-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, F+M4JvjHVODh6QWQif5rHqO/SVgOMJ1d/GBdgcTqoJSok/mLff03mI0t49xPzUHk YZ9RSX5fDEckGttzf8iQZg== 0000717216-99-000004.txt : 19990716 0000717216-99-000004.hdr.sgml : 19990716 ACCESSION NUMBER: 0000717216-99-000004 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990531 FILED AS OF DATE: 19990715 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CALTON INC CENTRAL INDEX KEY: 0000717216 STANDARD INDUSTRIAL CLASSIFICATION: OPERATIVE BUILDERS [1531] IRS NUMBER: 222433361 STATE OF INCORPORATION: NJ FISCAL YEAR END: 1130 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-08846 FILM NUMBER: 99664713 BUSINESS ADDRESS: STREET 1: 500 CRAIG RD CITY: MANALAPAN STATE: NJ ZIP: 07726-8790 BUSINESS PHONE: 9087801800 MAIL ADDRESS: STREET 1: 500 CRAIG RD CITY: MANALAPAN STATE: NJ ZIP: 07726-8790 10-Q 1 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- 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. -7- 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 ========== =========== 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- 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- EX-27 2
5 6-MOS NOV-30-1999 MAY-31-1999 31,425,000 3,030,000 6,371,000 0 0 516,000 0 0 41,342,000 1,827,000 0 0 0 275,000 39,240,000 41,342,000 1,402,000 1,402,000 663,000 663,000 0 0 0 739,000 295,000 444,000 4,267,000 0 0 4,711,000 .20 .19
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