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Filed by Hovnanian Enterprises, Inc.
Pursuant to Rule 425 under the Securities Act of 1933
Subject Company: Hovnanian Enterprises, Inc.
Commission File No. 001-08551
and
Subject Company: Washington Homes, Inc.
Commission File No. 001-07643
HOVNANIAN ENTERPRISES
DECEMBER 14, 2000, 3:00 P.M., EDT
Conference Call
Operator Good afternoon, ladies and gentlemen, and
welcome to the Hovnanian Enterprises,
Incorporated fourth quarter conference call. At
this time all participants are in a listen-only
mode. Later we will conduct a question and
answer session and instructions will follow at
that time. If anyone should require assistance
during the call, please press the star followed
by the zero on your touchtone phone. As a
reminder, ladies and gentlemen, this conference
is being recorded.
I would now like to introduce your host for
today's conference, Ms. Nicole Engel of the
Financial Relations Board. Please go ahead,
ma'am.
N. Engel Thank you all for joining us today for
Hovnanian's conference call to discuss the
company's fourth quarter results. By now you
should have all received a faxed copy of the
press release. However if anyone is missing a
copy and would like one, please contact our
office at 212-661-8030 and we will send one
right over to you and ensure that you are on
Hovnanian's distribution list. There will be a
replay for the call which will begin one hour
after the call and run for one week. The replay
can be accessed by dialing 1-800-696-1588 or
303-804-1727 passcode 876632.
On the line with us today is Ara Hovnanian,
President and Chief Executive Officer.
Management will make some opening remarks about
the quarter and then we'll open the line for
questions.
Before we begin, I would like to remind everyone
of the cautionary language about forward looking
statements contained in the release. The same
language applies to any comments made during the
call. Ara, would you like to begin?
A. Hovnanian Yes, good afternoon. I'm pleased to see that
the Bush/Gore tally is not the only one that's
been finalized and we're pleased to announce
our fourth quarter and annual results. The
first year of the millennium has been a year of
milestones for our company. In fiscal year 2000
which ended on October 31st, our revenues
exceeded $1 billion for the first time in our
41 year history. Our net earnings of $33.2
million, or $1.50 a share also set an all time
record for our company. We delivered 4,367
homes, more than in any other year. Our fourth
quarter was particularly strong. As we
anticipated before the year, the opening of
many new communities during the year weighted
our earnings toward the fourth quarter. We
accomplished what we said we would and more
than doubled our profit in the fourth quarter
to 84 cents per share from 41 cents per share
in the 1999 fourth quarter. We delivered 1,290
homes in the fourth quarter and 4,367 home for
the year - each a record for any quarter or
year in our past.
Our associates achieved this with a strong
resolve and a team effort and they really
deserve a heartfelt congratulations and sincere
word of thanks.
These record results were largely the result of
our hard work, as I said. Strong housing
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markets particularly in the northeast region
and the many improvements we've made to our
operating efficiency under our strategic
initiatives have clearly also contributed.
Despite a slowing economy, our sales have
continued to show strength through the end of
the fiscal year with fourth quarter net
contracts up 27.4% year-to-year. This allowed
us to enter fiscal '01 with a record contract
backlog that positions us for further growth in
earnings and revenues. The dollar value of our
contract backlog on October 31, 2000 increased
17% from last year.
Our strong results are evidence that we are
successfully growing our company again after
focusing strictly on improving the bottom line
profitability for several years leading up to
last year.
About 18 months ago we set out to expand our
business through acquisitions that would allow
us to meet our strategic goals of concentrating
in a handful of select markets, and diversifying
our profits outside the Northeast region. We
made several in-market acquisitions in fiscal
'99 and then entered a new geographic market
late that year through the acquisition of
Goodman Homes in Dallas, Texas. Each of these
operations were structured at a fair price, each
has met our strategic objectives and each has
been meeting or exceeding our financial plan.
Now we are making a big step to the next level
by merging with Washington Homes. We announced
the merger in late August and we expect it to
close in mid to late January pending shareholder
approval. This transaction will greatly enhance
the company's market position in the metro
Washington, D.C., market and North Carolina.
It'll add great depth to our management team,
it'll increase our market capitalization and
increase liquidity of our shares.
With the addition of Washington Homes, we expect
total revenues to grow by nearly 50% in fiscal
'01 to $1.7 billion, or close to 7,000 home
deliveries. On a combined basis, the two
companies had more than 43% of their deliveries
anticipated for the year in contract backlog at
October 31, giving us the confidence that we'll
be able to achieve our fiscal '01 business plan.
Our sales since the end of October have pushed
us now over the halfway mark toward our planned
deliveries for the year.
Joining me today from Washington Homes to
discuss the status of the merger are Geaton
DeCesaris, Chairman, President and CEO of
Washington Homes and Chris Spendley, Senior Vice
President and Chief Financial Officer of
Washington Homes. Also joining me from Hovnanian
are Larry Sorsby, Executive Vice President and
Chief Financial Officer, Paul Buchanan, Senior
Vice President and Corporate Controller, and
Kevin Hake, Vice President and Treasurer.
I'll make a few additional comments and then
turn it over to Geaton to update you on the
status of the merger, which I'm sure you're all
curious about and finally Larry will finish up
by going through the numbers in more detail.
We've now surpassed the billion dollar revenue
mark and with Washington Homes we'll be moving
rapidly toward the $2 billion level. Our
significant investment over the past few years
in systems and process improvements has been and
will continue to be essential for our continued
growth and profitability as well as revenues. We
expect to recover our investment in streamline
processes and systems many times over through
enhanced returns during the coming years.
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We've made significant progress with our
financial services business in fiscal 2000 which
includes our title and mortgage operations. With
the help of new management we totally
restructured the operation mid-year,
dramatically improving efficiencies. Essentially
we're doing the same business with about half
the people. Customer satisfaction at the same
time is up. After all these changes, in the most
recent months the payoff has become clear and
the profitability has already begun. This has
been a particularly frustrating area since our
performance in financial services has lagged
behind our peers in the past. We finally have
the right format for the mortgage company in
particular to become a meaningful contributor to
our company going forward.
Overall we anticipate a modestly slower but
stable housing market going forward. Job growth
remains healthy and inflation seems to be in
check. Most of our markets continue to
experience strong demand for housing. The
increasingly difficult environment for
regulatory approvals in nearly all areas of the
country have kept the supply of new housing from
meeting demand in many of our markets. This
gives us the confidence that the housing market
will support our business plan, even with a
moderate downturn in job creation.
Despite the recent appreciation of our stock
price over the past few weeks, we believe it is
still significantly undervalued. Our closing
price yesterday of $9.19 represents a 26%
discount from our book value of $12.42 at year
end. This share price represents only six times
our earnings per share of $1.50 for the past
year and only five times consensus analysts'
estimates of $1.80 per share for our fiscal
2001. This is essentially at recession levels
already, yet the market remains quite strong. We
continue to believe that our shares represent
significant value for investors. Our stock price
doesn't reflect the improved scale, liquidity
and market position that our pending merger with
Washington Homes will bring.
While I believe that Hovnanian's stock price
still does not fairly reflect the tremendous
potential of our combined organization, I am
pleased that the value of the shares is at least
beginning to improve and is now trading at a
level which is 30% higher than the value at the
time we announced the transaction with
Washington Homes earlier in the year.
This, in part, is a reflection of increased
values for shares of homebuilding companies over
the past few months, but we think it's also a
validation of the value of our merger in our
combined companies. We purchased 1,026,000
shares of our Class A common stock during the
year at an average cost of $6.29 per share.
Based on our current price, we've already made a
healthy return on these investments. Longer
term, we're committed to increasing our market
float which would enhance market liquidity for
our shareholders and at the same time we'll
remain committed to continuing our path of
reducing leverage. Thus we'd prefer to be an
issuer of shares at some point when our shares
are fairly valued. However, as we are trading at
modest multiples and a discount to book value,
it's likely that we may be in the market from
time-to-time. We still have some room from our
prior approved Board authorization.
Our main focus is to continue to improve our
performance and we remain confident
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that the market will recognize our improved
profitability, scale, liquidity and market
position over time, particularly as we
demonstrate the benefits of the merger. Our
shareholders' equity will exceed $300 million
at closing with the issuance of an additional
5.7 million shares. This will increase market
float in our shares by approximately 50% and
add significant liquidity for our shareholders.
In return for issuing these shares, we are
getting an excellent operating company and a
management team that has been earning superior
returns. We expect to gain tremendous strategic
benefit that we've only begun to quantify, some
of which Geaton will go into further in a
minute. The combination is a perfect fit with
our strategy of having a dominant presence in a
handful of select markets. We're anxious to get
the merger closed and begin achieving the many
benefits the combination of our two companies
will have. We anticipate being able to close by
the end of January, assuming that the necessary
shareholder approvals are obtained.
We've been holding many planning meetings and
market review meetings with senior management
from Washington Homes and we're quickly finding
that the strategic and cultural fit of our two
organizations is as strong as we expected. We've
already begun to identify opportunities for
improvement in our construction operations,
additional savings with our national purchasing
programs, improved product offerings with the
combined market offerings of both companies,
savings in marketing and numerous other areas
that are beyond what we had initially
anticipated. There's much work to be done in
integrating these two companies, but we can
already feel the increased power from shared
ideas that the merger will provide.
I'd like to turn it to Geaton now who will
provide a few more specifics on the merger.
Geaton?
G. DeCesaris Thank you, Ara. I'd like to now talk on the
transition of Washington Homes to becoming a K.
Hovnanian company. We have created transition
teams of both Hovnanian and Washington Homes
personnel to plan for the integration of our
operations in the Washington, D.C., and North
Carolina markets. The operational teams are
being led by Tom Pellerito, our current Chief
Operating Officer, who will be President of the
Southeast Region of Hovnanian and Chris
Spendley, our CFO, who'll be the Chief
Financial Officer for the Southeast region,
both of whom willing continue reporting
directly to me.
As we have studied the decision of combining
these operations, we have focused on identifying
both operating efficiencies and cost savings. We
are making progress and have already made a
number of key decisions which will be
implemented as soon as practical after the
merger closes. We have made these decisions as a
team, with the involvement of key personnel for
both companies on the basis of careful
evaluations of the strengths of both operations
and the associates involved. By taking the
strengths of both companies, we believe we are
building a powerful team in our North Carolina
and Washington, D.C. markets which will make us
the number one and number two homebuilder,
respectively, in each market.
We are working diligently on our plans to blend
our two pools of talented associates at every
level, from division managers down to sales
associates and superintendents at the
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communities. The growth prospects and increased
market presence of the combined company have
improved the opportunities for the vast majority
of our associates. We feel there is a general
level of excitement building in both of our
current operations in these markets. We plan to
eliminate areas of redundancy among divisional
and regional offices which will result in some
personnel reductions and cost savings.
As both Hovnanian and Washington Homes have
always done in similar situations, we will treat
these individuals fairly and assist them in
finding new opportunities. We plan to reduce the
number of operating offices located in Virginia
and North Carolina from 11 to 5. We will combine
five separate computer systems with different
application software into one system. Chris
Spendley will oversee this consolidation effort
along with implementing Hovnanian's standardized
reporting for each division and area within the
former Washington Homes operations. We will
eliminate two duplicate design centers in North
Carolina and we will consolidate our sales and
marketing efforts wherever practical. We will
market under the Washington Homes' name in both
Maryland and Virginia and we'll use both the
Westminster Homes and Fortis Homes brand names
in North Carolina. This will allow us to segment
the North Carolina market by price and product
with Fortis aimed at a slightly higher price
point. We plan to introduce the Fortis product
into certain Westminster communities and vice
versa in order to increase our overall sales in
existing communities.
All three brand names will carry the tagline of
a "K. Hovnanian Company" so that we can continue
to build on our national reputation for quality
and value. We are in the process of reviewing
both companies' existing national contracts and
have already identified and renegotiated
several, resulting in additional savings,
whether it be from cost reductions or
participation in rebate programs.
At the corporate level, we will consolidate both
our payroll operations and 401K plans and we'll
eliminate the cost of operating as two separate
public companies. We are working to adopt the
best practices of each organization as we strive
for standardization throughout our combined
company. For example, we will adopt Hovnanian's
safety program in the former Washington Homes'
operations and we will rapidly implement
Hovnanian's extensive associate training and
career development programs. We plan to complete
the planning process for the integration of our
two companies by mid-January and to begin
implementation of the plan immediately upon
closing the transaction. We believe that
although we have a monumental task ahead of us,
we are convinced this integration can be dealt
with in a reasonable timeframe because of a well
thought out plan and the caliber of our
associates in these markets.
We think there are tremendous opportunities for
further cost savings and gross margin
enhancements that can be realized from merging
our operations. So we are first only grabbing
what we consider the low hanging fruit. We have
identified many operating synergies of combining
these two companies. However, since we also
realize the additional short term cost of
consolidation and the risk associated with
combining 11 offices into five and five
operating systems into one, we have not included
any of these savings in our 2001 numbers and we
expect to update you in future calls of our
progress.
The management of Washington Homes is excited to
become part of the K. Hovnanian
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company which has many similarities in culture
and operating focus. As Ara has suggested, we
are finding that one plus one can truly add up
to more than two.
At this time I would like to turn the call over
to Larry Sorsby who will take you through the
financial results of the company.
L. Sorsby Thank you, Geaton. Fourth quarter performance
for the quarter ended October 31st, 2000: the
company reported net income of $18.2 million,
more than two times the net income of $8.9
million achieved in the 1999 fiscal fourth
quarter. On a per share basis, this equates to
84 cents per fully diluted share for the fourth
quarter compared to 41 cents per share for the
comparable 1999 period.
Revenues for the 2000 fourth quarter were $353.8
million, an 18.6% increase from 1999's fourth
quarter revenue of $298.4 million. Homebuilding
gross margins excluding land sales increased to
22.1% in the fourth quarter of fiscal 2000, up
substantially from 19.7% in the fourth quarter
of 1999 and continuing a trend of improvement
from 18.2% in the first quarter of fiscal 2000,
20.2% in the second quarter and 20.9% in the
third quarter of 2000.
Fiscal 2000 results: Net income increased to
$33.2 million, or $1.50 per fully diluted share
for fiscal 2000 compared to $30.1 million, or
$1.39 for fully diluted share in fiscal 1999.
Total revenues grew to $1.14 billion, compared
to $946.7 million in fiscal 1999 on a 15.9%
increase in deliveries to 4,367 homes.
As anticipated, homebuilding gross margins fell
by 40 basis points for the year to 20.5% from
20.9% last year. We projected such a decline a
year ago due to the acquisition of Goodman Homes
in Texas which was included for only one month
of fiscal 1999. Goodman has historically
operated with lower gross margins than our other
divisions but they achieve excellent returns on
investment as a result of a high land inventory
turnover. Excluding Texas, the company's
consolidated gross margin increased for the year
to 21.3% from 21.0% in fiscal 1999. Average
sales price per home increased 5% to $253,000
from $241,000 last year, partly as a result of
an increase in the number of more expensive move
up homes we're offering for sale in certain
communities in the Northeast and in California,
but it's also a reflection of our ability to
increase prices in select communities this year.
Total SG&A, including corporate, was 12.1% of
total revenues for the year, an increase over
last year's 11.6%. We anticipate that SG&A cost
as a percent of revenues will decrease in fiscal
2001.
In terms of operations, fourth quarter net
contracts were up 27.4% year-to-year from 876
homes last year to 1,116 homes this year.
Deliveries in 2000's final quarter were 1,290
homes, or $342.3 million compared to 1,153
homes, or $287.5 million in 1999.
For the full year, deliveries increased 15.9% to
a record 4,367 home deliveries. Net contracts
climbed to 4,542 homes valued at $1.1 billion,
an increase of 38.4% from last year's results.
The dollar value of contract backlog on October
31, 2000, increased 16.9% to $538.5 million, or
2,096 homes compared to $460.7 million, or 1,921
homes in 1999.
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Shareholders' equity grew to $263.4 million, or
$12.42 per share at fiscal year end compared to
$236.4 million, or $10.67 at year end fiscal
1999.
The company's debt to equity ratio was 1.41 to 1
at the end of fiscal 2000 after taking into
account approximately $25 million of cash on the
company's balance sheet.
As expected, this ratio was modestly higher than
the ratio of 1.35 to 1 at year end 1999, which
was a result of the Texas acquisition, growth in
our California market and the company's
repurchase of 1,026,000 shares of its Class A
common stock during the year at an average cost
of $6.29 per share. The debt to equity ratio
declined from its peak of 1.72 to 1 at July 31,
2000, as a result of extremely strong fourth
quarter cash flow. Even with the Washington
Homes transaction, which was essentially
leverage neutral, we expect our average ratio of
debt to equity to decline modestly in fiscal
2001.
The company reported EBITDA of $98.4 million for
the year, up from 1999's $91.3 million. In
September Hovnanian issued $150 million of 10.5%
senior notes due in 2007 in order to maintain an
appropriate level of long term capital to
support the company's significantly larger
operations and balance sheet. Combined with
strong fourth quarter cash flow, this enabled us
to end the year with no balance outstanding on
our $375 million unsecured revolving credit
facility and we had about $25 million
[CORRECTION THE NUMBER SHOULD HAVE BEEN
$40 MILLION] of cash on the balance sheet.
Interest expense as a percent of total revenues
decreased to 3.1% from 3.2% last year. Our Board
of Directors is authorized to purchase up to 4
million shares of Class A common stock. As of
October 31, 2000, we had repurchased
approximately 3.4 million shares under this
program.
At this point I'd like to give you a brief
update on what we see for fiscal 2001. We are
comfortable that we'll be able to meet or exceed
the consensus analysts' estimates of earnings
for the combined company of approximately $1.80
per share in fiscal 2001, including the effect
of adding Washington Homes operations for
slightly more than three full quarters in fiscal
2001, which is expected to add approximately 5
to 10 cents per share to the company's net
earnings. This represents a healthy 20% increase
from the record year we just finished. We expect
total revenues of approximately $1.7 billion and
deliveries close to 7,000 homes. All of these
projections assume that economic conditions for
the next six to nine months remain fairly
similar to current conditions. Our pattern of
quarterly earnings and year-over-year
comparisons will be distorted by the timing of
the merger. We expect our first quarter, which
is historically our weakest, to reflect results
similar to fiscal 2000's prior to the effect of
any one time charges associated with the merger.
The next two quarters, the second and third
quarters, should show significant improvement in
earnings per share over the prior year period.
The fourth quarter of fiscal 2000 that we're now
reporting 84 cents per share will be difficult
to match in the fourth quarter of fiscal 2001,
but we expect to exceed 1999's fourth quarter
earnings of 41 cents per share by a very
comfortable margin.
The benefits of the merger should increase
substantially in subsequent years as we realize
the full efficiencies of market concentration
resulting from the merger. This is
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particularly true in the areas of national
purchasing contracts, shared cost data and
methodologies and consolidation of our
subcontractor basis which enables us to smooth
out the timing of our construction schedules,
thereby provide tremendous savings for both our
company and our trade partners.
Now I'll turn it back to Ara for some concluding
remarks.
A. Hovnanian We're pleased to have achieved our goal of
becoming a billion dollar homebuilder and we'll
now set our targets on an even more exclusive
level of $2 billion in revenues while adhering
to our efficiency initiatives and conservative
land acquisition philosophies. The combination
of the two companies will elevate Hovnanian to
the next level with continuing improvement in
our bottom line performance. Our improvement
initiatives have positioned us to grow better
through this merger, not just bigger.
This concludes our formal comments and we'll now
be pleased to open it up for questions.
Operator Thank you. Ladies and gentlemen, at this time if
you have a question, you will need to press the
one on your touchtone phone and you will hear a
tone acknowledging your request. Your questions
will be taken in the order that they are
received. If your question has already been
answered you may remove yourself from queue by
pressing the pound key. Also if using a
speakerphone, please pick up your handset before
pressing the buttons. One moment for the first
question.
Steve Percoco of Lark Research, please state
your question.
S. Percoco Thank you. Could you give us the number of lots
that you owned and controlled at the end of the
year?
A. Hovnanian Kevin or Paul, do you have that number handy?
P. Buchanan We'll get to you in a few minutes, Steve, if
you give us a minute and maybe if you have a
different question, we'll answer that in the
meantime.
S. Percoco Secondly, could you talk about your California
business. The average price I guess has been
moving up in terms of deliveries and I wonder
if that reflects a change in the business. I
know you've talked about doing an infill
project which I don't think is on stream yet
and also you've got I think an active adult
community going there. How has your business
changed in California and what do you see going
forward?
A. Hovnanian Our California operation, on average price,
you're right, did move up. This past year we
are about $320,000 roughly and our backlog is
slightly up from that. That was up compared to
$220,000. It really wasn't a strategic and
conscious move, Steve. It was really a matter
of where particular land parcels were that we
were delivering in a given year and whether
they were lower price Inland Empire or higher
priced San Diego or Orange County properties.
Overall we're seeing some good strength in
recent years. Our performance there was really
hurt last year because we had several properties
that we had planned to bring
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online far earlier, but we ran into a few
regulatory delays that really cost us quite a
bit of carrying cost. Fortunately we've made it
through those delays and three very significant
communities have opened, and those were very
recent, in the last six or seven weeks, I'm
pleased to say all three have done very well,
so that should help improve our results in that
marketplace. We're seeing some pretty good
strength there right now.
S. Percoco So the increase in the average price was due to
a higher proportion of homes delivered say in
Orange County and San Diego?
A. Hovnanian A little more in San Diego and the pricing of
what we delivered in the Inland Empire was up a
little higher.
S. Percoco Do you expect that that's going to continue
in the next year? In other words I guess this
week it was announced, UCLA came out and said
that they expect some kind of a pullback in
the economy in California. I wonder what your
sense is of how that might affect the housing
market there.
A. Hovnanian I'm not sure if those comments were geared
toward Northern California or Southern. We're
operating in a pretty tight geographic market
only in Southern California and basically
south of L.A. As I mentioned at this point
we're seeing pretty good strength there. Part
of it's related to opening some new
communities which have done nicely for us.
We do anticipate a little richer mix of higher
priced product. As I mentioned, we have at year
end, we've got about 150 homes in backlog which
is up from about 129 last year and the average
price in our backlog is about $384,000.
We'll take just one question more, Steve, and
then I'll give a few other people a chance and
then come back if you have more at the end.
S. Percoco I guess could you also talk about the Northeast
and what you're seeing there? I assume just
looking at the regions, that given the
increases that you've experienced in California
and Northeast that the margin improvement has
been centered in those areas. Is that a
reasonable assumption?
A. Hovnanian No, the margin improvement absolutely has
happened in the Northeast region. That hasn't
happened, did not happen last year in
California but we do expect improvements in
California in this coming year largely related,
as I mentioned, to some of these new
communities that we've finally gotten online.
The Northeast region has continued to hold at
very strong levels. The issue is not at all
sales. We're continuing to focus on getting our
many properties online and open for sales and
that's our only limiting factor right now. We're
actually projecting a slight decrease in fiscal
'01 in the Northeast region in our main
operation and again it's really due to the
timing of openings. The Matzel and Mumford
operation, however, will be reporting a slight
increase. I am happy to say that as we continue
to get our approvals during the year, while it
may be late to have them delivered this year,
we're expecting to go back into a growth mode
based simply based on the number of storefronts
we'll have
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HOVNANIAN ENTERPRISES PAGE 9
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and properties we'll have in the Northeast
region by the following year and we think
there's some excellent properties. They're
properties that have been in the approval
pipeline for a good number of years and
represent some good values.
L. Sorsby Let me answer your first question, Steve, then
we'll take another question from someone else
and you can come back if you have more.
We control 31,802 total homesites as of October
31, 2000. Of that 31,802 we own about 10,000 and
we optioned 21,790.
S. Percoco Okay, thank you.
Operator Elya Schwartzman, please state your company name
followed by your question.
E. Schwartzman State Street Global Advisors. I was wondering
when combining your statements with Washington
Homes for our modeling purposes, can you talk
about either margins or average housing price
for Washington Homes on a relative basis?
A. Hovnanian Geaton, would you comment on what your outlook
is for average prices for Washington Homes?
G. DeCesaris Yes, our average price at the end of our most
recently completed quarter, October 31, was
$184,811 and our average margin was 19.6%.
L. Sorsby The margins are not reported on an identical
basis between the two companies and we're going
to get it both on a common methodology for
reporting margins going forward.
A. Hovnanian Our average price in the year we just ended was
about $242,000. Our backlog was about $257,000,
so ours will be going up just a bit. Obviously
when we average with Washington Homes it would
be trending down just a little lower. Does that
answer your question?
E. Schwartzman Yeah, and just quickly in terms of the bank
agreement, that's still a $375 million
agreement?
L. Sorsby That's correct.
E. Schwartzman Do you expect a certain level of seasonal draw
or is that primarily there for opportunities
that might arise?
A. Hovnanian We have well over $300 million available to
draw, so there's plenty of dry powder there,
even after the acquisition since at least half
will be in stock. Even at our peak times, we'll
be operating with well over a $200 million
cushion. We don't really have any particular
opportunity that we're looking at. We just like
to make sure we have ample ability to draw cash
if we ever need it in the market slowdown or
any other condition. In general, our plan is to
be gradually deleveraging and even with the
Washington Homes transaction, we anticipate a
slight deleveraging during this coming fiscal
year.
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HOVNANIAN ENTERPRISES PAGE 10
<PAGE>
E. Schwartzman Okay. Thank you very much.
Operator Daniel Nassimi, please state your company name
followed by your question.
D. Nassimi Paloma Partners. I just wanted to ask, I
guess according to your merger agreement with
Washington Homes you have the right to walk if
the stock price is above $8.47. Assuming your
stock continues to do well, I was just wondering
what management is going to do, if they're going
to go ahead anyway?
A. Hovnanian Our plan is to move forward at this point. Of
course I can't speak for all shareholders but I
can say our plan right now is to move forward.
We think it's an excellent transaction both for
Washington shareholders and Hovnanian
shareholders, a real win/win and we plan on
moving forward.
D. Nassimi Okay but there's also I guess an opportunity to
renegotiate. Is that also an option being
considered?
L. Sorsby If in fact any renegotiation takes place and at
this point it's not anticipated that it will,
but if there is any renegotiation, we have to
refile additional proxy materials, so we'd
certainly let everyone know at that time, but
at this point we're not anticipating changes in
the terms.
D. Nassimi Thank you very much.
Operator Anthony Iorfino, please state your company name
followed by your question.
A. Iorfino Muszinich. You've sort of answered one of my
questions. I was going to ask you what you
anticipated your seasonal borrowing peak to be
and you kind of made it sound like around
$100,000 - I mean $100 million. Is that right?
L. Sorsby Anthony, I think after the Washington Homes
merger, we peak at something under $200
million, somewhere between $150 and $175 -
something along those lines.
A. Hovnanian Though I liked the $100,000 number.
L. Sorsby $100,000 would be good.
A. Iorfino My other question was you gave I believe around
the time of your high yield offering, sort of a
proforma EBITDA number. I was wondering if you
have something more updated, what the combined
EBITDA might be around this time?
A Hovnanian For '01 basically what we've said is at this
point we haven't finalized all of the number
reconciliations between Washington Homes and
ourselves. Consensus is $1.80 and we're
comfortable with that number. You'd have to
translate that back to EBITDA.
A. Iorfino Oh, yeah, I was just even thinking proforma for
the present time, not even looking forward.
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HOVNANIAN ENTERPRISES PAGE 11
<PAGE>
L. Sorsby I don't think we've taken our October and their
October and done that yet, but both of our
numbers are public. We could ...
A. Hovnanian If you give Kevin Hake a call afterwards, it's
publicly released data, we'd be pleased to get
that to you.
A. Iorfino That's fine. Thank you.
Operator Ladies and gentlemen, if there are any
additional questions, please press the one on
your touchtone phone at this time. Remember to
pick up your handset before doing so. One
moment, please.
Tim Sommers, please state your company name
followed by your question.
T. Sommers Financial Management Advisors. Just real
quickly wanted to get the depreciation and
amortization number from you? I don't see it in
the press release.
A. Hovnanian Paul will just take a minute or so to get that
exact number for you.
K. Hake For the year, depreciation was $6,423,000.
T. Sommers Great. Thank you very much.
Operator Gentlemen, I'm showing no additional questions
at this time. Please continue.
A. Hovnanian Well thank you very much. We're pleased to give
you the results. Hopefully our next conference
call we'll be speaking to you as a larger and
better company. As usual, we'll be around to
answer any individual questions you think of
afterwards. Please feel free to call Kevin Hake
or Larry Sorsby. Thank you very much.
Operator Ladies and gentlemen, that does conclude our
conference for today. You may all disconnect and
thank you for participating.
FORWARD-LOOKING STATEMENTS This document may contain forward-looking
statements within the meaning of the Private Securities Litigation Reform Act
of 1995. Any such statements may involve unstated risks, uncertainties and
other factors that may cause actual results to differ materially from those
described in any forward-looking statements. Any such risks, uncertainties
and other factors include, but are not limited to, the risk that the
businesses of Hovnanian and Washington Homes will not be combined
successfully, the risk that the growth opportunities and cost savings from
the merger may not be fully realized or may take longer to realize than
expected, changes in general economic conditions, fluctuations in interest
rates, increase in costs of materials, supplies and labor, adverse
governmental or regulatory policies, and general competitive conditions. This
list of risk factors may not be exhaustive. Actual results could differ
materially from those set forth in any forward-looking statements for many
reasons, including the risk factors listed above. Any forward-looking
statements speak only as of the date they are made, and Hovnanian and
Washington Homes each disclaims any obligation to provide updates or revise
any forward-looking statements.
In connection with the proposed merger, Hovnanian has filed with the SEC
a registration statement on SEC Form S-4 and the definitive joint proxy
statement/prospectus of Hovnanian and Washington Homes, which describe the
proposed merger and the proposed terms and conditions of the merger.
Stockholders are urged to read the definitive joint proxy statement/prospectus
because it contains important information. The registration statement filed
by Hovnanian, the definitive joint proxy statement/prospectus and the SEC
filings that are incorporated by reference in the definitive joint proxy
statement/prospectus, are available for free, both on the SEC's web site
(www.sec.gov) and by contacting either Washington Homes, Inc, 1802 Brightseat
Road, Landover, Maryland 20785-4235, Attention: Christopher Spendley, telephone
(301) 772-8900; or Hovnanian Enterprises, Inc., 10 Highway 35, P.O. Box 500, Red
Bank, New Jersey 07701, Attention: J. Larry Sorsby, telephone (732) 747-7800.
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HOVNANIAN ENTERPRISES PAGE 12
