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 (FEE REQUIRED)
For the fiscal year ended FEBRUARY 28, 1994
( )TRANSACTION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
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 of (I.R.S. Employer
incorporation or organization) Identification No.)
10 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)
Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange on
Title of Each Class Which Registered
- - -------------------- ------------------------
Class A Common Stock, $.01 par value American Stock Exchange
per share
Securities registered pursuant to Section 12(g) of the Act - None
Indicate by check mark whether the registrant (l) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 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. ( X )Yes ( ) No
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K ( X ).
As of the close of business on May 13, 1994, there were outstanding
14,396,409 shares of the Registrant's Class A Common Stock and 8,445,844
shares of its Class B Common Stock. The approximate aggregate market value
(based upon the closing price on the American Stock Exchange) of these shares
held by non-affiliates of the Registrant as of May 13, 1994 was $101,250,000.
(The value of a share of Class A Common Stock is used as the value for a
share of Class B Common Stock as there is no established market for Class B
Common Stock and it is convertible into Class A Common Stock on a share-for-
share basis.)
Documents Incorporated by Reference:
Part III - Those portions of registrant's definitive proxy statement to be
filed pursuant to Regulation l4A in connection with registrant's annual
meeting of shareholders to be held in July, 1994 which are responsive to
Items l0, ll, l2 and l3.
HOVNANIAN ENTERPRISES, INC.
FORM 10-K
TABLE OF CONTENTS
Item Page
PART
1 and 2 Business and Properties...................... 4
3 Legal Proceedings............................ 18
4 Submission of Matters to a Vote of
Security Holders........................... 18
PART II
5 Market for the Registrant's Common Equity
and Related Stockholder Matters............ 19
6 Selected Financial Data...................... 19
7 Management's Discussion and Analysis of
Financial Condition and Results of
Operations................................. 21
8 Financial Statements and Supplementary
Data....................................... 31
9 Changes in and Disagreements with
Accountants on Accounting and Financial
Disclosure................................. 31
PART III
10 Directors and Executive Officers of the
Registrant................................. 32
Executive Officers of the Registrant......... 32
11 Executive Compensation....................... 33
12 Security Ownership of Certain Beneficial
Owners and Management...................... 33
13 Certain Relationships and Related
Transactions............................... 33
PART IV
14 Exhibits, Financial Statement Schedules and
Reports on Form 8-K....................... 34
SIGNATURES................................... 37
PART I
ITEMS 1 AND 2 - BUSINESS AND PROPERTIES
The Company primarily designs, constructs and markets multi-family
attached condominium apartments and townhouses and single family detached
homes in planned residential developments in its Northeast Region (comprised
primarily of New Jersey and eastern Pennsylvania), in southeastern Florida,
in metro Washington, D. C. and in North Carolina. The Company markets its
homes to first time buyers and to first and second time move-up buyers and
concentrates on the moderately priced segment of the housing market. The
Company has diversified its business, on a limited scale, through mortgage
banking, title insurance activities and the development and ownership of
commercial properties, primarily in New Jersey, and, to a lesser extent, in
Florida.
The Company employed approximately 1,070 full-time personnel as of April
30, 1994. The Company was incorporated in New Jersey in 1967 and was
reincorporated in Delaware in 1982.
RESIDENTIAL DEVELOPMENT ACTIVITIES
The Company's residential development activities include evaluating and
purchasing properties, master planning, obtaining governmental approvals and
constructing, marketing and selling homes. A residential development
generally includes a number of residential buildings containing from two to
twenty-four dwelling units per building and/or single family detached houses,
together with amenities such as recreational buildings, swimming pools,
tennis courts and open areas. By using standardized designs and materials
and by rigorous control of subcontracting costs, the Company attempts to keep
selling prices moderate.
The Company attempts to reduce the effect of certain risks inherent in
the housing industry through the following policies and procedures:
- The Company acquires land for future development principally through
the use of land options which need not be exercised before the
completion of the regulatory approval process. The Company structures
these options in most cases with flexible takedown schedules rather than
with an obligation to takedown the entire parcel upon approval.
Additionally, the Company purchases improved lots in certain markets by
acquiring a small number of improved lots with an option on additional
lots. This allows the Company to minimize the economic costs and risks
of carrying a large land inventory, while maintaining its ability to
commence new developments during favorable market periods.
- In an attempt to reduce its land acquisition costs, the Company
monitors housing industry cycles and seeks to acquire land options near
the cyclical trough.
- The Company generally begins construction on a residential multi-
family building only after entering into contracts for the sale of at
least 75% of the dwelling units in that building. Single family
detached homes are generally started after a contract is signed and
mortgage approvals obtained. This limits the build-up of inventory of
unsold homes and the costs of maintaining and carrying that inventory.
- The Company finances all construction, land acquisition and
operations through equity, long term debt, its revolving credit facility
or cash flow. This eliminates the need of obtaining specific project
construction financing, which is especially important at a time when
obtaining such project financing is difficult.
- Through its presence in multiple geographic markets, the Company's
goal is to reduce the effects that housing industry cycles, seasonality
and local conditions in any one area may have on its business.
The Company concentrates on a segment of the housing market consisting
of moderately priced multi-family attached condominium apartments and
townhouses, which are marketed primarily to first time buyers, and moderately
priced townhouses with garages and single family detached homes which are
marketed primarily to first and second time move-up buyers. In recent years,
the Company has diversified its product mix to include more detached single
family homes and larger townhouses with garages designed for the move-up
buyer. Current base prices for the Company's homes in contract backlog at
February 28, 1994 (exclusive of upgrades and options) range from $38,500 to
$460,000 in its Northeast Region, from $60,000 to $188,500 in Florida, from
$90,000 to $356,000 in metro Washington, D. C., and from
in North Carolina. Closings generally occur and are reflected in revenues
from four to twelve months after sales contracts are signed.
Information on homes delivered in the Company's market areas is
forth below:
Year Ended February 28 (29),
----------------------------------
1994 1993 1992
-------- -------- --------
(Housing Revenue in Thousands)
Northeast Region(1):
Housing Revenues................ $389,577 $311,347 $216,274
Homes Delivered................. 2,527 2,226 1,582
Average Price................... $154,165 $139,868 $136,709
North Carolina:
Housing Revenues................ $ 72,639 $ 59,399 $ 45,698
Homes Delivered................. 580 517 420
Average Price................... $125,239 $114,892 $108,805
Florida:
Housing Revenues................ $ 48,780 $ 19,900 $ 20,512
Homes Delivered................. 405 184 282
Average Price................... $120,444 $108,152 $ 72,738
Metro Washington D.C.:
Housing Revenues................ $ 44,783 $ 3,327 --
Homes Delivered................. 288 28 --
Average Price................... $155,000 $118,821 --
Other:
Housing Revenues................ $ 1,710 $ 3,333 $ 9,271
Homes Delivered................. 28 44 99
Average Price................... $ 61,071 $ 75,750 $ 93,646
Combined Total:
Housing Revenues................ $557,489 $397,306 $291,755
Homes Delivered................. 3,828 2,999 2,383
Average Price................... $145,634 $122,432 $125,429
(1) Excludes suspended operations in New York which are included with
New Hampshire in "Other" below.
Information on homes delivered by product type is set forth below:
Year Ended February 28 (29),
-------------------------------
1994 1993 1992
-------- -------- --------
(Housing Revenues in Thousands)
First Time Buyer Product(1)
Housing Revenues................ $154,518 $137,613 $121,247
Homes Delivered................. 1,310 1,226 1,225
Percentage of Housing Revenues.. 28% 35% 42%
Move-Up Buyer Product(2)
Housing Revenues................. $402,971 $259,693 $170,508
Homes Delivered.................. 2,518 1,773 1,158
Percentage of Housing Revenues... 72% 65% 58%
(1) First time buyer product consists of all of the Company's
multi-family attached home products other than townhouses with
garages.
(2) Move-up buyer product consists of single family detached homes and
townhouses with garages.
The Company continues to see strong sales activity in the Northeast
Region, Florida and North Carolina. Sales activity in metro Washington, D.
C. slowed during the later part of fiscal 1994 due to a lack of available
product to sell. Subsequently, metro Washington D. C. has brought more homes
to market. The Company sees these trends continuing which are expected to
result in higher housing revenues in fiscal 1995.
Because of continued weak economic conditions in the southern New
Hampshire market, the Company elected to suspend activities in that market.
The Company decided to liquidate all existing homes by deep discount and
auction sales. At February 28, 1994, 50 homes remain in southern New
Hampshire of which 14 are under contract of sale.
In anticipation of liquidation losses in Florida, New Hampshire and New
York, the Company established reserves in previous years to reduce the book
value of these properties to their estimated net realizable value. The book
value of all residential real estate has been adjusted to reflect estimated
net realizable value. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations - Results of Operations - Housing
Operations."
As of February 28, 1994, the following table summarizes the Company's
active communities under development:
(1) (2)
Contracted Remaining
Commun- Approved Homes Not Home Sites
ities Lots Closed Closed Available
------- -------- ------ ---------- ----------
Northeast Region...... 34 6,524 2,570 1,170 2,784
North Carolina........ 25 2,723 1,108 399 1,216
Florida............... 12 1,994 1,072 273 649
Metro Washington D.C.. 11 1,114 153 49 912
------- -------- ------ ---------- ---------
Total 82 12,355 4,903 1,891 5,561
======= ======== ====== ========== =========
(1) Includes 283 lots under option.
(2) Of the total home sites available, 359 were under construction or
completed (including 83 models and sales offices) and 2,534 were under
option.
In addition, in substantially completed or suspended developments, the
Company had 93 homes under construction or completed. Included in the 93
homes are 34 contracted homes and 36 rented homes. The Company also owned
573 lots without construction (one in contract) and has 119 lots under option
in these substantially completed or suspended developments.
BACKLOG
Sales of the Company's residential homes typically are made pursuant to
a standard sales contract. This contract requires a $500 to $1,000 customer
deposit at the time of signing with the remainder of a 5% to 10% down payment
due 30 to 60 days after signing and provides the customer with a statutorily
mandated right of rescission for a period ranging up to 15 days after
execution. The contract may include a financing contingency, which permits
the customer to cancel his obligation in the event mortgage financing at
prevailing interest rates (including financing arranged or provided by the
Company) is unobtainable within the period specified in the contract. This
contingency period typically is four to eight weeks following the date of
execution.
A prime indicator of the Company's future results is its contract
backlog. At February 28, 1994 and 1993, the Company had a backlog of signed
contracts for 1,926 homes and 1,449 homes, respectively, with sales values
aggregating $278,127,000 and $199,751,000, respectively. New sales contracts
for fiscal 1994 increased to $606,601,000 from $436,848,000 for fiscal 1993.
Substantially all of the Company's backlog at February 28, 1994 is expected
to be completed and closed within the next twelve months. At April 30 , 1994
and 1993, the Company's backlog of signed contracts was 2,175 homes and 1,882
homes, respectively, with sales values aggregating $320,636,000 and
$263,677,000, respectively.
RESIDENTIAL LAND INVENTORY
It is the Company's objective to control a supply of land, primarily
through options, consistent with anticipated home building requirements in
its housing markets. Controlled land as of February 28, 1994, exclusive of
communities under development described under "Business and Properties --
Residential Development Activities," is summarized in the following table:
Number
of Proposed Total Land
Proposed Developable Option Book
Communities Lots Price Value(1)(2)
----------- ----------- ----------- -----------
Northeast Region:
Under Option....... 35 9,142 $161,279,000 $30,213,000
Owned.............. 4 875 22,656,000
-------- ---------- -----------
Total........... 39 10,017 52,869,000
-------- ---------- -----------
North Carolina:
Under Option....... 5 447 $ 4,840,000 307,000
Owned.............. 5 468 4,319,000
-------- ---------- -----------
Total........... 10 915 4,626,000
-------- ---------- -----------
Florida:
Under Option....... 3 327 $ 5,821,000 246,000
Owned.............. 5 1,611 11,701,000
-------- ---------- -----------
Total........... 8 1,938 11,947,000
-------- ---------- -----------
Metro Washington, D.C.:
Under Option........ 1 46 $ 2,116,000 349,000
-------- ---------- -----------
Totals:
Under Option........ 44 9,962 31,115,000
Owned............... 14 2,954 38,676,000
-------- ---------- ------------
Combined Total........ 58 12,916 $ 69,791,000
======== ========== ============
(1) Under option also includes costs incurred on properties under
investigation not optioned. For properties under option, the Company paid,
as of February 28, 1994, option fees and deposits aggregating approximately
$7,915,000. As of February 28, 1994, the Company spent an additional
$23,200,000 in non-recoverable predevelopment costs on such properties.
(2) Book value of $69,791,000, plus the land parcel described below of
$14,296,000, and one other land parcel of $344,000, totals $84,431,000 which
is identified on the balance sheet as "Inventories - land, land options, and
cost of projects in planning."
In its Northeast Region, the Company's objective is to control a supply
of land sufficient to meet anticipated building requirements for at least
three to four years. At February 28, 1994, the Company had one additional
land parcel under option in its Northeast Region with total fees, deposits
and non-recoverable predevelopment costs amounting to $14,296,000. Since
this land is more appropriate for the development of expensive homes, the
Company is currently attempting to sell these lots to other developers and
individuals. In the future, some of these lots may be developed by the
Company.
In North Carolina and metro Washington, D.C., land historically has been
acquired from a land developer on a lot takedown basis. Under a typical
agreement with the lot developer, the Company purchases a minimal number of
lots. The balance of the lots to be purchased are covered under an option
agreement or a non-recourse purchase agreement. Due to the dwindling supply
of improved lots in North Carolina and metro Washington, D.C., the Company is
starting to option parcels of unimproved land for development.
In Florida, the Company has focused its development efforts primarily in
the southeast. Emphasis is primarily on single family detached homes. The
Company satisfies its land requirements primarily through a takedown program
of developed lots in existing subdivisions. As a result of its decision to
concentrate in the southeast, the Company is attempting to sell all its land
in other locations, including the parcels of owned land included in the table
on the previous page.
In addition to the reserves discussed above under "Residential
Development Activities," the Company has established reserves to reduce the
book value of certain undeveloped land in Florida to its estimated net
realizable value. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations - Results of Operations - Housing
Operations."
CUSTOMER FINANCING
At the Company's communities on-site personnel facilitate sales by
offering to arrange financing for prospective customers through K. Hovnanian
Mortgage, Inc. ("KHM"). Management believes that the ability to offer
customers financing on competitive terms as a part of the sales process is an
important factor in completing sales.
KHM's business consists of providing the Company's customers with
competitive financing and coordinating and expediting the loan origination
transaction through the steps of loan application, loan approval and closing.
KHM's has its headquarters in Eatontown, N. J. and operates branch offices in
North Brunswick and Cranford, New Jersey; Fairfax, Virginia; and West Palm
Beach, Florida. An office is also expected to be opened in North Carolina in
1994.
KHM's principal sources of revenues are: (i)interest income earned on
mortgage loans during the period they are held by KHM prior to their sale to
investors; (ii) net gains from the sale of loans; and (iii) revenues from the
sale of the rights to service loans.
KHM is approved by the Government National Mortgage Association ("GNMA")
as a seller-servicer of Federal Housing Administration ("FHA") and Veterans
Administration ("VA") loans. A portion of the conventional loans originated
by KHM (i.e., loans other than those insured by FHA or guaranteed by VA)
qualify for inclusion in loan guarantee programs sponsored by the Federal
National Mortgage Association ("FNMA") or the Federal Home Loan Mortgage
Corporation ("FHLMC"). KHM arranges for fixed and adjustable rate,
conventional, privately insured mortgages, FHA-insured or VA-guaranteed
mortgages, and mortgages funded by revenue bond programs of states and
municipalities.
KHM is a delegated underwriter under the FHA Direct Endorsement and VA
Automatic programs in accordance with criteria established by such agencies.
Additionally, KHM has delegated underwriting authority from FNMA and FHLMC.
As a delegated underwriter, KHM may underwrite and close mortgage loans under
programs sponsored by these agencies without their prior approval, which
expedites the loan origination process.
KHM, like other mortgage bankers, customarily sells nearly all of the
loans that it originates. Loans are sold either individually or in pools to
GNMA, FNMA, or FHLMC or against forward commitments to institutional
investors, including banks and savings and loan associations.
COMMERCIAL DEVELOPMENT ACTIVITIES AND LAND INVENTORY
The Company has diversified its business, on a limited scale, through
the development, acquisition and ownership of commercial properties,
primarily in central New Jersey, and, to a lesser extent, in Florida. The
Company has concentrated primarily on the construction of single-story
office/warehouses and retail strip centers. The Company's objectives are to
create recurring revenues from the rental and/or sale of its developed
properties and to achieve appreciation in the value of its properties over
the long-term. The Company expects to limit its future commercial
development activities.
In connection with the development of its commercial properties, the
Company would, when possible, purchase or enter into options to purchase all
sites subject to obtaining applicable zoning and required utilities.
Generally, the Company will seek anchor tenants and other lessees for its
projects before construction begins. In some situations, on land already
owned by the Company, the Company may build office/warehouse buildings on
speculation, but only to a limited degree. Following the construction and
lease-up of new buildings, the Company intends to perform all functions
relating to the management and operation of the buildings.
The Company has completed or acquired and placed into operation
following commercial properties:
February 28, 1994 February
Square Feet Percent 28, 1994
Location Total Leased Leased Book Value
-------- ------ ------- ------- -----------
North Brunswick, NJ:
Retail center............. 53,042 44,988 85% $ 4,855,000
Office/warehouse building. 86,155 81,009 94% 6,824,000
Office/warehouse building. 84,811 66,826 79% 7,068,000
Piscataway Township, NJ:
Retail center............. 97,520 96,600 99% 10,764,000
Hamilton Township, NJ:
Mini-storage facility..... 51,855 43,750 84% 2,610,000
Office building........... 14,408 14,408 100% 813,000
Allaire, NJ:
Retail Center............. 116,196 100,117 86% 8,160,000
Franklin Township, NJ:
Retail Center............. 138,364 138,364 100% (1)
West Palm Beach, FL:
Office Building........... 43,290 31,449(2) 73% 4,426,000
Jacksonville, FL - Phase I:
Office/warehouse building. 42,456 36,158 85% 3,040,000
Office building........... 35,689 21,064 59% 2,579,000
Pompano Beach, FL:
Office/warehouse building. 30,000 30,000 100% 1,162,000
------- -------- ----- -----------
Total.................. 793,786 704,733 89% $52,301,000
======= ======== ===== ===========
(1) Property is held in a partnership 50% owned by the Company. The
Company's investment in this partnership of $4,066,000 is included
in the balance sheet under "Investment In and Advances To
Unconsolidated Affiliates and Joint Ventures."
(2) Includes 14,662 square feet leased to the Company's Florida
Division.
The Company has the ability to obtain long-term financing on its
commercial properties after each property is substantially leased. At
February 28, 1994, the North Brunswick, NJ retail center, Piscataway, NJ
retail center, and Pompano Beach, FL office/warehouse building had non-
recourse long-term financing amounting to $5,964,000, $11,663,000, and
$847,000, respectively.
At February 28, 1994, the Company owned two additional parcels of
commercial land in New Jersey. The Company is currently attempting to sell,
develop and lease, or convert these parcels into residential usage. The
Company completed an 84,811 square feet office/warehouse building on a
portion of one parcel in fiscal 1994. The Company also entered into a long
term land lease in fiscal 1994 for a portion of the remaining land on which
it built a restaurant under a general contractor agreement. To further
enhance the saleability of this parcel, the Company is seeking to have a
portion of the remaining parcel rezoned for residential use. As of February
28, 1994, the book value of this parcel excluding the section to be rezoned
amounted to $7,711,000. On the second parcel in Newark, NJ adjacent to its
University Heights residential development, the Company is currently planning
a 112,000 square foot retail center. Construction will begin when an anchor
tenant is secured. The Company has secured a federal government urban
development grant amounting to $3,928,000 to partially defray the cost of the
facility. At February 28, 1994 the Company had spent $1,309,000 in site
preparation costs. At completion the total cost, net of the grant, is
estimated to be $9,500,000.
In addition, the Company owns one parcel of commercial land in
Jacksonville, Florida. On a portion of this parcel the Company has
constructed 78,145 square feet of office/warehouse and office buildings
completing 31,025 square feet in fiscal 1994. The Company will build
additional buildings on this parcel after existing space is leased. The book
value of the remaining land at February 28, 1994 amounted to $3,423,000.
CERTAIN OPERATING POLICIES AND PROCEDURES
Land Acquisition, Planning and Development. Before entering into a
contract to acquire land, the Company completes extensive comparative studies
and analyses which assist the Company in evaluating the economic feasibility
of such land acquisition. The Company generally follows a policy of
acquiring options to purchase land for future community developments. The
Company attempts to acquire land with a minimum cash investment and negotiate
takedown options, thereby limiting the financial exposure to the amounts
invested in property and predevelopment costs. This policy of land
acquisition may somewhat raise the price of land that the Company acquires,
but significantly reduces risk. However, this policy generally allows the
Company to obtain necessary development approvals before acquisition of the
land, thereby enhancing the value of the options and the land eventually
acquired.
The Company's purchase agreements are typically subject to numerous
conditions, including, but not limited to, the Company's ability to obtain
necessary governmental approvals for the proposed community. Generally, the
deposit on the agreement will be returned to the Company if all approvals are
not obtained, although predevelopment costs may not be recoverable. By
paying an additional, nonrefundable deposit, the Company has the right to
extend a significant number of its options for varying periods of time. In
all instances, the Company has the right to cancel any of its land agreements
by forfeiture of the Company's deposit on the agreement. In such instances,
the Company generally is not able to recover any predevelopment costs.
The Company's development activities include site planning and
engineering, obtaining environmental and other regulatory approvals and
constructing roads, sewer, water and drainage facilities, and for the
Company's residential developments, recreational facilities and other
amenities. These activities are performed by the Company's staff, together
with independent architects, consultants and contractors. The Company's
staff also carries out long-term planning of projects.
Design. The Company's residential communities are generally located in
suburban areas near major highways. The communities are designed as
neighborhoods that fit existing land characteristics. The Company strives to
create diversity within the overall planned community by offering a mix of
homes with differing architecture, textures and colors. Wherever possible,
recreational amenities such as a swimming pool, tennis courts and tot lots
are included.
Construction. The Company designs and supervises the development and
building of its projects. Its homes are constructed according to
standardized prototypes which are designed and engineered to provide
innovative product design while attempting to minimize costs of construction.
The Company employs subcontractors for the installation of site improvements
and construction of homes. Agreements with subcontractors are generally
short term and provide for a fixed price for labor and materials. The
Company rigorously controls costs through the use of a computerized
monitoring system. Because of the risks involved in speculative building,
the Company's general policy is to construct a residential multi-family
building only after signing contracts for the sale of at least 75% of the
units in that building. Single family detached homes are usually constructed
after the signing of a contract and mortgage approval has been obtained.
Materials and Subcontractors. The Company attempts to maintain
efficient operations by utilizing standardized materials available from a
variety of sources. In addition, the Company contracts with numerous
subcontractors representing all building trades in connection with the
construction of its homes. In recent years, the Company has experienced no
material construction delays due to shortages of materials or labor. The
Company cannot predict, however, the extent to which shortages in necessary
materials or labor may occur in the future.
Marketing and Sales. The Company's residential communities are sold
principally through on-site sales offices. In order to respond to its
customers' needs and trends in housing design, the Company relies upon its
internal market research group to analyze information gathered from, among
other sources, buyer profiles, exit interviews at model sites, focus groups
and demographic data bases. The Company makes use of newspaper, radio,
magazine, billboard, video and direct mail advertising, special promotional
events, illustrated brochures, full-sized and scale model homes in its
comprehensive marketing program. For fiscal 1994, the Company's advertising
expenditures totaled $8,587,000.
Customer Service and Quality Control. The Company's customer service
department participates in pre-closing quality control inspection as well as
responding to post-closing customer needs. Prior to closing, each home is
inspected by customer service personnel and any necessary repair work is
undertaken by the Company. The Company believes that the participation of
customer service personnel during and after construction reduces post-closing
repair costs. The Company is also enrolled in a standard limited warranty
program which, in general, provides a homebuyer with a one-year warranty for
the home's materials and workmanship, a two-year warranty for the home's
heating, cooling, ventilating, electrical and plumbing systems and a ten-year
warranty for major structural defects. All of the warranties contain
standard exceptions, including, but not limited to, damage caused by the
customer.
Customer Financing. The Company sells its homes to customers who
generally finance their purchases through mortgages. During fiscal 1994,
approximately 27% of the Company's customers obtained mortgages originated by
the Company's wholly-owned mortgage banking subsidiary, with a substantial
portion of the Company's remaining customers obtaining mortgages from various
independent lending institutions. Mortgages originated by the Company's
wholly-owned mortgage banking subsidiary are sold in the secondary market.
Financing arrangements with independent lending institutions are at
prevailing rates and on terms in accordance with the lending institutions
policies. Mortgages offered by the Company's subsidiary are on terms similar
to those offered by independent lending institutions. There are no
assurances that mortgage financing will remain readily available to the
Company's customer at affordable rates.
COMPETITION
The Company's residential business is highly competitive. The Company
competes in each of the geographic areas in which it operates with numerous
real estate developers, ranging from small local to larger regional and
national builders and developers, some of which have greater sales and
financial resources than the Company. Resales of housing and the
availability of rental housing provide additional competition. The Company
competes primarily on the basis of reputation, price, location, design,
quality, service and amenities.
Competition in commercial real estate is considerable. The Company
competes in the acquisition of properties for development and in the leasing
of space with many other realty and general contracting concerns, both local
and national, many of which have greater resources than the Company. To the
extent the level of vacant office space in the metropolitan or suburban areas
in which the Company's commercial properties are located increases, the
Company would not proceed with the development of such properties and, with
respect to existing developments, the Company's ability to increase rental
rates and/or maintain its occupancy levels could be adversely affected.
For calendar 1993, the Company's new home market share (based on
building permits)in New Jersey was approximately 10.2%, compared to 10.1% in
calendar 1992.
REGULATION AND ENVIRONMENTAL MATTERS
General. The Company is subject to various local, state and federal
statutes, ordinances, rules and regulations concerning zoning, building
design, construction and similar matters, including local regulations which
impose restrictive zoning and density requirements in order to limit the
number of homes that can eventually be built within the boundaries of a
particular locality. In addition, the Company is subject to registration and
filing requirements in connection with the construction, advertisement and
sale of its communities in certain states and localities in which it operates
even if all necessary government approvals have been obtained. The Company
may also be subject to periodic delays or may be precluded entirely from
developing communities due to building moratoriums that could be implemented
in the future in the states in which it operates. Generally, such
moratoriums relate to insufficient water or sewerage facilities or inadequate
road capacity.
Environmental. The Company is also subject to a variety of local, state
and federal statutes, ordinances, rules and regulations concerning protection
of health and the environment ("environmental laws"). The particular
environmental laws which apply to any given community vary greatly according
to the community site, the site's environmental conditions and the present
and former uses of the site. These environmental laws may result in delays,
may cause the Company to incur substantial compliance and other costs, and
prohibit or severely restrict development in certain environmentally
sensitive regions or areas.
The Florida Growth Management Act of 1985 became fully effective in Palm
Beach County on February 1, 1990. The act requires that infrastructure,
including roads, sewer and water lines must be in existence concurrently with
the construction of the development. If such infrastructure is not
concurrently available, then the community cannot be developed. This will
have an effect on limiting the amount of land available for development and
may delay approvals of some developments.
Fair Housing Act. In July 1985, New Jersey adopted the Fair Housing Act
which established an administrative agency to adopt criteria by which
municipalities will determine and provide for their fair share of low and
moderate income housing. This agency adopted such criteria in May 1986. Its
implementation thus far has caused some delay in approvals for some of the
Company's New Jersey communities and may result in a reduction in the number
of homes planned for some properties.
Both prior to the enactment of the Fair Housing Act and in its
implementation thus far, municipal approvals in some of the New Jersey
municipalities in which the Company owns land or land options required the
Company to set aside up to 22% of the approved homes for sale at prices
affordable to persons of low and moderate income. In order to comply with
such requirements, the Company must sell these homes at a loss. The Company
attempts to reduce some of these losses through increased density, certain
cost saving construction measures and reduced land prices from the sellers of
property. Such losses are absorbed by the market priced homes in the same
developments.
State Planning Act. Pursuant to the 1985 State Planning Act, the New
Jersey State Planning Commission has adopted a State Development and
Redevelopment Plan ("State Plan"). The State Plan, if fully implemented,
would designate large portions of the state as unavailable for development or
as available for development only at low densities, and other portions of the
state for more intense development. State government agencies would be
required to make permitting decisions in accordance with the State Plan, if
it is fully implemented. The state government agencies have not yet adopted
policies and regulations to fully implement the State Plan.
Conclusion. Despite the Company's past ability to obtain necessary
permits and approvals for its communities, it can be anticipated that
increasingly stringent requirements will be imposed on developers and
homebuilders in the future. Although the Company cannot predict the effect
of these requirements, they could result in time-consuming and expensive
compliance programs and substantial expenditures for pollution and water
quality control, which could have a material adverse effect on the Company.
In addition, the continued effectiveness of permits already granted or
approvals already obtained is dependent upon many factors, some of which are
beyond the Company's control, such as changes in policies, rules and
regulations and their interpretation and application.
Company Offices. The Company owns its corporate headquarters, a four-
story, 24,000 square feet office building located in Red Bank, New Jersey, a
43,290 square feet office building located in West Palm Beach, Florida of
which 14,662 square feet house the Florida divisional office, and 11,325
square feet in a Middletown, New Jersey condominium office building which
houses one subsidiary operation. The Company leases office space consisting
of 38,300 square feet in various New Jersey locations, 7,100 square feet in
Trevose, Pennsylvania, and 10,000 square feet in Fairfax, Virginia.
ITEM 3 - LEGAL PROCEEDINGS
During fiscal 1989, the Company became aware that certain fire-retardant
plywood commonly used in the roof construction of multi-family homes may
contain a product defect causing accelerated deterioration of the plywood.
The Company has determined that such plywood was used in 33 of its
communities containing approximately 11,750 homes.
Common areas, including roofs, in each of the Company's multi-family
condominium developments are governed and controlled by homeowners'
associations for each development, rather than by individual homeowners.
Certain of the 33 homeowners' associations in the affected developments have
asserted claims against the Company. As of February 28, 1993, the Company
had entered separate agreements with 31 of the 33 associations (the "Settling
Associations"), covering 10,850 homes.
In August 1989 the Company brought suit in an action entitled K.
Hovnanian at Bernards I, Inc., et al. v. Hoover Treated Wood Products, Inc.,
et al. (No. L-11822-89) against the plywood material manufacturers, treaters,
suppliers and others (the "Defendants") to determine the proper
responsibility for damages, to protect its interests and to recover its
damages.
In November 1992 the Company and the Settling Associations entered into
a settlement agreement with most of the Defendants. Based upon the
settlement monies received, the use of the Settling Associations' roof
shingle reserves, and the actual expenditures in performing the repairs, the
Company believes the repair costs will not require it to set aside future
reserves for such roof repairs.
The Company is continuing to litigate with the two non-settling
associations which contain 900 homes. Because the litigation is in its early
discovery stages, the Company is unable to predict at this time the ultimate
outcome of the litigation. However, due to the small size of this remaining
litigation, the Company does not believe an adverse decision will have a
material effect on the Company.
In addition, the Company is involved from time to time in litigation
arising in the ordinary course of business, none of which is expected to have
a material adverse effect on the Company.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the fourth quarter of the year ended February 28, 1994, no
matters were submitted to a vote of security holders.
PART II
ITEM 5 - MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDERS
MATTERS
The number of shares and all data presented on a per share basis in this
Form 10-K have been adjusted to give effect to all stock splits. The
Company's Class A Common Stock is traded on the American Stock Exchange and
was held by approximately 1,200 shareholders of record at May 13, 1994.
Prior to the Company's recapitalization in September 1992 the Company's
Common Stock was also traded on the American Stock Exchange. (See "Notes to
Consolidated Financial Statements - Note 12" for additional explanation on
recapitalization.) The high and low sales prices were as follows for each
fiscal quarter during the years ended February 28, 1994 and 1993:
Class A Common Stock
---------------------------------- Common Stock
Fiscal 1994 Fiscal 1993 Fiscal 1993
-------------- ---------------- ---------------
Quarter High Low High Low High Low
- - ------- ---- --- ---- --- ---- ---
First........... $12.38 $10.50 -- -- $14.25 $ 9.25
Second.......... $14.13 $10.63 -- -- $12.38 $ 8.13
Third........... $18.13 $13.25 $11.25 $ 8.50 $10.75 $ 9.13
Fourth.......... $16.00 $13.00 $13.13 $10.63 -- --
Certain debt instruments to which the Company is a party contain
restrictions on the payment of cash dividends. As a result of the most
restricted of these provisions, approximately $33,432,000 was free of such
restrictions at February 28, 1994. The Company has never paid dividends nor
does it currently intend to pay dividends.
ITEM 6 - SELECTED CONSOLIDATED FINANCIAL DATA
The following table sets forth selected financial data for the Company
and its consolidated subsidiaries and should be read in conjunction with the
financial statements included elsewhere in this Form 10-K. Per common share
data and weighted average number of common shares outstanding reflect all
stock splits.
Fiscal Year Ended
Summary Consolidated February February February February February
Income Statement Data 28, 1994 28, 1993 29, 1992 28, 1991 28, 1990
- - --------------------- -------- -------- -------- -------- --------
(In Thousands Except Per Share Data)
Revenues................ $587,010 $429,315 $318,527 $275,428 $410,409
Costs and expenses..... 557,859 414,790 316,633 296,610 371,193
Income (loss) before
income taxes,
extraordinary loss and
cumulative effect of
change in accounting
for income taxes..... 29,151 14,525 1,894 (21,182) 39,216
State and Federal income
taxes................. 9,229 4,735 299 (5,937) 17,428
Extraordinary loss...... (1,277) -- -- -- --
Cumulative effect of
change in accounting
for income taxes...... -- -- 883 -- --
-------- -------- --------- -------- -------
Net income (loss)....... $ 18,645 $ 9,790 $ 2,478 $(15,245) $21,788
======== ======== ======== ======== ========
Earnings per common
share:
Income (loss) before
extraordinary loss
and cumulative
effect of change in
accounting for
income taxes....... . $ .87 $ .43 $ .07 $ (.74) $ 1.05
Extraordinary loss.... (.05) -- -- -- --
Cumulative effect of
change in account-
ing for income taxes -- -- .04 -- --
-------- -------- -------- -------- -------
Net income (loss).... $ .82 $ .43 $ .11 $ (.74) $ 1.05
======== ======== ======== ======== =======
Weighted average number
of common shares
outstanding........... 22,821 22,775 21,988 20,695 20,834
Summary Consolidated February February February February February
Balance Sheet Data 28, 1994 28, 1993 29, 1992 28, 1991 28, 1990
- - -------------------- -------- -------- -------- -------- --------
(In Thousands)
Total assets............ $539,602 $465,029 $399,455 $437,930 $457,567
Mortgages, and notes
payable............... $ 68,244 $ 66,699 $105,071 $158,836 $121,420
Bonds collateralized by
mortgages receivable. $ 30,343 $ 39,914 $ 49,879 $ 55,456 $ 60,677
Participating senior
subordinated debent-
ures and subordinated
notes................. $200,000 $152,157 $ 67,723 $ 71,559 $ 81,794
Stockholders' equity.... $171,001 $151,937 $141,989 $125,421 $140,666
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
CAPITAL RESOURCES AND LIQUIDITY
The Company's cash uses in fiscal 1994 were for operating expenses,
seasonal increases in housing inventories, construction of commercial
facilities, redemption of subordinated indebtedness, income taxes and
interest. The Company provided for its cash requirements from outside
borrowings, including the issuance of $100,000,000 of subordinated
indebtedness, the revolving credit facility and land purchase 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
$130,000,000 through July 1996. The Company believes that it will be able
either to extend the Agreement beyond July 1996 or negotiate a replacement
facility, but there can be no assurance of such extension or replacement
facility. The Company currently is in compliance and intends to maintain
compliance with its covenants under the Agreement. As of February 28, 1994,
there were no borrowings outstanding under the Agreement.
The aggregate principal amount of subordinated indebtedness issued by
the Company and outstanding as of February 28, 1994 was $200,000,000. 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
2005 at a price of 102% of par.
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
February 28, 1994, the aggregate outstanding principal amount of such
borrowings was $30,755,000.
The book value of the Company's inventories, rental condominiums, and
commercial properties completed and under development amounted to the
following:
February 28,
------------------------------
1994 1993
------------ ------------
Residential real estate inventory......... $278,738,000 $243,391,000
Residential rental property............... 8,411,000 3,973,000
------------ ------------
Total residential real estate......... 287,149,000 247,364,000
Commercial properties..................... 68,240,000 58,217,000
------------ ------------
Combined Total........................ $355,389,000 $305,581,000
============ ============
Total residential real estate increased $39,785,000 at February 28, 1994
from February 28, 1993 as a result of an inventory increase of $35,347,000
and a residential rental property increase of $4,438,000. The increase in
residential real estate inventory was primarily due to the Company's increase
in construction activities for increased deliveries next year and expansion
within its existing markets. Residential homes under construction or
completed and included in residential real estate inventory at February 28,
1994 are expected to be closed during the next twelve months. The Company's
residential rental property increased during fiscal 1994 due to the Company's
construction of senior citizen rentals amounting to $5,862,000 less
liquidation of New Hampshire rentals through deep discount sales amounting to
$1,424,000. The senior rentals consist of 96 homes. By building these homes
and renting to seniors the Company expects to receive federal tax credits
amounting to approximately $6,000,000 over the next ten years. Most
residential real estate completed or under development is financed through
the Company's lines of credit.
The following table summarizes housing lots included in the Company's
total residential real estate:
Total Contracted Remaining
Home Not Lots
Lots Closed Available
------ ---------- ---------
February 28, 1994:
Owned.......................... 8,255 1,643 6,612
Optioned....................... 12,898 283 12,615
------- ---------- ---------
Total 21,153 1,926 19,227
====== ========== =========
February 28, 1993:
Owned.......................... 8,983 1,379 7,604
Optioned....................... 9,785 70 9,715
------- ---------- ---------
Total 18,768 1,449 17,319
====== ========== =========
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"). When
individual facilities are completed and substantially leased, the Company
will have the ability to obtain long-term financing on such properties. At
February 28, 1994 the Company had long-term non-recourse financing
aggregating $18,474,000 on three commercial facilities, a decrease of $98,000
from February 28, 1993, due to principal amortization.
The Company's mortgages and notes receivable amounted to the
following:
February 28,
-------------------------------
1994 1993
----------- -----------
Collateralized mortgages receivable...... $30,755,000 $40,355,000
Residential mortgages receivable......... 50,673,000 34,108,000
Land and lot mortgages receivable........ 2,609,000 1,343,000
Notes from the sale of subsidiaries...... 1,199,000 3,047,000
----------- -----------
Total Mortgages and Notes Receivable... $85,236,000 $78,853,000
=========== ===========
The collateralized mortgages receivable are pledged against non-recourse
collateralized mortgage obligations. Residential mortgages receivable
amounting to $43,502,000 and $25,868,000 at February 28, 1994 and 1993,
respectively, are being temporarily warehoused and awaiting sale in the
secondary mortgage market. The balance of such mortgages are 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 losses are not
covered by mortgage insurance or resale value of the house. 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
or stock of the subsidiaries and amortized over ten years. (See "Notes to
Consolidated Financial Statements - Note 9" for information on the writedown
of a note from the sale of a subsidiary.)
RESULTS OF OPERATIONS
The Company's operations consist primarily of residential housing
development and sales in its Northeast Region (comprised primarily of New
Jersey and eastern Pennsylvania), in southeastern Florida, North Carolina and
metro Washington D. C. (northern Virginia). In addition, the Company
develops and operates commercial properties as long-term investments in New
Jersey, and, to a lesser extent, Florida. During the last three fiscal
years, the Company's Northeast Region, North Carolina Division and metro
Washington D. C. Division have produced operating profits. These profits
have been reduced by losses from its other operations and the establishment
of reserves to reduce the book value of certain residential properties to
their estimated net realizable value. Over this time, the Company has
improved its profitability from a net income in fiscal 1992 of $2,478,000 to
a net income in fiscal 1994 of $18,645,000. Also over this time, net sales
contracts have increased each year from 2,756 homes, or $348,032,000 in
fiscal 1992, to 4,305 homes, or $606,601,000 in fiscal 1994. The Company
sees this trend continuing and currently expects higher operating profits,
net income and net sales contracts during the year ending February 28, 1995.
The following table sets forth, for the periods indicated, certain
income statement items as percentages of total revenues:
Year Ended
------------------------------------
February February February
28, 1994 28, 1993 29, 1992
-------- -------- --------
Total Revenues..................... 100.0% 100.0% 100.0%
-------- -------- --------
Costs and Expenses:
Construction, land, interest and
operations..................... 77.6 77.3 78.0
Provision to reduce inventory
to estimated net realizable
value........................... -- .7 --
Selling, general and
administrative................. 13.0 13.3 13.9
Mortgage banking and finance
operations..................... 1.8 2.1 2.7
Rental and other operations...... 2.6 3.2 4.8
-------- -------- --------
Total costs and expenses....... 95.0 96.6 99.4
-------- -------- --------
Income Before Income Taxes,
Extraordinary Item and
Cumulative Effect of Change
in Accounting for Income Taxes. 5.0 3.4 .6
Total Taxes........................ 1.6 1.1 .1
-------- -------- --------
3.4 2.3 .5
Extraordinary Loss................. (.2) -- --
Cumulative Effect of Change in
Accounting for Income Taxes...... -- -- .3
-------- -------- --------
Net Income.................... 3.2% 2.3% .8%
======== ======== ========
TOTAL REVENUES
Compared to fiscal 1993, total fiscal 1994 revenues increased $157.7
million, or 36.7%, due to a $160.2 million housing revenue increase, a $6.8
million decrease in land and lot sales, and a $4.3 million increase in other
revenue sources. Compared to fiscal 1992, total fiscal 1993 revenues
increased $110.8 million, or 34.8%, due to a $105.6 million housing revenue
increase, a $7.7 million increase in land and lot sales, and a $2.5 million
decrease in other revenue sources.
HOUSING OPERATIONS
Fiscal 1994 housing revenues increased by $160.2 million, or 40.3%,
compared to fiscal 1993. Fiscal 1993 housing revenues increased by $105.6
million, or 36.2%, compared to fiscal 1992. 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:
Year Ended
------------------------------------------
February 28, February 28, February 29,
1994 1993 1992
------------ ------------ ------------
(Dollars in Thousands)
Northeast Region(1):
Housing Revenues........... $389,577 $311,347 $216,274
Homes Delivered............ 2,527 2,226 1,582
North Carolina:
Housing Revenues........... $ 72,639 $ 59,399 $ 45,698
Homes Delivered............ 580 517 420
Florida:
Housing Revenues........... $ 48,780 $ 19,900 $ 20,512
Homes Delivered............ 405 184 282
Metro Washington, D. C.:
Housing Revenues........... $ 44,783 $ 3,327 $ --
Homes Delivered............ 288 28 --
Other:
Housing Revenues........... $ 1,710 $ 3,333 $ 9,271
Homes Delivered............ 28 44 99
Totals:
Housing Revenues........... $557,489 $397,306 $291,755
Homes Delivered........... 3,828 2,999 2,383
(1) Excludes suspended operations in New York which are included with New
Hampshire in "Other".
The increase in housing revenue during fiscal 1994 and 1993 was the
result of more homes delivered and increased average sales prices. Increased
deliveries are primarily the result of opening up more housing developments
for sale over this period and expanding into eastern Pennsylvania and metro
Washington, D. C. The increased average sales prices are primarily the
result of diversifying the Company's product mix in the Northeast Region to
include more detached single family homes and larger townhouses with garages
designed for the move-up buyer. Also, average sales prices have increased in
Florida because substantially all its new developments are detached single
family homes.
The Company's contract backlog using base sales prices by market area is
set forth below:
February 28,
------------------------
1994 1993
--------- ---------
(Dollars in Thousands)
Northeast Region:
Total Contract Backlog..................$173,430 $130,095
Number of Homes......................... 1,182 885
North Carolina:
Total Contract Backlog..................$ 55,620 $ 26,630
Number of Homes......................... 402 221
Florida:
Total Contract Backlog..................$ 37,837 $ 28,461
Number of Homes......................... 278 234
Metro Washington D. C.:
Total Contract Backlog..................$ 10,377 $ 14,088
Number of Homes......................... 50 101
Other:
Total Contract Backlog..................$ 863 $ 477
Number of Homes......................... 14 8
Totals:
Total Contract Backlog..................$278,127 $199,751
Number of Homes 1,926 1,449
The Company has established reserves to reduce certain residential
inventories to their estimated net realizable values including costs to carry
and dispose. These reserves were established primarily because of lower
property values due to economic downturns or a change in the marketing
strategy to liquidate a particular property. The established reserves are
reduced for carrying costs (i.e., property taxes, interest, etc.) incurred
and upon property sale. During fiscal 1993, the Company established reserves
of $3.1 million. The reserves were substantially attributable to two Florida
developments where sales prices were reduced to accelerate their sellout. At
February 28, 1994 and February 28, 1993, remaining reserves of $9.6 million
and $13.8 million, respectively, reduced residential inventories. (See
"Notes to Consolidated Financial Statements - Note 1" for an additional
explanation of reserves.)
Construction, land, interest and operating expenses include such
expenses for 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:
Year Ended
--------------------------------
February February February
28, 1994 28, 1993 29, 1992
-------- -------- --------
(Dollars in Thousands)
Housing Sales............................ $557,489 $397,306 $291,755
-------- -------- --------
Construction, land and operations
expenses............................... 434,653 306,707 230,235
Interest expense......................... 17,424 15,671 15,584
-------- -------- --------
Total expenses......................... 452,077 322,378 245,819
-------- -------- --------
Housing gross margin..................... $105,412 $ 74,928 $ 45,936
Gross margin percentage.................. 18.9% 18.9% 15.7%
======== ======== ========
While the Company's housing gross margin remained flat in fiscal 1994
compared to fiscal 1993, construction, land and operating expenses as a
percentage of housing sales increased 0.8% to 78.0% from 77.2%. 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 69.9% of the Company's housing revenues in
fiscal 1994 from 78.4% in fiscal 1993. In addition, the increase was also
caused by sharply rising material costs (primarily lumber) as demand for such
materials is greater than current supplies. The 1.7% reduction of these
expenses as a percentage of housing sales in fiscal 1993 compared to fiscal
1992 (to 77.2% from 78.9%) was primarily the result of decreased land costs
and increased average sales prices. This improvement was aided in fiscal 1993
by the reversal of $1.0 million of previously accrued post-development
completion costs.
Housing interest has declined 0.8% and 1.4% as a percentage of housing
sales to 3.1% and 3.9% for fiscal 1994 and 1993, respectively. This decrease
is primarily the result of the Company's increased inventory turnover and
reduced average interest rates.
Selling, general and administrative expenses increased $19.2 million in
fiscal 1994 from fiscal 1993 and increased $12.7 million in fiscal 1993 from
fiscal 1992. The increase in fiscal 1994 and 1993 was primarily due to
increased selling expenses resulting from increased new sales contracts, home
deliveries and the opening of the metro Washington, D. C. division. As a
percentage of total revenues, such expenses decreased to 13.0% in fiscal 1994
from 13.3% in fiscal 1993, and from 13.9% in fiscal 1992.
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:
Year Ended
--------------------------------
February February February
28, 1994 28, 1993 29, 1992
-------- -------- --------
(Dollars in Thousands)
Land and lot sales......................... $ 4,188 $ 10,946 $ 3,220
-------- -------- --------
Construction, land and operations
expenses................................. 3,158 8,564 2,243
Interest expense........................... 198 789 316
-------- -------- --------
Total expenses........................... 3,356 9,353 2,559
-------- -------- --------
Land and lot sales
Gross margin............................. $ 832 $ 1,593 $ 661
======== ======== ========
Land and lot sales are incidental to the Company's residential housing
operations and are expected to continue in the future but may significantly
fluctuate up or down. During fiscal 1994, land and lot sales consisted of
four land sales and one lot sale community in the Northeast Region, one land
sale in metro Washington, D. C. and one lot sale community in Florida.
During fiscal 1993, land and lot sales consisted of three land sales and one
lot sale community in the Northeast Region and two land sales and lot sales
in Florida. During fiscal 1992 land and lot sales consisted of one land sale
and one lot sale community in the Northeast Region and lot sales in Florida.
The Florida land and lot sales are the result of the liquidation of lots in
suspended communities or the sale of land not suited for its current product
line.
MORTGAGE BANKING AND FINANCE OPERATIONS
Mortgage banking and finance operations consisted primarily of
originating mortgages from sales of the Company's homes, and selling such
mortgages in the secondary market. Approximately 27%, 26% and 32% of the
Company's customers obtained mortgages originated by the Company's wholly-
owned mortgage banking and finance subsidiaries in fiscal 1994, 1993 and
1992, respectively. This represents a 40% increase in mortgage originations
from fiscal 1992 to fiscal 1994 due to the increase in homes delivered by the
Company. Such operations also include interest income and expense from the
Company's collateralized mortgages receivable and related collateral mortgage
obligations. Such operations are expected to operate at a slight profit.
Most servicing rights on new mortgages originated by the Company will be sold
as the loans are closed.
RENTAL PROGRAM
At February 28, 1994, the Company owned and was leasing three office
buildings, four office/warehouse facilities, three retail centers and one
mini-storage facility. During fiscal 1994, rental operations increased due
to the completion and leasing of additional commercial properties and the
acquisition of a retail center mid-year. During fiscal 1993, rental
operations decreased primarily due to the sale of a retail center. Rental
operations include interest expense amounting to $4.9 million, $5.8 million
and $6.6 million for fiscal 1994, 1993, and 1992, respectively. The Company
also rented residential homes in Florida, New York and New Hampshire but
liquidated most of these rentals by the end of fiscal 1992. The Company
expects such operations to operate at a loss after deducting interest and
depreciation.
OTHER OPERATIONS
In fiscal 1994, 1993 and 1992, other operations consisted primarily of
title insurance activities, investment properties operations and other income
from residential housing operations including interest income, contract
deposit forfeitures and low and moderate income housing subsidies. 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 fiscal 1994, the Company sold a retail center in New Jersey.
Included in other income is the pretax gain from this sale amounting to
$538,000.
TOTAL TAXES
Total taxes as a percentage of income before income taxes amounted to
31.7%, 32.5% and 15.8% in fiscal 1994, 1993 and 1992, respectively. The
Company applied for and received a refund of federal income taxes for fiscal
1992 based on a loss carryback amounting to approximately $1.6 million.
Deferred federal and state income tax assets for fiscal 1994 and 1993
primarily represents the deferred tax benefits arising from temporary
differences between book and tax income which will be recognized in future
years. (See "Notes to Consolidated Financial Statements - Note 8" for an
additional explanation of taxes.)
CUMMULATIVE EFFECT OF CHANGE IN ACCOUNTING FOR INCOME TAXES
The Company elected to adopt early application of Statement of Financial
Accounting Standards No 109 - "Accounting for Income Taxes" ("FAS 109").
Among other things, FAS 109 changes the method of recognizing deferred tax
assets. Deferred tax assets are recognized for temporary differences that
will result in deductible amounts in future years and for carryforwards. A
valuation allowance is recognized if it is more likely than not that some
portion of the deferred asset will not be recognized. The effect of
initially applying FAS 109 in fiscal 1992, resulted in recording additional
deferred tax assets and increasing net income by $0.9 million.
EXTRAORDINARY LOSS
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.
INFLATION
Inflation has a long-term effect on the Company because increasing costs
of land, materials and labor result in increasing sales prices of its homes.
In general, these price increases have been commensurate with the general
rate of inflation in the Company's housing markets and have not had a
significant adverse effect on the sale of the Company's homes. A significant
inflationary risk faced by the housing industry generally is that rising
housing 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.
Item 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Financial statements of Hovnanian Enterprises, Inc. and its consolidated
subsidiaries, are set forth herein beginning on page F-1.
Item 9 - CHANGES IN OR DISAGREEMENT WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
During the past twenty-four months there have not been any changes in or
disagreements with accountants on accounting and financial disclosure.
PART III
Item 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information called for by Item l0, except as set forth below under
the heading "Executive Officers of the Registrant", is incorporated herein by
reference to the Company's definitive proxy statement to be filed pursuant to
Regulation l4A, in connection with the Company's annual meeting of
shareholders to be held in July 1994, which will involve the election of
directors.
Executive Officers of the Registrant
The executive officers of the Company are listed below and brief
summaries of their business experience and certain other information with
respect to them are set forth following the table.
Year Started
Name Age Position With Company
Kevork S. Hovnanian 71 Chairman of the Board, Chief l967
Executive Officer, and Director
of the Company.
Ara K. Hovnanian 36 President and Director of l979
the Company.
Paul W. Buchanan 43 Senior Vice President-Corporate l981
Controller and Director of the
Company.
Timothy P. Mason 53 Senior Vice President-Adminis- 1975
tration/Secretary and Director
of the Company.
Peter S. Reinhart 44 Senior Vice President and General 1978
Counsel and Director of the
Company.
John J. Schimpf 45 Executive Vice President and 1981
Director of the Company.
J. Larry Sorsby 38 Senior Vice President-Finance/ 1988
Treasurer
Mr. K. Hovnanian founded the predecessor of the Company in l959
(Hovnanian Brothers, Inc.) and has served as Chairman of the Board of the
Company since its incorporation in l967. Mr. K. Hovnanian was also President
of the Company from 1967 to April 1988.
Mr. A. Hovnanian was appointed President in April 1988, after serving as
Executive Vice President from March 1983. Mr. A. Hovnanian was elected a
Director of the Company in December l98l. Mr. A. Hovnanian is the son of Mr.
K. Hovnanian.
Mr. Buchanan was appointed Senior Vice President-Corporate Controller in
May l990, after serving as Vice President-Corporate Controller from March
1983. Mr. Buchanan was elected a Director of the Company in March l982.
Mr. Mason was appointed Senior Vice President of Administration/
Secretary of the Company in March 1991, after serving as Vice President -
Administration/Treasurer and Secretary of the Company since March l982. Mr.
Mason was elected a Director of the Company in 1980.
Mr. Reinhart was appointed Senior Vice President and General Counsel in
April 1985 after serving as Vice President and Chief Legal Counsel since
March l983. Mr. Reinhart was elected a Director of the Company in December
l98l.
Mr. Schimpf was appointed Executive Vice President of the Company in
April 1988 after serving as Senior Vice President from April 1985. Mr.
Schimpf was elected a Director of the Company in June 1986.
Mr. Sorsby was appointed Senior Vice President-Finance/Treasurer of the
Company in March 1991, after serving as Vice President/Finance of the Company
since September l988.
Item 11 - EXECUTIVE COMPENSATION
The information called for by Item ll is incorporated herein by
reference to the Company's definitive proxy statement to be filed pursuant to
Regulation l4A, in connection with the Company's annual meeting of
shareholders to be held in July 1994, which will involve the election of
directors.
Item 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information called for by Item l2 is incorporated herein by
reference to the Company's definitive proxy statement to be filed pursuant to
Regulation l4A, in connection with the Company's annual meeting of
shareholders to be held in July l994, which will involve the election of
directors.
Item 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information called for by Item l3 is incorporated herein by
reference to the Company's definitive proxy statement to be filed pursuant to
Regulation l4A, in connection with the Company's annual meeting of
shareholders to be held in July 1994, which will involve the election of
directors.
PART IV
Item 14 - EXHIBITS, FINANCIAL STATEMENTS, FINANCIAL STATEMENT SCHEDULES
AND REPORTS ON FORM 8-K
Page
Financial Statements:
Index to Consolidated Financial Statements....................... F-1
Independent Auditors' Report..................................... F-2
Consolidated Balance Sheets at February 28, 1994 and 1993........ F-3
Consolidated Statements of Income for the Years
Ended February 28, 1994, February 28, 1993 and
February 29, 1992............................................. F-5
Consolidated Statements of Stockholders' Equity
for the Years Ended February 28, 1994,
February 28, 1993 and February 29, 1992....................... F-6
Consolidated Statements of Cash Flows for the
Years Ended February 28, 1994, February 28, 1993
and February 29, 1992......................................... F-7
Notes to Consolidated Financial Statements....................... F-8
Financial Statement Schedules:
VIII Valuation and Qualifying Accounts.......................... F-20
X Supplementary Income Statement Information................. F-21
XI Real Estate and Accumulated Depreciation................... F-22
All other schedules are either not applicable to the Company or have
been omitted because the required information is included in the financial
statements or notes thereto.
Exhibits:
3(a) Certificate of Incorporation of the Registrant.(1)
3(b) Certificate of Amendment of Certificate of Incorporation of the
Registrant.(8)
3(c) Bylaws of the Registrant.(8)
4(a) Specimen Class A Common Stock Certificate.(8)
4(b) Specimen Class B Common Stock Certificate.(8)
4(c) Indenture dated as of April 29, 1992, relating to 11 1/4%
Subordinated Notes between the Registrant and First Fidelity Bank,
including form of 11 1/4% Subordinated Notes due April 15,
2002.(2)
4(d) Indenture dated as of May 28, 1993, relating to 9 3/4%
Subordinated Notes between Registrant and First Fidelity Bank,
National Association, New Jersey, as Trustee, including form of
9 3/4% Subordinated Note due 2005.(4)
10(a) Credit Agreement dated July 30, 1993 among K. Hovnanian
Enterprises, Inc., Hovnanian Enterprises, Inc., certain
Subsidiaries Thereof, Midlantic National Bank, Chemical
Bank, United Jersey Bank/Central, N.A., and NBD Bank, N.A.(7)
10(b) Description of Management Bonus Arrangements.(8)
10(c) Description of Savings and Investment Retirement Plan.(1)
10(d) Stock Option Plan.(6)
10(e) Management Agreement dated August 12, 1983 for the management of
properties by K. Hovnanian Investment Properties, Inc.(1)
10(f) Agreement dated July 8, 1981 between Hovnanian Properties of
Atlantic County, Inc. and Kevork S. Hovnanian.(2)
10(g) Management Agreement dated December 15, 1985, for the management
of properties by K. Hovnanian Investment Properties, Inc.(3)
10(h) Description of Deferred Compensation Plan.(5)
22 Subsidiaries of the Registrant.
(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 Registration Statement
(No. 33-46064) on Form S-3 of the Registrant.
(3) Incorporated by reference to Exhibits to Annual Report on Form 10
-K for the year ended February 28, 1986 of the Registrant.
(4) Incorporated by reference to Exhibits to Registration Statement
(No. 33-61778) on Forms S-3 of the Registrant.
(5) Incorporated by reference to Exhibits to Annual Report on Form 10-
K for the year ended February 28, 1990 of the Registrant.
(6) Incorporated by reference to the Proxy Statement dated June 15,
1990.
(7) Incorporated by reference to an Exhibit to Quarterly Report on
Form 10-Q for the quarter ended August 31, 1993, of the
Registrant.
(8) Incorporated by reference to Exhibits to Annual Report on Form 10-
for the year ended February 28, 1993 of the Registrant.
Reports on Form 8-K
The Company did not file any reports on Form 8-K during the quarter
ended February 28, 1994.
SIGNATURES
Pursuant to the requirements of Section l3 or l5(d) 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.
By:
/S/KEVORK S. HOVNANIAN
Kevork S. Hovnanian
Chairman of the Board and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of l934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated
/S/ KEVORK S. HOVNANIAN Chairman of The Board 5/20/94
Kevork S. Hovnanian and Director Date
/S/ ARA K. HOVNANIAN President and Director 5/20/94
Ara K. Hovnanian Date
/S/ PAUL W. BUCHANAN Senior Vice President 5/20/94
Paul W. Buchanan Corporate Controller and Date
Director
/S/ TIMOTHY P. MASON Senior Vice President- 5/20/94
Timothy P. Mason Administration/Secretary Date
and Director
/S/ PETER S. REINHART Senior Vice President and 5/20/94
Peter S. Reinhart General Counsel and Director Date
/S/ JOHN J. SCHIMPF Executive Vice President 5/20/94
John J. Schimpf and Director Date
/S/ J. LARRY SORSBY Senior Vice President/ 5/20/94
J. Larry Sorsby Finance and Treasurer Date
PART IV
Item 14 - EXHIBITS, FINANCIAL STATEMENTS, FINANCIAL STATEMENT SCHEDULES
AND REPORTS ON FORM 8-K
Page
Financial Statements:
Index to Consolidated Financial Statements..................... F-1
Independent Auditors' Report................................... F-2
Consolidated Balance Sheets at February 28, 1994 and 1993...... F-3
Consolidated Statements of Income for the Years
Ended February 28, 1994, February 28, 1993 and
February 29, 1992............................................ F-5
Consolidated Statements of Stockholders' Equity
for the Years Ended February 28, 1994,
February 28, 1993 and February 29, 1992...................... F-6
Consolidated Statements of Cash Flows for the
Years Ended February 28, 1994, February 28, 1993
and February 29, 1992........................................ F-7
Notes to Consolidated Financial Statements..................... F-8
Financial Statement Schedules:
VIII Valuation and Qualifying Accounts.......................... F-21
X Supplementary Income Statement Information................. F-22
XI Real Estate and Accumulated Depreciation................... F-23
All other schedules have been omitted because the required information of
such other schedules is not present, is not present in amounts sufficient to
require submission of the schedule or because the required information is
included in the financial statements.
INDEPENDENT AUDITORS' REPORT
To the Stockholders and
Board of Directors of
Hovnanian Enterprises, Inc.
We have audited the consolidated balance sheets of Hovnanian Enterprises,
Inc. and subsidiaries as of February 28, 1994 and 1993, and the related
consolidated statements of income, changes in stockholders' equity and cash
flows for each of the years in the three year period ended February 28, 1994
and the schedules listed in the accompanying index. These financial
statements and the schedules are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and schedules based upon our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
schedules are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the
financial statements and schedules. An audit also includes assessing the
accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement and schedule presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respect, the financial position of Hovnanian
Enterprises, Inc. and subsidiaries as of February 28, 1994 and 1993, and the
results of their operations and their cash flows for each of the years in the
three year period ended February 28, 1994, in conformity with generally
accepted accounting principles. Further, it is our opinion that the
schedules referred to above present fairly the information set forth therein.
/S/ Kenneth Leventhal and Company
Kenneth Leventhal and Company
New York, New York
April 21, 1994, except
for Note 9 as to which the
date is May 10, 1994
<TABLE>
HOVNANIAN ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In Thousands)
<CAPTION>
February 28, February 28,
ASSETS 1994 1993
------------ ------------
<S> <C> <C>
Cash:
Demand deposits.............................. $23,274 $10,211
Escrow accounts (Note 3)..................... 5,043 6,854
------------ ------------
Total cash............................... 28,317 17,065
------------ ------------
Receivables:
Customer accounts and other.................. 17,935 11,010
Escrow and deposits.......................... 8,393 6,968
Related parties (Note 9)..................... 1,411 803
------------ ------------
Total receivables........................ 27,739 18,781
------------ ------------
Mortgages and Notes Receivable (Notes 4 and 9):
Collateralized mortgages receivable.......... 30,755 40,355
Residential mortgages receivable............. 50,673 34,108
Other mortgages and notes receivable......... 3,808 4,390
------------ ------------
Mortgages and notes receivable........... 85,236 78,853
------------ ------------
Inventories - At cost, not in excess of
market (Notes 1 and 5):
Real estate under development:
Accumulated cost of construction:
Finished................................. 22,247 31,994
In progress.............................. 25,395 19,955
Land and land development costs............ 146,665 128,888
Land, land options, and costs of projects
in planning................................ 84,431 62,554
------------ ------------
Total inventories........................ 278,738 243,391
------------ ------------
Property - At cost (Note 2):
Operating property........................... 20,757 19,296
Less accumulated depreciation................ 10,925 10,800
------------ ------------
Net operating property..................... 9,832 8,496
------------ ------------
Rental property.............................. 69,116 49,923
Less accumulated depreciation................ 7,156 5,748
------------ ------------
Net rental property........................ 61,960 44,175
------------ ------------
Income producing properties under development 14,691 18,015
------------ ------------
Property - net.. ........................ 86,483 70,686
------------ ------------
Investment In and Advances to Unconsolidated
Affiliate and Joint Venture.................. 4,353 4,565
------------ ------------
Prepaid Expenses and Other Assets.............. 28,736 31,688
------------ ------------
Total Assets................................... $539,602 $465,029
============ ============
<FN>
See notes to consolidated financial statements.
</TABLE>
<TABLE>
HOVNANIAN ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In Thousands)
<CAPTION>
February 28, February 28,
LIABILITIES AND STOCKHOLDERS' EQUITY 1994 1993
------------ ------------
<S> <C> <C>
Mortgages and Notes Payable (Note 5):
Nonrecourse land mortgages................... $7,494 $13,431
Revolving credit agreement................... 15,000
Mortgage warehouse line of credit............ 39,307 16,691
Nonrecourse mortgages secured by building,
land, and land improvements................ 21,447 21,577
------------ ------------
Total mortgages and notes payable.......... 68,248 66,699
------------ ------------
Bonds Collateralized By Mortgages
Receivable (Note 4).......................... 30,343 39,914
------------ ------------
Subordinated Notes (Note 6).................... 200,000 152,157
------------ ------------
Accounts Payable............................... 19,821 12,532
------------ ------------
Customers' Deposits (Note 3)................... 12,103 8,129
------------ ------------
Accrued Liabilities:
State income taxes (Note 8):
Current.................................... 1,745 705
Deferred................................... (1,105)
Federal income taxes (Note 8):
Current.................................... 8,288 3,188
Deferred................................... (5,990) (5,522)
Interest..................................... 7,660 6,056
Post development completion costs............ 12,145 8,979
Other........................................ 15,343 20,255
------------ ------------
Total accrued liabilities.................. 38,086 33,661
------------ ------------
Total liabilities........................ 368,601 313,092
------------ ------------
Commitments and Contingent Liabilities (Note 11)
Stockholders' Equity (Notes 10 and 12):
Preferred Stock,$.01 par value-authorized
100,000 shares; none issued
Common Stock,Class A,$.01 par value authorized
87,000,000 shares; issued 14,707,465 shares
(including 345,874 shares held in Treasury) 147 137
Common Stock,Class B,$.01 par value authorized
13,000,000 shares; issued 8,826,336 shares
(including 345,874 shares held in Treasury) 88 98
Paid in Capital.............................. 32,301 31,882
Retained Earnings (Note 6)................... 143,764 125,119
Treasury Stock - at cost..................... (5,299) (5,299)
------------ ------------
Total stockholders' equity.............. 171,001 151,937
------------ ------------
Total Liabilities and Stockholders' Equity..... $539,602 $465,029
============ ============
<FN>
See notes to consolidated financial statements.
</TABLE>
<TABLE>
HOVNANIAN ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In Thousands Except Per Share Data)
<CAPTION>
Year Ended
------------ ------------ ------------ February 28, F
February 28, February 28, February 29,
1994 1993 1992
------------ ------------ ------------
<S> <C> <C> <C>
Revenues:
Housing sales............................. $557,489 $397,306 $291,755
Land and lot sales........................ 4,188 10,946 3,220
Rental operations......................... 7,371 5,750 7,338
Mortgage banking and finance operations... 10,528 9,200 10,055
Other..................................... 7,434 6,113 6,159
------------ ------------ ------------
Total revenues.......................... 587,010 429,315 318,527
------------ ------------ ------------
Cost and Expenses:
Costruction, land, interest and operation. 455,433 331,731 248,378
Provision to reduce inventory to estimated
net realizable value.................. 3,100
Selling, general and administrative....... 76,350 57,112 44,415
Rental operations......................... 9,285 10,182 11,633
Mortgage banking and finance operations... 10,704 8,919 8,779
Other operations.......................... 4,204 3,746 3,428
Provision for loan writedown.(Note 9)..... 1,883
------------ ------------ ------------
Total costs and expenses................ 557,859 414,790 316,633
------------ ------------ ------------
Income Before Income Taxes, Extraordinary
Loss and Cumulative Effect of Change in
Accounting for Income Taxes............... 29,151 14,525 1,894
------------ ------------ ------------
State and Federal Income Taxes:
State:
Current................................. 2,008 1,599 578
Deferred (Note 8)....................... (1,105)
Federal:
Current................................. 8,794 3,331 (1,553)
Deferred (Note 8)....................... (468) (195) 1,274
------------ ------------ ------------
Total taxes............................. 9,229 4,735 299
------------ ------------ ------------
19,922 9,790 1,595
Extraordinary Loss from Extinguishment of
Debt, Net of Income Taxes (Note 6)........ (1,277)
Cumulative Effect of Change in Accounting
for Income Taxes (Note 1)................. 883
------------ ------------ ------------
Net Income.................................. $ 18,645 $ 9,790 $ 2,478
============ ============ ============
Earnings Per Common Share (Note 1):
Income before extraordinary loss.......... $0.87 $0.43 $0.07
Extraordinary loss........................ (0.05)
Cumulative effect of changes in accounting
for income taxes........................ 0.04
------------ ------------ ------------
Net Income.................................. $0.82 $0.43 $0.11
============ ============ ============
<FN>
See notes to consolidated financial statements.
</TABLE>
<TABLE>
HOVNANIAN ENTERPRISES, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Dollars in Thousands)
<CAPTION>
Common Stock A Common Stock B Common Stock
-------------------- -------------------- ---------------------
Shares Shares Shares
Issued and Issued and Issued and Paid-in Retained Treasury
Outstanding Amount Outstanding Amount Outstanding Amount Capital Earnings Stock Total
----------- -------- ----------- ------- ----------- -------- --------- ---------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, February 28, 1991.. 20,695,182 $214 $17,655 $112,851 ($5,299) $125,421
Issuance of common stock.... 2,000,000 20 13,753 13,773
Sale of common stock under
employee stock option plan. 60,449 317 317
Net income.................. 2,478 2,478
----------- -------- ----------- ------- ----------- -------- --------- ---------- --------- --------
Balance, February, 29, 1992 22,755,631 234 31,725 115,329 (5,299) 141,989
Sale of common stock under
employee stock option plan. 28,000 1 157 158
Conversion of common stock
to Class A and Class B.... (22,783,631) (235) 11,391,815 $118 11,391,815 $117
Conversion of Class B to
Class A common stock....... 1,928,981 19 (1,928,981) (19)
Treasury stock purchases.... (41) (41)
Retirements................. (1)
Net income.................. 9,790 9,790
----------- -------- ----------- ------- ---------- -------- -------- --------- ---------- --------
Balance, Februry 28, 1993... 0 0 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....... 1,011,587 10 (1,011,581) (10)
Net income.................. 18,645 18,645
----------- -------- ----------- ------- --------- -------- -------- --------- ---------- ---------
Balance, February 28, 1994.. 0 $0 14,361,591 $147 8,480,462 $88 $32,301 $143,764 ($5,299) $171,001
=========== ======== =========== ======= ========= ======== ======== ========= ========== =========
<FN>
See notes to consolidaed financial statements.
</TABLE>
<TABLE>
HOVNANIAN ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
<CAPTION>
Year Ended
----------------------------------
February February February
28, 1994 28, 1993 29, 1992
---------- ---------- ----------
<S> <C> <C> <C>
Cash Flows From Operating Activities:
Net Income..................................... $18,645 $9,790 $2,478
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation............................... 3,035 2,924 2,888
Loss (gain) on sale and retirement of
property and assets...................... 244 (28) (1,375)
Writedown of loan from sale of subsidiary.. 1,883
Deferred income taxes...................... (1,573) (195) 391
Loss from unconsolidated affiliates........ 8 269
Provision to reduce inventory to net
realizable value......................... 3,100
Decrease (increase) in assets:
Escrow cash.............................. 1,811 (3,249) (72)
Receivables, prepaids and other assets... (6,006) (22,296) 533
Mortgages receivable..................... (22,043) (15,755) 5,251
Inventories.............................. (35,347) (38,476) 12,635
Increase (decrease) in liabilities:
State and Federal income taxes........... 6,140 4,978 2,296
Customers' deposits...................... 3,974 455 2,043
Interest and other accrued liabilities... (3,308) 15,073 676
Post development completion costs........ 3,166 (3,665) 3,389
Accounts payable......................... 7,289 2,882 (660)
Amortization of debenture discounts...... 3 24 31
Net cash provided by (used in) ---------- ---------- ----------
operating activities................... (22,079) (44,423) 30,504
Cash Flows From Investing Activities: ---------- ---------- ----------
Proceeds from sale of property and assets...... 2,114 3,327 13,309
Proceeds from sale of subsidiaries............. (95)
Investment in property and assets.............. (1,464) (3,198) (13,017)
Purchase of property........................... (3,130) (3,571) (716)
Investment in and advances to unconsolidated
affiliates................................... 204 204 (2,914)
Investment in income producing properties...... (16,597 (1,796) 17,593
Investment in loans from sale of subsidiaries.. 50 (86) (2,761)
Net cash provided by (used in) ---------- ---------- ----------
investing activities................... (18,823) (5,120) 11,399
Cash Flows From Financing Activities: ---------- ---------- ----------
Proceeds from mortgages and notes.............. 552,640 255,340 183,344
Proceeds from subordinated debt................ 100,000 100,000
Principal payments on mortgages and notes...... (557,531) (303,677) (242,686)
Principal payments on subordinated debt........ (52,160) (15,590) (3,867)
Investment in mortgages receivable............. 10,597 11,240 7,240
Proceeds from sale of stock.................... 419 157 14,090
Net cash provided by (used in) ---------- ---------- ----------
financing activities................... 53,965 47,470 (41,879)
---------- ---------- ----------
Net Increase (Decrease) In Cash.................. 13,063 (2,073) 24
Cash Balance, Beginning Of Period................ 10,211 12,284 12,260
---------- ---------- ----------
Cash Balance, End Of Period...................... $23,274 $10,211 $12,284
Supplemental Disclosures Of Cash Flow: ========== ========== ==========
Cash paid (received) during the year for:
Interest (net of amount capitalized)......... $25,173 $19,546 $22,302
Income Taxes................................. 3,867 (48) (3,271)
---------- ---------- ----------
$29,040 $19,498 $19,031
========== ========== ==========
<FN>
See notes to consolidated financial statements.
</TABLE>
HOVNANIAN ENTERPRISES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS FOR THE YEARS ENDED FEBRUARY 28(29), 1994, 1993 AND 1992
1. SUMMARY OF ACCOUNTING POLICIES
Operations - The Company, a Delaware Corporation, principally develops
housing communities in New Jersey, Pennsylvania, Florida, North Carolina and
Virginia. In addition, the Company develops and operates income producing
properties.
Principles of Consolidation - The accompanying consolidated financial
statements include the accounts of the Company and all wholly-owned or
majority owned subsidiaries after elimination of all significant intercompany
balances and transactions. The Company's investments in joint ventures in
which the Company's interest is 50% or less are accounted for by the equity
method of accounting. The financial statements for prior years have been
conformed to the format used at February 28, 1994.
The Company reports income taxes in accordance with Statement of
Financial Accounting No. 109 ("FAS 109"), "Accounting For Income Taxes".
Among other things, FAS 109 changes the method of recognizing deferred tax
assets. Deferred tax assets are recognized for temporary differences that
will result in deductible amounts in future years and for carryforwards. A
valuation allowance is recognized if it is more likely than not that some
portion of the deferred asset will not be recognized. The effect of
initially applying FAS 109 in fiscal 1992 resulted in recording additional
deferred tax assets and increasing net income by $883,000, or $.04 per common
share.
Income Recognition - Income from sales is recorded when title is
conveyed to the buyer, subject to the buyer's financial commitment being
sufficient to provide economic substance to the transaction.
Cash - Cash includes cash deposited in checking accounts, overnight
repurchase agreements, certificates of deposit, Treasury bills and government
money market funds.
Inventories - Inventories are recorded at the lower of cost or market.
Market is defined as the estimated proceeds upon disposition less all future
costs to complete and expected costs to sell. Construction costs are
accumulated during the period of construction and charged to cost of sales
under specific identification methods. Land, land development and common
facility costs are amortized based upon the number of homes to be constructed
in each housing community utilizing a relative sales value allocation method.
Interest costs related to properties in progress are capitalized during
the construction period and charged to cost of sales as the related
inventories are sold (see Note 5).
The cost of land options is capitalized when incurred and either
included as part of the purchase price when the land is acquired or charged
to operations when the Company determines it will not exercise the option.
During fiscal 1993, the Company provided for a $3.1 million reserve to
reduce certain residential properties to their estimated net realizable
values. This reserve is substantially attributable to two Florida
communities where the Company significantly reduced sales prices. Although
these communities have very few standing unsold houses, by reducing sales
prices the Company plans to accelerate their buildout. The Company believes
the rapid liquidation of these properties will enable it to concentrate on
newer and more profitable developments. In addition, in years prior to
fiscal 1992 the Company established similar reserves attributable to Florida,
New Hampshire and New York communities.
During fiscal 1994, 1993 and 1992, the Company charged $4,176,000,
$5,245,000 and $7,525,000, respectively, against reserves for losses realized
from the sales of certain homes. In fiscal 1994, 1993 and 1992,
respectively, these charges consisted of $3,620,000, $4,459,000 and
$5,678,000 of construction, and operations costs, $195,000, $201,000 and
$476,000 of selling, general and administration expenses and $361,000,
$583,000 and $1,371,000 of interest expenses. At February 28, 1994 and 1993,
respectively, inventory and residential rental inventory have been reduced by
an allowance of $9,591,000 and $13,767,000 to reflect the carrying amounts at
estimated net realizable value.
Property - Various condominium homes, not yet under contract of sale,
are rented under short-term leases. Such homes are reclassified from
inventory and depreciated after a reasonable selling period not to exceed one
year. Rental operations of the Company arise from these incidental rentals
and from rental of commercial properties.
Post Development Completion Costs - In those instances where a
development is substantially completed and sold and the Company has
additional construction work to be incurred, an estimated liability is
provided to cover the cost of such work.
Deferred Income Tax - Deferred income taxes are provided for temporary
differences between amounts recorded for financial reporting and for income
tax purposes.
Depreciation - The straight-line method is used for both financial and
tax reporting purposes for all assets except office furniture and equipment
which are depreciated using the declining balance method over their estimated
useful lives.
Prepaid Expenses - Prepaid expenses which relate to specific housing
communities are amortized to costs of sales as the applicable inventories are
sold.
Per Share Calculations - Per share amounts are calculated on a weighted
average basis and reflect the recapitalization described in Note 12.
2. PROPERTY
Operating property consists of land, land improvements, buildings,
building improvements, furniture and equipment used by the Company and its
subsidiaries to conduct day to day business. Rental property consists of
rental condominiums, three office buildings, four office warehouse
facilities, three retail shopping centers, and a mini-storage facility. The
condominiums located in New Hampshire, are either sold and waiting to close
or being temporarily rented and are being actively marketed for sale.
3. ESCROW CASH
Escrow cash primarily represents customers' deposits which are
restricted from use by the Company. The Company is able to release escrow
cash by pledging letters of credit and as a result, $6,453,000 and $5,024,000
was released from escrow at February 28, 1994 and 1993, respectively. Escrow
cash accounts are substantially invested in short-term certificates of
deposit or time deposits.
4. MORTGAGES AND NOTES RECEIVABLE
The Company's wholly-owned mortgage banking and finance subsidiaries
originate mortgage loans, primarily from the sale of the Company's homes.
Such mortgage loans are sold in the secondary mortgage market or in years
prior to fiscal 1988 pledged against collateralized mortgage obligations
("CMO's"). At February 28, 1994 and 1993, mortgage loans owned by the
Company amounted to $81,428,000 and $74,463,000, respectively, of which
$30,755,000 and $40,355,000, respectively, were pledged against CMO's with
the remainder held for sale. At February 28, 1994 and 1993, respectively,
$43,502,000 and $25,868,000 of such mortgages were pledged against the
Company's mortgage warehouse line (see "Notes to Consolidated Financial
Statements - Note 5"). The Company may incur risk with respect to mortgages
that are delinquent and not pledged against CMO's, but only to the extent the
losses are not covered by mortgage insurance or resale value of the home.
Historically, the Company has incurred minimal credit losses. The mortgage
loans held for sale are carried at the lower of cost or market value,
determined on an aggregate basis. There was no valuation adjustment at
February 28, 1994.
In connection with certain bulk sales of condominium homes, land sales
and the sale of certain subsidiaries, the Company made loans. At February
28, 1994 and February 28, 1993, such loans amounted to $3,808,000 and
$4,890,000, respectively, with interest rates at February 28, 1994 ranging up
to 12%.
5. MORTGAGES AND NOTES PAYABLE
Substantially all of the land and construction mortgages are short-term
borrowings. The mortgages secured by buildings, land and land improvements
are installment obligations having annual principal maturities of
approximately $1,107,000 in fiscal 1995, $186,000 in fiscal 1996, $205,000 in
fiscal 1997, $225,000 in fiscal 1998, and $19,815,000 after fiscal 1998.
The Company has a Revolving Credit Agreement ("Agreement") with a group
of banks which provides up to $130,000,000 through July 1996. Interest is
payable monthly and at various rates of either prime plus 1/2% or LIBOR plus
2%. In addition, the Company pays 3/8% per annum on the weighted average
unused portion of the line. The Company believes that it will be able either
to extend the Agreement beyond July 1996 or negotiate a replacement facility,
but there can be no assurance of such extension or replacement facility.
Interest costs incurred, expensed and capitalized were:
Year Ended
---------------------------------
February February February
28, 1994 28, 1993 29, 1992
-------- -------- --------
(Dollars in Thousands)
Interest incurred (1):
Residential(3)......................... $20,830 $15,990 $13,701
Commercial(4).......................... 5,138 6,165 6,762
------- ------- -------
Total incurred......................... $25,968 $22,155 $20,463
======= ======= =======
Interest expensed:
Residential(3)......................... $17,622 $16,460 $15,900
Commercial(4).......................... 4,908 5,809 6,557
------- ------- -------
Total expensed......................... $22,530 $22,269 $22,457
======= ======= =======
Interest capitalized at
beginning of year...................... $23,366 $24,062 $27,427
Plus: Interest incurred................. 25,968 22,155 20,463
Less: Interest expensed................. 22,530 22,269 22,457
Less: Charged to reserves............... 361 583 1,371
------- ------- -------
Interest capitalized at end of year...... $26,443 $23,365 $24,062
======= ======= =======
Interest capitalized at end of year (5):
Residential(3)......................... $20,209 $15,727 $16,780
Commercial(2).......................... 6,234 7,638 7,282
------- ------- -------
Total interest capitalized............ $26,443 $23,365 $24,062
======= ======= =======
(1) Data does not include interest incurred by the Company's mortgage and
finance subsidiaries.
(2) Data 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 February 28, 1994 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 the intended use to residential
housing.
Average interest rates and balances outstanding for short-term debt are
as follows:
February February February
28, 1994 28, 1993 29, 1992
-------- -------- --------
(Dollars In Thousands)
Average outstanding borrowings.......... $ 39,632 $ 32,788 $110,910
Average interest rate during period(1).. 5.39% 6.21% 8.35%
Average interest rate at end of period.. -- 6.50% 7.07%
Maximum outstanding at any month end.... .$ 72,700 $ 68,350 $138,904
(1) Total interest incurred for the year divided by average outstanding short
term borrowings.
6. SUBORDINATED NOTES
On June 24, 1988, the Company issued $50,000,000 principal amount of 12
1/4% Subordinated Notes due June 15, 1998. Interest is payable semi-
annually. Annual sinking fund payments of $10,000,000 are required to
commence June 15, 1996, and are calculated to retire 40% of the issue prior
to maturity. In July 1993, the Company redeemed all of these notes at a price
of 102% of par. The redemption resulted in an extraordinary loss of
$1,277,000 net of an income tax benefit of $658,000.
On April 29, 1992, the Company issued $100,000,000 principal amount of
11 1/4% Subordinated Notes due April 15, 2002. Interest is payable semi-
annually. Annual sinking fund payments of $20,000,000 are required to
commence April 15, 2000, and are calculated to retire 40% of the issue prior
to maturity.
On June 7, 1993, the Company issued $100,000,000 principal amount of
9 3/4% Subordinated Notes due June 1, 2005. Interest is payable
semiannually. The notes are redeemable in whole or in part at the Company's
option, initially at 104.875% of their principal amount on or after June 1,
1999 and reducing to 100% of their principal amount on or after June 1, 2002.
The indentures relating to the subordinated notes and the Revolving
Credit Agreement contain restrictions on the payment of cash dividends. At
February 28, 1994, $33,432,000 of retained earnings were free of such
restrictions.
7. RETIREMENT PLAN
On December 1, 1982, the Company established a defined contribution
savings and investment retirement plan. Under such plan there are no prior
service costs. Plan costs charged to operations amount to $788,000 ,
$477,000 and $434,000 for the years ended February 28, 1994, February 28,
1993 and February 29, 1992, respectively.
8. INCOME TAXES
Deferred income taxes have been provided (reduced) due to temporary
differences as follows:
Year Ended
--------------------------------
February February February
28, 1994 28, 1993 29, 1992
-------- -------- --------
(Dollars In Thousands)
Capitalized interest................. $ (3) $ (16) $ (96)
Homeowner association maintenance
reserves.......................... 166 53 (117)
Installment sales.................... (493) (578) (592)
Provision to reduce inventory to net
realizable value................... 1,324 954 2,563
Deferred expenses.................... (727) (608) (484)
Depreciation......................... 298
Post development completion costs.... (1,988)
Net operating losses................. (129)
Other................................ (21)
-------- -------- --------
Benefit (Provision) - total.......... $(1,573) $ (195) $ 1,274
======== ======== ========
The deferred tax liabilities or assets have been recognized in the
consolidated balance sheets due to temporary differences and loss
carryforwards as follows:
February February
28, 1994 28, 1993
-------- --------
(Dollars In Thousands)
Deferred Tax Liabilities:
Deferred interest....................... $ 252 $ 256
Installment sales....................... 784 1,278
Accelerated depreciation................ 1,104 807
-------- --------
Total................................. 2,140 2,341
-------- --------
Deferred Tax Assets:
Deferred income......................... 369 333
Maintenance guarantee reserves.......... 490 656
Provision to reduce inventory to net
realizable value...................... 3,577 4,901
Uniform capitalization of overhead..... 2,018 1,579
Post development completion costs....... 1,988
Other................................... 793 394
-------- --------
Total................................. 9,235 7,863
-------- --------
Net Deferred Tax Assets................... $ (7,095) $ (5,522)
======== ========
The effective tax rates varied from the expected rate. The sources of
these differences were as follows:
February February February
28, 1994 28, 1993 29, 1992
-------- -------- --------
Computed "expected" tax rate.............. 35.0% 34.0% 34.0%
State income taxes, net of Federal
income tax benefit...................... 1.8% 7.3% 20.1%
Loss carryforward of New Fortis
subsidiary.............................. (2.1%) (2.6%) (26.5%)
Other..................................... (3.0%) (6.2%) (11.8%)
-------- -------- --------
Effective tax rate........................ 31.7% 32.5% 15.8%
======== ======== ========
The Company has available at February 28, 1994 a federal operating loss
carryforward for financial reporting purposes and tax purposes of $274,000,
which may provide future tax benefits. The carryforward expires during the
years ended February 28, 2005 and 2006. The Company has state net operating
loss carryforwards for financial reporting and tax purposes of $164,000,000
due to expire between the years February 28, 1995 and February 28, 2009.
9. TRANSACTIONS WITH RELATED PARTIES
The Company's Board of Directors has adopted a general policy providing
that it will not make loans to officers or directors of the Company or their
relatives at an interest rate less than the interest rate at the date of the
loan on six month U.S. Treasury Bills, that the aggregate of such loans will
not exceed $2,000,000 at any one time, and that such loans will be made only
with the approval of the members of the Company's Board of Directors who have
no interest in the transaction. Notwithstanding the policy stated above, the
Board of Directors of the Company concluded that the following transactions
were in the best interests of the Company.
On March 1, 1990, the Company sold all the assets and liabilities of its
wholly-owned engineering subsidiary Najarian and Associates ("N & A") to the
employees of N & A for $3,600,000. One of these employees and former
President of N & A was Tavit O. Najarian, the son-in-law of Mr. K. Hovnanian,
Chairman of the Board and Director of the Company. The sale was approved by
members of the Company's Board of Directors who were not related to Mr.
Najarian. At the closing the Company received a cash payment of $720,000 and
a $2,880,000 note. Originally the note carried an annual interest rate of
10% and was to amortize over ten years. As long as any portion of the note
is outstanding, the Company receives 25% of the net cash flow. During fiscal
1992, N & A began to experience a significant decrease in business activity.
As a result, the note was modified by changing the interest rate to prime,
add accrued interest from September 1, 1991 to September 1, 1992 to principal
and reschedule principal payments over the balance of the term of the note.
As a result of continued financial difficulties, a committee consisting of
independent directors of the Board of Directors of the Company (the
"Committee") engaged an outside consultant to determine the fair market
value of the above note. Based on the consultant's findings, the Committee
recommended a reduction in the note including accrued interest from
$2,983,000 to $1,100,000 at February 28, 1994. This reduction of the note
was charged to operations in the current fiscal year. In addition, the
Committee recommended a new term of ten years with annual interest on the
note of 5% for the first two years adjusting to prime thereafter.
Amortization would begin in year three with an annual minimum amount of 5%,
ranging up to 30% in year 10, or 85% of cash flow after interest, whichever
is greater. The Committee also recommended a $300,000 discount if the loan
was paid in full during the first two years.
The Company provides property management services to various limited
partnerships including two partnerships in which Mr. A. Hovnanian, President
and a Director of the Company, is a general partner, and members of his
family and certain officers and directors of the Company are limited
partners. At February 28, 1994, these partnerships owed the Company $27,000.
On May 10, 1994, the Board of Directors approved the acquisition of the
10% minority interest in certain Florida subsidiaries owned by Paul W.
Asfahl, President of the Company's Florida Division. For his 10% interest,
the Company issued 45,000 shares of Class A Common Stock to Mr. Asfahl.
10. STOCK OPTION PLAN
The Company has a stock option plan for certain officers and key
employees. Options are granted by a Committee appointed by the Board of
Directors. The exercise price of all stock options must be at least equal to
the fair market value of the underlying shares on the date of the grant.
Stock option transactions are summarized as follows:
February February February
28, 1994 28, 1993 29,1992
--------- --------- ---------
Options outstanding at beginning of year 1,004,000 530,500 590,949
Granted................................ -- 509,500 --
Exercised............................ 58,500 28,000 60,449
Cancelled.............................. 7,000 8,000 --
---------- --------- ---------
Options outstanding at end of year... 938,50 1,004,000 530,500
========== ========= =========
Options exercisable at end of year..... 598,833 336,500 198,500
Price range of options exercised..... $3.00-$9.44 $5.13-$9.44 $3.00-$9.44
Price range of options outstanding....$5.13-$11.50 $3.00-$11.50 $3.00-$9.44
11. COMMITMENTS AND CONTINGENT LIABILITIES
During fiscal 1989, the Company became aware that certain fire-retardant
plywood commonly used in the roof construction of multi-family homes may
contain a product defect causing accelerated deterioration of the plywood.
The Company has determined that such plywood was used in 33 of its
communities containing approximately 11,750 homes.
Common areas, including roofs, in each of the Company's multi-family
condominium developments are governed and controlled by homeowners'
associations for each development, rather than by individual homeowners.
Certain of the 33 homeowners' associations in the affected developments have
asserted claims against the Company. As of February 28, 1993, the Company
had entered separate settlement agreements with 31 of the 33 associations,
(the "Settling Associations") covering 10,850 homes.
In August 1989 the Company brought suit against the plywood material
manufacturers, treaters, suppliers and others (the "Defendants") to determine
the proper responsibility for damages, to protect its interests and to
recover its damages.
In November 1992, the Company and the Settling Associations entered into
a settlement agreement with most of the Defendants. Based upon the
settlement monies received, the use of the Settling Associations' roof
shingle reserves and the actual expenditures in performing the repairs, the
Company believes the repair costs will not require it to set aside future
reserves for such roof repairs.
The Company is continuing to litigate with the two non-settling
associations which contain 900 homes. Because the litigation is in its early
discovery stages, the Company is unable to predict at this time the ultimate
outcome of the litigation. However, due to the limited amount of this
remaining litigation, the Company does not believe that the resolution of
this litigation will have a material effect on the Company.
In addition, the Company is involved from time to time in litigation
arising in the ordinary course of business, none of which is expected to have
a material adverse effect on the Company.
As of February 28, 1994 and 1993, respectively, the Company is obligated
under various letters of credit amounting to $5,114,000 and $10,340,000.
12. RECAPITALIZATION
In September 1992, the Company's stockholders approved a Plan of
Recapitalization (the "Recapitalization"). The Recapitalization became
effective September 11, 1992.
On the effective date, each outstanding share of the Company's common
stock, par value $.01 per share, was converted into one-half of a share of
"Class A Common Stock", par value $.01 per share having one vote per share,
and one-half of a share of "Class B Common Stock", par value $.01 per share
having ten votes per share. The amount of any regular cash dividend payable
on a share of Class A Common Stock will be an amount equal to 110% of the
corresponding regular cash dividend payable on a share of Class B Common
Stock.
If a shareholder desires to sell shares of Class B Common Stock, such
stock must be converted into shares of Class A Common Stock. Shareholders
may convert their shares of Class B Common Stock into an equal number of
shares of Class A Common Stock at any time. A holder of Class B Common Stock
can wait until the time of sale and deliver the Class B Common Stock to a
broker. The broker will then present the Class B Common Stock to the
Company's transfer agent, which will issue the purchaser shares of Class A
Common Stock.
13. UNAUDITED SUMMARIZED CONSOLIDATED QUARTERLY INFORMATION
Summarized quarterly financial information for the years ended February
28, 1994 and 1993 is as follows:
Three Months Ended
(In Thousands Except Per Share Data)
-----------------------------------------
February November August May
28, 1994 30, 1993 31, 1993 31, 1993
-------- -------- -------- ---------
Revenues........................... $257,691 $143,078 $123,291 $ 62,950
Costs and expenses................. $241,046 $136,157 $116,093 $ 64,563
Income (loss) before income taxes
and extraordinary loss........... $ 16,645 $ 6,921 $ 7,198 $ (1,613)
State and Federal income tax....... $ 5,277 $ 2,152 $ 2,426 $ (626)
Income (loss) before extraordinary
loss............................ $ 11,368 $ 4,769 $ 4,772 $ (987)
Extraordinary loss from
extinguishment of debt, net
of income taxes.................. $ (1,277)
Net income (loss).................. $ 11,368 $ 4,769 $ 4,772 $ (2,264)
Earnings (loss) per common share:
Income (loss) before
extraordinary loss............. $ .50 $ .21 $ .21 $ (.05)
Extraordinary loss............... $ (.05)
Net income (loss).................. $ .50 $ .21 $ .21 $ (.10)
Weighted average number of
common shares outstanding........ 22,842 22,839 22,818 22,784
_____________________________________________________________________________
Three Months Ended
(In Thousands Except Per Share Data)
----------------------------------------
February November August May
28, 1993 30, 1992 31, 1992 31, 1992
-------- -------- -------- --------
- - -
Revenues............................ $184,950 $115,594 $ 83,585 $ 45,186
Costs and expenses.................. $172,214 $112,486 $ 82,173 $ 47,917
Income (loss) before income taxes... $ 12,736 $ 3,108 $ 1,412 $ (2,731)
State and Federal income tax....... $ 4,444 $ 1,152 $ 188 $ (1,049)
Net income (loss)................... $ 8,292 $ 1,956 $ 1,224 $ (1,682)
Earnings (loss) per common share....$ .36 $ .09 $ .05 $ (.07)
Weighted average number of
common shares outstanding......... 22,784 22,779 22,779 22,755
<TABLE>
SCHEDULE VIII
HOVNANIAN ENTERPRISES, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
<CAPTION>
BALANCE CHARGED TO CHARGED TO BALANCE
FEB. 28, COSTS AND DEDUCTIONS DESCRIP- OTHER DESCRIP- FEB 29,
DESCRIPTION 1991 EXPENSES TION ACCOUNTS TION 1992
- - ------------------- ----------- ----------- ---------- --------- --------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Land and land
development costs $ 5,429,000 $2,906,000 Closings $ 2,523,000
Land, land options
and costs of comm.
in planning 8,200,000 8,200,000
Rental property 9,508,000 4,619,000 Closings 4,889,000
Income producing
property under
development 300,000 300,000
----------- ----------- ---------- ---------- --------- --------- ------------
$23,437,000 $7,525,000 $15,912,000
=========== =========== ========== ========== ========= ========= ============
<CAPTION>
BALANCE CHARGED TO CHARGED TO BALANCE
FEB. 29, COSTS AND DEDUCTIONS DESCRIP- OTHER DESCRIP- FEB 28,
DESCRIPTION 1992 EXPENSES TION ACCOUNTS TION 1993
- - ------------------- ----------- ----------- ---------- --------- ----------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Land and land
development costs $ 2,523,000 $2,306,000 $2,292,000 Closings $3,899,000 Reclass $ 6,436,000
Land, land options
and costs of comm.
in planning 8,200,000 794,000 1,458,000 Closings (2,690,000) Reclass 4,846,000
Rental property 4,889,000 1,495,000 Closings (1,007,000) Reclass 2,387,000
Income producing
property under
development 300,000 (202,000) Reclass 98,000
----------- ---------- ---------- ----------- -----------
$15,912,000 $3,100,000 $5,245,000 $0 $13,767,000
=========== ========== ========== =========== ===========
<CAPTION>
BALANCE CHARGED TO CHARGED TO BALANCE
FEB. 28, COSTS AND DEDUCTIONS DESCRIP- OTHER DESCRIP- FEB. 28,
DESCRIPTION 1993 EXPENSES TION ACCOUNTS TION 1994
- - ------------------- ----------- ----------- ---------- -------- ---------- --------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Land and land
development costs $ 6,436,000 $3,164,000 Closings $2,091,000 Reclass $5,363,000
Land, land options
and costs of comm.
in planning 4,846,000 (2,091,000) Reclass 2,755,000
Rental property 2,387,000 1,012,000 Closings 1,375,000
Income producing
property under
development 98,000 98,000
----------- ----------- ---------- ---------- ----------
$13,767,000 $4,176,000 $0 $9,591,000
=========== =========== ========== ========== ==========
</TABLE>
SCHEDULE X
HOVNANIAN ENTERPRISES, INC. AND SUBSIDIARIES
SUPPLEMENTAL INCOME STATEMENT INFORMATION
Charged To Cost And Expenses
----------------------------------------
February 28, February 28, February 29,
1994 1993 1992
----------------------------------------
Advertising..................... $8,587,000 $5,895,000 $4,776,000
Depreciation.................... $3,035,000 $2,924,000 $2,888,000
Maintenance guarantee reserves.. $1,237,000 $2,764,000 $1,257,000
<TABLE>
SCHEDULE XI
HOVNANIAN ENTERPRISES, INC. AND SUBSIDIARIES
REAL ESTATE AND ACCUMULATED DEPRECIATION
FEBRUARY 28, 1994
<CAPTION>
Gross Amounts (A)(B)(C)(D)
---------------------------
Building/ Tax Accumulated
Description Land Improvements Total Basis Depreciation
- - ------------------------ ----------- ------------ ----------- ----------- ------------
<S> <C> <C> <C> <C> <C>
1 Society Hill Florida $ 42,000 $ 254,000 $ 296,000 $ 296,000
Lake Worth, FL
Condominiums
2 North Brunswick IV 445,000 3,576,000 4,021,000 4,021,000 $ 119,000
North Brunswick, NJ
Flex Building
3 K.Hovnanian Corp.Center 541,000 4,780,000 5,321,000 4,844,000 895,000
West Palm Beach, FL
Office Building
4 Hamilton Mini Storage 301,000 3,591,000 3,892,000 3,537,000 469,000
Hamilton, NJ
Mini Storage
5 Society Hill @ Merimack 885,000 2,108,000 2,993,000 3,890,000 444,000
Merrimack, NH
Condominiums
6 Unipower Building 454,000 789,000 1,243,000 1,243,000 81,000
Pompano Beach, FL
Office Building
7 Hovnanian Corp.Center 1,000,000 4,722,000 5,722,000 5,167,000 867,000
North Brunswick, NJ
Retail
8 Piscataway Retail 1,743,000 10,354,000 12,097,000 11,113,000 1,333,000
Piscataway, NJ
Retail Center
9 Hovnanian Corp. Center 616,000 8,500,000 9,116,000 8,075,000 2,292,000
North Brunswick, NJ
Office/Warehouse
10 Cypress Plaza 678,000 3,263,000 3,941,000 3,574,000 337,000
Jacksonville, FL
Retail Center
11 Lower Saucon 32,000 246,000 278,000 240,000
Bethlehem, PA
Condominiums
12 Allaire Shopping Center 1,688,000 6,606,000 8,294,000 8,294,000 134,000
Allaire, NJ
Retail Center
13 Hidden Meadows 544,000 5,318,000 5,862,000 5,632,000
Ocean Twp, NJ
Condominiums
14 North Brunswick IV 905,000 5,135,000 6,040,000 4,564,000
North Brunswick, NJ
Flex Building
15 Hovnanian Corp. Center 2,702,000 4,768,000 7,470,000 6,648,000
North Brunswick, NJ
Land/Land Improvement
Approval & Flex Building
Under Construction
16 Newark Shopping Center 1,309,000 1,309,000 1,309,000
Newark, NJ
Land Improvement and
Approval Costs
17 Merrimack Commercial 200,000 100,000 300,000 300,000
Merrimack, NH
Land/Land Improve.Costs
18 Cypress Plaza 1,744,000 3,651,000 5,395,000 5,123,000
Jacksonville, FL
Land/Land Improve.
and Approval Costs
19 Jensen Beach Club 190,000 190,000 190,000
Jensen Beach, FL
Land/Land Improve.
and Approval Costs
20 Miscellaneous 27,000 27,000 27,000
New Jersey
----------- ------------ ----------- ----------- -----------
$14,710,000 $69,097,000 $83,807,000 $78,087,000 $ 7,156,000
=========== ============= =========== =========== ===========
<FN>
(A) Fiscal Year Construction Completed:
1 - 1985
2 through 3 - 1987
4 - 1989
5 through 10 - 1990
11 through 15 - 1993
16 through 20 - not completed
(B) Depreciable Life:
40 years - Depreciation expense was $1,408,000, $1,723,000, $1,932,000 for
the years ended February 28, 1994 and 1993 and February 29, 1992,
respectively. Accumulated depreciation at February 28 (29), 1994, 1993
and 1992 amounted to $7,156,000, $5,748,000 and $4,274,000, respectively.
5 - is a condominium rented under short-term leases while being marketed
for sale. Such units are reclassified from inventory and depreciated
after reasonable selling period not to exceed one year.
(C) Items marked 16 through 20 consist of land improvement and approval costs
on land held for future development.
(D) Items 6, 7, and 8 have encumberance amounting to $847,000, $5,964,000 and
$11,663,000, respectively.
Balance - February 28, 1991 $ 97,444,000
Additions: Improvements 5,037,000
Transfer from inventories 300,000
Provision to reduce inventory to net
realizable value 1,108,000
Deletions: Payments for tenant improvements (63,000)
Cost of rental condominiums sold (11,614,000)
Cost of retail center sold (12,361,000)
-------------
Balance - February 29, 1992 79,851,000
Additions: Improvements 5,314,000
Provision to reduce inventory to net
realizable value 2,502,000
Deletions: Transfers to inventories (14,633,000)
Cost of rental condominiums sold (5,096,000)
-------------
67,938,000
Balance - February 28, 1993
Additions: Improvements 3,635,000
Transfers from inventories 6,558,000
Acquisitions 8,020,000
Deletions: Cost of rental condominiums sold (1,414,000)
Cost of retail center sold (728,000)
Abandonment of project (202,000)
------------
Balance - February 28, 1994 $ 83,807,000
=============
Balance at February 28, 1994 is reported on the consolidated balance sheet as
rental and income producing properties under development.
</TABLE>
EXHIBIT 22
SUBSIDIARY LISTING
K. Hovnanian Equities, Inc.
EXC, Inc.
K. Hovnanian Companies of North Carolina, Inc.
KHL, Inc.
Hovnanian Texas, Inc.
Hovnanian Georgia, Inc.
Hovnanian Financial Services III, Inc.
K. Hovnanian Mortgage USA, Inc.
Hovnanian Financial Services IV, Inc.
K. Hovnanian Developments of New Jersey, Inc.
KHE Finance, Inc.
K. Hov International, Inc.
Hovnanian Financial Services II, Inc.
New Fortis Investment
Hovnanian Financial Services I, Inc.
K. Hovnanian Enterprises, Inc.
Hovnanian Pennsylvania, Inc.
Recreational Development Co., Inc.
K. Hovnanian Marine, Inc.
K. Hovnanian Aviation, Inc.
K. Hovnanian Companies of North Jersey, Inc.
K. Hovnanian at Montville, Inc.
K. Hovnanian at Wayne, Inc.
K. Hovnanian at Mahwah IV, Inc
K. Hovnanian at Morris II, Inc.
K. Hovnanian at Mahwah II, Inc.
K. Hovnanian at Mahwah III, Inc.
K. Hovnanian @ Northern Westchester, Inc.
K. Hovnanian at Hanover, Inc.
K. Hovnanian at Montville II, Inc.
K. Hovnanian @ Newark Urban Renewal Corp.I, Inc.
K. Hovnanian @ Newark I, Inc.
K. Hovnanian @ Newark Urban Renewal Corp.II, Inc.
Jersey City Danforth CSO
K. Hovnanian @ Newark Urban Renewal Corp.III, Inc.
K. Hovnanian @ Newark Urban Renewal Corp. IV, Inc.
K. Hovnanian @ Newark Urban Renewal Corp. V, Inc.
K. Hovnanian at Jersey City I, Inc.
K. Hovnanian at Jersey City II, Inc.(Phase 2A)
K. Hovnanian at Jersey City III, Inc.
K. Hovnanian at Mahwah VI, Inc.
K. Hovnanian at Jersey City II, Inc.(Phase 2B)
K. Hovnanian at Mahwah VII, Inc.
K. Hovnanian at Montclair, N.J., Inc.
K. Hovnanian at Horizon Heights, Inc.
K. Hovnanian at Reservoir Ridge, Inc.
K. Hovnanian at Mahwah V, Inc.
K. Hovnanian at Mahwah VIII, Inc.
K. Hovnanian of North Jersey, Inc. (Hudson River)
Montego Bay I Acquisition Corp., Inc.
Montego Bay Associates Limited I, LP (MBAI)
Montego Bay II Acquisition Corp., Inc.
Montego Bay Associates Limited II, LP (MBAII)
0515 Co., Inc.
K. Hovnanian at North Brunswick IV, Inc.
K. Hovnanian Properties of North Brunswick IV, Inc.
Arrow Properties, Inc.
KHIPE, Inc.
Pine Brook Company, Inc.
K. Hovnanian Properties of North Brunswick II, Inc.
K. Hovnanian Properties of Galloway, Inc.K. Hovnanian @ Cedar Grove I, Inc.
K. Hovnanian @ Cedar Grove II, Inc.
K. Hovnanian Properties of Piscataway, Inc.
K. Hovnanian Properties of North Brunswick I, Inc.
Molly Pitcher Renovations, Inc.
K. Hovnanian Properties of East Brunswick II,Inc.
K. Hovnanian Investment Properties of N.J., Inc.
K. Hovnanian Investment Properties, Inc.
Hovnanian Properties of Atlantic County, Inc.
K. Hovnanian Properties of Newark Urban Renewal Corporation, Inc.
K. Hovnanian Properties of Hamilton, Inc.
K. Hovnanian Properites of Franklin, Inc.
K. Hovnanian Properties of North Brunswick III, Inc.
K. Hovnanian Properties of Franklin II, Inc.
K. Hovnanian at Jacksonville, Inc.
K. Hovnanian Properties of North Brunswick V, Inc.
K. Hovnanian Properties of Wall, Inc.
K.Hovnanian at Pompano Beach, Inc.
Hovnanian Properties of Lake Worth, Inc.
Landarama, Inc.
K. Hovnanian Companies Northeast, Inc.
Parthenon Group
Minerva Group
K. Hovnanian Companies of Central Jersey, Inc.
K. Hovnanian Real Estate Investment, Inc.
K. Hovnanian at Princeton, Inc.
K. Hovnanian at South Brunswick III, Inc.
K. Hovnanian at South Brunswick IV, Inc.
K. Hovnanian at Plainsboro I, Inc.
K. Hovnanian at Plainsboro II, Inc.
K. Hovnanian at Klockner Farms, Inc.
K. Hovnanian at South Brunswick II, Inc.
K. Hovnanian at Hopewell III, Inc.
K. Hovnanian at Hopewell I, Inc.
K. Hovnanian at South Brunswick, Inc.
K. Hovnanian at East Windsor I, Inc.
K. Hovnanian at North Brunswick II, Inc.
K. Hovnanian at North Brunswick III, Inc.
K. Hovnanian at Hopewell I, Inc.
K. Hovnanian at Somerset VIII, Inc.
K. Hovnanian at Lawrence Square, Inc.
Dryer Associates, Inc.
K. Hovnanian at East Brunswick V, Inc.
K. Hovnanian at Bernards II, Inc.
K. Hovnanian at Bridgewater III, Inc.
K. Hovnanian at Plainsboro III, Inc.
K. Hovnanian at Somerset V, Inc.
K. Hovnanian at Somerset VI, Inc.
Eastern Title Agency, Inc.
K. Hovnanian Mortgage, Inc.
Governors Abstract
Eastern National Title Insurance Agency, Inc.
Founders Title Agency, Inc.
K. Hovnanian Companies North Central Jersey, Inc.
K. Hovnanian at Bedminster, Inc.
K. Hovnanian at Bridgewater IV, Inc.
K. Hovnanian at Branchburg III, Inc.
K. Hovnanian at Spring Ridge, Inc.
K. Hovnanian at Bridgewater V, Inc.
K. Hovnanian at Readington, Inc.
K. Hovnanian at Branchburg II, Inc.
K. Hovnanian at Bridgewater II, Inc.
K. Hovnanian at Branchburg I, Inc.
K. Hovnanian Companies Jersey Shore, Inc.
K. Hovnanian at Wall Township, Inc.
K. Hovnanian at Galloway VIII, Inc.K. Hovnanian at Dover Township, Inc.
K. Hovnanian at Galloway VII, Inc.
K. Hovnanian at Tinton Falls II, Inc.
K. Hovnanian at Ocean Township, Inc.
K. Hovnanian at Wall Township II, Inc.
K. Hovnanian at Wall Township III, Inc.
K. Hovnanian at Holmdel Township, Inc.
K. Hovnanian at Wall Township IV, Inc.
K. Hovnanian at Wall Township V, Inc.
K. Hovnanian at Atlantic City, Inc.
K. Hovnanian at Ocean Township II, Inc.
K. Hovnanian at Ocean Township, Inc.
K. Hovnanian at Marlboro Township, Inc.
K. Hovnanian at Howell Township, Inc.
K. Hovnanian at Howell Township II, Inc.
K. Hovnanian at Woodbury Oaks, Inc.
K. Hovnanian at Freehold Township, Inc.
K. Hovnanian at Lakewood, Inc.
K. Hovnanian Companies of the Delaware Valley, Inc.
K. Hovnanian Co. of Delaware Valley, Inc. Brokerage Company
K. Hovnanian at Lower Saucon, Inc
K. Hovnanian at Perkiomen I, Inc.
K. Hovnanian at Montgomery I, Inc.
K. Hovnanian at Upper Merion, Inc.
K. Hovnanian at Perkiomen II, Inc.
K. Hovnanian Companies of South Jersey, Inc.
K. Hovnanian at Valleybrook, Inc.
Kings Grant Evesham Corp.
K. Hovnanian at Burlington, Inc.
K. Hovnanian at Medford I, Inc.
K. Hovnanian at The Reserve @ Medford, Inc
K. Hovnanian at Kings Grant I, Inc.
K. Hovnanian at Valleybrook II, Inc.
K. Hovnanian Real Estate of Florida, Inc.
Hovnanian Developments of Florida, Inc.
K. Hovnanian Companies of Florida, Inc.
Hovnanian of Palm Beach II, Inc.
Hovnanian of Palm Beach III, Inc.
Hovnanian of Palm Beach IV, Inc.
Hovnanian of Palm Beach V, Inc.
Hovnanian of Palm Beach VI, Inc.
Hovnanian of Palm Beach VII, Inc.
Hovnanian of Palm Beach VIII, Inc.
Hovnanian of Palm Beach IX, Inc.
Hovnanian at Tarpon Lakes I, Inc.
Hovnanian at Tarpon Lakes II, Inc.
Hovnanian at Tarpon Lakes III, Inc.
K. Hovnanian at Pasco I, Inc.
K. Hovnanian at Ft. Myers I, Inc.
K. Hovnanian at Palm Beach XI, Inc.
K. Hovnanian at Jensen Beach, Inc.
Hovnanian of Palm Beach X, Inc.
K. Hovnanian at Martin Downs I, Inc.
K. Hovnanian at Jacksonville I, Inc.
K. Hovnanian at Ft. Myers II, Inc.
K. Hovnanian at Lawrence Grove, Inc.
K. Hovnanian at Jacksonville II, Inc.
K. Hovnanian of Palm Beach XIII, Inc.
Hovnanian of Palm Beach, Inc.
K. Hovnanian at Half Moon Bay, Inc.
K. Hovnanian at Woodridge Estates, Inc.
Pike Utilities, Inc.
Tropical Service Builders, Inc.
K. Hovnanian at Embassy Lakes, Inc.
K. Hovnanian at Delray Beach II, Inc.
K. Hovnanian at Orlando I, Inc.K. Hovnanian at Orlando II, Inc.
K. Hovnanian at Orlando III, Inc.
K. Hovnanian at Martin Downs II, Inc.
K. Hovnanian at Orlando IV, Inc.
K. Hovnanian Properties of Orlando, Inc.
K. Hovnanian at Delray Beach I, Inc.
K. Hovnanian at Pasco II, Inc.
K. Hovnanian at Port St. Lucie I, Inc.
K. Hovnanian at Delray Beach, Inc.
Eastern National Title Insurance Agency, Inc.
K. Hovnanian Mortgage of Florida, Inc.
South Florida Residential Title Agency, Inc.
Eastern National Title Insurance Agency I, Inc.
Western Financial Services, Inc.
r. e. Scott Mortgage co. of Florida, Inc.
New K. Hovnanian Developments of Florida, Inc.
New K. Hovnanian Companies of Florida, Inc.
K. Hovnanian at Fairway Views, Inc.
K. Hovanian at Lake Charleston, Inc.
K. Hovnanian at Carolina Country Club I, Inc.
K. Hovnanian at Chapel Trail, Inc.
K. Hovnanian at Winston Trails, Inc.
K. Hovnanian at Lakes of Boca Raton, Inc.
K. Hovnanian at Lake Charleston II, Inc.
K. Hovnanian at Lake Charleston III, Inc.
K. Hovnanian at Carolina Country Club II, Inc.
K. Hovnanian at Winston Trails, Inc.
K. Hovnanian at Pembroke Isles, Ins.
K. Hovnanian at Carolina Country Club III, Inc.
K. Hovnanian at Coconut Creek, Inc.
K. Hovnanian at Polo Trace, Inc.
K. Hovnanian Companies of New York, Inc.
K. Hovnanian at Westchester, Inc.
K. Hovnanian at Peekskill, Inc.
K. Hovnanian at Washingtonville, Inc.
K. Hovnanian at Mahopac, Inc.
K. Hovnanian at Carmel, Inc.
K. Hovnanian Developments of New York, Inc.
Cedar Hill Water Corporation
Cedar Hill Sewer Corporation
R.C.K. Community Management Co., Inc.
K. Hovnanian Companies of Massachusetts, Inc.
K. Hovnanian at Merrimack, Inc.
K. Hovnanian at Merrimack II, Inc.
K. Hovnanian at Taunton, Inc.
New England Community Management Co., Inc.
K. Hovnanian Cos. of Metro Washington, Inc.
K. Hovnanian at Ashburn Village, Inc.
K. Hovnanian at Woodmont,, Inc.
K. Hovnanian at Sully Station, Inc.
K. Hovnanian at Bull Run, Inc.
K. Hovnanian at Montclair, Inc.
K. Hovnanian at River Oaks, Inc.
K. Hovnanian at Holly Crest, Inc.
K. Hovnanian at Woodmont, Inc.
K. Hovnanian at Montclair, Inc.(Montclair Condos)
K. Hovnanian at Fair Lakes, Inc.
K. Hovnanian at Ashburn Village, Inc.
K. Hovnanian at Park Ridge, Inc.
K. Hovnanian at Belmont, Inc.
K. Hovnanian at Fair Lakes Glen, Inc.
K. Hovnanian Developments of Metro Washington, Inc.
K. Hovnanian at River Oaks, Inc.
K. Hovnanian at Montclair, Inc. (Montclair Laing)
K. Hovnanian Companies of California, Inc.
