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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, 1998
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:
Name of each exchange
Title of Class on which registered
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Common Stock American Stock Exchange
$.01 par value per share
Rights 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 |_|.
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 16, 1999 was $37,513,000.
As of February 16, 1999, 27,282,000 shares of Common Stock were outstanding.
Certain items in Parts I and II incorporate information by reference to the 1998
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 14,
1999. Except for portions which are expressly incorporated by reference herein,
the Annual Report is not deemed filed a part hereof.
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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"). Words
such as "anticipates," "expects," "intends," "plans," "believes," "seeks,"
"estimates," and variations of such words and similar phrases are intended to
identify such forward-looking statements. 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, 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.
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PART I
ITEM 1. BUSINESS
(A) GENERAL DEVELOPMENT OF BUSINESS
GENERAL
Calton, Inc. (the "Company" or "Calton"), through its subsidiary,
Calton Homes, Inc. ("Calton Homes"), was previously engaged in the
design, construction and sale of single family detached homes in New
Jersey. The Company delivered 325 homes in fiscal 1998 with an
average sales price of $286,000.
On November 30, 1997, the Company sold its Orlando, Florida
homebuilding assets for $16.7 million in cash. On December 31, 1998,
the Company sold Calton Homes for $48.1 million in cash, subject to
a $5.2 million holdback and certain post closing adjustments. See
"Sale of Calton Homes." This sale was part of an overall strategy
designed to enhance shareholder value. See "Strategic Plan."
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.
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.
SALE OF CALTON HOMES
On December 31, 1998 (the "Closing Date"), Calton completed the sale
of Calton Homes, its wholly owned homebuilding subsidiary, to Centex
Real Estate Corporation ("Braewood"), the homebuilding subsidiary of
Centex Corporation (NYSE:CTX), one of the nation's largest
homebuilders (the "Sale Transaction"). The purchase price for the
stock of Calton Homes, which was paid in cash at closing, was $48.1
million, subject to a $5.2 million holdback, and is subject to
certain post closing adjustments. Calton has entered into an
agreement to provide consulting services to Braewood which will
entitle the Company to payments of $1.3 million per year over a
three year period.
The Company estimates that it will record a pre-tax gain of
approximately $8.8 million and a net gain of approximately $4.6
million after recording a non-cash provision in lieu of taxes of
$4.2 million as a result of the Sale Transaction in the first
quarter of fiscal 1999.
Upon completion of the Sale Transaction, substantially all of the
employees of Calton and Calton Homes continued their employment with
Calton Homes. The current officers of Calton are Anthony J.
Caldarone, Chairman, President and Chief Executive Officer, David
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J. Coppola, Vice President and Treasurer, and Mary Magee, Secretary.
Each of the Company's directors continues to serve on the Board of
Directors.
STRATEGIC PLAN
General. The Sale Transaction was effected pursuant to a strategic
plan designed to enhance shareholder value. Pursuant to this plan,
the Company has (i) initiated a significant stock repurchase
program, (ii) intends to shift the Company's business focus to
providing various services to participants in the homebuilding
industry and (iii) is seeking to invest in, acquire or combine with
one or more operating businesses within or outside of the
homebuilding industry.
The Company anticipates ongoing general and administrative expenses
of approximately $100,000 per month during the initial months of
fiscal 1999. Pending the implementation of the Company's strategic
plan, the Company's cash will be invested as management of the
Company deems prudent, which may include, but will not be limited
to, mutual funds, money market accounts, stocks, bonds or United
States government or municipal securities; provided, however, that
the Company will attempt to invest the net proceeds and conduct its
activities in a manner which will not result in the Company being
deemed to be an investment company under the Investment Company Act
of 1940, as amended, or a personal holding company for federal
income tax purposes. See "Certain Risks."
If within 18 months from the Closing Date, the Company has not
redeployed a substantial portion of the proceeds of the Sale
Transaction, or developed a plan to redeploy a substantial portion
of such proceeds within a reasonable time frame, the Company will be
liquidated and dissolved.
Stock Repurchase Program. The Company plans to use a portion of the
proceeds of the Sale Transaction to fund a stock repurchase program
(the "Stock Repurchase Program") pursuant to which it will seek to
acquire up to 10,000,000 shares of its Common Stock over a 12 month
period. The Company expects to purchase shares from time to time in
privately negotiated transactions or in open market purchases. The
timing and number of shares purchased will depend on a variety of
factors, including market price. The Stock Repurchase Program will
reduce the Company's cash and shareholders equity while increasing
book value per share to the extent that the average price paid per
share is less than the book value per share. The Company is
endeavoring to conduct the Stock Repurchase Program in a manner that
will not adversely affect the liquidity of the Common Stock. The
Company anticipates that there will still be a sufficient number of
shares outstanding and publicly traded following the completion of
the Stock Repurchase Program to ensure a continued trading market in
its Common Stock. Since October 31, 1998, the Company has acquired
approximately 1,230,000 shares of Common Stock at an average price
of $1.09 per share.
Consulting, Investment and Advisory Services. The Board of Directors
intends to shift the Company's primary business focus to providing
various services to participants in the homebuilding industry,
including consulting services (including the consulting services
being provided to Braewood pursuant to a consulting agreement
entered into in connection with the Sale Transaction (the
"Consulting Agreement")), equity and debt financing and financial
advisory services. The Company's management believes that emerging
growth of small to middle market companies will provide an
opportunity which may enable the Company to realize returns on its
equity which exceed those which can currently be achieved through
direct participation in the homebuilding industry in New Jersey and
Pennsylvania. Management believes that these objectives can be
achieved by:
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o Providing consulting services to Braewood and other
participants in the homebuilding industry as permitted by the
Consulting Agreement and the Company's non-competition
agreement with Braewood (the "Non-Competition Agreement");
o Investing in both equity and debt securities, generally of
homebuilders and real estate companies operating in diverse
geographic areas;
o Underwriting project financing for emerging growth
homebuilders with participation from institutional investors
to provide for additional leverage;
o Providing advisory services and investment capital in
connection with workouts, restructurings, recapitalizations
and mergers and acquisitions;
o Acquiring and selling companies; and
o Administering Calton's existing real estate subsidiaries and
utilizing, to the extent possible, the Company's net loss
carryforwards.
The Consulting Agreement requires the Company to provide certain
consulting services to Braewood, including information, advice and
recommendations with respect to the homebuilding market in New
Jersey and Pennsylvania. In addition, the Company has agreed to use
its best efforts to identify corporate acquisition candidates and
other business opportunities for Braewood and Calton Homes in New
Jersey and Pennsylvania, and upon Braewood's request, to assist
Braewood and Calton Homes in (i) obtaining development entitlements
for land, (ii) marketing and promotional activities, (iii) procuring
goods and services from third parties and (iv) locating, screening,
interviewing and recommending compensation levels for prospective
employees. The Company has agreed that it will not provide similar
services to others in New Jersey or Pennsylvania during the term of
the Consulting Agreement and for a four year period after the
expiration of the three year term of the Consulting Agreement.
The Consulting Agreement requires Anthony J. Caldarone, the
Company's Chairman, President and Chief Executive Officer to
participate in the performance of the consulting services to
Braewood and for so long as he remains employed by or associated
with the Company.
In consideration for the services to be provided by the Company
under the Consulting Agreement, Braewood will be required to pay the
Company a consulting fee of $1.3 million per year, payable in equal
quarterly installments during the three year term of the agreement.
Other than the Consulting Agreement, the Company has not entered
into any arrangements to provide consulting, investment or advisory
services to any third parties.
The Non-Competition Agreement will limit the scope of the activities
that can be conducted by the Company in New Jersey and Pennsylvania.
Pursuant to the Non-Competition Agreement, the Company has agreed
that until the fourth anniversary of the date on which the
Consulting Agreement expires, it will not participate in the
provision of homebuilding services, directly or indirectly, in
Pennsylvania or New Jersey, either through any form of ownership
(except the ownership of up to 5% of a publicly held corporation) or
as a principal, agent, employee, employer, advisor, consultant,
lender, partner or any other capacity whatsoever. The Company will,
however, be permitted to provide second or wraparound mortgage
financing to certain small homebuilding companies on a project by
project basis. Any such financing may include participating
mortgages; provided however, that the Company shall be prohibited
from obtaining as a result of such financings or any foreclosures,
deeds in lieu of foreclosure or other enforcement proceeding an
interest in the equity, capital or profits of any homebuilding
company in excess of ten percent (10%), and from directly or
indirectly participating in the management of control of any such
company. The Company may, in order to preserve its investment if a
borrower defaults, acquire a
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project or projects owned by such defaulting borrower, but following
its acquisition, the Company (i) may not expand any such project
beyond the investment therein at acquisition (except as necessary to
prevent further loss or to fulfill contracts to build and deliver
homes), (ii) must provide Braewood a right of first refusal if the
Company is presented with an offer to buy and (iii) must fully
dispose of any such project within 12 months.
Acquisitions and Business Combinations. The Company is seeking to
enhance shareholder value by investing in, acquiring or combining
with one or more operating businesses within or outside of the
homebuilding industry. Such activities could include the acquisition
of an entire company or companies, or divisions thereof, either
through a merger or a purchase of assets, as well as an investment
in the securities of a company or companies, or alternatively, a
combination with another business in which the Company would not be
the surviving corporation. The Company has not entered into any
substantive negotiations concerning such acquisitions or
investments. There can be no assurance that the Company will be
successful in such efforts, and the redeployment of the Company's
assets into new investment and businesses entails risk to its
shareholders. In addition, the scope of the Company's activities
will be limited by the Non-Competition Agreement, which prohibits
the Company from engaging in the operating activity which has
historically represented the Company's primary business in its
primary market.
CERTAIN RISKS
Lack of Operating History in New Business. As part of its strategic
plan, the Company intends to provide various services to
participants in the homebuilding industry, including investment,
advisory and consulting services. In addition, the Company has
entered into a Consulting Agreement with Braewood; however, the
Company has not previously engaged in providing such services to
third parties. In addition, the Company has not entered into any
agreement to provide such services to any other third party.
Further, the Company will be subject to the Non-Competition
Agreement with Braewood which will limit the scope of the activities
which can be conducted by the Company in New Jersey and
Pennsylvania. Moreover, the success of the Company will depend on
the Company's ability to attract and retain qualified personnel. As
a result, no assurance can be given that the Company will be
successful in implementing its strategic plan or that the Company
will be able to generate profits from any such activities.
Risks Associated with Potential Business Combinations. In addition
to engaging in the activities described above under the caption
"Lack of Operating History in New Business," the Company is seeking
to enhance shareholder value by investing in, acquiring or combining
with one or more operating businesses either within or outside of
the homebuilding industry. As the Company has not yet identified a
prospective business (a "Target Business") with which it is likely
to effectuate a merger, exchange of capital stock, stock or asset
acquisition or other similar type of transaction (a "Business
Combination"), shareholders have no basis on which to evaluate the
possible merits or risks of a Target Business. Management of the
Company will endeavor to evaluate the risks inherent in any
particular Target Business; however, there can be no assurance that
the Company will properly ascertain all such risks. In many cases,
shareholder approval will not be required to effect such a Business
Combination. The fair market value of the Target Business will be
determined by the Board of Directors of the Company. Therefore, the
Board of Directors has significant discretion in determining whether
a Target Business is suitable for a proposed Business Combination.
Furthermore, the structure of a Business Combination with a Target
Business, which may take the form of a merger, exchange of capital
stock or stock or asset acquisition, cannot be determined
-4-
because, at the present time, no agreements, arrangements or
understandings exist with respect to any such proposed Business
Combination.
Continued Listing on AMEX The Company's Common Stock is currently
listed for trading on the American Stock Exchange ("AMEX"). Under
AMEX's suspension and delisting policies, AMEX will normally
consider suspending dealings in, or removing from listing securities
of a company, if the company has sold or otherwise disposed of its
principal operating assets, has ceased to be an operating company or
has discontinued a substantial portion of its operations or business
for any reason. AMEX has indicated that the Common Stock may become
subject to delisting if the Company is not engaged in active
business operations within a reasonable period of time after the
closing of the Sale Transaction. If the Common Stock is delisted, it
would trade on the OTC Bulletin Board or in the "pink sheets"
maintained by the National Quotation Bureau, Inc., which are
generally considered to be less efficient markets.
Investment Company Act Considerations. The Investment Company Act of
1940, as amended ("1940 Act"), requires the registration of, and
imposes various substantive restrictions on, certain companies that
engage primarily, or propose to engage primarily, in the business of
investing, reinvesting, or trading in securities, or that fail
certain statistical tests regarding the composition of assets and
source of income, and are not primarily engaged in a business other
than investing, holding, owning or trading securities. The Company
intends to conduct its activities in a manner which will not subject
the Company to regulation under the 1940 Act; however, there can be
no assurance that the Company will not be deemed to be an investment
company under the 1940 Act. If the Company were required to register
as an investment company under the 1940 Act, it would become subject
to substantial regulation with respect to its capital structure,
management, operations, transactions with affiliates, the nature of
its investments and other matters. In addition, the 1940 Act imposes
certain requirements on companies deemed to be within its regulatory
scope, including compliance with burdensome registry, recordkeeping,
voting, proxy, disclosure and other rules and regulations. In the
event of the characterization of the Company as an investment
company, the failure of the Company to satisfy regulatory
requirements, whether on a timely basis or at all, could have a
material adverse effect on the Company.
Certain Tax Matters. Section 541 of the Internal Revenue Code of
1986, as amended (the "IRC"), subjects a corporation which is a
"personal holding company," as defined in the IRC, to a 39.6%
penalty tax on undistributed personal holding company income in
addition to the corporation's normal income tax. The Company could
become subject to the penalty tax if (i) 60% or more of its adjusted
ordinary gross income is personal holding company income and (ii)
50% or more of its outstanding Common Stock is owned, directly or
indirectly, by five or fewer individuals. Personal holding company
income is comprised primarily of passive investment income plus,
under certain circumstances, personal service income.
Indemnity Obligations. The stock purchase agreement pursuant to
which the Company sold Calton Homes 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. The Company has deposited an
aggregate of approximately $5.2 million in escrow, $3 million of
which provide security for the Company's indemnity obligations and
approximately $2.2 million of which were deposited to fund costs
associated with certain specified litigation involving Calton Homes.
Under certain circumstances, the Company may be required to deposit
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additional funds into escrow. In addition, the Company's indemnity
obligations are not limited to the amount deposited in escrow. No
assurance can be given that the purchaser of Calton Homes will not
make claims for indemnity or that a significant portion of the
escrowed funds will not be utilized to resolve litigation. See
"Legal Proceedings."
(B) FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS
Substantially all revenues and equity in earnings, operating profits
and assets of the Company and its subsidiaries in fiscal 1998 were
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
During fiscal 1998, the Company designed, constructed and sold
single family detached homes in New Jersey. The Company marketed
primarily to second and third time move-up homebuyers with its
conventional housing product line and active adult homebuyers. In
fiscal 1998, the Company delivered 325 homes with an average sales
price of approximately $286,000. In addition, the Company sold land
and options to acquire land to other builders from time to time
after adding value by obtaining entitlements. The Company completed
the sale of its homebuilding operations on December 31, 1998. See
"Sale of Calton Homes."
GEOGRAPHIC MARKETS
In fiscal 1998, the Company's homebuilding operations were located
in New Jersey. Generally, the Company conducted its homebuilding
operations in markets that demonstrated 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 selected locations for its
residential housing communities that had ready access to major
arterial highways and which experienced increased housing demand.
During 1998, the Company conducted homebuilding activities in
Burlington, Hunterdon, Mercer, Middlesex, Monmouth and Ocean
counties in New Jersey.
PRODUCTS
The Company offered 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 homebuyer and, to a lesser
extent, the first time and first time move-up homebuyer. From time
to time, the Company also offered townhomes. Homestyles, prices and
sizes were 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 were
constructed by the Company.
During 1998, base prices in the Company's conventional housing
communities that offered various styles of two-story colonial homes
ranged from $229,000 to $611,000 for homes ranging in size from
approximately 2,700 square feet to 4,500 square feet. The Company
offered nine different single-family primarily one story detached
home types in its active adult community, Renaissance, ranging from
$140,000 to $235,000. These homes ranged in size from approximately
1,500 square feet to 2,200 square feet.
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LAND ACQUISITION, PLANNING AND DEVELOPMENT
Substantially all of the land acquired by the Company was purchased
only after necessary entitlements were obtained so that the Company
had certain rights to begin development or construction as market
conditions dictated. The term "entitlements" refers to developmental
approvals, tentative maps or recorded plats, depending on the
jurisdiction within which the land was 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 were ordinarily obtained
prior to the Company's purchase of the land, the Company was still
required to obtain a variety of other governmental approvals and
permits during the development process.
The Company's general policy was to control land for future
development or sale through the use of purchase options or
contingent purchase contracts whenever practicable and where market
conditions permitted. The Company generally endeavored 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 acquired property through the use of purchase money
mortgages. In certain cases, when available, the Company acquired
finished lots on a rolling option basis. These policies enabled the
Company to limit its financial commitments, including cash
expenditures and interest and other carrying costs, and avoid large
land inventories exceeding the Company's near term development
needs. At the same time, the Company retained 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 performed feasibility studies, technical,
engineering and environmental surveys and obtained the entitlements.
In making land acquisitions, the Company considered 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 included land planning and
securing entitlements. These activities were performed by the
Company's employees, together with independent engineers, architects
and other consultants.
CONSTRUCTION
The Company employed production managers responsible for
coordinating all functions pertaining to the construction process.
All construction work for the Company was 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 employed an on-site superintendent
who was responsible for supervising subcontractor work at each
community.
The Company's housing was constructed according to standardized
design plans that were then customized to each individual contract
preference. Generally, the Company sought 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 sold.
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Advantages achieved by volume building included lower costs paid to
subcontractors and reduced material costs per home.
Generally, the Company's policy was to commence construction of a
detached home beyond the foundation after a sales contract for that
home had been signed. The Company, however, ordinarily attempted 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 required immediate
occupancy, such as relocation homebuyers.
MATERIALS AND SUBCONTRACTORS
The Company attempted to maintain efficient operations by utilizing
standardized material available from a variety of sources. Prices
for materials fluctuated due to various factors, including demand
levels or supply shortages.
The Company entered into contracts with numerous subcontractors
representing all building trades in connection with the construction
of its homes, and established long-term relationships with a number
of subcontractors. These subcontractors bid competitively for each
phase of the work at each project and were selected based on
quality, price and reliability. Subcontractor bids were solicited
after an internal job cost budget estimate was prepared based on
estimated material quantities. These internal estimates served as
the formal baseline budget against which the cost of each trade was
measured. The Company was responsible for contracting all trades in
each of its communities. The Company monitored subcontractor
performance and expenditures for each community to assess
profitability. Additionally, the Company was generally able to
obtain reduced prices from many of its subcontractors due to the
volume of work it provided to its subcontractors. Agreements with
subcontractors and suppliers generally spanned three to twelve
months, and provided a fixed price for labor and materials.
SALES AND MARKETING
The Company typically constructed, furnished and landscaped a model
home for each community and maintained an on-site sales office
staffed with its own sales personnel. At Renaissance, six different
home types were presented in the model park in addition to a decor
center. The Company made use of newspaper, billboard and direct mail
advertising, special promotional events and illustrated brochures in
a comprehensive marketing program. The Company established a web
site on the Internet (http://www.caltonhomes.com) to provide
customers with additional information on the Company's communities
and homes. In marketing its products, the Company emphasized
quality, features and value and provided a 15-year limited warranty
on its homes. In addition, the Company offered a customization
program, "Your Home Your Way(R)," in order to make the products the
Company built more attractive to homebuyers by tailoring them to
individual customer needs.
Sales of the Company's homes were made pursuant to standard sales
contracts that were customary in the markets served by the Company.
Such contracts required 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 provided the customer
with a mortgage contingency, if necessary. The contingency period
typically was sixty (60) days following execution of the contract.
In certain instances, contracts were contingent on the sale of a
purchaser's existing home. In such cases, the Company retained the
right to sell the lot to a
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different homebuyer during the period in which the "house-to-sell"
condition was not satisfied. The cancellation rate for new contracts
signed was approximately 15% in fiscal 1998.
CUSTOMER FINANCING
The Company sold its homes to customers who generally financed their
purchase through conventional and government insured mortgages. The
Company provided its 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 were mortgage loans
underwritten and made directly by a lending institution to the
customer. The Company is not liable for repayment of any mortgage
loans.
COMMERCIAL LAND
The Company has continued to focus on selling its commercial land.
During fiscal 1998, the Company closed on the sale of two parcels of
commercial land, including its largest remaining parcel located in
eastern Pennsylvania, for an aggregate of $4.9 million in proceeds
that resulted in an aggregate gain of approximately $200,000. The
Company's remaining two commercial properties consist of land
located in Florida and Pennsylvania, one of which is under contract
for sale. These properties have a book value of $252,000.
COMPETITION
The homebuilding industry is highly competitive. Homebuilders
compete for desirable properties, financing, raw materials and
skilled labor among other things. The Company competed in each of
the geographic areas in which it operated with numerous real estate
developers, ranging from small local to larger regional and national
builders and developers, some of which had greater sales and
financial resources than the Company. Resale homes provided
additional competition. The Company competed primarily on the basis
of quality, features, value, reputation, price, location, design and
amenities.
REGULATION AND ENVIRONMENTAL MATTERS
The Company was 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 was 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 operated
even if any or all necessary government approvals were obtained.
Certain governmental authorities imposed fees as a means of
defraying the cost of providing certain governmental services to
developing areas, or required developers to donate land to the
municipality or make certain off-site land improvements.
The Company was 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 applicable to any given community
varied greatly according to the community site, the site's
environmental conditions and the present and former uses of the
site. These environmental laws sometimes resulted in delays, caused
the Company to incur substantial compliance and other costs, and
prohibited or severely restricted development in certain
environmentally sensitive regions or areas. For example, in July
1987, New Jersey adopted the Fresh Water Wetlands Protection Act
which restricts
-9-
building in or near certain protected geographic areas designated as
fresh water wetlands. The preservation of wetlands located within a
project sometimes lessened the number of units that could be built
in a particular project.
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 was sometimes required to set aside Mt. Laurel housing
in certain municipalities in which it owned or had the right to
acquire land. In order to comply with such requirements, the Company
was 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 of
affordable housing, which contribution increaseed the costs of homes
to be developed in a community. The Company attempted 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.
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 in each jurisdiction in which it does
business.
EMPLOYEES
As of February 16, 1999, the Company employed 3 full-time personnel.
The Company also employed 2 part-time employees. The Company
believes its employee relations are satisfactory.
ITEM 2. COMPANY FACILITIES
In connection with the Sale Transaction, the Company sublet its
interest as a tenant in its corporate offices to Calton Homes.
Calton Homes has resublet to the Company approximately 1,620 square
feet until May 31, 1999 for approximately $2,600 per month.
Management believes that this arrangement currently provides
adequate space for the Company's operations. The Company will seek
to lease office space upon the expiration of its current sublease.
ITEM 3. LEGAL PROCEEDINGS
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
approximately $5.2 million of the closing proceeds were deposited
into escrow. Of this amount, $3 million (the "General
Indemnification Funds") were deposited to provide security for the
Company's indemnity obligations and approximately $2.2 million (the
"Specific Indemnification Funds") were deposited to fund costs
associated with certain specified litigation involving Calton Homes.
Subject to claims for indemnification, one-half of the 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
-10-
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 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 million if created before
December 31, 1999, $3 million if created between December 31, 1999
and December 31, 2000 and $2 million 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.
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 1998, no matter was submitted to a vote
of security holders through the solicitation of proxies or
otherwise. On December 30, 1998, the Company held a special meeting
of shareholders (the "Special Meeting") at which the Company's
shareholders were asked to approve the sale by the Company of Calton
Homes. Of the votes cast in person or by proxy at the Special
Meeting, 14,313,274 shares voted in favor of the Sale Transaction,
382,281 shares voted against the Sale Transaction and 25,942 shares
abstained from voting.
ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers of the Company as of February 16, 1999 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 61 Chairman, President and Chief Executive Officer
David J. Coppola 39 Vice President and Treasurer
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. From June 1993 through October 1995, Mr.
-11-
Caldarone served as a Director of the Company.
Mr. Coppola was appointed Treasurer of the Company in January 1999.
He served as the Company's Controller from 1992 until 1999 and was
appointed as a Vice President of the Company in 1993. Mr. Coppola is
a Certified Public Accountant.
-12-
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 1998 and
1997 and the number of holders of Common Stock is presented on page
24 of the 1998 Annual Report to Shareholders, which information is
incorporated herein by reference.
The Company has not paid dividends on its capital stock in the past.
ITEM 6. SELECTED FINANCIAL DATA
The financial highlights data is presented on page one of the 1998
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 4
through 10 of the 1998 Annual Report to Shareholders, which
information is incorporated herein by reference.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The information required by this item is presented under the caption
"Financial Instrument Market Risk" on page 10 of the 1998 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 11 through 24 of the 1998
Annual Report to Shareholders, which information is incorporated
herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
-13-
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information relating to Directors is incorporated herein by
reference to "Election of Directors" and "Compliance with Section
16(a) of the Exchange Act" contained in the Registrant's definitive
proxy statement for the annual meeting of shareholders to be held on
April 14, 1999. 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 14, 1999.
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 14, 1999.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
None.
-14-
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
In January 1999, the Company
filed a report on Form 8-K,
dated December 31, 1998,
announcing that it had completed
the sale of Calton Homes.
-15-
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)
Date: February 26, 1999 By:
-----------------------
David J. Coppola
Vice President
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
--------- ----- ----
- -------------------------
Anthony J. Caldarone Chairman, Chief Executive February 26, 1999
Officer and President
(Principal Executive Officer)
- -------------------------
David J. Coppola Vice President February 26, 1999
(Principal Financial &
Accounting Officer)
- -------------------------
J. Ernest Brophy Director February 26, 1999
- -------------------------
Mark N. Fessel Director February 26, 1999
- -------------------------
Frank Cavell Smith, Jr. Director February 26, 1999
-16-
CALTON, INC. AND SUBSIDIARIES
INDEX OF FINANCIAL STATEMENTS AND
FINANCIAL STATEMENT SCHEDULES
Page
Consolidated Balance Sheet as of November 30, 1998 and 1997 *
Consolidated Statements of Operations for the Years Ended
November 30, 1998, 1997 and 1996 *
Consolidated Statements of Cash Flows for the Years
Ended November 30, 1998, 1997 and 1996 *
Consolidated Statements of Shareholders' Equity for
the Years Ended November 30, 1998, 1997 and 1996 *
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 11 through 24 of the 1998 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
ON FINANCIAL STATEMENT SCHEDULE
To the Board of Directors
of Calton, Inc.
Our audits of the consolidated financial statements referred to in our
report dated January 13, 1999 appearing in the November 30, 1998 Annual Report
to Shareholders of Calton, Inc. (which report and consolidated financial
statements are incorporated by reference in this Annual Report on Form 10-K)
also included an audit of the financial statement schedule listed in Item
14(a)(2) of this Form 10-K. In our opinion, this financial statement schedule
presents fairly, in all material respects, the information set forth therein
when read in conjunction with the related consolidated financial statements.
PricewaterhouseCoopers LLP
Florham Park, New Jersey
January 13, 1999
F-2
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby 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, 1999 appearing in the Annual
Report to Shareholders which is incorporated in this Annual Report on Form 10-K.
We also consent to true incorporation by reference of our report on the
Financial Statement Schedule, which appears on page F-4 of this Form 10-K.
PricewaterhouseCoopers LLP
Florham Park, New Jersey
February 25, 1999
F-3
SCHEDULE II
CALTON, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
(AMOUNTS IN THOUSANDS)
Additions
---------------------------
Balance at Charged to Balance
Beginning Costs and Charge to At End
Description of Year Expenses Other Accounts Deductions of Year
- ------------------------------------------- ---------- ---------- -------------- ---------- ----------
Year ended November 30, 1996:
Net realizable value reserves for inventory $ 1,993 $ -- $ -- $ 880(A) $ 1,113
========== ========== ============== ========== ==========
Valuation allowance for net deferred tax
asset $ 18,647 $ -- $ 981 $ -- $ 19,628
========== ========== ============== ========== ==========
Year ended November 30, 1997:
Net realizable value reserves for inventory $ 1,113 $ 750 $ -- $ 882(A) $ 981
========== ========== ============== ========== ==========
Valuation allowance for net deferred tax
asset $ 19,628 $ -- $ -- $ 3,538(B) $ 16,090
========== ========== ============== ========== ==========
Year ended November 30, 1998:
Net realizable value reserves for inventory $ 981 $ -- $ -- $ 726 $ 255
========== ========== ============== ========== ==========
Valuation allowance for net deferred tax
asset $ 16,090 $ -- $ -- $ 2,549 $ 13,541
========== ========== ============== ========== ==========
(A) Represents the utilization of reserves recorded when affected homes are
delivered and land is sold.
(B) 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 assets.
F-4
INDEX TO EXHIBITS
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.
2.2 Amended and Restated Stock Purchase Agreement effective September 2,
1998 among Calton, Inc., Calton Homes, Inc. and Centex Real Estate
Corp., incorporated by reference to Exhibit 2 to Form 8-K of
Registrant dated December 31, 1998.
2.3 Amendment No. 1 to Amended and Restated Stock Purchase Agreement
dated as of December 28, 1998 among Calton, Inc., Calton Homes, Inc.
and Braewood Development Corp. (assignee of Centex Real Estate
Corp.), incorporated by reference to Exhibit 2.1 to Form 8-K of
Registrant dated December 31, 1998.
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, incorporated by
reference to Exhibit 3.1 to Form 10-K of Registrant for the fiscal
year ended November 30, 1997, and Certificate of Amendment to
Amended and Restated Certificate of Incorporation of Registrant
filed with the Secretary of State, State of New Jersey on February
2, 1999.
3.2 By Laws of Registrant, as amended.
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.
4.2 Rights Agreement dated February 1, 1999 by and between the
Registrant and First City Transfer Company as Rights Agent,
including forms of Rights Certificate and Election to Purchase
included as Exhibit B thereto, incorporated by reference to Exhibit
1 to Form 8-A Registration Statement of Registrant filed with the
Securities and Exchange Commission on February 2, 1999.
(*) 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.
F-5
(**) 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.
10.8 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.
10.9 Consulting Agreement between Registrant and Braewood Development
Corp. dated December 31, 1998.
13. Certain pages of Registrant's 1998 Annual Report to Shareholders
which, except for those portions expressly incorporated herein by
reference, are not deemed filed as 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.