UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
[X] | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended OCTOBER 31, 2003
[ ] | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED) |
Commission file number: 1-8551
Hovnanian Enterprises, Inc.
(Exact Name of Registrant as Specified in Its Charter)
Delaware (State or Other Jurisdiction of Incorporation or Organization) | 22-1851059 (I.R.S. Employer Identification No.) | |||||
10 Highway 35, P.O. Box 500, Red Bank, N.J. (Address of Principal Executive Offices) | 07701 (Zip Code) |
732-747-7800
(Registrant’s Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class | Name of Each Exchange on Which Registered | |||||
Class A Common Stock, $.01 par value per share | New York Stock Exchange |
Securities registered pursuant to Section 12(g) of the Act – None
Yes [X] No [ ]
Documents Incorporated by Reference:
HOVNANIAN ENTERPRISES, INC.
FORM 10-K
TABLE OF CONTENTS
Item | Page | |||||||||
---|---|---|---|---|---|---|---|---|---|---|
PART I | ||||||||||
1 and 2 | Business and Properties | 1 | ||||||||
3 | Legal Proceedings | 7 | ||||||||
4 | Submission of Matters to a Vote of Security Holders | 8 | ||||||||
Executive Officers of the Registrant | 8 | |||||||||
PART II | ||||||||||
5 | Market for the Registrant’s Common Equity and Related Stockholder Matters | 8 | ||||||||
6 | Selected Consolidated Financial Data | 9 | ||||||||
7 | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 11 | ||||||||
7A | Quantitative and Qualitative Disclosures About Market Risk | 22 | ||||||||
8 | Financial Statements and Supplementary Data | 23 | ||||||||
9 | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure | 23 | ||||||||
9A | Controls and Procedures | 23 | ||||||||
PART III | ||||||||||
10 | Directors and Executive Officers of the Registrant | 24 | ||||||||
Executive Officers of the Registrant | 24 | |||||||||
11 | Executive Compensation | 25 | ||||||||
12 | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters | 25 | ||||||||
13 | Certain Relationships and Related Transactions | 25 | ||||||||
PART IV | ||||||||||
15 | Exhibits, Financial Statement Schedules and Reports on Form 8-K | 26 | ||||||||
Signatures | 28 |
PART I
ITEMS 1 AND 2 – BUSINESS AND PROPERTIES
Business Overview
1999 – | Entered the Dallas, Texas market through our acquisition of Goodman Homes. Further diversified and strengthened our position as New Jersey’s largest homebuilder through the acquisition of Matzel & Mumford. |
2001 – | Continued expansion in the greater Washington D.C. and North Carolina markets through the acquisition of Washington Homes. This acquisition further strengthened our operations in each of these markets. |
2002 – | Entered the Central Valley market in Northern California and Inland Empire region of Southern California through the acquisition of Forecast Homes. |
2003 – | Expanded operations in the Texas and entered the Houston market through the acquisition of Parkside Homes and Brighton Homes. Entered the greater Ohio market through our acquisition of Summit Homes and entered the greater metro Phoenix market through our acquisition of Great Western Homes. |
2004 – | In November 2003 we entered the greater Tampa, Florida market through the acquisition of Windward Homes. |
Geographic Breakdown of Markets by Region
Northeast: | New Jersey, Southern New York, Pennsylvania, and Ohio | |||||
Southeast: | Washington D.C., Maryland, North Carolina, South Carolina, Virginia, West Virginia, and Florida | |||||
Southwest: | Arizona and Texas | |||||
West: | California |
Business Strategies
1
Operating Policies and Procedures
· | We typically acquire land for future development principally through the use of land options which need not be exercised before the completion of the regulatory approval process. We attempt to structure these options with flexible take down schedules rather than with an obligation to take down the entire parcel upon approval. Additionally, we purchase improved lots in certain markets by acquiring a small number of improved lots with an option on |
2
additional lots. This allows us to minimize the economic costs and risks of carrying a large land inventory, while maintaining our ability to commence new developments during favorable market periods. | ||
· | Our option and purchase agreements are typically subject to numerous conditions, including, but not limited to, our ability to obtain necessary governmental approvals for the proposed community. Generally, the deposit on the agreement will be returned to us if all approvals are not obtained, although predevelopment costs may not be recoverable. By paying an additional, nonrefundable deposit, we have the right to extend a significant number of our options for varying periods of time. In most instances, we have the right to cancel any of our land option agreements by forfeiture of our deposit on the agreement. In such instances, we generally are not able to recover any predevelopment costs. |
3
Residential Development Activities
Year Ended | |||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
(Housing Revenue in Thousands) | | October 31, 2003 | | October 31, 2002 | | October 31, 2001 | |||||||||
Northeast Region(1): | |||||||||||||||
Housing Revenues | $ | 774,209 | $ | 660,250 | $ | 570,647 | |||||||||
Homes Delivered | 2,387 | 2,144 | 1,860 | ||||||||||||
Average Price | $ | 324,344 | $ | 307,952 | $ | 306,799 | |||||||||
Southeast Region(3): | |||||||||||||||
Housing Revenues | $ | 682,210 | $ | 660,328 | $ | 566,205 | |||||||||
Homes Delivered | 2,720 | 2,806 | 2,743 | ||||||||||||
Average Price | $ | 250,813 | $ | 235,327 | $ | 206,418 | |||||||||
Southwest Region(1): | |||||||||||||||
Housing Revenues | $ | 481,634 | $ | 240,181 | $ | 215,045 | |||||||||
Homes Delivered | 2,431 | 1,033 | 1,003 | ||||||||||||
Average Price | $ | 198,122 | $ | 232,508 | $ | 214,402 | |||||||||
West Region(2): | |||||||||||||||
Housing Revenues | $ | 1,190,516 | $ | 852,373 | $ | 280,582 | |||||||||
Homes Delivered | 3,984 | 3,220 | 760 | ||||||||||||
Average Price | $ | 298,824 | $ | 264,712 | $ | 369,187 | |||||||||
Other(4): | |||||||||||||||
Housing Revenues | $ | 1,261 | $ | 48,963 | $ | 61,238 | |||||||||
Homes Delivered | 9 | 311 | 425 | ||||||||||||
Average Price | $ | 140,111 | $ | 157,437 | $ | 144,089 | |||||||||
Combined Total: | |||||||||||||||
Housing Revenues | $ | 3,129,830 | $ | 2,462,095 | $ | 1,693,717 | |||||||||
Homes Delivered | 11,531 | 9,514 | 6,791 | ||||||||||||
Average Price | $ | 271,427 | $ | 258,787 | $ | 249,406 |
(1) October 31, 2003 includes deliveries from our Texas, Ohio, and Arizona acquisitions beginning on November 1, 2002, January 1, 2003, April 1, 2003, and August 13, 2003, respectively.
(2) October 31, 2002 includes deliveries from our California acquisition beginning on January 10, 2002.
(3) October 31, 2001 includes deliveries from our Southeast Region acquisition beginning on January 24, 2001.
(4) Other includes operations from markets we have exited in recent years.
4
| Communities | | Approved Lots | | Homes Delivered | | Contracted Not Delivered(1) | | Remaining Home Sites Available(2) | |||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Northeast Region | 32 | 12,937 | 4,401 | 1,477 | 7,059 | |||||||||||||||||
Southeast Region | 107 | 16,360 | 6,197 | 1,761 | 8,402 | |||||||||||||||||
Southwest Region | 81 | 10,495 | 3,368 | 989 | 6,138 | |||||||||||||||||
West Region | 37 | 14,746 | 7,387 | 793 | 6,566 | |||||||||||||||||
Total | 257 | 54,538 | 21,353 | 5,020 | 28,165 |
(1) Includes 807 lots under option and excludes 741 lots under our “build on your own lot” program.
(2) Of the total remaining home sites available, 1,354 were under construction or completed (including 275 models and sales offices), 16,267 were under option, and 268 were financed through purchase money mortgages.
| Unsold Homes | | Models | | Total | |||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Northeast Region | 130 | 44 | 174 | |||||||||||
Southeast Region | 207 | 32 | 239 | |||||||||||
Southwest Region | 557 | 94 | 651 | |||||||||||
West Region | 185 | 105 | 290 | |||||||||||
Total | 1,079 | 275 | 1,354 |
Backlog
Residential Land Inventory
5
(In Thousands) | | Number of Proposed Communities | | Proposed Developable Lots | | Total Land Option Price | | Book Value(1)(2) | ||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Northeast Region: | ||||||||||||||||||
Under Option | 110 | 14,331 | $ | 541,472 | $ | 76,145 | ||||||||||||
Owned | 5 | 1,413 | 56,731 | |||||||||||||||
Total | 115 | 15,744 | 132,876 | |||||||||||||||
Southeast Region: | ||||||||||||||||||
Under Option | 91 | 10,614 | $ | 637,389 | 23,935 | |||||||||||||
Owned | 8 | 1,731 | 36,666 | |||||||||||||||
Total | 99 | 12,345 | 60,601 | |||||||||||||||
Southwest Region: | ||||||||||||||||||
Under Option | 49 | 6,191 | $ | 158,551 | 18,195 | |||||||||||||
Owned | 4 | 622 | 6,997 | |||||||||||||||
Total | 53 | 6,813 | 25,192 | |||||||||||||||
West Region: | ||||||||||||||||||
Under Option | 21 | 4,618 | $ | 139,096 | 22,326 | |||||||||||||
Owned | 13 | 1,593 | 45,037 | |||||||||||||||
Total | 34 | 6,211 | 67,363 | |||||||||||||||
Totals: | ||||||||||||||||||
Under Option | 271 | 35,754 | 140,601 | |||||||||||||||
Owned | 30 | 5,359 | 145,431 | |||||||||||||||
Combined Total | 301 | 41,113 | $ | 286,032 |
(1) Properties under option also include costs incurred on properties not under option but which are under evaluation. For properties under option, as of October 31, 2003, option fees and deposits aggregated approximately $60.9 million. As of October 31, 2003, we spent an additional $79.7 million in non-refundable predevelopment costs on such properties.
(2) The book value of $286.0 million is identified on the balance sheet as “Inventories – land, land options, held for future development or sale,” and does not include inventory in Poland amounting to $4.0 million for communities partially under construction. The book value does include option deposits of $7.3 million for specific performance options, $4.7 million for other option deposits, and $7.5 million for variable interest entity deposits reported under “Consolidated Inventory Not Owned”.
Customer Financing
6
Competition
Regulation and Environmental Matters
ITEM 3 – LEGAL PROCEEDINGS
7
ITEM 4 – SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Executive Officers of the Registrant
PART II
ITEM 5 – MARKET FOR THE REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDERS MATTERS
Class A Common Stock | | ||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Oct. 31, 2003 | | Oct. 31, 2002 | | Oct. 31, 2001 | | ||||||||||||||||||||||
Quarter | | High | | Low | | High | | Low | | High | | Low | |||||||||||||||
First | $ | 38.80 | $ | 29.13 | $ | 22.40 | $ | 10.00 | $ | 9.99 | $ | 7.19 | |||||||||||||||
Second | $ | 40.20 | $ | 28.72 | $ | 32.40 | $ | 19.07 | $ | 18.75 | $ | 8.75 | |||||||||||||||
Third | $ | 69.17 | $ | 39.21 | $ | 38.75 | $ | 24.31 | $ | 19.34 | $ | 13.00 | |||||||||||||||
Fourth | $ | 82.57 | $ | 47.92 | $ | 40.56 | $ | 24.70 | $ | 15.00 | $ | 9.71 |
8
ITEM 6 – SELECTED CONSOLIDATED FINANCIAL DATA
Year Ended | | ||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Summary Consolidated Income Statement Data (In Thousands, Except Per Share Data) | | October 31, 2003 | | October 31, 2002 | | October 31, 2001 | | October 31, 2000 | | October 31, 1999 | |||||||||||||
Revenues | $ | 3,201,857 | $ | 2,551,106 | $ | 1,741,990 | $ | 1,135,559 | $ | 946,414 | |||||||||||||
Expenses | 2,790,339 | 2,325,376 | 1,635,636 | 1,083,741 | 897,133 | ||||||||||||||||||
Income before income taxes | 411,518 | 225,730 | 106,354 | 51,818 | 49,281 | ||||||||||||||||||
State and Federal income taxes | 154,138 | 88,034 | 42,668 | 18,655 | 19,206 | ||||||||||||||||||
Net income | $ | 257,380 | $ | 137,696 | $ | 63,686 | $ | 33,163 | $ | 30,075 | |||||||||||||
Per Share Data: | |||||||||||||||||||||||
Basic: | |||||||||||||||||||||||
Net income | $ | 8.31 | $ | 4.53 | $ | 2.38 | $ | 1.51 | $ | 1.41 | |||||||||||||
Weighted average number of common shares outstanding | 30,960 | 30,405 | 26,810 | 21,933 | 21,404 | ||||||||||||||||||
Assuming Dilution: | |||||||||||||||||||||||
Net income | $ | 7.85 | $ | 4.28 | $ | 2.29 | $ | 1.50 | $ | 1.39 | |||||||||||||
Weighted average number of common shares outstanding | 32,769 | 32,155 | 27,792 | 22,043 | 21,612 |
Summary Consolidated Balance Sheet Data | | October 31, 2003 | | October 31, 2002 | | October 31, 2001 | | October 31, 2000 | | October 31, 1999 | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Total assets | $ | 2,332,371 | $ | 1,678,128 | $ | 1,064,258 | $ | 873,541 | $ | 712,861 | ||||||||||||
Mortgages, term loans and notes payable | $ | 326,216 | $ | 215,365 | $ | 111,795 | $ | 78,206 | $ | 110,228 | ||||||||||||
Senior notes, and senior subordinated notes | $ | 687,166 | $ | 546,390 | $ | 396,544 | $ | 396,430 | $ | 250,000 | ||||||||||||
Stockholders’ equity | $ | 819,712 | $ | 562,549 | $ | 375,646 | $ | 263,359 | $ | 236,426 |
Note: See Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” for impact of our 2001, 2002, and 2003 acquisitions in our operating results.
9
Ratios of Earnings to Fixed Charges and Earnings to Combined Fixed Charges and Preferred Stock Dividends
Years Ended October 31, | |||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2003 | | 2002 | | 2001 | | 2000 | | 1999 | ||||||||||||||
Ratio of earnings to fixed charges | 6.7 | 4.7 | 3.1 | 2.2 | 3.0 | ||||||||||||||||||
Ratio of earnings to combined fixed charges and preferred stock dividends | 6.7 | 4.7 | 3.1 | 2.2 | 3.0 |
10
ITEM 7 – MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Critical Accounting Policies
Capital Resources and Liquidity
11
(California). During the year ended October 31, 2002, we substantially liquidated our operations in the Mid-South. In addition, we provide financial services to our homebuilding customers.
12
| Total Home Lots | | Contracted Not Delivered | Remaining Lots Available | | |||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
October 31, 2003: | ||||||||||||||
Northeast Region | 24,280 | 1,477 | 22,803 | |||||||||||
Southeast Region | 22,508 | 1,761 | 20,747 | |||||||||||
Southwest Region | 13,940 | 989 | 12,951 | |||||||||||
West Region | 13,570 | 793 | 12,777 | |||||||||||
Total | 74,298 | 5,020 | 69,278 | |||||||||||
Owned | 21,470 | 4,213 | 17,257 | |||||||||||
Optioned | 52,828 | 807 | 52,021 | |||||||||||
Total | 74,298 | 5,020 | 69,278 | |||||||||||
October 31, 2002: | �� | |||||||||||||
Northeast Region | 21,399 | 1,371 | 20,028 | |||||||||||
Southeast Region | 18,045 | 1,221 | 16,824 | |||||||||||
Southwest Region | 4,084 | 277 | 3,807 | |||||||||||
West Region | 10,431 | 955 | 9,476 | |||||||||||
Other | 29 | 7 | 22 | |||||||||||
Total | 53,988 | 3,831 | 50,157 | |||||||||||
Owned | 13,362 | 3,195 | 10,167 | |||||||||||
Optioned | 40,626 | 636 | 39,990 | |||||||||||
Total | 53,988 | 3,831 | 50,157 |
13
October 31, 2003 | | October 31, 2002 | | ||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Unsold Homes | | Models | | Total | | Unsold Homes | | Models | | Total | ||||||||||||||||
Northeast Region | 130 | 44 | 174 | 73 | 46 | 119 | |||||||||||||||||||||
Southeast Region | 207 | 32 | 239 | 225 | 63 | 288 | |||||||||||||||||||||
Southwest Region | 557 | 94 | 651 | 261 | 31 | 292 | |||||||||||||||||||||
West Region | 185 | 105 | 290 | 193 | 65 | 258 | |||||||||||||||||||||
Other | — | — | — | 2 | — | 2 | |||||||||||||||||||||
Total | 1,079 | 275 | 1,354 | 754 | 205 | 959 |
14
Results of Operations
Total Revenues
Year Ended | | ||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
(Dollars in Thousands) | | October 31, 2003 | | October 31, 2002 | | October 31, 2001 | |||||||||
Homebuilding: | |||||||||||||||
Sale of homes | $ | 667,735 | $ | 768,378 | $ | 588,251 | |||||||||
Land sales and other revenues | (27,499 | ) | 31,396 | 6,076 | |||||||||||
Financial services | 10,515 | 9,342 | 12,104 | ||||||||||||
Total change | $ | 650,751 | $ | 809,116 | $ | 606,431 | |||||||||
Total revenues percent change | 25.5 | % | 46.4 | % | 53.4 | % |
Homebuilding
Year Ended | | ||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
(Dollars in Thousands) | | October 31, 2003 | | October 31, 2002 | | October 31, 2001 | |||||||||
Northeast Region(1): | |||||||||||||||
Housing Revenues | $ | 774,209 | $ | 660,250 | $ | 570,647 | |||||||||
Homes Delivered | 2,387 | 2,144 | 1,860 | ||||||||||||
Southeast Region(3): | |||||||||||||||
Housing Revenues | $ | 682,210 | $ | 660,328 | $ | 566,205 | |||||||||
Homes Delivered | 2,720 | 2,806 | 2,743 | ||||||||||||
Southwest Region(1): | |||||||||||||||
Housing Revenues | $ | 481,634 | $ | 240,181 | $ | 215,045 | |||||||||
Homes Delivered | 2,431 | 1,033 | 1,003 | ||||||||||||
West Region(2): | |||||||||||||||
Housing Revenues | $ | 1,190,516 | $ | 852,373 | $ | 280,582 | |||||||||
Homes Delivered | 3,984 | 3,220 | 760 | ||||||||||||
Other(4): | |||||||||||||||
Housing Revenues | $ | 1,261 | $ | 48,963 | $ | 61,238 | |||||||||
Homes Delivered | 9 | 311 | 425 | ||||||||||||
Totals: | |||||||||||||||
Housing Revenues | $ | 3,129,830 | $ | 2,462,095 | $ | 1,693,717 | |||||||||
Homes Delivered | 11,531 | 9,514 | 6,791 |
(1) October 31, 2003 includes deliveries from our Texas, Ohio, and Arizona acquisitions beginning on November 1, 2002, January 1, 2003, April 1, 2003, and August 13, 2003, respectively.
(2) October 31, 2002 includes deliveries from our California acquisition beginning on January 10, 2002.
(3) October 31, 2001 includes deliveries from our Southeast Region acquisition beginning on January 24, 2001.
(4) Other includes operations from markets we have exited in recent years.
15
Quarter Ended | | ||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
(In Thousands) | | October 31, 2003 | | July 31, 2003 | | April 30, 2003 | | January 31, 2003 | |||||||||||
Housing Revenues: | |||||||||||||||||||
Northeast Region | $ | 279,252 | $ | 210,039 | $ | 148,155 | $ | 136,763 | |||||||||||
Southeast Region | 202,345 | 165,583 | 156,162 | 158,120 | |||||||||||||||
Southwest Region | 151,406 | 129,907 | 106,767 | 72,662 | |||||||||||||||
West Region | 392,039 | 325,205 | 255,469 | 238,695 | |||||||||||||||
Other | — | — | — | 1,261 | |||||||||||||||
Total | $ | 1,025,042 | $ | 830,734 | $ | 666,553 | $ | 607,501 | |||||||||||
Sales Contracts (Net of Cancellations): | |||||||||||||||||||
Northeast Region | $ | 219,101 | $ | 261,625 | $ | 204,943 | $ | 115,447 | |||||||||||
Southeast Region | 230,807 | 239,817 | 248,324 | 149,037 | |||||||||||||||
Southwest Region | 112,487 | 125,292 | 143,979 | 68,927 | |||||||||||||||
West Region | 291,532 | 336,889 | 312,469 | 233,616 | |||||||||||||||
Other | — | — | — | 313 | |||||||||||||||
Total | $ | 853,927 | $ | 963,623 | $ | 909,715 | $ | 567,340 | |||||||||||
Quarter Ended | |||||||||||||||||||
(In Thousands) | October 31, 2002 | July 31, 2002 | April 30, 2002 | January 31, 2002 | |||||||||||||||
Housing Revenues: | |||||||||||||||||||
Northeast Region | $ | 205,079 | $ | 177,153 | $ | 145,249 | $ | 132,769 | |||||||||||
Southeast Region | 207,671 | 182,467 | 143,117 | 127,073 | |||||||||||||||
Southwest Region | 67,403 | 65,432 | 52,820 | 54,526 | |||||||||||||||
West Region | 316,412 | 242,631 | 178,688 | 114,642 | |||||||||||||||
Other | 8,717 | 13,646 | 12,512 | 14,088 | |||||||||||||||
Total | $ | 805,282 | $ | 681,329 | $ | 532,386 | $ | 443,098 | |||||||||||
Sales Contracts (Net of Cancellations): | |||||||||||||||||||
Northeast Region | $ | 154,623 | $ | 148,390 | $ | 165,148 | $ | 109,689 | |||||||||||
Southeast Region | 138,802 | 154,488 | 253,492 | 132,787 | |||||||||||||||
Southwest Region | 55,893 | 54,437 | 73,145 | 43,827 | |||||||||||||||
West Region | 283,607 | 288,885 | 261,002 | 84,122 | |||||||||||||||
Other | 3,206 | 6,443 | 9,053 | 11,365 | |||||||||||||||
Total | $ | 636,131 | $ | 652,643 | $ | 761,840 | $ | 381,790 | |||||||||||
Quarter Ended | |||||||||||||||||||
(In Thousands) | October 31, 2001 | July 31, 2001 | April 30, 2001 | January 31, 2001 | |||||||||||||||
Housing Revenues: | |||||||||||||||||||
Northeast Region | $ | 163,955 | $ | 156,366 | $ | 126,700 | $ | 123,626 | |||||||||||
Southeast Region | 166,720 | 195,422 | 134,720 | 68,489 | |||||||||||||||
Southwest Region | 68,441 | 62,360 | 46,434 | 37,810 | |||||||||||||||
West Region | 109,099 | 61,830 | 65,339 | 44,314 | |||||||||||||||
Other | 11,505 | 21,313 | 20,108 | 9,166 | |||||||||||||||
Total | $ | 519,720 | $ | 497,291 | $ | 393,301 | $ | 283,405 | |||||||||||
Sales Contracts (Net of Cancellations): | |||||||||||||||||||
Northeast Region | $ | 109,585 | $ | 119,073 | $ | 155,693 | $ | 125,433 | |||||||||||
Southeast Region | 130,425 | 137,126 | 248,440 | 73,660 | |||||||||||||||
Southwest Region | 45,299 | 63,640 | 64,343 | 37,177 | |||||||||||||||
West Region | 38,350 | 66,794 | 88,620 | 65,547 | |||||||||||||||
Other | 12,088 | 12,673 | 20,741 | 4,663 | |||||||||||||||
Total | $ | 335,747 | $ | 399,306 | $ | 577,837 | $ | 306,480 |
16
(Dollars In Thousands) | | October 31, 2003 | | October 31, 2002 | | October 31, 2001 | ||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Northeast Region: | ||||||||||||||
Total Contract Backlog | $ | 581,865 | $ | 416,264 | $ | 322,100 | ||||||||
Number of Homes | 2,218 | 1,397 | 1,160 | |||||||||||
Southeast Region: | ||||||||||||||
Total Contract Backlog | $ | 526,348 | $ | 331,682 | $ | 312,504 | ||||||||
Number of Homes | 1,761 | 1,221 | 1,313 | |||||||||||
Southwest Region: | ||||||||||||||
Total Contract Backlog | $ | 157,655 | $ | 60,532 | $ | 64,961 | ||||||||
Number of Homes | 989 | 277 | 263 | |||||||||||
West Region: | ||||||||||||||
Total Contract Backlog | $ | 264,536 | $ | 267,305 | $ | 53,338 | ||||||||
Number of Homes | 793 | 955 | 172 | |||||||||||
Other: | ||||||||||||||
Total Contract Backlog | $ | — | $ | 945 | $ | 20,171 | ||||||||
Number of Homes | — | 7 | 125 | |||||||||||
Totals: | ||||||||||||||
Total Contract Backlog | $ | 1,530,404 | $ | 1,076,728 | $ | 773,074 | ||||||||
Number of Homes | 5,761 | 3,857 | 3,033 |
Year Ended | | ||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
(Dollars In Thousands) | | October 31, 2003 | | October 31, 2002 | | October 31, 2001 | |||||||||
Sale of homes | $ | 3,129,830 | $ | 2,462,095 | $ | 1,693,717 | |||||||||
Cost of sales | 2,331,393 | 1,919,941 | 1,344,735 | ||||||||||||
Housing gross margin | $ | 798,437 | $ | 542,154 | $ | 348,982 | |||||||||
Gross margin percentage | 25.5 | % | 22.0 | % | 20.6 | % |
Year Ended | | ||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
October 31, 2003 | | October 31, 2002 | | October 31, 2001 | |||||||||||
Sale of homes | 100.0 | % | 100.0 | % | 100.0 | % | |||||||||
Cost of sales: | |||||||||||||||
Housing, land and development costs | 67.1 | 70.6 | 71.5 | ||||||||||||
Commissions | 2.1 | 2.2 | 2.3 | ||||||||||||
Financing concessions | 0.9 | 1.0 | 1.0 | ||||||||||||
Overheads | 4.4 | 4.2 | 4.6 | ||||||||||||
Total cost of sales | 74.5 | 78.0 | 79.4 | ||||||||||||
Gross margin percentage | 25.5 | % | 22.0 | % | 20.6 | % |
17
except in the Southwest Region where they remained flat. During the year ended October 31, 2002, our gross margin percentage increased 1.4% from the previous year. This increase was due to higher sales prices and lower costs resulting from our improvement initiatives. Gross margins for the year ended October 31, 2002 increased in our Southeast Region, West Region (excluding our California acquisition in fiscal 2002), and the Northeast Region. In the Southwest, gross margins declined very slightly in fiscal 2002. The dollar increases in gross margin for each of the three years ended October 31, 2003, 2002, and 2001 were attributed to increased sales, resulting from our acquisitions and increased deliveries in previously existing markets.
Land Sales and Other Revenues
Year Ended | | ||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
(In Thousands) | | October 31, 2003 | | October 31, 2002 | | October 31, 2001 | |||||||||
Land and lot sales | $ | 14,205 | $ | 42,312 | $ | 11,356 | |||||||||
Cost of sales | 10,931 | 35,897 | 10,646 | ||||||||||||
Land and lot sales gross margin | $ | 3,274 | $ | 6,415 | $ | 710 |
18
Financial Services
Corporate General and Administrative
Interest
Year Ended | | ||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
(In Thousands) | | October 31, 2003 | | October 31, 2002 | | October 31, 2001 | |||||||||
Sale of homes | $ | 63,108 | $ | 59,276 | $ | 51,046 | |||||||||
Land and lot sales | 550 | 1,095 | 400 | ||||||||||||
Total | $ | 63,658 | $ | 60,371 | $ | 51,446 |
Other Operations
Recent Accounting Pronouncements
19
prospective basis to guarantees issued or modified after December 31, 2002. The adoption of the initial recognition and initial measurement provisions of FIN 45 did not have a material effect on our financial position or results of operations. Our disclosure of guarantees is included in Note 20 to the consolidated financial statements.
20
ing for Derivative Instruments and Hedging Activities”. SFAS 149 also amends certain other existing pronouncements, which will result in more consistent reporting of contracts that are derivatives in their entirety or that contain embedded derivatives that warrant separate accounting. SFAS 149 is effective for contracts entered into or modified after June 30, 2003. The adoption of SFAS 149 did not have a material effect on our financial position or results of operations.
Total Taxes
Inflation
Mergers and Acquisitions
21
Safe Harbor Statement
. | Changes in general and local economic and business conditions; |
. | Weather conditions; |
. | Changes in market conditions; |
. | Changes in home prices and sales activity in the California, New Jersey, Texas, North Carolina, Virginia, and Maryland markets; |
. | Government regulation, including regulations concerning development of land, the homebuilding process, and the environment; |
. | Fluctuations in interest rates and the availability of mortgage financing; |
. | Shortages in and price fluctuations of raw materials and labor; |
. | The availability and cost of suitable land and improved lots; |
. | Levels of competition; |
. | Availability of financing to the Company; |
. | Utility shortages and outages or rate fluctuations; and |
. | Geopolitical risks, terrorist acts and other acts of war. |
ITEM 7A – QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
For the Year Ended October 31, 2003 | | |||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
(Dollars in Thousands) | | 2004 | | 2005 | | 2006 | 2007 | | 2008 | | Thereafter | | Total | | FMV at 10/31/03 | | ||||||||||||||||||||
Long Term Debt(1): | ||||||||||||||||||||||||||||||||||||
Fixed Rate | $ | 43,869 | $ | 81 | $ | 88 | $140,346 | $ 104 | $550,253 | $734,741 | $798,347 | |||||||||||||||||||||||||
Average interest rate | 6.49% | 8.38% | 8.38% | 10.50% | 8.38% | 8.48% | 8.74% | — | ||||||||||||||||||||||||||||
Variable rate | — | — | — | — | $115,000 | — | $115,000 | $115,000 | ||||||||||||||||||||||||||||
Average interest rate | — | — | — | — | (2) | — | — | — |
For the Year Ended October 31, 2002 | | ||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
(Dollars in Thousands) | | 2003 | | 2004 | | 2005 | 2006 | | 2007 | | Thereafter | | Total | | FMV at 10/31/02 | | |||||||||||||||||||
Long Term Debt(1): | |||||||||||||||||||||||||||||||||||
Fixed Rate | $ | 14,177 | $ | 75 | $ | 81 | $ | 88 | $150,096 | $400,349 | $564,866 | $549,991 | |||||||||||||||||||||||
Average interest rate | 10.31% | 8.38% | 8.38% | 8.38% | 10.50% | 8.75% | 9.25% | — | |||||||||||||||||||||||||||
Variable rate | — | — | — | — | $115,000 | — | $115,000 | $115,000 | |||||||||||||||||||||||||||
Average interest rate | — | — | — | — | (2) | — | — | — |
(1) Does not include bonds collateralized by mortgages receivable.
(2) Libor plus 2.5%.
22
ITEM 8 – FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
ITEM 9 – CHANGES IN OR DISAGREEMENT WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
ITEM 9A – CONTROLS AND PROCEDURES
23
PART III
ITEM 10 – DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Executive Officers of the Registrant
Name | | Age | | Position | | Year Started With Company | ||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Kevork S. Hovnanian | 80 | Chairman of the Board and Director of the Company. | l967 | |||||||||||
Ara K. Hovnanian | 46 | Chief Executive Officer, President and Director of the Company. | 1979 | |||||||||||
Paul W. Buchanan | 53 | Senior Vice President–Corporate Controller. | l981 | |||||||||||
Kevin C. Hake | 44 | Vice President, Finance and Treasurer. | 2000 | |||||||||||
Peter S. Reinhart | 53 | Senior Vice President and General Counsel. | 1978 | |||||||||||
J. Larry Sorsby | 48 | Executive Vice President and Chief Financial Officer and Director of the Company. | 1988 |
CODE OF ETHICS AND CORPORATE GOVERNANCE GUIDELINES
24
Audit Committee and Compensation Committee Charters
ITEM 11 – EXECUTIVE COMPENSATION
ITEM 12 – | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS |
Equity Compensation Plan Information
Plan Category | | Number of securities to be issued upon exercise of outstanding options, warrants and rights (in thousands) | | Weighted average exercise price of outstanding options, warrants and rights | | Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a) (in thousands) | ||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
(a) | (b) | (c) | ||||||||||||
Equity compensation plans approved by security holders | 3,396 | 5.89 | 3,221 | |||||||||||
Equity compensation plans not approved by security holders | ||||||||||||||
Total | 3,396 | 5.89 | 3,221 |
ITEM 13 – CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
25
PART IV
ITEM 15 – EXHIBITS, FINANCIAL STATEMENTS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
Page | ||||||
---|---|---|---|---|---|---|
Financial Statements: | ||||||
Index to Consolidated Financial Statements | F-1 | |||||
Report of Independent Auditors | F-2 | |||||
Consolidated Balance Sheets at October 31, 2003 and 2002 | F-3 | |||||
Consolidated Statements of Income for the years ended October 31, 2003, 2002, and 2001 | F-5 | |||||
Consolidated Statements of Stockholders’ Equity for the years ended October 31, 2003, 2002, and 2001 | F-6 | |||||
Consolidated Statements of Cash Flows for the years ended October 31, 2003, 2002, and 2001 | F-7 | |||||
Notes to Consolidated Financial Statements | F-8 |
Exhibits:
3(a) | Certificate of Incorporation of the Registrant.(1) | |||||
3(b) | Certificate of Amendment of Certificate of Incorporation of the Registrant.(5) | |||||
3(c) | Restated Bylaws of the Registrant.(12) | |||||
4(a) | Specimen Class A Common Stock Certificate.(13) | |||||
4(b) | Specimen Class B Common Stock Certificate. | |||||
4(c) | Indenture dated as of May 4, 1999, relating to 9 1/8% Senior Notes, between the Registrant and First Union National Bank. | |||||
4(d) | First Supplemental Indenture to the Indenture dated as of May 4, 1999, relating to 9 1/8% Senior Notes, between the Registrant and First Union National Bank, including the form of 9 1/8% Senior Notes due May 1, 2009.(14) | |||||
4(e) | Indenture dated as of October 2, 2000, relating to 10 1/2% Senior Notes, between the Registrant and First Union National Bank, including form of 10 1/2% Senior Notes due October 1, 2007.(9) | |||||
4(f) | Indenture dated March 26, 2002, relating to 8% Senior Notes, between the Registrant and First Union National Bank, including form of 8% Senior Notes due April 1, 2012.(10) | |||||
4(g) | Indenture dated March 26, 2002, relating to 8.875% Senior Subordinated Notes, between the Registrant and First Union National Bank, including form of 8.875% Senior Subordinated Notes due April 1, 2012.(10) | |||||
4(h) | Indenture dated May 9, 2003, relating to 7 3/4% Senior Subordinated Notes, among K. Hovnanian Enterprises, Inc., the Guarantors named therein and Wachovia Bank, National Association, as Trustee, including form of 7 3/4% Senior Subordinated Notes due May 15, 2013.(4) | |||||
4(i) | Indenture dated as of November 3, 2003, relating to 6 1/2% Senior Notes, among K. Hovnanian Enterprises, Inc., Hovnanian Enterprises, Inc. and Wachovia Bank, National Association, as Trustee, as supplemented by the First Supplemental Indenture dated as of November 3, 2003 among K. Hovnanian Enterprises, Inc., Hovnanian Enterprises, Inc., the other Guarantors named therein and Wachovia Bank, National Association, as Trustee, including form of 6 1/2% Senior Notes due January 15, 2014.(2) | |||||
10(a) | Credit Agreement dated June 19, 2003, among K. Hovnanian, as Borrower, the Company, as Guarantor, the banks listed therein, PNC Bank, National Association, Bank of America, Fleet National Bank, Wachovia Bank, National Association, Guaranty Bank, National Association, Bank One, NA, AM South Bank, Comerica Bank, SunTrust Bank, National City Bank, Washington Mutual Bank, FA, BNP PARIBAS, Credit Lyonnais, New York Branch, US Bancorp.(5) | |||||
10(b) | Description of Management Bonus Arrangements. | |||||
10(c) | Description of Savings and Investment Retirement Plan.(1) | |||||
10(d) | 1999 Stock Incentive Plan (as amended and restated March 8, 2002).(3) | |||||
10(e) | 1983 Stock Option Plan (as amended and restated March 8, 2002).(3) |
26
10(f) | Management Agreement dated August 12, 1983 for the management of properties by K. Hovnanian Investment Properties, Inc.(1) | |||||
10(g) | Management Agreement dated December 15, 1985, for the management of properties by K. Hovnanian Investment Properties, Inc. | |||||
10(h) | Description of Deferred Compensation Plan. | |||||
10(i) | Senior Executive Short-Term Incentive Plan.(8) | |||||
10(j) | $165,000,000 Term Loan Credit Agreement.(11) | |||||
10(k) | $110,000,000 K. Hovnanian Mortgage, Inc. Revolving Credit Agreement dated June 7, 2002.(7) | |||||
10(l) | First Amendment to K. Hovnanian Mortgage, Inc. Revolving Credit Agreement dated July 25, 2002.(7) | |||||
12 | Ratio of Earnings to Fixed Charges | |||||
21 | Subsidiaries of the Registrant. | |||||
23 | Consent of Independent Auditors | |||||
31(a) | Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer. | |||||
31(b) | Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer. | |||||
32(a) | Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | |||||
32(b) | Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
(1) | Incorporated by reference to Exhibits to Registration Statement (No. 2-85198) on Form S-1 of the Registrant. |
(2) | Incorporated by reference to Exhibits to Current Report on Form 8-K filed on November 7, 2003. |
(3) | Incorporated by reference to Exhibits to Annual Report on Form 10-K for the year ended October 31, 2002 of the Registrant. |
(4) | Incorporated by reference to Exhibits to Registration Statement (No. 333-10716401) on Form S-4 of the Registrant. |
(5) | Incorporated by reference to Exhibits to Registration Statement (No. 333-106761) on Form S-3 of the Registrant. |
(6) | Incorporated by reference to Exhibits to Registration Statement (No. 333-75939) on Form S-3 of the Registrant. |
(7) | Incorporated by reference to Exhibits to Quarterly Report on Form 10-Q for the quarter ended July 31, 2002 of the Registrant. |
(8) | Incorporated by reference to Exhibit B of the Proxy Statement of the Registrant on Schedule 14A filed January 26, 2000. |
(9) | Incorporated by reference to Exhibits to Registration Statement (No. 333-52836-01) on Form S-4 of the Registrant. |
(10) | Incorporated by reference to Exhibits to Registration Statement (No. 333-89976-01) on Form S-4 of the Registrant. |
(11) | Incorporated by reference to Exhibits to Quarterly Report on Form 10-Q for the quarter ended April 30, 2002 of the Registrant. |
(12) | Incorporated by reference to Exhibits to Registration Statement (No. 1-08551) on Form 8-A of the Registrant. |
(13) | Incorporated by reference to Exhibits to Registration Statement (No. 333-111231) on Form S-3 of the Registrant. |
(14) | Incorporated by reference to Exhibits to Current Report on Form 8-K filed on September 22, 1999. |
Reports on Form 8-K
(i) | On November 7, 2003, the Company filed a report on Form 8-K, Items 5 and 7, relating to issuance and sale in an underwritten public offering of $215,000,000 in aggregate principal amount of 6 1/2% Senior Notes due 2014 of K. Hovnanian Enterprises, Inc., guaranteed by the Company and certain of the Company’s subsidiaries. |
(ii) | On November 3, 2003, the Company filed a report on Form 8-K, Items 5 and 7, relating to the issuance and sale in an underwritten public offering of $215,000,000 in aggregate principal amount of 6 1/2% Senior Notes due 2014 of K. Hovnanian Enterprises, Inc., guaranteed by the Company and certain of the Company’s subsidiaries. |
(i) | On December 8, 2003, the Company furnished a report on Form 8-K, Items 7 and 12, relating the Company’s press release dated December 8, 2003 relating to its preliminary financial results for the fourth quarter ended October 31, 2003. |
(ii) | On September 4, 2003, the Company furnished a report on Form 8-K/A, Items 7 and 12, relating the Company’s press release dated September 3, 2003 relating to its preliminary financial results for the third quarter ended July 31, 2003, solely to remedy formatting problems of tables within Exhibit 99.1. |
(iii) | On September 3, 2003, the Company furnished a report on Form 8-K, Items 7 and 12, relating the Company’s press release dated September 3, 2003 relating to its preliminary financial results for the third quarter ended July 31, 2003. |
27
SIGNATURES
By: | /s/ KEVORK S. HOVNANIAN Kevork S. Hovnanian Chairman of the Board |
/s/ KEVORK S. HOVNANIAN Kevork S. Hovnanian | Chairman of The Board and Director | 1/21/04 | ||||||||
/s/ ARA K. HOVNANIAN Ara K. Hovnanian | Chief Executive Officer, President and Director | 1/21/04 | ||||||||
/s/ PAUL W. BUCHANAN Paul W. Buchanan | Senior Vice President Corporate Controller | 1/21/04 | ||||||||
/s/ KEVIN C. HAKE Kevin C. Hake | Vice President, Finance and Treasurer | 1/21/04 | ||||||||
/s/ PETER S. REINHART Peter S. Reinhart | Senior Vice President and General Counsel | 1/21/04 | ||||||||
/s/ LARRY SORSBY J. Larry Sorsby | Executive Vice President, Chief Financial Officer and Director | 1/21/04 |
28
HOVNANIAN ENTERPRISES, INC.
Index to Consolidated Financial Statements
Page | ||||||
---|---|---|---|---|---|---|
Financial Statements: | ||||||
Report of Independent Auditors | F-2 | |||||
Consolidated Balance Sheets as of October 31, 2003 and 2002 | F-3 | |||||
Consolidated Statements of Income for the Years Ended October 31, 2003, 2002, and 2001 | F-5 | |||||
Consolidated Statements of Stockholders’ Equity for the Years Ended October 31, 2003, 2002, and 2001 | F-6 | |||||
Consolidated Statements of Cash Flows for the Years Ended October 31, 2003, 2002, and 2001 | F-7 | |||||
Notes to Consolidated Financial Statements | F-8 |
F-1
Report of Independent Auditors
To the Stockholders and
Board of Directors of
Hovnanian Enterprises, Inc.
We have audited the accompanying consolidated balance sheets of Hovnanian Enterprises, Inc. and subsidiaries as of October 31, 2003 and 2002 and the related consolidated statements of income, stockholders’ equity and cash flows for each of the three years in the period ended October 31, 2003. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Hovnanian Enterprises, Inc. and subsidiaries at October 31, 2003 and 2002 and the consolidated results of their operations and their cash flows for each of the three years in the period ended October 31, 2003 in conformity with accounting principles generally accepted in the United States.
As discussed in Notes 2 and 17 to the consolidated financial statements, in 2002 the Company changed its method of accounting for goodwill, and in 2003, the Company adopted FASB Interpretation No. 46 “Consolidation of Variable Interest Entities”.
New York, New York
December 8, 2003
F-2
Hovnanian Enterprises, Inc. and Subsidiaries
Consolidated Balance Sheets
(In Thousands) | | October 31, 2003 | | October 31, 2002 | ||||||
---|---|---|---|---|---|---|---|---|---|---|
ASSETS | ||||||||||
Homebuilding: | ||||||||||
Cash and cash equivalents (Note 5) | $ | 121,913 | $ | 262,675 | ||||||
Inventories – At the lower of cost or fair value (Notes 7, 11, and 12): | ||||||||||
Sold and unsold homes and lots under development | 1,184,907 | 803,829 | ||||||||
Land and land options held for future development or sale | 270,502 | 171,081 | ||||||||
Consolidated Inventory Not Owned: | ||||||||||
Specific performance options | 56,082 | 67,183 | ||||||||
Variable interest entities | 100,327 | |||||||||
Other options | 48,226 | 39,489 | ||||||||
Total Consolidated Inventory Not Owned | 204,635 | 106,672 | ||||||||
Total Inventories | 1,660,044 | 1,081,582 | ||||||||
Receivables, deposits, and notes (Note 12) | 42,506 | 26,276 | ||||||||
Property, plant, and equipment – net (Note 4) | 26,263 | 19,242 | ||||||||
Senior residential rental properties – net (Notes 4 and 7) | 9,118 | 9,504 | ||||||||
Prepaid expenses and other assets | 97,407 | 86,582 | ||||||||
Goodwill and indefinite life intangibles (Note 18) | 82,658 | 82,275 | ||||||||
Definite life intangibles (Note 18) | 56,978 | |||||||||
Total Homebuilding | 2,096,887 | 1,568,136 | ||||||||
Financial Services: | ||||||||||
Cash and cash equivalents | 6,308 | 7,315 | ||||||||
Mortgage loans held for sale (Notes 6 and 7) | 224,052 | 91,451 | ||||||||
Other assets | 3,945 | 11,226 | ||||||||
Total Financial Services | 234,305 | 109,992 | ||||||||
Income Taxes Receivable – Including deferred tax benefits (Note 10) | 1,179 | |||||||||
Total Assets | $ | 2,332,371 | $ | 1,678,128 |
See notes to consolidated financial statements.
F-3
Hovnanian Enterprises, Inc. and Subsidiaries
Consolidated Balance Sheets
(In Thousands) | | October 31, 2003 | | October 31, 2002 | ||||||
---|---|---|---|---|---|---|---|---|---|---|
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||||
Homebuilding: | ||||||||||
Nonrecourse land mortgages (Note 7) | $ | 43,795 | $ | 11,593 | ||||||
Accounts payable and other liabilities | 229,986 | 198,290 | ||||||||
Customers’ deposits (Note 5) | 58,376 | 40,422 | ||||||||
Nonrecourse mortgages secured by operating properties (Note 7) | 710 | 3,274 | ||||||||
Liabilities from inventory not owned | 94,780 | 97,983 | ||||||||
Total Homebuilding | 427,647 | 351,562 | ||||||||
Financial Services: | ||||||||||
Accounts payable and other liabilities | 5,917 | 4,857 | ||||||||
Mortgage warehouse line of credit (Notes 6 and 7) | 166,711 | 85,498 | ||||||||
Total Financial Services | 172,628 | 90,355 | ||||||||
Notes Payable: | ||||||||||
Term loan (Note 7) | 115,000 | 115,000 | ||||||||
Senior notes (Note 8) | 387,166 | 396,390 | ||||||||
Senior subordinated notes (Note 8) | 300,000 | 150,000 | ||||||||
Accrued interest (Notes 7 and 8) | 15,675 | 9,555 | ||||||||
Total Notes Payable | 817,841 | 670,945 | ||||||||
Income Taxes Payable – Net of deferred tax benefits (Note 10) | 777 | |||||||||
Total Liabilities | 1,418,116 | 1,113,639 | ||||||||
Minority interest from inventory not owned (Note 17) | 90,252 | |||||||||
Minority interest from consolidated joint ventures | 4,291 | 1,940 | ||||||||
Stockholders’ Equity (Notes 13 and 18): | ||||||||||
Preferred Stock, $.01 par value–authorized 100,000 shares; none issued Common Stock, Class A, $.01 par value–authorized 87,000,000 shares; issued 28,016,497 shares in 2003 and 27,453,994 shares in 2002 (including 5,390,218 shares in 2003 and 4,343,240 shares in 2002 held in Treasury) | 280 | 275 | ||||||||
Common Stock, Class B, $.01 par value (convertible to Class A at time of sale) – authorized 13,000,000 shares; issued 7,768,508 shares in 2003 and 7,788,061 shares in 2002 (both years include 345,874 shares held in Treasury) | 78 | 78 | ||||||||
Paid in Capital | 163,712 | 152,977 | ||||||||
Retained Earnings (Note 8) | 705,182 | 447,802 | ||||||||
Deferred Compensation | (21 | ) | ||||||||
Treasury Stock – at cost | (49,540 | ) | (38,562 | ) | ||||||
Total Stockholders’ Equity | 819,712 | 562,549 | ||||||||
Total Liabilities and Stockholders’ Equity | $ | 2,332,371 | $ | 1,678,128 |
See notes to consolidated financial statements.
F-4
Hovnanian Enterprises, Inc. and Subsidiaries
Consolidated Statements of Income
Year Ended | | ||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
(In Thousands Except Per Share Data) | | October 31, 2003 | | October 31, 2002 | | October 31, 2001 | |||||||||
Revenues: | |||||||||||||||
Homebuilding: | |||||||||||||||
Sale of homes | $ | 3,129,830 | $ | 2,462,095 | $ | 1,693,717 | |||||||||
Land sales and other revenues (Note 12) | 20,742 | 48,241 | 16,845 | ||||||||||||
Total Homebuilding | 3,150,572 | 2,510,336 | 1,710,562 | ||||||||||||
Financial Services | 51,285 | �� | 40,770 | 31,428 | |||||||||||
Total Revenues | 3,201,857 | 2,551,106 | 1,741,990 | ||||||||||||
Expenses: | |||||||||||||||
Homebuilding: | |||||||||||||||
Cost of sales | 2,342,324 | 1,955,838 | 1,355,381 | ||||||||||||
Selling, general and administrative | 253,724 | 194,903 | 140,126 | ||||||||||||
Inventory impairment loss (Note 11) | 5,150 | 8,199 | 4,368 | ||||||||||||
Total Homebuilding | 2,601,198 | 2,158,940 | 1,499,875 | ||||||||||||
Financial Services | 28,415 | 22,543 | 21,443 | ||||||||||||
Corporate General and Administrative (Note 3) | 66,008 | 51,974 | 44,278 | ||||||||||||
Interest (Notes 7 and 8) | 63,658 | 60,371 | 51,446 | ||||||||||||
Other operations (Note 18) | 22,680 | 31,548 | 14,830 | ||||||||||||
Intangible Amortization (Note 18) | 8,380 | 3,764 | |||||||||||||
Total Expenses | 2,790,339 | 2,325,376 | 1,635,636 | ||||||||||||
Income Before Income Taxes | 411,518 | 225,730 | 106,354 | ||||||||||||
State and Federal Income Taxes: | |||||||||||||||
State (Note 10) | 17,458 | 8,993 | 4,024 | ||||||||||||
Federal (Note 10) | 136,680 | 79,041 | 38,644 | ||||||||||||
Total Taxes | 154,138 | 88,034 | 42,668 | ||||||||||||
Net Income | $ | 257,380 | $ | 137,696 | $ | 63,686 | |||||||||
Per Share Data: | |||||||||||||||
Basic: | |||||||||||||||
Income Per Common Share | $ | 8.31 | $ | 4.53 | $ | 2.38 | |||||||||
Weighted Average Number of Common Shares Outstanding | 30,960 | 30,405 | 26,810 | ||||||||||||
Assuming Dilution: | |||||||||||||||
Income Per Common Share | $ | 7.85 | $ | 4.28 | $ | 2.29 | |||||||||
Weighted Average Number of Common Shares Outstanding | 32,769 | 32,155 | 27,792 |
See notes to consolidated financial statements.
F-5
Hovnanian Enterprises, Inc. and Subsidiaries
Consolidated Statements of Stockholders’ Equity
A Common Stock | B Common Stock | |||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
(Dollars In Thousands) | | Shares Issued and Outstanding | | Amount | | Shares Issued and Outstanding | | Amount | | Paid-In Capital | | Retained Earnings | | Deferred Comp | | Treasury Stock | | Total | ||||||||||||||||||
Balance, October 31, 2000 | 13,572,448 | $ | 173 | 7,633,029 | $ | 79 | $ | 46,086 | $ | 246,420 | $ | $ | (29,399 | ) | $ | 263,359 | ||||||||||||||||||||
Acquisitions | 6,546,932 | 66 | 51,361 | 51,427 | ||||||||||||||||||||||||||||||||
Sale of common stock under employee stock option plan | 519,673 | 5 | 2,885 | 2,890 | ||||||||||||||||||||||||||||||||
Stock bonus plan | 63,429 | 1 | 625 | 626 | ||||||||||||||||||||||||||||||||
Conversion of Class B to Class A common stock | 159,976 | 1 | (159,976 | ) | (1 | ) | ||||||||||||||||||||||||||||||
Deferred compensation | (127 | ) | (127 | ) | ||||||||||||||||||||||||||||||||
Treasury stock purchases | (458,700 | ) | (6,215 | ) | (6,215 | ) | ||||||||||||||||||||||||||||||
Net Income | 63,686 | 63,686 | ||||||||||||||||||||||||||||||||||
Balance, October 31, 2001 | 20,403,758 | 246 | 7,473,053 | 78 | 100,957 | 310,106 | (127 | ) | (35,614 | ) | 375,646 | |||||||||||||||||||||||||
Acquisitions | 2,402,769 | 24 | 48,051 | 48,075 | ||||||||||||||||||||||||||||||||
Sale of common stock under employee stock option plan | 357,165 | 4 | 3,577 | 3,581 | ||||||||||||||||||||||||||||||||
Stock bonus plan | 63,815 | 1 | 392 | 393 | ||||||||||||||||||||||||||||||||
Conversion of Class B to Class A common stock | 30,866 | (30,866 | ) | |||||||||||||||||||||||||||||||||
Deferred compensation | 106 | 106 | ||||||||||||||||||||||||||||||||||
Treasury stock purchases | (147,619 | ) | (2,948 | ) | (2,948 | ) | ||||||||||||||||||||||||||||||
Net Income | 137,696 | 137,696 | ||||||||||||||||||||||||||||||||||
Balance, October 31, 2002 | 23,110,754 | 275 | 7,442,187 | 78 | 152,977 | 447,802 | (21 | ) | (38,562 | ) | 562,549 | |||||||||||||||||||||||||
Acquisitions | 49,261 | 3,713 | 3,713 | |||||||||||||||||||||||||||||||||
Shares returned in connection with prior year acquisition | (749,359 | ) | ||||||||||||||||||||||||||||||||||
Sale of common stock under employee stock option plan | 405,110 | 4 | 7,043 | 7,047 | ||||||||||||||||||||||||||||||||
Stock bonus plan | 88,579 | 1 | (21 | ) | (20 | ) | ||||||||||||||||||||||||||||||
Conversion of Class B to Class A common stock | 19,553 | (19,553 | ) | |||||||||||||||||||||||||||||||||
Deferred compensation | 21 | 21 | ||||||||||||||||||||||||||||||||||
Treasury stock purchases | (297,619 | ) | (10,978 | ) | (10,978 | ) | ||||||||||||||||||||||||||||||
Net Income | 257,380 | 257,380 | ||||||||||||||||||||||||||||||||||
Balance, October 31, 2003 | 22,626,279 | $ | 280 | 7,422,634 | $ | 78 | $ | 163,712 | $ | 705,182 | $ | $ | (49,540 | ) | $ | 819,712 |
See notes to consolidated financial statements.
F-6
Hovnanian Enterprises, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
Year Ended | | ||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
(In Thousands) | | October 31, 2003 | | October 31, 2002 | | October 31, 2001 | |||||||||
Cash Flows From Operating Activities: | |||||||||||||||
Net Income | $ | 257,380 | $ | 137,696 | $ | 63,686 | |||||||||
Adjustments to reconcile net income to net cash (used in) provided by operating activities: | |||||||||||||||
Depreciation | 6,714 | 6,506 | 8,164 | ||||||||||||
Intangible Amortization | 8,380 | 3,764 | |||||||||||||
Loss (gain) on sale and retirement of property and assets | 2,872 | 12,328 | 641 | ||||||||||||
Deferred income taxes | 4,223 | (18,307 | ) | (6,265 | ) | ||||||||||
Impairment losses | 5,150 | 8,199 | 4,368 | ||||||||||||
Decrease (increase) in assets: | |||||||||||||||
Mortgage notes receivable | (130,591 | ) | 14,870 | (42,573 | ) | ||||||||||
Receivables, prepaids and other assets | (9,446 | ) | 39,452 | (35,805 | ) | ||||||||||
Inventories | (367,773 | ) | (31,573 | ) | 12,540 | ||||||||||
Increase (decrease) in liabilities: | |||||||||||||||
State and Federal income taxes | (548 | ) | 21,138 | 7,004 | |||||||||||
Tax effect from exercise of stock options | (5,631 | ) | (1,335 | ) | (566 | ) | |||||||||
Customers’ deposits | 18,948 | 1,006 | 4,543 | ||||||||||||
Interest and other accrued liabilities | 45,305 | 38,494 | 20,586 | ||||||||||||
Accounts payable | (29,492 | ) | 20,066 | (3,018 | ) | ||||||||||
Net cash (used in) provided by operating activities | (194,509 | ) | 248,540 | 37,069 | |||||||||||
Cash Flows From Investing Activities: | |||||||||||||||
Net proceeds from sale of property and assets | 3,123 | 627 | 5,325 | ||||||||||||
Purchase of property, equipment, and other fixed assets and acquisitions of homebuilding companies | (198,095 | ) | (144,485 | ) | (44,688 | ) | |||||||||
Investment in and advances to unconsolidated affiliates | (2,783 | ) | (15,828 | ) | (372 | ) | |||||||||
Net cash (used in) investing activities | (197,755 | ) | (159,686 | ) | (39,735 | ) | |||||||||
Cash Flows From Financing Activities: | |||||||||||||||
Proceeds from mortgages and notes | 1,941,244 | 1,895,429 | 1,472,789 | ||||||||||||
Proceeds from senior debt | 99,152 | ||||||||||||||
Proceeds from senior subordinated debt | 150,000 | 150,000 | |||||||||||||
Principal payments on mortgages and notes | (1,830,756 | ) | (1,880,873 | ) | (1,494,528 | ) | |||||||||
Principal payments on subordinated debt | (9,750 | ) | (99,747 | ) | |||||||||||
Purchase of treasury stock | (10,978 | ) | (2,948 | ) | (6,215 | ) | |||||||||
Proceeds from sale of stock and employee stock plan | 10,735 | 3,974 | 3,516 | ||||||||||||
Net cash provided by (used in) financing activities | 250,495 | 164,987 | (24,438 | ) | |||||||||||
Net Increase (Decrease) In Cash | (141,769 | ) | 253,841 | (27,104 | ) | ||||||||||
Cash and Cash Equivalents Balance, Beginning Of Year | 269,990 | 16,149 | 43,253 | ||||||||||||
Cash and Cash Equivalents Balance, End Of Year | $ | 128,221 | $ | 269,990 | $ | 16,149 | |||||||||
Supplemental Disclosures Of Cash Flows: | |||||||||||||||
Cash paid during the period for: | |||||||||||||||
Interest | $ | 59,709 | $ | 59,101 | $ | 53,100 | |||||||||
Income Taxes | $ | 152,532 | $ | 85,203 | $ | 45,498 | |||||||||
Supplemental disclosures of noncash operating activities: | |||||||||||||||
Consolidated Inventory Not Owned: | |||||||||||||||
Specific performance options | $ | 52,996 | $ | 58,494 | |||||||||||
Variable interest entities | 87,312 | ||||||||||||||
Other options | 44,764 | 39,489 | |||||||||||||
Total Inventory Not Owned | $ | 185,072 | $ | 97,983 |
See notes to consolidated financial statements.
F-7
Notes to Consolidated Financial Statements
For the Years Ended October 31, 2003, 2002, and 2001
1. | Basis of Presentation and Segment Information |
2. | Summary of Significant Accounting Policies |
F-8
Year Ended | | ||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
(Dollars in Thousands) | | October 31, 2003 | | October 31, 2002 | | October 31, 2001 | |||||||||
Interest capitalized at beginning of year | $ | 22,159 | $ | 25,124 | $ | 25,694 | |||||||||
Plus acquired entity interest | 3,604 | ||||||||||||||
Plus interest incurred(1)(2) | 66,332 | 57,406 | 47,272 | ||||||||||||
Less interest expensed(2) | 63,658 | 60,371 | 51,446 | ||||||||||||
Interest capitalized at end of year(2) | $ | 24,833 | $ | 22,159 | $ | 25,124 |
F-9
F-10
shares have been purchased under this program, of which 297,619 and 147,619 were repurchased during the twelve months ended October 31, 2003 and 2002, respectively. In addition, we retired 0.8 million shares under the terms of the acquisition agreements that were held by sellers of two previous acquisitions.
Depreciation – Property, plant and equipment are depreciated using the straight-line method over the estimated useful life of the assets.
Prepaid Expenses – Prepaid expenses which relate to specific housing communities (model setup, architectural fees, homeowner warranty program fees, etc.) are amortized to costs of sales as the applicable inventories are sold. All other prepaid expenses are amortized over a specific time period or as used and charged to overhead expense.
Stock Options – SFAS No. 123 “Accounting for Stock-Based Compensation”, (“SFAS 123”) establishes a fair value-based method of accounting for stock-based compensation plans, including stock options. Registrants may elect to continue accounting for stock option plans under APB Opinion No. 25 “Accounting for Stock Issued to Employees” (“APB 25”), but are required to provide pro forma net income and earnings per share information “as if” the new fair value approach had been adopted. We intend to continue accounting for our stock option plan under APB 25. Under APB 25, no compensation expense is recognized when the exercise price of our employee stock options equals the market price of the underlying stock on the date of grant (see Note 13).
In December 2002, the FASB issued SFAS No. 148, “Accounting for Stock-Based Compensation – Transition and Disclosure” (“SFAS 148”). SFAS 148 amends SFAS 123 to provide alternative methods of transition for an entity that voluntarily adopts the fair value recognition method of recording stock option expense. SFAS 148 also amends the disclosure provisions of SFAS 123 and APB Opinion No. 28, “Interim Financial Reporting” to require disclosure in the summary of significant accounting policies of the effects of an entity’s accounting policy with respect to stock options on reported net income and earnings per share in annual and interim financial statements.
For purposes of pro forma disclosures, the estimated fair value of the options is amortized to expense over the options’ vesting period. Our pro forma information follows (dollars in thousands except for earnings per share information):
Year Ended | | ||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
(Dollars in Thousands) | | October 31, 2003 | | October 31, 2002 | | October 31, 2001 | |||||||||
Net income to common shareholders; as reported | $ | 257,380 | $ | 137,696 | $ | 63,686 | |||||||||
Deduct: total stock-based employee compensation expense determined under fair value based method for all awards, net of minority interest | 2,075 | 560 | 195 | ||||||||||||
Pro forma net income | $ | 255,305 | $ | 137,136 | $ | 63,491 | |||||||||
Pro forma basic earnings per share | $ | 8.25 | $ | 4.51 | $ | 2.37 | |||||||||
Basic earnings per share as reported | $ | 8.31 | $ | 4.53 | $ | 2.38 | |||||||||
Pro forma diluted earnings per share | $ | 7.79 | $ | 4.26 | $ | 2.28 | |||||||||
Diluted earnings per share as Reported | $ | 7.85 | $ | 4.28 | $ | 2.29 |
F-11
F-12
financial instruments created before the issuance date of the Statement and still existing at the beginning of the interim period of adoption. The adoption of SFAS 150 did not have a material effect on our financial position or results of operations.
We manage our interest rate risk on mortgage loans held for sale and our estimated future commitments to originate and close mortgage loans at fixed prices through the use of best-efforts whole loan delivery commitments. These instruments are classified as derivatives and generally have maturities of three months or less. Accordingly, gains and losses are recognized in current earnings during the period of change.
Reclassifications – Certain amounts in the 2002 and 2001 consolidated financial statements have been reclassified to conform to the 2003 presentation.
3. | Corporate Initiatives |
4. Property
5. | Deposits |
6. | Mortgage Loans Held for Sale |
7. | Mortgages and Notes Payable |
F-13
Year Ended | | ||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
(Dollars in Thousands) | | October 31, 2003 | | October 31, 2002 | | October 31, 2001 | |||||||||
Average monthly outstanding borrowings | $ | 2,485 | $ | 10,717 | $ | 74,543 | |||||||||
Average interest rate during period | 4.5% | 4.4% | 7.1% | ||||||||||||
Average interest rate at end of period(1) | 2.8% | 3.6% | 4.1% | ||||||||||||
Maximum outstanding at any month end | $ | 29,800 | $ | 36,425 | $ | 120,600 |
8. | Senior and Senior Subordinated Notes |
F-14
9. | Retirement Plan |
10. | Income Taxes |
Year Ended | | ||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
(Dollars In Thousands) | | October 31, 2003 | | October 31, 2002 | |||||||
State income taxes: | |||||||||||
Current | $ | 8,455 | $ | 7,092 | |||||||
Deferred | (9,009 | ) | (7,088 | ) | |||||||
Federal income taxes: | |||||||||||
Current | 19,999 | 27,541 | |||||||||
Deferred | (20,624 | ) | (26,768 | ) | |||||||
Total | $ | (1,179 | ) | $ | 777 |
F-15
Year Ended | | ||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
(Dollars In Thousands) | | October 31, 2003 | | October 31, 2002 | | October 31, 2001 | |||||||||
Current income tax expense: | |||||||||||||||
Federal | $ | 130,536 | $ | 97,347 | $ | 48,478 | |||||||||
State(1) | 19,379 | 13,808 | 6,461 | ||||||||||||
149,915 | 111,155 | 54,939 | |||||||||||||
Deferred income tax (benefit) expense: | |||||||||||||||
Federal | 6,144 | (18,307 | ) | (9,834 | ) | ||||||||||
State | (1,921 | ) | (4,814 | ) | (2,437 | ) | |||||||||
4,223 | (23,121 | ) | (12,271 | ) | |||||||||||
Total | $ | 154,138 | $ | 88,034 | $ | 42,668 |
(1) The current state income tax expense is net of the use of state loss carryforwards amounting to $13.5 million, $45.8 million, and $26.8 million for the years ended October 31, 2003, 2002, and 2001, respectively.
Year Ended | | ||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
(Dollars In Thousands) | | October 31, 2003 | | October 31, 2002 | |||||||
Deferred tax assets: | |||||||||||
Association subsidy reserves | $ | 231 | $ | 659 | |||||||
Inventory impairment loss | 700 | 1,048 | |||||||||
Uniform capitalization of overhead | 5,980 | 14,157 | |||||||||
Post development completion costs | 7,989 | 8,006 | |||||||||
Acquisition goodwill | 8,806 | 2,995 | |||||||||
Restricted stock bonus | 8,790 | 2,710 | |||||||||
Provision for losses | 8,952 | 1,878 | |||||||||
State net operating loss carryforwards | 24,816 | 27,684 | |||||||||
Other | 9,433 | 5,411 | |||||||||
Total | 75,697 | 64,548 | |||||||||
Valuation allowance | (24,816 | ) | (27,684 | ) | |||||||
Total deferred tax assets | 50,881 | 36,864 | |||||||||
Deferred tax liabilities: | |||||||||||
Research and engineering costs | 13,437 | ||||||||||
Installment sales | 72 | ||||||||||
Accelerated depreciation | 2,816 | 2,936 | |||||||||
Acquisition goodwill | 4,735 | ||||||||||
Other | 260 | ||||||||||
Total deferred tax liabilities | 21,248 | 3,008 | |||||||||
Net deferred tax assets | $ | 29,633 | $ | 33,856 |
F-16
Year Ended | | ||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
(Dollars In Thousands) | | October 31, 2003 | | October 31, 2002 | | October 31, 2001 | |||||||||
Computed “expected” tax rate | 35.0% | 35.0% | 35.0% | ||||||||||||
State income taxes, net of Federal income tax benefit | 2.7 | 2.6 | 3.2 | ||||||||||||
Permanent timing differences | — | 1.4 | 1.6 | ||||||||||||
Low income housing tax credit | (0.3 | ) | (0.6 | ) | (1.3 | ) | |||||||||
Other | 0.1 | 0.6 | 1.6 | ||||||||||||
Effective tax rate | 37.5% | 39.0% | 40.1% |
11. | Reduction of Inventory to Fair Value |
F-17
12. | Transactions with Related Parties |
13. | Stock Plans |
F-18
October 31, 2003 | | Weighted Average Fair Value(1) And Exercise Price | | October 31, 2002 | | Weighted Average Fair Value(1) And Exercise Price | | October 31, 2001 | | Weighted Average Fair Value(1) And Exercise Price | ||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Options outstanding at beginning of period | 2,477,162 | $ | 9.69 | 2,280,657 | $ | 7.52 | 1,980,500 | $ | 7.55 | |||||||||||||||||
Granted | 480,500 | $ | 33.03 | 583,670 | $ | 15.03 | 1,058,785 | $ | 5.81 | |||||||||||||||||
Exercised | 513,996 | $ | 9.54 | 357,165 | $ | 6.28 | 519,673 | $ | 4.29 | |||||||||||||||||
Forfeited | 1,875 | $ | 7.50 | 30,000 | $ | 7.72 | 238,955 | $ | 7.67 | |||||||||||||||||
Options outstanding at end of period | 2,441,791 | $ | 14.32 | 2,477,162 | $ | 9.69 | 2,280,657 | $ | 7.52 | |||||||||||||||||
Options exercisable at end of period | 822,999 | 1,089,513 | 1,451,718 | |||||||||||||||||||||||
Price range of options | $ | 2.66- | $ | 2.66- | $ | 2.66- | ||||||||||||||||||||
outstanding | $ | 63.00 | $ | 34.75 | $ | 15.08 | ||||||||||||||||||||
Weighted-average remaining contractual life | 6.4 yrs. | 6.0 yrs. | 6.0 yrs. |
(1) Fair value of options at grant date approximate exercise price.
The following table summarizes the exercise price range and related number of options outstanding at October 31, 2003:
Range of Exercise Prices | | Number Outstanding | ||||
---|---|---|---|---|---|---|
$ 2.66 – $ 5.00 | 99,375 | |||||
$ 5.00 – $10.00 | 1,067,250 | |||||
$10.01 – $15.00 | 590,000 | |||||
$15.01 – $20.00 | 41,000 | |||||
$20.01 – $25.00 | 66,666 | |||||
$25.01 – $30.00 | 62,000 | |||||
$30.01 – $63.00 | 515,500 | |||||
2,441,791 |
F-19
14. | Warranty Costs |
| Year Ended October 31, 2003 | |||||
---|---|---|---|---|---|---|
Balance, beginning of year | $ | 22,392,000 | ||||
Company acquisitions during year | 2,524,000 | |||||
Additions during year | 24,336,000 | |||||
Charges incurred during year | (9,720,000 | ) | ||||
Balance, end of year | $ | 39,532,000 |
15. | Commitments and Contingent Liabilities |
16. | Performance Letters of Credit |
17. | Variable Interest Entities |
F-20
not it’s total assets consolidated on the balance sheet. In certain cases we will have to place inventory on our balance sheet the VIE has optioned to other developers. In addition, if the VIE has creditors, it’s debt will be placed on our balance sheet even though the creditors have no recourse against our Company. Based on these observations we believe consolidating VIE’s based on land and lot option deposits does not reflect the economic realities or risks of owning and developing land.
18. | Acquisitions |
| January 10, 2002 | |||||
---|---|---|---|---|---|---|
Cash and cash equivalents | $ | 10,209 | ||||
Inventories | 220,110 | |||||
Tradename intangible | 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 |
F-21
Year Ended October 31, | | ||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
(In Thousands Except Per Share) | | 2002 | | 2003 | |||||||
Revenues | $ | 2,615,455 | $ | 2,308,130 | |||||||
Expenses | 2,384,361 | 2,145,759 | |||||||||
Income Taxes | 90,132 | 64,387 | |||||||||
Net Income | $ | 140,962 | $ | 97,984 | |||||||
Diluted Net Income Per Common Share | $ | 4.33 | $ | 3.12 |
F-22
19. | Unaudited Summarized Consolidated Quarterly Information |
Three Months Ended | | ||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
(In Thousands Except Per Share Data) | | October 31, 2003 | | July 31, 2003 | | April 30, 2003 | | January 31, 2003 | |||||||||||
Revenues | $ | 1,045,588 | $ | 848,817 | $ | 679,817 | $ | 627,635 | |||||||||||
Expenses | $ | 899,442 | $ | 739,009 | $ | 595,389 | $ | 556,499 | |||||||||||
Income before income taxes | $ | 146,146 | $ | 109,808 | $ | 84,428 | $ | 71,136 | |||||||||||
State and Federal income tax | $ | 54,897 | $ | 41,006 | $ | 31,860 | $ | 26,375 | |||||||||||
Net Income | $ | 91,249 | $ | 68,802 | $ | 52,568 | $ | 44,761 | |||||||||||
Per Share Data: | |||||||||||||||||||
Basic: | |||||||||||||||||||
Net Income | $ | 2.97 | $ | 2.25 | $ | 1.69 | $ | 1.43 | |||||||||||
Weighted average number of common shares outstanding | 30,709 | 30,630 | 31,143 | 31,371 | |||||||||||||||
Assuming Dilution: | |||||||||||||||||||
Net Income | $ | 2.79 | $ | 2.11 | $ | 1.60 | $ | 1.35 | |||||||||||
Weighted average number of common shares outstanding | 32,659 | 32,543 | 32,761 | 33,080 |
Three Months Ended | | ||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
(In Thousands Except Per Share Data) | | October 31, 2002 | | July 31, 2002 | | April 30, 2002 | | January 31, 2002 | |||||||||||
Revenues | $ | 831,410 | $ | 704,636 | $ | 560,998 | $ | 454,062 | |||||||||||
Expenses | $ | 739,011 | $ | 642,675 | $ | 519,425 | $ | 424,265 | |||||||||||
Income before income taxes | $ | 92,399 | $ | 61,961 | $ | 41,573 | $ | 29,797 | |||||||||||
State and Federal income tax | $ | 37,961 | 22,774 | $ | 15,663 | $ | 11,636 | ||||||||||||
Net Income | $ | 54,438 | $ | 39,187 | $ | 25,910 | $ | 18,161 | |||||||||||
Per Share Data: | |||||||||||||||||||
Basic: | |||||||||||||||||||
Net Income | $ | 1.75 | $ | 1.27 | $ | 0.84 | $ | 0.63 | |||||||||||
Weighted average number of common shares outstanding | 31,089 | 30,877 | 30,736 | 28,965 | |||||||||||||||
Assuming Dilution: | |||||||||||||||||||
Net Income | $ | 1.66 | $ | 1.20 | $ | 0.80 | $ | 0.60 | |||||||||||
Weighted average number of common shares outstanding | 32,886 | 32,703 | 32,570 | 30,456 |
F-23
20. | Financial Information of Subsidiary Issuer and Subsidiary Guarantors |
F-24
Hovnanian Enterprises, Inc. and Subsidiaries
Consolidating Condensed Balance Sheet
October 31, 2003
(Thousands of Dollars) | | Parent | | Subsidiary Issuer | | Guarantor Subsidiaries | | Non- Guarantor Subsidiaries | | Eliminations | | Consolidated | ||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Assets | ||||||||||||||||||||||||||
Homebuilding | $ | (279 | ) | $ | 151,050 | $ | 1,910,484 | $ | 35,632 | $ | $ | 2,096,887 | ||||||||||||||
Financial Services | (252 | ) | 234,557 | 234,305 | ||||||||||||||||||||||
Income Taxes (Payable) Receivable | 18,713 | (1,241 | ) | (15,656 | ) | (637 | ) | 1,179 | ||||||||||||||||||
Investments in and amounts due to and from consolidated subsidiaries | 801,278 | 690,971 | (851,398 | ) | (56,837 | ) | (584,014 | ) | ||||||||||||||||||
Total Assets | $ | 819,712 | $ | 840,780 | $ | 1,043,178 | $ | 212,715 | $ | (584,014 | ) | $ | 2,332,371 | |||||||||||||
Liabilities | ||||||||||||||||||||||||||
Homebuilding | $ | $ | $ | 425,847 | $ | 1,800 | $ | $ | 427,647 | |||||||||||||||||
Financial Services | (35 | ) | 172,663 | 172,628 | ||||||||||||||||||||||
Notes Payable | 816,960 | (2,984 | ) | 3,865 | 817,841 | |||||||||||||||||||||
Income Taxes Payable (Receivable) | ||||||||||||||||||||||||||
Minority Interest | 90,252 | 4,291 | 94,543 | |||||||||||||||||||||||
Stockholders’ Equity | 819,712 | 23,820 | 530,098 | 30,096 | (584,014 | ) | 819,712 | |||||||||||||||||||
Total Liabilities and Stockholders’ Equity | $ | 819,712 | $ | 840,780 | $ | 1,043,178 | $ | 212,715 | $ | (584,014 | ) | $ | 2,332,371 |
F-25
Hovnanian Enterprises, Inc. and Subsidiaries
Consolidating Condensed Balance Sheet
October 31, 2002
(Thousands of Dollars) | | Parent | | Subsidiary Issuer | | Guarantor Subsidiaries | | Non- Guarantor Subsidiaries | | Eliminations | | Consolidated | ||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Assets | ||||||||||||||||||||||||||
Homebuilding | $ | 1,501 | $ | 261,107 | $ | 1,269,514 | $ | 36,014 | $ | $ | 1,568,136 | |||||||||||||||
Financial Services | 111 | 109,881 | 109,992 | |||||||||||||||||||||||
Investments in and amounts due to and from consolidated subsidiaries | 584,103 | 432,130 | (630,186 | ) | (32,376 | ) | (353,671 | ) | ||||||||||||||||||
Total Assets | $ | 585,604 | $ | 693,237 | $ | 639,439 | $ | 113,519 | $ | (353,671 | ) | $ | 1,678,128 | |||||||||||||
Liabilities | ||||||||||||||||||||||||||
Homebuilding | $ | $ | 35,736 | $ | 312,231 | $ | 3,595 | $ | $ | 351,562 | ||||||||||||||||
Financial Services | 90,355 | 90,355 | ||||||||||||||||||||||||
Notes Payable | 661,390 | 2,345 | 7,210 | 670,945 | ||||||||||||||||||||||
Income Taxes Payable (Receivable) | 23,055 | (3,147 | ) | (18,184 | ) | (947 | ) | 777 | ||||||||||||||||||
Minority Interest | 1,940 | 1,940 | ||||||||||||||||||||||||
Stockholders’ Equity | 562,549 | (742 | ) | 343,047 | 11,366 | (353,671 | ) | 562,549 | ||||||||||||||||||
Total Liabilities and Stockholders’ Equity | $ | 585,604 | $ | 693,237 | $ | 639,439 | $ | 113,519 | $ | (353,671 | ) | $ | 1,678,128 |
F-26
Hovnanian Enterprises, Inc. and Subsidiaries
Consolidating Condensed Statement of Income
Twelve Months Ended October 31, 2003
(Thousands of Dollars) | | Parent | | Subsidiary Issuer | | Guarantor Subsidiaries | | Non- Guarantor Subsidiaries | | Eliminations | | Consolidated | ||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Revenues: | ||||||||||||||||||||||||||
Homebuilding | $ | $ | 620 | $ | 3,129,090 | $ | 20,843 | $ | 19 | $ | 3,150,572 | |||||||||||||||
Financial Services | 6,707 | 44,578 | 51,285 | |||||||||||||||||||||||
Intercompany Charges | 38,610 | 90,674 | (129,284 | ) | ||||||||||||||||||||||
Equity In Pretax Income of Consolidated Subsidiaries | 411,518 | (411,518 | ) | |||||||||||||||||||||||
Total Revenues | 411,518 | 39,230 | 3,226,471 | 65,421 | (540,783 | ) | 3,201,857 | |||||||||||||||||||
Expenses: | ||||||||||||||||||||||||||
Homebuilding | 2,978 | 2,869,413 | 14,998 | (125,465 | ) | 2,761,924 | ||||||||||||||||||||
Financial Services | 2,555 | 26,344 | (484 | ) | 28,415 | |||||||||||||||||||||
Total Expenses | — | 2,978 | 2,871,968 | 41,342 | (125,949 | ) | 2,790,339 | |||||||||||||||||||
Income (Loss) Before Income Taxes | 411,518 | 36,252 | 354,503 | 24,079 | (414,834 | ) | 411,518 | |||||||||||||||||||
State and Federal Income Taxes | 154,138 | 12,688 | 133,929 | 8,682 | (155,299 | ) | 154,138 | |||||||||||||||||||
Net Income (Loss) | $ | 257,380 | $ | 23,564 | $ | 220,574 | $ | 15,397 | $ | (259,535 | ) | $ | 257,380 |
F-27
Hovnanian Enterprises, Inc. and Subsidiaries
Consolidating Condensed Statement of Income
Twelve Months Ended October 31, 2002
(Thousands of Dollars) | | Parent | | Subsidiary Issuer | | Guarantor Subsidiaries | | Non- Guarantor Subsidiaries | | Eliminations | | Consolidated | ||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Revenues: | ||||||||||||||||||||||||||
Homebuilding | $ | $ | 1,059 | $ | 2,523,632 | $ | 14,093 | $ | (28,448 | ) | $ | 2,510,336 | ||||||||||||||
Financial Services | 7,153 | 33,617 | 40,770 | |||||||||||||||||||||||
Intercompany Charges | 139,502 | 21,183 | (160,685 | ) | ||||||||||||||||||||||
Equity In Pretax Income of Consolidated Subsidiaries | 225,730 | (225,730 | ) | |||||||||||||||||||||||
Total Revenues | 225,730 | 140,561 | 2,551,968 | 47,710 | (414,863 | ) | 2,551,106 | |||||||||||||||||||
Expenses: | ||||||||||||||||||||||||||
Homebuilding | 140,561 | 2,313,094 | 18,165 | (168,987 | ) | 2,302,833 | ||||||||||||||||||||
Financial Services | 2,397 | 20,324 | (178 | ) | 22,543 | |||||||||||||||||||||
Total Expenses | 140,561 | 2,315,491 | 38,489 | (169,165 | ) | 2,325,376 | ||||||||||||||||||||
Income (Loss) Before Income Taxes | 225,730 | 236,477 | 9,221 | (245,698 | ) | 225,730 | ||||||||||||||||||||
State and Federal Income Taxes | 88,034 | (195 | ) | 89,530 | 5,797 | (95,132 | ) | 88,034 | ||||||||||||||||||
Net Income (Loss) | $ | 137,696 | $ | 195 | 146,947 | $ | 3,424 | $ | (150,566 | ) | $ | 137,696 |
F-28
Hovnanian Enterprises, Inc. and Subsidiaries
Consolidating Condensed Statement of Income
Twelve Months Ended October 31, 2001
(Thousands of Dollars) | | Parent | | Subsidiary Issuer | | Guarantor Subsidiaries | | Non- Guarantor Subsidiaries | | Eliminations | | Consolidated | ||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Revenues: | ||||||||||||||||||||||||||
Homebuilding | $ | $ | 431 | $ | 1,701,421 | $ | 46,190 | $ | (37,480 | ) | $ | 1,710,562 | ||||||||||||||
Financial Services | 10,391 | 21,037 | 31,428 | |||||||||||||||||||||||
Intercompany Charges | 96,368 | 30,480 | (126,848 | ) | ||||||||||||||||||||||
Equity In Pretax Income of Consolidated Subsidiaries | 106,354 | (106,354 | ) | |||||||||||||||||||||||
Total Revenues | 106,354 | 96,799 | 1,742,292 | 67,227 | (270,682 | ) | 1,741,990 | |||||||||||||||||||
Expenses: | ||||||||||||||||||||||||||
Homebuilding | 96,799 | 1,637,265 | 8,935 | (128,806 | ) | 1,614,193 | ||||||||||||||||||||
Financial Services | 5,748 | 15,821 | (126 | ) | 21,443 | |||||||||||||||||||||
Total Expenses | 96,799 | 1,643,013 | 24,756 | (128,932 | ) | 1,635,636 | ||||||||||||||||||||
Income (Loss) Before Income Taxes | 106,354 | 99,279 | 42,471 | (141,750 | ) | 106,354 | ||||||||||||||||||||
State and Federal Income Taxes | 42,668 | 109 | 39,278 | 16,448 | (55,835 | ) | 42,668 | |||||||||||||||||||
Net Income (Loss) | $ | 63,686 | $ | (109 | ) | $ | 60,001 | $ | 26,023 | $ | (85,915 | ) | $ | 63,686 |
F-29
Hovnanian Enterprises, Inc. and Subsidiaries
Consolidating Condensed Statement of Cash Flows
Twelve Months Ended October 31, 2003
(Thousands of Dollars) | | Parent | | Subsidiary Issuer | | Guarantor Subsidiaries | | Non- Guarantor Subsidiaries | | Eliminations | | Consolidated | ||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Cash Flows From Operating Activities: | ||||||||||||||||||||||||||
Net Income | $ | 257,380 | $ | 23,564 | $ | 220,574 | $ | 15,397 | $ | (259,535 | ) | $ | 257,380 | |||||||||||||
Adjustments to reconcile net income to net cash provided by (used in) operating activities | (26,791 | ) | 11,503 | (577,511 | ) | (118,625 | ) | 259,535 | (451,889 | ) | ||||||||||||||||
Net Cash Provided By (Used In) Operating Activities | 230,589 | 35,067 | (356,937 | ) | (103,228 | ) | (194,509 | ) | ||||||||||||||||||
Net Cash Provided By (Used In) Investing Activities | (10,821 | ) | (186,603 | ) | (331 | ) | (197,755 | ) | ||||||||||||||||||
Net Cash Provided By (Used In) Financing Activities | (10,978 | ) | 140,776 | 40,374 | 80,323 | 250,495 | ||||||||||||||||||||
Intercompany Investing and Financing Activities – Net | (208,785 | ) | (258,841 | ) | 445,105 | 22,521 | ||||||||||||||||||||
Net Increase (Decrease) | 5 | (82,998 | ) | (58,061 | ) | (715 | ) | (141,769 | ) | |||||||||||||||||
In Cash and Cash Equivalents Balance, Beginning of Period | 10 | 218,844 | 43,689 | 7,447 | 269,990 | |||||||||||||||||||||
Cash and Cash Equivalents Balance, End of Period | $ | 15 | $ | 135,846 | $ | (14,372 | ) | $ | 6,732 | $ | $ | 128,221 |
F-30
Consolidating Condensed Statement of Cash Flows
Twelve Months Ended October 31, 2002
(Thousands of Dollars) | | Parent | | Subsidiary Issuer | | Guarantor Subsidiaries | | Non- Guarantor Subsidiaries | | Eliminations | | Consolidated | ||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Cash Flows From Operating Activities: | ||||||||||||||||||||||||||
Net Income | $ | 137,696 | $ | (387 | ) | $ | 147,841 | $ | 3,425 | $ | (150,879 | ) | $ | 137,696 | ||||||||||||
Adjustments to reconcile net income to net cash provided by (used in) operating activities | 122,389 | 23,716 | (217,049 | ) | 30,909 | 150,879 | 110,844 | |||||||||||||||||||
Net Cash Provided By (Used In) Operating Activities | 260,085 | 23,329 | (69,208 | ) | 34,334 | 248,540 | ||||||||||||||||||||
Net Cash Provided By (Used In) Investing Activities | (48,775 | ) | (6,875 | ) | (104,202 | ) | 166 | (159,686 | ) | |||||||||||||||||
Net Cash Provided By (Used In) Financing Activities | (2,948 | ) | 264,846 | (83,298 | ) | (13,613 | ) | 164,987 | ||||||||||||||||||
Intercompany Investing and Financing Activities – Net | (208,362 | ) | (56,616 | ) | 284,781 | (19,803 | ) | |||||||||||||||||||
Net Increase (Decrease) | 224,684 | 28,073 | 1,084 | 253,841 | ||||||||||||||||||||||
In 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 | $ | 218,844 | $ | 43,689 | $ | 7,447 | $ | — | $ | 269,990 |
F-31
Hovnanian Enterprises, Inc. and Subsidiaries
Consolidating Condensed Statement of Cash Flows
Twelve Months Ended October 31, 2001
(Thousands of Dollars) | | Parent | | Subsidiary Issuer | | Guarantor Subsidiaries | | Non- Guarantor Subsidiaries | | Eliminations | | Consolidated | ||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Cash Flows From Operating Activities: | ||||||||||||||||||||||||||
Net Income | $ | 63,686 | $ | (109 | ) | $ | 60,001 | $ | 26,023 | $ | (85,915 | ) | $ | 63,686 | ||||||||||||
Adjustments to reconcile net income to net cash provided by (used in) operating activities | 102,908 | 99,063 | (264,122 | ) | (50,381 | ) | 85,915 | (26,617 | ) | |||||||||||||||||
Net Cash Provided By (Used In) Operating Activities | 166,594 | 98,954 | (204,121 | ) | (24,358 | ) | 37,069 | |||||||||||||||||||
Net Cash Provided By (Used In) Investing Activities | (49,622 | ) | (3,770 | ) | 13,393 | 264 | (39,735 | ) | ||||||||||||||||||
Net Cash Provided By (Used In) Financing Activities | (6,215 | ) | 114 | (59,549 | ) | 41,212 | (24,438 | ) | ||||||||||||||||||
Intercompany Investing and Financing Activities – Net | (110,684 | ) | (118,767 | ) | 243,387 | (13,936 | ) | |||||||||||||||||||
Net Increase (Decrease) | 73 | (23,469 | ) | (6,890 | ) | 3,182 | (27,104 | ) | ||||||||||||||||||
In 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 | $ | 10 | $ | (5,840 | ) | $ | 15,616 | $ | 6,363 | $ | — | $ | 16,149 |
21. | Subsequent Event |
F-32