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 28, 1998
[ ] 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 executive offices) Zip Code
Registrant's telephone number,
including area code: (732) 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, 1998, 26,707,000 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 28, 1998 and November 30, 1997 . . . . . . . . 3
Consolidated Statement of Operations for the
Three Months Ended February 28, 1998 and 1997 . . . . . 4
Consolidated Statement of Cash Flows for the
Three Months Ended February 28, 1998 and 1997 . . . . . 5
Consolidated Statement of Changes in Shareholders'
Equity for the Three Months Ended February 28, 1998 . . 6
Notes to Consolidated Financial Statements. . . . . . 7-8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations . . . .9-12
PART II. Other Information
Item 1. Legal Proceedings . . . . . . . . . . . . . . . . . . .12
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, adverse weather conditions and the availability and cost of labor
and materials. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations."
- ------------------------------------------------------------------------------
-2-
PART I. FINANCIAL INFORMATION
------------------------------
Item 1. FINANCIAL STATEMENTS.
CALTON, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
February 28, November 30,
1998 1997
(Unaudited)
----------- -----------
Assets
Cash and cash equivalents . . . . . . . . . . $ 2,392,000 $ 7,142,000
Receivables . . . . . . . . . . . . . . . . . 4,526,000 5,430,000
Inventories . . . . . . . . . . . . . . . . . 53,921,000 43,972,000
Commercial land . . . . . . . . . . . . . . . 3,361,000 7,120,000
Prepaid expenses and other assets . . . . . . 4,081,000 3,923,000
----------- -----------
Total assets. . . . . . . . . . . . . . . . $68,281,000 $67,587,000
=========== ===========
Liabilities and Shareholders' Equity
Revolving credit agreement. . . . . . . . . . $20,843,000 $17,325,000
Mortgages payable . . . . . . . . . . . . . . 3,189,000 3,234,000
Accounts payable. . . . . . . . . . . . . . . 3,225,000 3,630,000
Cash overdraft. . . . . . . . . . . . . . . . -- 2,981,000
Accrued expenses and other liabilities. . . . 9,118,000 7,567,000
----------- -----------
Total liabilities . . . . . . . . . . . . . 36,375,000 34,737,000
----------- -----------
Commitments and contingencies
Shareholders' equity
Common stock. . . . . . . . . . . . . . . . . 267,000 266,000
Paid in capital . . . . . . . . . . . . . . . 26,419,000 26,827,000
Retained earnings . . . . . . . . . . . . . . 5,220,000 5,757,000
----------- -----------
Total shareholders' equity. . . . . . . . . 31,906,000 32,850,000
----------- -----------
Total liabilities and shareholders' equity. $68,281,000 $67,587,000
=========== ===========
See accompanying notes to consolidated financial statements.
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CALTON, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
Three Months Ended February 28, 1998 and 1997
(Unaudited)
1998 1997
----------- -----------
Revenues. . . . . . . . . . . . . . . . . . . . $12,804,000 $22,609,000
Costs and expenses
Cost of revenues. . . . . . . . . . . . . . . 11,662,000 20,255,000
Selling, general and administrative . . . . . 1,890,000 3,030,000
----------- -----------
13,552,000 23,285,000
----------- -----------
Loss from operations. . . . . . . . . . . . . . (748,000) (676,000)
Interest expense, net . . . . . . . . . . . . . 229,000 280,000
----------- -----------
Loss before income taxes. . . . . . . . . . . . (977,000) (956,000)
Benefit in lieu of income taxes . . . . . . . . (440,000) (478,000)
----------- -----------
Net loss. . . . . . . . . . . . . . . . . . . . $ (537,000) $ (478,000)
=========== ===========
Basic and diluted loss per share. . . . . . . . $ (.02) $ (.02)
=========== ===========
Weighted average number of
shares outstanding. . . . . . . . . . . . . . 26,627,000 26,533,000
=========== ===========
See accompanying notes to consolidated financial statements.
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CALTON, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
Three Months Ended February 28, 1998 and 1997
(Unaudited)
1998 1997
----------- -----------
Cash Flows from Operating Activities
Net loss. . . . . . . . . . . . . . . . . . . $ (537,000) $ (478,000)
Adjustments to reconcile net loss to net
cash used by operating activities
Benefit in lieu of income taxes . . . . . (440,000) (478,000)
Issuance of stock under 401(k) Plan
and other . . . . . . . . . . . . . . . 33,000 6,000
Depreciation and amortization . . . . . . 132,000 221,000
Amortization of deferred financing fees . 315,000 98,000
Decrease in receivables . . . . . . . . . 904,000 2,777,000
Increase in inventories . . . . . . . . . (9,626,000) (2,858,000)
Decrease (increase) in commercial land. . 3,764,000 (15,000)
Increase in prepaid expenses and
other assets. . . . . . . . . . . . . . (489,000) (100,000)
Increase (decrease) in accounts payable,
accrued expenses and other
liabilities . . . . . . . . . . . . . . 720,000 (2,273,000)
----------- -----------
(5,224,000) (3,100,000)
----------- -----------
Cash Flows from Financing Activities
Proceeds under revolving credit agreement . . -- 2,500,000
Proceeds under new facility . . . . . . . . . 9,500,000 --
Repayments under new facility . . . . . . . . (6,000,000) --
Repayment of cash overdraft . . . . . . . . . (2,981,000) --
Repayments of mortgages payable . . . . . . . (45,000) (77,000)
----------- -----------
474,000 2,423,000
----------- -----------
Net decrease in cash and cash equivalents . . . (4,750,000) (677,000)
Cash and cash equivalents at
beginning of period . . . . . . . . . . . . . 7,142,000 4,292,000
----------- -----------
Cash and cash equivalents at end of period. . . $ 2,392,000 $ 3,615,000
=========== ===========
See accompanying notes to consolidated financial statements.
-5-
CALTON, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
Three Months Ended February 28, 1998
(Unaudited)
Common Paid In Retained
Stock Capital Earnings Total
-------- ----------- ---------- -----------
Balance,
November 30, 1997. . . . .$266,000 $26,827,000 $5,757,000 $32,850,000
Net loss. . . . . . . . . . -- -- (537,000) (537,000)
Benefit in lieu of
income taxes . . . . . . . -- (440,000) -- (440,000)
Issuance of stock under
401(k) Plan. . . . . . . . 1,000 24,000 -- 25,000
Shares issued under stock
option plan. . . . . . . . -- 8,000 -- 8,000
-------- ----------- ---------- -----------
Balance,
February 28, 1998. . . . .$267,000 $26,419,000 $5,220,000 $31,906,000
======== =========== ========== ===========
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, 1997. Operating results for the three
month period ended February 28, 1998 are not necessarily indicative of the
results that may be expected for the year ended November 30, 1998.
2. Inventories
-----------
Inventories consist of the following (amounts in thousands):
Feb, 28, Nov. 30,
1998 1997
----------- -----------
Land and land development costs . . . . . . . $ 30,482 $ 21,936
Homes, lots and improvements in production. . 19,484 17,468
Land purchase options and costs of
projects in planning. . . . . . . . . . . . 3,955 4,568
----------- -----------
$ 53,921 $ 43,972
=========== ===========
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 homes are delivered or land sales are
closed. Interest incurred, capitalized and expensed for the three month
periods ended February 28, 1998 and 1997 is as follows (amounts in
thousands):
1998 1997
----------- -----------
Interest expense incurred . . . . . . . . . . $ 852 $ 1,249
Interest capitalized. . . . . . . . . . . . . (586) (965)
----------- -----------
Interest expense-net. . . . . . . . . . . . 266 284
Capitalized interest amortized in
Cost of revenues. . . . . . . . . . . . . . 328 723
----------- -----------
Interest cost reflected in pretax loss. . . . $ 594 $ 1,007
=========== ===========
3. Commercial Land
---------------
In February 1998, the Company closed on the sale of its largest remaining
parcel of commercial land, located in eastern Pennsylvania, for $4,050,000.
This transaction resulted in cash proceeds of approximately $3,750,000 and
no gain or loss was recorded. The net cash proceeds were used to fund
operations and improve the Company's financial position.
The remaining parcels of commercial land of $3,361,000 are located in New
Jersey, California and Florida. Early in the second quarter of 1998, the
Company received approval for the rezoning of 60 acres of land located in
New Jersey from commercial to residential development. The Company intends
to develop 128 active adult homes at this site. The remaining commercial
land is available for sale.
-7-
4. 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. A report
submitted to the court by the plaintiffs' expert indicates that the values
of only 18 of the plaintiffs' homes were affected by the development of the
public works site. Notwithstanding the submission of the expert's report,
the Company does not believe that the values of any of the plaintiffs'
homes have been impaired. 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.
(b) In February 1998, the United States District Court, District of
Massachusetts, dismissed, by summary judgment, the claim made by the
Federal Deposit Insurance Corporation (the "FDIC"), in its capacity as
Liquidating Agent/Receiver of Eliot Savings Bank, that Calton, Inc. had
assumed approximately $8,700,000 of liability under a promissory note
issued by a joint venture in which a Talcon, L.P. ("Talcon") subsidiary had
an interest.
In March 1998, the FDIC agreed to dismiss the remaining causes of action
in its lawsuit against Calton, Inc. in exchange for a payment by Calton,
Inc. of $50,000. This agreement was approved by the FDIC committee
overseeing this lawsuit on April 9, 1998. The settlement is subject to the
execution of a definitive agreement.
(c) 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, results of operations or cash flows of the
Company.
5. Shareholders' Equity
--------------------
In January 1998, the Company's Compensation Committee approved the grant
to various employees of the Company options to acquire 343,000 shares of
Common Stock under the Company's 1996 Equity Incentive Plan. 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 $.50 per share, the fair market value of the Common Stock
on the date of the grant, vests in equal installments over a period of five
years and has a term of ten years.
Effective December 1, 1997, the Company has adopted the Financial
Accounting Standards Board Statement No. 128, "Earnings per Share," which
requires the disclosure of basic and diluted earnings per share. For the
three month periods ended 1998 and 1997, the basic and diluted loss per
share are both $.02. The basic and diluted loss per share for the quarter
ended February 28, 1998 and 1997 is calculated based upon weighted average
common stock shares outstanding of 26,627,000 and 26,533,000, respectively.
Common stock equivalents from various employee stock option plans used in
calculating the diluted earnings per share have been excluded from the loss
per share calculations for 1998 and 1997 because the effect would be
antidilutive.
A total of 2,798,000 stock options have been granted and are outstanding
under the 1993 Non-Qualified Stock Option Plan and the 1996 Equity
Incentive Plan. In addition, a warrant to purchase 1,000,000 shares of
Common Stock was issued to BankBoston as a component of refinancing the
Company's debt facility in June 1997.
-8-
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
RESULTS OF OPERATIONS FOR THE THREE MONTH PERIODS ENDED
FEBRUARY 28, 1998 AND FEBRUARY 28, 1997
Revenues
- --------
Revenues for the three months ended February 28, 1998 were $12.8 million
compared to revenues of $22.6 million for the three months ended February 28,
1997. Deliveries of 37 homes for the first quarter of 1998 resulted in housing
revenues of $8.7 million compared to housing revenues of $19.3 million for the
same period in 1997 from the delivery of 88 homes. The decrease in housing
revenue is primarily attributable to the sale of the Company's Orlando, Florida
homebuilding assets at the end of 1997. The Florida division delivered 45 homes
in the first quarter of 1997 contributing $6.8 million in housing revenues. The
Northeast division experienced a decrease in housing revenues of $3.6 million
or twenty-nine percent (29%) attributable to a shift in the mix of homes
delivered in 1998 to include a significant portion of homes being delivered
from the active adult communities at Renaissance contributing to a decrease in
average revenue per home in the first quarter from $295,000 in 1997 to $236,000
in 1998. In addition, the division recorded a decrease in the quantity of home
deliveries of five homes or twelve percent (12%), as anticipated, primarily due
to the timing of deliveries from the division's newer conventional communities
compared to the prior year that benefited from the completion of three
conventional communities. Increases in deliveries from the Company's backlog
are anticipated to occur in the second half of the year. Revenues include the
sale of commercial land and land under option for $4.1 million and $3.3 million
in 1998 and 1997, respectively. Neither transaction resulted in a significant
gain or loss.
Gross profit
- ------------
The Company's gross profit margin on homes delivered for the first quarter of
1998 was thirteen percent (13%) compared to twelve percent (12%) for the same
period in 1997. Excluding the Florida division in 1997, the Company achieved an
eleven percent (11%) gross profit margin. The improvements in gross profit
margin over the comparable period of the prior year are a result of deliveries
from new communities including Renaissance. Prior year gross profit benefited
by approximately $1.0 million from the Florida division. Management anticipates
the gross margin improvements attained in 1997 to continue in 1998 as delivery
levels increase in the second half of the year and improve the ratio of
revenues to fixed production costs incurred.
Selling, general and administrative
- -----------------------------------
Selling, general and administrative expenses were $1.9 million (14.8% of
revenues) for the three month period ended February 28, 1998 compared to
$3.0 million (13.3% of revenues) for the three month period ended February 28,
1997. The Florida division comprised approximately $1.0 million of selling,
general and administrative expenses in the first quarter of 1997. Excluding the
effect of the Florida division, the Company's selling general and
administrative costs decreased by $100,000 during the first quarter of fiscal
1998 compared to the comparable period of the prior year primarily due to lower
broker commissions as a result of deliveries from Renaissance that have less
broker participation. In addition, the Company continues to benefit from
management's efforts to reduce fixed costs.
Interest
- --------
Gross interest cost was approximately $850,000 for the three month period
ended February 28, 1998 compared to $1.2 million for the same period in 1997.
The gross interest cost resulted from lower debt levels sustained since the end
of fiscal 1997 as a result of the sale of the Company's Orlando, Florida
homebuilding assets and the corresponding reduction of the Company's revolving
credit facility to $17.5 million at November 30, 1997. As of February 28, 1998,
the revolving credit facility balance was $21.0 million compared to
$42.0 million at February 28, 1997. As anticipated, the Company's weighted
-9-
average debt decreased significantly as compared to the same period in 1997 to
$20.1 million for the first quarter of 1998 compared to $40.4 million for the
corresponding period of 1997. Partially offsetting the decrease in weighted
average debt is the Company's higher effective interest rate of 15.5% as
compared to 11.3% from the prior year. Contributing to this higher rate is the
amortization of underwriting and debt issuance costs incurred in the connection
with the new revolving credit facility obtained in June 1997. The Company will
amortize approximately $300,000 per quarter over the initial three year
commitment period.
Interest capitalized amounted to $586,000 for the three month period ended
February 28, 1998 as compared to $965,000 for the same period in 1997. The
decrease in interest capitalization is primarily attributable to lower
inventory levels subject to capitalization due to the sale of the Orlando,
Florida homebuilding assets. The capitalized amounts will reduce future gross
profit levels assuming no relative increase in selling prices.
Taxes
- -----
Included in the net loss for the three month period ended February 28, 1998
is a benefit in lieu of income taxes of $440,000 reflecting the Company's
effective tax rate based upon estimates of annual results for 1998. The tax
benefit for the first quarter of fiscal 1998 is recorded as an adjustment to
Paid in capital. Realization of the benefit is dependent on generating
sufficient income through the remainder of 1998. Although realization is not
assured, management believes the benefit will be realized. For the three months
ended February 28, 1997, a benefit for income taxes of $478,000 was recorded,
reflecting the Company's estimated effective tax rate for fiscal 1997.
Sales Activity and Backlog
- --------------------------
Net sales contracts of $30.2 million (94 homes) were recorded by the Company
for the first quarter of 1998 compared to $19.4 million (94 homes) for the same
period in 1997. The Company's Orlando, Florida homebuilding operations were
included in prior year totals in the amount of $8.5 million (54 homes) in the
first quarter of 1997. Excluding the impact on net sales from the Florida
division that was sold at the end of 1997, net sales activity increased by one
hundred and forty-one percent (141%) over the prior year from 39 homes to 94
homes and one hundred eighty-five percent (185%) in net sales contract dollars
from $10.6 million to $30.2 million.
The increase in net sales activity is primarily attributable to an increase
in the number of active communities available for sales in the Northeast
division to nine, including six conventional and three active adult communities
(which collectively comprise the Company's Renaissance community), compared to
six conventional communities during the comparable period of the prior year.
The Company's net sales benefited from the opening of two new conventional
communities during the first quarter of 1998 coupled with the opening of a new
conventional community late in fiscal 1997. These three communities, that are
expected to begin deliveries late in the third quarter of 1998, contributed
approximately fifty percent (50%) to the Company's net home sales activity
during the first quarter of 1998. In addition, the Company benefited from sales
activity in 1998 from its active adult community, Renaissance, that did not
commence sales activity until the second quarter of fiscal 1997. The factors
discussed above in combination with good market conditions, including positive
economic factors for the state of New Jersey such as low unemployment resulting
from positive job growth, low and stable mortgage interest rates and high
consumer confidence have contributed to the net sales activity improvements
discussed above.
The Company's backlog position in the Northeast division has improved as a
result of the improved net sales activity. At February 28, 1998, excluding the
impact of the Florida division that was sold at the end of fiscal 1997, the
backlog of homes under sales contract increased one hundred and eleven percent
(111%) in quantity and one hundred and seven percent (107%) in sales backlog
dollars to 167 homes, having an aggregate dollar value of $52.5 million
compared to 79 homes having an aggregate dollar value of $25.4 million as of
February 28, 1997. The increase in the number of homes in backlog is primarily
due to the opening of the Renaissance community in the second quarter of 1997
-10-
and the two new communities opened for sales in the first quarter of 1998,
coupled with the general level of net sales activity during the first quarter
of 1998. The average sales prices of homes in backlog as of February 28, 1998,
decreased slightly to $314,000 from $321,000 in the prior year (excluding the
impact of the Florida division). The decrease is attributable to the level of
Renaissance homes in backlog at February 28, 1998 that reflect an average sales
price of $203,000.
The backlog in both years includes contracts containing financing and other
contingencies customary in the industry, including contracts that are
contingent on purchasers selling their existing homes. 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 due to changes in product offerings, the uncertainty of future market
conditions and the general economic environment. The Company anticipates that
consistent with net sales results to date, Renaissance will continue to be a
significant contributor to the Company's net sales and operating results for
1998.
New Accounting Standard
- -----------------------
Effective December 1, 1997, the Company has adopted the Financial Accounting
Standards Board Statement No. 128, "Earnings per Share," which requires the
disclosure of basic and diluted earnings per share. For the three month periods
ended 1998 and 1997, the basic and diluted loss per share are both $(.02). The
basic and diluted loss per share for the quarter ended February 28, 1998 and
1997 is calculated based upon weighted average common stock shares outstanding
of 26,627,000 and 26,533,000, respectively. Common stock equivalents from
various employee stock option plans used in calculating the diluted earnings
per share have been excluded from the loss per share calculations for 1998 and
1997 because the effect would be antidilutive.
LIQUIDITY AND CAPITAL RESOURCES
During the past several years, the Company has financed its operations
primarily from internally generated funds from home deliveries, land sales and
sales of commercial land and buildings. The Company also utilizes a secured,
revolving credit facility (the "Facility") that it entered into in June 1997 to
finance its operations as needed. The Facility provides borrowing availability
of $45.0 million (subject to "borrowing base" limitations) during its initial
three-year term, expiring in June 2000.
As of February 28, 1998, the Company's unused commitment under the Facility
was approximately $23.0 million of which $8.9 million was available for
borrowing, based upon a prescribed borrowing base calculation. As of
February 28, 1998, $21.0 million was outstanding under the Facility in addition
to $1.0 million of letters of credit as compared to $42.0 million under the
Company's prior revolving credit agreement at February 28, 1997. The Company's
average debt outstanding under the Facility during the first quarter of 1998
was $20.1 million compared to $40.4 million under the prior revolving credit
agreement for the first quarter of 1997. The Company anticipates the average
debt outstanding in fiscal 1998 to continue to be less than the comparable
periods in 1997 as part of its strategy to finance more inventory with its own
equity, thereby maintaining an improved debt to equity ratio over prior years.
As of March 31, 1998, the Company's lender, BankBoston, syndicated a portion
of its $45.0 million commitment to include two additional banks, Morgan Stanley
Senior Funding, Inc. and Bank United, in the revolving credit facility (the
"Facility"). The syndication, along with certain favorable modifications to the
Facility, completes the successful refinancing of the Company's debt with the
inclusion of two additional substantial lenders and improves the Company's
operating flexibility.
The Company believes that funds generated by its operating activities, income
tax payment reductions derived from NOL utilization, financing land
acquisitions through rolling options and seller mortgages when available, and
borrowing availability under the Facility will provide sufficient capital to
support the Company's operations.
-11-
Cash Flows from Operating Activities
- ------------------------------------
Operating activities resulted in the use of $5.2 million of cash compared to
$3.1 million in the prior year. The utilization of cash by operations is
attributable to the increase in inventory of approximately $10.0 million
primarily due to the acquisition of new land and options of $5.5 million, and
$5.3 million of land improvements. The sale of a parcel of commercial land
generated approximately $3.8 million of cash in the first quarter and the
reduction of receivables of $904,000, primarily from the receipt of
approximately $756,000 of the remaining proceeds from the sale of the Florida
division, provided additional cash in the first quarter of 1998.
The funding of the cash overdraft of $3.0 million, classified as a financing
activity, took place in the first quarter of 1998. The impact of the cash
overdraft on the change in accounts payable, accrued expenses and other
liabilities resulted in an increase of $720,000. The first quarter 1997
payments of the 1996 year end trade accounts payables resulted in a reduction
to trade accounts payable, accrued expenses and other liabilities.
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 to the extent
possible to minimize risks, conserve cash and maximize the Company's land
pipeline.
Cash Flows from Financing Activities
- ------------------------------------
The Company used approximately $3.5 million of cash primarily from the
Facility to finance the acquisitions of new land and the cost of land
improvements during the quarter and fund the cash overdraft of $3.0 million
outstanding at November 30, 1997.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
-----------------
In February 1998, the United States District Court, District of
Massachusetts, dismissed, by summary judgment, the claim made by the
Federal Deposit Insurance Corporation (the "FDIC"), in its capacity as
Liquidating Agent/Receiver of Eliot Savings Bank, that Calton, Inc. had
assumed approximately $8,700,000 of liability under a promissory note
issued by a joint venture in which a Talcon, L.P. ("Talcon") subsidiary
had an interest. This matter was reported in the Company's Form 10-K
for the fiscal year ended November 30, 1997.
In March 1998, the FDIC agreed to dismiss the remaining causes of
action against Calton, Inc. in exchange for a payment by Calton, Inc.
of $50,000. This agreement was approved by the FDIC committee
overseeing this lawsuit on April 9, 1998. The settlement is subject to
the execution of a definitive agreement.
Item 6. Exhibits and reports on Form 8-K.
---------------------------------
A) Exhibits
27. Financial Data Schedule as of February 28, 1998.
B) Reports on Form 8-K.
None.
-12-
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 13, 1998
-13-
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