UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
( X )ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (FEE REQUIRED)
For the twelve months ended OCTOBER 31, 2001
( )TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
Commission file number: 1-8551
Hovnanian Enterprises, Inc.
(Exact name of registrant as specified in its charter)
Delaware 22-1851059
(State or other jurisdiction of (I. R. S. Employer
incorporation or organization) Identification No.)
10 Highway 35, P.O. Box 500, Red Bank, N. J. 07701
(Address of principal executive offices)
732-747-7800
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange on
Title of Each Class Which Registered
- -------------------- ------------------------
Class A Common Stock, $.01 par value New York Stock Exchange
per share
Securities registered pursuant to Section 12(g) of the Act - None
Indicate by check mark whether the registrant (l) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter
period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
( X )Yes ( ) No
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy
or information statements incorporated by reference in Part III of
this Form 10-K or any amendment to this Form 10-K.
As of the close of business on January 4, 2002, there were outstanding
20,607,178 shares of the Registrant's Class A Common Stock and
7,471,640 shares of its Class B Common Stock. The approximate
aggregate market value (based upon the closing price on the New York
Stock Exchange) of these shares held by non-affiliates of the
Registrant as of January 4, 2002 was $254,417,000. (The value of a
share of Class A Common Stock is used as the value for a share of
Class B Common Stock as there is no established market for Class
B Common Stock and it is convertible into Class A Common Stock on
a share-for-share basis.)
Documents Incorporated by Reference:
Part III - Those portions of registrant's definitive proxy statement
to be filed pursuant to Regulation l4A in connection with registrant's
annual meeting of shareholders to be held on March 8, 2002 which are
responsive to Items l0, ll, l2 and l3.
HOVNANIAN ENTERPRISES, INC.
FORM 10-K
TABLE OF CONTENTS
Item Page
PART I
1 and 2 Business and Properties...................... 4
3 Legal Proceedings............................ 15
4 Submission of Matters to a Vote of
Security Holders........................... 15
Executive Officers of the Registrant......... 15
PART II
5 Market for the Registrant's Common Equity
and Related Stockholder Matters............ 15
6 Selected Consolidated Financial Data......... 16
7 Management's Discussion and Analysis of
Financial Condition and Results of
Operations................................. 18
8 Financial Statements and Supplementary
Data....................................... 36
9 Changes in and Disagreements with
Accountants on Accounting and Financial
Disclosure................................. 36
PART III
10 Directors and Executive Officers of the
Registrant................................. 37
Executive Officers of the Registrant......... 37
11 Executive Compensation....................... 38
12 Security Ownership of Certain Beneficial
Owners and Management...................... 38
13 Certain Relationships and Related
Transactions............................... 38
PART IV
14 Exhibits, Financial Statement Schedules and
Reports on Form 8-K....................... 39
SIGNATURES................................... 41
PART I
ITEMS 1 AND 2 - BUSINESS AND PROPERTIES
BUSINESS OVERVIEW
We design, construct and market high quality single-family detached
homes and attached condominium apartments and townhouses in planned
residential developments in the Northeast (New Jersey, southern New
York state, and eastern Pennsylvania), North Carolina, Metro D.C.
(northern Virginia and Maryland), southern California, Texas, and
the Mid South (Tennessee, Alabama, and Mississippi). We market
our homes to first-time buyers, first-time and second-time move-up
buyers, luxury buyers, active adult buyers and empty nesters.
We offer a variety of homestyles in the United States at prices
ranging from $43,000 to $950,000 with an average sales price
in fiscal 2001 of $255,000. We are currently offering homes
for sale in 172 communities. Since the incorporation of our
predecessor company in 1959, we have delivered in excess of
106,000 homes, including 6,791 homes in fiscal 2001.
In addition, we provide financial services (mortgage loans
and title insurance) to our homebuilding customers.
We employed approximately 1,945 full-time associates as of
October 31, 2001. We were incorporated in New Jersey in 1967 and
we reincorporated in Delaware in 1982.
BUSINESS STRATEGIES, OPERATING POLICIES AND PROCEDURES
Over the past few years, our strategies have included several
initiatives to fundamentally transform our traditional practices used
to design, build and sell homes and focus on "building better." We
believe that the adoption and implementation of processes and
systems successfully used in other manufacturing industries, such
as rapid cycle times, vendor consolidation, vendor partnering and
just-in-time material procurement, will dramatically improve our
business and give us a clear advantage over our competitors.
Our concentration in selected markets is a key factor that enables
us to achieve powers and economies of scale and differentiate
ourselves from most of our competitors. These performance enhancing
strategies are designed to achieve operational excellence through
the implementation of standardized and streamlined "best practice
processes."
Strategic Initiatives - To improve our homebuilding gross
profit margins, we have introduced a number of strategic initiatives,
including: Partners In Excellence, Process Redesign and Training.
Partners In Excellence, our total quality management
initiative, is intended to focus on improving the way operations
are performed. It involves all of our associates through a
systematic, team-oriented approach to improvement. It increases
our profits by streamlining processes and by reducing costly errors.
We were recognized for our efforts by receiving the 1997 Gold
National Housing Quality Award from Professional Builder magazine
and the NAHB Research Center.
Process Redesign is the fundamental rethinking and radical
redesign of our processes to achieve dramatic improvements in
performance. Our Process Redesign efforts are currently focused
on streamlining and standardizing all of our key business processes.
In addition, we are working to streamline our processes and
implement SAP's enterprise-wide "Enterprise Resource Package"
computer software system throughout our organization.
Training is designed to provide our associates with the
knowledge, attitudes, skill and habits necessary to succeed at
their jobs. Our Training Department regularly conducts training
classes in sales, construction, administration, and managerial
skills. In addition, as Process Redesign develops new processes,
the Training Department is responsible for educating our
associates on the processes, procedures and operations.
Land Acquisition, Planning and Development - Before entering
into a contract to acquire land, we complete extensive comparative
studies and analyses which assist us in evaluating the economic
feasibility of such land acquisition. We generally follow a policy
of acquiring options to purchase land for future community developments.
We attempt to acquire land with a minimum cash investment and negotiate
takedown options, thereby limiting the financial exposure to the
amounts invested in property and predevelopment costs. This policy
significantly reduces the risk and generally allows us to obtain
necessary development approvals before acquisition of the land, thereby
enhancing the value of the options and the land eventually acquired.
Our option and purchase agreements are typically subject to
numerous conditions, including, but not limited to, our ability to
obtain necessary governmental approvals for the proposed community.
Generally, the deposit on the agreement will be returned to us if all
approvals are not obtained, although predevelopment costs may not be
recoverable. By paying an additional, nonrefundable deposit, we have
the right to extend a significant number of our options for varying
periods of time. In most instances, we have the right to cancel any
of our land option agreements by forfeiture of our deposit on the
agreement. In such instances, we generally are not able to recover
any predevelopment costs.
Our development activities include site planning and
engineering, obtaining environmental and other regulatory approvals
and constructing roads, sewer, water and drainage facilities, and
for our residential developments, recreational facilities and other
amenities. These activities are performed by our staff, together
with independent architects, consultants and contractors. Our staff
also carries out long-term planning of communities.
Design - Our residential communities are generally located in
suburban areas near major highways. The communities are designed as
neighborhoods that fit existing land characteristics. We strive to
create diversity within the overall planned community by offering a
mix of homes with differing architecture, textures and colors.
Recreational amenities such as swimming pools, tennis courts, club
houses and tot lots are often included.
Construction - We design and supervise the development and
building of our communities. Our homes are constructed according
to standardized prototypes which are designed and engineered to
provide innovative product design while attempting to minimize costs
of construction. We employ subcontractors for the installation of
site improvements and construction of homes. Agreements with
subcontractors are generally short term and provide for a fixed price
for labor and materials. We rigorously control costs through the
use of a computerized monitoring system. Because of the risks
involved in speculative building, our general policy is to construct
an attached condominium or townhouse building only after signing
contracts for the sale of at least 50% of the homes in that building.
A majority of our single family detached homes are constructed after
the signing of a contract and mortgage approval has been obtained.
Materials and Subcontractors - We attempt to maintain
efficient operations by utilizing standardized materials available
from a variety of sources. In addition, we contract with
subcontractors to construct our homes. Hovnanian has reduced
construction and administrative costs by consolidating
the number of vendors serving our Northeast market and by executing
national purchasing contracts with select vendors. Hovnanian plans
to implement this strategy throughout all of our markets. In recent
years, Hovnanian has experienced no significant construction delays
due to shortages of materials or labor. Hovnanian cannot predict,
however, the extent to which shortages in necessary materials or
labor may occur in the future.
Marketing and Sales - Our residential communities are sold
principally through on-site sales offices. In order to respond to
our customers' needs and trends in housing design, we rely upon our
internal market research group to analyze information gathered from,
among other sources, buyer profiles, exit interviews at model sites,
focus groups and demographic data bases. We make use of newspaper,
radio, magazine, our website, billboard, video and direct mail
advertising, special promotional events, illustrated brochures,
full-sized and scale model homes in our comprehensive marketing
program. In addition, we have opened home design galleries in our
Northeast region, Virginia, Maryland, Texas, North Carolina, and
California, which have increased option sales and profitability in
these markets. We plan to open similar galleries in each of
our markets.
Customer Service and Quality Control - Associates responsible
for customer service participate in pre-closing quality control
inspections as well as responding to post-closing customer needs.
Prior to closing, each home is inspected and any necessary completion
work is undertaken by us. In some of our markets, we are enrolled in
a standard limited warranty program which, in general, provides a
homebuyer with a one-year warranty for the home's materials and
workmanship, a two-year warranty for the home's heating, cooling,
ventilating, electrical and plumbing systems and a ten-year warranty
for major structural defects. All of the warranties contain standard
exceptions, including, but not limited to, damage caused by the customer.
Customer Financing - We sell our homes to customers who
generally finance their purchases through mortgages. During the year
ended October 31, 2001, over 57% of our non-cash customers obtained
mortgages originated by our wholly-owned mortgage banking subsidiaries.
Mortgages originated by our wholly-owned mortgage banking subsidiaries
are sold in the secondary market.
RESIDENTIAL DEVELOPMENT ACTIVITIES
Our residential development activities include evaluating and
purchasing properties, master planning, obtaining governmental
approvals and constructing, marketing and selling homes. A
residential development generally includes a number of residential
buildings containing from two to twenty-four individual homes per
building and/or single family detached homes, together with amenities
such as recreational buildings, swimming pools, tennis courts and
open areas.
We attempt to reduce the effect of certain risks inherent
in thehousing industry through the following policies and procedures:
- Through our presence in multiple geographic markets, our goal is
to reduce the effects that housing industry cycles, seasonality and
local conditions in any one area may have on our business. In
addition, we plan to achieve a significant market presence in each
of our markets in order to obtain powers and economies of scale.
- We typically acquire land for future development principally
through the use of land options which need not be exercised before
the completion of the regulatory approval process. We structure
these options in most cases with flexible takedown schedules rather
than with an obligation to takedown the entire parcel upon approval.
Additionally, we purchase improved lots in certain markets by
acquiring a small number of improved lots with an option on
additional lots. This allows us to minimize the economic costs
and risks of carrying a large land inventory, while maintaining
our ability to commence new developments during favorable
market periods.
- - We generally begin construction on an attached condominium or
townhouse building only after entering into contracts for the sale
of at least 50% of the homes in that building. A majority of our
single family detached homes are started after a contract is signed
and mortgage approvals obtained. This limits the build-up of
inventory of unsold homes and the costs of maintaining and carrying
that inventory.
- We offer a broad product array to provide housing to a wide range
of customers. Our customers consist of first-time buyers, first-
and second-time move-up buyers, luxury buyers, active adult buyers
and empty nesters.
- We offer a wide range of customer options to satisfy individual
customer tastes. We have large regional home design galleries in New
Jersey, Virginia, Maryland, North Carolina, Texas, and California.
Current base prices for our homes in contract backlog at
October 31, 2001 (exclusive of upgrades and options) range from
$43,000 to $950,000 in our Northeast Region, from $245,000 to
$344,000 in Metro D.C., from $148,000 to $216,000 in North Carolina,
from $124,000 to $195,000 in the Mid South, from $123,000 to
$680,000 in Texas, and from $194,000 to $877,000 in California.
Closings generally occur and are typically reflected in revenues from
two to nine months after sales contracts are signed.
Information on homes delivered by market area is set forth
below:
Year Ended
----------------------------------
October October October
31, 2001 31, 2000 31, 1999
---------- -------- --------
(Housing Revenue in Thousands)
Northeast Region:
Housing Revenues........$ 570,647 $ 561,422 $560,586
Homes Delivered......... 1,860 1,939 2,063
Average Price...........$ 306,799 $ 289,542 $271,733
North Carolina:
Housing Revenues........$ 255,390 $ 126,596 $145,153
Homes Delivered......... 1,449 653 756
Average Price...........$ 176,253 $ 193,868 $192,001
Metro D.C.:
Housing Revenues........$ 310,815 $ 66,137 $ 45,493
Homes Delivered......... 1,294 263 198
Average Price...........$ 240,197 $ 251,471 $229,762
California:
Housing Revenues........$ 280,582 $ 143,729 $105,941
Homes Delivered......... 760 480 514
Average Price...........$ 369,187 $ 299,435 $206,110
Texas:
Housing Revenues........$ 215,045 $ 186,294 $ 13,184
Homes Delivered......... 1,003 914 66
Average Price........... 214,402 $ 203,823 $199,757
Mid South:
Housing Revenues........$ 44,372 -- --
Homes Delivered......... 290 -- --
Average Price........... 153,007 -- --
Other:
Housing Revenues........$ 16,866 $ 21,288 $ 38,196
Homes Delivered......... 135 118 171
Average Price...........$ 124,933 $ 180,407 $223,368
Combined Total:
Housing Revenues........$1,693,717 $1,105,466 $908,553
Homes Delivered........ 6,791 4,367 3,768
Average Price...........$ 249,406 $ 253,141 $241,123
The value of our net sales contracts increased 46.9% to
$1,619,000 for the year ended October 31, 2001 from $1,102,000 for
the year ended October 31, 2000. This increase was the net result
of a 48.0% increase in the number of homes contracted to 6,722 in
2001 from 4,542 in 2000. By United States market, on a dollar
basis, Metro D. C. increased 292.7%, North Carolina increased
117.1%, Texas increased 9.4%, and California increased 61.2%. The
increase in Metro D. C. and North Carolina was primarily due to the
merger with Washington Homes, Inc. The increase in Texas was due
to slight increases in sales and average home prices. The increase
in California was primarily the result of increased sales.
These increases were slightly offset by a 2.0% decrease in sales
in the Northeast Region due to fewer active selling communities.
The following table summarizes our active communities under
development as of October 31, 2001. The contracted not delivered
and remaining home sites available in our active communities under
development are included in the 36,805 total home lots under the
total residential real estate chart in Item 7 Management's
Discussion and Analysis of Financial Condition and Results of
Operations.
(1) (2)
Contracted Remaining
Commun- Approved Homes Not Home Sites
ities Lots Delivered Delivered Available
------- -------- --------- --------- ----------
Northeast Region...... 23 8,599 3,038 1,136 4,425
North Carolina........ 54 7,963 3,699 534 3,730
Metro D.C............. 34 5,959 3,337 779 1,843
California............ 8 2,696 1,197 172 1,327
Texas................. 35 4,040 2,252 263 1,525
Mid South............. 18 2,057 778 122 1,157
Other................. -- 147 130 3 14
------- -------- --------- --------- ----------
Total 172 31,461 14,431 3,009 14,021
======= ======== ========= ========= ==========
(1) Includes 484 lots under option.
(2) Of the total home sites available, 801 were under construction
or completed (including 164 models and sales offices), 9,628
were under option, and 157 were financed through purchase
money mortgages.
The following table summarizes our total started or completed
unsold homes as of October 31, 2001:
Unsold
Homes Models Total
------ ------ -----
Northeast Region.................. 69 48 117
North Carolina.................... 205 41 246
Metro D.C......................... 27 27 54
California........................ 60 11 71
Texas............................. 215 15 230
Mid South......................... 54 22 76
Other............................. 7 -- 7
------ ------ -----
Total 637 164 801
====== ====== =====
BACKLOG
At October 31, 2001 and October 31, 2000, we had a backlog of
signed contracts for 3,033 homes and 2,096 homes, respectively, with
sales values aggregating $773,074,000 and $538,546,000, respectively.
Substantially all of our backlog at October 31, 2001 is expected to
be completed and closed within the next twelve months. At
November 30, 2001 and 2000, our backlog of signed contracts was
3,025 homes and 2,190 homes, respectively, with sales values
aggregating $770,930,000 and $572,452,000, respectively.
Sales of our homes typically are made pursuant to a standard
sales contract and provides the customer with a statutorily mandated
right of rescission for a period ranging up to 15 days after
execution. This contract requires a nominal customer deposit at the
time of signing. In addition, in the Northeast Region and Metro
D. C. we typically obtain an additional 5% to 10% down payment due
30 to 60 days after signing. The contract may include a
financing contingency, which permits the customer to cancel his
obligation in the event mortgage financing at prevailing interest
rates (including financing arranged or provided by us) is
unobtainable within the period specified in the contract.
This contingency period typically is four to eight weeks following
the date of execution.
RESIDENTIAL LAND INVENTORY
It is our objective to control a supply of land, primarily
through options, consistent with anticipated homebuilding
requirements in each of our housing markets. Controlled land as of
October 31, 2001, exclusive of communities under development
described under "Business and Properties -- Residential Development
Activities," is summarized in the following table. The proposed
developable lots in communities under development are included in
the 36,805 total home lots under the total residential real estate
chart in Item 7 Management's Discussion and Analysis of Financial
Condition and Results of Operations.
Number
of Proposed Total Land
Proposed Developable Option Book
Communities Lots Price Value(1)(2)
----------- ----------- ----------- -----------
(In Thousands)
Northeast Region:
Under Option........ 60 9,603 $ 354,246 53,193
Owned............... 6 711 31,757
--------- ----------- -----------
Total............ 66 10,314 84,950
--------- ----------- -----------
North Carolina:
Under Option........ 29 2,312 $ 72,619 4,430
--------- ----------- -----------
Metro D.C.:
Under Option........ 22 2,614 $ 115,104 7,993
Owned............... 14 2,332 36,767
-------- ----------- -----------
Total............ 36 4,946 44,760
-------- ----------- -----------
California:
Under Option........ 5 171 $ 36,370 4,662
-------- ----------- -----------
Texas:
Under Option........ 13 1,040 $ 38,962 1,999
-------- ----------- -----------
Other:
Owned............... 2 992 1,496
-------- ----------- -----------
Totals:
Under Option........ 129 15,740 72,277
Owned............... 22 4,035 70,020
--------- ----------- -----------
Combined Total........ 151 19,775 142,297
======== =========== ===========
(1) Properties under option also includes costs incurred on properties
not under option but which are under investigation. For properties
under option, we paid, as of October 31, 2001, option fees and
deposits aggregating approximately $33,739,000. As of October 31,
2001, we spent an additional $38,538,000 in non-refundable
predevelopment costs on such properties.
(2) The book value of $142,297,000 is identified on the balance sheet
as "Inventories - land, land options, and cost of projects in
planning", and does not include inventory in Poland amounting to
$4,668,000.
In our Northeast Region, our objective is to control a supply
of land sufficient to meet anticipated building requirements for at
least three to five years. We typically option parcels of unimproved
land for development.
In North Carolina, Metro D.C., and the Mid South, a portion of
the land we acquired was from land developers on a lot takedown basis.
In Texas, we primarily acquire improved lots from land developers.
Under a typical agreement with the lot developer, we purchase a minimal
number of lots. The balance of the lots to be purchased are covered
under an option agreement or a non-recourse purchase agreement. Due
to the dwindling supply of improved lots in these markets, we are
currently optioning parcels of unimproved land for development.
In California, historically we have focused our development
efforts in the southern portion of the state. Where possible, we
plan to option developed or partially developed lots. With a
limited supply of developed lots in California, we are currently
optioning parcels of unimproved land for development.
CUSTOMER FINANCING
At our communities, on-site personnel facilitate sales by
offering to arrange financing for prospective customers through our
mortgage subsidiaries. We believe that the ability to offer
financing to customers on competitive terms as a part of the sales
process is an important factor in completing sales.
Our business consists of providing our customers with
competitive financing and coordinating and expediting the loan
origination transaction through the steps of loan application, loan
approval and closing. We originate loans in New Jersey, New York,
Pennsylvania, Maryland, Virginia, North Carolina, Mississippi,
Alabama, Tennessee, Texas, and California.
Like other mortgage bankers, we customarily sell nearly all
of the loans that we originate. Additionally, we sell virtually
all of the loan servicing rights to loans we originate. Loans are
sold either individually or in pools to GNMA, FNMA, or FHLMC or
against forward commitments to institutional investors, including
banks, mortgage banking firms, and savings and loan associations.
We plan to grow our mortgage banking operations. Our
objective is to increase the capture rate of non-cash homebuyers
from the 57% rate achieved in fiscal 2001 to 70% over the next
several years.
COMPETITION
Our residential business is highly competitive. We compete
with numerous real estate developers in each of the geographic areas
in which we operate. Our competition range from small local builders
to larger regional and national builders and developers, some of
which have greater sales and financial resources than us.
Previously owned homes and the availability of rental housing
provide additional competition. We compete primarily on the basis
of reputation, price, location, design, quality, service and
amenities.
REGULATION AND ENVIRONMENTAL MATTERS
General. We are subject to various local, state and federal
statutes, ordinances, rules and regulations concerning zoning,
building design, construction and similar matters, including local
regulations which impose restrictive zoning and density requirements
in order to limit the number of homes that can eventually be built
within the boundaries of a particular locality. In addition, we
are subject to registration and filing requirements in connection
with the construction, advertisement and sale of our communities
in certain states and localities in which we operate even if all
necessary government approvals have been obtained. We may also be
subject to periodic delays or may be precluded entirely from
developing communities due to building moratoriums that could be
implemented in the future in the states in which we operate.
Generally, such moratoriums relate to insufficient water or
sewerage facilities or inadequate road capacity.
Environmental. We are also subject to a variety of local,
state and federal statutes, ordinances, rules and regulations
concerning protection of health and the environment ("environmental
laws"). The particular environmental laws which apply to any given
community vary greatly according to the community site, the site's
environmental conditions and the present and former uses of the
site. These environmental laws may result in delays, may cause us
to incur substantial compliance and other costs, and prohibit or
severely restrict development in certain environmentally sensitive
regions or areas.
Fair Housing Act. In July 1985, New Jersey adopted the Fair
Housing Act which established an administrative agency to adopt
criteria by which municipalities will determine and provide for their
fair share of low and moderate income housing. This agency adopted
such criteria in May 1986. Its implementation thus far has caused
some delay in approvals for some of our New Jersey communities and
may result in a reduction in the number of homes planned for some
properties.
Both prior to the enactment of the Fair Housing Act and in
its implementation thus far, municipal approvals in some of the
New Jersey municipalities in which we own land or land options
required us to set aside up to 22% of the approved homes for sale
at prices affordable to persons of low and moderate income. In
order to comply with such requirements, we must sell these homes
at a loss. We attempt to reduce some of these losses through
increased density, certain cost saving construction measures and
reduced land prices from the sellers of property. Such losses are
absorbed by the market priced homes in the same developments.
State Planning Act. Pursuant to the 1985 State Planning Act,
the New Jersey State Planning Commission has adopted a State
Development and Redevelopment Plan ("State Plan"). The State Plan,
if fully implemented, would designate large portions of the state
as unavailable for development or as available for development only
at low densities, and other portions of the state for more intense
development. State government agencies would be required to make
permitting decisions in accordance with the State Plan, if it
is fully implemented. The state government agencies have not yet
adopted policies and regulations to fully implement the State Plan.
The Governor has issued an Executive Order to all state agencies
requiring compliance with the State Plan. It is unclear what
effect this Executive Order may have on our ability to develop
our land.
The California Environmental Quality Act (CEQA) requires
that every community comply with the CEQA. Compliance with CEQA
may result in delay in obtaining the necessary approvals for
commencement of the community, a reduction in the density permitted
in the community, additional costs in developing the community, or
denial of the permits necessary to construct the community.
Conclusion. Despite our past ability to obtain necessary
permits and approvals for our communities, it can be anticipated
that increasingly stringent requirements will be imposed on
developers and homebuilders in the future. Although we cannot
predict the effect of these requirements, they could result in
time-consuming and expensive compliance programs and substantial
expenditures for pollution and water quality control, which could
have a material adverse effect on us. In addition, the continued
effectiveness of permits already granted or approvals already
obtained is dependent upon many factors, some of which are beyond
our control, such as changes in policies, rules and regulations and
their interpretation and application.
Company Offices. We own our corporate headquarters, a
four-story, 24,000 square feet office building located in Red Bank,
New Jersey and 19,992 square feet in a Middletown, New Jersey
condominium office building. We lease office space consisting of
106,549 square feet in various New Jersey and Pennsylvania locations,
59,216 square feet in the Metro D. C. area, 51,094 square feet in
various North Carolina locations, 11,448 square feet in various
Mid South locations, 13,505 square feet in West Palm Beach, Florida,
17,359 square feet in southern California, and 25,025 square feet
in various Texas locations.
ITEM 3 - LEGAL PROCEEDINGS
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.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the fourth quarter of the year ended October 31, 2001
nomatters were submitted to a vote of security holders.
EXECUTIVE OFFICERS OF THE REGISTRANT
Information on executive officers of the registrant is
incorporated herein from Part III, Item 10.
PART II
ITEM 5 - MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDERS MATTERS
Our Class A Common Stock is traded on the New York Stock
Exchange and was held by 620 shareholders of record at January 4,
2002. There is no established public trading market for our
Class B Common Stock, which was held by 450 shareholders of record
at January 4, 2002. In order to trade Class B Common Stock, the
shares must be converted into Class A Common Stock on a one-for-one
basis. The high and low sales prices for our Class A Common Stock
were as follows for each fiscal quarter during the years ended
October 31, 2001, 2000, and 1999:
Class A Common Stock
------------------------------------------------
Oct. 31, 2001 Oct. 31, 2000 Oct. 31, 1999
-------------- -------------- --------------
Quarter High Low High Low High Low
- ------- ------ ------ ------ ------ ------ ------
First........ $ 9.99 $ 7.19 $ 6.88 $ 5.25 $ 9.25 $ 7.75
Second....... $18.75 $ 8.75 $ 6.62 $ 5.44 $ 8.94 $ 6.81
Third........ $19.34 $13.00 $ 6.38 $ 5.44 $ 9.50 $ 7.88
Fourth....... $15.00 $ 9.71 $ 7.94 $ 5.88 $ 8.88 $ 6.00
On August 7, 1999 and October 1, 1999 we acquired two
homebuilding companies. As part of the purchase price 1,845,359
shares of unregistered Class A Common Stock were issued to the
sellers. At October 31, 2001, 241,651 of these shares are being
held in escrow (and thus not reported as issued and outstanding).
There were no underwriters associated with these transactions.
These shares were issued in private transactions in reliance upon
Section 4(2) of the Securities Act of 1933.
Certain debt instruments to which we are a party contain
restrictions on the payment of cash dividends. As a result of the
most restrictive of these provisions, approximately $66,013,000 was
free of such restrictions at October 31, 2001. We have never paid
a cash dividend nor do we currently intend to pay dividends.
ITEM 6 - SELECTED CONSOLIDATED FINANCIAL DATA
The following table sets forth selected financial data and
should be read in conjunction with the financial statements included
elsewhere in thisForm 10-K. Per common share data and weighted
average number of common shares outstanding reflect all stock
splits.
Year Ended
----------------------------------------------------
Summary Consolidated October October October October October
Income Statement Data 31, 2001 31, 2000 31, 1999 31, 1998 31, 1997
- ------------------------------- ---------- ---------- -------- -------- --------
(In Thousands Except Per Share Data)
Revenues....................... $1,741,963 $1,135,559 $946,414 $937,729 $770,379
Expenses....................... 1,635,609 1,083,741 895,797 896,437 782,503
---------- ---------- -------- -------- --------
Income(loss) before income
taxes and extraordinary loss. $ 106,354 51,818 50,617 41,292 (12,124)
State and Federal income taxes. 42,668 18,655 19,674 15,141 (5,154)
Extraordinary loss............. (868) (748) --
---------- ---------- -------- -------- --------
Net income (loss).............. $ 63,686 $ 33,163 $ 30,075 $ 25,403 $ (6,970)
========== ========== ======== ======== ========
Per Share Data:
Basic:
Income (loss) before
extraordinary loss......... $ 2.38 $ 1.51 $ 1.45 $ 1.20 $ (0.31)
Extraordinary loss........... (.04) (0.03) --
---------- ---------- -------- -------- --------
Net income (loss)............ $ 2.38 $ 1.51 $ 1.41 $ 1.17 $ (0.31)
========== ========== ======== ======== ========
Weighted average number of
common shares outstanding.. 26,810 21,933 21,404 21,781 22,409
Assuming Dilution:
Income (loss) before
extraordinary loss......... $ 2.29 $ 1.50 $ 1.43 $ 1.19 $ (0.31)
Extraordinary loss........... (.04) (0.03)
---------- ---------- -------- -------- --------
Net income (loss)............ $ 2.29 $ 1.50 $ 1.39 $ 1.16 $ (0.31)
========== ========== ======== ======== ========
Weighted average number of
common shares outstanding.. 27,792 22,043 21,612 22,016 22,506
Summary Consolidated October October October October October
Balance Sheet Data 31, 2001 31, 2000 31, 1999 31, 1998 31, 1997
- ------------------------------- ---------- ---------- -------- -------- --------
Total assets................... $1,064,258 $ 873,541 $712,861 $589,102 $637,082
Mortgages and notes payable.... $ 111,795 $ 78,206 $110,228 $150,282 $184,519
Senior notes, participating
senior subordinated
debentures and subordinated
notes........................ $ 396,544 $ 396,430 $250,000 $145,449 $190,000
Stockholders' equity........... $ 375,646 $ 263,359 $236,426 $201,392 $178,762
Note: See Item 7 "Results of Operations" for impact of our 1999 and 2001
acquisitions in our operating results.
RATIOS OF EARNINGS TO FIXED CHARGES AND EARNINGS TO COMBINED FIXED CHARGES
AND PREFERRED STOCK DIVIDENDS
For purposes of computing the ratios of earnings to fixed
charges and earnings to combined fixed charges and preferred
dividends, earnings consist of earnings (loss) from continuing
operations before income taxes, minority interest, extraordinary
items and cumulative effect of accounting changes, plus fixed
charges (interest charges and preferred share dividend requirements
of subsidiaries, adjusted to a pretax basis), less interest
capitalized, less preferred share dividend requirements of
subsidiaries adjusted to a pretax basis and less undistributed
earnings of affiliates whose debt is not guaranteed by us.
The following table sets forth the ratios of earnings to fixed
charges and earnings to combined fixed charges and preferred dividends
for the periods indicated:
Years Ended October 31,
-------------------------------------------------
2001 2000 1999 1998 1997
-------- -------- -------- -------- ---------
Ratio of earnings to
fixed charges............ 3.1 2.2 3.0 2.5 (a)
Ratio of earnings to
combined fixed charges
and preferred stock
dividends................. 3.1 2.2 3.0 2.5 (a)
(a) No ratio is presented for the year ended October 31, 1997 as the
earnings for such period were insufficient to cover fixed charges
by $9,197,000.
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
CAPITAL RESOURCES AND LIQUIDITY
Our cash uses during the twelve months ended October 31, 2001
were for operating expenses, seasonal increases in housing inventories,
construction, income taxes, interest, the repurchase of common stock,
and the merger with Washington Homes, Inc. We provided for our cash
requirements from housing and land sales, the revolving credit
facility, financial service revenues, and other revenues. We
believe that these sources of cash are sufficient to finance our
working capital requirements and other needs.
Our net income historically does not approximate cash flow
from operating activities. The difference between net income and
cash flow from operating activities is primarily caused by changes
in inventory levels, mortgage loans and liabilities, and non-cash
charges relating to depreciation, impairment losses and goodwill
amortization. When we are expanding our operations, which was the
case in fiscal 2001 and 2000, inventory levels increase causing
cash flow from operating activities to decrease. Liabilities
also increase as inventory levels increase. The increase in
liabilities partially offsets the negative effect on cash flow
from operations caused by the increase in inventory levels.
As our mortgage warehouse loan asset increases, cash flow from
operations decreases. Conversely, as such loans decrease, cash
flow from operations increases. Depreciation and impairment
losses always increase cash flow from operating activities since
they are non-cash charges to operations. We expect to be in an
expansion mode in fiscal 2002. As a result, we expect cash flow
from operations to be less than net income in fiscal 2002.
On December 31, 2000, our stock repurchase program to
purchase up to 4 million shares of Class A Common Stock expired.
As of December 31, 2000, 3,391,047 shares had been purchased under
this program. On July 3, 2001, our Board of Directors authorized
a revision to our stock repurchase program to purchase up to
2 million shares of Class A Common Stock. As of October 31, 2001,
458,700 have been purchased under this program.
Our homebuilding bank borrowings are made pursuant to a
revolving credit agreement (the "Agreement") that provides a
revolving credit line and letter of credit line of up to
$440,000,000 through July 2004. Interest is payable monthly
and at various rates of either the prime rate plus .40% or Libor
plus 1.85%. We believe that we will be able either to extend the
Agreement beyond July 2004 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 the covenants under the Agreement. As of
October 31, 2001, borrowings under the Agreement were zero.
The subordinated indebtedness issued by us and outstanding
as of October 31, 2001 was $99,747,000 9 3/4% Subordinated Notes
due June 2005. In April 2001, we retired $253,000 of these
Subordinated Notes. On October 2, 2000, we issued $150,000,000
10 1/2% Senior Notes due October 2007. The proceeds were used
to repay outstanding debt under our "Revolving Credit Facility".
On May 4, 1999, we issued $150,000,000 9 1/8% Senior Notes due
April 2009. We believe that we will be able either to repay the
subordinated indebtedness and senior notes at their respective
maturity dates through cash flows generated from operations or
through subsequent debt issuances.
Our mortgage banking subsidiary borrows under a $110,000,000
bank warehousing arrangement which expires in July 2002. Interest
is payable monthly at the Federal Funds Rate plus 1.125%. We believe
that we will be able either to extend this agreement beyond July 2002
or negotiate a replacement facility, but there can be no assurance
of such extension or replacement facility. 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 October 31, 2001, the
aggregate outstanding principal amount of such borrowings was
$100,704,000.
Total inventory increased $125,131,000 from October 31, 2000
to October 31, 2001. This increase was primarily due to the merger
with Washington Homes, Inc. and significant land purchases in the
Northeast Region. In addition, inventory increased in most of our
other markets except in California where inventory decreased due to
strong home deliveries. Substantially, all homes under construction
or completed and included in inventory at October 31, 2001 are
expected to be closed during the next twelve months. Most inventory
completed or under development is financed through our revolving
credit facility, senior notes, and subordinated indebtedness.
We usually option property for development prior to
acquisition. By optioning property, we are only subject to the
loss of a small option fee and predevelopment costs if we choose
not to exercise the option. As a result, our commitment for major
land acquisitions is reduced.
The following table summarizes housing lots included in our total
residential real estate:
Total Contracted Remaining
Home Not Lots
Lots Delivered Available
-------- ---------- ---------
October 31, 2001:
Northeast Region............. 15,875 1,136 14,739
North Carolina............... 6,576 534 6,042
Metro D. C................... 7,568 779 6,789
California................... 1,670 172 1,498
Texas........................ 2,828 263 2,565
Mid South.................... 1,279 122 1,157
Other........................ 1,009 3 1,006
-------- ---------- ---------
Total................... 36,805 3,009 33,796
======== ========== =========
Owned........................ 10,970 2,525 8,445
Optioned..................... 25,835 484 25,351
-------- ---------- ---------
Total................... 36,805 3,009 33,796
======== ========== =========
October 31, 2000:
Northeast Region............. 15,957 1,149 14,808
North Carolina............... 2,731 215 2,516
Metro D. C................... 5,583 215 5,368
California................... 2,591 151 2,440
Texas........................ 2,380 282 2,098
Other........................ 2,560 84 2,476
-------- ---------- ---------
Total................... 31,802 2,096 29,706
======== ========== =========
Owned........................ 10,012 1,963 8,049
Optioned..................... 21,790 133 21,657
-------- ---------- ---------
Total................... 31,802 2,096 29,706
======== ========== =========
We expect to fund future acquisitions of home lots contracted
not delivered and remaining lots available principally through cash
flows from operations and through our revolving credit agreement.
The following table summarizes our started or completed unsold
homes in active, substantially completed and suspended communities:
October 31, October 31,
2001 2000
---------------------- -----------------------
Unsold Unsold
Homes Models Total Homes Models Total
------ ------ ------ ------ ------ ------
Northeast Region.... 69 48 117 133 48 181
North Carolina...... 205 41 246 102 31 133
Metro D.C........... 27 27 54 6 7 13
California.......... 60 11 71 136 32 168
Texas............... 215 15 230 238 8 246
Mid South........... 54 22 76 -- -- --
Other............... 7 -- 7 58 -- 58
------ ------ ------ ------ ------ ------
Total 637 164 801 673 126 799
====== ====== ====== ====== ====== ======
Financial Services - mortgage loans held for sale consist of
residential mortgages receivable of which $105,174,000 and $61,549,000
at October 31, 2001 and October 31, 2000, respectively, are being
temporarily warehoused and awaiting sale in the secondary mortgage
market. The balance of mortgage loans held for sale are being held
as an investment. We may incur risk with respect to mortgages that
are delinquent, but only to the extent the losses are not covered by
mortgage insurance or resale value of the house. Historically, we
have incurred minimal credit losses.
RESULTS OF OPERATIONS
Our operations consist primarily of residential housing
development and sales in our Northeast Region (New Jersey, southern
New York state, and eastern Pennsylvania), North Carolina, Metro D. C.
(northern Virginia and Maryland), southern California, Texas, and
the Mid South (Tennessee, Alabama, and Mississippi). In addition,
we provide financial services to our homebuilding customers.
Total Revenues
Compared to the same prior period, revenues increased
(decreased) as follows:
Year Ended
-----------------------------
October October October
31, 2001 31, 2000 31, 1999
--------- --------- ---------
(Dollars in Thousands)
Homebuilding:
Sale of homes....................$ 588,251 $ 196,913 $ 12,909
Land sales and other revenues.... 6,049 (6,334) 1,692
Financial services................. 12,104 (1,434) 977
Other Operations................... (6,893)
--------- --------- ---------
Total change..................$ 606,404 $ 189,145 $ 8,685
========= ========= =========
Percent change.................. 53.4% 20.0% 1.0%
========= ========= =========
Homebuilding
Compared to the same prior period, housing revenues increased
$588.3 million or 53.2% for the year ended October 31, 2001,
increased $196.9 million or 21.7% for the year ended October 31, 2000,
and increased $12.9 million or 1.4% for the year ended October 31,
1999. Housing revenues are recorded at the time each home is
delivered and title and possession have been transferred to the buyer.
Information on homes delivered by market area is set
forth below:
Year Ended
-----------------------------------
October October October
31, 2001 31, 2000 31, 1999
----------- --------- ---------
(Dollars in Thousands)
Northeast Region:
Housing Revenues............$ 570,647 $ 561,422 $560,586
Homes Delivered............. 1,860 1,939 2,063
North Carolina:
Housing Revenues............$ 255,390 $ 126,596 $145,153
Homes Delivered............. 1,449 653 756
Metro D.C.:
Housing Revenues............$ 310,815 $ 66,137 $ 45,493
Homes Delivered............. 1,294 263 198
California:
Housing Revenues............$ 280,582 $ 143,729 $ 105,941
Homes Delivered............. 760 480 514
Texas:
Housing Revenues............$ 215,045 $ 186,294 $ 13,184
Homes Delivered............. 1,003 914 66
Mid South:
Housing Revenues............$ 44,372 -- --
Homes Delivered............. 290 -- --
Other:
Housing Revenues............$ 16,866 $ 21,288 $ 38,196
Homes Delivered............. 135 118 171
Totals:
Housing Revenues............$1,693,717 $1,105,466 $ 908,553
Homes Delivered............. 6,791 4,367 3,768
The increase in housing revenues was primarily due to the
merger with Washington Homes, Inc. (comprising a portion of the
North Carolina and Metro D.C. markets and all of the Mid South
market), increased deliveries in California and Texas, and an
increase in average sales prices in the Northeast Region, California,
and Texas markets. Continued strong housing demand in our major
markets enables us to increase home prices and home sales.
Unaudited quarterly housing revenues and net sales contracts
using base sales prices by market area for the years ending October 31,
2001, 2000, and 1999 are set forth below:
Quarter Ended
------------------------------------------
October July April January
31, 2001 31, 2001 30, 2001 31, 2001
--------- --------- --------- ---------
(In Thousands)
Housing Revenues:
Northeast Region......... $163,955 $156,366 $126,700 $123,626
North Carolina........... 77,248 85,887 60,457 31,798
Metro D.C................ 89,472 109,535 74,263 36,691
California............... 109,099 61,830 65,339 44,314
Texas.................... 68,441 62,360 46,434 37,810
Mid South................ 10,675 18,774 11,846 3,077
Other.................... 830 2,539 8,262 6,089
--------- --------- --------- ---------
Total................ $519,720 $497,291 $393,301 $283,405
========= ========= ========= =========
Sales Contracts (Net of
Cancellations):
Northeast Region......... $109,585 $119,073 $155,693 $125,433
North Carolina........... 55,041 59,873 109,483 41,651
Metro D. C............... 75,384 77,253 138,957 32,009
California............... 38,350 66,794 88,620 65,547
Texas.................... 45,299 63,640 64,343 37,177
Mid South................ 11,801 12,394 20,299 3,806
Other.................... 287 279 442 857
--------- --------- --------- ---------
Total................ $335,747 $399,306 $577,837 $306,480
========= ========= ========= =========
Quarter Ended
------------------------------------------
October July April January
31, 2000 31, 2000 30, 2000 31, 2000
--------- --------- --------- ---------
(In Thousands)
Housing Revenues:
Northeast Region......... $188,770 $131,668 $113,732 $127,252
North Carolina........... 35,016 33,319 30,891 27,370
Metro D.C................ 18,932 13,901 17,459 15,845
California............... 39,725 48,055 30,313 25,636
Texas.................... 52,188 47,318 37,573 49,215
Other.................... 7,658 3,743 5,087 4,800
--------- --------- --------- ---------
Total................ $342,289 $278,004 $235,055 $250,118
========= ========= ========= =========
Sales Contracts (Net of
Cancellations):
Northeast Region......... $121,179 $115,649 $174,126 $109,040
North Carolina........... 29,317 32,338 33,980 26,892
Metro D. C............... 20,354 23,459 25,144 13,449
California............... 43,551 41,350 52,114 23,839
Texas.................... 51,251 54,708 46,671 39,830
Other.................... 4,571 4,412 10,685 4,193
--------- --------- --------- ---------
Total................ $270,223 $271,916 $342,720 $217,243
========= ========= ========= =========
Quarter Ended
------------------------------------------
October July April January
31, 1999 31, 1999 30, 1999 31, 1999
--------- --------- --------- ---------
(In Thousands)
Housing Revenues:
Northeast Region (1)..... $164,899 $142,503 $126,501 $126,683
North Carolina........... 47,251 38,269 30,553 29,080
Metro D.C................ 15,541 11,400 6,005 12,547
California............... 37,290 24,792 26,548 17,311
Texas.................... 13,184 -- -- --
Other.................... 9,294 10,107 9,531 9,264
--------- --------- --------- ---------
Total................ $287,459 $227,071 $199,138 $194,885
========= ========= ========= =========
Sales Contracts (Net of
Cancellations):
Northeast Region (1)..... $135,514 $111,083 $114,924 $ 90,163
North Carolina........... 25,757 33,078 50,673 31,111
Metro D.C................ 12,246 14,338 16,201 11,077
California............... 36,197 37,788 24,135 17,817
Texas.................... 5,416 -- -- --
Other.................... 3,230 4,643 9,050 12,012
--------- --------- --------- ---------
Total................ $218,360 $200,930 $214,983 $162,180
========= ========= ========= =========
(1) Includes $31,961,000 housing revenues and $12,922,000 sales
contracts in the quarter ended October 31, 1999 from a New
Jersey homebuilder acquired on August 7, 1999.
Our contract backlog using base sales prices by market area is
set forth below:
October October October
31, 2001 31, 2000 31, 1999
--------- --------- ---------
(Dollars in Thousands)
Northeast Region:
Total Contract Backlog........$322,100 $311,539 $286,149
Number of Homes............... 1,160 1,149 1,125
North Carolina:
Total Contract Backlog........$103,616 $ 40,635 $ 44,534
Number of Homes............... 534 215 207
Metro D.C.:
Total Contract Backlog........$208,888 $ 52,339 $ 34,484
Number of Homes............... 779 215 149
California:
Total Contract Backlog........$ 53,338 $ 58,089 $ 34,313
Number of Homes............... 172 151 129
Texas:
Total Contract Backlog........$ 64,961 $ 61,703 $ 51,610
Number of Homes............... 263 282 261
Mid South:
Total Contract Backlog........$ 19,734 -- --
Number of Homes............... 122 -- --
Other:
Total Contract Backlog........$ 437 $ 14,241 $ 9,570
Number of Homes............... 3 84 50
Totals:
Total Contract Backlog........$773,074 $538,546 $460,660
Number of Homes............... 3,033 2,096 1,921
We have written down or written off certain inventories
totaling $4.4, $1.8, and $2.1 million during the years ended
October 31, 2001, 2000, and 1999, respectively, to their estimated
fair value. See "Notes to Consolidated Financial Statements -
Note 11" for additional explanation. These writedowns and write-offs
were incurred primarily because of lower property values, a change
in the marketing strategy to liquidate a particular property, or the
decision not to exercise an option to purchase land.
During the years ended October 31, 2001 and 2000, we wrote off
residential land options including approval and engineering costs
amounting to $1.9 and $1.8 million, respectively. We did not
exercise those options because the communities' proforma profitability
did not produce adequate returns on investment commensurate with the
risk. Those communities were located in New Jersey, New York,
Metro D. C., North Carolina, and California.
During the year ended October 31, 2001, we wrote down two residential
communities in the Northeast Region, one community in North Carolina,
and two land parcels in Florida. The writedown in the Northeast
Region was attributed to two communities that were part of a large
land acquisition, which resulted in a loss. The writedowns in North
Carolina and Florida were based upon changes in market conditions.
The result of the above decisions was a reduction in inventory
carrying amounts to fair value, resulting in a $2.5 million
impairment loss.
During the year ended October 31, 1999 we wrote off one
residential land option including approval and engineering costs
amounting to $0.3 million. We did not exercise this option because
the community's proforma profitability did not produce an adequate
return on investment commensurate with the risk. In addition, we
wrote down one land parcel in Florida, one residential community
in New York and two residential communities in North Carolina.
The Florida land parcel was written down based on recent purchase
offers. The communities were written down based on our decision to
discontinue selling homes and offer the remaining lots for sale.
The result of the above decisions was a reduction in inventory
carrying amounts to fair value, resulting in a $1.8 million
impairment loss.
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:
Year Ended
-----------------------------------
October October October
31, 2001 31, 2000 31, 1999
----------- --------- ---------
(Dollars In Thousands)
Sale of homes.............. $1,693,717 $1,105,466 $908,553
Cost of sales.............. 1,344,708 876,492 717,953
----------- --------- ---------
Housing gross margin....... $ 349,009 $ 228,974 $190,600
=========== ========= =========
Gross margin percentage.... 20.6% 20.7% 21.0%
=========== ========= =========
Cost of sales expenses as a percentage of home sales revenues
are presented below:
Year Ended
---------------------------------
October October October
31, 2001 31, 2000 31, 1999
--------- --------- ---------
Sale of homes.............. 100.0% 100.0% 100.0%
--------- --------- ---------
Cost of sales:
Housing, land and
development costs....... 71.5 71.1 71.0
Commissions.............. 2.3 2.2 2.0
Financing concessions.... 1.0 0.9 0.8
Overheads................ 4.6 5.1 5.2
--------- --------- ---------
Total cost of sales........ 79.4 79.3 79.0
--------- --------- ---------
Gross margin percentage.... 20.6% 20.7% 21.0%
========= ========= =========
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 the communities and of home types delivered, consolidated
gross margin will fluctuate up or down. During the year ended
October 31, 2001, our gross margin percentage decreased 0.1% from the
previous year. This decrease was due to the Washington Homes, Inc.
merger, which significantly increased our activity in Metro D. C.
and North Carolina and added markets in the Mid South region that
collectively have a lower average sales price and gross margin
than the averages for our other markets. On an individual market
basis all of our markets showed an increase in gross margin primarily
resulting from increased sales prices. During the year ended
October 31, 2000, our gross margin percentage decreased 0.3% from
the previous year. This decrease was primarily attributed to a full
year of operations from our Texas division where they report lower
margins (acquired in October 1999). During the year ended October 31,
1999, our gross margin percentage increased 3.6% from the previous
year. This can be attributed to higher gross margins being achieved
in each of our markets. The dollar increases for each of the three
years ended October 31, 2001, 2000, and 1999 was attributed to
increased sales, primarily resulting from the acquisition of
Washington Homes in 2001 and the Texas division at the end of 1999.
Selling and general administrative expenses as a percentage
of homebuilding revenues decreased to 8.2% for the year ended
October 31, 2001 and increased to 9.4% for the year ended October 31,
2000 from 8.8% for the year ended October 31, 1999. The dollar
amount of selling and general expenses has increased the last two
years to $140.1 million for the year ended October 31, 2001 from
$104.8 million for the year ended October 31, 2000 which increased
from $81.4 million for the previous year. The percentage decrease
during the year ended October 31, 2001 was due to increased deliveries
and the in market merger with Washington Homes, Inc., which resulted
in administrative efficiencies. The percentage increase in 2000 was
primarily attributable to a full year of operations from our Texas
division and increases in the number of active selling communities
in California. The percentage increase in 1999 was attributable
to increases in all our markets but primarily due to fewer
deliveries in our Northeast Region and due to Northeast Region and
California administrative cost increases.
Land Sales and Other Revenues
Land sales and other revenues consist primarily of land and
lot sales, interest income, contract deposit forfeitures, cash
discounts, and corporate owned life insurance benefits.
A breakout of land and lot sales is set forth below:
Year Ended
----------------------------
October October October
31, 2001 31, 2000 31, 1999
-------- -------- --------
(In Thousands)
Land and lot sales................... $11,356 $ 6,549 $12,077
Cost of sales........................ 10,646 3,971 11,766
-------- -------- --------
Land and lot sales gross margin...... $ 710 $ 2,578 $ 311
======== ======== ========
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.
Year ended October 2000 land and lot sales gross margin
includes a legal settlement in California amounting to $1,924,000.
Financial Services
Financial services consists primarily of originating mortgages
from our homebuyers, selling such mortgages in the secondary market,
and title insurance activities. During the year ended October 31,
2001, financial services provided a $10.0 million pretax profit.
During the years ended 2000 and 1999, financial services resulted in
$0.5 million loss and a $1.0 million profit, respectively, before
income taxes. The increase from 2000 to 2001 was primarily due to a
change in management, reduced costs, increased mortgage loan amounts,
and the addition of a mortgage operation from the merger with
Washington Homes. In the market areas served by our wholly-owned
mortgage banking subsidiaries, approximately 57%, 54%, and 57% of
our non-cash homebuyers obtained mortgages originated by these
subsidiaries during the years ended October 31, 2001, 2000, and
1999, respectively. Our mortgage banking goals are to improve
profitability by increasing the capture rate of our homebuyers to
70%. Most servicing rights on new mortgages originated by us will
be sold as the loans are closed.
Corporate General and Administrative
Corporate general and administrative expenses includes 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 were 2.5%, 2.9%, and
3.0% for the years ended October 31, 2001, 2000, and 1999,
respectively. The percentage decrease during the year ended October 31,
2001 was due to increased housing revenues. The decrease in fiscal year
2000 was due to increased housing revenues and the adoption of SOP 98-1,
"Accounting For the Cost of Computer Software Development For or
Obtained For Internal Use." See "Notes to Consolidated Financial
Statements - Note 2" for additional explanation. Our long term
improvement initiatives include total quality, process redesign
(net of capitalized expenses), and training. Such initiatives
resulted in additional expenses for the years ended October 31,
2001, 2000, and 1999 which were not capitalized amounting to $7.2
million, $6.9 million, and $7.5 million, respectively.
Interest
Interest expense includes housing, and land and lot interest.
Interest expense is broken down as follows:
Year Ended
-------------------------------
October October October
31, 2001 31, 2000 31, 1999
--------- --------- ---------
(In Thousands)
Sale of homes.................. $ 51,046 $ 34,541 $29,261
Land and lot sales............. 400 415 1,082
--------- --------- ---------
Total.......................... $ 51,446 $ 34,956 $30,343
========= ========= =========
Housing interest as a percentage of sale of home revenues amounted to
3.0%, 3.1%, and 3.2% for the years ended October 31, 2001, 2000, and
1999, respectively.
Other Operations
Other operations consist primarily of miscellaneous senior
residential rental operations, amortization of senior and subordinated
note issuance expenses, amortization of goodwill, earnout payments
from homebuilding company acquisitions, corporate owned life insurance
loan interest, reserves for bad debts, and contributions to a
foundation for victims of the September 11, 2001 World Trade
Center attack.
Restructuring Charges
Restructurig charges are estimated expenses associated with
the integration of our operations with those of Washington Homes, Inc.
These expenses are salaries, severance and outplacement costs for the
termination of associates and costs to close and relocate existing
administrative offices, and lost rent and leasehold improvements.
At October 31, 2001, $1.5 million has been charged against the $2.0
million accrual for termination and related costs while $0.5 million
has been charged against the $1.2 million accrual established for
closing and relocation costs.
Total Taxes
Total taxes as a percentage of income before income taxes
amounted to 40.1%, 36.0%, and 38.9% for the years ended October 31,
2001, 2000, and 1999, respectively. The increased percentage is due
primarily to higher amounts of expenses in 2001 not deductible for
federal taxes and a reduced effect of our senior rental tax credits.
Although the credits are the same in 2001 and 2000, they reduce our
effective tax rate less when pretax profits are higher. 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. (See "Notes to Consolidated Financial
Statements - Note 10" for an additional explanation of taxes.)
Extraordinary Loss
On June 7, 1999, we redeemed $45,449,000 of our outstanding
11 1/4% Subordinated Notes due 2002 at an average price of 101.875%
of par which resulted in an extraordinary loss of $868,000 net of
income taxes of $468,000.
Recent Accounting Pronouncements
In June 2001, the Financial Accounting Standards Board issued
Statements of Financial Accounting Standards (SFAS) No. 141,
"Business Combinations," and No. 142, "Goodwill and Other Intangible
Assets." SFAS No. 141 requires that the purchase method of accounting
be used for all business combinations initiated after June 30, 2001.
Use of the pooling-of-interests method is no longer permitted.
SFAS No. 141 also includes guidance on the initial recognition
and measurement of goodwill and other intangible assets acquired
in a business combination that is completed after June 30, 2001.
We adopted SFAS No. 141 for all future acquisitions.
SFAS No. 142 no longer permits the amortization of goodwill and
indefinite-lived intangible assets. Instead, these assets must be
reviewed annually (or more frequently under certain conditions) for
impairment in accordance with this statement. This impairment test
uses a fair value approach rather than the undiscounted cash flows
approach previously required by SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be
Disposed Of." The amortization of goodwill included in other
expenses will also no longer be recorded upon adoption of the new
rules. Intangible assets that do not have indefinite lives will
continue to be amortized over their useful lives and reviewed for
impairment in accordance with SFAS No. 121. We adopted SFAS 142
on November 1, 2001. Upon adoption of SFAS No. 142, goodwill
amortization of $3,764,000, which was incurred in 2001
will no longer be incurred in the future. We do not anticipate
that the adoption of the new statement will have a material effect
on the financial position or results of operations of our Company.
In October 2001, the Financial Accounting Standards Board
issued Statements of Financial Accounting Standards (SFAS) No. 144
"Accounting for the Impairment or Disposal of Long-Lived Assets."
SFAS No. 144 provides accounting guidance for financial accounting
and reporting for impairment or disposal of long-lived assets.
SFAS 144 supersedes SFAS 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed of."
It also supersedes the accounting and reporting of APB Opinion No. 50
"Reporting the Results of Operations - Reporting the Events and
Transactions" related to the disposal of a segment of a business.
SFAS No. 144 is effective for fiscal years beginning after December 15,
2001. We do not anticipate that the adoption of the new statement
will have a material effect on the financial position or results of
operations of our Company.
Inflation
Inflation has a long-term effect on us because increasing
costs of land, materials and labor result in increasing sales 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 inflationary risk faced by the housing industry generally
is that rising housing costs, including land and interest costs,
will substantially outpace increases in the income of potential
purchasers. In recent years, in the price ranges in which we sell
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
58% of our homebuilding cost of sales.
Merger with Washington Homes, Inc.
On January 23, 2001 we merged with Washington Homes, Inc. for
a total purchase price of $87.4 million, of which $38.5 was paid in
cash and 6,352,900 shares of our Class A common stock valued at
$44.9 million were issued and options issued to Washington Homes,
Inc. employees with an intrinsic value of $3.4 million were converted
to 738,785 of our options. (See "Notes To Consolidated Financial
Statements - Note 15" for an additional explanation of our merger
with Washington Homes, Inc.). The merger with Washington Homes,
Inc. did not result in a new segment.
Acquisition of a California Homebuilder
On January 10, 2002 we acquired certain homebuilding assets
and assumed related liabilities from The Forecast Group, L.P. ("TFG")
for an estimated purchase price of $176.0 million plus the
assumption of debt net of cash acquired. The final purchase
price is subject to adjustment based on financial performance
through January 31, 2002. Under the terms of the agreement the
partners in TFG received $45.5 million of Hovnanian restricted
Class A Common Stock and the balance in cash. To fund the
acquisition we are planning to raise $150 million through a five
year term loan. We believe our line of credit is adequate to
provide working capital for our new TFG operations. The addition
of the TFG operations for almost 10 months of fiscal 2002 is expected
to add approximately $0.50 per share to our net earnings. We expect
total revenues to increase more than 30% in fiscal 2002 from 2001
levels, largely as a result of the purchase of the TFG operations.
Safe Harbor Statement
Certain statements contained in this Form 10-K that are not
historical facts should be considered as "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 and market conditions
. Changes in interest rates and the availability of mortgage
financing
. Changes in costs and availability of material, supplies
and labor
. General competitive conditions
. The availability of capital
. The ability to successfully effect acquisitions
These risks, uncertainties, and other factors are described in
detail in Item 1 and 2 Business and Properties in this Form 10-K for
the year ended October 31, 2001.
Item 7(A) - Quantitative and Qualitative Disclosures About
Market Risk.
The primary market risk facing us is interest rate risk on
our long term debt. In connection with our mortgage operations,
mortgage loans held for sale and the associated mortgage warehouse
line of credit are subject to interest rate risk; however, such
obligations reprice frequently and are short-term in duration.
In addition, we hedge the interest rate risk on mortgage loans by
obtaining forward commitments from FNMA, FHLMC, GNMA securities
and private investors. Accordingly the risk from mortgage loans is
not material. We do not hedge interest rate risk other than on
mortgage loans using financial instruments. We are also subject
to foreign currency risk but this risk is not material. The
following tables set forth as of October 31, 2001 and 2000, our
long term debt obligations, principal cash flows by scheduled
maturity, weighted average interest rates and estimated fair
market value ("FMV"). There have been no significant changes in
our market risk from October 31, 2000 to October 31, 2001.
As of October 31, 2001 for the
Year Ended October 31,
--------------------------------------
FMV @
2002 2003 2004 2005 2006 Thereafter Total 10/31/01
------ ------ ------ ------ ------ ---------- -------- ---------
(Dollars in Thousands)
Long Term Debt(1):
Fixed Rate.......$ 8,919 $2,577 $ 75 $ 81 $ 88 $ 400,193 $411,933 $406,192
Average interest
rate........... 6.65% 7.04% 8.38% 8.38% 8.38% 9.80% 9.71% --
As of October 31, 2000 for the
Year Ended October 31,
--------------------------------------
FMV @
2001 2002 2003 2004 2005 Thereafter Total 10/31/00
------ ------ ------ ------ ------ ---------- -------- ---------
(Dollars in Thousands)
Long Term Debt(1):
Fixed Rate.......$11,797 $ 138 $2,594 $ 74 $ 81 $400,534 $415,218 $379,629
Average interest
rate........... 4.63% 7.63% 7.04% 8.38% 8.38% 9.79% 9.63% --
(1) Does not include bonds collateralized by mortgages receivable.
Item 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Financial statements of Hovnanian Enterprises, Inc. and its
consolidated subsidiaries are set forth herein beginning on Page F-1.
Item 9 - CHANGES IN OR DISAGREEMENT WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE.
During the years ended October 31, 2001, 2000, and 1999, there
have not been any changes in or disagreements with accountants on
accounting and financial disclosure.
PART III
Item 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information called for by Item l0, except as set forth
below under the heading "Executive Officers of the Registrant", is
incorporated herein by reference to our definitive proxy statement
to be filed pursuant to Regulation l4A, in connection with the
Company's annual meeting of shareholders to be held on March 8,
2002, which will involve the election of directors.
Executive Officers of the Registrant
Our executive officers are listed below and brief summaries
of their business experience and certain other information with
respect to them are set forth following the table. Each executive
officer holds such office for a one year term.
Year Started
Name Age Position With Company
Kevork S. Hovnanian 78 Chairman of the Board and l967
Director of the Company.
Ara K. Hovnanian 44 Chief Executive Officer, President 1979
and Director of the Company.
Paul W. Buchanan 51 Senior Vice President-Corporate l981
Controller and Director of the
Company.
Geaton A. DeCesaris, Jr.46 President of Homebuilding Operations
And Chief Operating Officer and
Director of the Company 2001
Kevin C. Hake 42 Vice President, Finance and 2000
Treasurer
Peter S. Reinhart 51 Senior Vice President and General 1978
Counsel and Director of the
Company.
J. Larry Sorsby 46 Executive Vice President and 1988
Chief Financial Officer and
Director of the Company
Mr. K. Hovnanian founded the predecessor of the Company in
l959 (Hovnanian Brothers, Inc.) and has served as Chairman of the
Board of the Company since its incorporation in l967. Mr. K. Hovnanian
was also Chief Executive Officer of the Company from 1967 to July 1997.
Mr. A. Hovnanian was appointed President in April 1988, after
serving as Executive Vice President from March 1983. He has also
served as Chief Executive Officer since July 1997. Mr. A. Hovnanian
was elected a Director of the Company in December l98l. Mr. A. Hovnanian
is the son of Mr. K. Hovnanian.
Mr. Buchanan has been Senior Vice President-Corporate
Controller since May l990. Mr. Buchanan was elected a Director of the
Company in March l982.
Mr. DeCesaris was appoiinted President of Homebuilding Operations and
Chief Operating Officer in January 2001. From August 1988 to January
2001, he was President, Chief Executive Officer and a Director of
Washington Homes, Inc. ("WHI") and from April 1999 Chairman of the
Board of WHI.
Mr. Hake joined the Company in July 2000 as Vice President,
Finance and Treasurer. Prior to joining the Company, Mr. Hake was
Director, Real Estate Finance at BankBoston Corporation from 1994 to
June 2000.
Mr. Reinhart has been Senior Vice President and General Counsel since
April 1985. Mr. Reinhart was elected a Director of the Company in
December l98l.
Mr. Sorsby was appointed Executive Vice President and Chief
Financial Officer of the Company in October 2000 after serving as Senior
Vice President, Treasurer, and Chief Financial Officer from February
1996 and as Vice President-Finance/Treasurer of the Company since
March 1991.
Item 11 - EXECUTIVE COMPENSATION
The information called for by Item ll is incorporated herein
by reference to our definitive proxy statement to be filed pursuant to
Regulation l4A, in connection with our annual meeting of shareholders to
be held on March 8, 2002, which will involve the election of directors.
Item 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information called for by Item l2 is incorporated herein
by reference to our definitive proxy statement to be filed pursuant to
Regulation l4A, in connection with our annual meeting of shareholders to
be held on March 8, 2002, which will involve the election of directors.
Item 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information called for by Item l3 is incorporated herein
by reference to our definitive proxy statement with the exception of
the information regarding certain relationships as described below to
be filed pursuant to Regulation l4A, in connection with our annual
meeting of shareholders to be held on March 8, 2002, which will involve
the election of directors.
The weighted average interest rate on Mr. K. Hovnanian and
Mr. A. Hovnanian related party debt was 3.90%, 5.87%, and 4.62% for the
years ended October 31, 2001, 2000, and 1999, respectively. The
largest amount of debt outstanding held by Mr. K. Hovnanian for the
years ending October 31, 2001, 2000, and 1999 was $56,000, $386,000,
and $1,026.000, respectively. The largest amount of debt outstanding
held by Mr. A. Hovnanian for the years ending October 31, 2001, 2000,
and 1999 was $3,002,000, $3,124,000, and $2,407,000, respectively.
The interest rate on six month Treasury bills at October 31, 2001,
2000, and 1999 was 2.01%, 6.08%, and 5.12%. During the years ended
October 31, 2001, 2000, and 1999, we received $76,000, $85,000, and
$80,000, respectively, from our affected partnerships.
PART IV
Item 14 - EXHIBITS, FINANCIAL STATEMENTS, FINANCIAL STATEMENT
SCHEDULES AND REPORTS ON FORM 8-K
Page
Financial Statements:
Index to Consolidated Financial Statements.................. F-1
Report of Independent Auditors.............................. F-2
Consolidated Balance Sheets at October 31, 2001 and 2000.... F-3
Consolidated Statements of Income for the years ended
October 31, 2001, 2000, and 1999......................... F-5
Consolidated Statements of Stockholders' Equity for the years
ended October 31, 2001, 2000, and 1999................... F-6
Consolidated Statements of Cash Flows for the years ended
October 31, 2001, 2000, and 1999......................... F-7
Notes to Consolidated Financial Statements.................. F-8
No schedules are applicable to us or have been omitted because
the required information is included in the financial statements or
notes thereto.
Exhibits:
2(a) Asset Purchase Agreement, dated as of January 4, 2002
between Hovnanian Enterprises, Inc. and The Forecast
Group.
2(b) Securities Purchase Agreement, dated as of January 4,
2002 between Hovnanian Enterprises, Inc. and The
Forecast Group.
3(a) Certificate of Incorporation of the Registrant.(1)
3(b) Certificate of Amendment of Certificate of Incorporation
of the Registrant.(5)
3(c) Bylaws of the Registrant.(5)
4(a) Specimen Class A Common Stock Certificate.(5)
4(b) Specimen Class B Common Stock Certificate.(5)
4(c) Indenture dated as of May 28, 1993, relating to 9 3/4%
Subordinated Notes between Registrant and First Fidelity
Bank, National Association, New Jersey, as Trustee,
including form of 9 3/4% Subordinated Note due 2005.(3)
4(d) Indenture dated as of May 4, 1999, relating to 9 1/8%
Senior Notes between the Registrant and First Fidelity
Bank, including form of 9 1/8% Senior Notes due May 1,
2009.(6)
4(e) Indenture dated as of October 2, 2000, relating to
10 1/2% Senior Notes between the Registrant and First
Union National Bank, including form of 10 1/2% Senior
Notes due October 1, 2007.(11)
10(a) $440,000,000 Revolving Credit Agreement dated August 28,
2001 among K. Hovnanian Enterprises, Inc., Hovnanian
Enterprises, Inc., certain subsidiaries Thereof, PNC
Bank, National Association, First Union National Bank,
Fleet National Bank, Bank of America, National
Association, Bank One, National Association, Comerica
Bank, Guaranty Bank, AmSouth Bank, Key Bank, National
Association, Credit Suisse First Boston, Washington
Mutual Bank FA, and Sun Trust Bank. (7)
10(b) Description of Management Bonus Arrangements.(5)
10(c) Description of Savings and Investment Retirement
Plan.(1)
10(d) 1999 Stock Incentive Plan.(8)
10(e) 1983 Stock Option Plan (as amended and restated May 4,
1990, and amended through May 14, 1998).(9)
10(f) Management Agreement dated August 12, 1983 for the
management of properties by K. Hovnanian Investment
Properties, Inc.(1)
10(g) Management Agreement dated December 15, 1985, for the
management of properties by K. Hovnanian Investment
Properties, Inc.(2)
10(h) Description of Deferred Compensation Plan.(4)
10(i) Senior Executive Short-Term Incentive Plan.(10)
12 Ratio of Earnings to Fixed Charges
21 Subsidiaries of the Registrant.
23 Consent of Independent Auditors
(1) Incorporated by reference to Exhibits to Registration
Statement (No. 2-85198) on Form S-1 of the Registrant.
(2) Incorporated by reference to Exhibits to Annual Report
on Form 10-K for the year ended February 28, 1986 of
the Registrant.
(3) Incorporated by reference to Exhibits to Registration
Statement (No. 33-61778) on Form S-3 of the Registrant.
(4) Incorporated by reference to Exhibits to Annual Report
on Form 10-K for the year ended February 28, 1990 of
the Registrant.
(5) Incorporated by reference to Exhibits to Annual Report
on Form 10-K for the year ended February 28, 1994 of
the Registrant.
(6) Incorporated by reference to Exhibits to Registration
Statement (No. 333-75939) on Form S-3 of the
Registrant.
(7) Incorporated by reference to Exhibits to Quarterly
Report on Form 10Q for the quarter ended July 31, 2001
of the Registrant.
(8) Incorporated by the Proxy Statement of the Registrant
Filed on Schedule 14A dated January 15, 1999.
(9) Incorporated by reference to Exhibit A of the Proxy
Statement of the Registrant filed on Schedule 14A
dated January 26, 2000.
(10) Incorporated by reference to Exhibit B of the Proxy
Statement of the Registrant filed on Schedule 14A
dated January 26, 2000.
(11) Incorporated by reference to Exhibits to Registration
Statement (No. 333-52836-01) on Form S-4 of the
Registrant.
Reports on Form 8-K
The Company did not file any reports on Form 8-K during the
quarter ended October 31, 2001.
SIGNATURES
Pursuant to the requirements of Section l3 or l5(d) of the Securities
Exchange Act of l934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
Hovnanian Enterprises, Inc.
By:
/S/KEVORK S. HOVNANIAN
Kevork S. Hovnanian
Chairman of the Board
Pursuant to the requirements of the Securities Exchange Act
of l934, this report has been signed below by the following persons
on behalf of the registrant and in the capacities and on the dates
indicated.
/S/KEVORK S. HOVNANIAN Chairman of The Board 1/18/02
Kevork S. Hovnanian and Director
/S/ARA K. HOVNANIAN Chief Executive Officer, 1/18/02
Ara K. Hovnanian President and Director
/S/PAUL W. BUCHANAN Senior Vice President 1/18/02
Paul W. Buchanan Corporate Controller and
Director
/S/GEATON A. DECESARIS, JR. President of Homebuilding 1/18/02
Geaton A. DeCesaris, Jr. Operations and Chief Operating
Officer and Director
/S/KEVIN C. HAKE Vice President, Finance 1/18/02
Kevin C. Hake and Treasurer
/S/PETER S. RENHART Senior Vice President and 1/18/02
Peter S. Reinhart General Counsel and Director
/S/J.LARRY SORSBY Executive Vice President, 1/18/02
J. Larry Sorsby Chief Financial Officer
and Director
HOVNANIAN ENTERPRISES, INC.
Index to Consolidated Financial Statements
Page
Financial Statements:
Independent Auditors' Report................................ F-2
Consolidated Balance Sheets as of October 31, 2001 and 2000. F-3
Consolidated Statements of Income for the Years Ended
October 31, 2001, 2000, and 1999............................ F-5
Consolidated Statements of Stockholders' Equity for the Years
Ended October 31, 2001, 2000, and 1999...................... F-6
Consolidated Statements of Cash Flows for the Years Ended
October 31, 2001, 2000, and 1999............................ F-7
Notes to Consolidated Financial Statements.................. F-8
No schedules have been prepared because the required information of
such schedules is not present, is not present in amounts sufficient
to require submission of the schedule or because the required
information is included in the financial statements and notes thereto.
REPORT OF INDEPENDENT AUDITORS
To the Stockholders and
Board of Directors of
Hovnanian Enterprises, Inc.
We have audited the accompanying consolidated balance sheets of
Hovnanian Enterprises, Inc. and subsidiaries as of October 31,
2001 and 2000, and the related consolidated statements of income,
stockholders' equity and cash flows for each of the three years in
the period ended October 31, 2001. These financial statements are
the responsibility of the Company's management. Our responsibility
is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards
generally accepted in the United States. Those standards require
that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for
our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial
position of Hovnanian Enterprises, Inc. and subsidiaries at
October 31, 2001 and 2000 and the consolidated results of their
operations and their cash flows for each of the three years in the
period ended October 31, 2001 in conformity with accounting
principles generally accepted in the United States.
/S/Ernst & Young LLP
New York, New York
December 11, 2001
HOVNANIAN ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In Thousands)
October 31, October 31,
ASSETS 2001 2000
------------ ------------
Homebuilding:
Cash and cash equivalents(Note 5)............. $ 10,173 $ 40,131
------------ ------------
Inventories - At the lower of cost or fair
value (Notes 7, 11, and 12):
Sold and unsold homes and lots under
development............................... 593,149 525,116
Land and land options held for future
development or sale....................... 146,965 89,867
------------ ------------
Total Inventories......................... 740,114 614,983
------------ ------------
Receivables, deposits, and notes (Note 12).... 75,802 36,190
------------ ------------
Property, plant, and equipment - net (Note 4). 30,756 35,594
------------ ------------
Senior residential rental properties - net (Notes 4
and 7)..................................... 9,890 10,276
------------ ------------
Prepaid expenses and other assets (Note 15)... 78,796 64,897
------------ ------------
Total Homebuilding........................ 945,531 802,071
------------ ------------
Financial Services:
Cash.......................................... 5,976 3,122
Mortgage loans held for sale (Notes 6 and 7).. 105,567 61,860
Other assets.................................. 6,465 6,488
------------ ------------
Total Financial Services.................. 118,008 71,470
------------ ------------
Income Taxes Receivable - Including deferred tax
benefits (Note 10)............................ 719
------------ ------------
Total Assets.................................... $1,064,258 $873,541
============ ============
See notes to consolidated financial statements.
HOVNANIAN ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In Thousands)
October 31, October 31,
LIABILITIES AND STOCKHOLDERS' EQUITY 2001 2000
------------ ------------
Homebuilding:
Nonrecourse land mortgages (Note 7)................. $ 10,086 $ 18,166
Accounts payable and other liabilities (Note 16).... 124,125 82,205
Customers' deposits (Note 5)........................ 39,114 31,475
Nonrecourse mortgages secured by operating
properties (Note 7)............................... 3,404 3,554
------------ ------------
Total Homebuilding.............................. 176,729 135,400
------------ ------------
Financial Services:
Accounts payable and other liabilities.............. 5,264 5,085
Mortgage warehouse line of credit (Notes 6 and 7)... 98,305 56,486
------------ ------------
Total Financial Services........................ 103,569 61,571
------------ ------------
Notes Payable:
Revolving credit agreement (Note 7).................
Senior notes (Note 8)............................... 296,797 296,430
Subordinated notes (Note 8)......................... 99,747 100,000
Accrued interest (Notes 7 and 8).................... 11,770 12,709
------------ ------------
Total Notes Payable............................. 408,314 409,139
------------ ------------
Income Taxes Payable - Net of deferred tax benefits
(Note 10)........................................... 4,072
------------ ------------
Total Liabilities............................... 688,612 610,182
------------ ------------
Commitments and Contingent Liabilities (Notes 5, 9, 12,
14 and 15)
Stockholders' Equity (Notes 13 and 15):
Preferred Stock,$.01 par value-authorized 100,000
shares; none issued..............................
Common Stock,Class A,$.01 par value-authorized
87,000,000 shares; issued 24,599,379 shares in 2001
and 17,309,369 shares in 2000 (including 4,195,621
shares in 2001 and 3,736,921 shares in 2000 held
in Treasury)...................................... 246 173
Common Stock,Class B,$.01 par value
(convertible to Class A at time of sale)
-authorized 13,000,000 shares; issued 7,818,927
shares in 2001 and 7,978,903 shares in 2000
(both years include 345,874 shares held in
Treasury)......................................... 78 79
Paid in Capital..................................... 100,957 46,086
Retained Earnings (Note 8).......................... 310,106 246,420
Deferred Compensation............................... (127)
Treasury Stock - at cost............................ (35,614) (29,399)
------------ ------------
Total Stockholders' Equity...................... 375,646 263,359
------------ ------------
Total Liabilities and Stockholders' Equity............ $1,064,258 $873,541
============ ============
See notes to consolidated financial statements.
HOVNANIAN ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In Thousands Except Per Share Data)
Year Ended
-------------------------------------
October October October
31, 2001 31, 2000 31, 1999
----------- ----------- -----------
Revenues:
Homebuilding:
Sale of homes.............................$1,693,717 $1,105,466 $ 908,553
Land sales and other revenues (Notes 12
and 14)................................ 16,818 10,769 17,103
----------- ----------- -----------
Total Homebuilding...................... 1,710,535 1,116,235 925,656
Financial Services.......................... 31,428 19,324 20,758
----------- ----------- -----------
Total Revenues.......................... 1,741,963 1,135,559 946,414
----------- ----------- -----------
Expenses:
Homebuilding:
Cost of sales............................. 1,355,354 880,463 729,719
Selling, general and administrative....... 140,126 104,771 81,396
Inventory impairment loss (Note 11)....... 4,368 1,791 2,091
----------- ----------- -----------
Total Homebuilding...................... 1,499,848 987,025 813,206
----------- ----------- -----------
Financial Services.......................... 21,443 19,750 19,699
----------- ----------- -----------
Corporate General and Administrative(Note 3) 44,278 33,309 28,652
----------- ----------- -----------
Interest (Notes 7 and 8).................... 51,446 34,956 30,343
----------- ----------- -----------
Other operations (Note 15).................. 15,347 8,701 3,897
----------- ----------- -----------
Restructuring charges (Note 16)............. 3,247
----------- ----------- -----------
Total Expenses.......................... 1,635,609 1,083,741 895,797
----------- ----------- -----------
Income Before Income Taxes and
Extraordinary Loss.......................... 106,354 51,818 50,617
----------- ----------- -----------
State and Federal Income Taxes:
State (Note 10)............................. 4,024 2,495 5,093
Federal (Note 10)........................... 38,644 16,160 14,581
----------- ----------- -----------
Total Taxes............................... 42,668 18,655 19,674
----------- ----------- -----------
Extraordinary Loss From Extinguishment of
Debt, Net of Income Taxes (Note 8).......... (868)
----------- ----------- -----------
Net Income....................................$ 63,686 $ 33,163 $ 30,075
=========== =========== ===========
Per Share Data:
Basic:
Income Per Common Share Before
Extraordinary Loss......................$ 2.38 $ 1.51 $ 1.45
Extraordinary Loss........................ (.04)
----------- ----------- -----------
Income....................................$ 2.38 $ 1.51 $ 1.41
=========== =========== ===========
Weighted Average Number of Common Shares
Outstanding............................... 26,810 21,933 21,404
=========== =========== ===========
Assuming Dilution:
Income Per Common Share Before
Extraordinary Loss...................... $ 2.29 $ 1.50 $ 1.43
Extraordinary Loss........................ (.04)
----------- ----------- -----------
Income.................................... $ 2.29 $ 1.50 $ 1.39
=========== =========== ===========
Weighted Average Number of Common Shares
Outstanding............................... 27,792 22,043 21,612
=========== =========== ===========
See notes to consolidated financial statements
HOVNANIAN ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Dollars in Thousands)
A Common Stock B Common Stock
------------------- -------------------
Shares Shares
Issued and Issued and Paid-In Retained Deferred Treasury
Outstanding Amount Outstanding Amount Capital Earnings Comp Stock Total
----------- ------ ----------- ------ ------- -------- --------- --------- ---------
Balance, October 31, 1998... 13,865,923 $ 157 7,694,297 $ 80 $34,561 $183,182 $ $(16,588) $ 201,392
Acquisitions................ 1,362,057 13 11,237 11,250
Sale of common stock under
employee stock option
plan...................... 10,000 1 58 59
Conversion of Class B to
Class A common stock...... 43,088 1 (43,088) (1)
Treasury stock purchases.... (772,900) (6,350) (6,350)
Net Income.................. 30,075 30,075
----------- ------ ----------- ------ ------- -------- --------- --------- ---------
Balance, October 31, 1999... 14,508,168 172 7,651,209 79 45,856 213,257 (22,938) 236,426
Acquisitions................ 47,619 1 (270) (269)
Sale of common stock under
employee stock option
plan...................... 346 346
Stock bonus plan............ 25,128 154 154
Conversion of Class B to
Class A common stock...... 18,180 (18,180)
Treasury stock purchases.... (1,026,647) (6,461) (6,461)
Net Income ................. 33,163 33,163
----------- ------ ----------- ------ ------- -------- --------- --------- ---------
Balance, October 31, 2000... 13,572,448 173 7,633,029 79 46,086 246,420 (29,399) 263,359
----------- ------ ----------- ------ ------- -------- --------- --------- ---------
Acquisitions................ 6,546,932 66 51,361 51,427
Sale of common stock under
employee stock option
plan...................... 519,673 5 2,885 2,890
Stock bonus plan............ 63,429 1 625 626
Conversion of Class B to