UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

 

FORM 8-K

 

CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

 

Date of Report (Date of earliest event reported): March 8, 2018

 

HOVNANIAN ENTERPRISES, INC.
(Exact Name of Registrant as Specified in its Charter)

 

Delaware (State or Other Jurisdiction of Incorporation)

1-8551 (Commission File Number)

22-1851059 (IRS Employer Identification No.)

 90 Matawan Road, 5th Floor

Matawan, New Jersey 07747
(Address of Principal Executive Offices) (Zip Code)

 

(732) 747-7800
(Registrant’s telephone number, including area code)

 

110 West Front Street, P.O. Box 500, Red Bank, New Jersey 07701
(Former Name or Former Address, if Changed Since
Last Report)

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

 

☐     Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

☐     Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

☐     Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

☐     Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).

Emerging growth company  ☐ 

 

 If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.                                              ☐ 

 

Item 2.02.            Results of Operations and Financial Condition.

 

On March 8, 2018, Hovnanian Enterprises, Inc. (the “Company”) issued a press release announcing its preliminary financial results for the fiscal first quarter ended January 31, 2018. A copy of the press release is attached as Exhibit 99.1.

 

The information in this Current Report on Form 8-K and the Exhibit attached hereto is being furnished and shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject to the liability of that section, nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933, as amended, or the Exchange Act, except as shall be expressly set forth by specific reference in such filing.

 

The attached earnings press release contains information about consolidated earnings before interest expense and income taxes (“EBIT”) and before depreciation and amortization (“EBITDA”) and before inventory impairment loss and land option write-offs and gain on extinguishment of debt (“Adjusted EBITDA”), which are non-GAAP financial measures. The most directly comparable GAAP financial measure is net (loss). A reconciliation for historical periods of EBIT, EBITDA and Adjusted EBITDA to net (loss) is contained in the earnings press release.

 

The attached earnings press release contains information about homebuilding gross margin, before costs of sales interest expense and land charges, and homebuilding gross margin percentage, before costs of sales interest expense and land charges, which are non-GAAP financial measures. The most directly comparable GAAP financial measures are homebuilding gross margin and homebuilding gross margin percentage, respectively. A reconciliation for historical periods of homebuilding gross margin, before costs of sales interest expense and land charges, and homebuilding gross margin percentage, before costs of sales interest expense and land charges, to homebuilding gross margin and homebuilding gross margin percentage, respectively, is contained in the earnings press release.

 

The attached earnings press release contains information about (loss) before income taxes excluding land-related charges, joint-venture write-downs and gain on extinguishment of debt, which is a non-GAAP financial measure. The most directly comparable GAAP financial measure is (loss) income before income taxes. A reconciliation for historical periods of (loss) before income taxes excluding land-related charges, joint-venture write-downs and gain on extinguishment of debt to (loss) income before income taxes is contained in the earnings press release.

 

Management believes EBITDA to be relevant and useful information as EBITDA is a standard measure commonly reported and widely used by analysts, investors and others to measure and benchmark the Company’s financial performance without the effects of various items the Company does not believe are characteristic of its ongoing operating performance. EBITDA does not take into account substantial costs of doing business, such as income taxes and interest expense. While many in the financial community consider EBITDA to be an important measure of comparative operating performance, it should be considered in addition to, but not as a substitute for, (loss) income before income taxes, net (loss) income and other measures of financial performance prepared in accordance with accounting principles generally accepted in the United States that are presented on the financial statements included in the Company’s reports filed with the Securities and Exchange Commission. Additionally, the Company’s calculation of EBITDA may be different than the calculation used by other companies, and, therefore, comparability may be affected.

 

Management believes homebuilding gross margin, before costs of sales interest expense and land charges, enables investors to better understand the Company’s operating performance. This measure is also useful internally, helping management to evaluate the Company’s operating results on a consolidated basis and relative to other companies in the Company’s industry. In particular, the magnitude and volatility of land charges for the Company, and for other homebuilders, have been significant and, as such, have made financial analysis of the Company’s industry more difficult. Homebuilding metrics excluding land charges, as well as interest amortized to cost of sales, and other similar presentations prepared by analysts and other companies are frequently used to assist investors in understanding and comparing the operating characteristics of homebuilding activities by eliminating many of the differences in companies’ respective levels of impairments and levels of debt. Homebuilding gross margin, before cost of sales interest expense and land charges, should be considered in addition to, but not as an alternative to, homebuilding gross margin determined in accordance with GAAP as an indicator of operating performance. Additionally, the Company’s calculation of homebuilding gross margin, before costs of sales interest expense and land charges, may be different than the calculation used by other companies, and, therefore, comparability may be affected.

 

Management believes (loss) before income taxes excluding land-related charges, joint-venture write-downs and gain on extinguishment of debt to be relevant and useful information because it provides a better metric of the Company’s operating performance. (Loss) before income taxes excluding land-related charges, joint-venture write-downs and gain on extinguishment of debt should be considered in addition to, but not as a substitute for, (loss) income before income taxes, net (loss) income and other measures of financial performance prepared in accordance with accounting principles generally accepted in the United States that are presented on the financial statements included in the Company’s reports filed with the Securities and Exchange Commission. Additionally, the Company’s calculation of (loss) before income taxes excluding land-related charges, joint-venture write-downs and gain on extinguishment of debt may be different than the calculation used by other companies, and, therefore, comparability may be affected.

 

Item 9.01.            Financial Statements and Exhibits.

 

(d)        Exhibits.

 

Exhibit 99.1     Earnings Press Release–Fiscal First Quarter Ended January 31, 2018.

 

 SIGNATURES

 

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 

	HOVNANIAN ENTERPRISES, INC.
	(Registrant)
	By:	/s/ J. Larry Sorsby
		Name: J. Larry Sorsby
		Title: Executive Vice President and Chief Financial Officer

 

 

 

Date: March 8, 2018

 

 

INDEX TO EXHIBITS

 

Exhibit Number		Exhibit
Exhibit 99.1		Earnings Press Release–Fiscal First Quarter Ended January 31, 2018.

 

 

Exhibit 99.1

 

HOVNANIAN ENTERPRISES, INC.

News Release

 

---

---

 

Contact:	J. Larry Sorsby	Jeffrey T. O’Keefe
	Executive Vice President & CFO	Vice President, Investor Relations
	732-747-7800	732-747-7800

 

 

HOVNANIAN ENTERPRISES REPORTS FISCAL 2018 FIRST QUARTER RESULTS

 

Total Lots Controlled Increased Year Over Year for First Time in Two Years

Enhanced Capital Structure Through Over $500 Million of Financing Transactions

 

 

 

MATAWAN, NJ, March 8, 2018 – Hovnanian Enterprises, Inc. (NYSE: HOV), a leading national homebuilder, reported results for its fiscal first quarter ended January 31, 2018.

 

“For the first time in two years, we increased the number of total lots we controlled, which should ultimately lead to community count, revenue and profit growth,” stated Ara K. Hovnanian, Chairman of the Board, President and Chief Executive Officer. “Hovnanian’s position is further strengthened by our recent financing transactions with GSO, along with a commitment for an additional $216 million of capital from GSO which together extend our debt maturities and provide additional stability to our capital structure.”

 

“The Company remains in a transition period due to the adverse impacts from having to pay off $320 million of debt in late 2015 and 2016 when the high yield market was closed to us and other companies with similar credit ratings. As a result, we were unable to replenish our land position sufficiently in 2016 and 2017. This led to a reduction in community count and revenues, impacting our overall profitability. We are confident the most challenging quarter for fiscal 2018 is behind us and we expect future quarters this year should yield improved operating results, as we continue to rebuild our company,” concluded Mr. Hovnanian.

 

RESULTS FOR the THREE-MONTHs ENDED january 31, 2018:

 

●	Total revenues decreased 24.4% to $417.2 million in the first quarter of fiscal 2018, compared with $552.0 million in the first quarter of fiscal 2017.
●	Homebuilding revenues for unconsolidated joint ventures decreased 9.8% to $58.6 million for the first quarter ended January 31, 2018, compared with $64.9 million in last year’s first quarter.
●	Homebuilding gross margin percentage, after interest expense and land charges included in cost of sales, was 14.8% for the first quarter of fiscal 2018 compared with 13.5% in the prior year’s first quarter.
●	Homebuilding gross margin percentage, before interest expense and land charges included in cost of sales, was 17.9% for the first quarter of fiscal 2018 compared with 17.2% in the same period one year ago.

 

 

●	Total SG&A was $62.4 million, or 14.9% of total revenues, in the first quarter of fiscal 2018 compared with $60.1 million, or 10.9% of total revenues, in the first quarter of fiscal 2017.
●	Interest incurred (some of which was expensed and some of which was capitalized) was $41.2 million for the first quarter of fiscal 2018 compared with $38.7 million in the same quarter one year ago.
●	Total interest expense was $41.4 million in the first quarter of fiscal 2018 compared with $40.9 million in the first quarter of fiscal 2017.
●	Loss before income taxes for the quarter ended January 31, 2018 was $30.5 million compared to income before income taxes of $0.3 million during the first quarter of fiscal 2017.
●	Net loss was $30.8 million, or $0.21 per common share, in the first quarter of fiscal 2018 compared with a net loss of $0.1 million, or $0.00 per common share, during the same quarter a year ago.
●	Contracts per community, including unconsolidated joint ventures, increased 2.7% to 7.6 contracts per community for the quarter ended January 31, 2018 compared with 7.4 contracts per community, including unconsolidated joint ventures, in last year’s first quarter. Consolidated contracts per community decreased 2.7% to 7.3 contracts per community for the first quarter of fiscal 2018 compared with 7.5 contracts per community in the first quarter of fiscal 2017.
●	For February 2018, contracts per community, including unconsolidated joint ventures, increased 6.5% to 3.3 contracts per community compared to 3.1 contracts per community for the same month one year ago. During February 2018, the number of contracts, including unconsolidated joint ventures, decreased 6.0% to 528 homes from 562 homes in February 2017 and the dollar value of contracts, including unconsolidated joint ventures, decreased 3.2% to $227.8 million in February 2018 compared with $235.3 million for February 2017.
●	As of the end of the first quarter of fiscal 2018, community count, including unconsolidated joint ventures, was 165 communities. This was a 5.1% sequential increase compared with 157 communities at October 31, 2017 and a 6.8% year-over-year decrease from 177 communities at January 31, 2017. Consolidated community count decreased 10.8% to 140 communities as of January 31, 2018 from 157 communities at the end of the prior year’s first quarter.
●	The number of contracts, including unconsolidated joint ventures, for the first quarter ended January 31, 2018, decreased 4.7% to 1,250 homes from 1,312 homes for the same quarter last year. The number of consolidated contracts, during the first quarter of fiscal 2018, decreased 12.4% to 1,027 homes compared with 1,173 homes during the first quarter of 2017.
●	The dollar value of contract backlog, including unconsolidated joint ventures, as of January 31, 2018, was $1.17 billion, a decrease of 2.1% compared with $1.19 billion as of January 31, 2017. The dollar value of consolidated contract backlog, as of January 31, 2018, decreased 20.2% to $814.4 million compared with $1.02 billion as of January 31, 2017.
●	For the quarter ended January 31, 2018, deliveries, including unconsolidated joint ventures, decreased 18.4% to 1,141 homes compared with 1,398 homes during the first quarter of fiscal 2017. Consolidated deliveries were 1,025 homes for the first quarter of fiscal 2018, a 20.5% decrease compared with 1,290 homes during the same quarter a year ago.

 

 

●	The contract cancellation rate, including unconsolidated joint ventures, was 20% in both the first quarter of fiscal 2018 and the first quarter of fiscal 2017. The consolidated contract cancellation rate for the three months ended January 31, 2018 was 18%, compared with 19% in the first quarter of the prior year.
●	The valuation allowance was $661.1 million as of January 31, 2018, after adjusting for the Tax Cuts and Jobs Acts of 2017. The valuation allowance is a non-cash reserve against the tax assets for GAAP purposes. For tax purposes, the tax deductions associated with the tax assets may be carried forward for 20 years from the date the deductions were incurred.

 

Liquidity AND Inventory as of january 31, 2018:

 

●	Total liquidity at the end of the first quarter of fiscal 2018 was $292.0 million.
●	As of January 31, 2018, consolidated lots controlled increased sequentially to 27,183 from 25,329 lots at October 31, 2017 and increased year over year from 26,234 lots at January 31, 2017. The total consolidated land position was 27,183 lots, consisting of 14,260 lots under option and 12,923 owned lots, as of January 31, 2018.
●	In the first quarter of fiscal 2018, approximately 3,400 lots were put under option or acquired in 39 communities, including unconsolidated joint ventures.
●	Paid off $56.0 million principal amount of debt that matured on December 1, 2017.

 

Recent Financing transactions:

 

●	Refinanced $133 million of 7.0% senior notes due 2019, with a 5% unsecured term loan maturing in 2027 from GSO Capital Partners LP, Blackstone’s credit platform, and certain funds managed or advised by it (collectively the “GSO Entities”).
●	Accepted $170 million of 8.0% senior notes due 2019 tendered in an exchange offer for the issuance of $91 million of 13.5% unsecured notes due 2026, $90 million of 5.0% unsecured notes due 2040 and $27 million of cash for the purchase of $26 million of the tendered 8.0% senior notes. An additional 5.0% unsecured term loan commitment from GSO Entities will be used to refinance $66 million of 8.0% senior notes.
●	Commitment for $125 million senior secured revolver/term loan from GSO Entities, which we intend to draw in September 2018 to repay the $75 million super priority term loan due in 2019 and to provide $50 million of incremental liquidity.
●	In January 2019, additional liquidity provided by $25 million commitment from GSO Entities to purchase additional 10.5% senior secured notes due 2024, at a price approximating the then prevailing yield, which today would be approximately 8%.
●	Received consent from 10.5% senior secured note holders to eliminate restrictions on our ability to repurchase or acquire our unsecured notes.

 

 

Webcast Information:

 

Hovnanian Enterprises will webcast its fiscal 2018 first quarter financial results conference call at 11:00 a.m. E.T. on Thursday, March 8, 2018. The webcast can be accessed live through the “Investor Relations” section of Hovnanian Enterprises’ website at http://www.khov.com. For those who are not available to listen to the live webcast, an archive of the broadcast will be available under the “Past Events” section of the Investor Relations page on the Hovnanian website at http://www.khov.com. The archive will be available for 12 months.

 

About Hovnanian Enterprises®, Inc.:

 

Hovnanian Enterprises, Inc., founded in 1959 by Kevork S. Hovnanian, is headquartered in Matawan, New Jersey. The Company is one of the nation’s largest homebuilders with operations in Arizona, California, Delaware, Florida, Georgia, Illinois, Maryland, New Jersey, Ohio, Pennsylvania, South Carolina, Texas, Virginia, Washington, D.C. and West Virginia. The Company’s homes are marketed and sold under the trade names K. Hovnanian^® Homes, Brighton Homes^® and Parkwood Builders. As the developer of K. Hovnanian’s^® Four Seasons communities, the Company is also one of the nation’s largest builders of active lifestyle communities.

 

Additional information on Hovnanian Enterprises, Inc., including a summary investment profile and the Company’s 2017 annual report, can be accessed through the “Investor Relations” section of the Hovnanian Enterprises’ website at http://www.khov.com. To be added to Hovnanian's investor e-mail list, please send an e-mail to [email protected] or sign up at http://www.khov.com.

 

 

NON-GAAP FINANCIAL MEASURES:

 

Consolidated earnings before interest expense and income taxes (“EBIT”) and before depreciation and amortization (“EBITDA”) and before inventory impairment loss and land option write-offs and gain on extinguishment of debt (“Adjusted EBITDA”) are not U.S. generally accepted accounting principles (GAAP) financial measures. The most directly comparable GAAP financial measure is net (loss). The reconciliation for historical periods of EBIT, EBITDA and Adjusted EBITDA to net (loss) is presented in a table attached to this earnings release.

 

Homebuilding gross margin, before costs of sales interest expense and land charges, and homebuilding gross margin percentage, before costs of sales interest expense and land charges, are non-GAAP financial measures. The most directly comparable GAAP financial measures are homebuilding gross margin and homebuilding gross margin percentage, respectively. The reconciliation for historical periods of homebuilding gross margin, before costs of sales interest expense and land charges, and homebuilding gross margin percentage, before costs of sales interest expense and land charges, to homebuilding gross margin and homebuilding gross margin percentage, respectively, is presented in a table attached to this earnings release.

 

(Loss) Before Income Taxes Excluding Land-Related Charges, Joint Venture Write-Downs and Gain on Extinguishment of Debt is a non-GAAP financial measure. The most directly comparable GAAP financial measure is (Loss) Income Before Income Taxes. The reconciliation for historical periods of (Loss) Before Income Taxes Excluding Land-Related Charges, Joint Venture Write-Downs and Gain on Extinguishment of Debt to (Loss) Income Before Income Taxes is presented in a table attached to this earnings release.

 

Total liquidity is comprised of $278.2 million of cash and cash equivalents, $2.7 million of restricted cash required to collateralize letters of credit and $11.1 million of availability under the unsecured revolving credit facility as of January 31, 2018.

 

 

FORWARD-LOOKING STATEMENTS

 

All statements in this press release that are not historical facts should be considered as “Forward-Looking Statements” within the meaning of the “Safe Harbor” provisions of the Private Securities Litigation Reform Act of 1995. Such statements involve known and unknown risks, uncertainties and other factors that may cause actual results, performance or achievements of the Company to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. Such forward-looking statements include but are not limited to statements related to the Company’s goals and expectations with respect to its financial results for future financial periods. Although we believe that our plans, intentions and expectations reflected in, or suggested by, such forward-looking statements are reasonable, we can give no assurance that such plans, intentions or expectations will be achieved. By their nature, forward-looking statements: (i) speak only as of the date they are made, (ii) are not guarantees of future performance or results and (iii) are subject to risks, uncertainties and assumptions that are difficult to predict or quantify. Therefore, actual results could differ materially and adversely from those forward-looking statements as a result of a variety of factors. Such risks, uncertainties and other factors include, but are not limited to, (1) changes in general and local economic, industry and business conditions and impacts of a sustained homebuilding downturn; (2) adverse weather and other environmental conditions and natural disasters; (3) levels of indebtedness and restrictions on the Company’s operations and activities imposed by the agreements governing the Company’s outstanding indebtedness; (4) the Company's sources of liquidity; (5) changes in credit ratings; (6) changes in market conditions and seasonality of the Company’s business; (7) the availability and cost of suitable land and improved lots; (8) shortages in, and price fluctuations of, raw materials and labor; (9) regional and local economic factors, including dependency on certain sectors of the economy, and employment levels affecting home prices and sales activity in the markets where the Company builds homes; (10) fluctuations in interest rates and the availability of mortgage financing; (11) changes in tax laws affecting the after-tax costs of owning a home; (12) operations through joint ventures with third parties; (13) government regulation, including regulations concerning development of land, the home building, sales and customer financing processes, tax laws and the environment; (14) product liability litigation, warranty claims and claims made by mortgage investors; (15) levels of competition; (16) availability and terms of financing to the Company; (17) successful identification and integration of acquisitions; (18) significant influence of the Company’s controlling stockholders; (19) availability of net operating loss carryforwards; (20) utility shortages and outages or rate fluctuations; (21) geopolitical risks, terrorist acts and other acts of war; (22) increases in cancellations of agreements of sale; (23) loss of key management personnel or failure to attract qualified personnel; (24) information technology failures and data security breaches; (25) legal claims brought against us and not resolved in our favor; and (26) certain risks, uncertainties and other factors described in detail in the Company’s Annual Report on Form 10-K for the fiscal year ended October 31, 2017 and subsequent filings with the Securities and Exchange Commission. Except as otherwise required by applicable securities laws, we undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, changed circumstances or any other reason.

 

(Financial Tables Follow)

 

 

Hovnanian Enterprises, Inc.

January 31, 2018

Statements of Consolidated Operations

(Dollars in Thousands, Except Per Share Data)

		Three Months Ended
		January 31,
		2018				2017
		(Unaudited)
Total Revenues			$417,166				$552,009
Costs and Expenses (a)			442,461				557,666
Gain on Extinguishment of Debt			-				7,646
(Loss) from Unconsolidated Joint Ventures			(5,176	)			(1,666	)
(Loss) Income Before Income Taxes			(30,471	)			323
Income Tax Provision			338				466
Net (Loss)			$(30,809	)			$(143	)
Per Share Data:
Basic:
Net (Loss) Per Common Share			$(0.21	)			$(0.00	)
Weighted Average Number of
Common Shares Outstanding (b)			148,028				147,535
Assuming Dilution:
Net (Loss) Per Common Share			$(0.21	)			$(0.00	)
Weighted Average Number of
Common Shares Outstanding (b)			148,028				147,535

 

(a) Includes inventory impairment loss and land option write-offs.

(b) For periods with a net (loss), basic shares are used in accordance with GAAP rules.

 

Hovnanian Enterprises, Inc.
January 31, 2018
Reconciliation of (Loss) Before Income Taxes Excluding Land-Related Charges, Joint Venture Write-Downs and Gain on Extinguishment of Debt to (Loss) Income Before Income Taxes
(Dollars in Thousands)

 

		Three Months Ended
		January 31,
		2018				2017
		(Unaudited)
(Loss) Income Before Income Taxes			$(30,471	)			$323
Inventory Impairment Loss and Land Option Write-Offs			414				3,184
Unconsolidated Joint Venture Write-Downs			660				-
Gain on Extinguishment of Debt			-				7,646
(Loss) Before Income Taxes Excluding Land-Related Charges, Joint Venture Write-Downs and Gain on Extinguishment of Debt (a)			$(29,397	)			$(4,139	)

 

(a) (Loss) Before Income Taxes Excluding Land-Related Charges, Joint Venture Write-Downs and Gain on Extinguishment of Debt is a non-GAAP financial measure. The most directly comparable GAAP financial measure is (Loss) Income Before Income Taxes.

 

 

Hovnanian Enterprises, Inc.

January 31, 2018

Gross Margin

(Dollars in Thousands)

		Homebuilding Gross Margin
		Three Months Ended
		January 31,
		2018				2017
		(Unaudited)
Sale of Homes			$401,577				$531,415
Cost of Sales, Excluding Interest Expense (a)			329,527				439,917
Homebuilding Gross Margin, Before Cost of Sales Interest Expense and Land Charges (b)			72,050				91,498
Cost of Sales Interest Expense, Excluding Land Sales Interest Expense			12,292				16,574
Homebuilding Gross Margin, After Cost of Sales Interest Expense, Before Land Charges (b)			59,758				74,924
Land Charges			414				3,184
Homebuilding Gross Margin			$59,344				$71,740
Gross Margin Percentage			14.8	%			13.5	%
Gross Margin Percentage, Before Cost of Sales Interest Expense and Land Charges (b)			17.9	%			17.2	%
Gross Margin Percentage, After Cost of Sales Interest Expense, Before Land Charges (b)			14.9	%			14.1	%

 

		Land Sales Gross Margin
		Three Months Ended
		January 31,
		2018				2017
		(Unaudited)
Land and Lot Sales			$-				$7,001
Cost of Sales, Excluding Interest and Land Charges (a)			-				5,110
Land and Lot Sales Gross Margin, Excluding Interest and Land Charges			-				1,891
Land and Lot Sales Interest			-				1,748
Land and Lot Sales Gross Margin, Including Interest and Excluding Land Charges			$-				$143

 

 

(a) Does not include cost associated with walking away from land options or inventory impairment losses which are recorded as Inventory impairment loss and land option write-offs in the Condensed Consolidated Statements of Operations.
(b) Homebuilding Gross Margin, Before Cost of Sales Interest Expense and Land Charges, and Homebuilding Gross Margin Percentage, before Cost of Sales Interest Expense and Land Charges, are non-GAAP financial measures. The most directly comparable GAAP financial measures are Homebuilding Gross Margin and Homebuilding Gross Margin Percentage, respectively.

 

 

Hovnanian Enterprises, Inc.

January 31, 2018

Reconciliation of Adjusted EBITDA to Net (Loss)

(Dollars in Thousands)

		Three Months Ended
		January 31,
		2018				2017
		(Unaudited)
Net (Loss)			$(30,809	)			$(143	)
Income Tax Provision			338				466
Interest Expense			41,423				40,949
EBIT (a)			10,952				41,272
Depreciation			790				1,012
Amortization of Debt Costs			-				1,632
EBITDA (b)			11,742				43,916
Inventory Impairment Loss and Land Option Write-offs			414				3,184
Gain on Extinguishment of Debt			-				7,646
Adjusted EBITDA (c)			$12,156				$39,454
Interest Incurred			$41,165				$38,699
Adjusted EBITDA to Interest Incurred			0.30				1.02

 

 

(a) EBIT is a non-GAAP financial measure. The most directly comparable GAAP financial measure is net (loss). EBIT represents earnings before interest expense and income taxes.

(b) EBITDA is a non-GAAP financial measure. The most directly comparable GAAP financial measure is net (loss). EBITDA represents earnings before interest expense, income taxes, depreciation and amortization.

(c) Adjusted EBITDA is a non-GAAP financial measure. The most directly comparable GAAP financial measure is net (loss). Adjusted EBITDA represents earnings before interest expense, income taxes, depreciation, amortization, inventory impairment loss and land option write-offs and gain on extinguishment of debt.

 

 

Hovnanian Enterprises, Inc.

January 31, 2018

Interest Incurred, Expensed and Capitalized

(Dollars in Thousands)

		Three Months Ended
		January 31,
		2018				2017
		(Unaudited)
Interest Capitalized at Beginning of Period			$71,051				$96,688
Plus Interest Incurred			41,165				38,699
Less Interest Expensed			41,423				40,949
Interest Capitalized at End of Period (a)			$70,793				$94,438

 

(a) Capitalized interest amounts are shown gross before allocating any portion of impairments, if any, to capitalized interest.

 

 

HOVNANIAN ENTERPRISES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(In Thousands)

 

		January 31, 2018				October 31, 2017
		(Unaudited)					(1)
ASSETS
Homebuilding:
Cash and cash equivalents			$278,158				$463,697
Restricted cash and cash equivalents			3,213				2,077
Inventories:
Sold and unsold homes and lots under development			807,714				744,119
Land and land options held for future development or sale			151,925				140,924
Consolidated inventory not owned			93,875				124,784
Total inventories			1,053,514				1,009,827
Investments in and advances to unconsolidated joint ventures			92,262				115,090
Receivables, deposits and notes, net			53,816				58,149
Property, plant and equipment, net			19,505				52,919
Prepaid expenses and other assets			43,544				37,026
Total homebuilding			1,544,012				1,738,785
Financial services cash and cash equivalents			4,130				5,623
Financial services other assets			97,795				156,490
Total assets			$1,645,937				$1,900,898
LIABILITIES AND EQUITY
Homebuilding:
Nonrecourse mortgages secured by inventory, net of debt issuance costs			$64,450				$64,512
Accounts payable and other liabilities			289,099				335,057
Customers’ deposits			34,389				33,772
Nonrecourse mortgages secured by operating properties			-				13,012
Liabilities from inventory not owned, net of debt issuance costs			68,040				91,101
Revolving credit facility			52,000				52,000
Notes payable and term loan, net of discount and debt issuance costs			1,545,324				1,627,674
Total homebuilding			2,053,302				2,217,128
Financial services			81,638				141,914
Income taxes payable			2,186				2,227
Total liabilities			2,137,126				2,361,269
Stockholders’ equity deficit:
Preferred stock, $0.01 par value - authorized 100,000 shares; issued and outstanding 5,600 shares with a liquidation preference of $140,000 at January 31, 2018 and at October 31, 2017			135,299				135,299
Common stock, Class A, $0.01 par value – authorized 400,000,000 shares; issued 144,403,778 shares at January 31, 2018 and 144,046,073 shares at October 31, 2017			1,444				1,440
Common stock, Class B, $0.01 par value (convertible to Class A at time of sale) – authorized 60,000,000 shares; issued 16,162,230 shares at January 31, 2018 and 15,999,355 shares at October 31, 2017			162				160
Paid in capital – common stock			706,451				706,466
Accumulated deficit			(1,219,185	)			(1,188,376	)
Treasury stock – at cost – 11,760,763 shares of Class A common stock and 691,748 shares of Class B common stock at January 31, 2018 and October 31, 2017			(115,360	)			(115,360	)
Total stockholders’ equity deficit			(491,189	)			(460,371	)
Total liabilities and equity			$1,645,937				$1,900,898

 

(1) Derived from the audited balance sheet as of October 31, 2017.

 

 

HOVNANIAN ENTERPRISES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In Thousands Except Share and Per Share Data)

(Unaudited)

 

		Three Months Ended January 31,
		2018				2017
Revenues:
Homebuilding:
Sale of homes			$401,577				$531,415
Land sales and other revenues			4,701				7,745
Total homebuilding			406,278				539,160
Financial services			10,888				12,849
Total revenues			417,166				552,009
Expenses:
Homebuilding:
Cost of sales, excluding interest			329,527				445,027
Cost of sales interest			12,292				18,322
Inventory impairment loss and land option write-offs			414				3,184
Total cost of sales			342,233				466,533
Selling, general and administrative			43,231				44,408
Total homebuilding expenses			385,464				510,941
Financial services			8,341				6,855
Corporate general and administrative			19,135				15,656
Other interest			29,131				22,627
Other operations			390				1,587
Total expenses			442,461				557,666
Gain on extinguishment of debt			-				7,646
(Loss) from unconsolidated joint ventures			(5,176	)			(1,666	)
(Loss) income before income taxes			(30,471	)			323
State and federal income tax provision (benefit):
State			338				(18	)
Federal			-				484
Total income taxes			338				466
Net (loss)			$(30,809	)			$(143	)
Per share data:
Basic:
Net (loss) per common share			$(0.21	)			$(0.00	)
Weighted-average number of common shares outstanding			148,028				147,535
Assuming dilution:
Net (loss) per common share			$(0.21	)			$(0.00	)
Weighted-average number of common shares outstanding			148,028				147,535

 

 

HOVNANIAN ENTERPRISES, INC.

(DOLLARS IN THOUSANDS EXCEPT AVG. PRICE)

(SEGMENT DATA EXCLUDES UNCONSOLIDATED JOINT VENTURES)

(UNAUDITED)

 

															Three Months - January 31, 2018
			Contracts(1)												Deliveries												Contract
			Three Months Ended												Three Months Ended												Backlog
			January 31,												January 31,												January 31,
			2018				2017				% Change				2018				2017				% Change				2018				2017				% Change
Northeast
(NJ, PA)	Home			46				83				(44.6	)%			40				104				(61.5	)%			104				183				(43.2	)%
	Dollars			$25,363				$38,045				(33.3	)%			$20,192				$52,907				(61.8	)%			$56,949				$84,649				(32.7	)%
	Avg. Price			$551,370				$458,369				20.3	%			$504,800				$508,726				(0.8	)%			$547,582				$462,563				18.4	%
Mid-Atlantic
(DE, MD, VA, WV)	Home			125				190				(34.2	)%			135				204				(33.8	)%			318				416				(23.6	)%
	Dollars			$63,213				$102,246				(38.2	)%			$71,009				$100,159				(29.1	)%			$185,939				$251,062				(25.9	)%
	Avg. Price			$505,704				$538,138				(6.0	)%			$525,988				$490,975				7.1	%			$584,715				$603,516				(3.1	)%
Midwest
(IL, OH)	Home			165				145				13.8	%			140				150				(6.7	)%			407				369				10.3	%
	Dollars			$49,416				$45,566				8.4	%			$40,517				$43,651				(7.2	)%			$107,869				$106,443				1.3	%
	Avg. Price			$299,493				$314,250				(4.7	)%			$289,405				$291,007				(0.6	)%			$265,034				$288,462				(8.1	)%
Southeast
(FL, GA, SC)	Home			127				108				17.6	%			132				138				(4.3	)%			280				302				(7.3	)%
	Dollars			$50,455				$46,451				8.6	%			$56,674				$56,386				0.5	%			$114,163				$135,236				(15.6	)%
	Avg. Price			$397,286				$430,104				(7.6	)%			$429,351				$408,594				5.1	%			$407,726				$447,801				(8.9	)%
Southwest
(AZ, TX)	Home			411				485				(15.3	)%			384				531				(27.7	)%			536				717				(25.2	)%
	Dollars			$141,458				$170,884				(17.2	)%			$128,204				$183,260				(30.0	)%			$191,071				$273,268				(30.1	)%
	Avg. Price			$344,180				$352,338				(2.3	)%			$333,865				$345,123				(3.3	)%			$356,476				$381,126				(6.5	)%
West
(CA)	Home			153				162				(5.6	)%			194				163				19.0	%			359				285				26.0	%
	Dollars			$69,397				$84,423				(17.8	)%			$84,981				$95,052				(10.6	)%			$158,379				$169,512				(6.6	)%
	Avg. Price			$453,575				$521,130				(13.0	)%			$438,046				$583,140				(24.9	)%			$441,166				$594,780				(25.8	)%
Consolidated Segment Total
	Home			1,027				1,173				(12.4	)%			1,025				1,290				(20.5	)%			2,004				2,272				(11.8	)%
	Dollars			$399,302				$487,615				(18.1	)%			$401,577				$531,415				(24.4	)%			$814,370				$1,020,170				(20.2	)%
	Avg. Price			$388,805				$415,699				(6.5	)%			$391,782				$411,949				(4.9	)%			$406,372				$449,018				(9.5	)%
Unconsolidated Joint Ventures(2)
	Home			223				139				60.4	%			116				108				7.4	%			542				291				86.3	%
	Dollars			$137,221				$80,300				70.9	%			$58,099				$64,641				(10.1	)%			$354,038				$173,222				104.4	%
	Avg. Price			$615,338				$577,697				6.5	%			$500,851				$598,531				(16.3	)%			$653,206				$595,264				9.7	%
Grand Total
	Home			1,250				1,312				(4.7	)%			1,141				1,398				(18.4	)%			2,546				2,563				(0.7	)%
	Dollars			$536,523				$567,915				(5.5	)%			$459,676				$596,056				(22.9	)%			$1,168,408				$1,193,392				(2.1	)%
	Avg. Price			$429,218				$432,862				(0.8	)%			$402,871				$426,363				(5.5	)%			$458,919				$465,623				(1.4	)%

 

DELIVERIES INCLUDE EXTRAS

Notes:

(1) Contracts are defined as new contracts signed during the period for the purchase of homes, less cancellations of prior contracts. (2) Represents home deliveries, home revenues and average prices for our unconsolidated homebuilding joint ventures for the period. We provide this data as a supplement to our consolidated results as an indicator of the volume managed in our unconsolidated homebuilding joint ventures. Our proportionate share of the income or loss of unconsolidated homebuilding and land development joint ventures is reflected as a separate line item in our consolidated financial statements under “(Loss) from unconsolidated joint ventures”.

 

 

HOVNANIAN ENTERPRISES, INC.

(DOLLARS IN THOUSANDS EXCEPT AVG. PRICE)

(SEGMENT DATA UNCONSOLIDATED JOINT VENTURES ONLY)

(UNAUDITED)

 

															Three Months - January 31, 2018
			Contracts(1)												Deliveries												Contract
			Three Months Ended												Three Months Ended												Backlog
			January 31,												January 31,												January 31,
			2018				2017				% Change				2018				2017				% Change				2018				2017				% Change
Northeast
(unconsolidated joint ventures)	Home			54				25				116.0	%			30				6				400.0	%			241				46				423.9	%
(NJ, PA)	Dollars			$44,664				$12,075				269.9	%			$14,900				$1,740				756.3	%			$186,443				$20,598				805.2	%
	Avg. Price			$827,111				$483,000				71.2	%			$496,666				$290,000				71.3	%			$773,623				$447,782				72.8	%
Mid-Atlantic
(unconsolidated joint ventures)	Home			25				17				47.1	%			4				10				(60.0	)%			32				47				(31.9	)%
(DE, MD, VA, WV)	Dollars			$19,701				$9,428				109.0	%			$3,968				$5,189				(23.5	)%			$26,842				$34,328				(21.8	)%
	Avg. Price			$788,040				$554,588				42.1	%			$992,000				$518,900				91.1	%			$838,813				$730,383				14.8	%
Midwest
(unconsolidated joint ventures)	Home			9				10				(10.0	)%			6				7				(14.3	)%			30				15				100.0	%
(IL, OH)	Dollars			$6,438				$7,226				(10.9	)%			$3,370				$5,616				(40.0	)%			$21,787				$11,198				94.6	%
	Avg. Price			$715,333				$722,600				(1.0	)%			$561,666				$802,286				(30.0	)%			$726,233				$746,533				(2.7	)%
Southeast
(unconsolidated joint ventures)	Home			58				35				65.7	%			32				24				33.3	%			104				99				5.1	%
(FL, GA, SC)	Dollars			$26,071				$16,879				54.5	%			$15,465				$9,840				57.2	%			$47,416				$50,762				(6.6	)%
	Avg. Price			$449,496				$482,260				(6.8	)%			$483,281				$409,995				17.9	%			$455,923				$512,748				(11.1	)%
Southwest
(unconsolidated joint ventures)	Home			49				12				308.3	%			15				0				0.0	%			91				19				378.9	%
(AZ, TX)	Dollars			$28,357				$8,666				227.2	%			$8,813				$0				0.0	%			$52,796				$13,143				301.7	%
	Avg. Price			$578,713				$722,171				(19.9	)%			$587,533				$0				0.0	%			$580,175				$691,742				(16.1	)%
West
(unconsolidated joint ventures)	Home			28				40				(30.0	)%			29				61				(52.5	)%			44				65				(32.3	)%
(CA)	Dollars			$11,990				$26,026				(53.9	)%			$11,583				$42,256				(72.6	)%			$18,754				$43,193				(56.6	)%
	Avg. Price			$428,216				$650,650				(34.2	)%			$399,413				$692,721				(42.3	)%			$426,227				$664,506				(35.9	)%
Unconsolidated Joint Ventures(2)
	Home			223				139				60.4	%			116				108				7.4	%			542				291				86.3	%
	Dollars			$137,221				$80,300				70.9	%			$58,099				$64,641				(10.1	)%			$354,038				$173,222				104.4	%
	Avg. Price			$615,338				$577,697				6.5	%			$500,851				$598,531				(16.3	)%			$653,206				$595,264				9.7	%

 

DELIVERIES INCLUDE EXTRAS

Notes:

(1) Contracts are defined as new contracts signed during the period for the purchase of homes, less cancellations of prior contracts. (2) Represents home deliveries, home revenues and average prices for our unconsolidated homebuilding joint ventures for the period. We provide this data as a supplement to our consolidated results as an indicator of the volume managed in our unconsolidated homebuilding joint ventures. Our proportionate share of the income or loss of unconsolidated homebuilding and land development joint ventures is reflected as a separate line item in our consolidated financial statements under “(Loss) from unconsolidated joint ventures”.

 

12

SEC Filings