SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10Q
[ X ] Quarterly report pursuant to Section 13 or 15 (d) of the
Securities Exchange Act of 1934
For quarterly period ended APRIL 30, 1995 or
[ ] Transition report pursuant to Section 13 or 15 (d) of the
Securities Exchange Act of 1934
For the transition period from to
Commission file number 1-8551
Hovnanian Enterprises, Inc.
(Exact name of registrant as specified in its charter)
Delaware 22-1851059
(State or other jurisdiction or (I.R.S. Employer
incorporation or organization) Identification No.)
l0 Highway 35, P.O. Box 500, Red Bank, N. J. 07701
(Address of principle executive offices)
908-747-7800
(Registrant's telephone number, including area code)
Same
(Former name, former address and former fiscal year, if changed
since last report)
Indicate by check mark whether the registrant (l) has filed all reports
required to be filed by Sections l3 or l5(d) of the Securities Exchange Act of
l934 during the preceding l2 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [ X ] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date. 14,886,899 Class A Common
Shares and 8,150,154 Class B Common Shares were outstanding as of May 31, 1995.
HOVNANIAN ENTERPRISES, INC.
FORM 10Q
INDEX
PAGE NUMBER
PART I. Financial Information
Item l. Consolidated Financial Statements:
Consolidated Balance Sheets at April 30,
1995 (unaudited) and October 31, 1994 3
Consolidated Statements of Income for the
three and six months ended April 30, 1995
and 1994 (unaudited) 5
Consolidated Statements of Stockholders' Equity
for the six months ended April 30, 1995
(unaudited) 6
Consolidated Statements of Cash Flows
for the six months ended April 30, 1995
and 1994 (unaudited) 7
Notes to Consolidated Financial
Statements (unaudited) 8
Item 2. Management's Discussion and Analysis
of Financial Condition and Results
of Operations 10
PART II. Other Information
Item 4. Submission of Matters to a Vote of Security
Holders 18
Item 6(a). Exhibit 27 - Financial Data Schedules
Item 6(b). No reports on Form 8K have been filed during
the quarter for which this report is filed.
Signatures 19
<TABLE>
HOVNANIAN ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In Thousands)
<CAPTION>
April 30, October 31,
ASSETS 1995 1994
----------- -----------
<S> <C> <C>
Homebuilding:
Cash and cash equivalents......................... $ 9,039 $ 17,299
----------- -----------
Inventories - At cost, not in excess of net
realizable value:
Sold and unsold homes and lots under
development.................................... 398,403 328,961
Land and land options held for future
development or sale........................... 52,659 57,579
----------- -----------
Total Inventories............................. 451,062 386,540
----------- -----------
Receivables, deposits, and notes.................. 35,979 25,778
----------- -----------
Property, plant, and equipment - net.............. 12,387 11,437
----------- -----------
Prepaid expenses and other assets................. 35,371 26,757
----------- -----------
Total Homebuilding............................ 543,838 467,811
----------- -----------
Financial Services:
Cash and cash equivalents......................... 372 138
Mortgage loans held for sale...................... 21,409 29,459
Other assets...................................... 1,505 1,451
----------- -----------
Total Financial Services...................... 23,286 31,048
----------- -----------
Investment Properties:
Rental property - net............................. 53,622 56,181
Property under development or held for future
development..................................... 15,716 15,298
Investment in and advances to unconsolidated
joint venture................................... 3,766 3,994
Other assets...................................... 4,257 3,231
----------- -----------
Total Investment Properties................... 77,361 78,704
----------- -----------
Collateralized Mortgage Financing:
Collateral for bonds payable...................... 20,258 21,275
Other assets...................................... 881 1,404
----------- -----------
Total Collateralized Mortgage Financing....... 21,139 22,679
----------- -----------
Income Taxes Receivable - Including deferred tax
benefits.......................................... 13,033 12,683
----------- -----------
Total Assets........................................ $678,657 $612,925
=========== ===========
<FN>
See notes to consolidated financial statements.
</TABLE>
<TABLE>
HOVNANIAN ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In Thousands)
<CAPTION>
April 30, October 31,
LIABILITIES AND STOCKHOLDERS' EQUITY 1995 1994
---------- -----------
<S> <C> <C>
Homebuilding:
Nonrecourse land mortgages.......................... $ 23,128 $ 26,938
Accounts payable and other liabilities.............. 30,080 42,586
Customers' deposits................................. 17,262 12,138
Nonrecourse mortgage secured by operating property.. 2,925 2,946
---------- -----------
Total Homebuilding.............................. 73,395 84,608
---------- -----------
Financial Services:
Accounts payable and other liabilities.............. 606 772
Mortgage warehouse line of credit................... 14,876 20,554
---------- -----------
Total Financial Services........................ 15,482 21,326
---------- -----------
Investment Properties:
Accounts payable and other liabilities.............. 1,789 1,731
Nonrecourse mortgages secured by rental property.... 26,661 17,541
---------- -----------
Total Investment Properties..................... 28,450 19,272
---------- -----------
Collateralized Mortgage Financing:
Accounts payable and other liabilities.............. 15
Bonds collateralized by mortgages receivable........ 19,400 20,815
---------- -----------
Total Collateralized Mortgage Financing......... 19,400 20,830
---------- -----------
Notes Payable:
Revolving credit agreement.......................... 172,500 99,200
Subordinated notes.................................. 200,000 200,000
Accrued interest.................................... 5,810 5,559
---------- -----------
Total Notes Payable............................. 378,310 304,759
---------- -----------
Total Liabilities............................... 515,037 450,795
---------- -----------
Stockholders' Equity:
Preferred Stock,$.01 par value-authorized 100,000
shares; none issued
Common Stock,Class A,$.01 par value-authorized
87,000,000 shares; issued 15,221,421 shares
(including 345,874 shares held in Treasury)....... 152 149
Common Stock,Class B,$.01 par value-authorized
13,000,000 shares; issued 8,507,380 shares
(including 345,874 shares held in Treasury)....... 85 88
Paid in Capital..................................... 33,935 33,858
Retained Earnings................................... 134,747 133,334
Treasury Stock - at cost............................ (5,299) (5,299)
---------- -----------
Total Stockholders' Equity...................... 163,620 162,130
---------- -----------
Total Liabilities and Stockholders' Equity............. $678,657 $612,925
========== ===========
<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>
Three Months Ended Six Months Ended
April 30, April 30,
------------------ ------------------
1995 1994 1995 1994
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenues:
Homebuilding:
Sale of homes........................ $139,607 $192,564 $257,281 $358,426
Land sales and other revenues........ 3,618 3,184 7,295 5,610
-------- -------- -------- --------
Total Homebuilding................. 143,225 195,748 264,576 364,036
Financial Services..................... 1,685 2,405 2,824 4,221
Investment Properties.................. 1,920 2,660 4,486 5,181
Collateralized Mortgage Financing...... 454 763 994 1,595
-------- -------- -------- --------
Total Revenues..................... 147,284 201,576 272,880 375,033
-------- -------- -------- --------
Expenses:
Homebuilding:
Cost of sales........................ 113,618 151,267 208,610 281,525
Selling, general and administrative.. 17,622 21,281 33,256 32,539
-------- -------- -------- --------
Total Homebuilding................. 131,240 172,548 241,866 314,064
Financial Services..................... 2,104 2,191 4,111 3,836
Investment Properties.................. 1,521 1,838 2,975 3,198
Collateralized Mortgage Financing...... 542 868 1,056 1,837
Corporate General and Administration... 3,126 2,903 6,225 5,488
Interest............................... 6,511 6,863 11,426 12,564
Other operations....................... 1,507 2,760 3,700 3,978
Provision for loan writedown........... 1,883
-------- -------- -------- --------
Total Expenses...................... 146,551 189,971 271,359 346,848
-------- -------- -------- --------
Income Before Income Taxes................ 733 11,605 1,521 28,185
-------- -------- -------- --------
State and Federal Income Taxes:
State................................... 339 311 506 275
Federal................................. (285) 3,363 (398) 8,526
-------- -------- -------- --------
Total Taxes.......................... 54 3,674 108 8,801
-------- -------- -------- --------
Net Income............................... $ 679 $ 7,931 $ 1,413 $ 19,384
======== ======== ======== ========
Earnings Per Common Share................ $ 0.03 $ 0.35 $ 0.06 $ 0.85
======== ======== ======== ========
<FN>
See notes to consolidated financial statements.
</TABLE>
<TABLE>
HOVNANIAN ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Dollars In Thousands)
<CAPTION>
A Common Stock B Common Stock
--------------------- ---------------------
Shares Shares
Issued and Issued and Paid-In Retained Treasury
Outstanding Amount Outstanding Amount Capital Earnings Stock Total
----------- -------- ----------- -------- ------- --------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, October 31, 1994... 14,730,299 $149 8,291,754 $88 $33,858 $133,334 $(5,299) $162,130
Sale of common stock under
employee stock option
plan...................... 15,000 77 77
Conversion of Class B to
Class A common stock...... 130,248 3 (130,248) (3)
Net Income.................. 1,413 1,413
----------- -------- ----------- -------- ------- --------- --------- --------
Balance, April 30, 1995..... 14,875,547 $152 8,161,506 $85 $33,935 $134,747 $(5,299) $163,620
=========== ======== =========== ======== ======= ========= ========= ========
<FN>
See notes to consolidated financial statements.
</TABLE>
<TABLE>
HOVNANIAN ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
<CAPTION>
Six Months Ended
April 30,
----------------------
1995 1994
---------- ----------
<S> <C> <C>
Cash Flows From Operating Activities:
Net Income............................................ $ 1,413 $ 19,384
Adjustments to reconcile net income to net cash
used in operating activities:
Depreciation...................................... 2,031 1,641
Loss (gain) on sale and retirement of property
and assets...................................... (21) 398
Writedown of loan from sale of subsidiary......... 1,883
Deferred income taxes............................. 3,028 464
Decrease (increase) in assets:
Escrow cash..................................... (725) 1,329
Receivables, prepaids and other assets.......... (19,004) 2,349
Mortgage notes receivable....................... 6,956 (6,658)
Inventories..................................... (64,522) 21,464
Increase (decrease) in liabilities:
State and Federal income taxes.................. (3,378) 3,887
Customers' deposits............................. 5,178 (6,212)
Interest and other accrued liabilities.......... (2,572) (2,414)
Post development completion costs............... (1,969) (280)
Accounts payable................................ (8,012) 8,292
---------- ----------
Net cash provided by (used in) operating
activities.................................. (81,597) 45,527
---------- ----------
Cash Flows From Investing Activities:
Proceeds from sale of property and assets............. 1,046 4,646
Investment in property and assets..................... (1,326) (5,600)
Purchase of property.................................. (1,904) (1,123)
Investment in and advances to unconsolidated affiliates 238 (809)
Investment in income producing properties............. 1,417 (1,222)
---------- ----------
Net cash used in investing activities......... (529) (4,108)
---------- ----------
Cash Flows From Financing Activities:
Proceeds from mortgages and notes..................... 599,195 312,822
Principal payments on mortgages and notes............. (527,579) (358,789)
Principal payments on subordinated debt............... (2,160)
Investment in mortgage notes receivable............... 1,900 5,141
Proceeds from sale of stock........................... 77
---------- ----------
Net cash provided by (used in) financing
activities.................................. 73,593 (42,986)
---------- ----------
Net Decrease In Cash.................................... (8,533) (1,567)
Cash Balance, Beginning Of Period....................... 14,537 3,001
---------- ----------
Cash Balance, End Of Period............................. $ 6,004 $ 1,434
========== ==========
<FN>
See notes to consolidated financial statements.
</TABLE>
HOVNANIAN ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
1. The consolidated financial statements, except for the October 31, 1994
consolidated balance sheets, have been prepared without audit. In the opinion
of management, all adjustments for interim periods presented have been made,
which include only normal recurring accruals and deferrals necessary for a fair
presentation of consolidated financial position, results of operations, and
changes in cash flows. Results for the interim periods are not necessarily
indicative of the results which might be expected for a full year.
2. Interest costs incurred, expensed and capitalized were:
Three Months Ended Six Months Ended
------------------- ------------------
4/30/95 4/30/94 4/30/95 4/30/94
-------- -------- -------- --------
(Dollars in Thousands)
Interest Incurred (1):
Residential (3).................. $ 7,279 $ 5,331 $14,268 $10,183
Commercial(4).................... 1,472 1,220 2,672 2,499
-------- -------- -------- --------
Total Incurred................. $ 8,751 $ 6,551 $16,940 $12,682
======== ======== ======== ========
Interest Expensed:
Residential (3).................. $ 5,082 $ 5,623 $ 8,832 $10,243
Commercial (4)................... 1,429 1,240 $ 2,594 2,321
-------- -------- -------- --------
Total Expensed................ $ 6,511 $ 6,863 $11,426 $12,564
======== ======== ======== ========
Interest Capitalized at
Beginning of Period.............. $32,172 $28,317 $28,948 $27,925
Plus Interest Incurred............. 8,751 6,551 16,940 12,682
Less Interest Expensed............. 6,511 6,863 11,426 12,564
Less Charges to Reserves........... 198 97 248 135
Less Sale of Assets................ 355 355
-------- -------- -------- --------
Interest Capitalized at
End of Period ................... $34,214 $27,553 $34,214 $27,553
======== ======== ======== ========
Interest Capitalized at
End of Period (5):
Residential(3)................... $28,024 $21,631 $28,024 $21,631
Commercial(2).................... 6,190 5,922 6,190 5,922
-------- ------- -------- --------
Total Capitalized.............. $34,214 $27,553 $34,214 $27,553
======== ======== ======== ========
(1) Does not include interest incurred by the Company's mortgage and finance
subsidiaries.
(2) Does not include a reduction for depreciation.
(3) Represents acquisition interest for construction, land and development
costs which is charged to cost of sales.
(4) Represents interest charged to rental operations.
(5) Capitalized commercial interest at April 30, 1995 includes $139,000
reported at October 31, 1994 as capitalized residential interest. This
reclassification was the result of the transfer of a senior citizen
rental facility from inventory.
3. Included in the consolidated balance sheets is total operating property
amounting to $25,563,000 and $23,740,000 and accumulated depreciation on
operating property amounting to $12,779,000 and $11,854,000 at April 30, 1995
and October 31, 1994, respectively. Accumulated depreciation on rental property
amounted to $8,505,000 and $7,781,000 at April 30, 1995 and October 31, 1994,
respectively.
4. On May 10, 1994, the Board of Directors of the Company adopted a
resolution providing that the date for the year end of the fiscal year of the
Company be changed from the last day of February to October 31. Prior to
October 31, 1994 the Company filed the reports covering the three month period
ended May 31, 1994 and the three and six month periods ended August 31, 1994 on
Form 10-Q. The report covering the eight month transition period of March 1
through October 31, 1994 was filed on Form 10-K. Thereafter, the Company will
file reports on January 31, April 30, July 31, and October 31.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
CAPITAL RESOURCES AND LIQUIDITY
The Company's uses for cash during the six months ended April 30, 1995 were
for operating expenses, seasonal increases in housing inventories,
construction, income taxes, and interest. The Company provided for its cash
requirements from the revolving credit facility, land purchase notes, and from
housing and other 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") that provides a revolving credit line of up to
$225,000,000 (the "Revolving Credit Facility") through March 1998. Interest is
payable monthly and at various rates of either prime plus 1/2% or Libor plus 2%.
The Company currently is in compliance and intends to maintain compliance with
its covenants under the Agreement. As of April 30, 1995, borrowings under the
Agreement were $172,500,000.
The aggregate principal amount of subordinated indebtedness issued by the
Company and outstanding as of October 31, 1994 was $200,000,000. Annual sinking
fund payments of $20,000,000 are required in April 2000 and 2001 with additional
payments of $60,000,000 and $100,000,000 due in April 2002 and June 2005,
respectively.
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 April 30, 1995, the aggregate
principal amount of all such borrowings was $34,276,000.
The book value of the Company's residential inventories, rental
condominiums, and commercial properties completed and under development amounted
to the following:
April 30, October 31,
1995 1994
------------ ------------
Residential real estate inventory.......... $451,062,000 $386,540,000
Residential rental property................ 6,524,000 8,158,000
------------ ------------
Total Residential Real Estate............ 457,586,000 394,698,000
Commercial properties...................... 62,814,000 63,321,000
------------ ------------
Combined Total........................... $520,400,000 $458,019,000
============ ============
Total residential real estate increased $62,888,000 during the six months
ended April 30, 1995 primarily as a result of an inventory increase of
$64,522,000. The increase in residential real estate inventory was primarily
due to the Company's seasonal increase in construction activities for deliveries
later this year, and the Company's overall increase in housing volume.
Substantially all residential homes under construction or completed and included
in real estate inventory at April 30, 1995 are expected to be closed during the
next twelve months. Most residential real estate completed or under development
is financed through the Company's line of credit and subordinated indebtedness.
The following table summarizes housing lots in the Company's active selling
communities under development:
(1) (2)
Contracted Remaining
Commun- Approved Homes Not Home Sites
ities Lots Closed Closed Available
------- -------- ------ ---------- ---------
April 30, 1995..... 86 15,263 4,410 2,117 8,736
October 31, 1994... 86 17,033 5,302 1,794 9,937
(1) Includes 47 and 88 lots under option at April 30, 1995 and October 31, 1994,
respectively.
(2) Of the total home lots available, 579 and 641 were under construction or
complete (including 132 and 115 models and sales offices) and 1,760 and 2,554
were under option at April 30, 1995 and October 31, 1994, respectively.
In addition, in substantially completed or suspended developments the
Company owned or had under option 450 and 332 home lots at April 30, 1995 and
October 31, 1994, respectively. The Company also controls a supply of land
primarily through options for future development. This land is consistent with
anticipated home building requirements in its housing markets. At April 30,
1995 the Company controlled such land to build 13,860 proposed homes, compared
to 12,696 homes at October 31, 1994.
The Company's commercial properties represent long-term investments in
commercial and retail facilities completed or under development (see "Investment
Properties" 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 April 30, 1995, the Company had
long-term non-recourse financing aggregating $26,661,000 on four commercial
facilities, an increase from October 31, 1994, due to financing obtained for two
New Jersey facilities amounting to $9,200,000 offset by $80,000 in principal
amortization.
The collateralized mortgages receivable are pledged against non-recourse
collateralized mortgage obligations. Residential mortgages receivable amounting
to $16,293,000 and $23,460,000 at April 30, 1995 and October 31, 1994,
respectively, are being temporarily warehoused and awaiting sale in the
secondary mortgage market. The balance of such mortgages is being held as an
investment by the Company. The Company may incur risk with respect to mortgages
that are delinquent, but only to the extent the losses are not covered by
mortgage insurance or resale value of the house. Historically, the Company has
incurred minimal credit losses.
RESULTS OF OPERATIONS FOR THE THREE AND SIX MONTHS ENDED APRIL 30, 1995 COMPARED
TO THE THREE AND SIX MONTHS ENDED APRIL 30, 1994
The Company's operations consist primarily of residential housing
development and sales in its Northeast Region (comprising primarily of New
Jersey and eastern Pennsylvania), North Carolina, southeastern Florida, metro
Washington, D.C. (northern Virginia), and southern California. Operations in
California began for the first time during the summer of 1994. In addition, the
Company develops and operates commercial properties as long-term investments in
New Jersey, and, to a lesser extent, Florida.
On May 10, 1994, the Board of Directors of the Company adopted a resolution
providing that the date for the year end of the fiscal year of the Company be
changed from the last day of February to October 31. The reports covering the
three month periods ended May 31, 1994 and August 31, 1994 were filed on Form
10-Q. The report covering the eight month transition period of March 1, 1994
through October 31, 1994 was filed on Form 10-K. Thereafter, the Company will
file reports as of January 31, April 30, July 31, and October 31.
Historically, the Company realized a substantial portion of its net income
in the fourth quarter of the year and a very small portion or even a loss in the
first two quarters. As an example, in the old fiscal year ended February 28,
1994, the Company's fourth quarter net income was $11.4 million or 61.0% of the
year's total, while the first two quarters had a net income of $2.5 million.
The Company still expects the fourth quarter to show a larger portion of the new
fiscal year ended October 31 net income, and the first two quarters to show a
very small portion of the year's net income.
As a result of the year end change noted above, the first two quarters of
the fiscal year ending October 31, 1995 is being primarily compared to November
1993 and the old fourth quarter ended February 28, 1994. Since the home sales
revenue volume is significantly lower for the three and six months ended April
30, 1995, certain comparisons (primarily overheads) to the three and six months
ended April 30, 1994 will be unfavorable and misleading. Where applicable in
the following "Results of Operations", comparisons will be made to the three and
six months ended August 31, 1994.
At April 30, 1995 the Company's home contract backlog for future delivery
was 2,197 homes, with an aggregate sales value of $387.8 million, compared to
2,175 homes, with an aggregate sales value of $320.6 million at the same time
last year. For the six months ended April 30, 1995 net contracts signed
amounted to $316.3 million or 1,909 homes, compared to $270.8 million or 1,873
homes for the same period last year.
Total Revenues:
Revenues for the three months ended April 30, 1995 decreased $54.3 million
or 26.9%, compared to the same period last year. This was a result of decreased
revenues from sale of homes of $53.0 million, a $0.7 million decrease in
financial services revenues, a $0.7 million decrease in investment properties
revenues, and a $0.3 million decrease in collateralized mortgage financing
revenues. These decreases were partially offset by a $0.4 million increase in
land sales and other homebuilding revenues.
Revenues for the six months ended April 30, 1995 decreased $102.2 million
or 27.2%, compared to the same period last year. This was a result of decreased
revenues from sale of homes of $101.2 million., a $1.4 million decrease in
financial services revenues, a $0.7 million decrease in investment properties
revenues, and a $0.6 million decrease in collateralized mortgage financing
revenues. These decreases were partially offset by a $1.7 million increase in
land sales and other homebuilding revenues.
Homebuilding:
Sale of homes revenues decreased $53.0 million and $102.2 million, or 27.5%
and 28.2% during the three and six months ended April 30, 1995, compared to the
same periods last year. Sale of homes 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:
Six Months
Three Months Ended Six Months Ended Ended
April 30, April 30, August 31,
------------------ ------------------ ----------
1995 1994 1995 1994 1994
-------- -------- -------- -------- ----------
(Dollars in Thousands)
Northeast Region:
Housing Revenues..... $ 89,536 $136,073 $164,410 $259,440 $126,531
Homes Delivered...... 508 844 903 1,585 808
North Carolina:
Housing Revenues..... $ 23,083 $ 27,198 $ 44,667 $ 48,515 $ 53,102
Homes Delivered...... 148 203 283 367 382
Florida:
Housing Revenues..... $ 13,931 $ 14,215 $ 29,848 $ 29,162 $ 27,976
Homes Delivered...... 95 112 199 236 203
Metro Washington, D.C.:
Housing Revenues..... $ 9,021 $ 14,955 $ 13,907 $ 20,822 $ 15,727
Homes Delivered...... 52 85 77 118 89
California:
Housing Revenues..... $ 3,166 -- $ 5,260 -- --
Homes Delivered...... 16 -- 27 -- --
Other:
Housing Revenues..... $ 870 $ 123 $ 1,189 $ 487 $ 1,273
Homes Delivered...... 27 2 33 8 19
Totals:
Housing Revenues..... $139,607 $192,564 $257,281 $358,426 $224,609
Homes Delivered...... 846 1,246 1,522 2,314 1,501
The three and six months ended April 30, 1995 decrease in sale of homes
revenues (compared to the prior year) were due to the Company's change in year
end. Average sales prices have increased from $154,895 for the six months ended
April 30, 1994 to $169,041 for the six months ended April 30, 1995. In the
Northeast Region one reason average sales prices are increasing is because of
the Company's diversified product mix of more detached single family homes and
larger townhouses with garages designed for the move-up buyer. In Florida,
average sales prices are increasing as a result of the addition of new higher
priced single family developments. In North Carolina, average sales prices
increased primarily due to the addition of higher priced communities to their
line of homes previously offered for sale. In Metro Washington, D.C. average
sales prices increased because during the six months ended April 30, 1995 there
was a higher percentage of single family detached homes delivered than during
the six months ended April 30, 1994.
Cost of sales include expenses for housing and land and lot sales. A
breakout of such expenses for housing sales and housing gross margin is set
forth below:
Three Months Ended Six Months Ended
April 30, April 30,
--------------------- ---------------------
1995 1994 1995 1994
--------- --------- --------- ---------
(Dollars in Thousands)
Sale of Homes...................$139,607 $192,564 $257,281 $358,426
Cost of Sales................... 112,121 150,477 206,707 279,989
--------- --------- --------- ---------
Housing Gross Margin............$ 27,486 $ 42,087 $ 50,574 $ 78,437
========= ========= ========= =========
Gross Margin Percentage......... 19.7% 21.9% 19.7% 21.9%
The Company sells a variety of home types in various local communities,
each yielding a different gross margin. As a result, depending on the mix of
both communities and of home types delivered, consolidated quarterly gross
margin will fluctuate up or down and may not be representative of the
consolidated gross margin for the year. In addition, the decrease in the gross
margin was also due to the following reasons:
. Material costs have increased in all markets during the above
periods as demand increased for such materials.
. A change in product mix with an additional 9.4% of home sales
coming from North Carolina, Florida, and California where gross
margins are traditionally lower.
. Increased competition in all markets which keeps prices and margins
down.
Selling, general, and administrative expenses decreased $3.7 million during
the three months ended April 30, 1995 and increased $0.7 million during the six
months ended April 30, 1995 compared to the same periods last year. As a
percentage of sale of homes revenues such expenses increased to 12.6% and 12.9%
for the three and six months ended April 30, 1995, respectively, from 11.1% and
9.1% for the prior year. The six month increase in selling, general, and
administrative expenses is primarily due to an increased number of communities
open for sale, and increased advertising and buyer concessions due to a more
competitive sales environment. The increase as a percentage of sale of homes
revenues is the result of a lower volume due to the change in year end (see year
end comments above). Selling, general, and administrative expenses for the three
and six months ended August 31, 1994 as a percentage of sale of homes revenues
was 13.1% and 13.5%, respectively.
Land Sales and Other Revenues:
Land sales and other revenues consist primarily of land and lot sales,
title insurance activities, interest income, contract deposit forfeitures, and
during the three and six months ended April 30, 1995, California housing
management operations.
A breakout of land and lot sales is set forth below:
Three Months Ended Six Months Ended
April 30, April 30,
------------------ ------------------
1995 1994 1995 1994
-------- -------- -------- --------
Land and Lot Sales................... $ 1,999 $ 1,221 $ 3,306 $ 2,342
Cost of Sales........................ 1,497 790 1,903 1,536
-------- -------- -------- --------
Land and Lot Sales Gross Margin...... $ 502 $ 431 $ 1,403 $ 806
======== ======== ======== ========
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.
In May 1994, the Company purchased a homebuilding and management company in
California for $0.8 million. Although no new management contracts are being
obtained, the existing contracts resulted in $0.8 million of revenues for the
six months ended April 30, 1995. Included in Other Operations (see below) are
expenses associated with the California homebuilding management operations, and
amortization of a portion of the acquisition price of management contracts.
Financial Services
Financial services consists primarily of originating mortgages from sales
of the Company's homes, and selling such mortgages in the secondary market.
Approximately 30% and 20% of the Company's homebuyers obtained mortgages
originated by the Company's wholly-owned mortgage banking subsidiaries during
the years ended October 31, 1994 and 1993, respectively. For the three and six
months ended April 30, 1995 a loss was incurred primarily due to expansion costs
into other Company housing markets, reduced volume, and reduced interest rate
spreads, due to increased competition. Most servicing rights on new mortgages
originated by the Company will be sold as the loans are closed.
Investment Properties
Investment Properties consist of rental properties, property management,
and gains or losses from sale of such property. At April 30, 1995, the Company
owned and was leasing two office buildings, three office/warehouse facilities,
three retail centers, and a senior citizen rental community in New Jersey.
Investment Properties expenses do not include interest expense which is reported
below under "Interest."
Collateralized Mortgage Financing
In the years prior to February 29, 1988 the Company pledged mortgage loans
originated by its mortgage banking subsidiaries against collateralized mortgage
obligations ("CMO's"). Subsequently the Company discontinued its CMO program.
As a result, CMO operations are diminishing as pledged loans are decreasing
through principal amortization and loan payoffs, and related bonds are reduced.
In recent years, the Company has sold CMO pledged mortgages. The cost of such
sales and the write-off of unamortized issuance expenses has resulted in losses.
Corporate General and Administrative
Corporate general and administration expenses includes the operations at
the Company's headquarters in Red Bank, New Jersey. Corporate general and
administration expenses increased $0.2 million and $0.7 million during the three
and six months ended April 30, 1995 compared to the same period last year, or
7.7% and 13.4%. As a percentage of total revenues such expenses were 2.1% and
2.3% for the three and six months ended April 30, 1995 and 1.4% and 1.5% for the
three and six months ended April 30, 1994. As a percentage of total revenues
such expenses were 3.0% and 3.0% for the three and six months ended August 31,
1994.
Interest
Interest expense includes housing, land and lot, and rental properties
interest. Interest expense is broken down as follows:
Three Months Ended Six Months Ended
April 30, April 30,
------------------ ------------------
1995 1994 1995 1994
-------- -------- -------- --------
Sale of Homes.................. $ 5,030 $ 5,554 $ 8,757 $10,161
Land and Lot Sales............. 52 69 75 82
Rental Properties.............. 1,429 1,240 2,594 2,321
-------- -------- -------- -------
Total.......................... $ 6,511 $ 6,863 $11,426 $12,564
======== ======== ======== ========
Housing interest as a percentage of sale of homes revenues amounted to 3.6% and
3.4% for the three and six months ended April 30, 1995 and 2.9% and 2.8% for the
three and six months ended April 30, 1994. The increase of interest as a
percentage of sale of homes revenues is primarily attributable to increased
interest rates on the Company's line of credit.
Other Operations
Other operations consisted primarily of title insurance activities,
miscellaneous residential housing operations expenses, amortization of prepaid
subordinated note issuance expenses, corporate owned life insurance loan
interest, and California housing management operations (see "Land Sales and
Other Revenues" above). During the six months ended April 30, 1995 other
expenses included California homebuilding management expenses and amortization
of purchased management contracts totaling $1.1 million.
Total Taxes
Total taxes as a percentage of income before income taxes amounted to 7.4%
and 7.1% for the three and six months ended April 30, 1995, respectively, and
31.7% and 31.2% for the three and six months ended April 30, 1994, respectively.
The low percentage for the three and six months ended April 30, 1995 was due
primarily to permanent differences between book and tax income and tax credits.
The lower income before income taxes is the greater the impact such differences
have on taxes as a percentage of income. Deferred federal and state income tax
assets primarily represents the deferred tax benefits arising from temporary
differences between book and tax income which will be recognized in future
years.
Inflation:
Inflation has a long-term effect on the Company because increasing costs
of land, materials and labor result in increasing sale prices of its homes. In
general, these price increases have been commensurate with the general rate of
inflation in the Company's housing market and have not had a significant adverse
effect on the sale of the Company's homes. However, some material costs
(primarily lumber) have recently increased above the rate of inflation due to
demand being higher than available supplies. A significant risk faced by the
housing industry generally is that rising house costs, including land and
interest costs, will substantially outpace increases in the income of potential
purchasers. In recent years, in the price ranges in which it sells homes, the
Company has not found this risk to be a significant problem.
Inflation has a lesser short-term effect on the Company because the Company
generally negotiates fixed price contracts with its subcontractors and material
suppliers for the construction of its homes. These prices usually are
applicable for a specified number of residential buildings or for a time period
of between four to twelve months. Construction costs for residential buildings
represent approximately 51% of the Company's total costs and expenses.
Item 4. Submission to Matters to a Vote of Security Holders
The Company held its annual stockholders meeting on May 2, 1995 at 10:30
a.m. in the Board Room of the American Stock Exchange, 13th floor, 86 Trinity
Place, New York, New York. The following matters were voted at the meeting:
. Election of all Directors to hold office until the next Annual Meeting
of Stockholders. The elected Directors were:
.. Kevork S. Hovnanian
.. Ara K. Hovnanian
.. Paul W. Buchanan
.. Arthur Greenbaum
.. Timothy P. Mason
.. Desmond P. McDonald
.. Peter S. Reinhart
.. John J. Schimpf
.. Stephen D. Weinroth
. Ratification of the selection of Kenneth Leventhal and Company as
certified independent accountants for fiscal year ending October 31, 1995.
.. Votes For 85,161,305
.. Votes Against 70,335
.. Abstain 28,099
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of l934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
HOVNANIAN ENTERPRISES, INC.
(Registrant)
DATE: June 12, 1995 /S/KEVORK S. HOVNANIAN
Kevork S. Hovnanian,
Chairman of the Board and
Chief Executive Officer
DATE: June 12, 1995 /S/PAUL W. BUCHANAN
Paul W. Buchanan,
Senior Vice President
Corporate Controller
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