<PAGE>
Exhibit Number Exhibit
-------------- -------
99.2
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
Unaudited Pro Forma Consolidated Financial Statements of Hovnanian Enterprises,
Inc.
The following pro forma consolidated financial statements of Hovnanian
Enterprises, Inc. ("Hovnanian") give effect to the proposed merger of Washington
Homes, Inc. ("Washington Homes") and Hovnanian using the purchase method of
accounting. The pro forma consolidated financial statements are based on the
unaudited historical consolidated financial statements of Hovnanian and
Washington Homes. The pro forma consolidated financial statements are based on
the estimates and assumptions set forth in the notes, including Hovnanian
management's estimates of the value of the tangible and intangible assets
acquired. These estimates and assumptions are preliminary and have been made
solely for the purpose of developing the pro forma information.
Under the terms of the merger agreement, Washington Homes' shareholders will
receive the equivalent of 1.39 shares of Hovnanian Class A Common shares or
$10.08 in cash for each of the 7,780,961 shares of Washington Homes, subject to
certain adjustments. The 1,094,000 stock options held by employees of Washington
Homes will be converted to Hovnanian options with a similar aggregate implied
value. Of this amount 920,000 employee stock options are vested as of the merger
date and the fair value of these options are included as a component of purchase
price. Additionally, the 109,000 vested stock options held by non-employees of
Washington Homes will be purchased by Hovnanian for the difference of $10.08 and
their respective exercise prices. Accordingly, the total purchase price is
estimated to be approximately $84.0 million, based on Hovnanian's closing share
price of $7 1/16 on August 25, 2000. The agreement includes provisions that
limit the maximum amount of cash to 50% of the total consideration, with the
balance, not to exceed 60%, paid in Hovnanian shares. The Hovnanian price per
share on the day the transaction closes will ultimately be utilized to determine
the actual acquisition cost of Washington Homes. In these pro forma consolidated
financial statements, Hovnanian management has assumed that 50% of the
consideration will be paid in cash and the balance in Hovnanian shares.
The pro forma consolidated balance sheet assumes that the merger took place on
July 31, 2000. The pro forma consolidated statements of income for the year
ended October 31, 1999 and the nine months ended July 31, 2000 assumes that the
merger took place as of November 1, 1998. Additionally, the supplemental pro
forma statement of income for the twelve months ended July 31, 2000 assumes the
merger took place on August 1, 1999.
The unaudited pro forma consolidated financial statements, are presented for
illustrative purposes only and are not indicative of the consolidated financial
position or results of operations of future periods that actually would have
been realized had Hovnanian and Washington Homes been a consolidated company
during the specified periods. The pro forma consolidated financial
<PAGE>
statements, including the notes thereto, are qualified in their entirety by
reference to, and should be read in conjunction with, the historical
consolidated financial statements of Hovnanian as filed in its (i) Form 10-K for
the year ended October 31, 1999 and (ii) Form 10-Q for the nine months ended
July 31, 2000 and the historical financial statements of Washington Homes as of
and for the three years ended July 31, 2000, including the notes thereto, as
filed by Washington Homes on its Form 8-K on September 20, 2000.
<PAGE>
HOVNANIAN ENTERPRISES INC. AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JULY 31, 2000
UNAUDITED
(In Thousands)
<TABLE>
<CAPTION>
Pro Forma
Pro Forma Adjustments
Hovnanian Washington Increase Pro Forma
Enterprises, Inc. Homes, Inc. (Decrease) July 31, 2000
----------------- ----------- ---------- -------------
<S> <C> <C> <C> <C>
Assets
Homebuilding:
Cash and cash equivalents $ 19,268 $ 14,317 $ (1)(2) $ 33,585
Inventories 616,426 130,573 1,292 (1) 748,291
Property, plant and equipment - net 34,553 34,553
Senior rentals 10,372 10,372
Other 103,135 21,681 152 (1)(3) 124,968
------------------------------------------- -----------
Total homebuilding 783,754 166,571 1,444 951,769
Financial services 48,928 1,987 50,915
Collateralized mortgage financing 4,561 4,561
Income taxes receivable 4,275 (2,977) (443)(1) 855
------------------------------------------- -----------
Total assets $ 841,518 $ 165,581 $ 1,001 $ 1,008,100
=========================================== ===========
Liabilities and stockholders' equity
Homebuilding:
Nonrecourse land mortgages $ 12,609 $ 2,314 $ 14,923
Accounts payable and other liabilities 73,640 42,675 116,315
Customers' deposits 37,149 2,923 40,072
Nonrecourse mortgages secured by
operating properties 3,577 3,577
------------------------------------------- -----------
Total homebuilding 126,975 47,912 174,887
Financial services 41,942 705 42,647
Collateralized mortgage financing 3,147 3,147
Notes payable 423,057 34,009 $ 39,233 (2) 496,299
------------------------------------------- -----------
Total liabilities 595,121 82,626 39,233 716,980
------------------------------------------- -----------
Stockholders' equity:
Common Stock Class A 172 78 (23)(1)(4) 227
Common Stock Class B 79 79
Paid in capital 45,862 34,566 10,837 (1)(4)(12) 91,265
Retained earnings 228,258 48,311 (48,311)(3)(4) 228,258
Deferred compensation (735)(12) (735)
Treasury stock (27,974) (27,974)
------------------------------------------- -----------
Total stockholders' equity 246,397 82,955 (38,232) 291,120
------------------------------------------- -----------
Total liabilities and stockholders' equity $ 841,518 $ 165,581 $ 1,001 $ 1,008,100
=========================================== ===========
</TABLE>
<PAGE>
HOVNANIAN ENTERPRISES, INC. AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
YEAR ENDED OCTOBER 31, 1999
UNAUDITED
(In Thousands Except Per Share Data)
<TABLE>
<CAPTION>
(5) Pro Forma Pro Forma
Pro Forma Adjustments Year
Hovnanian Washington Increase Ended
Enterprises, Inc. Homes, Inc (Decrease) October 31, 1999
----------------- ---------- ----------- ----------------
<S> <C> <C> <C> <C>
Revenues:
Homebuilding:
Sale of homes $908,553 $371,873 $1,280,426
Land sales and other revenues 17,409 5,525 22,934
----------------------------------------------- ---------------
Total homebuilding 925,962 377,398 1,303,360
Financial services 20,239 3,630 23,869
Collateralized mortgage financing 519 519
----------------------------------------------- ---------------
Total revenues 946,720 381,028 1,327,748
----------------------------------------------- ---------------
Expenses:
Homebuilding:
Cost of sales 730,025 306,475 $ 5,034 (7) 1,041,534
Selling, general and administration 81,396 41,209 (590) (6) (12) 122,015
Inventory impairment loss 2,091 2,091
----------------------------------------------- ---------------
Total homebuilding 813,512 347,684 4,444 1,165,640
Financial services 19,195 3,479 22,674
Collateralized mortgage financing 504 504
Corporate general and administration 28,652 28,652
Interest 30,343 9,330 1,516 (8) (13) 41,189
Other operations 3,897 976 1,468 (9) (13) 6,341
---------------------------------------------- ---------------
Total expenses 896,103 361,469 7,428 1,265,000
---------------------------------------------- ---------------
Income before taxes and extraordinary loss 50,617 19,559 (7,428) 62,748
Income taxes 19,674 7,553 (2,028) (9) 25,199
Extraordinary loss (868) (868)
---------------------------------------------- ---------------
Net income $ 30,075 $ 12,006 $(5,400) $ 36,681
============================================== ===============
Earnings per share:
Basic $ 1.41 (11) $1.36
Weighted shares outstanding 21,404 (1)(14) 26,924
Diluted $ 1.39 (11) $ 1.31
Weighted shares outstanding 21,612 (1)(14) 28,009
</TABLE>
<PAGE>
HOVNANIAN ENTERPRISES, INC. AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
NINE MONTHS ENDED JULY 31, 2000
UNAUDITED
(In Thousands Except Per Share Data)
<TABLE>
<CAPTION>
(5) Pro Forma Pro Forma
Pro Forma Adjustments Nine Months
Hovnanian Washington Increase Ended
Enterprises, Inc. Homes, Inc (Decrease) July 31, 2000
----------------- ---------- ----------- -------------
<S> <C> <C> <C> <C>
Revenues:
Homebuilding:
Sale of homes $ 763,177 $ 373,389 $ 1,136,566
Land sales and other revenues 7,651 4,113 11,764
------------------------------------------- -------------
Total homebuilding 770,828 377,502 1,148,330
Financial services 12,859 4,826 17,685
Collateralized mortgage financing 332 332
------------------------------------------- -------------
Total revenues 784,019 382,328 1,166,347
------------------------------------------- -------------
Expenses:
Homebuilding:
Cost of sales 614,574 308,948 $ 3,776 (7) 927,298
Selling, general & administration 76,495 41,674 (464) (6) (12) 117,705
Inventory impairment loss 1,517 1,517
------------------------------------------- -------------
Total homebuilding 692,586 350,622 3,312 1,046,520
Financial services 13,999 4,099 18,098
Collateralized mortgage financing 283 283
Corporate general and administration 24,361 24,361
Interest 24,256 7,205 1,728 (8) (13) 33,189
Other operations 6,048 674 1,379 (9) (13) 8,101
------------------------------------------- -------------
Total expenses 761,533 362,600 6,419 1,130,552
------------------------------------------- -------------
Income before income taxes 22,486 19,728 (6,419) 35,795
Income taxes 7,485 7,736 (1,788) (9) 13,433
------------------------------------------- -------------
Net income $ 15,001 $ 11,992 $ (4,631) $ 22,362
=========================================== =============
Earnings per share:
Basic $ .68 (11) $ .81
Weighted shares outstanding 22,089 (1)(14) 27,609
Diluted $ .68 (11) $ .79
Weighted shares outstanding 22,158 (1)(14) 28,344
</TABLE>
<PAGE>
HOVNANIAN ENTERPRISES, INC. AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
TWELVE MONTHS ENDED JULY 31, 2000
UNAUDITED
(In Thousands Except Per Share Data)
<TABLE>
<CAPTION>
(10)
Hovnanian (5)
Enterprises, Inc. Washington Homes, Pro Forma Pro Forma
Twelve Months Inc. Twelve Adjustments Twelve Months
Ended Months Ended Increase Ended
July 31, 2000 July 31, 2000 (Decrease) July 31, 2000
------------- ------------- ---------- -------------
<S> <C> <C> <C> <C>
Revenues:
Homebuilding:
Sale of homes $ 1,050,636 $ 459,278 $ 1,509,914
Land sales and other revenues 13,613 4,858 18,471
------------------------------------------------------ ------------
Total homebuilding 1,064,249 464,136 1,528,385
Financial services 17,670 5,615 23,285
Collateralized mortgage financing 529 529
------------------------------------------------------ ------------
Total revenues 1,082,448 469,751 1,552,199
------------------------------------------------------ ------------
Expenses:
Homebuilding:
Cost of sales 850,018 378,857 $ 3,067 (7) 1,231,942
Selling, general and administration 101,431 51,697 (651) (6)(12) 152,477
Inventory impairment loss 1,975 1,975
----------------------------------------------------- ------------
Total homebuilding 953,424 430,554 2,416 1,386,394
Financial services 18,836 4,971 23,807
Collateralized mortgage financing 446 446
Corporate general and administration 32,144 32,144
Interest 33,362 9,317 1,512 (8)(13) 44,191
Other operations 7,850 899 906 (9)(13) 9,655
------------------------------------------------------ ------------
Total expenses 1,046,062 445,741 4,834 1,496,637
------------------------------------------------------ ------------
Income before income taxes 36,386 24,010 (4,834) 55,562
Income taxes 12,500 9,391 (1,212) (9) 20,679
------------------------------------------------------ ------------
Net income $ 23,886 $ 14,619 $ (3,622) $ 34,883
====================================================== ============
Earnings per share:
Basic $ 1.08 (11) $ 1.27
Weighted shares outstanding 22,015 (1)(14) 27,535
Diluted $ 1.08 (11) 1.23
Weighted shares outstanding 22,135 (1)(14) $ 28,371
</TABLE>
<PAGE>
Hovnanian Enterprises, Inc.
Notes to Unaudited Pro Forma Consolidated Financial Statements
(In Thousands Except Per Share Data)
(1) Adjustment reflects the components of its purchase price. Under the terms of
the transaction, Hovnanian Enterprises, Inc. ("Hovnanian") will effectively
exchange 1.39 shares of Hovnanian Class A Common shares or pay $10.08 in
cash for each share of Washington Homes, Inc. ("Washington Homes"), subject
to certain adjustments. The 1,094,000 stock options held by employees of
Washington Homes are converted to Hovnanian options with a similar aggregate
implied value. Of this amount 920,000 employees' stock options are vested as
of the merger date and the fair value of these options are included as a
component of purchase price. Additionally, the 109,000 vested stock options
held by non-employees of Washington Homes are purchased by Hovnanian for the
difference of $10.08 and their respective exercise prices. Accordingly, the
total purchase price is estimated to be approximately $84.0 million, based
on Hovnanian's closing share price of $7 1/16 on August 25, 2000. The
agreement includes provisions that limit the maximum amount of cash to 50%
of the total consideration, with the balance not to exceed 60%, paid in
Hovnanian shares. In these pro forma consolidated financial statements,
Hovnanian management has assumed that 50% of the consideration will be paid
in cash and the balance in Hovnanian shares (resulting in 5,519,746 Class A
Common shares being issued at a par value per share of $.01).
The aggregate purchase price approximates the fair value of assets acquired
less liabilities assumed.
The following table summarizes the calculation of the purchase price at July
31, 2000:
<TABLE>
<CAPTION>
(Dollars in
thousands)
----------
<S> <C>
Merger consideration - Cash (including non-employee stock options) $ 38,983
- Hovnanian Class A shares 38,983
- Fair Value of Vested Hovnanian Options 5,739
Transaction costs 250
----------
Total purchase price $ 83,955
==========
</TABLE>
(2) Adjustment reflects the anticipated funding of the cash portion of the
purchase price as well as a repayment of the approximately $34.0 million of
existing Washington Homes debt and a draw of $39.2 million on the existing
Hovnanian credit facility.
(3) Adjustment reflects the write-off of approximately $.3 million of financing
costs in connection with the retirement of certain Washington Homes
indebtedness, as described in Note (2) above.
(4) Adjustment reflects the elimination of the Washington Homes stockholders'
equity.
<PAGE>
(5) As Washington Homes has a calendar year end of July 31, the pro forma
results of operations for the year ended October 31, 1999 and nine months
ended July 31, 2000 are based upon the quarterly historical results of
operations of Washington Homes as previously filed, conformed to
Hovnanian's fiscal year end and Hovnanian's financial statement
presentation as follows:
<PAGE>
Washington Homes, Inc.
Pro Forma Results of Operations for the Year Ended October 31, 1999
Previously Reported Periods
<TABLE>
<CAPTION>
-----------------------------------------------------
Less: three Add: three Months
Year Ended months Ended Ended
July 31, 1999 October 31, 1998 October 1, 1999
------------- ----------------- -----------------
<S> <C> <C> <C>
Revenues:
Homebuilding:
Sale of Homes $353,729 $67,745 $85,889
Land Sales & Other Revenues 9,004 1,383 1,534
-----------------------------------------------------
Total Homebuilding 362,733 69,128 87,423
Financial Services
Collateralized Mortgage Financing
-----------------------------------------------------
Total Revenues 362,733 69,128 87,423
-----------------------------------------------------
Expenses:
Homebuilding:
Cost of Sales 290,934 55,867 69,190
Selling, General & Administration 46,671 9,371 12,033
Inventory Impairment Loss
-----------------------------------------------------
Total Homebuilding 337,605 65,238 81,223
Financial Services
Collateralized Mortgage Financing
Corporate General & Administration
Interest 7,356 1,716 1,752
Other Operations 418 97 166
-----------------------------------------------------
Total Expenses 345,379 67,051 83,141
-----------------------------------------------------
Income Before Income Taxes 17,354 2,077 4,282
Income Taxes 6,706 808 1,655
-----------------------------------------------------
Net Income $ 10,648 $ 1,269 $ 2,627
=====================================================
<CAPTION>
-----------------------------------------------------
Pro Forma
Year Ended Reclassification Year Ended
October 31, 1999 Adjustments October 31, 1999
---------------- ----------------- ----------------
<S> <C> <C> <C>
Revenues:
Homebuilding:
Sale of Homes $371,873 $371,873
Land Sales & Other Revenues 9,155 (3,630) 5,525
------------------------------------------------------
Total Homebuilding 381,028 (3,630) 377,398
Financial Services 3,630 3,630
Collateralized Mortgage Financing
------------------------------------------------------
Total Revenues 381,028 381,028
------------------------------------------------------
Expenses:
Homebuilding:
Cost of Sales 304,257 2,218 306,475
Selling, General & Administration 49,333 (8,124) 41,209
Inventory Impairment Loss
------------------------------------------------------
Total Homebuilding 353,590 (5,906) 347,684
Financial Services 3,479 3,479
Collateralized Mortgage Financing
Corporate General & Administration
Interest 7,392 1,938 9,330
Other Operations 487 489 976
------------------------------------------------------
Total Expenses 361,469 361,469
------------------------------------------------------
Income Before Income Taxes 19,559 19,559
Income Taxes 7,553 7,553
------------------------------------------------------
Net Income $ 12,006 $ 12,006
======================================================
</TABLE>
<PAGE>
Washington Homes, Inc.
Pro Forma Results of Operations for the Nine Months Ended July 31, 2000
Previously Reported Periods
<TABLE>
<CAPTION>
-----------------------------------------------------------
Less: three months
Year Ended Ended Nine Months Ended
July 31, 2000 October 31, 1999 July 31, 2000
------------- ----------------------- -----------------
<S> <C> <C> <C>
Revenues:
Homebuilding:
Sale of Homes $459,278 $85,889 $373,389
Land Sales & Other Revenues 10,473 1,534 8,939
-----------------------------------------------------------
Total Homebuilding 469,751 87,423 382,328
Financial Services
Collaterized Mortgage Financing
-----------------------------------------------------------
Total Revenues 469,751 87,423 382,328
-----------------------------------------------------------
Expenses:
Homebuilding:
Cost of Sales 375,014 69,190 305,824
Selling, General & Administration 62,752 12,033 50,719
Inventory Impairment Loss
-----------------------------------------------------------
Total Homebuilding 437,766 81,223 356,543
Financial Services
Collaterized Mortgage Financing
Corporate General & Administration
Interest 7,224 1,752 5,472
Other Operations 751 166 585
-----------------------------------------------------------
Total Expenses 445,741 83,141 362,600
-----------------------------------------------------------
Income Before Income Taxes 24,010 4,282 19,728
Income Taxes 9,391 1,655 7,736
-----------------------------------------------------------
Net Income $ 14,619 $ 2,627 $ 11,992
===========================================================
<CAPTION>
-----------------------------------------------------------
Pro Forma
Reclassification Nine Months Ended
Adjustments July 31, 2000
----------------- -----------------
<S> <C> <C>
Revenues:
Homebuilding:
Sale of Homes $373,389
Land Sales & Other Revenues (4,826) 4,113
-------------------------------------
Total Homebuilding (4,826) 377,502
Financial Services 4,826 4,826
Collaterized Mortgage Financing
-------------------------------------
Total Revenues 382,328
-------------------------------------
Expenses:
Homebuilding:
Cost of Sales 3,124 308,948
Selling, General & Administration (9,045) 41,674
Inventory Impairment Loss
-------------------------------------
Total Homebuilding (5,921) 350,622
Financial Services 4,099 4,099
Collaterized Mortgage Financing
Corporate General & Administration
Interest 1,733 7,205
Other Operations 89 674
-------------------------------------
Total Expenses 362,600
-------------------------------------
Income Before Income Taxes 19,728
Income Taxes 7,736
-------------------------------------
Net Income $ 11,992
=====================================
</TABLE>
<PAGE>
Washington Homes, Inc.
Pro Forma Results of Operations for the Twelve Months Ended July 31, 2000
Previously Reported
-------------------
<TABLE>
<CAPTION>
Pro Forma
Twelve Months Twelve
Ended Reclassification Months Ended
July 31, 2000 Adjustments July 31, 2000
------------- ---------------- -------------
<S> <C> <C> <C>
Revenues:
Homebuilding:
Sale of Homes $ 459,278 $ 459,278
Land Sales & Other Revenues 10,473 $ (5,615) 4,858
---------------------------------------------------
Total Homebuilding 469,751 (5,615) 464,136
Financial Services 5,615 5,615
Collaterized Mortgage Financing
---------------------------------------------------
Total Revenues 469,751 469,751
---------------------------------------------------
Expenses:
Homebuilding:
Cost of Sales 375,014 3,843 378,857
Selling, General & Administration 62,752 (11,055) 51,697
Inventory Impairment Loss
---------------------------------------------------
Total Homebuilding 437,766 (7,212) 430,554
Financial Services 4,971 4,971
Collaterized Mortgage Financing
Corporate General & Administration
Interest 7,224 2,093 9,317
Other Operations 751 148 899
---------------------------------------------------
Total Expenses 445,741 445,741
---------------------------------------------------
Income Before Income Taxes 24,010 24,010
Income Taxes 9,391 9,391
---------------------------------------------------
Net Income $ 14,619 $ 14,619
===================================================
</TABLE>
<PAGE>
(6) Adjustment reflects a reduction in general and administrative expenses. In
connection with the merger, Hovnanian management believes that it will
realize cost savings related to the elimination of professional fees and
other costs associated with the operation of Washington Homes as a public
independent company, including legal, audit and tax fees, annual report
preparation and printing costs and stock registration and filing fees
aggregating $.8 million, $.7 million and $.9 million for the year ended
October 31, 1999, for the nine months ended July 31, 2000 and for the
twelve months ended July 31, 2000, respectively.
(7) Represents additional cost of sales for the allocation of the purchase
price to homebuilding inventories sold during the period, as if the merger
occurred on November 1, 1998 aggregating approximately $5.0 million, $3.8
million and $3.1 million for the year ended October 31, 1999, for the nine
months ended July 31, 2000 and for the twelve months ended July 31, 2000,
respectively.
(8) Represents additional interest expense, including interest amortized as
homes are delivered, on the draw on the Hovnanian existing credit facility
at an interest rate of 8.32% aggregating approximately $2.1 million, $2.3
million and $2.2 million for the year ended October 31, 1999, for the nine
months ended July 31, 2000 and for the twelve months ended July 31, 2000,
respectively.
(9) Represents net increases to income tax expense for adjustments to
amortization of certain deferred tax assets, reductions in general and
administrative expenses, and for the elimination of financing costs
partially offset by additional interest expense incurred calculated at
Hovnanian's effective tax rate aggregating approximately $2.0 million, $1.8
million and $1.2 million for the year ended October 31, 1999, for the nine
months ended July 31, 2000 and for the twelve months ended July 31, 2000,
respectively.
<PAGE>
(10) The supplemental pro forma statement of operations is based upon the
Hovnanian's quarterly historical results of operations as previously filed,
as follows:
Pro Forma Results of Operations for the Twelve Months Ended July 31, 2000
<TABLE>
<CAPTION>
Previously
Reported Nine Three Months Twelve Months
Months Ended Ended October Ended
July 31, 2000 31, 1999 July 31, 2000
------------- -------- -------------
<S> <C> <C> <C>
Revenues:
Homebuilding:
Sale of Homes $ 763,177 $ 287,459 $ 1,050,636
Land Sales & Other Revenues 7,651 5,962 13,613
---------------------------------------------------------
Total Homebuilding 770,828 293,421 1,064,249
Financial Services 12,859 4,811 17,670
Collaterized Mortgage Financing 332 197 529
---------------------------------------------------------
Total Revenues 784,019 298,429 1,082,448
Expenses:
Homebuilding:
Cost of Sales 614,574 235,444 850,018
Selling, General & Administration 76,495 24,936 101,431
Inventory Impairment Loss 1,517 458 1,975
---------------------------------------------------------
Total Homebuilding 692,586 260,838 953,424
Financial Services 13,999 4,837 18,836
Collaterized Mortgage Financing 283 163 446
Corporate General & Administration 24,361 7,783 32,144
Interest 24,256 9,106 33,362
Other Operations 6,048 1,802 7,850
---------------------------------------------------------
Total Expenses 761,533 284,529 1,046,062
---------------------------------------------------------
Income Before Income Taxes 22,486 13,900 36,386
Income Taxes 7,485 5,015 12,500
---------------------------------------------------------
Net Income $ 15,001 $ 8,885 $ 23,886
=========================================================
</TABLE>
<PAGE>
(11) If the shareholders of Washington Homes elect to receive the maximum amount
of Hovnanian stock as transaction consideration (60%), then the pro forma
financial statements would be adjusted as follows:
Pro Forma Statement of Operations
<TABLE>
<CAPTION>
Nine Months Twelve
Year Ended Ended Months Ended
October 31, 1999 July 31, 2000 July 31, 2000
---------------- ------------- -------------
<S> <C> <C> <C>
Net Income $36,944 $22,663 $35,181
Basic Earnings Per Share $ 1.32 $ .79 $ 1.23
Diluted Earnings Per Share $ 1.27 $ .77 $ 1.20
</TABLE>
Pro Forma Balance Sheet at July 31, 2000
Total Liabilities $709,926
Shareholders Equity $297,989
(12) Stock options to purchase Washington Homes stock held by the employees of
Washington Homes have been converted to Hovnanian options with a similar
implied value. The fair value of vested options converted of approximately
$5.7 million has been included as part of the purchase price. The unvested
portion of converted options for which a post acquisition service period is
required to vest has been valued at their intrinsic value of approximately
$.7 million and included as a deferred compensation cost, a component of
shareholder equity, and will be amortized over the remaining vesting
period. Amortization aggregating approximately $.3 million, $.2 million and
$.3 million for the year ended October 31, 1999, for the nine months ended
July 31, 2000 and for the twelve months ended July 31, 2000, respectively.
(13) Adjustment reflects the elimination of amortization of financing costs in
conjunction with the retirement of certain Washington Homes indebtedness
aggregating approximately $1.0 million, $.6 million and $.8 million for the
year ended October 31, 1999, for the nine months ended July 31, 2000 and
for the twelve months ended July 31, 2000, respectively.
(14) Basic earnings per share are computed based upon the weighted average
number of Common Stock Class A and Class B shares outstanding during the
period. Diluted earnings per share are computed based upon the increased
number of Common Stock Class A shares (including the issuance of 5,519,746
Class A shares in connection with the merger) that would be outstanding
assuming the exercise of dilutive Common Stock Class A stock options under
the treasury stock method as shown below:
<PAGE>
<TABLE>
<CAPTION>
Pro Forma Pro Forma Pro Forma
Year Ended Nine Months Ended Twelve Months Ended
October 31, 1999 July 31, 2000 July 31, 2000
---------------- ------------- -------------
<S> <C> <C> <C>
Weighted Average
Common Stock Class A
and Class B Shares - Basic 26, 924 27,609 27,535
Common Stock Class A
Stock Options 1,085 735 836
Weighted Average
Common Stock Class A
and Class B
----------------------------------------------------------------------
Shares - Diluted 28,009 28,344 28,371
======================================================================
</TABLE>
