SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarter ended May 31, 1999
[ ] 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)
125 Half Mile Road
Red Bank, New Jersey 07701-6749
(Addresses of principal executive offices) Zip Code
Registrant's telephone number,
including area code: (732) 212-1280
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
As of June 30, 1999, 21,775,000 shares of Common Stock were outstanding.
Calton, Inc. and Subsidiaries
INDEX
Page No.
--------
PART I. Financial Information
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheets at
May 31, 1999 and November 30, 1998 . . . . . . . . 3
Consolidated Statements of Operations for the
Three Months Ended May 31, 1999 and 1998 . . . . . 4
Consolidated Statements of Operations for the
Six Months Ended May 31, 1999 and 1998 . . . . . . 5
Consolidated Statements of Cash Flows for the
Six Months Ended May 31, 1999 and 1998 . . . . . . 6
Consolidated Statement of Changes in Shareholders'
Equity and Comprehensive Income for the
Six Months Ended May 31, 1999. . . . . . . . . . . 7
Notes to Consolidated Financial Statements . . . . 8-10
Item 2. Management's Discussion and Analysis
of Financial Condition and Results
of Operations. . . . . . . . . . . . . . . . . . 10-12
PART II. Other Information
Item 4. Submission of Matters to a Vote
of Securityholders. . . . . . . . . . . . . . . 13
Item 6. Exhibits and reports on Form 8-K . . . . . . . 13
SIGNATURES. . . . . . . . . . . . . . . . . . . . . . . . . . . 13
- --------------------------------------------------------------------------
Certain information included in this report and other Company filings
(collectively, "SEC filings") under the Securities Act of 1933, as amended,
and the Securities Exchange Act of 1934, as amended (as well as information
communicated orally or in writing between the dates of such SEC filings)
contains or may contain forward looking information that is subject to
certain risks, trends and uncertainties that could cause actual results to
differ materially from expected results. Among these risks, trends and
uncertainties are matters related to the indemnification provisions in
connection with the Company's sale of Calton Homes, Inc., national and local
economic conditions and the effect of governmental regulation on the Company.
See "Management's Discussion and Analysis of Financial Condition and Results
of Operations."
- ---------------------------------------------------------------------------
-2-
<PAGE>
PART I. FINANCIAL INFORMATION
------------------------------
Item 1. FINANCIAL STATEMENTS.
CALTON, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
May 31, November 30,
1999 1999
---------- -----------
Assets (Unaudited)
Current Assets
Cash and cash equivalents. . . . . . . . . . . . . $31,425,000 $ 85,000
Receivables. . . . . . . . . . . . . . . . . . . . 1,999,000 -
Prepaid expenses and other assets. . . . . . . . . 421,000 1,041,000
----------- -----------
Total current assets. . . . . . . . . . . . . . . 33,845,000 1,126,000
Holdback receivable . . . . . . . . . . . . . . . . 4,372,000 -
Securities available for sale . . . . . . . . . . . 3,030,000 -
Stock warrant . . . . . . . . . . . . . . . . . . . 95,000 105,000
Net assets of discontinued operations . . . . . . . - 38,851,000
----------- -----------
Total assets . . . . . . . . . . . . . . . . . . . $41,342,000 $40,082,000
============ ===========
Liabilities and Shareholders' Equity
Accounts payable, accrued expenses and other
liabilities . . . . . . . . . . . . . . . . . . . $ 1,293,000 $ 1,861,000
Net liabilities of discontinued operations. . . . . 534,000 -
----------- -----------
Total liabilities. . . . . . . . . . . . . . . . . 1,827,000 1,861,000
----------- -----------
Commitments and contingencies
Shareholders' equity
Common stock. . . . . . . . . . . . . . . . . . . . 275,000 267,000
Paid in capital . . . . . . . . . . . . . . . . . . 31,945,000 27,957,000
Retained earnings . . . . . . . . . . . . . . . . . 14,823,000 10,112,000
Less cost of shares held in treasury. . . . . . . . (7,460,000) (115,000)
Accumulated other comprehensive loss:
Unrealized loss in securities available for sale. . (68,000) -
----------- -----------
Total shareholders' equity . . . . . . . . . . . . 39,515,000 38,221,000
----------- -----------
Total liabilities and shareholders' equity . . . . $41,342,000 $40,082,000
=========== ===========
See accompanying notes to consolidated financial statements.
3
CALTON, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended May 31, 1999 and 1998
(Unaudited)
1999 1998
---------- ----------
Revenues. . . . . . . . . . . . . . . . . . . . . $ 828,000 $ -
---------- ----------
Costs and expenses
Cost of revenues. . . . . . . . . . . . . . . . - -
Selling, general and administrative . . . . . . 353,000 433,000
---------- -----------
353,000 433,000
---------- ----------
Income (loss) from operations . . . . . . . . . . 475,000 (433,000)
Interest expense, net . . . . . . . . . . . . . . - 26,000
---------- ----------
Income (loss) before income taxes . . . . . . . . 475,000 (459,000)
Provision (benefit) for income taxes. . . . . . . 190,000 (208,000)
---------- ----------
Income (loss) from continuing operations. . . . . 285,000 (251,000)
Income from the sale of Calton Homes, Inc.,
net of a provision in lieu of taxes
of $446,000 . . . . . . . . . . . . . . . . . . 668,000 -
Income (loss) from discontinued operations,
net of a provision (benefit) for
income taxes of ($254,000) in 1999 and
$545,000 in 1998. . . . . . . . . . . . . . . . (379,000) 657,000
---------- ----------
Net income . . . . . . . . . . . . . . . . . . . $ 574,000 $ 406,000
========== ==========
Earnings per share
Basic:
Income (loss) from continuing operations . . . $ .01 $ -
Income from the sale of Calton Homes,
Inc., net. . . . . . . . . . . . . . . . . . .03 -
Income (loss) from discontinued
operations, net . . . . . . . . . . . . . . . (.01) .02
----------- ----------
Net income . . . . . . . . . . . . . . . . . . $ .03 $ .02
========== ==========
Diluted:
Income (loss) from continuing operations . . . $ .01 $ -
Income from the sale of Calton Homes,
Inc., net . . . . . . . . . . . . . . . . . . .03 -
Income (loss) from discontinued
operations, net . . . . . . . . . . . . . . . (.02) .02
----------- -----------
Net income . . . . . . . . . . . . . . . . . . $ .02 $ .02
=========== ===========
Weighted average number of shares outstanding
Basic . . . . . . . . . . . . . . . . . . . . . 21,730,000 26,707,000
Diluted . . . . . . . . . . . . . . . . . . . . 23,094,000 26,707,000
See accompanying notes to consolidated financial statements.
-4-
CALTON, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Six Months Ended May 31, 1999 and 1998
(Unaudited)
1999 1998
---------- ----------
Revenues. . . . . . . . . . . . . . . . . . . . . $1,402,000 $ -
---------- ----------
Costs and expenses
Cost of revenues. . . . . . . . . . . . . . . . - -
Selling, general and administrative . . . . . . 663,000 965,000
---------- ----------
663,000 965,000
---------- ----------
Income (loss) from operations . . . . . . . . . . 739,000 (965,000)
Interest expense, net . . . . . . . . . . . . . . - 42,000
---------- ----------
Income (loss) before income taxes . . . . . . . . 739,000 (1,007,000)
Provision (benefit) for income taxes. . . . . . . 295,000 (455,000)
---------- ----------
Income (loss) from continuing operations. . . . . 444,000 (552,000)
Income from the sale of Calton Homes, Inc.,
net of a provision in lieu of taxes
of $3,037,000 . . . . . . . . . . . . . . . . . 4,554,000 -
Income (loss) from discontinued operations,
net of a provision (benefit) for income
taxes of ($192,000) in 1999 and $352,000
in 1998 . . . . . . . . . . . . . . . . . . . . (287,000) 421,000
---------- ----------
Net income (loss) . . . . . . . . . . . . . . . . $4,711,000 $ (131,000)
========== ==========
Earnings per share
Basic:
Income (loss) from continuing operations . . . $ .02 $ (.02)
Income from the sale of Calton Homes, Inc.,
net . . . . . . . . . . . . . . . . . . . . . .19 -
Income (loss) from discontinued operations,
net . . . . . . . . . . . . . . . . . . . . . (.01) .02
--------- ----------
Net income (loss). . . . . . . . . . . . . . . $ .20 $ -
========== ==========
Diluted:
Income (loss) from continuing operations . . . $ .02 $ (.02)
Income from the sale of Calton Homes, Inc.,
net . . . . . . . . . . . . . . . . . . . . . .18 -
Income (loss) from discontinued
operations, net. . . . . . . . .. . . . . . . (.01) .02
---------- ----------
Net income (loss). . . . . . . . . . . . . . . $ .19 $ -
========== ==========
Weighted average number of shares outstanding
Basic. . . . . . . . . . . . . . . . . . . . . 23,792,000 26,667,000
========== ==========
Diluted. . . . . . . . . . . . . . . . . . . . 25,217,000 26,667,000
========== ==========
See accompanying notes to consolidated financial statements.
-5-
CALTON, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months Ended May 31, 1999 and 1998
(Unaudited)
1999 1998
---------- ----------
Operating Activities
Net income (loss) . . . . . . . . . . . . . . $ 4,711,000 $ (131,000)
Adjustments to reconcile net income (loss)
to net cash used by operating activities
Income (loss) from discontinued
operations. . . . . . . . . . . . . . . . . 287,000 (421,000)
Income from sale of Calton Homes, Inc . . . . (4,554,000) -
Provision (benefit) for income taxes. . . . . 295,000 (455,000)
Decrease in Holdback receivable . . . . . . . 104,000 -
Change in net assets/liabilities of
discontinued operations . . . . . . . . . . (500,000) 919,000
Depreciation and amortization . . . . . . . . - 48,000
Issuance of stock under 401(k) Plan
and other . . . . . . . . . . . . . . . . . - 60,000
Decrease in accounts payable, accrued
expenses and other liabilities. . . . . . . (568,000) (432,000)
Decrease in prepaid expenses and
other assets. . . . . . . . . . . . . . . . 630,000 409,000
----------- ----------
405,000 (3,000)
----------- ----------
Investing Activities
Net proceeds from sale of Calton Homes,
Inc. . . . . . . . . . . . . . . . . . . . . . 41,048,000 -
Purchase of securities available for sale . . . (3,098,000) -
----------- ----------
37,950,000 -
----------- ----------
Financing Activities
Stock repurchase. . . . . . . . . . . . . . . . (7,345,000) -
Stock options exercised . . . . . . . . . . . . 330,000 -
----------- ----------
(7,015,000) -
----------- ----------
Net increase in cash and cash equivalents . . . . 31,340,000 (3,000)
Cash and cash equivalents at beginning of
period. . . . . . . . . . . . . . . . . . . . . 85,000 17,000
----------- ----------
Cash and cash equivalents at end of period. . . . $31,425,000 $ 14,000
=========== ==========
See accompanying notes to consolidated financial statements.
-6-
CALTON, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
AND COMPREHENSIVE INCOME
Six Months Ended May 31, 1999
(Amounts in thousands)
(Unaudited)
Accu-
mula-
ted
Other
Total Comp- Comp-
Share- Com- Trea- rehen- rehen-
holders mon Paid In Retained sury sive sive
Equity Stock Capital Earnings Stock Loss Earnings
------- ----- ------- -------- ------ ----- --------
Balance
November 30,
1998. . . . . 38,221 $267 $27,957 $10,112 $ (115) - $ -
Net income. . 4,711 - - 4,711 - - 4,711
Issuance
of stock
under stock
option
plans . . . . 330 8 322 - - - -
Acceleration
of stock
option
vesting. . . 525 - 525 - - - -
Provision in
lieu of
income
taxes. . . . 3,141 - 3,141 - - - -
Less:
purchase of
of
treasury
stock. . . . (7,345) - - - (7,345) - -
Compre-
hensive
Loss:
Unrealized
loss in
securities
available
for sale . . (68) - - - - (68) (68)
-----
Compre-
hensive
earnings. . . - - - - - - $4,643
------- ---- ------- ------- ------- ---- ======
Balance,
May 31,
1999 . . . . $39,515 $275 $31,945 $14,823 $(7,460) $(68)
======= ==== ======= ======= ======= ====
See accompanying notes to consolidated financial statements.
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<PAGE>
CALTON, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Basis of Presentation
--------------------
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and in accordance with the instructions to Form 10-Q and Rule 10-01
of Regulation S-X. Accordingly, they do not include all the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. These interim financial statements should be read in conjunction
with the Company's annual report for the year ended November 30, 1998.
Operating results for the three and six months ended May 31, 1999 are not
necessarily indicative of the results that may be expected for the year ended
November 30, 1999.
On December 31, 1998, the Company completed the sale of Calton Homes, Inc.
("Calton Homes"), its primary operating subsidiary, to Centex Real Estate
Corporation ("Centex" or the "Purchaser"). As a result of the sale of Calton
Homes and the sale of the Florida homebuilding assets that occurred at the end
of fiscal 1997, the financial statement presentation treats the Company's
homebuilding business and results as discontinued operations in accordance with
APB Opinion No. 30, "Reporting the Results of Operations Reporting the Effects
of Disposal of a Segment of a Business." Certain reclassifications have been
made to prior years' financial statements in order to conform with the 1999
presentation. All significant intercompany accounts and transactions have been
eliminated.
Statement of Financial Accounting Standards No. 128, "Earnings per Share"
requires the presentation of basic and diluted per share amounts, effective for
financial statements issued for periods ending after December 15, 1997. As of
May 31, 1999, a total of 1,959,000 stock options have been granted and are
outstanding under the Company's stock option plans. In addition, a warrant to
purchase 1,000,000 shares of Common Stock (the "Warrant") was also outstanding.
In June 1999, the holder of the Warrant, using the cashless exercise method
provided for in the Warrant, exercised the Warrant and was issued 681,461
shares that were purchased by the Company (see note 4) for $750,000. As a
result, the Warrant was canceled.
2. Discontinued Operations
-----------------------
On December 31, 1998, the Company completed the sale of Calton Homes. The
shareholders of Calton, Inc. approved the sale of the stock of Calton Homes
pursuant to a stock purchase agreement (the "Stock Purchase Agreement") on
December 30, 1998. The purchase price of the sale of Calton Homes was
$48,100,000, plus certain post closing adjustments which have been resolved
pursuant to an agreement in principal with the Purchaser that is subject to
the execution of a formal settlement agreement. The Company recorded a pretax
gain of $7,591,000 on the sale of Calton Homes including the proposed post
closing adjustments. As part of the proposed post closing agreement, the
Company anticipates that it will refund to the Purchaser $700,000, payable out
of the general indemnifications that were deposited in escrow upon the closing
of the sale, as a result of an indemnification claim made pursuant to the Stock
Purchase Agreement. This amount has been reflected in the pretax gain from the
sale of Calton Homes for financial reporting purposes. Future decreases to the
escrows held for indemnifications, if any, will be recorded as an adjustment to
the Income from the sale of Calton Homes. No tax liability is expected to
result from the sale. However, a provision in lieu of taxes was recorded in
the amount of $3,037,000 related to the transaction.
As a result of the sale ofCalton Homes and the sale of the Florida
homebuilding assets that occurred at
the end of fiscal 1997, the financial statements for the current and prior
periods have been restated to reflect the Company's homebuilding and real
estate development business as discontinued operations, including the
operations of other subsidiaries located in Orlando, Florida; Chicago,
Illinois; Pennsylvania and California, where the Company had similar operations
and commercial land held for sale.
-8-
Net assets (liabilities) of discontinued operations are as follows:
(amounts in thousands)
May 31 November 30,
1999 1998
---------- -----------
Assets
Cash and cash equivalents . . . . . . . . . $ - $ 11,910
Receivables and other assets. . . . . . . . 635 9,385
Inventories . . . . . . . . . . . . . . . . - 61,449
Commercial land . . . . . . . . . . . . . . 250 252
Liabilities
Revolving credit agreement. . . . . . . . . - (21,000)
Mortgages payable . . . . . . . . . . . . . - (1,262)
Accounts payable and accrued expenses . . . (1,419) (21,883)
---------- -----------
Net assets/(liabilities) . . . . . . . . . . $ (534) $ 38,851
========== ===========
<PAGE>
Results of operations from discontinued operations are as follows:
(amounts in thousands)
Six Months Ended
May 31,
1999 1998
--------- ----------
Revenues . . . . . . . . . . . . . . . . . . . $ 6,513 $ 30,743
--------- ----------
Cost of revenue . . . . . . . . . . . . . . . 5,710 26,441
Selling, general and administrative . . . . . 1,282 3,032
--------- ----------
6,992 29,473
--------- ----------
Income (loss) from operations. . . . . . . . . (479) 1,270
Interest expense, net. . . . . . . . . . . . . - 497
--------- ---------
Income (loss) before income taxes. . . . . . . (479) 773
Provision (benefit) for income taxes . . . . . (192) 352
--------- ----------
Net income (loss) from discontinued
operations. . . . . . . . . . . . . . . . . . $ (287) $ 421
========= ==========
3. Commitments and Contingent Liabilities
--------------------------------------
(a) As part of the sale of Calton Homes on December 31, 1998, the Company
entered into a consulting agreement with the Purchaser that requires the
Purchaser to make payments of $1,300,000 per year over a three-year period to
the Company.
(b) The stock purchase agreement pursuant to which the Company sold Calton
Homes on December 31, 1998 requires the Company to indemnify the Purchaser
for, among other things, breaches of the agreement and certain liabilities
that arise out of events occurring prior to the closing of the sale, including
the cost of warranty work on homes delivered if such costs exceed $600,000. On
December 31, 1998, as a condition to the sale of Calton Homes, the Company
entered into a holdback escrow agreement with the Purchaser pursuant to which
$5,159,000 of the closing proceeds were deposited into escrow. Of this amount,
$3,000,000 (the "General Indemnification Funds") was deposited to provide
security for the Company's indemnity obligations and $2,159,000 (the "Specific
-9-
Indemnification Funds") was deposited to fund costs associated with certain
specified litigation involving Calton Homes. Subject to claims for
indemnification, one-half of the remaining General Indemnification Funds will
be disbursed to the Company on December 31, 1999. The remaining General
Indemnification Funds will be disbursed to the Company, subject to claims for
indemnification, on December 31, 2000. The Specific Indemnification Funds will
be disbursed, to the extent not otherwise utilized in the resolution of
litigation, on a case by case basis as the litigation is resolved. If all of
the specified litigation is not resolved by December 31, 2000, a portion of the
General Indemnification Funds will not be disbursed to the Company until the
resolution of the litigation. The holdback funds are earning interest for the
Company at a market rate, approximately 4.5%, however, the earnings are also
subject to the indemnity obligations. The Company may, under certain
circumstances, be required to deposit additional funds in the holdback if all
of the specified litigation is not resolved by December 31, 2000. In addition,
the Company's indemnity obligations are not limited to the amounts deposited in
escrow. In the event that the Company elects to liquidate and dissolve prior to
December 31, 2003, it will be required to organize a liquidating trust to
secure its obligations to the Purchaser. The liquidating trust will be funded
with the Specific Indemnification Funds plus $4,000,000 if created before
December 31, 1999 $3,000,000 if created between December 31, 1999 and December
31, 2000 and $2,000,000 if created after December 31, 2000. If the liquidation
occurs prior to December 31, 2000, the Company may be required to deposit
additional amounts in the liquidating trust if the specified litigation is not
resolved by such date. Any General Indemnification Funds remaining in the
holdback escrow fund will be applied as a credit against amounts required to be
deposited in the liquidating trust.
Based upon discussions with the Purchaser of Calton Homes, the Company
anticipates that it will pay $700,000 of the General Indemnification Funds to
the Purchaser of Calton Homes pursuant to a claim for indemnification made
pursuant to the Stock Purchase Agreement.
(c) The Company had a qualified contributory retirement plan (401(k) Plan)
which covered all eligible full-time employees with a minimum of one year of
service. The Company terminated the 401(k) Plan effective December 31, 1998.
4. Shareholders' Equity
In 1998, the Company began a stock repurchase program pursuant to which it
is seeking to repurchase up to 10,000,000 shares of Common Stock in open market
repurchases and privately-negotiated transactions by the end of fiscal 1999. As
of May 31, 1999, the Company had purchased 5,807,000 shares (held in Treasury)
for an aggregate purchase price of $7,460,000.
In April 1999, options to acquire 50,000 shares of Common Stock were granted
to the non-employee members of the Company's Board of Directors pursuant to the
Company's 1996 Equity Incentive Plan. These options have an exercise price of
$1.09, the fair market value of the Common Stock on the date of grant, vest in
one year, and have a term of ten years.
In June, 1999, the holder of a warrant (the "Warrant") to purchase 1,000,000
shares of Calton Common Stock, exercised its right under the Warrant using the
cashless exercise method. As a result, the holder was issued 681,461 shares
which the Company repurchased for $750,000. As a result, the Warrant was
canceled. The 681,461 shares will be held as Treasury stock.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
SALE OF CALTON HOMES, INC.
On December 31, 1998, the Company completed the sale of Calton Homes,
Inc.("Calton Homes"), its primary operating homebuilding subsidiary, to Centex
Real Estate Corporation ("Centex" or the "Purchaser"). The shareholders of
Calton, Inc. approved the sale of the stock of Calton Homes pursuant to a stock
purchase agreement (the "Stock Purchase Agreement") on December 30, 1998. The
purchase price for the stock of Calton Homes was $48.1 million, plus certain
post closing adjustments which have been resolved pursuant to an agreement in
principal with the Purchaser that is subject to the execution of a formal
settlement agreement. The gain is subject to a $5.2 million holdback (see
Commitments and Contingencies in the footnotes to the Company's financial
statements). A pretax gain of $7.6 million was recorded on the sale including
the proposed post closing adjustments and a $700,000 reduction to the gain,
recorded as a result of the proposed resolution of an indemnification claim
made by the Purchaser, to be paid out of the general indemnification escrow
funds. Future decreases to the escrows held for indemnifications, if any, will
-10-
be recorded as an adjustment to the Income from the sale of Calton Homes. No
tax liability is expected to result from the sale. However, a provision in lieu
of taxes was recorded for financial reporting purposes in the amount of $3.0
million related to income from the sale. As a result, the net gain recorded was
$4.6 million. Cash proceeds upon closing were approximately $41.1 million, net
of the $5.2 million holdback and other closing adjustments. These funds have
been temporarily invested in highly liquid funds. Calton has entered into an
agreement to provide consulting services to Centex that requires payments to
the Company of $1.3 million per year over a three-year period commencing
January 1, 1999.
RESULTS OF OPERATIONS FOR THE THREE AND SIX MONTHS ENDED MAY 31, 1999 AND 1998
Revenues for the three and six months ended May 31, 1999 were $828,000 and
$1.4 million, respectively. Of these amounts, $325,000 and $542,000
respectively, were attributable to revenues earned pursuant to the consulting
agreement with Centex that provides for quarterly payments of $325,000. In
addition, revenues were comprised of interest income derived from funds
generated by the sale of Calton Homes, Inc. in the amounts of $503,000 and
$860,000 for the three and six months ended May 31, 1999.
General and administrative costs were $353,000 and $663,000 for the three
and six months ended May 31, 1999 as compared to $433,000 and $965,000 for the
comparable periods of the prior year. The decreases from the prior year are
attributable to significant reductions in Corporate fixed costs related to the
sale of Calton Homes, including personnel reductions, leasing costs, and other
overhead items.
Net income from continuing operations was $285,000 and $444,000 for the
three and six months ended May 31, 1999 as compared to net losses of $251,000
and $552,000 for the three and six months ended May 31, 1998. This increase is
primarily attributable to the revenues and source of revenues and the
reductions in fixed costs identified above.
Net losses from discontinued operations were $379,000 and $287,000 for the
three and six months ended May 31, 1999, as compared to net income of $657,000
and $421,000 for the three and six months ended May 31, 1998, respectively. The
losses for the current periods are attributable to the resolution of certain
litigation matters in the second quarter of 1999, which resolutions and related
legal fees exceeded management's estimates at November 30, 1998. The Company is
required to indemnify Centex with respect to certain other litigation that
remained unresolved at May 31, 1999. Although the Company estimates it has
adequately reserved for these matters, there is no assurance that the ultimate
resolution of each of these matters will not result in additional charges to
discontinued operations.
Income from the sale of Calton Homes was $1.1 million and $7.6 million,
pretax, for the three and six months ended May 31,1999, respectively. After
recording a provision in lieu of taxes, the net amounts are $668,000 and
$4,554,000 for those respective periods. For the three months ended May 31,
1999, the Company recorded approximately $1.8 million related to the
anticipated post closing adjustments and reduced the income from the sale by
$700,000 as a part of an agreement in principal with the Purchaser that is
subject to the execution of a formal settlement agreement.
LIQUIDITY AND CAPITAL RESOURCES
On December 31, 1998, as a part of the sale of Calton Homes, the outstanding
balance of the Company's revolving credit facility with BankBoston in the
amount of $19.5 million was repaid by the Purchaser.
The sale of Calton Homes liquidated a substantial part of the Company's
assets and liabilities and
generated approximately $41.1 million of cash, which was net of a $5.2 million
holdback (see commitments and contingent liabilities) and other closing
adjustments. The Company has reached an agreement in principal with the
Purchaser that is subject to the execution of a formal settlement agreement,
and as a result, anticipates collecting approximately $1.8 million in the third
quarter of 1999 for the post closing adjustments. As a part of the proposed
post closing agreement, the Company anticipates that it will refund to the
Purchaser $700,000 in the third quarter of 1999, payable out of the General
Indemnification Funds that were deposited in escrow.
The Company believes that funds generated by the sale of Calton Homes,
income tax payment reductions, derived from NOL utilization and funds provided
under the three-year consulting agreement with the Purchaser of Calton Homes,
which provides for payments of $1.3 million per year, will provide sufficient
capital to support the Company's operations and fund its stock repurchase
program. Although the Company is currently analyzing potential business
opportunities consistent with its strategic plan, it has not determined the
specific application of the proceeds of the sale of Calton Homes. If over the
period that commenced on December 30, 1998 and continues over the next 18
months thereafter, the Company has not redeployed a substantial portion of the
-11-
sale proceeds of Calton Homes, or developed a plan to redeploy a substantial
portion of the proceeds within a reasonable time frame, the Company will be
liquidated and proceeds distributed to its shareholders.
The Company currently has no outstanding indebtedness other than accounts
payable. As a result, the Company's exposure to market rate risk relating to
interest rate risk is not material. The Company's funds are primarily invested
in highly liquid money market funds with its underlying investments comprised
of investment-grade, short-term corporate issues and commercial paper. The
Company does not believe that it is currently exposed to market risk relating
to foreign currency exchange risk, commodity price risk. However, a substantial
part of the Company's cash equivalents are not FDIC insured or bank guaranteed.
The Company has temporarily invested approximately $3,100,000 in marketable
equity securities. As a result, the Company has exposure to market risks
associated with declines in trading prices of these securities. During the
three months ended May 31, 1999, the Company recorded an adjustment of $68,000
related to an unrealized loss in the value of the securities.
Cash Flows from Operating Activities
The proceeds from the sale of Calton Homes are invested in highly liquid
funds earning interest at approximately 4.5% per annum that amounted to
$746,000 for the six months ended May 31, 1999. Additional cash flows in, are
revenues derived from the consulting agreement collectable at the end of each
calendar quarter at $325,000 per quarter. Operating activities primarily
utilize cash for general and administrative costs.
Cash flow from discontinued operations for the six months ended May 31, 1999
primarily consisted of litigation costs as a result of the indemnification
provisions pursuant to the sale of Calton Homes.
Cash flow from Investing activities
On December 31, 1998, the Company received cash of $41.1 million from the
sale of Calton Homes, which was net of a $5.2 million holdback and other
closing adjustments. The Company has reached an agreement in principal with the
Purchaser that is subject to the execution of a formal settlement agreement,
and as a result, anticipates collecting in the third quarter of 1999,
approximately $1.8 million for the post closing adjustments. As a part of the
proposed post closing agreement, the Company anticipates that it will refund to
the Purchaser $700,000 in the third quarter of 1999, payable out of the general
indemnification funds that were deposited in escrow.
During the second quarter of 1999 the Company purchased marketable equity
securities inan aggregate amount of $3.1 million.
Cash Flows from Financing Activities
For the six months ended May 31, 1999, the Company purchased 5,807,000
shares for an aggregate purchase price of $7.5 million , which is consistent
with its repurchase program to repurchase up to 10.0 million shares of its
Common Stock.
Also during this period, certain optionholders exercised their options to
purchase 803,000 shares from the 1993 and 1996 Stock Option Plans generating
$330,000.
-12-
<PAGE>
Item 4. Submission of Matters to a Vote of Securityholders
The Company held its 1999 Annual Meeting of shareholders (the "Meeting") on
April 14, 1999. At the Meeting, shareholders of the Company were asked to elect
three directors. The results of the voting were as follows:
Nominee For Withheld
---------------------------- ---------- ---------
Mark N. Fessel
(for term expiring in 2003) 22,991,923 1,306,090
Kenneth D. Hill
(for term expiring in 2002) 22,960,123 1,337,890
Robert E. Naughton
(for term expiring in 2001) 22,991,623 1,306,390
The terms of office of each of Anthony J. Caldarone, J. Ernest Brophy,
and Frank Cavell Smith, Jr. continued after the Meeting.
Item 6. Exhibits and reports on Form 8-K.
A) Exhibits
27. Financial Data Schedule as of May 31, 1999.
B) Reports on Form 8-K
None
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Calton, Inc.
------------------------
(Registrant)
By: /s/ David J. Coppola
--------------------
David J. Coppola
Vice President and Treasurer
(Principal Financial and
Accounting Officer)
Date: July 15, 1999
-13-
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