UNITED STATES
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, 2000 or
[ ] Transition report pursuant to Section 13 or 15 (d) of the
Securities Exchange Act of 1934
Commission file number 1-8551
Hovnanian Enterprises, Inc.
(Exact name of registrant as specified in its charter)
Delaware 22-1851059
(State or other jurisdiction or (I.R.S. Employer
incorporation or organization) Identification No.)
l0 Highway 35, P.O. Box 500, Red Bank, N. J. 07701
(Address of principal executive offices)
732-747-7800
(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. 14,041,117 Class A Common
Shares and 7,638,622 Class B Common Shares were outstanding as of May 26, 2000.
HOVNANIAN ENTERPRISES, INC.
FORM 10Q
INDEX
PAGE NUMBER
PART I. Financial Information
Item l. Consolidated Financial Statements:
Consolidated Balance Sheets at April 30,
2000 (unaudited) and October 31, 1999 3
Consolidated Statements of Income for the three
and six months ended April 30, 2000 and 1999
(unaudited) 5
Consolidated Statements of Stockholders' Equity
for the six months ended April 30, 2000
(unaudited) 6
Consolidated Statements of Cash Flows for
the six months ended April 30, 2000
and 1999 (unaudited) 7
Notes to Consolidated Financial
Statements (unaudited) 8
Item 2. Management's Discussion and Analysis
of Financial Condition and Results
of Operations 18
PART II. Other Information
Item 4. Submission of Matters to a Vote of Security
Holders 23
Item 6(b). Exhibit 27 - Financial Data Schedules
Item 6(c). No reports on Form 8K have been filed during
the quarter for which this report is filed.
Signatures 24
<TABLE>
HOVNANIAN ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In Thousands)
<CAPTION>
April 30, October 31,
ASSETS 2000 1999
----------- -----------
(unaudited)
<S> <C> <C>
Homebuilding:
Cash and cash equivalents....................... $ 6,896 $ 17,163
----------- -----------
Inventories - At the lower of cost or fair
value:
Sold and unsold homes and lots under
development................................. 524,175 475,196
Land and land options held for future
development or sale......................... 65,795 52,034
----------- -----------
Total Inventories........................... 589,970 527,230
----------- -----------
Receivables, deposits, and notes ............... 39,981 30,675
----------- -----------
Property, plant, and equipment - net............ 34,360 26,500
----------- -----------
Senior residential rental properties - net...... 10,469 10,650
----------- -----------
Prepaid expenses and other assets............... 63,556 56,753
----------- -----------
Total Homebuilding.......................... 745,232 668,971
----------- -----------
Financial Services:
Cash and cash equivalents....................... 1,379 2,202
Mortgage loans held for sale.................... 30,994 33,158
Other assets.................................... 1,707 1,563
----------- -----------
Total Financial Services.................... 34,080 36,923
----------- -----------
Collateralized Mortgage Financing:
Collateral for bonds payable.................... 4,521 5,006
Other assets.................................... 268 238
----------- -----------
Total Collateralized Mortgage Financing..... 4,789 5,244
----------- -----------
Income Taxes Receivable - Including deferred tax
benefits........................................ 6,130 1,723
----------- -----------
Total Assets...................................... $790,231 $712,861
=========== ===========
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 2000 1999
----------- -----------
(unaudited)
<S> <C> <C>
Homebuilding:
Nonrecourse land mortgages........................ $ 17,250 $ 6,407
Accounts payable and other liabilities............ 67,879 73,989
Customers' deposits............................... 34,804 25,647
Nonrecourse mortgages secured by operating
properties...................................... 3,607 3,662
----------- -----------
Total Homebuilding............................ 123,540 109,705
----------- -----------
Financial Services:
Accounts payable and other liabilities............ 1,476 1,218
Mortgage warehouse line of credit................. 26,870 30,034
----------- -----------
Total Financial Services...................... 28,346 31,252
----------- -----------
Collateralized Mortgage Financing:
Bonds collateralized by mortgages receivable...... 3,316 3,699
----------- -----------
Total Collateralized Mortgage Financing....... 3,316 3,699
----------- -----------
Notes Payable:
Revolving credit agreement........................ 132,150 70,125
Senior notes...................................... 150,000 150,000
Subordinated notes................................ 100,000 100,000
Accrued interest.................................. 12,120 11,654
----------- -----------
Total Notes Payable........................... 394,270 331,779
----------- -----------
Total Liabilities............................. 549,472 476,435
----------- -----------
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 17,254,987 shares
(including 3,110,645 shares in April 2000 and
2,710,274 shares in October 1999 held
in Treasury).................................... 172 172
Common Stock,Class B,$.01 par value-authorized
13,000,000 shares; issued 7,984,771 (both years
include 345,874 shares held in Treasury)........ 79 79
Paid in Capital................................... 45,709 45,856
Retained Earnings................................. 220,167 213,257
Treasury Stock - at cost.......................... (25,368) (22,938)
----------- -----------
Total Stockholders' Equity.................... 240,759 236,426
----------- -----------
Total Liabilities and Stockholders' Equity.......... $790,231 $712,861
=========== ===========
See notes to consolidated financial statements.
</TABLE>
<TABLE>
HOVNANIAN ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In Thousands Except Per Share Data)
(unaudited)
<CAPTION>
Three Months Ended Six Months Ended
April 30, April 30,
------------------- -------------------
2000 1999 2000 1999
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Revenues:
Homebuilding:
Sale of homes...................... $235,055 $199,138 $485,173 $394,023
Land sales and other revenues...... 3,378 5,454 5,443 7,895
--------- --------- --------- ---------
Total Homebuilding............... 238,433 204,592 490,616 401,918
Financial Services................... 3,344 4,154 8,195 9,812
Collateralized Mortgage Financing.... 111 139 226 275
--------- --------- --------- ---------
Total Revenues................... 241,888 208,885 499,037 412,005
--------- --------- --------- ---------
Expenses:
Homebuilding:
Cost of sales...................... 188,424 159,037 393,927 314,624
Selling, general and administrative 25,764 18,588 50,692 35,918
Inventory impairment loss.......... 401 401
--------- --------- --------- ---------
Total Homebuilding............... 214,188 178,026 444,619 350,943
--------- --------- --------- ---------
Financial Services................... 4,139 3,859 9,444 9,101
--------- --------- --------- ---------
Collateralized Mortgage Financing.... 93 142 191 273
--------- --------- --------- ---------
Corporate General and Administration. 7,487 6,418 14,361 12,853
--------- --------- --------- ---------
Interest............................. 7,780 7,346 15,648 14,388
--------- --------- --------- ---------
Other Operations..................... 2,749 625 4,546 1,800
--------- --------- --------- ---------
Total Expenses................... 236,436 196,416 488,809 389,358
--------- --------- --------- ---------
Income Before Income Taxes............. 5,452 12,469 10,228 22,647
--------- --------- --------- ---------
State and Federal Income Taxes:
State................................ 304 1,340 459 2,828
Federal.............................. 1,690 3,677 2,859 6,239
--------- --------- --------- ---------
Total Taxes........................ 1,994 5,017 3,318 9,067
--------- --------- --------- --------
Net Income............................. $ 3,458 $ 7,452 $ 6,910 $ 13,580
========= ========= ========= =========
Per Share Data:
Basic:
Income per common share.............. $ 0.16 $ 0.35 $ 0.31 $ 0.63
Weighted average number of common
shares outstanding................. 22,054 21,266 22,192 21,391
Assuming dilution:
Income per common share.............. 0.16 0.35 0.31 0.63
Weighted average number of common
shares outstanding................ 22,111 21,488 22,271 21,611
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, 1999 14,508,168 $ 172 7,651,209 $ 79 $45,856 $213,257 $(22,938) $236,426
Acquisitions.............. (147) (147)
Stock bonus plan.......... 24,233
Conversion of Class B to
Class A Common Stock.... 12,312 (12,312)
Treasury stock purchases.. (400,371) (2,430) (2,430)
Net Income................ 6,910 6,910
----------- ------ ----------- ------ ------- -------- -------- --------
Balance, April 30, 2000
(unaudited)............... 14,144,342 $ 172 7,638,897 $ 79 $45,709 $220,167 $(25,368) $240,759
=========== ====== =========== ====== ======= ======== ======== ========
See notes to consolidated financial statements.
</TABLE>
<TABLE>
HOVNANIAN ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
(unaudited)
<CAPTION>
Six Months Ended
April 30,
---------------------
2000 1999
---------- ----------
<S> <C> <C>
Cash Flows From Operating Activities:
Net Income.......................................... $ 6,910 $ 13,580
Adjustments to reconcile net income to net cash
Provided by (used in) operating activities:
Depreciation.................................... 3,151 2,428
(Gain) loss on sale and retirement of property
and assets.................................... (154) 520
Deferred income taxes........................... 668 2,493
Impairment losses............................... 401
Decrease (increase) in assets:
Mortgage notes receivable..................... 2,763 26,472
Receivables, prepaids and other assets........ (16,567) (10,967)
Inventories................................... (62,740) (21,250)
Increase (decrease) in liabilities:
State and Federal income taxes................ (5,075) 137
Customers' deposits........................... 9,512 (1,065)
Interest and other accrued liabilities........ (1,807) (3,268)
Post development completion costs............. (1,256) (807)
Accounts payable.............................. (2,679) (8,892)
---------- ----------
Net cash (used in) operating activities..... (67,274) (218)
---------- ----------
Cash Flows From Investing Activities:
Net proceeds from sale of property and assets....... 256 18,083
Purchase of property, equipment and other fixed
assets............................................ (10,762) (6,013)
Acquisition of homebuilding companies............... (147)
Investment in and advances to unconsolidated
affiliates........................................ (4)
---------- ----------
Net cash (used in) provided by investing
activities................................ (10,653) 12,066
---------- ----------
Cash Flows From Financing Activities:
Proceeds from mortgages and notes................... 604,654 323,253
Principal payments on mortgages and notes........... (535,387) (335,812)
Purchase of treasury stock.......................... (2,430) (3,838)
Proceeds from sale of stock......................... 29
---------- ----------
Net cash provided by (used in) financing
activities................................ 66,837 (16,368)
---------- ----------
Net (Decrease) In Cash and Cash Equivalents........... (11,090) (4,520)
Cash and Cash Equivalents Balance, Beginning
Of Period........................................... 19,365 15,554
---------- ----------
Cash and Cash Equivalents Balance, End Of Period...... $ 8,275 $ 11,034
========== ==========
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, 1999
consolidated balance sheets, have been prepared without audit and should be read
in conjunction with the financial statements and notes thereto included in our
1999 Annual Report on Form 10-K. 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. The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates and these
differences could have a significant impact on the financial statements.
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
April 30, April 30,
------------------- -------------------
2000 1999 2000 1999
-------- -------- -------- --------
(Dollars in Thousands)
Interest Capitalized at
Beginning of Period........ $22,121 $ 22,089 $21,966 $25,545
Plus Interest Incurred(1)(3). 9,291 6,274 17,314 11,329
Less Interest Expensed(3).... 7,780 7,346 15,648 14,388
Less Sale of Assets......... 1,469
-------- -------- -------- --------
Interest Capitalized at
End of Period (2) (3)..... $ 23,632 $ 21,017 $ 23,632 $ 21,017
======== ======== ======== ========
(1) Data does not include interest incurred by our 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 interest expense when homes are delivered and
when land is not under active development, and interest incurred and
expensed on operating properties and senior residential rental
properties.
3. Homebuilding accumulated depreciation at April 30, 2000 and October 31,
1999 amounted to $19,685,000 and $19,550,000, respectively. Senior residential
rental property accumulated depreciation at April 30, 2000 and October 31, 1999
amounted to $2,095,000 and $2,211,000, respectively.
4. During the three months ended April 30, 1999 we recorded a $401,000
impairment loss associated with an option in Florida including approval,
engineering and capitalized interest. Residential inventory FAS 121 impairment
losses and option write-offs are reported on the Consolidated Statements of
Income as "Homebuilding - Inventory Impairment Loss."
5. We are 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 us. As of April 30, 2000 and October 31, 1999, we are obligated under
various performance letters of credit amounting to $4,324,000 and $4,091,000,
respectively.
6. Our credit facility has been amended as of February 22, 2000. Pursuant
to the Amendment, our credit line increased to $375,000,000 and is extended
through July 2003. Interest is payable monthly and at various rates of either
the prime rate plus .25% or Libor plus 1.70%.
7. Hovnanian Enterprises, Inc., the parent company (the "Parent" or
"Company") is the issuer of publicly traded common stock. One of its wholly
owned subsidiaries, K. Hovnanian Enterprises, Inc., (the "Subsidiary Issuer")
was the issuer of certain Senior Notes on May 4, 1999.
The Subsidiary Issuer acts as a finance and management entity that as of
April 30, 2000 had issued and outstanding approximately $100,000,000 of
subordinated notes, $150,000,000 senior notes and a revolving credit agreement
with an outstanding balance of $132,150,000. The subordinated notes, senior
notes and the revolving credit agreement are fully and unconditionally
guaranteed by the Parent.
Each of the wholly owned subsidiaries of the Parent (collectively the
"Guarantor Subsidiaries"), with the exception of four subsidiaries formerly
engaged in the issuance of collateralized mortgage obligations, a mortgage
lending subsidiary, a subsidiary holding and licensing the "K. Hovnanian" trade
name and a subsidiary engaged in homebuilding activity in Poland (collectively
the "Non-guarantor Subsidiaries"), have guaranteed fully and unconditionally, on
a joint and several basis, the obligation to pay principal and interest under
the senior notes and the revolving credit agreement of the Subsidiary Issuer.
In lieu of providing separate audited financial statements for the
Guarantor Subsidiaries we have included the accompanying consolidated condensed
financial statements based on our understanding of the Securities and Exchange
Commission's interpretation and application of Rule 3-10 of the Securities and
Exchange Commission's Regulations S-X and Staff Accounting Bulletin 53.
Management does not believe that separate financial statements of the Guarantor
Subsidiaries are material to investors. Therefore, separate financial
statements and other disclosures concerning the Guarantor Subsidiaries are not
presented.
The following consolidating condensed financial information present the
results of operations, financial position and cash flows of (i) the Parent (ii)
the Subsidiary Issuer (iii) the Guarantor Subsidiaries of the Parent (iv) the
Non-Guarantor Subsidiaries of the Parent and (v) the eliminations to arrive at
the information for Hovnanian Enterprises, Inc. on a consolidated basis.
<TABLE>
HOVNANIAN ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
CONSOLIDATING CONDENSED BALANCE SHEET
APRIL 30, 2000
(Thousands of Dollars)
<CAPTION>
Guarantor Non-
Subsidiary Subsid- Guarantor Elimin- Consol-
Parent Issuer iaries Subsidiaries ations idated
-------- ---------- ---------- ------------ ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Homebuilding.......................$ 362 $ 45,385 $ 693,811 $ 5,674 $ $ 745,232
Financial Services and CMO......... 825 38,044 38,869
Income Taxes (Payables)Receivables. 496 (564) 9,709 (3,511) 6,130
Investments in and amounts due to
and from consolidated
subsidiaries..................... 239,901 355,192 (401,715) 10,417 (203,795)
-------- ---------- ---------- ------------ ---------- ----------
Total Assets.......................$240,759 $ 400,013 $ 302,630 $ 50,624 $(203,795) $ 790,231
======== ========== ========== ============ ========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Homebuilding.......................$ $ 6,952 $ 115,924 $ 664 $ $ 123,540
Financial Services and CMO......... 361 31,301 31,662
Notes Payable...................... 393,949 321 394,270
Stockholders' Equity............... 240,759 (888) 186,024 18,659 (203,795) 240,759
-------- ---------- ---------- ------------ ---------- ----------
Total Liabilities and Stockholders'
Equity...........................$240,759 $ 400,013 $ 302,630 $ 50,624 $(203,795) $ 790,231
======== ========== ========== ============ ========== ==========
</TABLE>
<TABLE>
HOVNANIAN ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
CONSOLIDATING CONDENSED BALANCE SHEET
OCTOBER 31, 1999
(Thousands of Dollars)
<CAPTION>
Guarantor Non-
Subsidiary Subsid- Guarantor Elimin- Consol-
Parent Issuer iaries Subsidiaries ations idated
-------- --------- ---------- ------------ ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Homebuilding.......................$ 53 $ 34,735 $ 630,074 $ 4,109 $ $ 668,971
Financial Services and CMO......... (4,807) 46,974 42,167
Income Taxes (Payables)Receivables. (4,303) (374) 8,562 (2,162) 1,723
Investments in and amounts due to
and from consolidated
subsidiaries..................... 240,676 304,811 (305,942) 2,252 (241,797)
-------- --------- ---------- ------------ ---------- ----------
Total Assets.......................$236,426 $339,172 $ 327,887 $ 51,173 $ (241,797) $712,861
======== ========= ========== ============ ========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Homebuilding.......................$ $ 7,060 $ 102,282 $ 363 $ $ 109,705
Financial Services and CMO......... 495 34,456 34,951
Notes Payable...................... 331,491 288 331,779
Stockholders' Equity............... 236,426 621 224,822 16,354 (241,797) 236,426
-------- --------- ---------- ------------ ---------- ----------
Total Liabilities and Stockholders'
Equity...........................$236,426 $339,172 $ 327,887 $ 51,173 $ (241,797) $ 712,861
======== ========= ========== ============ ========== ==========
</TABLE>
<TABLE>
HOVNANIAN ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
CONSOLIDATING CONDENSED STATEMENT OF OPERATIONS
THREE MONTHS ENDED APRIL 30, 2000
(Thousands of Dollars)
<CAPTION>
Guarantor Non-
Subsidiary Subsid- Guarantor Elimin- Consol-
Parent Issuer iaries Subsidiaries ations idated
------- ---------- ---------- ------------ ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Homebuilding.....................$ $ 69 $ 237,666 $ 4,350 $ (3,652) $ 238,433
Financial Services and CMO....... 1,001 2,454 3,455
Intercompany Charges............. 24,860 1,550 (26,410)
Equity In Pretax Income of
Consolidated Subsidiaries...... 5,452 (5,452)
------- ---------- ---------- ------------ ---------- ----------
Total Revenues................ 5,452 24,929 240,217 6,804 (35,514) 241,888
------- ---------- ---------- ------------ ---------- ----------
Expenses:
Homebuilding..................... 24,502 228,884 219 (21,401) 232,204
Financial Services and CMO....... 936 3,356 (60) 4,232
------- ---------- ---------- ------------ ---------- ----------
Total Expenses................. 24,502 229,820 3,575 (21,461) 236,436
------- ---------- ---------- ------------ ---------- ----------
Income Before Income Taxes......... 5,452 427 10,397 3,229 (14,053) 5,452
State and Federal Income Taxes..... 1,994 204 3,667 1,136 (5,007) 1,994
------- ---------- ---------- ------------ ---------- ----------
Net Income ........................$ 3,458 $ 223 $ 6,730 $ 2,093 $ (9,046) $ 3,458
======= ========== ========== ============ ========== ==========
</TABLE>
<TABLE>
HOVNANIAN ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
CONSOLIDATING CONDENSED STATEMENT OF OPERATIONS
THREE MONTHS ENDED APRIL 30, 1999
(Thousands of Dollars)
<CAPTION>
Guarantor Non-
Subsidiary Subsid- Guarantor Elimin- Consol-
Parent Issuer iaries Subsidiaries ations idated
------- ---------- ---------- ------------ ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Homebuilding.....................$ $ (57) $ 204,635 $ 5,273 $ (5,259) $ 204,592
Financial Services and CMO....... 791 3,502 4,293
Intercompany Charges............. 20,944 1,335 (22,279)
Equity In Pretax Income of
Consolidated Subsidiaries...... 12,469 (12,469)
------- ---------- ---------- ------------ ---------- ----------
Total Revenues................ 12,469 20,887 206,761 8,775 (40,007) 208,885
------- ---------- ---------- ------------ ---------- ----------
Expenses:
Homebuilding..................... 21,175 190,632 345 (19,737) 192,415
Financial Services and CMO....... 682 3,543 (224) 4,001
------- ---------- ---------- ------------ ---------- ----------
Total Expenses................. 21,175 191,314 3,888 (19,961) 196,416
------- ---------- ---------- ------------ ---------- ----------
Income Before Income Taxes......... 12,469 (288) 15,447 4,887 (20,046) 12,469
State and Federal Income Taxes..... 5,017 5,631 2,065 (7,696) 5,017
------- ---------- ---------- ------------ ---------- ----------
Net Income.........................$ 7,452 $ (288) $ 9,816 $ 2,822 $ (12,350) $ 7,452
======= ========== ========== ============ ========== ==========
</TABLE>
<TABLE>
HOVNANIAN ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
CONSOLIDATING CONDENSED STATEMENT OF OPERATIONS
SIX MONTHS ENDED APRIL 30, 2000
(Thousands of Dollars)
<CAPTION>
Guarantor Non-
Subsidiary Subsid- Guarantor Elimin- Consol-
Parent Issuer iaries Subsidiaries ations idated
------- ---------- ---------- ------------ ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Homebuilding.....................$ $ 223 $ 489,072 $ 6,442 $ (5,121) $ 490,616
Financial Services and CMO....... 2,751 5,670 8,421
Intercompany Charges............. 47,906 3,998 (51,904)
Equity In Pretax Income of
Consolidated Subsidiaries...... 10,228 (10,228)
------- ---------- ---------- ------------ ---------- ----------
Total Revenues................ $10,228 $ 48,129 $ 495,821 $ 12,112 $ (67,253) $ 499,037
------- ---------- ---------- ------------ ---------- ----------
Expenses:
Homebuilding..................... 47,560 470,259 673 (39,318) 479,174
Financial Services and CMO....... 2,310 7,544 (219) 9,635
------- ---------- ---------- ------------ ---------- ----------
Total Expenses................. 47,560 472,569 8,217 (39,537) 488,809
------- ---------- ---------- ------------ ---------- ----------
Income Before Income Taxes......... 10,228 569 23,252 3,895 (27,716) 10,228
State and Federal Income Taxes..... 3,318 239 7,833 1,366 (9,438) 3,318
------- ---------- ---------- ------------ ---------- ----------
Net Income.........................$ 6,910 $ 330 $ 15,419 $ 2,529 $ (18,278) $ 6,910
======= ========== ========== ============ ========== ==========
</TABLE>
<TABLE>
HOVNANIAN ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
CONSOLIDATING CONDENSED STATEMENT OF OPERATIONS
SIX MONTHS ENDED APRIL 30, 1999
(Thousands of Dollars)
<CAPTION>
Guarantor Non-
Subsidiary Subsid- Guarantor Elimin- Consol-
Parent Issuer iaries Subsidiaries ations idated
------- ---------- ---------- ------------ ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Homebuilding.....................$ $ 29 $ 400,919 $ 9,534 $ (8,564) $ 401,918
Financial Services and CMO....... 1,611 8,476 10,087
Intercompany Charges............. 41,840 1,984 (43,824)
Equity In Pretax Income of
Consolidated Subsidiaries...... 22,647 (22,647)
------- ---------- ---------- ------------ ---------- ----------
Total Revenues................ 22,647 41,869 404,514 18,010 (75,035) 412,005
------- ---------- ---------- ------------ ---------- ----------
Expenses:
Homebuilding..................... 42,140 373,709 1,367 (37,232) 379,984
Financial Services and CMO....... 1,172 8,423 (221) 9,374
------- ---------- ---------- ------------ ---------- ----------
Total Expenses................. 42,140 374,881 9,790 (37,453) 389,358
------- ---------- ---------- ------------ ---------- ----------
Income Before Income Taxes......... 22,647 (271) 29,633 8,220 (37,582) 22,647
State and Federal Income Taxes..... 9,067 11,252 3,510 (14,762) 9,067
------- ---------- ---------- ------------ ---------- ----------
Net Income ........................$13,580 $ (271) $ 18,381 $ 4,710 $ (22,820) $ 13,580
======= ========== ========== ============ ========== ==========
</TABLE>
<TABLE>
HOVNANIAN ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
CONSOLIDATING CONDENSED STATEMENT OF CASH FLOWS
SIX MONTHS ENDED APRIL 30, 2000
(Thousands of Dollars)
<CAPTION>
Guarantor Non-
Subsidiary Subsid- Guarantor Elimin- Consol-
Parent Issuer iaries Subsidiaries ations idated
-------- --------- ---------- ------------ ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Cash Flows From Operating Activities:
Net Income.........................$ 6,910 $ 330 $ 15,419 $ 2,529 $ (18,278) $ 6,910
Adjustments to reconcile net income
to net cash provided by
(used in) operating activities... (4,792) 44,407 (142,308) 10,231 18,278 (74,184)
-------- --------- ---------- ------------ ---------- ----------
Net Cash Provided By (Used In)
Operating Activities........... 2,118 44,737 (126,889) 12,760 (67,274)
Net Cash Provided By (Used In)
Investing Activities............... (147) (9,762) (742) (2) (10,653)
Net Cash (Used In) Provided By
Financing Activities............... (2,430) 62,025 10,790 (3,548) 66,837
Intercompany Investing and Financing
Activities - Net................... 775 (98,287) 105,677 (8,165)
-------- --------- ---------- ------------ ---------- ----------
Net Increase (Decrease) In Cash and
Cash Equivalents................... 316 (1,287) (11,164) 1,045 (11,090)
Cash and Cash Equivalents Balance,
Beginning of Period................ 46 (5,395) 24,608 106 19,365
-------- --------- ---------- ------------ ---------- ----------
Cash and Cash Equivalents Balance,
End of Period......................$ 362 $ (6,682) $ 13,444 1,151 $ $ 8,275
======== ========= ========== ============ ========== ==========
</TABLE>
<TABLE>
HOVNANIAN ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED
CONSOLIDATING CONDENSED STATEMENT OF CASH FLOWS
SIX MONTHS ENDED APRIL 30, 1999
(Thousands of Dollars)
<CAPTION>
Guarantor Non-
Subsidiary Subsid- Guarantor Elimin- Consol-
Parent Issuer iaries Subsidiaries ations idated
-------- --------- ---------- ------------ ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Cash Flows From Operating Activities:
Net Income.........................$ 13,580 $ (271) $ 18,381 $ 4,710 $ (22,820) $ 13,580
Adjustments to reconcile net income
to net cash provided by
(used in) operating activities... 865 (3,931) (58,970) 25,418 22,820 (13,798)
-------- --------- ---------- ------------ ---------- ----------
Net Cash Provided By (Used In)
Operating Activities........... 14,445 (4,202) (40,589) 30,128 (218)
Net Cash Provided By (Used In)
Investing Activities............... (436) 12,587 (85) 12,066
Net Cash Provided By (Used In)
Financing Activities............... (3,809) 16,675 (5,367) (23,867) (16,368)
Intercompany Investing and Financing
Activities - Net................... (10,604) (2,613) 18,824 (5,607)
-------- --------- ---------- ------------ ---------- ----------
Net Increase (Decrease) In Cash
and Cash Equivalents............... 32 9,424 (14,545) 569 (4,520)
Cash and Cash Equivalents Balance,
Beginning of Period................ 14 (9,660) 23,023 2,177 15,554
-------- --------- ---------- ------------ ---------- ----------
Cash and Cash Equivalents Balance,
End of Period......................$ 46 $ (236) $ 8,478 $ 2,746 $ $ 11,034
======== ========= ========== ============ ========== ==========
</TABLE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
CAPITAL RESOURCES AND LIQUIDITY
Our uses for cash during the six months ended April 30, 2000 were for
operating expenses, seasonal increases in housing inventories, construction,
income taxes, interest, and the repurchase of common stock. We provided for our
cash requirements from the revolving credit facility, housing and land sales,
financial service fees and other revenues. We believe that these sources of
cash are sufficient to finance our working capital requirements and other needs.
In March 2000 the Board of Directors authorized a stock repurchase program
to purchase up to 4 million shares of Class A Common Stock. This authorization
expires on December 31, 2000. As of April 30, 2000, 2,764,771 shares were
repurchased under this program of which 400,371 shares were purchased during the
six months ended April 30, 2000.
Our bank borrowings are made pursuant to a revolving credit agreement (the
"Agreement") that provides a revolving credit line of up to $375,000,000 (the
"Revolving Credit Facility") through July 2003. Interest is payable monthly and
at various rates of either prime plus .25% or Libor plus 1.70%. We believe that
we will be able either to extend the Agreement beyond July 2003 or negotiate a
replacement facility, but there can be no assurance of such extension or
replacement facility. We currently are in compliance and intend to maintain
compliance with our covenants under the Agreement. As of April 30, 2000,
borrowings under the Agreement were $132,150,000.
The subordinated indebtedness issued by us and outstanding as of April 30,
2000 was $100,000,000 9 3/4% Subordinated Notes due June 2005. The senior
indebtedness issued by us and outstanding as of April 30, 2000 was $150,000,000
9 1/8% Senior Notes due May 2009.
Our 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 our subsidiaries. As of April 30, 2000, the aggregate principal
amount of all such borrowings was $30,186,000.
Total inventory increased $62,740,000 during the six months ended April 30,
2000. The increase was primarily due to significant anticipated openings of a
number of communities in the Northeast Region and California and our expansion
in Maryland. Substantially all homes under construction or completed and
included in inventory at April 30, 2000 are expected to be closed during the
next twelve months. Most inventory completed or under development is financed
through our line of credit and subordinated indebtedness.
The following table summarizes housing lots in our active selling
communities under development (including Poland):
(1) (2)
Homes Contracted Remaining
Commun- Approved Deliv- Not Home Sites
ities Lots ered Delivered Available
------- -------- ------ ---------- ----------
April 30, 2000........ 125 19,554 6,549 2,203 10,802
October 31, 1999...... 110 19,963 6,899 1,844 11,220
(1) Includes 129 and 96 lots under option at April 30, 2000 and October 31,
1999, respectively.
(2) Of the total home lots available, 661 and 599 were under construction or
complete (including 69 and 76 models and sales offices), 5,821 and 7,057 were
under option, and 253 and 216 were financed through purchase money mortgages at
April 30, 2000 and October 31, 1999, respectively.
In addition, at April 30, 2000 and October 31, 1999, respectively, in
substantially completed or suspended communities, we owned or had under option
68 and 94 home lots. We also control 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, 2000 we controlled such land
to build 13,175 proposed homes, compared to 13,573 homes at October 31, 1999.
The following table summarizes our started or completed unsold homes in
active, substantially complete and suspended communities:
April 30, October 31,
2000 1999
----------------------- -----------------------
Unsold Unsold
Homes Models Total Homes Models Total
------ ------ ----- ------ ------ -----
Northeast Region.... 118 46 164 114 31 145
North Carolina...... 78 -- 78 129 -- 129
Florida............. 5 -- 5 5 -- 5
Metro D. C.......... 9 6 15 13 9 22
California.......... 114 12 126 53 10 63
Texas.............. 220 5 225 225 28 253
Poland.............. 60 -- 60 14 -- 14
------ ------ ----- ------ ------ -----
Total 604 69 673 553 78 631
====== ====== ===== ====== ====== =====
Financial Services - Mortgage loans held for sale consist of residential
mortgages receivable of which $30,682,000 and $32,844,000 at April 30, 2000 and
October 31, 1999, 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 us. We 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, we have incurred minimal
credit losses. Collateral Mortgage Financing - Collateral for bonds payable
consist of collateralized mortgages receivable which are pledged against non-
recourse collateralized mortgage obligations.
RESULTS OF OPERATIONS FOR THE THREE AND SIX MONTHS ENDED APRIL 30, 2000 COMPARED
TO THE THREE AND SIX MONTHS ENDED APRIL 30, 1999
Our operations consist primarily of residential housing development and
sales in its Northeast Region (comprising of New Jersey, southern New York State
and eastern Pennsylvania), North Carolina, southeastern Florida, Metro D. C.
(northern Virginia and Maryland), southern California, Texas and Poland. Our
Texas operations are the result of the acquisition of a Texas homebuilder on
October 1, 1999. In addition, we provide financial services to our homebuilding
customers as well as third parties.
Important indicators of the future results are recently signed contracts
and home contract backlog for future deliveries. Our sales contracts and homes
in contract (using base sales prices) by market area are set forth below:
Sales Contracts for the
Six Months Ended Contract Backlog
April 30, as of April 30,
----------------------- --------------------
2000 1999 2000 1999
--------- --------- --------- ---------
(Dollars in Thousands)
Northeast Region(1):
Dollars............. $283,166 $205,087 $358,531 $256,033
Homes............... 1,073 886 1,327 1,058
North Carolina:
Dollars............. $ 60,872 $ 81,784 $ 47,229 $ 71,044
Homes............... 320 416 229 348
Florida:
Dollars............. $ 13,691 $ 20,580 $ 13,711 $ 19,262
Homes............... 55 92 55 87
Metro D. C.:
Dollars............. $ 38,593 $ 27,278 $ 39,924 $ 34,815
Homes............... 146 122 164 156
California:
Dollars............. $ 75,953 $ 41,952 $ 56,280 $ 20,001
Homes............... 244 217 162 105
Texas:
Dollars............. $ 86,501 $ -- $ 52,618 $ --
Homes............... 438 -- 259 --
Poland:
Dollars............. $ 1,187 $ 482 $ 1,753 $ 428
Homes............... 37 5 47 3
Totals:
Dollars............. $559,963 $377,163 $570,046 $401,583
Homes............... 2,313 1,738 2,243 1,757
(1) Six months ended April 30, 2000 includes $34,803,000 total sales and
102 homes and $46,326,000 total contract backlog and 136 homes from
a New Jersey homebuilder acquired on August 7, 1999.
Total Revenues:
Revenues for the three months ended April 30, 2000 increased $33.0 million
or 15.8%, compared to the same period last year. This was the result of a $35.9
million increase in revenues from the sale of homes. This increase was
partially offset by a $2.1 million decrease in land sales and other homebuilding
revenues and a $0.8 million decrease in financial services revenues.
Revenues for the six months ended April 30, 2000 increased $87.0 million or
21.1%, compared to the same period last year. This was the result of a $91.1
million increase in revenues from the sale of homes. This increase was
partially offset by a $2.5 million decrease in land sales and other homebuilding
revenues and a $1.6 million decrease in financial services revenues.
Homebuilding:
Revenues from the sale of homes increased $35.9 million or 18.0% during the
three months ended April 30, 2000, and increased $91.1 million or 23.1% during
the six months ended April 30, 2000, compared to the same period last year.
Revenues from sales of homes are recorded at the time each home is delivered and
title and possession have been transferred to the buyer.
Information on homes delivered by market area is set forth below:
Three Months Ended Six Months Ended
April 30, April 30,
------------------- ------------------
2000 1999 2000 1999
--------- -------- -------- --------
(Dollars in Thousands)
Northeast Region(1):
Housing Revenues..... $113,732 $126,501 $240,984 $253,184
Homes Delivered...... 409 482 871 960
North Carolina:
Housing Revenues..... $ 30,891 $ 30,553 $ 58,261 $ 59,633
Homes Delivered...... 160 149 298 303
Florida:
Housing Revenues..... $ 5,087 $ 9,531 $ 9,586 $ 17,864
Homes Delivered...... 17 40 37 78
Metro D.C.:
Housing Revenues..... $ 17,459 $ 6,005 $ 33,304 $ 18,552
Homes Delivered...... 66 27 131 81
California:
Housing Revenues..... $ 30,313 $ 26,548 $ 55,949 $ 43,859
Homes Delivered...... 117 128 211 231
Texas:
Housing Revenues..... $ 37,573 $ -- $ 86,788 $ --
Homes Delivered...... 181 -- 440 --
Poland:
Housing Revenues..... $ -- $ -- $ 301 $ 931
Homes Delivered...... -- -- 3 9
Totals:
Housing Revenues..... $235,055 $199,138 $485,173 $394,023
Homes Delivered...... 950 826 1,991 1,662
(1) Three and six months ended April 30, 2000 includes $12,776,000 and
$30,916,000 housing revenues and 39 and 89 homes from a New Jersey
homebuilder acquired on August 7, 1999.
The increase in the number of homes delivered and housing revenues compared
to the prior year was primarily due to the acquisition of a Texas homebuilding
company and an increase of three communities in the Metro DC market. The
housing revenue increase was also the result of average home prices increasing
slightly to $243,683 compared to $237,078 during the six months ended April 30,
2000 and 1999, respectively. These increases were partially offset by decreases
in the Northeast Region and Florida. The decrease in home sales and related
revenue in the Northeast Region is due to fewer selling communities in the third
and fourth quarters of fiscal 1999, resulting in fewer deliveries during the
first six months of fiscal 2000. In Florida the decrease is due to the closing
of our Florida operations.
Cost of sales includes 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,
------------------- -------------------
2000 1999 2000 1999
-------- -------- -------- --------
(Dollars in Thousands)
Sale of Homes................ $235,055 $199,138 $485,173 $394,023
Cost of Sales................ 187,615 155,085 392,325 309,334
-------- -------- -------- --------
Housing Gross Margin......... $ 47,440 $ 44,053 $ 92,848 $ 84,689
======== ======== ======== ========
Gross Margin Percentage...... 20.2% 22.1% 19.1% 21.5%
Cost of Sales expenses as a percentage of home sales revenues are presented
below:
Three Months Ended Six Months Ended
April 30, April 30,
------------------- -------- --------
2000 1999 2000 1999
-------- -------- -------- --------
Sale of Homes................ 100.0% 100.0% 100.0% 100.0%
-------- -------- -------- --------
Cost of Sales:
Housing, land &
development costs.... 71.4% 69.9% 72.4% 70.4%
Commissions............ 2.3% 1.9% 2.3% 1.9%
Financing concessions.. 0.9% 0.7% 0.9% 0.8%
Overheads.............. 5.2% 5.4% 5.3% 5.4%
-------- -------- -------- --------
Total Cost of Sales.......... 79.8% 77.9% 80.9% 78.5%
-------- -------- -------- --------
Gross Margin................. 20.2% 22.1% 19.1% 21.5%
======== ======== ======== ========
We sell 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. For the three and six months ended April 30, 2000 our gross margin
percentage decreased 1.9% and 2.4%, respectively, compared to the same periods
last year. This can be attributed to a less rich community mix from the
Northeast Region and more deliveries in our new Texas market where they report
lower margins.
Selling, general, and administrative expenses as a percentage of total
homebuilding revenues increased to 10.8% for the three months ended April 30,
2000 from 9.0% for the prior year's three months and increased to 10.3% for the
six months ended April 30, 2000 from 9.0% for the prior year's six months. Such
expenses increased during the three and six months ended April 30, 2000 $7.2
million and $14.8 million, respectively, compared to the same periods last year.
The overall percentage and dollar increases in selling, general and
administrative is due to increased deliveries, community openings, and increases
in administrative costs primarily in our Northeast Region and California, and
the addition of Texas.
Land Sales and Other Revenues:
Land sales and other revenues consist primarily of land and lot sales. A
breakout of land and lot sales is set forth below:
Three Months Ended Six Months Ended
April 30, April 30,
------------------ -------------------
2000 1999 2000 1999
-------- -------- -------- --------
Land and Lot Sales................ $ 882 $ 4,207 $ 1,816 $ 5,534
Cost of Sales..................... 810 3,952 1,602 5,290
-------- -------- -------- --------
Land and Lot Sales Gross Margin... 72 255 214 244
Interest Expense.................. 48 609 239 742
-------- -------- -------- --------
Land and Lot Sales Profit (Loss)
Before Tax...................... $ 24 $ ( 354) $ (25) $ (498)
======== ======== ======== ========
Land and lot sales are incidental to our residential housing operations and
are expected to continue in the future but may significantly fluctuate up or
down.
Financial Services
Financial services consist primarily of originating mortgages from our
homebuyers, as well as from third parties, selling such mortgages in the
secondary market and title insurance activities. For the three and six months
ended April 30, 2000 financial services recorded a $0.8 million and $1.2 million
loss before income taxes compared to a profit of $0.3 million and $0.7 million
for the same periods in 1999. Our mortgage banking goals are to improve
profitability by increasing the capture rate of our homebuyers and expanding our
business to include originations from unrelated third parties.
Collateralized Mortgage Financing
In the years prior to February 29, 1988 we pledged mortgage loans
originated by our mortgage banking subsidiaries against collateralized mortgage
obligations ("CMO's"). Subsequently we discontinued our 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, as a result of bonds becoming callable, we have also sold a
portion of our CMO pledged mortgages.
Corporate General and Administrative
Corporate general and administration expenses include the operations at our
headquarters in Red Bank, New Jersey. Such expenses include our executive
offices, information services, human resources, corporate accounting, training,
treasury, process redesign, internal audit, and administration of insurance,
quality, and safety. As a percentage of total revenues such expenses for the
three months ended April 30, 2000 compared to the same period last year were
unchanged. For the six months ended April 30, 2000 such expenses decreased to
2.9% from 3.1% for the prior year six months due to increased housing revenues.
Corporate general and administration expenses increased $1.1 million and $1.5
million during the three and six months ended April 30, 2000 compared to the
same periods last year. These increases are primarily attributed to increased
process redesign costs associated with the design and development of streamlined
business processes associated with the implementation of SAP, our new enterprise
wide fully integrated software package and increased depreciation of capitalized
process redesign costs in prior years.
Interest
Interest expense includes housing and land and lot interest. Interest
expense is broken down as follows:
Three Months Ended Six Months Ended
April 30, April 30,
------------------ -------------------
2000 1999 2000 1999
-------- -------- -------- --------
Sale of Homes.............. $ 7,732 $ 6,737 $ 15,409 $ 13,646
Land and Lot Sales......... 48 609 239 742
-------- -------- -------- --------
Total...................... $ 7,780 $ 7,346 $ 15,648 $ 14,388
======== ======== ======== ========
Housing interest as a percentage of sale of homes revenues amounted to 3.3%
and 3.2% for the three and six months ended April 30, 2000, respectively,
compared to 3.2% and 3.3% for the three and six months ended April 30, 1999,
respectively.
Other Operations
Other operations consist primarily of miscellaneous residential housing
operations expenses, amortization of senior and subordinated note issuance
expenses, amortization of goodwill from homebuilding company acquisitions,
earnout payments from homebuilding company acquisitions and corporate owned life
insurance loan interest.
Total Taxes
Total taxes as a percentage of income before taxes amounted to
approximately 32.4% and 40.0% for the six months ended April 30, 2000 and 1999,
respectively. The decrease in this percentage from 1999 to 2000 is primarily
attributed to lower state income taxes and senior rental tax credits. Although
the credits are the same in 1999 and 2000, they reduce our effective tax rate
more significantly when pretax profits decline. Deferred federal and state
income tax assets primarily represent the deferred tax benefits arising from
temporary differences between book and tax income which will be recognized in
future years as an offset against future taxable income. If for some reason the
combination of future years income (or loss) combined with the reversal of the
timing differences results in a loss, such losses can be carried back to prior
years to recover the deferred tax assets. As a result, management is confident
such deferred tax assets are recoverable regardless of future income.
Year 2000 Issues
We completed all Year 2000 readiness work and experienced no problem with
regard to this matter.
Inflation
Inflation has a long-term effect on us because increasing costs of land,
materials and labor result in increasing sale prices of our homes. In general,
these price increases have been commensurate with the general rate of inflation
in our housing markets and have not had a significant adverse effect on the sale
of our homes. 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 we sell our homes, we have not found this risk to be a
significant problem.
Inflation has a lesser short-term effect on us because we generally
negotiate fixed price contracts with our subcontractors and material suppliers
for the construction of our 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 57% of our total costs and expenses.
Forward Looking Statements
All statements in this Form 10-Q that are not historical facts should be
considered "forward-looking statements" within the meaning of the Private
Securities Litigation Act of 1995. Such statements involve known and unknown
risks, uncertainties and other factors that may cause actual results to differ
materially. Such risks, uncertainties and other factors include, but are not
limited to, changes in general economic conditions, fluctuations in interest
rates, increases in raw materials and labor costs, levels of competition and
other factors described in detail in our Form 10-K for the year ended October
31, 1999.
Item 4. Submission of Matters to a Vote of Security Holders
We held our annual stockholders meeting on March 16, 2000 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
.. Desmond P. McDonald
.. Peter S. Reinhart
.. J. Larry Sorsby
.. Stephen D. Weinroth
. Ratification of selection of Ernst & Young, LLP as certified independent
accountants for fiscal year ending October 31, 2000.
.. Votes For 72,666,140
.. Votes Against 14,220
.. Abstain 9,330
. Approval of amendments to the Company's Stock Option Plan.
.. Votes For 72,476,240
.. Votes Against 196,800
.. Abstain 16,650
. Approval of the Company's Senior Executive Short Term Incentive Plan.
.. Votes For 72,371,950
.. Votes Against 287,850
.. Abstain 29,890
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 7, 2000 /S/J. LARRY SORSBY
J. Larry Sorsby,
Senior Vice President,
Treasurer and
Chief Financial Officer
DATE: June 7, 2000 /S/PAUL W. BUCHANAN
Paul W. Buchanan,
Senior Vice President
Corporate Controller
