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 NOVEMBER 30, 1993  or

            [   ]  Transition report pursuant to Section 13 or 15 (d) of
                   the
                   Securities Exchange Act of 1934

                   For the transition period from             to

            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)

            908-747-7800
            (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
            preceeding  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.   14,329,670 Class A  Common Shares   and
            8,512,379 Class  B  Common  Shares were  outstanding  as  of
            December 31, 1993.



                                 HOVNANIAN ENTERPRISES, INC.

                                          FORM 10Q

                                            INDEX


                                                               PAGE NUMBER

            PART I.   Financial Information

                 Item l.  Consolidated Financial Statements:

                          Consolidated Balance Sheets at November 30,
                            1993 (unaudited) and February 28, 1993      3

                          Consolidated Statements of Income and
                            Retained Earnings for the three and nine
                            months ended November 30, 1993 and 1992
                            (unaudited)                                 5

                          Consolidated Statements of Stockholders'
                            Equity for the nine months ended
                            November 30, 1993 (unaudited)               6

                          Consolidated Statements of Cash Flows
                            for the nine months ended November 30,
                            1993 and 1992 (unaudited)                   7

                          Notes to Consolidated Financial
                            Statements (unaudited)                      8

                 Item 2.  Management's Discussion and Analysis
                            of Financial Condition and Results
                            of Operations                               9

            PART II.  Other Information

                 Item 6(b). No reports on Form 8K have been
                              filed during the quarter for
                              which this report is filed.

            Signatures                                                19


HOVNANIAN ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In Thousands)
November February ASSETS 30, 1993 28, 1993 ---------- ---------- Cash: Demand deposits................................. $4,784 $10,211 Escrow accounts................................. 5,270 6,854 ---------- ---------- Total cash.................................. 10,054 17,065 ---------- ---------- Receivables: Customer accounts and other..................... 15,655 11,010 Escrow and deposits............................. 9,045 6,968 Related parties................................. 1,926 803 ---------- ---------- Total receivables........................... 26,626 18,781 ---------- ---------- Mortgages and Notes Receivable: Collateralized mortgages receivable............. 33,187 40,355 Residential mortgages receivable................ 19,316 34,108 Other mortgages and notes receivable............ 4,432 4,390 ---------- ---------- Total Mortgages and notes receivable-net.... 56,935 78,853 ---------- ---------- Inventories- At cost, not in excess of market: Real estate under development: Accumulated cost of construction: Finished...................................... 34,391 31,994 In progress................................... 39,888 19,955 Land and land development costs................. 188,940 128,888 Land, land options, and costs of projects in planning.................................. 73,933 62,554 ---------- ---------- Total inventories........................... 337,152 243,391 ---------- ---------- Property - At cost: Operating property.............................. 20,508 19,296 Less accumulated depreciation................... 10,840 10,800 ---------- ---------- Net operating property........................ 9,668 8,496 ---------- ---------- Rental property................................. 58,642 49,923 Less accumulated depreciation................... 6,797 5,748 ---------- ---------- Net rental property........................... 51,845 44,175 ---------- ---------- Income producing properties under development..... 18,612 18,015 ---------- ---------- Property net................................ 80,125 70,686 ---------- ---------- Investment In and Advances To Unconsolidated Affiliate and Joint Venture................... 4,373 4,565 ---------- ---------- Prepaid Expenses and Other Assets................. 41,709 31,688 ---------- ---------- Total Assets...................................... $556,974 $465,029 ========== ========== See notes to consolidated financial statements.
HOVNANIAN ENTERPRISES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (In Thousands)
November February LIABILITIES AND STOCKHOLDERS' EQUITY 30, 1993 28, 1993 ---------- ---------- Mortgage and Notes Payable: Nonrecourse land mortgages...................... $11,895 $13,431 Revolving credit agreement...................... 53,400 15,000 Mortgage warehouse line of credit............... 11,248 16,691 Nonrecourse mortgages secured by building, land, and land improvements................... 21,488 21,577 ---------- ---------- Total Mortgages and Notes Payable............. 98,031 66,699 ---------- ---------- Bonds Collateralized By Mortgages Receivable 32,985 39,914 ---------- ---------- Subordinated Notes................................ 202,159 152,157 ---------- ---------- Accounts Payable.................................. 14,773 12,532 ---------- ---------- Customers' Deposits............................... 20,052 8,129 ---------- ---------- Accrued Liabilities: State income taxes.............................. 289 705 Federal income taxes: Current....................................... (718) 3,188 Deferred ..................................... (1,990) (5,522) Interest........................................ 6,795 6,056 Post development completion costs............... 10,972 8,979 Other........................................... 13,993 20,255 ---------- ---------- Total accrued liabilities..................... 29,341 33,661 ---------- ---------- Total liabilities........................... 397,341 313,092 ---------- ---------- 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 14,654,637 shares (including 345,874 shares held in Treasury)... 147 137 Common Stock,Class B,$.01 par value authorized 13,000,000 shares; issued 8,879,160 shares (including 345,874 shares held in Treasury)... 88 98 Paid in Capital................................. 32,301 31,882 Retained Earnings............................... 132,396 125,119 Treasury Stock - at cost........................ (5,299) (5,299) ---------- ---------- Total stockholders' equity.................. 159,633 151,937 ---------- ---------- Total Liabilities and Stockholders' Equity........ $556,974 $465,029 ========== ========== See notes to consolidated financial statements.
HOVNANIAN ENTERPRISES, INC. AND SUBS CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS (In Thousands Except Per Share Data)
Three Mos Ended Nine Mos Ended November 30, November 30, ------------------ ----------------- 1993 1992 1993 1992 -------- -------- -------- -------- Revenues: Housing sales.................... $136,231 $109,435 $310,222 $220,378 Land and lot sales............... 760 638 2,121 9,069 Rental program................... 1,863 1,364 5,386 4,341 Mortgage banking and finance ops. 2,462 2,399 6,931 6,138 Other operations................. 1,762 1,758 4,659 4,439 -------- -------- -------- -------- Total revenues................. 143,078 115,594 329,319 244,365 -------- -------- -------- -------- Costs and Expenses: Construction, land, interest and operations...................... 110,765 89,786 255,063 189,714 Provision to reduce inventory to estimated net realizable value.. 3,100 3,100 Selling, general and admin....... 19,322 13,921 44,799 33,418 Rental operations................ 2,496 2,452 6,955 7,145 Mortgage banking and finance ops. 2,534 2,214 7,528 6,482 Other operations................. 1,040 1,013 2,468 2,717 -------- -------- -------- -------- Total costs and expenses....... 136,157 112,486 316,813 242,576 -------- -------- -------- -------- Income Before Income Taxes and Extraordinary Loss................. 6,921 3,108 12,506 1,789 -------- -------- -------- -------- State and Federal Income Taxes: State............................. 97 409 730 582 Federal: Current......................... 1,867 812 (310) (3,135) Deferred........................ 188 (69) 3,532 2,844 -------- -------- -------- -------- Total taxes..................... 2,152 1,152 3,952 291 -------- -------- -------- -------- Income Before Extraordinary Loss.... 4,769 1,956 8,554 1,498 Extraordinary Loss from Extinguish- ment of Debt, Net of Income Taxes.. (1,277) -------- -------- -------- -------- Net Income.......................... 4,769 1,956 7,277 1,498 Retained Earnings, Beg of Period.... 127,627 114,871 125,119 115,329 -------- -------- -------- -------- Retained Earnings, End of Period.... $132,396 $116,827 $132,396 $116,827 ======== ======== ======== ======== Income Per Common Share: Income before extraordinary loss.. $0.21 $0.09 $0.38 $0.07 Extraordinary loss................ (0.06) -------- -------- -------- -------- Net income ......................... $0.21 $0.09 $0.32 $0.07 ======== ======== ======== ======== Weighted Average Number of Shares Outstanding........................ 22,839 22,779 22,814 22,773 ======== ======== ======== ======== 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 Dol- Issued and Dol- Paid-In Retained Treasury Outstanding lars Outstanding lars Capital Earnings Stock Total ----------- ---- ----------- ----- ------- -------- -------- --------- Balance, February 28, 1993.. 13,320,754 $137 9,462,793 $98 $31,882 $125,119 ($5,299) $151,937 Sale of common stock under employee stock option plan. 29,250 29,250 419 419 Conversion of Class B to Class A common stock....... 958,759 10 (958,757) (10) Net Income.................. 7,277 7,277 ---------- ---- ----------- ----- ------- -------- -------- -------- Balance, November 30, 1993.. 14,308,763 $147 8,533,286 $88 $32,301 $132,396 ($5,299) $159,633 ========== ==== =========== ===== ======= ======== ========= ========
HOVNANIAN ENTERPRISES, INC. AND CONSOLIDATED STATEMENTS OF CASH FLOWS (In Thousands)
Nine Months Ended November 30, ----------------- 1993 1992 -------- -------- Cash Flows From Operating Activities: Net Income ...................................... $7,277 $1,498 Adjustments to reconcile net income to net cash used by operating activities: Depreciation................................. 2,161 1,800 Loss (gain) on sale and retirement of property and assets................................. 387 (512) Deferred income taxes........................ 3,532 2,843 Loss from unconsolidated affiliates.......... 56 183 Decrease (increase) in assets: Receivables, prepaids and other assets..... (17,866) (22,701) Mortgages receivable....................... 13,875 3,804 Inventories................................ (93,761) (70,445) Increase (decrease) in liabilities: State and Federal income taxes............. (4,322) (3,012) Customers' deposits........................ 11,923 6,793 Interest and other accrued liabilities..... (5,523) 5,530 Post development completion costs.......... 1,993 (3,700) Accounts payable........................... 2,241 7,794 Amortization of debenture discounts........ 2 7 -------- -------- Net cash used by operating activities.... (78,025) (70,118) -------- -------- Cash Flows From Investing Activities: Proceeds from sales of property and assets....... 2,755 2,878 Investment in property and assets................ (2,560) (2,658) Purchase of property............................. (2,138) (2,529) Investment in and advances to unconsolidated affiliates..................................... 136 (350) Investment in incoming producing properties...... (10,044) (3,159) Investment in loans from sale of subsidiaries.... 50 (86) -------- -------- Net cash used by investing activities.... (11,801) (5,904) -------- -------- Cash Flows From Financing Activities: Proceeds from mortgages and notes................ 366,879 159,604 Proceeds from subordinated debt.................. 96,870 97,000 Principal payments on mortgages and notes........ (339,346)(189,482) Principal payments on subordinated debt.......... (50,000) (5,590) Investment in mortgages receivable............... 7,993 8,528 Proceeds from sale of stock...................... 419 155 -------- -------- Net cash provided by financing activities 82,815 70,215 -------- -------- Net Decrease In Cash............................... (7,011) (5,807) Cash Balance, Beginning of Period.................. 17,065 15,889 -------- -------- Cash Balance, End of Period........................ $10,054 $10,082 ======== ======== See notes to consolidated financial statements.
HOVNANIAN ENTERPRISES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED 1. The consolidated financial statements, except for the February 28, 1993 consolidated balance sheets, have been prepared without audit. In the opinion of management, all adjustments for interim periods presented have been made, which include only normal recurring accruals and deferrals necessary for a fair presentation of consolidated financial position, results of operations, and changes in cash flows. Results for the interim periods are not necessarily indicative of the results which might be expected for a full year. 2. Interest costs incurred, expensed and capitalized were: Three Months Ended Nine Months Ended ------------------ ------------------ 11/30/93 11/30/92 11/30/93 11/30/92 -------- -------- -------- -------- Interest Incurred (1): Residential (3)...................$ 4,454 $ 4,777 $14,574 $12,241 Commercial(4)..................... 1,369 1,558 3,948 4,682 ------- ------- ------- ------- Total Incurred..................$ 5,823 $ 6,335 $18,522 $16,923 ======= ======= ======= ======= Interest Expensed: Residential (3)...................$ 3,769 $ 4,761 $10,576 $10,989 Commercial (4)..................... 1,291 1,466 3,710 4,366 ------- ------- ------- ------- Total Expensed.................$ 5,060 $ 6,227 $14,286 $15,355 ======= ======= ======= ======= Interest Capitalized at Beginning of Period...............$26,553 $25,161 $23,365 $24,062 Plus Interest Incurred............... 5,823 6,335 18,522 16,923 Less Interest Expensed............... 5,060 6,227 14,286 15,355 Less Charges to Reserves............. 84 272 329 633 Less Sale of Assets.................. 40 ------- ------- ------- ------- Interest Capitalized at End of Period ....................$27,232 $24,997 $27,232 $24,997 ======= ======= ======= ======= Interest Capitalized at End of Period (5): Residential(3)....................$21,030 $17,399 $21,030 $17,399 Commercial(2)..................... 6,202 7,598 6,202 7,598 ------- ------- ------- ------- Total Capitalized...............$27,232 $24,997 $27,232 $24,997 ======= ======= ======= ======= (1) Does not include interest incurred by the Company's mortgage and finance subsidiaries. (2) Does not include a reduction for depreciation. (3) Represents acquisition interest for construction, land and development costs which is charged to cost of sales. (4) Represents interest charged to rental operations. (5) Capitalized residential interest at November 30, 1993 includes $1,635,000 reported at February 28, 1993 as capitalized commercial interest. This reclassification was the result of the transfer of two parcels of land from commercial due to a change in intended use to residential housing. 3. In July 1993, the Company redeemed all of its outstanding 12 1/4% Subordinated Notes due 1998 at a price of 102% of par. The principal amount redeemed was $50,000,000 and the redemption resulted in an extraordinary loss of $1,277,000, net of income taxes of $658,000. As of May 31, 1993, the Company accrued and expensed the premium paid and expensed all unamortized prepaid issuance expenses as an extraordinary loss. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS CAPITAL RESOURCES AND LIQUIDITY The Company's uses for cash during the nine months ended November 30, 1993 were for operating expenses, seasonal increases in housing inventories, construction, acquisition of commercial facilities, income taxes, interest and the redemption of Subordinated Notes. The Company provided for its cash requirements from outside borrowings, including the Revolving Credit Facility and Subordinated Notes as well as from housing revenues. The Company believes that these sources of cash are sufficient to finance its working capital requirements and other needs. The Company's bank borrowings are made pursuant to a revolving credit agreement (the "Agreement") which provides a revolving credit line of up to $115,000,000 (the "Revolving Credit Facility") through July 1996. The Company currently is in compliance and intends to maintain compliance with its covenants under the Agreement. As of November 30, 1993, borrowings under the Agreement were $53,400,000. On June 7, 1993 the Company issued $100,000,000 9 3/4% Subordinated Notes due 2005. There are no sinking fund payments prior to maturity. In July 1993, the Company redeemed all of its outstanding 12 1/4% Subordinated Notes due 1998 at a price of 102% of par. The aggregate principal amount of all subordinated indebtedness issued by the Company and outstanding as of November 30, 1993 was $202,160,000. The Company's mortgage banking subsidiary borrows under a bank warehousing arrangement. 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 the Company's subsidiaries. As of November 30, 1993, the aggregate principal amount of all such borrowings was $44,233,000. The book value of the Company's residential inventories, rental condominiums, and commercial properties completed and under development amounted to the following: November 30, February 28, 1993 1993 ------------ ------------ Residential real estate inventory............ $337,152,000 $243,391,000 Residential rental condominiums.............. 3,465,000 3,973,000 ------------ ------------ Total Residential Real Estate.............. 340,617,000 247,364,000 Commercial properties........................ 66,992,000 58,217,000 ------------ ------------ Combined Total............................. $407,609,000 $305,581,000 ============ ============ Total residential real estate increased $93,253,000 during the nine months ended November 30, 1993 as a result of an inventory increase of $93,761,000, and a rental condominium decrease of $508,000. The increase in residential real estate inventory was primarily due to the Company's seasonal increase in construction activities for deliveries later this year, the Company's overall increase in housing volume and the expansion into the metro Washington D.C. area. The Company's rental condominiums declined due to the Company's continued liquidation of such property. Substantially all residential homes under construction or completed and included in real estate inventory at November 30, 1993 are expected to be sold and closed during the next twelve months. Most residential real estate completed or under development is financed through the Company's line of credit and subordinated indebtedness. The following table summarizes housing lots in the Company's active communities under development: Home Remaining Commun. Lots Contracted Lots Under Owned/ Homes Not Available Develop. Approved Closed Closed (1) ------- -------- ------ ---------- --------- November 30, 1993... 82 10,113 4,978 2,264 2,871 February 28, 1993... 70 9,543 3,620 1,335 4,588 (1) Of the total home lots available, 400 and 403 were under construction or complete (including 93 and 104 models and sales offices) at November 30, 1993 and February 28, 1993, respectively. In addition, in substantially completed or suspended developments the Company had 813 and 943 home lots at November 30, 1993 and February 28, 1993, respectively. The Company also controls a supply of land primarily through options for future development. This land is consistent with anticipated home building requirements in its housing markets. At November 30, 1993 the Company controlled such land to build 12,695 proposed homes, compared to 11,902 homes at February 28, 1993. The Company's commercial properties represent long-term investments in commercial and retail facilities completed or under development (see "Rental Program" and "Other Operations" under "Results of Operations"). During the first nine months of fiscal 1994, the increase in commercial properties was primarily the result of the acquisition of a 116,000 sq. ft. retail center in Wall Township, New Jersey. When individual facilities are completed and substantially leased, the Company will have the ability to obtain long-term financing on such properties. At November 30, 1993, the Company had long-term non-recourse financing aggregating $18,506,000 on three commercial facilities, a decrease of $66,000 from February 28,1993, due to principal amortization. The Company's mortgages and notes receivable amounted to the following: November 30, February 28, 1993 1993 ------------ ------------ Collateralized mortgages receivable........ $33,187,000 $40,355,000 Residential mortgages receivable........... 19,316,000 34,108,000 Land and lot mortgages receivable.......... 1,395,000 1,343,000 Notes from the sale of subsidiaries........ 3,037,000 3,047,000 ----------- ----------- Total Mortgages and Notes Receivable $56,935,000 $78,853,000 =========== =========== The collateralized mortgages receivable are pledged against non- recourse collateralized mortgage obligations. Residential mortgages receivable amounting to $11,971,000 and $25,868,000 at November 30, 1993 and February 28, 1993, respectively, are being temporarily warehoused and awaiting sale in the secondary mortgage market. The balance of such mortgages is being held as an investment by the Company. The Company may incur risk with respect to mortgages that are delinquent but only to the extent the loan is greater than the fair market value of the mortgaged home and losses are not covered by mortgage insurance. Historically, the Company has incurred minimal credit losses. Land and lot mortgages are usually short term (5 years or less) and not subject to construction loan subordination. Notes from the sale of subsidiaries are secured by the assets and/or stock of the subsidiaries and amortized over ten years. RESULTS OF OPERATIONS FOR THE THREE AMD NINE MONTHS ENDED NOVEMBER 30, 1993 COMPARED TO THE THREE AND NINE MONTHS ENDED NOVEMBER 30, 1992 The Company's operations consist primarily of residential housing development and sales in its Northeast Region (comprising primarily of New Jersey and eastern Pennsylvania), North Carolina, southeastern Florida and metro Washington, D.C. In addition, the Company develops and acquires commercial properties as long-term investments in New Jersey, and, to a lesser extent, Florida. During the first nine months of fiscal 1994, the Company had net income before an extraordinary loss amounting to $8.6 million. The Northeast Region, North Carolina, and metro Washington D. C. generated profits which were partially offset by losses from the Company's other operations. An important indication of future profits for the Company is net contracts signed and its contract backlog. For the first nine months of fiscal 1994, the Company's net contracts signed amounted to $487.1 million compared to $307.5 million for the same period last year. At November 30, 1993 the Company's home contract backlog for future delivery was 2,625 homes with an aggregate sales value of $391.2 million compared to 1,829 homes with an aggregate sales value of $244.5 million at the same time last year. As a result of the increased contracts and backlog and future project openings, the Company expects to report higher operating profits and net income for the year ending February 28, 1994. The following table sets forth, for the periods indicated, certain income statement items as percentages of total revenues: Three Nine Months Ended Months Ended November 30, November 30, --------------- --------------- 1993 1992 1993 1992 ------ ------ ------ ------ Total Revenues........................... 100.0% 100.0% 100.0% 100.0% ------ ------ ------ ------ Costs and Expenses: Construction, land, interest and operations....................... 77.4 77.7 77.4 77.6 Provision to reduce inventory to estimated net realizable value....... 2.7 1.3 Selling, general and administrative.... 13.5 12.0 13.6 13.7 Mortgage banking and finance operations 1.8 1.9 2.3 2.7 Rental and other operations............ 2.5 3.0 2.9 4.0 ------ ------ ------ ------ Total costs and expenses............. 95.2 97.3 96.2 99.3 ------ ------ ------ ------ Income Before Income Taxes and Extraordinaty Loss..................... 4.8 2.7 3.8 .7 Total Income Taxes....................... 1.5 1.0 1.2 .1 ------ ------ ------ ------ Income Before Extraordinary Loss......... 3.3 1.7 2.6 .6 Extraordinary Loss From Extinguishment of Debt, Net of Income Taxes........... (.4) ------ ------ ------ ------ Net Income............................... 3.2% 1.7% 2.2% .6% ====== ====== ====== ====== Total Revenues: Revenues for the third quarter of fiscal 1994 increased $27.5 million, or 23.8% , compared to the third quarter of fiscal 1993. This was primarily a result of increased housing revenues of $26.8 million. Revenues from rental and other operations increased $.5 million primarily due to the addition of a of a retail center and related rentals. Mortgage banking and finance operations increased $.1 million and land and lot sales increased $.1 million. Revenues for the first nine months of fiscal 1994 increased $85.0 million, or 34.8%, compared to the first nine months of fiscal 1993. This was primarily the result of increased housing sales of $89.8 million partially offset by a decrease in land and lot sales of $6.9 million. Mortgage banking and finance operations increased $.8 million primarily resulting from increased mortgage origination and sale of servicing fees. Rental and other operations increased $1.3 million for the reason noted above and the sale of a retail center in the second quarter of fiscal 1994. Housing Operations: Housing revenues increased $26.8 million, or 24.5%, and $89.8 million, or 40.8%, in the third quarter and first nine months of fiscal 1994, respectively, compared to the same periods of the previous year. Housing revenues are recorded at the time each home is delivered and title and possession have been transferred to the buyer. Information on homes delivered by market area is set forth below: Three Months Ended Nine Months Ended November 30, November 30, ------------------- ------------------- 1993 1992 1993 1992 -------- -------- -------- -------- (Dollars in Thousands) Northeast Region(1): Housing Revenues.......... $ 92,643 $ 88,013 $196,298 $163,360 Homes Delivered........... 583 630 1,332 1,167 North Carolina: Housing Revenues.......... $ 20,284 $ 14,324 $ 49,233 $ 41,499 Homes Delivered........... 157 124 392 365 Florida: Housing Revenues.......... $ 13,355 $ 6,087 $ 31,232 $ 12,491 Homes Delivered........... 111 54 261 118 Metro Washington, D.C.: Housing Revenues.......... $ 9,511 $ 142 $ 32,038 $ 142 Homes Delivered........... 58 1 216 1 Other: Housing Revenues.......... $ 438 $ 869 $ 1,421 $ 2,886 Homes Delivered........... 7 12 23 37 Totals: Housing Revenues.......... $136,231 $109,435 $310,222 $220,378 Homes Delivered........... 916 821 2,224 1,688 (1) Excludes suspended operations in New York for fiscal 1993 which are included with New Hampshire in "Other". The third quarter and first nine months of fiscal 1994 housing revenue increase (compared to fiscal 1993) was due to increased homes delivered and increased average sales prices in all the Company's markets. In the Northeast Region one reason average sales prices are increasing is because of the Company's diversified product mix of more detached single family homes and larger townhouses with garages designed for the move-up buyer. In Florida, the Company's performance is improving as a result of the addition of new single family developments. In the Company's new Metro Washington D. C. Division, homes began to be delivered at the end of fiscal 1993. In addition, the Company has raised sales prices in all its markets as demand for its products becomes stronger. The Company's contract backlog by market area is set forth below: November 30, ------------------------ 1993 1992 -------- -------- (Dollars in Thousands) Northeast Region: Aggregate Base Sales Price.......... $280,279 $187,217 Number of Homes..................... 1,806 1,353 North Carolina: Aggregate Base Sales Price.......... $ 53,045 $ 32,439 Number of Homes..................... 407 277 Florida: Aggregate Base Sales Price.......... $ 40,078 $ 15,736 Number of Homes..................... 314 130 Metro Washington, D. C.: Aggregate Base Sales Price.......... $ 17,046 $ 8,425 Number of Homes..................... 84 58 Other: Aggregate Base Sales Price.......... $ 790 $ 708 Number of Homes..................... 14 11 Totals: Aggregate Base Sales Price.......... $391,238 $244,525 Number of Homes..................... 2,625 1,829 Construction, land, interest and operations include expense housing and land and lot sales. A breakout of construction, land, interest and operations expenses for housing sales and housing gross margin is set forth below: Three Months Ended Nine Months Ended November 30, November 30, ------------------- ------------------ 1993 1992 1993 1992 -------- --------- -------- -------- (Dollars in Thousands) Housing sales................... $136,231 $109,435 $310,222 $220,378 -------- -------- -------- -------- Construction, land and operations expenses........... 106,188 84,549 242,600 171,670 Interest expense................ 3,745 4,663 10,438 10,195 -------- -------- -------- -------- Total expenses................ 109,933 89,212 253,038 181,865 -------- -------- -------- -------- Housing gross margin............ $ 26,298 $ 20,223 $ 57,184 $ 38,513 ======== ======== ======== ======== Gross margin percentage......... 19.3% 18.5% 18.4% 17.5% Construction, land and operating expenses as a percentage of housing sales increased .3% to 78.2% for the first nine months of fiscal 1994 from 77.9% for the same period last year. This increase is primarily the result of the decreased percentage of home revenues coming from the Northeast Region where gross margins are greater. The Northeast Region has declined to 63.2% of the Company's housing revenues for the first nine months of fiscal 1994 from 74.1% for the same period last year. The Company's other markets are more competitive which keeps prices and gross margins down. The increase was also caused by sharply raising material costs (primarily lumber) as demand for such materials is greater than current supplies. Housing interest has declined 1.2% as a percentage of housing sales to 3.4 % for the first nine months of fiscal 1994, from 4.6% for the same period last year. This decrease is primarily the result of the Company's increased inventory turnover and a continued reduction in the Company's consolidated interest rate. Interest is capitalized during construction and expensed as houses are delivered. Selling, general and administrative expenses increased $11.4 million, or 34.1%, in the first nine months of fiscal 1994 compared to the same period last year. The increase in the dollar amount of such expenses was primarily due to a 40.8% increase in housing revenues. As a percentage of housing revenues such expenses decreased .8% to 14.4% for the first nine months of fiscal 1994, from 15.2% for the same period last year. Land and Lot Operations: A breakout of construction, land, interest and operating expenses for land and lot sales and gross margin is set forth below: Three Months Ended Nine Months Ended November 30, November 30, ------------------ ----------------- 1993 1992 1993 1992 ------- -------- ------- ------- (Dollars in Thousands) Land and lot sales........... $ 760 $ 638 $ 2,121 $ 9,069 ------- -------- -------- ------- Construction, land and operations expenses........ 808 476 1,887 7,055 Interest expense............. 24 98 138 794 ------- -------- -------- ------- Total expenses............. 832 574 2,025 7,849 ------- -------- -------- ------- Land and lot sales Gross margin............... $ (72) $ 64 $ 96 $ 1,220 ======= ======== ======== ======= Land and lot sales are incidental to the Company's residential housing operations and are expected to continue in the future but will significantly fluctuate up or down. During fiscal 1994 land and lot sales consisted primarily of scattered lot sales in the Northeast Region and two small land sales, one in New Jersey and one in Florida. Mortgage Banking and Finance Operations: Mortgage banking and finance operations consist primarily of originating mortgages from sales of the Company's homes and selling such mortgages in the secondary market. Such operations also include interest income and expense from the Company's collateralized mortgages receivable and related bonds payable. Such operations are expected to operate at a slight profit for fiscal 1994. Servicing rights on new mortgages originated by the Company are sold as the loans are closed. Rental Program: At November 30, 1993 the Company owned and was leasing three office buildings, four office/warehouse facilities, three retail centers and one mini-storage facility. During the first nine months of fiscal 1994 compared to the same period last year, rental operations increased due to increased occupancy levels and the addition of one retail center. Rental operations include interest amounting to $3.7 million and $4.4 million for the first nine months of fiscal 1994 and 1993, respectively. The Company is also renting condominium homes in New Hampshire but is liquidating these rentals through a reduced house price sales program. The Company expects such operations to operate at a loss after deducting interest and depreciation. Other Operations: Other operations consisted primarily of title insurance, investment properties, sale of assets and other income from residential housing operations including interest income, contract deposit forfeitures and low and moderate income housing subsidies. All such operations, except investment properties and sale of assets, relate to the Company's residential real estate activities. The investment properties division supervises the construction of commercial properties and manages completed properties for the Company. Such properties, when completed, result in additional rental operations for the Company. During the second quarter of fiscal 1994 the Company sold a 10,000 sq. ft. retail center in Galloway Township, N. J. Included in other revenues is the pretax profit from this sale amounting to $538,000. Extraordinary Item: In July 1993, the Company redeemed all of its outstanding 12 1/4% Subordinated Notes due 1998 at a price of 102% of par. The principal amount redeemed was $50,000,000 and the redemption resulted in an extraordinary loss of $1,277,000, net of income taxes of $658,000. As of May 31, 1993, the Company accrued and expensed the premium paid and expensed all unamortized prepaid issuance expenses as an extraordinary loss. Inflation: Inflation has a long-term effect on the Company because increasing costs of land, materials and labor result in increasing sale prices of its homes. In general, these price increases have been commensurate with the general rate of inflation in the Company's housing market and have not had a significant adverse effect on the sale of the Company's homes. However, some material costs (primarily lumber) have recently increased above the rate of inflation due to demand being higher than available supplies. A significant risk faced by the housing industry generally is that rising house costs, including land and interest costs, will substantially outpace increases in the income of potential purchasers. In recent years, in the price ranges in which it sells homes, the Company has not found this risk to be a significant problem. Inflation has a lesser short-term effect on the Company because the Company generally negotiates fixed price contracts with its subcontractors and material suppliers for the construction of its homes. These prices usually are applicable for a specified number of residential buildings or for a time period of between four to twelve months. Construction costs for residential buildings represent approximately 51% of the Company's total costs and expenses. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of l934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. HOVNANIAN ENTERPRISES, INC. (Registrant) DATE 1/12/94 KEVORK S. HOVNANIAN/S/ Kevork S. Hovnanian, Chairman of the Board and Chief Executive Officer DATE 1/12/94 PAUL W. BUCHANAN/S/- Paul W. Buchanan, Senior Vice President Corporate Controller