SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended November 30, 1997
or
[ ] 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
Securities registered pursuant to Section 12(b) of the Act:
Title of Class
--------------
Name of each exchange
Title of each class on which registered
------------------------ -----------------------
Common Stock,
$.01 par value per share American Stock Exchange
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 if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K X .
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
The aggregate market value (based upon the last sales price reported by the
American Stock Exchange) of voting shares held by non-affiliates of the
registrant as of February 2, 1998 was $11,353,000.
As of February 2, 1998, 26,632,000 shares of Common Stock were outstanding.
Certain items in Parts I and II incorporate information by reference to the
1997 Annual Report to Shareholders and Part III is incorporated by reference to
the Proxy Statement for the annual meeting of shareholders to be held on April
30, 1998. Except for portions which are expressly incorporated by reference
herein, the Annual Report is not deemed filed a part hereof.
Disclosure Concerning Forward-Looking Statements
-------------------------------------------------
All statements, other than statements of historical fact, included in
this Form 10-K, including without limitation the statements
incorporated by reference in Part II, Item 7: "Management's
Discussion and Analysis of Financial Condition and Results of
Operations" and the statements under "Business," are, or may be
deemed to be, "Forward-Looking Statements" within the meaning of
Section 27A of the Securities Act of 1933, as amended (the
"Securities Act"), and Section 21E of the Securities Exchange Act of
1934, as amended (the "Exchange Act"). Such forward-looking
statements involve assumptions, known and unknown risks,
uncertainties and other factors which may cause the actual results,
performance or achievements of the Company to be materially different
from any future results, performance or achievements expressed or
implied by such forward-looking statements contained in this Form 10-K.
Such potential risks and uncertainties, include without
limitation, 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 product development and
the availability and cost of labor and materials, and other risk
factors detailed herein and in other of the Company's Securities and
Exchange Commission filings. The forward-looking statements are made
as of the date of this Form 10-K and the Company assumes no
obligation to update the forward-looking statements or to update the
reasons actual results could differ from those projected in such
forward-looking statements.
PART I
======
Item 1. BUSINESS
(a) General Development of Business
General
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Calton, Inc. (the "Company" or "Calton"), through its subsidiary, Calton Homes,
Inc. ("Calton Homes"), designs, constructs and sells single family detached
homes in central New Jersey. The Company primarily targets two groups of
homebuyers: the second and third time move-up homebuyer of conventional housing
and the active adult homebuyer. The Company delivered 480 homes in fiscal 1997
with an average sales price of $215,000. Additionally, the Company sells land
and options to acquire land to other builders from time to time after adding
value by obtaining entitlements.
The Company's current homebuilding activities are conducted through one
division, the Northeast division, which is located in central New Jersey. On
November 30, 1997, the Company sold its Orlando, Florida homebuilding assets
for $16.7 million in cash. This sale resulted from management's determination
that the Company's assets could be more profitably invested in New Jersey, the
Company's primary market since 1969. As a result of the Florida sale, the
Company anticipates that total net sales and total homebuilding revenues
generated in 1998 will be less than those of prior years.
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 that 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 (732) 780-1800. As used herein, the term "Company"
refers to Calton, Inc. and its subsidiaries, unless the context indicates
otherwise.
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 confirmed the Plan of Reorganization (the "Reorganization") on May 6,
1993 and the Reorganization was consummated on May 28, 1993. The Reorganization
resulted in the discharge of approximately $61.5 million of indebtedness and
$22.8 million of interest payments owed to certain creditors. In exchange for
the discharge of these obligations, these creditors were issued a combination
of cash, equity securities and short-term debt instruments which were retired
in September 1993. The equity securities issued to the creditors represented
approximately 93.5% of the voting power of the Company's capital stock.
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Since 1969, the Company and its predecessor have constructed and sold
approximately 17,700 homes in 151 residential developments in New Jersey,
Florida, Pennsylvania, California and Illinois. At November 30, 1997, the
Company had seven communities open for sales, four of which offer conventional
housing and three in the Company's entry into the active adult market (age 55
and over), Renaissance. The Company offers a total of nine different single
family detached home types within three series of homes in Renaissance.
(b) Financial Information About Industry Segments
Substantially all revenues and equity in earnings, operating profits and assets
of the Company and its subsidiaries are attributable to one line of business,
the development and sale of residential housing and the acquisition and sale of
real property.
(c) Description of Business
General
- -------
The Company designs, constructs and sells single family detached homes in
central New Jersey. The Company markets primarily to second and third time
move-up homebuyers with its conventional housing product line and active adult
homebuyers. In 1997, the Company delivered 480 homes with an average sales
price of $215,000. Additionally, the Company sells land and options to acquire
land to other builders from time to time after adding value by obtaining
entitlements.
Operating Strategy
- ------------------
The Company's operating strategy generally consists of: (i) targeting primarily
the second and third time move-up homebuyer and the active adult community
homebuyer in New Jersey; (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 or
where available purchasing finished lots on a rolling option basis; (v)
developing residential communities 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, features and value of its
homes.
Geographic Markets
- ------------------
The Company's current business operations are located in central New Jersey.
Generally, the Company has conducted its homebuilding operations in markets
that demonstrate a strong growth profile. In 1997, the Company decided to exit
from the Florida market by selling its Orlando, Florida homebuilding assets
based on the Company's determination that the Company's resources would be
better invested in the New Jersey market. The Company selects locations for its
residential housing communities that have ready access to major arterial
highways and which have experienced increased housing demand. The Company
currently conducts homebuilding activities in Burlington, Hunterdon, Mercer,
Middlesex, Monmouth and Ocean counties in New Jersey.
Products
- --------
The Company offers a variety of single-family detached homestyles tailored to
meet the specific needs of the particular geographic and demographic markets
served, including the second and third time move-up homebuyer, the active adult
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homebuyer and, to a lesser extent, the first time and first time move-up
homebuyer. From time to time, the Company also offers townhomes. Homestyles,
prices and sizes are tailored to each 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 amenities
offered in the Company's Renaissance community include a 25,000 square foot
clubhouse and outdoor amenities including an eighteen-hole golf course, pool
and lighted clay tennis courts. The Company believes that its current product
strategy which primarily focuses on the second and third time move up and
active adult homebuyer enables it to mitigate some of the risks inherent in the
homebuilding industry by providing it with a product mix that supplies markets
that are not as susceptible to changing market conditions including interest
rate changes.
Base prices in the Company's conventional housing communities that offer
various styles of two-story colonial homes currently range from $168,000 to
$597,000 for homes ranging in size from approximately 1,900 square feet to
4,500 square feet. The Company offers nine different single-family primarily
one story detached home types in its active adult community, Renaissance,
ranging from $145,000 to $230,000. These homes range in size from approximately
1,500 square feet to 2,200 square feet.
The Company generally standardizes its 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. See "Sales and
Marketing."
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.
Although finished lots are generally not available in New Jersey, the Company
has entered into a contract to purchase up to 2,000 finished lots on a rolling
option basis in Ocean County, New Jersey, in its active adult community
marketed under the name Renaissance. Through November 30, 1997, 146 lots have
been purchased at Renaissance.
The Company's general policy has been to control land for future development or
sale through the use of purchase options or contingent purchase contracts
whenever practicable and where market conditions permit. The Company generally
endeavors to acquire property for development on an installment method, with
closings on a portion of a project on a periodic basis. From time to time, the
Company acquires property through the use of purchase money mortgages. In
certain cases, when available, the Company acquires finished lots on a rolling
option basis. 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 near term
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.
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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 major arterial
highways 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 judgement as to the real
estate market, economic trends and the Company's experience in a particular
market. The 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 develop long-term planning of future communities.
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 who
is responsible for supervising subcontractor work at each community.
The Company's housing is constructed according to standardized design plans
that are then customized to each individual contract preference. Generally, the
Company seeks to develop communities having a number of lots to absorb
deliveries over a minimum one year period in order to reduce the per home cost
of the housing products which it sells. Advantages achieved by volume building
include lower costs paid to subcontractors and reduced material costs per home.
Generally, the Company's policy is to commence construction of a detached home
beyond the foundation after a sales contract for that home has been signed. The
Company does, however, ordinarily attempt to maintain a predetermined inventory
of homes in process in order to match the construction times of homes with the
mortgage application process and to accommodate customers who require immediate
occupancy, such as relocation homebuyers. In addition, in order to permit
construction and delivery of homes on a year round basis, the Company, in
anticipation of winter in the Northeast, will start construction of foundations
prior to having signed sales contracts.
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 levels or supply shortages.
During 1997, prices for gypsum products increased sharply. The prices for
asphalt and appliances remained relatively flat while prices for lumber and
concrete increased modestly.
The Company enters into contracts with numerous subcontractors representing all
building trades in connection with the construction of its homes, 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. These internal estimates serve as the formal
baseline budget against which the cost of each trade is measured. The Company
is responsible for contracting all trades in each of its communities. The
Company closely monitors subcontractor performance and expenditures for each
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community to assess profitability. Additionally, the Company is generally able
to obtain reduced prices from many of its subcontractors due to the volume of
work it provides to its subcontractors. Agreements with subcontractors and
suppliers generally span three to twelve months, and provide a fixed price for
labor and materials.
The Company has, from time to time, experienced minor temporary construction
delays due to shortages of materials or availability of subcontractors. Such
construction delays may extend the period of time between the signing of a
purchase contract and the receipt of revenues by the Company at the time of
delivery of the home to the homebuyer. To date, the Company has experienced no
material adverse financial effects as a result of construction delays.
Currently, 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
- -------------------
The Company typically constructs, furnishes and landscapes a model home for
each community and maintains an on-site sales office staffed with its own sales
personnel. At Renaissance, six different home types are presented in the model
park in addition to a decor center. The Company makes use of newspaper,
billboard and direct mail advertising, special promotional events and
illustrated brochures in a comprehensive marketing program. The Company has
established a web site on the Internet (http://www.caltonhomes.com) to provide
its customers with additional information on the Company's communities and
homes. In marketing its products, the Company emphasizes quality, features and
value and provides a 15-year limited warranty on its homes. In addition, the
Company offers a customization program, "Your Home Your Way," in order to make
the products the Company builds more attractive to homebuyers by tailoring them
to individual customer needs. Retail prices, sales strategies and advertising
programs are subject to periodic market analysis.
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 to obtain and consider feedback
from customers and information with respect to the Company's competitors.
Sales of the Company's homes are made pursuant to standard sales contracts that
are customary in the markets served by the Company. Such contracts require a
customer deposit (generally up to 10% of the base selling price and $5,000 for
the active adult community, Renaissance) at time of contract signing and
provide the customer with a mortgage contingency, if necessary. The contingency
period typically is sixty (60) days following 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 lot to
a different homebuyer during the period in which the "house-to-sell" condition
is not satisfied. The cancellation rate for new contracts signed was
approximately 19% in fiscal 1997 (18% in New Jersey). Cancellation rates may
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.
At February 2, 1998, the Company employed 29 full-time and part-time sales
personnel who are paid on a salary and/or sales commission basis. The Company
also utilizes the services of independent real estate brokers through a
cooperative broker referral plan.
Customer Financing
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The Company sells its homes to customers who generally finance their purchase
through conventional and government insured mortgages. The Company provides its
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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 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.
Backlog
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At November 30, 1997, the backlog of homes under sales contract increased by
thirty-four percent (34%) and totaled 110 homes from four conventional housing
communities and Renaissance, having an aggregate dollar value of $31.0 million
compared to 82 homes from eight conventional housing communities having an
aggregate dollar value of $27.1 million as of November 30, 1996, excluding the
impact of the Florida division that was sold at the end of fiscal 1997. All of
the November 30, 1997 backlog is expected to be completed and delivered by
November 30, 1998. As of November 30, 1997, sales from the Renaissance
community comprised approximately 60% of the Company's backlog. The backlog
includes contracts containing financing and certain other contingencies,
including, in certain instances, contracts which are contingent on the
homebuyer selling their homes. Due to changes in product offerings, the
uncertainty of future market conditions and the general economic environment,
the sales backlog achieved in the current period may not be indicative of those
to be realized in succeeding periods.
Residential Development
- -----------------------
The Company markets and sells varying types of residential homes ranging in
base selling prices from $168,000 to $597,000 for its conventional line of
homes and $145,000 to $230,000 for its active adult line of homes. Average base
selling prices of homes 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 a
residential project prior to its development by the Company.
As of November 30, 1997, the Company had 4 conventional communities and
Renaissance, which includes three communities, open for sales including an
aggregate of 2,440 single family detached homes to be delivered. The following
sets forth certain information as of November 30, 1997 with respect to
communities being developed by the Company:
Homes
Deliv-
ered Homes
Homes Year Un-
Year Deliv- Ended der
of Lots ered Nov. Con-
First Ap- Incept- 30, tract Un-
Community Name Deliv- proved ion to 1997 (Back- sold Sales
(Location) ery (a) Date (b) log) Lots Price Range
- -------------------- ------ ----- ----- ---- ---- ---- -----------------
Belmont @ Steeple-
chase (Burlington) 1995 291 84 29 9 198 $167,990-$226,990
Crown Pointe
(West Windsor) 1996 94 29 26 11 54 $397,990-$504,990
The Crossing @
Grover's Mill
(Plainsboro) 1998 179 0 0 19 160 $356,990-$453,990
Renaissance
(Manchester Twp):
Renaissance Series
(80' lots) 1997 100 2 2 5 93 $224,990-$229,990
Signature Series
(60' lots) 1997 501 11 11 23 467 $172,990-$185,990
Florentine Series
(50' lots) 1997 1,411 39 39 38 1,334 $144,990-$176,990
Stanton Ridge
(Readington) 1997 34 8 8 4 22 $442,990-$596,990
Other (communities
with fewer than 5
homes unsold) 862 859 111 1 2
----- ----- --- --- -----
TOTAL 3,472 1,032 226 110 2,330
===== ===== === === =====
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(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 2,083 planned homes under rolling
options in 3 conventional communities (229 planned homes) and the active
adult community, Renaissance (1,854 planned homes), currently being
developed and marketed by the Company. The exercise of these options will
require the following cash payments: $10.2 million in 1998, $6.5 million in
1999, $6.6 million in 2000, $7.5 million in 2001, $7.8 million in 2002 and
$33.7 million thereafter. The Renaissance community represents the majority
of the capital requirements and lots which are currently planned for
development beyond the year 2002.
(b) Excludes the last 4 home deliveries from the Chicago division and 250 homes
from the Florida division.
Land Inventory
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The Company acquires options or contingent purchase contracts on land where
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
November 30, 1997, 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 deliveries for the next five years and beyond.
As of November 30, 1997, in addition to the communities currently under
development, the Company held options or was a party to contingent contracts to
purchase 10 parcels of land in New Jersey for which it has paid options fees
and earnest money aggregating $1.0 million. A total of 1,613 homes, of which
1,249 homes are single family and 364 are townhomes, are planned for these
parcels. In a number of cases, these properties are subject to obtaining
development approvals and satisfactory feasibility studies. As a result, no
assurance can be given that the Company will ultimately pursue the development
of these properties. Through November 30, 1997, the Company has spent an
additional $2.1 million in predevelopment costs on the properties subject to
options and contingent contracts. Such costs may not be fully 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 November 30, 1997 is
approximately $952,000 in 1998, $7.1 million in 1999, $9.5 million in 2000,
$3.7 million in 2001, $1.2 million in 2002 and $3.5 million thereafter.
Assuming the Company exercises such options and contingent contracts, the
Company will be in a position to acquire title to approximately 60, 353, 681,
215 and 62 lots during fiscal years 1998 through 2002, respectively, and 242
lots thereafter.
Commercial Land
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The Company has continued to focus on selling its commercial land. In keeping
with this strategy, the Company, in February 1998, closed on the sale of its
largest remaining parcel of commercial land, located in eastern Pennsylvania,
for $4.1 million in proceeds that resulted in no gain or loss after taking into
account a $300,000 impairment charge in the fourth quarter of 1997.
The Company owns certain undeveloped properties with a book value of $3.3
million in New Jersey, Florida, California and Pennsylvania. These properties
include 56 acres of commercial property in Manalapan, New Jersey; 14 acres
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consisting of two parcels in Orange County, Florida; and two other properties,
one nine-acre site in Pennsylvania and one in California consisting of 22
acres.
Competition
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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 financial resources than the Company. Resale homes provide
additional competition. The Company competes primarily on the basis of quality,
features, value, reputation, price, location, design and amenities.
Regulation and Environmental Matters
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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 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 government 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 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.
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
fresh water 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.
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 ("Mt.
Laurel" housing). This agency promulgated regulations with respect to such
criteria effective August 1986.
The Company may be required to set aside Mt. Laurel housing 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
homes 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
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of affordable housing, which contribution will increase the costs of homes to
be developed in a community. The Company attempts to recover some of these
potential losses or reduced margins through increased density, certain cost
saving construction and land development measures and reduced land prices for
the sellers of property.
Despite the Company's past ability to obtain necessary permits and development
approvals for its communities, increasingly stringent requirements may 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 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
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As of February 2, 1998, the Company employed approximately 76 full-time
personnel, including 13 corporate employees and 63 employees in the Northeast
division. The Company also employs approximately 9 part-time employees in
various locations. The Company believes its employee relations are
satisfactory.
Item 2.COMPANY FACILITIES
The Company leases approximately 14,700 square feet of office space in a two-
story office building in Manalapan, New Jersey. Management believes that these
arrangements provide adequate space for the Company to conduct its operations.
The Company also has remote sales offices, when not utilizing a model home, and
construction offices on each of its project sites, which include mobile units
that are leased for terms varying from one month to one year. From time to time
the Company also leases model homes in some of its communities which the
Company has previously sold to third parties under a lease-back arrangement.
Item 3.LEGAL PROCEEDINGS
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.
-9-
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. At this juncture, the FDIC has not
appealed this decision and the only remaining causes of action against Calton,
Inc. in this matter, which commenced in June 1996, involve a claim that Calton,
Inc. breached an alleged agreement with Eliot Savings Bank to maintain a
$1,000,000 net worth in a subsidiary that served as a general partner of the
issuer of the note. The FDIC alleges actual damages of $1,000,000 (plus
interest and costs) and is seeking treble damages under the Massachusetts
General Laws Chapter 93A. Inasmuch as Calton, Inc. never entered into any such
agreement with Eliot Bank, it believes that the FDIC's position is contrary to
applicable law and without merit. The Company is vigorously contesting 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.
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.
Calton's by-laws contain provisions which provide indemnification rights to
officers, directors and employees under certain circumstances with respect to
liabilities and damages incurred in connection with any proceedings brought
against such persons by reason of their being officers, directors or employees
of Calton.
Item 4.SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the fourth quarter of 1997, no matter was submitted to a vote of
security holders through the solicitation of proxies or otherwise.
Item 4A.EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers of the Company as of February 2, 1998 are listed below
and brief summaries of their business experience and certain other information
with respect to them is set forth in the following table and in the information
which follows the table.
Name Age Position
- -------------------- --- -----------------------------------------
Anthony J. Caldarone 60 Chairman, President and Chief Executive
Officer
Robert A. Fourniadis 40 Senior Vice President-Legal and Secretary
Bradley A. Little 46 Senior Vice President-Finance, Treasurer
and Chief Financial Officer
Mr. Caldarone was reappointed as Chairman, President and Chief Executive
Officer 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 Reorganization. From June 1993 through October 1995, Mr.
Caldarone served as a Director of the Company.
Mr. Fourniadis was named Senior Vice President, Secretary and Corporate Counsel
of Calton in June 1993 following the consummation of the Reorganization. Prior
thereto, Mr. Fourniadis served as Vice President and Corporate Counsel of
Calton Homes from 1988 to June 1993.
Mr. Little was named Senior Vice President, Treasurer and Chief Financial
Officer of Calton in June 1993 following the consummation of the
Reorganization. Prior thereto, Mr. Little had served as Vice President of
Accounting of Calton from 1989 to June 1993.
-10-
PART II
=======
Item 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND
RELATED STOCKHOLDER MATTERS
Information pertaining to the market for the Registrant's Common Stock, high
and low sales prices of the Common Stock in 1997 and 1996 and the number of
holders of Common Stock is presented on page 24 of the 1997 Annual Report to
Shareholders, which information is incorporated herein by reference.
The Company has not paid dividends on its capital stock in the past. In
addition, the terms of the Company's revolving credit facility prohibit the
payment of dividends.
Item 6. SELECTED FINANCIAL DATA
The financial highlights data is presented on page one of the 1997 Annual
Report to Shareholders, which information is incorporated herein by reference.
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The information required by this item is presented on pages 5 through 11 of the
1997 Annual Report to Shareholders, which information is incorporated herein by
reference.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements, including the Report of Independent
Accountants thereon and the unaudited Quarterly Financial Results, are
presented on pages 12 through 24 of the 1997 Annual Report to Shareholders,
which information is incorporated herein by reference.
Item 9. CHANGES IN AND DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
-11-
PART III
========
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information relating to Directors is incorporated herein by reference to
"Election of Director" contained in the Registrant's definitive proxy statement
for the annual meeting of shareholders to be held on April 30, 1998. Certain
information relating to executive officers of the Company is set forth in Item
4A of Part I of this Form 10-K under the caption "Executive Officers of the
Registrant."
Item 11. EXECUTIVE COMPENSATION
Information pertaining to executive compensation is incorporated herein by
reference to "Executive Compensation" contained in the Registrant's definitive
proxy statement for the annual meeting of shareholders to be held on April 30,
1998.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information pertaining to security ownership of certain beneficial owners and
management is incorporated herein by reference to "Principal Shareholders" and
"Security Ownership of Management" from the Registrant's definitive proxy
statement for the annual meeting of shareholders to be held on April 30, 1998.
Item 13. CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
None.
-12-
PART IV
=======
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM
8-K
Page
(a) 1. and 2. Financial statements and financial statement schedules
Reference is made to the Index of Financial
Statements and Financial Statement Schedules
hereinafter contained F-1
3. Exhibits
Reference is made to the Index of
Exhibits hereinafter contained F-5
(b) Reports on Form 8-K
The Company filed a report on Form 8-K, dated December 1, 1997,
announcing that it had sold its Orlando, Florida homebuilding assets
to Beazer Homes USA and to present proforma financial information.
-13-
SIGNATURES
==========
Pursuant to the requirements of Section 13 or 15(d) 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
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the date indicated.
Signature Title Date
- ------------------------ ---------------------------- -----------------
/s/ Anthony J. Caldarone Chairman, Chief Executive February 26, 1998
- ------------------------ Officer and President
(Anthony J. Caldarone) (Principal Executive Officer)
/s/ Bradley A. Little Senior Vice President February 26, 1998
- ------------------------ Finance & Treasurer
(Bradley A. Little) (Principal Financial &
Accounting Officer)
/s/ J. Ernest Brophy Director February 26, 1998
- ------------------------
(J. Ernest Brophy)
/s/ Mark N. Fessel Director February 26, 1998
- ------------------------
(Mark N. Fessel)
/s/ Frank Cavell Smith, Jr. Director February 26, 1998
- -------------------------
(Frank Cavell Smith, Jr.)
-14-
CALTON, INC. AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS AND
FINANCIAL STATEMENT SCHEDULES
Page
Number
Consolidated Balance Sheet at November 30, 1997 and 1996. . . . . . . .*
Consolidated Statement of Operations for the years ended
November 30, 1997, 1996 and 1995. . . . . . . . . . . . . . . . . . .*
Consolidated Statement of Cash Flows for the years
ended November 30, 1997, 1996 and 1995. . . . . . . . . . . . . . . .*
Consolidated Statement of Shareholders' Equity for
the years ended November 30, 1997, 1996 and 1995. . . . . . . . . . .*
Notes to Consolidated Financial Statements. . . . . . . . . . . . . . .*
Report of Independent Accountants . . . . . . . . . . . . . . . . .*,F-2
Consent of Independent Accountants. . . . . . . . . . . . . . . . . .F-3
Schedules**
II-Valuation and Qualifying Accounts. . . . . . . . . . . . . . . . .F-4
* The financial statements and notes thereto together with the Report of
Independent Accountants on pages 12 through 24 of the 1997 Annual Report
to Shareholders are incorporated herein by reference.
** Schedules other than the schedule listed above have been omitted because
of the absence of the conditions under which they are required or because
the required information is presented in the financial statements or the
notes thereto.
F-1
REPORT OF INDEPENDENT ACCOUNTANTS
Our report on the consolidated financial statements of Calton, Inc. and
Subsidiaries, dated January 13, 1998 has been incorporated by reference in this
Form 10-K to page 24 of the 1997 Annual Report to Shareholders of Calton, Inc.
In connection with our audits of such financial statements, we have also
audited the related financial statement schedule listed in the Index on page F-
1 of this Form 10-K.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly, in all material respects, the information required to be
included therein.
/s/ Coopers & Lybrand L.L.P.
Coopers & Lybrand L.L.P.
Princeton, New Jersey
January 13, 1998, except for
Note 9(b) as to which the
date is February 19, 1998
F-2
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the Registration Statements of
Calton, Inc. and Subsidiaries on Form S-8 (Nos. 33-70628, 33-75184 and 333-
28135) of our report, dated January 13, 1998, on our audits of the consolidated
financial statements and financial statement schedule of Calton, Inc. and
Subsidiaries as of November 30, 1997 and 1996 and for the years ended November
30, 1997, 1996 and 1995, which report has been incorporated by reference in
this Annual Report on Form 10-K.
/s/ Coopers & Lybrand L.L.P.
Coopers & Lybrand L.L.P.
Princeton, New Jersey
February 26, 1998
F-3
SCHEDULE II
CALTON, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
(Amounts in Thousands)
Additions
----------------------
Balance Charged Balance
at Begin- to Costs Charged to at
ning of and to Other End of
Description Year Expenses Accounts Deductions Year
- -------------------- -------- -------- ----------- ---------- ------
Year ended
November 30, 1995:
Net realizable
value reserves
for inventory. . . $ 400 $ 1,593 $ -- $ -- $ 1,993
======== ======== =========== ========== =======
Valuation allowance
for net deferred
tax asset. . . . . $ 36,892 $ -- $ -- $18,245(A) $18,647
======== ======== =========== ========== =======
Year ended
November 30, 1996:
Net realizable
value reserves
for inventory. . . $ 1,993 $ -- $ -- $ 880(B) $ 1,113
======== ======== =========== ========== =======
Valuation allowance
for net deferred
tax asset. . . . . $ 18,647 $ -- $ 981 $ -- $19,628
======== ======== =========== ========== =======
Year ended
November 30, 1997:
Net realizable
value/impairment
reserves for
inventory. . . . . $ 1,113 $ 750 $ -- $ 882(B) $ 981
======== ======== =========== ========== =======
Valuation allowance
for net deferred
tax asset. . . . . $ 19,628 $ -- $ -- $ 3,538(C) $16,090
======== ======== =========== ========== =======
(A) Represents the impact of the recalculation of the IRS Code Section 382
limitation and the utilization against taxable income attributable to
Talcon, L.P.
(B) Represents the utilization of reserves recorded when affected homes are
delivered.
(C) Represents the change in the valuation allowance due to the changes in the
deferred tax assets and the impact of the IRS Code Section 382 limitation
on those tax assets.
F-4
INDEX TO EXHIBITS
=================
2. Plan of Reorganization of the Registrant and Subsidiaries,
incorporated by reference to Exhibit 2 to Amendment No. 1 to Form S-1
Registration Statement under the Securities Act of 1933, Registration
No. 33-60022.
2.1 Agreement for Sale and Purchase of Assets dated as of November 26,
1997 between Beazer Homes Corp., Beazer Homes USA, Inc., Calton Homes
of Florida, Inc. and Calton Homes, Inc., incorporated by reference to
Exhibit 2 to Form 8-K of Registrant dated December 1, 1997.
3.1 Amended and Restated Certificate of Incorporation of the Registrant
filed with the Secretary of State, State of New Jersey on May 28,
1993, incorporated by reference to Exhibit 3.2 to Amendment No. 1 to
Form S-1 Registration Statement under the Securities Act of 1933,
Registration No. 33-60022, Certificate of Amendment to Amended and
Restated Certificate of Incorporation of Registrant filed with the
Secretary of State, State of New Jersey on April 27, 1994,
incorporated by reference to Exhibit 3(b) to Form S-1 Registration
Statement under the Securities Act of 1933, Registration No. 33-
76312, and Certificate of Amendment to Amended and Restated
Certificate of Incorporation of Registrant filed with the Secretary
of State, State of New Jersey on May 29, 1997.
3.2 By Laws of Registrant, as amended.
4. Senior Secured Credit Agreement dated as of June 12, 1997, among
Calton Homes, Inc., Calton Homes of Florida, Inc. and BankBoston,
N.A., incorporated by reference to Exhibit 10.1 to Form 8-K of
Registrant dated June 12, 1997.
4.1 Warrant to Purchase Common Stock of Calton, Inc. dated June 12, 1997
issued to BankBoston, N.A., incorporated by reference to Exhibit 10.2
to Form 8-K of Registrant dated June 12, 1997.
(*)10.1 1996 Equity Incentive Plan, incorporated by reference to Exhibit 10.1
to Form 10-K of Registrant for the fiscal year ended November 30,
1996.
(*)10.3 Registrant's Amended and Restated 1993 Non-Qualified Stock Option
Plan, incorporated by reference to Exhibit 10.3 to Form 10-K of
Registrant for the fiscal year ended November 30, 1995.
(*)10.4 Incentive Compensation Plan of Registrant, incorporated by reference
to Exhibit 10.4 to Form 10-K of Registrant for the fiscal year ended
November 30, 1996.
(*)10.6 Severance Policy for Senior Executives of Registrant incorporated by
reference to Exhibit 10.6 of Form 10-K of Registrant for the fiscal
year ended November 30, 1994.
(**)10.7 Executive Employment Agreement dated as of November 21, 1995 between
Registrant and Anthony J. Caldarone, incorporated by reference to
Exhibit 10.7 to Form 10-K of Registrant for the fiscal year ended
November 30, 1995.
13. Certain pages of Registrant's 1997 Annual Report to Shareholders
which, except for those portions expressly incorporated herein by
reference, are not deemed filed a part hereof.
21. Subsidiaries of the Registrant.
27. Financial Data Schedule.
- ----------------------
(*) Constitutes a compensatory plan required to be filed as an exhibit
pursuant to Item 14(c) of Form 10-K.
(**) Constitutes a management contract required to be filed pursuant to
Item 14(c) of Form 10-K.
F-5
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
EXHIBITS
FILED WITH
ANNUAL REPORT
ON
FORM 10-K
CALTON, INC.
1997
CALTON, INC.
FORM 10-K
FOR FISCAL YEAR ENDED NOVEMBER 30, 1997
EXHIBIT 3.1
CERTIFICATE OF INCORPORATION OF RESGISTRANT
DATED MAY 29, 1997
CERTIFICATE OF AMENDMENT
TO
THE AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
CALTON, INC.
To: The Secretary of State
State of New Jersey
Pursuant to the provisions of Section 14A:9-2(4) and Section 14A:9-4(3) of
the New Jersey Business Corporation Act, the undersigned Corporation executes
the following Certificate of Amendment to its Amended and Restated Certificate
of Incorporation:
1. The name of the Corporation is "Calton, Inc."
2. The following amendment to the Amended and Restated Certificate of
Incorporation (the "Amendment") was approved by the Board of Directors and
thereafter duly adopted by the shareholders of the Corporation on the 29th
day of May 1997:
The second paragraph of Article V of the Amended and Restated Certificated
of Incorporation is amended to read in its entirety as follows:
The number of directors of the Corporation shall be the number, not less
than three (3) nor more than fifteen (15), fixed from time to time by the Board
of Directors. The Board of Directors shall be divided into four classes,
designated Class I, Class II, Class III and Class IV, as nearly equal in number
as possible, and the term of office of directors of one class shall expire at
each annual meeting of shareholders, and in all cases as to each director until
his successor shall be elected and shall qualify (except in cases where no
successor is elected due to a reduction in the size of the board) or until his
earlier resignation, removal from office, death or incapacity. The initial
term of office of directors of Class I shall expire at the annual meeting of
shareholders in 1998; that of Class II shall expire at the annual meeting of
shareholders in 1999; that of Class III shall expire at the annual meeting of
shareholders in 2000; and that of Class IV shall expire at the annual meeting
of shareholders in 2001; and in all cases as to each director until his
successor shall be elected and shall qualify (except in cases where no
successor is elected due to a reduction in the size of the board) or until his
earlier resignation, removal from office, death or incapacity. At each annual
meeting of shareholders after 1997, the number of directors equal to the number
of directors of the class whose term expires at the time of such meeting (or,
if less, the number of directors properly nominated and qualified for election)
shall be elected to hold office until the fourth succeeding annual meeting of
shareholders after their election or until their successors are elected and
-1-
qualify. Additional directorships resulting from an increase in the number of
directors shall be apportioned among the classes as equally as possible.
Vacancies, including vacancies created by an increase in the size of the Board
of Directors, shall be filed by the affirmative vote of a majority of the
remaining Board of Directors, though less than a quorum, but any such director
so elected shall hold office until the next succeeding annual meeting of
shareholders. At such annual meeting, such director or a successor to such
director shall be elected and qualified in the class to which such director is
assigned to hold office for the term or remainder of the term of such class.
Directors shall be assigned to each class in accordance with a resolution or
resolutions adopted by the Board of Directors. The directors need not be
residents of the State of New Jersey and the directors need not be shareholders
of the Corporation. This second paragraph of this Article V shall not be
amended, altered or repealed except by the affirmative vote of the holders of
not less than sixty-six and two-thirds percent (66-2/3%) of the combined voting
power of the then outstanding shares of stock of the Corporation entitled to
vote generally in the election of directors, voting together as a single class.
3. The number of shares entitled to vote on the adoption of the Amendment was
26,557,313 shares of Common Stock, par value one cent ($.01) per share
("Common Stock"), entitling the holders thereof to one (1) vote per share.
4. The number of shares of Common Stock voted for the Amendment was 9,729,234
shares and against the Amendment was 3,787,034 shares.
Dated: May 29, 1997
CALTON, INC.
By: /s/ Robert A. Fourniadis
-------------------------
Robert A. Fourniadis
Senior Vice President and
Secretary
-2-
CALTON, INC.
FORM 10-K
FOR FISCAL YEAR ENDED NOVEMBER 30, 1997
EXHHIBIT 3.2
CALTON, INC. BY-LAWS
________________________
ARTICLE I
OFFICES
Section 1. The registered office shall be at 500 Craig Road, in the
Township of Freehold, County of Monmouth, State of New Jersey. The registered
agent of the Corporation at such office is Robert E. Linkin.
Section 2. The Corporation may also have offices at such other places,
both within and without the State of New Jersey, as the Board of Directors may
from time to time determine or the business of the Corporation may require.
ARTICLE II
MEETINGS OF SHAREHOLDERS
Section 1. All meetings of the shareholders for the election of directors
and for any other purpose may be held at such time and place, within or without
the State of New Jersey, as shall be stated in the notice of the meeting or in
a duly executed waiver of notice thereof.
Section 2. Annual meetings of shareholders shall be held on a regular
business day of the month of March or April at the offices of the corporation
or at such other date, time and place of which shall be established by the
Board of Directors, at which they shall elect by a plurality vote a Board of
Directors and transact such other business as may properly be brought before
the meeting.
Section 3. Notice of the annual meeting shall be given by mailing, no
more than sixty (60) days nor less than ten (10) days prior thereto, a written
notice stating the time and place thereof, directed to each shareholder of
record entitled to vote at the meeting at his address as the same appears upon
the records of the Corporation.
Section 4. The officer or agent having charge of the stock transfer books
for shares of the Corporation shall make and certify a complete list of the
shareholders entitled to vote at a shareholders' meeting or any adjournment
thereof. Such list shall be arranged alphabetically within each class, series,
or group of shareholders maintained by the Corporation, showing the address of,
and the number of shares held by, each shareholder. Such list shall be
produced at the time and place of the meeting; be subject to the inspection of
any shareholder during the whole time of the meeting; and be prima facie
-1-
evidence as to who are the shareholders entitled to examine such list or to
vote at any such meetings.
Section 5. Special meetings of the shareholders, for any purpose or
purposes, unless otherwise prescribed by statute or by the Certificate of
Incorporation, may be called by the Chairman of the Board or the president ,
and shall be called by the president or secretary at the request in writing of
a majority of the Board of Directors, or at the request in writing of
shareholders owning a majority in amount of the entire capital stock of the
Corporation issued and outstanding and entitled to vote. Such request shall
state the purpose or purposes of the proposed meeting.
Section 6. Written or telegraphic notice of a special meeting of
shareholders, stating the time, place and object thereof, shall be given to
each shareholder entitled to vote thereat, not more than twenty (20) nor less
than two (2) days before the date fixed for the meeting.
Section 7. Business transacted at any special meeting of shareholders
shall be limited to the purposes stated in the notice.
Section 8. The holders of a majority of the stock issued and outstanding
and entitled to vote thereat, present in person or represented by proxy, shall
constitute a quorum at all meetings of the shareholders for the transaction of
business, except as otherwise provided by statute or by the Certificate of
Incorporation. If, however, such quorum shall not be present or represented at
any meeting of the shareholders, the shareholders entitled to vote thereat,
present in person or represented by proxy, shall have power to adjourn the
meeting, until a quorum shall be present or represented. At such adjourned
meeting at which a quorum shall be present or represented, any business may be
transacted which might have been transacted at the meeting as originally
noticed. If the adjournment is for more than thirty (30) days, or, if after
the adjournment a new record date is fixed for the adjourned meeting, a notice
of the adjourned meeting shall be given to each shareholder of record entitled
to vote at the meeting.
Section 9. When a quorum is present at any meeting, the vote of the
holders of a majority of the stock having voting power present, in person or
represented by proxy, shall decide any question brought before such meeting,
unless the question is one upon which by express provision of the statutes or
of the Certificate of Incorporation a different vote is required, in which case
such express provision shall govern and control the decision of such question.
-2-
Section 10. Each shareholder shall, at every meeting of the shareholders,
be entitled to that number of votes in person or by proxy as provided in the
certificate of incorporation for each share of capital stock having voting
power held by such shareholder.
Every shareholder entitled to vote at a meeting of shareholders or to
express consent without a meeting may authorize another person or persons to
act for him by proxy. Every proxy shall be executed in writing by the
shareholder or his agent, except that a proxy may be given by a shareholder or
his agent by telegram or cable or by any means of electronic communication
which results in a writing. No proxy shall be valid for more than 11 months,
unless a longer time is expressly provided therein. Unless it is irrevocable
as provided below in this Article II, Section 10, a proxy shall be revocable at
will. The grant of a later proxy revokes any earlier proxy unless the earlier
proxy is irrevocable. A proxy shall not be revoked by the death or incapacity
of a shareholder but such proxy shall continue in force until revoked by the
personal representative or guardian of the shareholder. The presence at any
meeting of any shareholder who has given a proxy does not revoke the proxy
unless the shareholder files written notice of the revocation with the
secretary of the meeting prior to the voting of the proxy or votes the shares
subsequent to the proxy by written ballot.
A proxy which states that it is irrevocable is irrevocable if coupled with
an interest either in the stock itself or in the Corporation and, in particular
and without limitation, if it is held by any of the following or a nominee of
any of the following: (a) a pledgee; (b) a person who has purchased or agreed
to purchase the shares; (c) a creditor of the Corporation who has extended
credit or has agreed to continue to extend credit to the Corporation if the
proxy is given in consideration of the extension or continuation; (d) a person
who has agreed to perform services as an employee of the Corporation if the
proxy is given in consideration of the agreement; or (e) a person designated
pursuant to the terms of an agreement as to voting between two or more
shareholders. An irrevocable proxy becomes revocable when the interest which
supports the proxy has terminated. Unless noted conspicuously on the share
certificate, an otherwise irrevocable proxy may be revoked by a person who
becomes the holder of the shares without actual knowledge of the restriction.
A person named in a proxy as the attorney or agent of a shareholder may,
if the proxy so provides, substitute another person to act in his place,
including any other person named as an attorney or agent in the same proxy.
The substitution shall not be effective until an instrument effecting it is
filed with the secretary of the Corporation.
-3-
Section 11. Whenever the vote of shareholder at a meeting thereof is
required or permitted to be taken in connection with any corporate action by
any provision of the statutes or of the Certificate of Incorporation, the
meeting and the vote of shareholders may be dispensed with if all the
shareholders who would have been entitled to vote upon the action if such
meeting were held shall consent in writing to such corporate action being
taken, and in the case of any action to be taken pursuant to Chapter 10 of
Title 14A of the Revised Statutes of the State of New Jersey, the Corporation
provides to all other shareholders the advance notification required by
N.J.S.A. 14A:5-6(2)(b).
Subject to the provisions of N.J.S.A. 14A:5-6(2), whenever the vote of
shareholders at a meeting thereof is required or permitted to be taken in
connection with any corporate action by any provision of the statutes or of the
Certificate of Incorporation, other than the election of directors, the meeting
and vote of shareholders may be dispensed with and the action may be taken
without a meeting upon the written consent of shareholders who would have been
entitled to cast the minimum number of votes which would be necessary to
authorize such action at a meeting at which all shareholders entitled to vote
thereon were present and voting.
Section 12. At each meeting of shareholders, the Chairman of the
Company's Board of Directors or in his or her absence the President of the
Company or in his or her absence any Vice President of the Company or in his or
her absence a chairman chosen by the vote of a majority in interest of the
shareholders present in person or represented by proxy and entitled to vote
thereat, shall act as chairman. The Secretary or in his or her absence an
Assistant Secretary or in the absence of the Secretary and all Assistant
Secretaries a person whom the chairman of the meeting shall appoint shall act
as secretary of the meeting and keep a record of the proceedings thereof. The
Board of Directors of the Corporation shall be entitled to make such rules or
regulations for the conduct of meetings of shareholders as it shall deem
necessary, appropriate or convenient. Subject to such rules and regulations,
the chairman shall have the authority to prescribe such rules, regulations and
procedures and to do all such acts as, in the judgment of such chairman, are
necessary, appropriate or convenient for the proper conduct of the meeting,
including, without limitation, establishing an agenda or order of business for
the meeting, rules and procedures for maintaining order at the meeting and the
safety of those present, limitations on participation in such meeting to
shareholders of record of the Corporation and their duly authorized and
constituted proxies, and such other persons as the chairman shall permit,
restrictions on entry at the meeting after the time fixed for the commencement
thereof, limitations on the time allotted to questions or comments by
participants and regulation of the opening and closing of the polls for
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balloting on matters which are to be voted on by ballot. The chairman shall
have absolute authority over matters of procedure and there shall be no appeal
from the ruling of the chairman. The chairman may rule that a resolution,
nomination or motion not be submitted to the shareholders for a vote unless
seconded by a shareholder or a proxy for a shareholder. The chairman may
require that any person who is neither a bona fide shareholder nor a proxy for
a bona fide shareholder leave the meeting, and upon the refusal of a
shareholder to comply with a procedural ruling of the chairman which the
chairman deems necessary for the proper conduct of the meeting, may require
that such shareholder leave the meeting. The chairman may, on his own motion,
summarily adjourn any meeting for any period he deems necessary if he rules
that orderly procedures cannot be maintained at the meeting. Unless, and to
the extent, determined by the Board of Directors or the chairman of the
meeting, meetings of shareholders shall not be required to be held in
accordance with rules of parliamentary procedure.
Section 13. To be properly brought before an annual meeting of
shareholders, business must be either (a) specified in the notice of meeting
(or any supplement thereto) given by or at the direction of the Board of
Directors, (b) otherwise properly brought before the meeting by or at the
direction of the Board or (c) otherwise properly brought before the meeting by
a shareholder. In addition to any other applicable requirements, for business
to be properly brought before an annual meeting by a shareholder, the
shareholder must have given timely notice thereof in writing, either by
personal delivery or by United States mail, postage prepaid, to the Secretary
of the Corporation not later than 90 days prior to the meeting anniversary date
of the immediately preceding annual meeting. A shareholder's notice to the
Secretary shall set forth as to each matter the shareholder proposes to bring
before the annual meeting (i) a brief description of the business desired to be
brought before the annual meeting and the reasons for conducting such business
at the annual meeting, (ii) the name and record address of the shareholder
proposing such business, (iii) the class and number of shares of the
Corporation which are beneficially owned by the shareholder and (iv) any
material interest of the shareholder in such business.
Notwithstanding anything in the By-Laws to the contrary, no business shall
be conducted at the annual meeting except in accordance with the procedures set
forth in this Section 13 of Article II and any other applicable requirements,
provided, however, that nothing in this Section 13 of Article II shall be
deemed to preclude discussion by any shareholder of any business properly
brought before the annual meeting.
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The chairman of an annual meeting shall, if the facts warrant, determine
and declare to the meeting that business was not properly brought before the
meeting in accordance with the provisions of this Section 13 of Article II and
any other applicable requirements and if he should so determine, which
determination shall be conclusive, he shall so declare to the meeting and any
such business not properly brought before the meeting shall not be transacted.
ARTICLE III
DIRECTORS
Section 1. The number of directors which shall constitute the whole Board
shall be the number, not less than three nor more than fifteen, fixed from time
to time by a majority vote of the whole Board of Directors; provided, no
decrease in the number of directors shall shorten the term of any incumbent
director. Each director shall serve for the term of the class for which
elected or until such time as a successor shall have been duly elected and
shall have qualified. Directors need not be shareholders.
Section 2. Nominations for the election of directors may be made by the
Board of Directors or a committee appointed by the Board of Directors or by any
shareholder entitled to vote in the election of directors generally. However,
any shareholder entitled to vote in the election of directors generally may
nominate one or more persons for election as directors at a meeting only if
written notice of such shareholder's intent to make such nomination or
nominations has been given either by personal delivery or by United States
mail, postage prepaid, to the Secretary of the Corporation not later than (i)
with respect to an election to be held at an annual meeting of shareholders, 90
days prior to the anniversary date of the immediately preceding annual meeting;
and (ii) with respect to an election to be held at a special meeting of
shareholders for the election of directors, the close of business on the tenth
day following the date on which notice of such meeting is first given to
shareholders. Each such notice shall set forth: (a) the name and address of
the shareholder who intends to make the nomination and of the person or persons
to be nominated; (b) a representation that the shareholder is a holder of
record of stock of the Corporation entitled to vote at such meeting and intends
to appear in person or by proxy at the meeting to nominate the person or
persons specified in the notice; (c) a description of all arrangements or
understandings between the shareholder and each nominee and any other person or
persons (naming such person or persons) pursuant to which the nomination or
nominations are to be made by the shareholder; (d) such other information
regarding each nominee proposed by such shareholder as would be required to be
included in a proxy statement filed pursuant to the proxy rules of the
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Securities and Exchange Commission; and (e) the signed consent of each nominee
to serve as a director of the Corporation if so elected. The Corporation may
require any proposed nominee or shareholder proposing a nominee to furnish such
other information as may reasonably be required by the Corporation to determine
the eligibility of such proposed nominee to serve as a director of the
Corporation or to properly complete any proxy or information statements used
for the solicitation of proxies in connection with the meeting at which
directors are to be elected. The presiding officer of the meeting may refuse
to acknowledge the nomination of any person not made in compliance with the
foregoing procedure.
Section 3. Whenever any vacancy shall occur in the Board of Directors by
death, resignation or otherwise, it shall be filled by a majority vote of the
directors then in office, though less than a quorum, but any such director so
elected shall hold office only until the next succeeding annual meeting of
shareholders. At such annual meeting, such director or a successor to such
director shall be elected and qualified in the class to which such director is
assigned to hold office for the term or remainder of the term of such class.
If there are no directors in office, then an election of directors may be held
in the manner provided by statute.
Section 4. The business of the Corporation shall be managed by its Board
of Directors, which may exercise all such powers of the Corporation and do all
such lawful acts and things as are not by statute or by the Certificate of
Incorporation or by these By-Laws directed or required to be exercised or done
by the shareholders.
Section 5. The removal of one or more directors for cause or without case
shall be governed by N.J.S.A. 14A:6-6 or any successor provisions thereto.
MEETINGS OF THE BOARD OF DIRECTORS
Section 6. The Board of Directors of the Corporation may hold meetings,
both regular or special, either within or without the State of New Jersey.
Section 7. The first meeting of each newly elected Board of Directors
shall be held at such time and place as shall be fixed by the vote of the
shareholders at the annual meeting, and no notice of such meeting shall be
necessary to the newly elected directors in order legally to constitute the
meeting, provided a quorum shall be present. In the event of the failure of
the shareholders to fix the time or place of such first meeting of the newly
elected Board of Directors, or in the event such meeting is not held at the
time and placed so fixed by the shareholders, the meeting may be held at such
time and place as shall be specified in a notice given as hereinafter provided
for special meetings of the Board of Directors, or as shall be specified in a
written waiver signed by all of the directors, or upon the conclusion of the
shareholders' meeting at which time they were elected, without further notice.
At such meeting the Board of Directors shall elect from their own number a
chairman of the Board and president for the ensuing year and until their
successors are elected and qualify in their stead, elect other officers of the
Corporation, and shall transact such other business as may come before the
meeting.
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Section 8. Regular meetings of the Board of Directors may be held without
notice at such time and to such place as shall from time-to-time be determined
by the Board.
Section 9. Special meetings of the Board may be called by the chairman of
the Board or president or secretary on three (3) days notice to each director,
either personally or by mail or by telegram. Special meetings shall be called
by the president or secretary in like manner and on like notice on the written
request of any two directors.
Section 10. At all meetings of the Board, a majority of the directors in
office shall constitute a quorum for the transaction of business, and the act
of a majority of the directors present at any meeting at which there is a
quorum shall be the act of the Board of Directors, except as may be otherwise
specifically provided by statute or by the Certificate of Incorporation. If a
quorum shall not be present at any meeting of the Board of Directors, the
directors present thereat may adjourn the meeting from time to time, without
notice other than announcement at the meeting, until a quorum shall be present.
Section 11. Unless otherwise restricted by the Certificate of
Incorporation or by these By-Laws, any action required or permitted to be taken
at any meeting of the Board of Directors or of any committee thereof may be
taken without a meeting if a written consent thereto is signed by all members
of the Board or of such committee, as the case may be, and such written consent
is filed with the minutes of proceedings of the Board or committee.
COMPENSATION OF DIRECTORS
Section 12. The directors may be paid their expenses, if any, of
attendance at each meeting of the Board of Directors, and directors who are not
full-time employees of the Corporation may be paid a fixed sum for attendance
at each meeting of the Board of Directors or a stated salary as a director. No
such payment shall preclude any director from serving the Corporation in any
other capacity and receiving compensation therefor. Members of special or
standing committees may be allowed like compensation for attending committee
meetings.
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COMMITTEES OF DIRECTORS
Section 13. The Board of Directors may, by resolution passed by a
majority of the whole Board, designate one or more committees, each committee
to consist of two or more of the directors of the Corporation. The Board may
designate one or more directors as alternate members of any committee who may
replace any absent or disqualified member at any meeting of the committee. Any
such committee, to the extent provided in the resolution, shall have and may
exercise the powers of the Board of Directors in the management of the business
and affairs of the Corporation, and may authorize the seal of the Corporation
to be affixed to all papers which may require it; provided, however, that in
the absence or disqualification of any member of such committee or committees,
the member or members thereof present at any meeting and not disqualified from
voting, whether or not he or they constitute a quorum, may unanimously appoint
another member of the Board of Directors to act at the meeting in the place of
any such absent or disqualified member. Such committee or committees shall
have such name or names as may be determined from time to time by resolution
adopted by the Board of Directors.
Section 14. Each committee shall keep regular minutes of its meetings and
report the same to the Board of Directors when required.
ARTICLE IV
NOTICES
Section 1. Notices to directors and shareholders shall be in writing and
delivered personally or mailed to the directors or shareholders at their
addresses appearing on the books of the Corporation. Notice by mail shall be
deemed to be given if given by telegram.
Section 2. Whenever any notice is required to be given under the
provisions of the statutes or of the Certificate of Incorporation or of these
By-Laws, a waiver thereof in writing, signed by the person or persons entitled
to said notice, whether before or after the time stated therein, shall be
deemed equivalent thereto.
ARTICLE V
OFFICERS
Section 1. The officers of the Corporation shall be chosen by the Board
of Directors and shall be a Chairman of the Board, a president, one or more
vice-presidents, a secretary, a treasurer and such assistant secretaries and
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assistant treasurers as the Board of Directors shall from time to time
determine. The Board of Directors may also designate one or more
vice-presidents to be executive vice-presidents and/or senior vice-presidents.
Two or more offices may be held by the same person except that where the
offices of president and secretary are held by the same person, such person
shall not hold any other office.
Section 2. The Board of Directors may appoint each other officers and
agents as it shall deem necessary, who shall hold their offices for such terms
and shall exercise such powers and perform such duties as shall be determined
from time to time by the Board.
Section 3. The salaries of all officers and agents of the Corporation
shall be fixed by the Board of Directors, except that the Board of Directors
may delegate such duty to an officer or officers of the Corporation.
Section 4. The officers of the Corporation shall hold office until their
successors are chosen and qualify. Any officer elected or appointed by the
Board of Directors may be removed at any time by the affirmative vote of a
majority of the Board of Directors, without the necessity of specifying any
cause therefor and without any prior notice of such action to the officer so
removed.
THE CHAIRMAN OF THE BOARD
Section 5. The chairman of the board shall preside at all meetings of the
shareholders and the Board of Directors. He shall, in the absence or the
disability of the president, perform the duties and exercise the powers of the
president, and shall perform such other duties as may be delegated to him by
the Board of Directors.
THE PRESIDENT
Section 6. The President shall be the chief executive officer of the
Corporation, shall have general and active management of the business of the
Corporation, and shall see that all orders and resolutions of the Board of
Directors are carried into effect.
Section 7. The President shall execute bonds, mortgages and other
contracts requiring a seal, under the seal of the Corporation, except where
required or permitted by law to be otherwise signed and executed and except
where the signing and execution thereof shall be expressly delegated by the
Board of Directors to the officers of the Corporation or to some other officer
or agent of the Corporation.
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THE VICE-PRESIDENT
Section 8. The vice-president, or if there shall be more than one, the
vice-presidents, shall, in the absence or disability of the president and the
Chairman of the Board and the executive vice-president and/or senior
vice-president, if any, perform the duties and exercise the powers of the
president and shall perform such other duties and have such other powers as the
Board of Directors or the president may from time to time prescribe. The Board
of Directors may determine the order in which the vice-presidents shall so act
in place of the president, and may designate a vice-president to perform all of
the duties of the president in the case of the absence or disability of the
president. The exercise of any power or the performance of any duty of the
president by the vice-president so designated shall be conclusive evidence of
the disability of the president and the Chairman of the Board and the executive
vice-president and/or senior vice-president.
THE SECRETARY AND ASSISTANT SECRETARY
Section 9. The secretary or an assistant secretary shall attend all
meetings of the Board of Directors and all meetings of the shareholders and
record all the proceedings of the meetings of the Corporation and of the Board
of Directors in a book to be kept for that purpose. He shall give, or cause to
be given, notice of all meetings of the shareholders and special meetings of
the Board of Directors, and shall perform such other duties as may be
prescribed by the Board of Directors or president, under whose supervision he
shall be. He shall have custody of the corporate seal of the Corporation and
be, or an assistant secretary, shall have authority to affix the same to any
instrument requiring it and, when so affixed, it may be attested by his
signature or by the signature of such assistant secretary. The Board of
Directors may give general authority to any other officer to affix the seal of
the Corporation and to attest the affixing by his signature.
Section 10. The assistant secretary, or if there be more than one, the
assistant secretaries, in the order determined by the Board of Directors,
shall, in the absence or disability of the secretary, perform the duties and
exercise the powers of the secretary, and shall perform such other duties and
have such other powers as the Board of Directors may from time to time
prescribe.
THE TREASURER AND ASSISTANT TREASURER
Section 11. The treasurer shall have the custody of the corporate funds
and securities, and shall keep full and accurate accounts of receipts and
disbursements in books belonging to the Corporation, and shall deposit all
monies and other valuable effects in the name and to the credit of the
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Corporation in such depositories as may be designated by the Board of
Directors.
Section 12. He shall disburse the funds of the Corporation as may be
ordered by the Board of Directors, taking proper vouchers for such
disbursements, and shall render to the president and the Board of Directors, at
its regular meetings, or when the Board of Directors so requires, an account of
all his transactions as treasurer and of the financial condition of the
Corporation.
Section 13. If required by the Board of Directors, he shall give the
Corporation a bond (which shall be renewed every six years) in such sum and
with such surety or sureties as shall be satisfactory to the Board of Directors
for the faithful performance of the duties of his office and for the
restoration to the Corporation, in the case of his death, resignation,
retirement or removal from office, of all books, papers, vouchers, money and
other property of whatever kind in his possession or under his control
belonging to the Corporation.
Section 14. The assistant treasurer, or if there shall be more than one,l
the assistant treasurers, in the order determined by the Board of Directors,
shall, in the absence or disability of the treasurer, perform the duties and
exercise the powers of the treasurer as the Board of Directors may from time to
time prescribe.
ARTICLE VI
INDEMNIFICATION
Section 1. The Corporation shall indemnify a corporate agent against his
expenses and liabilities actually and reasonably incurred in connection with
the defense of any proceeding involving the corporate agent by reason of his
being or having been such a corporate agent, other than a proceeding by or in
the right of the corporation, if (a) such corporate agent acted in good faith
and in a manner he reasonably believed to be in or not opposed to the best
interests of the Corporation and (b) with respect to any criminal proceeding,
such corporate agent had no reasonable cause to believe his conduct was
unlawful. The termination of any proceeding by judgment, order, settlement,
conviction or upon a plea of nolo contendere or its equivalent, shall not of
itself create a presumption that such corporate agent did not meet the
applicable standards of conduct set forth in paragraphs (a) and (b) herein.
Section 2. The Corporation shall indemnify a corporate agent against his
liabilities and expenses, actually or reasonably incurred by him in connection
with the defense, in any proceeding, by or in the right of the Corporation to
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procure a judgment in its favor which involves the corporate agent by reason of
his being or having been such corporate agent, if he acted in good faith and in
a manner he reasonably believed to be in or not opposed to the best interests
of the Corporation. However, in such proceeding no indemnification shall be
provided in respect of any claim, issue or matter as to which such corporate
agent shall have been adjudged liable to the Corporation unless and only to the
extent that the New Jersey Superior Court or the court in which such proceeding
was brought shall determine upon application that despite the adjudication of
liability, but in view of all circumstances of the case, such corporate agent
is fairly and reasonably entitled to indemnity for such expenses or liabilities
as the New Jersey Superior Court or such other court shall deem proper.
Section 3. The Corporation shall indemnify a corporate agent against
expenses (including attorneys fees) to the extent that such corporate agent has
been successful on the merits or otherwise in any proceeding referred to in
Sections 1 and 2 of this Article or in defense of any claim, issue or matter
therein.
Section 4. Any indemnification under Section 1 of this Article and,
unless ordered by a court, under Section 2 of this Article, may be made by the
Corporation only as authorized in a specific case upon a determination that
indemnification is proper in the circumstances because the corporate agent met
the applicable standard of conduct set forth in Sections 1 or 2 of this
Article. Such determination shall be made (a) by the Board of Directors by a
majority vote of a quorum consisting of directors who were not parties to or
otherwise involved in the proceeding or (b) if such a quorum is not obtainable,
or, even if obtainable and such quorum of the Board of Directors by a majority
vote of the disinterested directors so directs, by independent legal counsel in
a written opinion, such counsel to be designated by the Board of Directors or;
(c) by the shareholders.
Section 5. Expenses incurred by a corporate agent in connection with a
proceeding may be paid by the Corporation in advance of the final disposition
of the proceeding, as authorized by the Board of Directors, upon receipt of an
undertaking by or on behalf of the corporate agent to repay such amount if it
shall ultimately be determined that he is not entitled to be indemnified as
provided in this Article.
Section 6. The indemnification and advancement of expenses provided by or
granted pursuant to the other sections of this Article shall not exclude any
other rights to which a corporate agent may be entitled under the certificate
of incorporation, a bylaw, agreement, vote of shareholders, or otherwise;
provided that no indemnification shall be made to or on behalf of a corporate
agent if a judgment or other final adjudication adverse to the corporate agent
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establishes that his acts or omissions (a) were in breach of his duty of
loyalty to the Corporation or its Shareholders, (b) were not in good faith or
involved a knowing violation of law or (c) resulted in receipt by the corporate
agent of an improper personal benefit.
Section 7. The Corporation shall have the power to purchase and maintain
insurance on behalf of any corporate agent against any expenses incurred in any
proceeding and any liabilities asserted against him by reason of his being or
having been a corporate agent, whether or not the Corporation would have the
power to indemnify him against such expenses and liabilities under the
provisions of this section. The Corporation may purchase such insurance from,
or such insurance may be reinsured in whole or in part by, an insurer owned by
or otherwise affiliated with the Corporation, whether or not such insurer does
business with other insureds.
ARTICLE VII
CERTIFICATE OF STOCK
Section 1. Every holder of stock in the Corporation shall be entitled to
have a certificate, signed by, or in the name of, the Corporation by the
Chairman of the Board or president or executive vice-president, a senior
vice-president or a vice-president and by the treasurer or an assistant
treasurer or the secretary or an assistant secretary of the Corporation,
certifying the number of shares owned by him in the Corporation.
Section 2. Where a certificate is countersigned (a) by a transfer agent
other than the Corporation or its employee or (b) by a registrar other than the
Corporation or its employee, any other signature on the certificate, including
the signatures of the officers of the Corporation, may be facsimiles. In case
any officer, transfer agent or registrar who has signed or whose facsimile
signature has been placed upon a certificate is issued, it may be issued by the
Corporation with the same effect as if he were such officer, transfer agent or
registrar at the date of issue.
LOST CERTIFICATES
Section 3. Any person claiming a certificate or certificates of stock of
the Corporation to be lost, stolen or destroyed shall provide notice of that
fact to the secretary or an assistant secretary of the Corporation. Any two
(2) officers of the Corporation, other than an assistant secretary or an
assistant treasurer, may direct a new certificate or certificates to be issued
in place of and of the same tenor and for the same number of shares as the
certificate or certificates theretofore issued by the Corporation and alleged
to have been lost, stolen or destroyed, upon the making of an affidavit of that
fact by the person claiming the certificate or certificates of stock to be
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lost, stolen or destroyed. When authorizing such issue of a new certificate or
certificates, such officers may, in their discretion and as a condition
precedent to the issuance thereof, require the owner of such lost, stolen or
destroyed certificate or certificates, or his legal representative, to give the
Corporation a bond or indemnity in form and amount and with one or more
sureties satisfactory to such officers as indemnity against any claim that may
be made against the Corporation with respect to the certificate or certificates
alleged to have been lost, stolen or destroyed. The Board of Directors may at
any time authorize the issuance of a new certificate or certificates to replace
a certificate or certificates alleged to be lost, stolen or destroyed upon such
other lawful terms and conditions as the Board of Directors shall prescribe.
TRANSFER OF STOCK
Section 4. Upon surrender to the Corporation or the transfer agent of the
Corporation of a certificate for shares duly endorsed or accompanied by proper
evidence of succession, assignment or authority to transfer, it shall be the
duty of the Corporation to issue a new certificate to the person entitled
thereto, cancel the old certificate and record the transaction upon its books.
Section 5. In order that the Corporation may determine the shareholders
entitled to notice of or to vote at any meeting of shareholders or any
adjournment thereof, or to express consent to corporate action in writing
without a meeting, or entitled to receive payment of any dividend or other
distribution or allotment of any rights, or entitled to exercise any rights in
respect of any change, conversion or exchange of stock or for the purpose of
any other lawful action, the Board of Directors may fix, in advance, a record
date, which shall not be more than sixty (60) days nor less than ten (10) days
before the date of such meeting, not more than sixty (60) days prior to any
other action. A determination of shareholders of record entitled to notice of
or to vote at a meeting of shareholders shall apply to any adjournment of the
meeting; provided, however, that the Board of Directors may fix a new record
date for the adjourned meeting.
REGISTERED STOCKHOLDERS
Section 6. The Corporation shall be entitled to recognize the exclusive
right of a person registered on its books as the owner of shares to receive
dividends, and to vote as such owner, and to hold liable for calls and
assessments, a person registered on its books as the owner of shares and shall
not be bound to recognize any equitable or other claim to or interest in such
share or shares on the part of any other person, whether or not it shall have
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express or other notice thereof, except as otherwise provided by the laws of
New Jersey.
ARTICLE VIII
LOANS AND GUARANTEES
Section 1. The Corporation may make loans to, may guarantee the
indebtedness of, and may otherwise provide financial assistance to any
director, officer or employee of the Corporation, provided that the Board
determines, in its judgment, that the action may reasonably be expected to
benefit the Corporation. Loans, guarantees, and other financial assistance
made pursuant to this Section shall contain all terms and conditions that the
Board of Directors deems appropriate at the time the loans, guarantees, or
assistance are made.
ARTICLE IX
GENERAL PROVISIONS
Section 1. Dividends upon the capital stock of the Corporation, subject
to the provisions of the Certificate of Incorporation, if any, may be declared
by the Board of Directors at any regular or special meeting, pursuant to law.
Dividends may be paid in cash, in property, or in shares of the capital stock,
subject to the provisions of the Certificate of Incorporation.
Section 2. Before payment of any dividend, there may be set aside out of
any funds of the Corporation available for dividends, such sum or sums as the
directors from time-to-time, in their absolute discretion, think proper as a
reserve or reserves to meet contingencies, or for equalizing dividends, or for
repairing or maintaining any property of the Corporation, or for such other
purpose as the directors shall think conducive to the interest of the
Corporation, and the directors may modify or abolish any such reserve in the
manner in which it was created.
ANNUAL STATEMENT
Section 3. The Board of Directors shall present at each annual meeting,
and at any special meeting of the shareholders when called for by vote of the
shareholders, a full and clear statement of the business and condition of the
Corporation.
CHECKS
Section 4. All checks or demands for money and notes of the Corporation
shall be signed by such officer or officers or such other person or persons as
the Board of Directors may from time to time designate.
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Section 5. The officers of the Corporation and such other persons as may
be designated by the Board of Directors, shall severally have full power and
authority to receive and give receipt for all monies due and payable to this
Corporation from any source whatever, and to endorse for deposit warrants and
checks in its name, and on its behalf, and to give full discharge for the same.
FISCAL YEAR
Section 6. The fiscal year of the Corporation shall begin on the first
day of December of each year.
SEAL
Section 7. The corporate seal shall have inscribed thereon the following:
"CALTON, INC., 1981, Corporate Seal, New Jersey". The seal may be used by
causing it or a facsimile thereof to be impressed or affixed or reproduced or
otherwise.
ARTICLE X
DEFINITIONS
All terms used in these By-laws shall have the meaning defined in the New
Jersey Business Corporation Act, which are incorporated herein by reference,
unless otherwise defined in these By-laws.
ARTICLE XI
AMENDMENTS
Section 1. These By-Laws may be altered, amended or repealed, or new
by-laws may be adopted by the Board of Directors, at any regular meeting of the
Board of Directors or at any special meeting of the Board of Directors. These
By-Laws may also be altered, amended or repealed, or new by-laws may be
adopted, by the shareholders, at any regular meeting or at any special meeting
if notice of such alteration, amendment, repeal or adoption of new by-laws be
contained in the notice of such special meeting.
Amended as of: January 30, 1991
May 29, 1997
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CALTON, INC.
FORM 10-K
FOR FISCAL YEAR ENDED NOVEMBER 30, 1997
EXHIBIT 13
CERTAIN PAGES OF 1997 ANNUAL REPORT TO SHAREHOLDERS
Financial Highlights
(in thousands, except per share amounts)
Six Six
Months Months
Years Ended November 30, Ended Ended
Selected -------------------------------------- Nov. 30, May 31,
Operating Data 1997 1996 1995 1994 1993 1993
- ------------------- -------- -------- -------- -------- -------- --------
Revenues . . . . . $126,588 $122,435 $180,843 $168,723 $ 83,351 $ 76,555
Gross profit . . . 16,169 16,790 19,560 28,984 15,878 4,867
Income (loss) from
operations. . . . 491 1,837 (1,225) 8,595 5,560 (15,593)
Income (loss)
before income
taxes and extra-
ordinary gain . . 323 1,031 (2,307) 6,560 4,756 (56,494)
Income (loss)
before extra-
ordinary gain . . 114 453 (3,138) 4,193 2,872 (56,494)
Net income (loss). 1,377 453 (3,138) 4,193 2,872 1,817
Income (loss) per
share before extra-
ordinary gain . . -- .02 (.12) .16 .11 (1.67)
Net income (loss)
per share . . . . .05 .02 (.12) .16 .11 .05
At November 30, At
Selected Balance ------------------------------------------------ May 31,
Sheet Data 1997 1996 1995 1994 1993 1993
- ------------------- -------- -------- -------- -------- -------- --------
Total assets . . . $67,587 $88,757 $91,416 $122,144 $110,930 $117,462
Total debt . . . . 20,559 43,945 46,227 69,398 62,792 70,242
Shareholders'
equity. . . . . . 32,850 28,086 27,013 29,045 23,893 21,000
The selected operating data for the six months ended May 31, 1993 are not
comparable to the amounts reflected for subsequent periods due to the adoption
of fresh-start accounting and reporting that reflected the effects of the
Reorganization as of May 31, 1993.
-1-
Management's Discussion And Analysis Of Financial
Condition And Results Of Operations
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS FOR THE YEARS ENDED NOVEMBER 30, 1997 AND 1996
====================================================================
Revenues
- --------
Revenues for the year ended November 30, 1997 were $126.6 million compared to
revenues of $122.4 million for the year ended November 30, 1996, reflecting a
three percent (3%) increase primarily due to the sale of the Orlando, Florida
homebuilding assets for $16.7 million at the end of fiscal 1997. Housing
revenues amounted to $103.1 million for the year ended November 30, 1997 from
480 home deliveries compared to $110.3 million in housing revenues from 549
home deliveries for fiscal year 1996. The Florida division delivered 250 homes
amounting to $39.6 million or thirty-eight percent (38%) of total housing
revenues for 1997. Housing revenues decreased for the year ended November 30,
1997 by $7.2 million or seven percent (7%) primarily reflecting decreased
deliveries in the Company's Northeast division. The decrease in deliveries in
the Northeast is attributable to the effects of shifting resources to include
the active adult market and the timing of deliveries from the active adult
community, Renaissance, where deliveries began in the third quarter of fiscal
1997. Included in 1996 revenues were deliveries from the winddown of the
Company's Chicago division. Partially offsetting the decrease in deliveries was
an increase in average selling prices realized from $201,000 in 1996 to
$215,000 in 1997. Revenues in 1997 also include $6.7 million from the sale of
certain land and options as compared to $12.0 million in revenue from the sale
of certain land, options and a commercial building during 1996.
Gross profit
- ------------
The Company's gross profit margin on homes delivered, excluding charges of
$350,000 for impaired homebuilding assets, was approximately fourteen percent
(14%) for the year ended November 30, 1997 compared to thirteen percent (13%)
for the year ended November 30, 1996. Gross profit margins from housing
improved throughout the year despite the continuing challenge of strong
competitive market conditions in the Florida and Northeast markets. Gross
profit margin in the fourth quarter of fiscal 1997 increased to sixteen percent
(16%), representing the third consecutive quarter in which margins improved
over each preceding quarter. The improvements are attributable to the Northeast
division which, throughout the year, delivered a higher proportion of homes
from its newer communities which reflect the division's focus on the move-up
and active adult community buyer. The Florida division for fiscal year 1997
generated housing gross profit dollars of $5.7 million. The pretax profit of
$615,000 from the sale of the Orlando, Florida assets in the fourth quarter of
1997 is included in the Company's gross profit as well as the pretax profit
from the sales of land and options of approximately $800,000 compared to $2.3
million in 1996.
During the year ended November 30, 1997, the Company recorded a $750,000
impairment loss on certain commercial land and primarily one community in the
Northeast division. During the third quarter of 1997, the Company decided to
withdraw from a community, in which it acquired finished lots on a rolling
option basis in the Northeast division, due to local environmental conditions
and their effects on land values and resale activity in the area. In the fourth
quarter of 1997, the Company determined two pieces of commercial land, located
in Florida and eastern Pennsylvania, were below their carrying inventory value
due to changing market conditions. Therefore, the Company recorded a $400,000
impairment loss on these properties. In 1996, no such provision was recorded.
Commercial land sale
- --------------------
The Company has continued to focus on selling its commercial land. In keeping
with this strategy, the Company, in February 1998, closed on the sale of its
largest remaining parcel of commercial land, located in eastern Pennsylvania,
for $4.1 million in proceeds that resulted in no gain or loss.
Selling, general and administrative expenses
- --------------------------------------------
Selling, general and administrative expenses were $14.9 million (11.8% of
revenues) for the year ended November 30, 1997, compared to $15.0 million (12.2%
of revenues) for the year ended November 30, 1996. Selling, general and
administrative expenses remained constant overall due to management's continued
-5-
efforts to reduce general and administrative costs that were offset by an
increase in marketing costs resulting primarily from the promotion of the
Company's new active adult community, Renaissance. The Florida division's
selling, general and administration costs for 1997 were $5.1 million. The
decrease in selling, general and administrative expenses as a percentage of
revenues for fiscal 1997 is primarily due to the revenues generated from the
sale of the Orlando, Florida homebuilding assets.
Interest
- --------
Gross interest cost remained relatively constant at $5.4 million for the year
ended November 30, 1997 compared to $5.5 million for the year ended November
30, 1996. The underwriting and debt issuance costs incurred in connection with
the new revolving credit facility obtained in June 1997 are being amortized
over the initial three year commitment period at approximately $300,000 per
quarter (see Liquidity and Capital Resources). The average debt outstanding
under the Company's revolving credit facilities was $40.2 million for the year
ended November 30, 1997, compared to $45.4 million in 1996, representing the
fourth consecutive year of reduced average borrowings. As a result of the sale
of the Orlando, Florida homebuilding assets for net proceeds of $15.8 million
and the corresponding reduction of borrowings under the Company's revolving
credit facility to $17.5 million as of November 30, 1997, the Company
anticipates that the average debt outstanding and related interest costs under
the facility will be lower in 1998 than the prior year. However, the effective
interest rate of the Company will remain high due to the fixed amortization of
debt issuance costs over the initial three year term of the new facility.
Interest capitalized in the year ended November 30, 1997 was $4.0 million
compared to $4.1 million for the year ended November 30, 1996. Lower inventory
levels subject to interest capitalization offset a higher effective interest
rate. The Company anticipates both the interest capitalization rate and the
amount of interest capitalized in fiscal 1998 to be less than 1997 levels due
to a strong debt-to-equity ratio primarily from reduced indebtedness, and lower
inventory levels subject to capitalization due to the sale of the Orlando,
Florida assets. The capitalized amounts will reduce future gross profit levels
assuming no relative increase in selling prices.
Other income
- ------------
In the third quarter of 1997, the Company received a tax refund related to
prior periods of $2.4 million, of which $571,000 represented accrued interest
and was recorded as Other income. The Company recorded the remaining balance of
$1.9 million as an increase to Paid in capital since the refund related to
events occurring prior to the Company's 1993 restructuring. Also included in
Other income is $525,000 representing the final payments received throughout
fiscal 1997 from a note previously reserved compared to $460,000 received
during 1996.
Taxes
- -----
Results for the year ended November 30, 1997 reflect a provision for income
taxes for financial statement purposes of $209,000 resulting in an effective
tax rate of sixty-five percent (65%). The 1997 provision for income taxes
includes a reduction of $624,000 of tax reserves due to the resolution of
certain state tax issues. In 1996, a provision in lieu of taxes was recorded in
the amount of $578,000. 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 Company's ability to
use the annual net operating loss ("NOL") to offset future income is
approximately $1.6 million per year (see Note 8).
Extraordinary gain
- ------------------
In June 1997, the Company entered into a new, secured revolving credit
facility with BankBoston, N.A. Proceeds from the new facility were used to
retire the prior revolving credit facility of $42.0 million which was
discounted and paid off for $39.4 million. Based on the accounting principles
in effect at the time of the extinguishment of debt, the Company recorded an
extraordinary gain of approximately $1.3 million, after deducting a $842,000
provision in lieu of income taxes. Included in the gain is the write off of
deferred costs and out-of-pocket costs of approximately $550,000.
Sales activity and backlog
- --------------------------
Net sales contracts of $106.3 million (521 homes) were recorded by the
Company during the year ended November 30, 1997 as compared to $114.5 million
(548 homes) for the year ended November 30, 1996. The decrease in dollar value
of $8.2 million was primarily due to the mix of home sales in the Northeast
-6-
division where Renaissance net sales comprised forty-six percent (46%) of the
division's total net sales and average selling prices are approximately
$200,000. At November 30, 1997, the backlog of homes under sales contract
increased by thirty-four percent (34%) and totaled 110 homes from four
conventional housing communities and Renaissance, having an aggregate dollar
value of $31.0 million compared to 82 homes from eight conventional housing
communities having an aggregate dollar value of $27.1 million as of November
30, 1996, excluding the impact of the Florida division that was sold at the end
of fiscal 1997. The increase in the number of homes in backlog is primarily due
to the opening of the Renaissance community. The current average sales price of
the homes in backlog at Renaissance, including base house and options, is
approximately $200,000 with base sales prices ranging from $145,000 to
$230,000.
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
total net sales and total homebuilding revenues generated in 1998, after taking
into account the sale of the Orlando, Florida assets, will be less than those
of prior years. Consistent with net sales results during 1997, Renaissance will
continue to be a significant contributor to the Company's net sales and
operating results. The Company opened two new conventional communities during
the first quarter of 1998.
New accounting standard
- -----------------------
Statement of Financial Accounting Standards No. 128, "Earnings per Share"
requires the presentation of basic and fully diluted per share amounts,
effective for financial statements issued for periods ending after December 15,
1997. Although early adoption is not permitted, the basic earnings per share
calculation should approximate the current primary earnings per share
calculation; however, the diluted per share calculation, when adopted, may be
lower than the basic.
RESULTS OF OPERATIONS FOR THE YEARS ENDED NOVEMBER 30, 1996 AND 1995
====================================================================
Revenues
- --------
Revenues for the year ended November 30, 1996 were $122.4 million compared to
revenues of $180.8 million for the year ended November 30, 1995. Deliveries of
549 homes resulted in housing revenues of $110.3 million for the year ended
November 30, 1996. For the year ended November 30, 1995, the Company delivered
749 homes which generated $171.3 million of housing revenues. Housing revenues
decreased for the year ended November 30, 1996 by $61.0 million or thirty-six
percent (36%) compared to the year ended November 30, 1995, reflecting a
decrease in deliveries and average selling prices realized on the deliveries to
$201,000 in 1996 from $229,000 in 1995. Housing revenues decreased primarily
due to a fifty percent (50%) decrease in homes delivered by the Company's
Northeast division. The Northeast division deliveries were adversely impacted
by a significantly lower level of backlog entering 1996 compared to 1995, the
close out of seven communities during the year, and the opening and timing of
fewer replacement communities as a result of conserving cash, repositioning the
Northeast to one division and refocusing on the division's target markets.
These results were partially offset by a sixty-five percent (65%) and forty-two
percent (42%) increase in 1996 in the Florida division housing revenues and
home deliveries, respectively, compared to the prior year. The Florida division
benefited in 1996 from higher sales activity due to more communities open for
sale including five new communities opened during the first half of 1996 which
contributed to the improved delivery levels realized in the fourth quarter of
1996. The decrease in the average sales price was attributable to the greater
proportion of the Company's homes delivered in 1996 coming from the Florida
division, where average selling prices are typically lower than in the
communities served in the Northeast. Revenues include the sales of land,
options, and commercial land and buildings of $12.0 million for the period
ended November 30, 1996 compared to $8.5 million for 1995.
-7-
Gross profit
- ------------
The Company's gross profit margin on homes delivered was approximately
thirteen percent (13%) during the year ended November 30, 1996, compared to a
gross profit on homes, excluding the $1.6 million charge for impaired
homebuilding assets, of twelve percent (12%) in the year ended November 30,
1995. The gross profit margin on homes delivered in 1996 was favorably impacted
by the increased deliveries and related gross profit from the Company's Florida
division. The Company's gross profit margin from the Northeast division also
improved from the prior year due to deliveries from new communities reflecting
the division's strategy to focus on the second and third time move-up buyer and
its marketing strategy to emphasize quality, features and value. However, the
overall gross profit margin for the year reflected intensive competition and
sales incentives to homebuyers. Housing gross profit declined by $5.8 million
for the year ended November 30, 1996, due to the decreased deliveries in the
Northeast which was partially offset by the Florida division increases in
deliveries and related gross profit. Included in the Company's gross profit is
the profit from the sales of land and commercial land and buildings for the
years ended 1996 and 1995 of $2.3 million and $500,000, respectively.
During the year ended November 30, 1996, the Company resolved certain issues
relating to sales tax, litigation and construction obligations and, therefore,
reversed approximately $440,000 in accrued liabilities. These reductions were
reflected in Cost of revenues.
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 pretax charge of approximately $1.1 million that was
reflected in Cost of revenues. Also included in Cost of revenues is a
$1.1 million pretax 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 the year ended November 30, 1995, the Company recorded non-cash charges
for impaired assets of $1.6 million. 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.
Selling, general and administrative expenses
- --------------------------------------------
Selling, general and administrative expenses decreased to $15.0 million (12%
of revenues) for the year ended November 30, 1996, compared to $18.9 million
(10% of revenues) for the year ended November 30, 1995, reflecting a
$3.9 million decrease. The decrease was principally due to a reduction in
selling costs resulting from lower levels of home deliveries and fewer
communities open for sales and deliveries in 1996, lower advertising and
employee costs due to the winddown of the Chicago operations, the consolidation
of the Northeast division and the continued efforts of management to reduce
fixed costs. The increase in selling, general and administrative expenses as a
percentage of revenues was principally due to lower delivery levels and related
revenues for 1996.
Nonrecurring charges
- --------------------
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 was included
in Restructuring charges. Also included in Restructuring charges in 1995 was
$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. During
1996, the Company substantially completed the winddown of the Chicago division
by the build out and sale of certain lots and bulk sale of the remaining
finished lots.
Interest
- --------
Gross interest cost was approximately $5.5 million for the year ended
November 30, 1996, compared to $7.1 million for the year ended November 30,
1995, respectively. The decrease in gross interest cost for the year ended
November 30, 1996 resulted from substantially lower average loan balances
-8-
throughout the year compared to the year ended November 30, 1995. The average
debt outstanding under the Company's Revolving Credit Facility was
$45.4 million for the year ended November 30, 1996 compared to $58.1 million
for the prior year. Interest capitalized in the year ended November 30, 1996
was $4.1 million compared to $5.0 million in the year ended November 30, 1995.
The decrease in capitalized interest was primarily a result of lower inventory
levels.
Other income
- ------------
Included in Other income for the year ended November 30, 1996 is $460,000
that represents payments received during the year on a note previously
reserved. During 1995, the Company received $890,000 that represented 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.
Taxes
- -----
Results for the year ended November 30, 1996 reflect a provision in lieu of
taxes for financial reporting purposes of $578,000 which was primarily non-cash
and, therefore, did not impact the Company's cash position, tangible net worth
or earnings before interest, taxes, depreciation and amortization ("EBITDA").
In 1995, a provision in lieu of taxes was also recorded in the amount of
$831,000. 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.
Sales activity
- --------------
Net sales contracts of $114.5 million (548 homes) were recorded by the
Company during the year ended November 30, 1996, representing increases in the
dollar value of contracts of five percent (5%) and contracts of ten percent
(10%) compared to $108.7 million (496 homes) in the same period in 1995. Fiscal
1996 net sales activity benefited from the opening of seven new communities in
the Florida division contributing to a fifty-six percent (56%) and sixty-nine
percent (69%) increase in net home sales and dollars, respectively, compared to
1995. Partially offsetting these increases is the reduction in Northeast
division net sales during 1996 from 1995 attributable to the winddown of seven
communities during the year, the opening of fewer replacement communities and
the timing of such openings. As of November 30, 1996, eight active communities
were open for sales in the Northeast division compared to eleven at
November 30, 1995.
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. In June 1997, the Company retired its
revolving credit facility which had been amended and restated in April 1997
(the "Amended Facility"). The principal balance outstanding of $42.0 million
was discounted and paid off for $39.4 million. The Company refunded and
replaced the Amended Facility with a new, secured revolving credit facility
(the "New Facility") from BankBoston, N.A. (the "Lender"). The New Facility
provides borrowing availability of $45.0 million (subject to "borrowing base"
limitations) during its initial three year term, expiring in June 2000. The
Lender's commitment includes an agreement to issue up to $5.0 million of
letters of credit which will be applied against borrowing availability. At the
request of the Company, the New Facility provides the lender with an option at
the end of each year to extend the facility for an additional year, thereby
resulting in an ongoing three-year term.
The New Facility contains more favorable terms than the facility it replaced,
including the interest rate charged to the Company of prime plus one percent
(1%) or a Eurodollar rate option (based upon LIBOR) plus three and one half
percent (3.5%), no commitment reductions and more financial and operating
flexibility, in addition to the longer term. The New Facility permits up to
$10 million of non-recourse purchase money financing from other sources. It is
anticipated that the Company's effective interest rate under the New Facility
will be higher than under the Amended Facility due to the amortization of debt
issuance costs of approximately $3.5 million over the initial three-year term
of the New Facility.
The New Facility contains certain financial and operating covenants
including, among others, covenants that require the Company to maintain a
specified level of tangible net worth and certain debt service and interest
-9-
coverage ratios. In addition, the New Facility prohibits the payment of
dividends and limits the amount of land inventory which may be held by the
Company and the Company's ability to incur certain additional indebtedness,
make certain investments, acquire certain assets, dispose of assets and enter
into merger and acquisition transactions without Lender approval.
Calton, Inc.'s primary operating subsidiary, Calton Homes, Inc. (the
"Borrower"), subsequent to the sale of the Company's Florida homebuilding
assets, is the primary obligor under the New Facility. Calton and certain of
its subsidiaries have guaranteed the obligations of the Borrower under the New
Facility. Borrowings under the New Facility are secured by a lien upon
substantially all of the assets of the Borrower and a pledge of the Borrower's
outstanding stock and the stock of the Company's subsidiaries.
On November 30, 1997, the Company sold its Orlando, Florida homebuilding
assets for $16.7 million in cash. Approximately $15.8 million of the proceeds
from the sale were used to reduce outstanding borrowings under the Company's
New Facility. This transaction helped the Company improve its debt-to-equity
ratio to .63 to one at November 30, 1997, compared to 1.56 to one at the end of
fiscal 1996.
For the twelve month period ended November 30, 1997, the Company's EBITDA was
$8.7 million compared to $7.3 million in 1996. As of November 30, 1997, the
unused commitment under the New Facility was approximately $26.5 million, of
which $9.4 million was available for borrowing, based upon a prescribed
borrowing base calculation. As of November 30, 1997, $17.5 million was
outstanding under the New Facility in addition to $1.0 million of letters of
credit as compared to $39.5 million under the Amended Facility at November
30,1996. The average debt outstanding under the New Facility and prior
revolving credit agreement was $40.2 million for the year ended November 30,
1997, compared to $45.4 million for the prior year. The Company anticipates the
average debt outstanding in fiscal 1998 to be less than 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.
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 New Facility will provide sufficient capital
to support the Company's operations.
CASH FLOWS FROM OPERATING ACTIVITIES
====================================
Operating activities provided $24.0 million of cash for the year ended
November 30, 1997 as compared to $5.7 million in 1996. A significant amount of
the $24.0 million of cash generated from operations resulted from the
$17.4 million decrease in inventories that was primarily due to the sale of the
Orlando, Florida homebuilding assets. Also included in cash generated from
operations in 1997 is a decrease in its receivables of $4.9 million, which is
primarily attributable to the improved cash management system under the New
Facility, and the release of cash held as collateral for performance guarantees
during the year.
Cash was utilized from the sale of the Florida assets to pay off accounts
payable and accrued expenses associated with the sale. In addition, the
Company's business insurance and certain bond obligations were also reduced.
For the years ended November 30, 1996 and 1995, the Company generated $5.7
million and $22.8 million in cash from operations, respectively. Both years
generated cash primarily from the decrease of inventory net of land
acquisitions of $23.3 million and $10.5 million in 1996 and 1995, respectively.
During fiscal years ended 1996 and 1995, cash generated from the sale of
commercial properties was $1.9 million and $7.2 million, respectively.
CASH FLOWS FROM INVESTING ACTIVITIES
====================================
During 1996, the Company received a $725,000 distribution from a joint
venture in which it previously participated.
-10-
CASH FLOWS FROM FINANCING ACTIVITIES
====================================
During the year ended November 30, 1997 the Company reduced its outstanding
debt by approximately $23.2 million, including a reduction of $22.0 million in
the amount outstanding under the New Facility to $17.5 million utilizing the
cash proceeds from the sale of the Florida homebuilding assets at the end of
1997. The Company retired its Amended Facility in the third quarter at a
discount of $2.6 million and replaced this facility with a New Facility from
BankBoston, N.A. In obtaining the New Facility, the Company paid approximately
$3.5 million in debt issuance costs which the Company concurrently financed
with proceeds from the New Facility. Approximately $24.0 million of cash from
operations for the year ended 1997 was utilized to reduce the borrowings under
the New Facility. The New Facility provides an improved cash management
system whereby all excess cash is required to reduce the line of credit and
the Company's operating account is not funded until checks written are presented
to the Lender for payment. At November 30, 1997, the Company issued checks
totaling approximately $3.0 million that had not been presented and,
accordingly, these amounts are categorized as Cash overdraft. The Company
anticipates borrowing under the New Facility to purchase land and fund
operations during the first half of fiscal 1998 and to reduce outstanding
borrowings as delivery levels increase over the balance of the year.
During 1996 and 1995, the Company reduced its outstanding debt by $7.2 million
and $23.2 million, respectively, in conjunction with the Company's current and
prior strategy to reduce its debt obligations and improve its financial
condition. Proceeds from operating activities in both years and investing
activities in 1996 were utilized to reduce the Company's outstanding debt.
INFLATION
The Company, as well as the homebuilding industry in general, may be
adversely affected by inflation that 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 that can also adversely 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 in selling
prices.
FORWARD LOOKING STATEMENTS
All statements, other than statements of historical fact, included in this
Annual Report, including without limitation the statements under "To Our
Shareholders" and "Management's Discussion and Analysis of Financial Condition
and Results of Operations," are, or may be deemed to be, "forward-looking
statements" within the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as amended.
Such forward-looking statements involve assumptions, known and unknown risks,
uncertainties and other factors which may cause the actual results, performance
or achievements of the Company to be materially different from any future
results, performance or achievements expressed or implied by such forward-
looking statements. Such potential risks and uncertainties, include without
limitation, 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 product development, the availability and cost of labor and materials, and
other risk factors detailed herein and in the Company's Securities and Exchange
Commission filings.
-11-
Consolidated Balance Sheet
November 30, 1997 And 1996
1997 1996
Assets ------------ ------------
Cash and cash equivalents. . . . . . . . . . $ 7,142,000 $ 4,292,000
Receivables. . . . . . . . . . . . . . . . . 5,430,000 9,274,000
Inventories. . . . . . . . . . . . . . . . . 43,972,000 65,525,000
Commercial land. . . . . . . . . . . . . . . 7,120,000 7,512,000
Prepaid expenses and other assets. . . . . . 3,923,000 2,154,000
------------ ------------
Total assets. . . . . . . . . . . . . . . . $ 67,587,000 $ 88,757,000
============ ============
Liabilities and Shareholders' Equity
Revolving credit agreement . . . . . . . . . $ 17,325,000 $ 39,500,000
Mortgages payable. . . . . . . . . . . . . . 3,234,000 4,445,000
Accounts payable . . . . . . . . . . . . . . 3,630,000 4,811,000
Cash overdraft . . . . . . . . . . . . . . . 2,981,000 --
Accrued expenses and other liabilities . . . 7,567,000 11,915,000
------------ ------------
Total liabilities . . . . . . . . . . . . . 34,737,000 60,671,000
------------ ------------
Commitments and contingent liabilities
Shareholders' Equity
Common stock, $.01 par value,
53,700,000 shares authorized; issued and
outstanding 26,615,000 in 1997 and
26,527,000 in 1996. . . . . . . . . . . . . 266,000 265,000
Paid in capital. . . . . . . . . . . . . . . 26,827,000 23,441,000
Retained earnings. . . . . . . . . . . . . . 5,757,000 4,380,000
------------ ------------
Total shareholders' equity. . . . . . . . . 32,850,000 28,086,000
------------ ------------
Total liabilities and shareholders' equity. $ 67,587,000 $ 88,757,000
============ ============
See accompanying notes to consolidated financial statements.
-12-
Consolidated Statement Of Operations
Years Ended November 30,
1997 1996 1995
------------ ------------ ------------
Revenues. . . . . . . . . . . . . . $126,588,000 $122,435,000 $180,843,000
Costs and expenses
Cost of revenues . . . . . . . . . 110,419,000 105,645,000 159,690,000
Selling, general and
administrative. . . . . . . . . . 14,928,000 14,953,000 18,845,000
Impairment of assets . . . . . . . 750,000 -- 1,593,000
Restructuring charges. . . . . . . -- -- 1,940,000
------------ ------------ ------------
126,097,000 120,598,000 182,068,000
------------ ------------ ------------
Income (loss) from operations . . . 491,000 1,837,000 (1,225,000)
Other charges (credits)
Interest expense, net. . . . . . . 1,264,000 1,266,000 1,847,000
Other income . . . . . . . . . . . (1,096,000) (460,000) (765,000)
------------ ------------ ------------
Income (loss) before income taxes
and extraordinary gain . . . . . . 323,000 1,031,000 (2,307,000)
Provision for income taxes. . . . . 209,000 578,000 831,000
------------ ------------ ------------
Income (loss) before
extraordinary gain . . . . . . . . 114,000 453,000 (3,138,000)
Extraordinary gain from
extinguishment of debt, net of a
$842,000 provision in lieu of
income taxes . . . . . . . . . . . 1,263,000 -- --
------------ ------------ ------------
Net income (loss) . . . . . . . . . $ 1,377,000 $ 453,000 $ (3,138,000)
============ ============ ============
Income (loss) per share
Income (loss) before
extraordinary gain. . . . . . . . $ -- $ .02 $ (.12)
Extraordinary gain . . . . . . . . .05 -- --
------------ ------------ ------------
Net income (loss) per share. . . . $ .05 $ .02 $ (.12)
============ ============ ============
See accompanying notes to consolidated financial statements.
-13-
Consolidated Statement Of Cash Flows
Years Ended November 30,
Cash Flows from Operating Activities 1997 1996 1995
------------ ------------ ------------
Net income (loss). . . . . . . . . $ 1,377,000 $ 453,000 $ (3,138,000)
Adjustments to reconcile net
income (loss) to net cash
provided by operating activities
Depreciation and amortization. . 1,384,000 1,418,000 1,741,000
Provision for income taxes . . . 209,000 578,000 831,000
Issuance of stock under 401(k)
Plan and other. . . . . . . . . 41,000 42,000 213,000
Restructuring charges. . . . . . -- -- 1,940,000
Provision for estimated net
realizable value. . . . . . . . 750,000 -- 1,593,000
Amortization of debt financing
fees. . . . . . . . . . . . . . 624,000 316,000 195,000
Extraordinary gain from
extinguishment of debt, net . . (1,263,000) -- --
Refund of taxes, net . . . . . . 1,871,000 -- --
Option abandonments. . . . . . . -- -- 1,050,000
Reserve reversal . . . . . . . . (267,000) (440,000) (1,113,000)
Decrease (increase) in
receivables . . . . . . . . . . 4,944,000 (37,000) (1,141,000)
Decrease in inventories. . . . . 17,427,000 4,561,000 19,739,000
(Increase) decrease in
commercial land and buildings . (26,000) 1,868,000 7,158,000
Decrease in accounts payable,
accrued expenses and other
liabilities . . . . . . . . . . (3,685,000) (2,997,000) (5,508,000)
Decrease (increase) in prepaid
expenses and other assets . . . 584,000 (79,000) (750,000)
------------ ------------ ------------
23,970,000 5,683,000 22,810,000
------------ ------------ ------------
Cash Flows from Investing Activities
Distribution from joint venture. . -- 725,000 --
Increase in property and
equipment . . . . . . . . . . . . (25,000) (58,000) (237,000)
------------ ------------ ------------
(25,000) 667,000 (237,000)
------------ ------------ ------------
Cash Flows from Financing Activities
Retirement of revolving
credit agreement. . . . . . . . . (39,350,000) -- --
Repayment under revolving
credit agreement. . . . . . . . . -- (9,500,000) (19,500,000)
Proceeds under revolving
credit agreement. . . . . . . . . 2,500,000 4,000,000 4,500,000
Proceeds under new facility. . . . 50,475,000 -- --
Repayments under new facility. . . (32,903,000) -- --
Cash overdraft . . . . . . . . . . 2,981,000 -- --
Payments of debt financing fees. . (3,535,000) -- --
Decrease in mortgages payable. . . (1,263,000) (1,719,000) (8,171,000)
------------ ------------ ------------
(21,095,000) (7,219,000) (23,171,000)
------------ ------------ ------------
Net increase (decrease) in cash and
cash equivalents . . . . . . . . . 2,850,000 (869,000) (598,000)
Cash and cash equivalents at
beginning of year. . . . . . . . . 4,292,000 5,161,000 5,759,000
------------ ------------ ------------
Cash and cash equivalents at
end of year. . . . . . . . . . . . $ 7,142,000 $ 4,292,000 $ 5,161,000
============ ============ ============
See accompanying notes to consolidated financial statements.
-14-
Consolidated Statement Of Shareholders' Equity
Total
Common Paid In Retained Shareholders'
Stock Capital Earnings Equity
----------- ----------- ----------- -----------
Balance, Nov. 30, 1994. . $ 260,000 $21,720,000 $ 7,065,000 $29,045,000
Net loss. . . . . . . . . -- -- (3,138,000) (3,138,000)
Issuance of stock under
401(k) Plan. . . . . . . 4,000 209,000 -- 213,000
Provision in lieu of
income taxes . . . . . . -- 831,000 -- 831,000
Amortization of deferred
compensation related to
stock option plan. . . . -- 62,000 -- 62,000
----------- ----------- ----------- -----------
Balance, Nov. 30, 1995. . 264,000 22,822,000 3,927,000 27,013,000
Net income. . . . . . . . -- -- 453,000 453,000
Issuance of stock under
401(k) Plan. . . . . . . 1,000 41,000 -- 42,000
Provision in lieu of
income taxes . . . . . . -- 578,000 -- 578,000
----------- ----------- ----------- -----------
Balance, Nov. 30, 1996. . 265,000 23,441,000 4,380,000 28,086,000
Net income. . . . . . . . -- -- 1,377,000 1,377,000
Issuance of stock under
401(k) Plan. . . . . . . 1,000 30,000 -- 31,000
Provision in lieu of
income taxes . . . . . . -- 1,265,000 -- 1,265,000
Tax refund. . . . . . . . -- 1,871,000 -- 1,871,000
Issuance of stock
warrants . . . . . . . . -- 210,000 -- 210,000
Shares issued under
stock option plan and
other. . . . . . . . . . -- 10,000 -- 10,000
----------- ----------- ----------- -----------
Balance, Nov. 30, 1997. . $ 266,000 $26,827,000 $ 5,757,000 $32,850,000
=========== =========== =========== ===========
See accompanying notes to consolidated financial statements.
-15-
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"). On
November 30, 1997, the Company sold the Orlando, Florida homebuilding assets,
leaving Calton Homes, Inc. as the primary operating subsidiary. All significant
intercompany accounts and transactions have been eliminated.
For the years ended November 30, 1997, 1996 and 1995, the Orlando, Florida
division generated revenues of $39,622,000, $37,829,000 and $22,632,000,
respectively. Total assets of the Orlando, Florida division as of November 30,
1996 were $16,778,000.
The Company designs, constructs and sells single family detached homes in
central New Jersey.
Certain reclassifications have been made to prior years' financial statements
in order to conform with the 1997 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 to the buyer by means of a closing. 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 receivable 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. The amount classified as Cash overdraft represents a book overdraft on
checks written that were not presented to the Company's Lender for payment as
of November 30, 1997, not withstanding the fact that no bank overdraft
occurred.
Inventories
- -----------
Inventories are stated at the lower of cost or the amount computed in
accordance with Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets to be
Disposed Of" ("FAS 121"). In performing the analysis of recoverability, the
future cash flows expected to result from the use of each asset and its
ultimate disposition is estimated. If the sum of the expected future cash flows
(undiscounted and without interest charges) is less than the carrying amount of
the asset, an impairment loss is recognized. In a buildout of a community,
certain assumptions are made concerning future sales prices and absorption
levels for sales and closings in the community's life span. There is an
inherent risk that those assumptions made may not occur.
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. Construction costs are accumulated during the period of
construction and charged to Cost of revenues under specific identification
methods. Land, land development and common facility costs are amortized based
upon the number of homes to be constructed in each community utilizing a
relative sales value allocation method. The marketing costs for model homes are
capitalized and depreciated over the life of the community's deliveries on a
per unit basis.
Commercial land
- ---------------
Commercial land stated at estimated fair value, includes certain assumptions
in its 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 may not be
realized.
-16-
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 deferred financing
fees, prepaid architect fees and prepaid insurance. Deferred financing fees
represent debt issuance costs incurred in conjunction with the new secured,
revolving credit facility and will be amortized over its initial three-year
term (see Note 5). 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 amounts reported in the financial statements and accompanying
notes. 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 outstanding (26,567,000, 26,491,000 and 26,281,000 for 1997,
1996 and 1995, respectively).
Statement of Financial Accounting Standards No. 128, "Earnings per Share"
requires the presentation of basic and fully diluted per share amounts,
effective for financial statements issued for periods ending after December 15,
1997. Although early adoption is not permitted, the basic earnings per share
calculation should approximate the current primary earnings per share
calculation; however, the diluted per share calculation, when adopted, may be
lower than the basic.
Stock-Based Compensation
- ------------------------
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-
Based Compensation" ("FAS 123"), establishes a fair value based method of
accounting for stock-based compensation plans, including stock options. FAS 123
allows the Company to continue accounting for stock option plans under
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees" ("APB 25"), but requires it to provide pro forma net income and
earnings per share information "as if" the new fair value approach had been
adopted. Because the Company continued to account for its stock option plans
under APB 25, there was no impact on the Company's consolidated financial
statements resulting from implementation of FAS 123 (see Note 7).
2. RECEIVABLES
===========
Receivables consist of the following (amounts in thousands):
November 30,
1997 1996
------- -------
Mortgages and notes receivable, net . . . . . . . . . . . $ 1,415 $ 1,491
Due from municipalities . . . . . . . . . . . . . . . . . 1,391 2,446
Closing proceeds due. . . . . . . . . . . . . . . . . . . 991 3,850
Other . . . . . . . . . . . . . . . . . . . . . . . . . . 1,633 1,487
------- -------
$ 5,430 $ 9,274
======= =======
-17-
3. INVENTORIES
===========
The components of inventories are as follows (amounts in thousands):
November 30,
1997 1996
------- -------
Land and land development costs . . . . . . . . . . . . . $21,936 $22,969
Homes, lots and improvements in production. . . . . . . . 17,468 33,819
Land purchase options and cost of projects in planning. . 4,568 8,737
------- -------
$43,972 $65,525
======= =======
Homes, lots and improvements in production represent 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 close. Interest
incurred, capitalized and expensed for the years ended November 30, 1997, 1996
and 1995 is as follows (amounts in thousands):
Years Ended November 30,
1997 1996 1995
------ ------ ------
Interest expense incurred . . . . . . . . . . . $5,395 $5,472 $7,114
Interest capitalized. . . . . . . . . . . . . . 4,009 4,067 5,016
------ ------ ------
Interest expense - net . . . . . . . . . . . . 1,386 1,405 2,098
Capitalized interest amortized in
cost of revenues . . . . . . . . . . . . . . . 4,889 3,616 4,123
------ ------ ------
Interest cost reflected in pretax income. . . . $6,275 $5,021 $6,221
====== ====== ======
The Company adopted FAS 121 on December 1, 1996, which requires impairment
losses to be recorded on communities under development when events and
circumstances indicate that they may be impaired and the undiscounted cash
flows estimated to be generated by those assets are less than their related
carrying amounts. The impact of adopting FAS 121 was immaterial. During the
three months ended August 31, 1997, inventory with a carrying amount of
approximately $2,000,000 was written down by $350,000. The writedown is based
primarily upon management's decision to withdraw from a community in the
Northeast division due to local environmental conditions and their effect on
land values and resale activity that adversely impacted the expected return on
investment from this community. For the years ended November 30, 1996 and 1995,
adjustments for impairment of value were zero in 1996 and $1,593,000 during
1995.
During 1997, the Company acquired $17,371,000 of land and land options.
During 1996, the Company acquired $21,100,000 of land and land options,
$4,730,000 of which was financed by purchase money mortgages. During 1995, the
Company acquired $10,511,000 of land and land options.
4. COMMERCIAL LAND
===============
In the fourth quarter of 1997, the Company recorded a charge for impaired
commercial land in the amount of $400,000. 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 that will result in no gain or loss
recorded in the first quarter of fiscal 1998.
During 1996, the Company disposed of commercial land and buildings
representing three parcels of land and a commercial building for total revenues
of $3,169,000 that provided $1,780,000 in cash for operations and a pretax
gain of $1,100,000.
The Company's remaining commercial properties consist of land located in New
Jersey, Florida, California and Pennsylvania. These properties are available
for sale as a result of management's focus on residential homebuilding.
-18-
5. REVOLVING CREDIT AGREEMENT
==========================
In June 1997, the Company retired its revolving credit facility that had been
amended and restated in April 1997 (the "Amended Facility"). The principal
balance outstanding of $42,000,000 was discounted and paid off for $39,350,000.
The Company refunded and replaced the Amended Facility with a new, secured
revolving credit facility (the "New Facility") from BankBoston, N.A. (the
"Lender"). The New Facility provides borrowing availability of $45,000,000
(subject to "borrowing base" limitations) during its initial three year term
expiring in June 2000. The Lender's commitment includes an agreement to issue
up to $5,000,000 of letters of credit which will be applied against borrowing
availability. At the request of the Company, the New Facility provides the
Lender with an option at the end of each year to extend the facility for an
additional year, thereby resulting in an ongoing three-year term.
The New Facility contains more favorable terms than the facility it replaces,
including the interest rate charged to the Company of prime plus one percent
(1%) or a Eurodollar rate option (based upon LIBOR) plus three and one half
percent (3.5%), no commitment reductions and more financial and operating
flexibility, in addition to the longer term. The New Facility permits up to
$10,000,000 of non-recourse purchase money financing from other sources. It is
anticipated that the Company's effective interest rate on the New Facility will
be higher than under the Amended Facility due to the amortization of debt
issuance costs of approximately $3,500,000 over the initial three-year term of
the New Facility.
The New Facility contains certain financial and operating covenants
including, among others, covenants that require the Company to maintain a
specified level of tangible net worth and certain debt service and interest
coverage ratios. In addition, the New Facility prohibits the payment of
dividends and limits the amount of land inventory which may be held by the
Company and the Company's ability to incur certain additional indebtedness,
make certain investments, acquire certain assets, dispose of assets and enter
into merger and acquisition transactions without Lender approval.
Calton's primary operating subsidiary, Calton Homes, Inc. (the "Borrower"),
is the primary obligor under the New Facility. Calton and certain of its
subsidiaries have guaranteed the obligations of the Borrower under the New
Facility. Borrowings under the New Facility are secured by a lien upon
substantially all of the assets of the Borrower and a pledge of the Borrower's
outstanding stock and the stock of certain of the Company's subsidiaries.
The average interest rate for the years ended November 30, 1997 and 1996 was
12.5% and 11.3%, respectively. The average amounts borrowed for the
corresponding years were $40,237,000 and $45,445,000, respectively. The total
amount of interest paid, net of amounts capitalized, in the years ended
November 30, 1997, 1996 and 1995 was $1,499,000, $1,445,000 and $2,124,000,
respectively. For the year ended November 30, 1997, the Company's EBITDA was
$8,735,000. Approximately $9,400,000 was available to be borrowed under the New
Facility based upon a prescribed borrowing base calculation as of November 30,
1997. As of November 30, 1997, $17,500,000 was outstanding under the New
Facility in addition to $1,000,000 of letters of credit.
6. MORTGAGES PAYABLE
=================
Approximately $7,000,000 of inventories are pledged as collateral for
purchase money mortgages to land sellers at November 30, 1997 compared to
$6,700,000 at November 30, 1996. The interest rate on each of the purchase
money mortgages is prime (8.50% at November 30, 1997) and interest is payable
on a monthly or semi-annual basis. Mortgages payable mature as follows: 1998 -
$2,172,000 and in 1999 - $1,062,000. The weighted average interest rate for
mortgages payable for the years ended November 30, 1997 and 1996 was 8.3% and
8.7%, respectively.
7. SHAREHOLDERS' EQUITY
====================
The Company's Certificate of Incorporation provides for 53,700,000 authorized
shares of Common Stock (par value $.01 per share), 2,600,000 shares of
Redeemable Convertible Preferred Stock (par value $.10 per share) and
10,000,000 shares of Class A Preferred Stock (par value $.10 per share). None
of the Preferred Stock is issued or outstanding.
In May 1993, the Company adopted the Calton, Inc. 1993 Non-Qualified Stock
Option Plan (the "1993 Plan") under which a total of 1,493,000 shares of Common
Stock were reserved for issuance. Under the terms of the 1993 Plan, options may
be granted at an exercise price designated by the Board of Directors. The
exercise price of options granted range from $.31 to $.50 per share. Options
granted under the 1993 Plan have a maximum term of ten years, with a weighted
-19-
average contractual life of 4.4 years in 1997 and 5.4 years in 1996.
In April 1996, the Company's shareholders approved the Company's 1996 Equity
Incentive Plan (the "1996 Plan") under which a total of 2,000,000 shares of
Common Stock were reserved for issuance. Under the terms of the 1996 Plan,
options may be granted at an exercise price equal to the fair market value of
the Common Stock on the date of grant (110% of such fair market value in the
case of an incentive stock option granted to a 10% shareholder). The exercise
prices of outstanding options range from $.34 to $.41 per share with vesting
ranging from one to five years. The exercise period is up to ten years, with a
weighted average contractual life of 8.3 years in 1997 and 9.3 years in 1996.
Stock option transactions are summarized as follows (shares in thousands):
1996 1993
Plan Plan
------- -------
Options outstanding, November 30, 1995. . . . . . . . . . -- 1,270
Granted. . . . . . . . . . . . . . . . . . . . . . . . . 1,285 220
Forfeitures. . . . . . . . . . . . . . . . . . . . . . . (61) (107)
------- -------
Options outstanding, November 30, 1996. . . . . . . . . . 1,224 1,383
Granted. . . . . . . . . . . . . . . . . . . . . . . . . 35 --
Forfeitures. . . . . . . . . . . . . . . . . . . . . . . (154) (23)
Exercised. . . . . . . . . . . . . . . . . . . . . . . . (10) --
------- -------
Options outstanding, November 30, 1997. . . . . . . . . . 1,095 1,360
======= =======
Shares Exercisable. . . . . . . . . . . . . . . . . . . . 706 1,178
======= =======
The Company accounts for the stock option plans under APB 25. Accordingly,
no compensation expense has been recognized for its stock-based compensation
plans. Had compensation cost for the Company's stock option plans been
determined based upon the fair value at the grant date for awards under these
plans consistent with the methods prescribed under FAS 123 the Company's net
income would have been reduced by approximately $79,000 and $111,000 for the
years ended November 30, 1997 and 1996, respectively. On a pro forma basis,
earnings per share would not have been reduced in either period. The estimated
weighted average fair value of the options granted in each of the two fiscal
years ended November 30, 1997 and 1996 is $.26, using the Black-Scholes
option-pricing model, with the following assumptions: dividend yield - none,
volatility of .9, risk free interest rate of 5.13%, assumed forfeiture rate of
8% and an expected life of 3.8 years at November 30, 1997 and 4.8 years at
November 30, 1996.
As a component of the consideration to enter into the New Facility, Calton
issued the Lender a warrant (the "Warrant") to purchase 1,000,000 shares of
Calton Common Stock at a price of $.50 per share. The Warrant, which is
exercisable only in whole, becomes exercisable in January 1999 and expires in
June 2004. The Lender must provide notice to the Company when it decides to
exercise the Warrant. In such event, Calton has the option to repurchase the
Warrant at a price based upon the difference between the then current market
price of Calton's Common Stock and the exercise price of the Warrant. The
Warrant was valued at $210,000 and will be amortized through interest expense
over the initial three-year term of the New Facility. The unamortized value of
the Warrant ($175,000) at November 30, 1997 is reflected as a reduction to the
New Facility's amount outstanding of $17,500,000 on the Balance Sheet. The
Lender is entitled to certain rights to have the shares issuable upon exercise
of the Warrant registered for public sale. The Warrant contains provisions
providing for an adjustment in the exercise price and number of shares issuable
upon the exercise of the Warrant upon the occurrence of certain events,
including sales of Calton Common Stock (other than pursuant to employee stock
options) at prices below the exercise price of the Warrant or the then current
market price of Calton's Common Stock. In addition, certain terms of the
Warrant are subject to adjustment if the Company issues convertible securities,
options or other warrants having terms more favorable to the holder of the
Warrant.
-20-
8. Income Taxes
============
The components of the provision for income taxes are as follows (amounts in
thousands):
Years Ended November 30,
1997 1996 1995
------ ------ ------
Federal
Current. . . . . . . . . . . . . . . . . . . . $ 455 $ -- $ --
Deferred . . . . . . . . . . . . . . . . . . . (102) -- --
Provision in lieu of income taxes .. . . . . . 257 351 479
State
Current. . . . . . . . . . . . . . . . . . . . 57 -- 79
Deferred . . . . . . . . . . . . . . . . . . . -- -- --
(Benefit)/provision in lieu of income taxes. . (458) 227 273
------ ------ ------
$ 209 $ 578 $ 831
====== ====== ======
The following schedule reconciles the federal provision for income taxes
computed at the statutory rate to the actual provision for income taxes
(amounts in thousands):
Years Ended November 30,
1997 1996 1995
------ ------ ------
Computed provision/(benefit) for income taxes
at 34% . . . . . . . . . . . . . . . . . . . . $ 110 $ 351 $ (784)
Expenses for which deferred tax benefit
cannot be currently recognized . . . . . . . . 501 -- 1,263
State and local tax provision . . . . . . . . . 222 227 352
State tax reserves. . . . . . . . . . . . . . . (624) -- --
------ ------ ------
Total provision for income taxes. . . . . . . . $ 209 $ 578 $ 831
====== ====== ======
In 1997, the resolution of certain state tax issues resulted in $624,000 of
state tax reserves being reduced as a reduction to the 1997 provision for
income taxes. In addition, included in the Company's extraordinary gain is a
provision in lieu of income taxes of $842,000.
Temporary differences and carryforwards which give rise to a significant
portion of deferred tax assets and liabilities at November 30, 1997 and 1996
are as follows (amounts in thousands):
November 30, 1997 November 30, 1996
--------------------- --------------------
Deferred Deferred Deferred Deferred
Tax Tax Lia- Tax Tax Lia-
Assets bilities Assets bilities
-------- -------- -------- --------
Fresh-start inventory reserves. $ 156 $ -- $ 402 $ --
Income from joint ventures. . . 377 733 416 452
Inventory and other reserves. . 1,044 -- 1,344 --
Preproduction interest. . . . . -- 386 -- 536
Capitalized inventory costs . . 200 1,027 150 972
Federal net operating losses. . 7,744 -- 9,083 --
State net operating losses. . . 8,003 -- 8,991 --
Depreciation. . . . . . . . . . 453 554 382 373
Deferred state taxes. . . . . . 729 -- 735 --
Other . . . . . . . . . . . . . 217 31 495 37
-------- -------- -------- --------
18,923 2,731 21,998 2,370
Valuation allowance . . . . . . (16,090) -- (19,628) --
-------- -------- -------- --------
Total deferred taxes . . . . $ 2,833 $ 2,731 $ 2,370 $ 2,370
========= ======== ======== ========
-21-
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 substantially all of the net deferred tax assets due to uncertainty
of realization.
The federal net operating loss carryforward for tax purposes is approximately
$22,776,000 at November 30, 1997 and $26,500,000 at November 30, 1996. The
Company's ability to use its deferred tax assets, created prior to the change
in the Company's ownership, to offset future income is $1,627,000 per year
under Section 382 of the Internal Revenue Code as a result of the change in
control of the Company in November of 1995. These federal carryforwards will
expire between 2008 and 2011. In 1997, the Company received a tax refund
related to prior periods of $2,442,000. Also in 1997, the Company paid income
taxes of $30,000. In 1996, no such payment had been made.
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. 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. At this
juncture, the FDIC has not appealed this decision and the only remaining causes
of action against Calton, Inc. in this matter, which commenced in June 1996,
involve a claim that Calton, Inc. breached an alleged agreement with Eliot
Savings Bank to maintain a $1,000,000 net worth in a subsidiary that served as
a general partner of the issuer of the note. The FDIC alleges actual damages of
$1,000,000 (plus interest and costs) and is seeking treble damages under the
Massachusetts General Laws Chapter 93A. Inasmuch as Calton, Inc. never entered
into any such agreement with Eliot Bank, it believes that the FDIC's position
is contrary to applicable law and without merit. The Company is vigorously
contesting 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.
(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.
(d) The Company is obligated under an operating lease in New Jersey for
office space expiring November 30, 2002 for the corporate and Northeast
division office facility with total annual rentals of approximately $228,000.
Rental expense for the years ended November 30, 1997, 1996 and 1995 amounted to
$730,000, $726,000 and $781,000, respectively.
(e) 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 $30,000 in 1997, $42,000 in 1996 and $213,000 in
1995. The Company's matching contribution, in the form of registered Common
Stock of the Company, for 1997 was 15% of participant contributions. The
Company's matching contribution, in the form of registered Common Stock of the
Company, for 1998 will be 50% of participant contributions, subject to a
maximum of 3% of total compensation and $2,000 per employee.
(f) Commitments include the usual obligations of housing producers for the
completion of contracts in the ordinary course of business.
-22-
10. INVESTMENTS IN JOINT VENTURES
==============================
During the years ended November 30, 1997 and 1996, the Company received
$525,000 and $460,000, respectively, on a fully reserved note receivable from a
previous joint venture. The payment on the fully reserved note is classified as
non-operating Other income. During 1996, the Company received $725,000 from the
liquidation of a joint venture in which it previously participated.
The Company previously wrote off its entire equity investment in 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.
11. QUARTERLY FINANCIAL RESULTS (UNAUDITED)
=======================================
Quarterly financial results for the years ended November 30, 1997 and 1996
are as follows (amounts in thousands, except per share amounts):
Three Months Ended
------------------------------------------------------------
February 28, May 31, August 31, November 30,
1997 1997 1997 1997
------------ ------------ ------------ ------------
Revenues. . . $ 22,609 $ 24,596 $ 28,036 $ 51,347(a)
Gross profit. 2,354 2,980 4,223 6,612(b)
Net income
(loss). . . . (478) (330)(c) 1,277(c)(e)(f) 908(c)(d)
Net income
(loss) per
share . . . . (.02) (.01) .05 .03
Three Months Ended
------------------------------------------------------------
February 29, May 31, August 31, November 30,
1996 1996 1996 1996
------------ ------------ ------------ ------------
Revenues. . . $ 19,456 $ 28,675 $ 33,355 $ 40,949
Gross profit. 2,074 3,455(h) 4,746(i) 6,515(i)
Net income
(loss). . . . (649) (294)(g) 385(g) 1,011(g)
Net income
(loss) per
share . . . . (.02) (.01) .01 .04
(a)Includes revenues from the sale of the Company's Orlando, Florida
homebuilding assets of $16,661,000.
(b)Includes $615,000 pretax profit on the sale of Florida assets.
(c)Includes pretax income in the second, third and fourth quarter of
$200,000, $100,000 and $225,000, respectively, from the final payments of a
note previously reserved.
(d)Includes reversal of a state tax reserve of $624,000 due to the resolution
of certain state tax issues.
(e)Includes $571,000 of pretax interest income on a tax refund related to
prior years.
(f)Includes extraordinary gain of $1,263,000, net of a provision in lieu of
income taxes, from the extinguishment of debt.
(g)Includes pretax income in the second, third and fourth quarter of
$110,000, $150,000 and $200,000, respectively, from the partial collection of a
note previously reserved.
(h)Includes a $150,000 reversal of a sales tax estimate accrued in the fourth
quarter of 1995 and resolved in the second quarter of 1996.
(i)Includes reversals of accruals in the amount of $105,000 and $185,000 on a
pretax basis in the third and fourth quarters of 1996 due to the resolution of
certain construction obligations and litigation exposures.
-23-
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, 1997 and 1996 and the related consolidated
statements of operations, shareholders' equity and cash flows for the years
ended November 30, 1997, 1996 and 1995. 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 audits 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 consolidated 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.
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, 1997 and 1996 and the consolidated results of
their operations and their cash flows for the years ended November 30, 1997,
1996 and 1995 in conformity with generally accepted accounting principles.
/s/ Coopers & Lybrand, L.L.P.
Princeton, New Jersey
January 13, 1998, except for
Note 9(b) as to which the
date is February 19, 1998
Calton, Inc. Common Stock
Calton, Inc. common stock is traded on the American Stock Exchange ("AMEX")
under the symbol CN. The following reflects the high and low sales prices of
the common stock during fiscal 1997 and 1996.
Fiscal 1997 High Low
----- ----
1st Quarter . . . 7/16 1/4
2nd Quarter . . . 7/16 1/4
3rd Quarter . . . 11/16 3/8
4th Quarter . . . 5/8 7/16
Fiscal 1996 High Low
1st Quarter . . . 7/16 5/16
2nd Quarter . . . 3/4 3/8
3rd Quarter . . . 1/2 5/16
4th Quarter . . . 3/8 1/4
At February 2, 1998, there were approximately 628 record holders of the
Company's common stock. On that date, the last sale price for the common stock
as reported by AMEX was $.50. The Company did not pay any dividends on its
Common Stock during fiscal 1997 or 1996. The Company's credit facility
prohibits the payment of dividends.
-24-
CALTON, INC.
FORM 10-K
FOR FISCAL YEAR ENDED NOVEMBER 30, 1997
EXHIBIT 21
SUBSIDIARIES OF CALTON, INC.
Calton Homes, Inc. Calton Tamarack Corp. (3)
Calton Homes of Florida, Inc. (1) Calton Lindenwood Corp. (3)
Calton Homes of Pennsylvania, Inc. (2) Calton Homes Finance, Inc.
Calton Homes of Pennsylvania at Calton Homes Finance II, Inc.
Pennway, Inc. (2) Calton Capital, Inc.
Calton Homes of California, Inc. (3) Calton General, Inc.
Calton California Equity Corp. (3) Calton Homes of Chicago, Inc. (4)
Calton Manzanita Corp. (3) Haddon Group of Virginia, Inc.
All subsidiaries are incorporated or organized under the laws of the State of
New Jersey, except those marked with a (1), (2), (3) and (4), which are
incorporated under the laws of Florida, Pennsylvania, California and Illinois,
respectively.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> NOV-30-1997
<PERIOD-END> NOV-30-1997
<CASH> 7,142,000
<SECURITIES> 0
<RECEIVABLES> 5,430,000
<ALLOWANCES> 0
<INVENTORY> 51,092,000
<CURRENT-ASSETS> 3,801,000
<PP&E> 122,000
<DEPRECIATION> 0
<TOTAL-ASSETS> 67,587,000
<CURRENT-LIABILITIES> 14,178,000
<BONDS> 20,559,000
0
0
<COMMON> 266,000
<OTHER-SE> 32,584,000
<TOTAL-LIABILITY-AND-EQUITY> 0
<SALES> 126,588,000
<TOTAL-REVENUES> 126,588,000
<CGS> 110,419,000
<TOTAL-COSTS> 125,347,000
<OTHER-EXPENSES> (1,096,000)
<LOSS-PROVISION> 750,000
<INTEREST-EXPENSE> 1,264,000
<INCOME-PRETAX> 323,000
<INCOME-TAX> 209,000
<INCOME-CONTINUING> 114,000
<DISCONTINUED> 0
<EXTRAORDINARY> 1,263,000
<CHANGES> 0
<NET-INCOME> 1,377,000
<EPS-PRIMARY> .05
<EPS-DILUTED> .05
</TABLE>
