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