View:
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10Q
[ X ] Quarterly report pursuant to Section 13 or 15 (d) of the
Securities Exchange Act of 1934
For quarterly period ended JANUARY 31, 2002 or
[ ] Transition report pursuant to Section 13 or 15 (d) of the
Securities Exchange Act of 1934
Commission file number 1-8551
Hovnanian Enterprises, Inc.
(Exact name of registrant as specified in its charter)
Delaware 22-1851059
(State or other jurisdiction or (I.R.S. Employer
incorporation or organization) Identification No.)
l0 Highway 35, P.O. Box 500, Red Bank, N. J. 07701
(Address of principal executive offices)
732-747-7800
(Registrant's telephone number, including area code)
Same
(Former name, former address and former fiscal year, if changed
since last report)
Indicate by check mark whether the registrant (l) has filed all
reports required to be filed by Sections l3 or l5(d) of the Securities
Exchange Act of l934 during the preceding l2 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 the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date. 22,880,508
Class A Common Shares and 7,463,792 Class B Common Shares were
outstanding as of February 28, 2002.
HOVNANIAN ENTERPRISES, INC.
FORM 10Q
INDEX
PAGE
NUMBER
PART I. Financial Information
Item l. Financial Statement:
Consolidated Balance Sheets at January 31,
2002 (unaudited) and October 31, 2001 3
Consolidated Statements of Income for the three
months ended January 31, 2002 and 2001
(unaudited) 5
Consolidated Statements of Stockholders' Equity
for the three months ended January 31, 2002
(unaudited) 6
Consolidated Statements of Cash Flows for
the three months ended January 31, 2002
and 2001 (unaudited) 7
Notes to Consolidated Financial
Statements (unaudited) 8
Item 2. Management's Discussion and Analysis
of Financial Condition and Results
of Operations 16
PART II. Other Information
Item 2c. Changes in Securities and Use of Proceeds 28
Item 6. Exhibits and reports on Form 8K filed during
the quarter for which this report is filed 28
Signatures 29
HOVNANIAN ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In Thousands)
January 31, October 31,
ASSETS 2002 2001
----------- -----------
(unaudited)
Homebuilding:
Cash and cash equivalents....................... $ 37,646 $ 10,173
----------- -----------
Inventories - At the lower of cost or fair
value:
Sold and unsold homes and lots under
development.................................. 798,403 593,149
Land and land options held for future
development or sale......................... 141,427 146,965
----------- -----------
Total Inventories........................... 939,830 740,114
----------- -----------
Receivables, deposits, and notes................ 51,925 75,802
----------- -----------
Property, plant, and equipment - net............ 30,864 30,756
----------- -----------
Senior Residential rental properties - net...... 9,794 9,890
----------- -----------
Prepaid expenses and other assets............... 85,448 46,178
----------- -----------
Goodwill........................................ 81,725 32,618
----------- ------------
Total Homebuilding.......................... 1,237,232 945,531
----------- -----------
Financial Services:
Cash and cash equivalents....................... 4,243 5,976
Mortgage loans held for sale.................... 82,155 105,567
Other assets.................................... 6,686 6,465
----------- -----------
Total Financial Services.................... 93,084 118,008
----------- -----------
Income Taxes Receivable - Including deferred tax
benefits........................................ 719
----------- -----------
Total Assets...................................... $1,330,316 $1,064,258
=========== ===========
See notes to consolidated financial statements.
HOVNANIAN ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In Thousands)
January 31, October 31,
LIABILITIES AND STOCKHOLDERS' EQUITY 2002 2001
----------- -----------
(unaudited)
Homebuilding:
Nonrecourse land mortgages........................ $ 11,862 $ 10,086
Accounts payable and other liabilities............ 149,630 124,125
Customers' deposits............................... 42,805 39,114
Nonrecourse mortgages secured by operating
properties...................................... 3,360 3,404
----------- -----------
Total Homebuilding............................ 207,657 176,729
----------- -----------
Financial Services:
Accounts payable and other liabilities............ 5,052 5,264
Mortgage warehouse line of credit................. 68,468 98,305
----------- -----------
Total Financial Services...................... 73,520 103,569
----------- ----------
Notes Payable:
Revolving and term credit agreements.............. 200,600
Senior notes...................................... 296,895 296,797
Subordinated notes................................ 99,747 99,747
Accrued interest.................................. 10,639 11,770
----------- -----------
Total Notes Payable........................... 607,881 408,314
----------- -----------
Income Taxes Payable................................ 1,517
----------- -----------
Total Liabilities............................. 890,575 688,612
----------- -----------
Stockholders' Equity:
Preferred Stock,$.01 par value-authorized 100,000
shares; none issued
Common Stock,Class A,$.01 par value-authorized
87,000,000 shares; issued 26,925,569 shares
at January 2002 and 24,599,379 shares at
October 2001 (including 4,295,621 shares
at January 2002 and 4,195,621 shares at
October 2001 held in Treasury).................. 268 246
Common Stock,Class B,$.01 par value-authorized
13,000,000 shares; issued 7,810,100 shares at
January 2002 and 7,818,927 shares at October
2001 (including 345,874 shares held in Treasury) 78 78
Paid in Capital................................... 147,921 100,957
Retained Earnings................................. 328,267 310,106
Deferred Compensation............................. (90) (127)
Treasury Stock - at cost.......................... (36,703) (35,614)
----------- -----------
Total Stockholders' Equity.................... 439,741 375,646
----------- -----------
Total Liabilities and Stockholders' Equity.......... $1,330,316 $1,064,258
=========== ===========
See notes to consolidated financial statements.
HOVNANIAN ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In Thousands Except Per Share Data)
(unaudited)
Three Months Ended
January 31,
-------------------
2002 2001
--------- ---------
Revenues:
Homebuilding:
Sale of homes...................... $443,098 $283,405
Land sales and other revenues...... 2,167 4,245
--------- ---------
Total Homebuilding............... 445,265 287,650
Financial Services................... 8,987 5,538
--------- ---------
Total Revenues................... 454,252 293,188
--------- ---------
Expenses:
Homebuilding:
Cost of sales...................... 351,673 225,735
Selling, general and administrative 37,649 28,225
Inventory impairment loss.......... 905 174
--------- ---------
Total Homebuilding............... 390,227 254,134
Financial Services................... 5,359 3,780
Corporate General and Administration. 10,876 9,878
Interest............................. 13,702 9,505
Other Operations..................... 4,291 1,851
Restructuring Charges................ 2,480
--------- ---------
Total Expenses................... 424,455 281,628
--------- ---------
Income Before Income Taxes............. 29,797 11,560
--------- ---------
State and Federal Income Taxes:
State................................ 1,873 399
Federal.............................. 9,763 4,238
--------- ---------
Total Taxes........................ 11,636 4,637
--------- ---------
Net Income............................. $ 18,161 $ 6,923
========= =========
Per Share Data:
Basic:
Income per common share.............. $ 0.63 $ 0.31
Weighted average number of common
shares outstanding................. 28,965 22,286
Assuming dilution:
Income per common share.............. $ 0.60 $ 0.30
Weighted average number of common
shares outstanding................. 30,456 22,732
See notes to consolidated financial statements.
HOVNANIAN ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Dollars In Thousands)
A Common Stock B Common Stock
------------------- -------------------
Shares Shares
Issued and Issued and Paid-In Retained Deferred Treasury
Outstanding Amount Outstanding Amount Capital Earnings Comp Stock Total
----------- ------ ----------- ------ -------- -------- -------- -------- --------
Balance, October 31, 2001. 20,403,758 $246 7,473,053 $78 $100,957 $310,106 $ (127) $(35,614) $375,646
Acquisitions............. 2,208,738 22 45,692 45,714
Sale of common stock
under employee stock
option plan............ 46,905 324 324
Stock bonus plan......... 61,720 948 948
Conversion of Class B to
Class A Common Stock.... 8,827 (8,827)
Deferred compensation..... 37 37
Treasury stock purchases
adjustment............. (100,000) (1,089) (1,089)
Net Income................ 18,161 18,161
----------- ------ ----------- ------ -------- -------- -------- -------- --------
Balance, January 31, 2002 22,629,948 $268 7,464,226 $78 $147,921 $328,267 $ (90) $(36,703) $439,741
(unaudited) =========== ====== =========== ====== ======== ======== ======== ======== ========
See notes to consolidated financial statements.
HOVNANIAN ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
(unaudited)
Three Months Ended
January 31,
---------------------
2002 2001
---------- ----------
Cash Flows From Operating Activities:
Net Income.......................................... $ 18,161 $ 6,923
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation.................................... 1,658 1,965
Amortization of goodwill........................ 669
(Gain) on sale and retirement of property
and assets.................................... (3) (40)
Deferred income taxes........................... (71) 145
Impairment losses............................... 905 174
Decrease (increase) in assets:
Mortgage notes receivable..................... 26,334 19,205
Receivables, prepaids and other assets........ 3,637 (22,211)
Inventories................................... 19,489 (9,514)
Increase (decrease) in liabilities:
State and Federal income taxes................ 2,307 (544)
Customers' deposits........................... 3,594 932
Interest and other accrued liabilities........ (15,288) (7,587)
Post development completion costs............. (832) 1,964
Accounts payable.............................. 5,488 (6,642)
---------- ----------
Net cash provided by (used in) operating
activities................................ 65,379 (14,561)
---------- ----------
Cash Flows From Investing Activities:
Net proceeds from sale of property and assets....... 136 7
Purchase of property, equipment and other
fixed assets...................................... (1,353) (1,073)
Acquisition of homebuilding companies............... (120,677) (36,936)
Investment in and advances to unconsolidated
affiliates........................................ (1,948) (12)
---------- ----------
Net cash (used in) investing activities..... (123,842) (38,014)
---------- ----------
Cash Flows From Financing Activities:
Proceeds from mortgages and notes................... 706,120 480,328
Principal payments on mortgages and notes........... (622,315) (435,664)
Purchase of treasury stock.......................... (1,089) 67
Proceeds from sale of stock and employee stock plans 1,487 683
---------- ----------
Net cash provided by financing
activities................................ 84,203 45,414
---------- ----------
Net Increase (Decrease) In Cash and Cash Equivalents.. 25,740 (7,161)
Cash and Cash Equivalents Balance, Beginning
Of Period........................................... 16,149 43,253
---------- ----------
Cash and Cash Equivalent Balance, End Of Period....... $ 41,899 $ 36,092
========== ==========
See notes to consolidated financial statements.
HOVNANIAN ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
The accompanying unaudited condensed consolidated financial
statements have been prepared in accordance with generally accepted
accounting principles for interim financial information and with the
instructions to form 10-Q and Article 10 of Regulation S-X. In the opinion
of management, all adjustments for interim periods presented have been
made, which include only normal recurring accruals and deferrals necessary
for a fair presentation of consolidated financial position, results of
operations, and changes in cash flows. The preparation of financial
statements in conformity with accounting principles generally accepted in
the United States requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure
of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates and
these differences could have a significant impact on the financial
statements. Results for the interim periods are not necessarily indicative
of the results which might be expected for a full year. The balance sheet
at October 31, 2001 has been derived from the audited financial statements
at that date but does not include all of the information and footnotes
required by generally accepted accounting principles for complete financial
statements.
2. Interest costs incurred, expensed and capitalized were:
Three Months Ended
January 31,
-------------------
2002 2001
-------- --------
(Dollars in Thousands)
Interest Capitalized at
Beginning of Period......... $ 25,124 $ 25,694
Plus Acquired Entity Interest. 3,604
Plus Interest Incurred(1)(2).. 11,477 11,572
Less Interest Expensed(2)..... 13,702 9,505
-------- --------
Interest Capitalized at
End of Period(2)............ $ 22,899 $ 31,365
======== ========
(1) Data does not include interest incurred by our mortgage and finance
subsidiaries.
(2) Represents acquisition interest for construction, land and development
costs which is charged to interest expense when homes are delivered
and when land is not under active development.
3. Homebuilding accumulated depreciation at January 31, 2002 and
October 31, 2001 amounted to $18,612,000 and $18,367,000, respectively.
Senior residential rental property accumulated depreciation at January 31,
2002 and October 31, 2001 amounted to $2,757,000 and $2,688,000,
respectively.
4. We record impairment losses on inventories related to communities
under development when events and circumstances indicate that they may be
impaired and the undiscounted cash flows estimated to be generated by those
assets are less than their related carrying amounts. In addition, from
time to time, we will write off certain residential land options including
approval, engineering and capitalized interest costs for land management
decided not to purchase. We wrote off such costs in the amount of $801,000
in the Mid South, $20,000 in the Northeast Region, and $84,000 in North
Carolina during the three months ended January 31, 2002. We also wrote off
such costs in the amount of $63,000 in the Northeast Region and $111,000 in
Metro D. C. during the three months ended January 31, 2001. Residential
inventory impairment losses and option write offs are reported in the
Consolidated Statements of Income as "Homebuilding-Inventory Impairment
Loss."
5. We are involved from time to time in litigation arising in the
ordinary course of business, none of which is expected to have a material
adverse effect on us. As of January 31, 2002 and October 31, 2001,
respectively, we are obligated under various performance letters of credit
amounting to $10,573,000 and $10,223,000.
6. We have an unsecured Revolving Credit Agreement ("Agreement")
with a group of banks which provides up to $440,000,000 through July 2004.
Interest is payable monthly and at various rates of either the prime rate
plus 0.40% or LIBOR plus 1.85%. In addition, we pay a fee equal to 0.375%
per annum on the weighted average unused portion of the line. As of
January 31, 2002 and October 31, 2001, there was an outstanding balance of
$35,600,000 and zero, respectively.
7. On January 22, 2002 we issued a $165,000,000 Term Loan to a group
of banks which is due January 22, 2007. Interest is payable monthly at
either the prime rate plus 1.25% or LIBOR plus 2.5%. The proceeds from the
issuance of the Term Loan were primarily used to partially fund the
acquisition of the California operations of The Forecast Group, L.P.
("Forecast"). See Note 8 below.
8. On January 23, 2001 we merged with Washington Homes, Inc. for a
total purchase price of $87.4 million, of which $38.5 million was paid in
cash and 6,352,900 shares of our Class A Common Stock were issued. At the
date of acquisition we loaned Washington Homes, Inc. approximately $57.0
million to pay off their third party debt.
On January 10, 2002 we acquired the California homebuilding
operations of Forecast for an estimated total purchase price of $196.5
million, of which $151.0 million will be paid in cash (including an
estimated adjustment based on Forecast's earnings through January 31, 2002)
and 2,208,738 shares of Class A Common Stock were issued. We acquired
Forecast to expand our California homebuilding operations. In addition, we
have an option to purchase additional land parcels owned by Forecast for a
price of $49.0 million. At the date of the acquisition we also paid off
approximately $88.0 million of Forecast's third party debt. The total
purchase price amounted to $90.4 million over Forecast's book value, of
which $22.8 million was added to inventory to reflect fair value, $18.5
million was paid for two option agreements, a two year consultant's
agreement, and a three year right of first refusal agreement, and the
balance recorded as goodwill.
A Forecast condensed balance sheet (including the effects of purchase
accounting adjustments) as of the acquisition date is as follows (in
thousands):
January 10,
2002
-----------
Cash and cash equivalents........ $ 10,209
Inventories...................... 220,110
Goodwill......................... 49,107
Prepaids and other assets........ 20,676
-----------
Total Assets $ 300,102
===========
Accounts payable and other
liabilities.................... $ 35,028
Revolving credit agreement....... 219,574
Stockholders' equity............. 45,500
-----------
Total Liabilities and
Stockholders' Equity...... $ 300,102
===========
The merger with Washington Homes, Inc. and acquisition of Forecast
were accounted for as purchases with the results of operations of these
entities included in our consolidated financial statements as of the date
of the merger and acquisition. The purchase price was allocated based on
estimated fair value at the date of the merger and acquisition. An
intangible asset equal to the excess purchase price over the fair value of
the net assets of $12.8 million and $49.1 million for Washington Homes and
Forecast, respectively, were recorded as goodwill on the consolidated
balance sheet. The Washington Homes amount was being amortized on a
straight line basis over a period of ten years during fiscal 2001. On
November 1, 2001 we adopted Statement of Financial Accounting Standards No.
142, "Goodwill and Other Intangible Assets" ("SFAS No. 142"). As a result
of adopting SFAS No. 142, goodwill is no longer amortized.
The following unaudited pro forma financial data for the three months
ended January 31, 2002 and 2001 has been prepared as if the merger with
Washington Homes, Inc. on January 23, 2001 and the acquisition of Forecast
on January 10, 2002 had occurred on November 1, 2000. Unaudited pro forma
financial data is presented for information purposes only and may not be
indicative of the actual amounts had the events occurred on the dates
listed above, nor does it purport to represent future periods (in
thousands).
Three Months Ended January 31,
------------------------------
2002 2001
----------- -----------
Revenues............................. $ 518,601 $ 447,823
Expenses............................. 483,440 430,089
Income Taxes......................... 13,734 6,369
----------- -----------
Net Income........................... $ 21,427 $ 11,365
=========== ===========
Diluted Net Income Per Common Share.. $ 0.67 $ 0.37
=========== ===========
9. Restructuring Charges - Restructuring charges are estimated
expenses associated with the merger of our operations with those of
Washington Homes, Inc. as a result of the merger on January 23, 2001.
Under our merger plan, administration offices in Maryland, Virginia, and
North Carolina were either closed, relocated, or combined. The merger of
administration offices was completed by July 31, 2001. At January 31,
2001, expenses were accrued for salaries, severance and outplacement costs
for the involuntary termination of associates, costs to close and/or
relocate existing administrative offices, and lost rent and leasehold
improvements. During the year ended October 31, 2001 our estimate for
restructuring charges was increased to a total of $3.2 million. We have
provided for the termination of 65 associates. We accrued approximately
$2.0 million to cover termination and related costs. Associates being
terminated were primarily administrative. In addition, we accrued
approximately $1.2 million to cover closing and/or relocation of various
administrative offices in these three states. Such amounts are included in
accounts payable and other liabilities in the accompanying financial
statements. $305,000 was charged against the reserve during the three
months ended January 31, 2002. At January 31, 2002 $1.7 million has been
charged against termination costs relating to the termination of 62
associates and $0.7 million has been charged against office closings and
relocation costs.
10. Intangible Assets - As reported on the balance sheet we have
goodwill totaling $81.7 million. We have no other intangible assets.
During the three months ended January 31, 2002 we added $49.1 million of
goodwill as a result of the Forecast acquisition. Goodwill deductible for
income tax purposes is approximately $550,000 for the three months ended
January 31, 2002. Amortization of good will in the amount of $669,000 was
recorded for the three month period ended January 31, 2001 and is also
included in other operations in the accompanying financial statements.
After tax the goodwill amortization for the three months ended January 31,
2001 amounted to approximately $450,000, which if eliminated from net
income would have increased earnings per share approximately $0.02.
In accordance with SFAS No. 142 the Company no longer amortizes
goodwill but instead reviews goodwill quarterly for impairment. The
impairment test uses a fair value approach rather than the undiscounted
cash flows approach. The Company has determined that goodwill was not
impaired as of January 31, 2002.
11. Hovnanian Enterprises, Inc., the parent company (the "Parent")
is the issuer of publicly traded common stock. One of its wholly owned
subsidiaries, K. Hovnanian Enterprises, Inc., (the "Subsidiary Issuer") was
the issuer of certain Senior Notes on May 4, 1999 and October 2, 2000.
The Subsidiary Issuer acts as a finance and management entity that as
of January 31, 2002 had issued and outstanding approximately $99,747,000
subordinated notes, $300,000,000 senior notes, a revolving credit agreement
with an outstanding balance of $35,600,000, and a term loan with an
outstanding balance of $165,000,000. The subordinated notes, senior notes,
the revolving credit agreement, and term loan are fully and unconditionally
guaranteed by the Parent.
Each of the wholly owned subsidiaries of the Parent (collectively the
"Guarantor Subsidiaries"), with the exception of various subsidiaries
formerly engaged in the issuance of collateralized mortgage obligations, a
mortgage lending subsidiary, a subsidiary holding and licensing the "K.
Hovnanian" trade name, a subsidiary engaged in homebuilding activity in
Poland, our title subsidiaries, and joint ventures (collectively the "Non-
guarantor Subsidiaries"), have guaranteed fully and unconditionally, on a
joint and several basis, the obligation to pay principal and interest under
the senior notes and the revolving credit agreement of the Subsidiary
Issuer.
In lieu of providing separate audited financial statements for the
Guarantor Subsidiaries we have included the accompanying consolidated
condensed financial statements. Management does not believe that separate
financial statements of the Guarantor Subsidiaries are material to
investors. Therefore, separate financial statements and other disclosures
concerning the Guarantor Subsidiaries are not presented.
The following consolidating condensed financial information present
the results of operations, financial position, and cash flows of (i) the
Parent, (ii) the Subsidiary Issuer, (iii) the Guarantor Subsidiaries of the
Parent, (iv) the Non-guarantor Subsidiaries of the Parent, and (v) the
eliminations to arrive at the information for Hovnanian Enterprises, Inc.
on a consolidated basis.
HOVNANIAN ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
CONSOLIDATING CONDENSED BALANCE SHEET
JANUARY 31, 2002
(Thousands of Dollars)
Guarantor Non-
Subsidiary Subsid- Guarantor Elimin- Consol-
Parent Issuer iaries Subsidiaries ations idated
-------- ---------- ---------- ------------ ---------- ----------
ASSETS
Homebuilding.......................$ (884) $ 77,788 $1,151,588 $ 8,740 $ $1,237,232
Financial Services................. 206 92,878 93,084
Investments in and amounts due to
and from consolidated
subsidiaries..................... 445,161 534,071 (873,503) 17,520 (123,249)
-------- ---------- ---------- ------------ ---------- ----------
Total Assets.......................$444,277 $ 611,859 $ 278,291 $ 119,138 $(123,249) $1,330,316
======== ========== ========== ============ ========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Homebuilding.......................$ $ 6,411 $ 201,155 $ 91 $ $ 207,657
Financial Services................. 73,520 73,520
Notes Payable...................... 607,697 184 607,881
Income Taxes Payable............... 4,536 4,192 (9,825) 2,614 1,517
Stockholders' Equity............... 439,741 (6,441) 86,777 42,913 (123,249) 439,741
-------- ----------- ---------- ------------ ---------- ----------
Total Liabilities and Stockholders'
Equity...........................$444,277 $ 611,859 $ 278,291 $ 119,138 $(123,249) $1,330,316
======== ========== ========== ============ ========== ==========
HOVNANIAN ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATING CONDENSED BALANCE SHEET
OCTOBER 31, 2001
(Thousands of Dollars)
Guarantor Non-
Subsidiary Subsid- Guarantor Elimin- Consol-
Parent Issuer iaries Subsidiaries ations idated
-------- ---------- ---------- ------------ ---------- ----------
Assets
Homebuilding.......................$ 2,022 $ 50,565 $ 882,715 $ 10,229 $ $ 945,531
Financial Services................. 205 117,803 118,008
Income Taxes (Payables)Receivables. (5,067) (3,658) 11,893 (2,449) 719
Investments in and amounts due to
and from consolidated
subsidiaries..................... 378,691 375,514 (668,285) 14,513 (100,433)
-------- ---------- ---------- ------------ ---------- ----------
Total Assets.......................$375,646 $ 422,421 $ 226,528 $ 140,096 $(100,433) $1,064,258
======== ========== ========== ============ ========== ==========
Liabilities
Homebuilding.......................$ $ 14,679 $ 161,759 $ 291 $ $ 176,729
Financial Services................. 103,569 103,569
Notes Payable...................... 408,206 108 408,314
Stockholders' Equity............... 375,646 (464) 64,661 36,236 (100,433) 375,646
-------- ---------- ---------- ------------ ---------- ----------
Total Liabilities and Stockholders'
Equity...........................$375,646 $ 422,421 $ 226,528 $ 140,096 $(100,433) $1,064,258
======== ========== ========== ============ ========== ==========
HOVNANIAN ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
CONSOLIDATING CONDENSED STATEMENT OF OPERATIONS
THREE MONTHS ENDED JANUARY 31, 2002
(Thousands of Dollars)
Guarantor Non-
Subsidiary Subsid- Guarantor Elimin- Consol-
Parent Issuer iaries Subsidiaries ations idated
------- ---------- ---------- ------------ ---------- ----------
Revenues:
Homebuilding.....................$ $ 145 $ 444,636 $ 5,533 $ (5,049) $ 445,265
Financial Services .............. 1,362 7,625 8,987
Intercompany Charges............. 30,259 2,483 (32,742)
Equity In Pretax Income of
Consolidated Subsidiaries...... 29,797 (29,797)
------- ---------- ---------- ------------ ---------- ----------
Total Revenues.................$29,797 $ 30,404 $ 448,481 $ 13,158 $ (67,588) $ 454,252
------- ---------- ---------- ------------ ---------- ----------
Expenses:
Homebuilding..................... 30,404 423,934 575 (35,817) 419,096
Financial Services............... 558 5,246 (445) 5,359
------- ---------- ---------- ------------ ---------- ----------
Total Expenses................. 30,404 424,492 5,821 (36,262) 424,455
------- ---------- ---------- ------------ ---------- ----------
Income Before Income Taxes......... 29,797 23,989 7,337 (31,326) 29,797
State and Federal Income Taxes..... 11,636 27 9,349 2,795 (12,171) 11,636
------- ---------- ---------- ------------ ---------- ----------
Net Income.........................$18,161 $ (27) $ 14,640 $ 4,542 $ (19,155) $ 18,161
======= ========== ========== ============ ========== ==========
HOVNANIAN ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
CONSOLIDATING CONDENSED STATEMENT OF OPERATIONS
THREE MONTHS ENDED JANUARY 31, 2001
(Thousands of Dollars)
Guarantor Non-
Subsidiary Subsid- Guarantor Elimin- Consol-
Parent Issuer iaries Subsidiaries ations idated
------- ---------- ---------- ------------ ---------- ----------
Revenues:
Homebuilding.....................$ $ 65 $ 286,281 $ 7,516 $ (6,212) $ 287,650
Financial Services............... 2,018 3,520 5,538
Intercompany Charges............. 30,410 (1,954) (28,456)
Equity In Pretax Income of
Consolidated Subsidiaries...... 11,560 (11,560)
------- ---------- ---------- ------------ ---------- ----------
Total Revenues................ 11,560 30,475 286,345 11,036 (46,228) 293,188
------- ---------- ---------- ------------ ---------- ----------
Expenses:
Homebuilding and Other........... 29,913 283,085 1,254 (36,404) 277,848
Financial Services............... 1,288 2,589 (97) 3,780
------- ---------- ---------- ------------ ---------- ----------
Total Expenses................. 29,913 284,373 3,843 (36,501) 281,628
------- ---------- ---------- ------------ ---------- ----------
Income Before Income Taxes......... 11,560 562 1,972 7,193 (9,727) 11,560
State and Federal Income Taxes..... 4,637 352 70 2,814 (3,236) 4,637
------- ---------- ---------- ------------ ---------- ----------
Net Income.........................$ 6,923 $ 210 $ 1,902 $ 4,379 $ (6,491) $ 6,923
======= ========== ========== ============ ========== ==========
HOVNANIAN ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
CONSOLIDATING CONDENSED STATEMENT OF CASH FLOWS
THREE MONTHS ENDED JANUARY 31, 2002
(Thousands of Dollars)
Guarantor Non-
Subsidiary Subsid- Guarantor Elimin- Consol-
Parent Issuer iaries Subsidiaries ations idated
-------- --------- ---------- ------------ ---------- ----------
Cash Flows From Operating Activities:
Net Income.........................$ 18,161 $ (27) $ 14,640 $ 4,542 $ (19,155) $ 18,161
Adjustments to reconcile net income
to net cash provided by
(used in) operating activities... 92,738 9,132 (100,389) 26,582 19,155 47,218
-------- --------- ---------- ------------ ---------- ----------
Net Cash Provided By (Used In)
Operating Activities........... 110,899 9,105 (85,749) 31,124 65,379
Net Cash Provided by (Used In)
Investing Activities............... (43,340) (1,033) (79,395) (74) (123,842)
Net Cash Provided By(Used In)
Financing Activities............... (1,089) 200,698 (85,428) (29,978) 84,203
Intercompany Investing and Financing
Activities - Net..................... (66,470) (188,816) 258,293 (3,007)
-------- --------- ---------- ------------ ---------- ----------
Net Increase (Decrease) In Cash and
Cash Equivalents................... 19,954 7,721 (1,935) 25,740
Cash and Cash Equivalents Balance,
Beginning of Period................ 10 (5,840) 15,616 6,363 16,149
-------- --------- ---------- ------------ ---------- ----------
Cash and Cash Equivalents Balance,
End of Period......................$ 10 $ 14,114 $ 23,337 $ 4,428 $ $ 41,889
======== ========= ========== ============ ========== ==========
HOVNANIAN ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
CONSOLIDATING CONDENSED STATEMENT OF CASH FLOWS
THREE MONTHS ENDED JANUARY 31, 2001
(Thousands of Dollars)
Guarantor Non-
Subsidiary Subsid- Guarantor Elimin- Consol-
Parent Issuer iaries Subsidiaries ations idated
-------- --------- ---------- ------------ ---------- ----------
Cash Flows From Operating Activities:
Net Income.........................$ 6,923 $ 210 $ 1,902 $ 4,379 $ (6,491) $ 6,923
Adjustments to reconcile net income
to net cash provided by
(used in) operating activities... 93,226 35,300 (173,139) 16,639 6,491 (21,483)
-------- --------- ---------- ------------ ---------- ----------
Net Cash Provided By (Used In)
Operating Activities........... 100,149 35,510 (171,237) 21,018 (14,560)
Net Cash Provided by (Used In)
Investing Activities............... (45,218) (17,819) 25,023 (38,014)
Net Cash Provided By(Used In)
Financing Activities............... 67 119,863 (55,942) (18,574) 45,414
Intercompany Investing and Financing
Activities - Net..................... (54,926) (161,569) 219,352 (2,857)
-------- --------- ---------- ------------ ---------- ----------
Net Increase (Decrease) In Cash and
Cash Equivalents................... 72 (24,015) 17,196 (413) (7,160)
Cash and Cash Equivalents Balance,
Beginning of Period................ (63) 17,629 22,506 3,181 43,253
-------- --------- ---------- ------------ ---------- ----------
Cash and Cash Equivalents Balance,
End of Period......................$ 9 $ (6,386) $ 39,702 $ 2,768 $ $ 36,093
======== ========= ========== ============ ========== ==========
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
CAPITAL RESOURCES AND LIQUIDITY
Our cash uses during the three months ended January 31, 2002 were
for operating expenses, seasonal increases in housing inventories,
construction, income taxes, interest, the repurchase of common stock,
and the acquisition of the California operations of The Forecast Group,
L.P. ("Forecast"). We provided for our cash requirements from housing
and land sales, the revolving credit facility, the issuance of a term
loan, financial service revenues, and other revenues. We believe that
these sources of cash are sufficient to finance our working capital
requirements and other needs.
On December 31, 2000, our stock repurchase program to purchase up
to 4 million shares of Class A Common Stock expired. As of December 31,
2000, 3,391,047 shares had been purchased under this program. On July
3, 2001, our Board of Directors authorized a revision to our stock
repurchase program to purchase up to 2 million shares of Class A Common
Stock. As of January 31, 2002, 558,700 have been purchased under this
program.
Our homebuilding bank borrowings are made pursuant to a revolving
credit agreement (the "Agreement") that provides a revolving credit line
and letter of credit line of up to $440,000,000 through July 2004.
Interest is payable monthly and at various rates of either the prime
rate plus .40% or Libor plus 1.85%. We believe that we will be able
either to extend the Agreement beyond July 2004 or negotiate a
replacement facility, but there can be no assurance of such extension or
replacement facility. We currently are in compliance and intend to
maintain compliance with the covenants under the Agreement. As of
January 31, 2002, borrowings under the Agreement were $35,600,000.
The subordinated indebtedness issued by us and outstanding as of
January 31, 2002 was $99,747,000 9 3/4% Subordinated Notes due June
2005. The senior indebtedness issued by us and outstanding as of
January 31, 2002 was $150,000,000 10 1/2% Senior Notes due October 2007
and $150,000,000 9 1/8% Senior Notes due May 2009.
On January 22, 2002 we issued a $165,000,000 Term Loan to a group
of banks which is due January 22, 2007. Interest is payable monthly at
either the prime rate plus 1.25% or LIBOR plus 2.5%. The proceeds from
the issuance of the Term Loan were primarily used to partially fund the
acquisition of the California operations of Forecast.
Our mortgage banking subsidiary borrows under a $110,000,000 bank
warehousing arrangement which expires in July 2002. Interest is payable
monthly at the Federal Funds Rate plus 1.125%. We believe that we will
be able either to extend this agreement beyond July 2002 or negotiate a
replacement facility, but there can be no assurance of such extension or
replacement facility. Other finance subsidiaries formerly borrowed from
a multi-builder owned financial corporation and a builder owned
financial corporation to finance mortgage backed securities, but in
fiscal 1988 decided to cease further borrowing from multi-builder and
builder owned financial corporations. These non-recourse borrowings
have been generally secured by mortgage loans originated by one of our
subsidiaries. As of January 31, 2002, the aggregate principal amount of
all such borrowings was $70,728,000.
Total inventory increased $199,716,000 during the three months
ended January 31, 2002. The increase in inventory was primarily due to
the acquisition of Forecast. In addition inventory levels increased
slightly in most of our other housing markets. Substantially all homes
under construction or completed and included in inventory at January 31,
2002 are expected to be closed during the next twelve months. Most
inventory completed or under development is financed through our line of
credit, term loan, and senior and subordinated indebtedness.
We usually option property for development prior to
acquisition. By optioning property, we are only subject to the loss of
a small option fee and predevelopment costs if we choose not to exercise
the option. As a result, our commitment for major land acquisitions is
reduced.
The following table summarizes housing lots included in our residential real
estate. The January 31, 2002 numbers exclude lots owned and options in
locations that we have ceased development.
Active Contracted Active Proposed Grand Total
Active Selling Not Lots Developable Lots
Communities Lots Delivered Available Lots Available
----------- ------- ---------- --------- ----------- -----------
January 31, 2002:
Northeast Region.. 23 5,431 1,104 4,327 10,262 14,589
North Carolina.... 57 4,519 522 3,997 2,224 6,221
Metro D.C......... 35 3,578 779 2,799 4,701 7,500
California........ 35 4,438 568 3,870 3,413 7,283
Texas............. 34 1,638 219 1,419 940 2,359
Mid South......... 18 1,194 108 1,086 -- 1,086
----------- ------- ---------- ---------- ---------- -----------
202 20,798 3,300 17,498 21,540 39,038
=========== ======= ========== ========== ========== ===========
Owned.......... 10,996 2,883 8,113 2,859 10,972
Optioned....... 9,802 417 9,385 18,681 28,066
------- ---------- ---------- ---------- -----------
Total........ 20,798 3,300 17,498 21,540 39,038
======= ========== ========== ========== ===========
Active Contracted Active Proposed Grand Total
Active Selling Not Lots Developable Lots
Communities Lots Delivered Available Lots Available
----------- ------- ---------- --------- ----------- -----------
October 31, 2001:
Northeast Region.. 23 5,561 1,136 4,425 10,314 14,739
North Carolina.... 54 4,264 534 3,730 2,312 6,042
Metro D.C......... 34 2,622 779 1,843 4,946 6,789
California........ 8 1,499 172 1,327 171 1,498
Texas............. 35 1,788 263 1,525 1,040 2,565
Mid South......... 18 1,279 122 1,157 -- 1,157
Other............. -- 17 3 14 992 1,006
----------- ------- ---------- ---------- ---------- -----------
172 17,030 3,009 14,021 19,775 33,796
=========== ======= ========== ========== ========== ===========
Owned.......... 6,918 2,525 4,393 4,035 8,428
Optioned....... 10,112 484 9,628 15,740 25,368
------- ---------- ---------- ---------- -----------
Total........ 17,030 3,009 14,021 19,775 33,796
======= ========== ========== ========== ===========