home
prices, availability and cost of land for future growth, the timing of land
acquisition and project development, availability of working capital and the
availability and cost of labor and materials. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations."
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
CALTON, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
February 29, November 30,
1996 1995
(Unaudited)
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.
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.
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.
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.
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
totaling $4,300,000, of which a $2,100,000 purchase money mortgage was
issued.
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.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
RESULTS OF OPERATIONS
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 $4.1 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 consolida
tion of operations in the Northeast.
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 net loss of $375,000 ($.01 per share) for the corresponding period 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 acceler
ated 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 condi
tions 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 agreement (the
"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 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.
Interest rate increases will continue to impact the Company's cost of
capital and related costs. Increases in capitalized interest could reduce the
future gross profit levels assuming no relative increases in housing selling
prices.
Cash Flows from Operating Activities
Inventories amounted to $68.7 million at February 29, 1996 compared to $64.2
million at November 30, 1995. 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 Company will continue to seek opportunities to obtain control
of land for future communities at advantageous prices and terms. Funds
generated by the Company's operations will be utilized for the acquisition of
such properties. In addition, borrowings from the Facility will be utilized
for acquisitions as needed, and to the extent available. Also, options will
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 land acquisitions.
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.
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.
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.
PART II - OTHER INFORMATION
Item 6. Exhibits and reports on Form 8-K.
A) Exhibits
27. Financial Data Schedule as of February 29, 1996.
B) Reports on Form 8-K
None.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Calton, Inc.
(Registrant)
By: /s/ Bradley A. Little
Bradley A. Little
Senior Vice President-Finance, Treasurer
and Chief Financial Officer
(Principal Financial and Accounting Officer)
Date: April 12, 1996
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