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Press release from GlobeNewswire (a Nasdaq OMX company)

Hovnanian Enterprises Reports First Quarter Fiscal 2011 Results

Tuesday, March 01, 2011

Hovnanian Enterprises Reports First Quarter Fiscal 2011 Results13:30 EST Tuesday, March 01, 2011RED BANK, N.J., March 1, 2011 (GLOBE NEWSWIRE) -- Hovnanian Enterprises, Inc. (NYSE:HOV), a leading national homebuilder, reported results for its first quarter ended January 31, 2011.RESULTS FOR THE THREE MONTH PERIOD ENDED JANUARY 31, 2011: Total revenues were $252.6 million for the first quarter of fiscal 2011 compared with $319.6 million in the fiscal 2010 first quarter.   Homebuilding gross margin percentage, before interest expense included in cost of sales, increased year-over-year for the eighth consecutive quarter to 16.9% during the first quarter of 2011, compared to 16.0% in the same quarter a year ago.   Consolidated pre-tax land-related charges in the first quarter of fiscal 2011 were $13.5 million, compared with $5.0 million in last year's first quarter.   Excluding land-related charges, the pre-tax loss for the first quarter of 2011 was $51.0 million compared with $52.6 million in the fiscal 2010 first quarter.   The total pre-tax loss during the first quarter of fiscal 2011 was $64.6 million compared to $55.0 million during the same period of the prior year.   For the first quarter ended January 31, 2011, the after-tax net loss was $64.1 million, or $0.82 per common share, compared with net income of $236.2 million, or $2.97 per fully diluted common share, in the first quarter of the prior year, which as a result of tax legislation changes included a federal income tax benefit of $291.3 million.   Net contracts during the first quarter of fiscal 2011, excluding unconsolidated joint ventures, decreased 13% to 792 homes compared to the first quarter of fiscal 2010.   The contract cancellation rate, excluding unconsolidated joint ventures, for the first quarter of fiscal 2011 was 22%, compared with 21% in the prior year's first quarter.   At January 31, 2011, there were 188 active selling communities, excluding unconsolidated joint ventures, compared with 179 active selling communities at January 31, 2010.   Deliveries, excluding unconsolidated joint ventures, were 845 homes in the first quarter of fiscal 2011, compared with 1,091 homes in last year's first quarter.   During the first quarter, the tax asset valuation allowance charge to earnings was $22.0 million. The valuation allowance was $833.0 million as of January 31, 2011. The valuation allowance is a non-cash reserve against the tax assets for GAAP purposes. For tax purposes, the tax deductions associated with the tax assets may be carried forward for 20 years from the date the deductions were incurred.CASH AND INVENTORY AS OF JANUARY 31, 2011: As of January 31, 2011, homebuilding cash was $399.3 million, including restricted cash required to collateralize letters of credit.   Cash flow in the first quarter of fiscal 2011 was negative $47.8 million, after spending approximately $75 million of cash to purchase approximately 1,300 lots and to develop land across the Company.   As of January 31, 2011, the consolidated land position was 30,864 lots, consisting of 12,153 lots under option and 18,711 owned lots.   For the fiscal 2011 first quarter, approximately 550 of the lots purchased were within 60 newly identified communities (defined as communities controlled subsequent to January 31, 2009).   Approximately 1,850 lots were put under option in 38 newly identified communities during the first quarter of fiscal 2011.OTHER KEY OPERATING DATA: Contract backlog, as of January 31, 2011, excluding unconsolidated joint ventures, was 1,196 homes with a sales value of $367.6 million, a decrease of 25% and 27%, respectively, compared to January 31, 2010.   In the first quarter of fiscal 2011, home deliveries through unconsolidated joint ventures were 47 homes, compared with 38 homes during the first quarter of 2010.COMMENTS FROM MANAGEMENT:   "While we were encouraged by the typical seasonal increase in both traffic and net contracts during January, it is still too early to tell how this spring selling season will compare to last spring's net contracts when the federal homebuyer tax credit was still available," commented Ara K. Hovnanian, Chairman of the Board, President and Chief Executive Officer. "Shortly after the close of our first quarter, we raised almost $300 million in capital market transactions, a portion of the proceeds of which were used to refinance 2012 and 2013 debt maturities with new debt maturing in October of 2015. This additional liquidity enhances our ability to invest in attractive land opportunities at or near the bottom of our industry's cyclical downturn.  Over time, investments in additional land parcels and opening new communities will boost revenues and drive greater operating efficiencies. Looking ahead, we will continue to make decisions that we believe position our company to benefit when the housing market rebounds," concluded Mr. Hovnanian.WEBCAST INFORMATION: Hovnanian Enterprises will webcast its fiscal 2011 first quarter financial results conference call at 11:00 a.m. E.T. on Wednesday, March 2, 2011. The webcast can be accessed live through the "Investor Relations" section of Hovnanian Enterprises' Website at http://www.khov.com. For those who are not available to listen to the live webcast, an archive of the broadcast will be available under the "Audio Archives" section of the Investor Relations page on the Hovnanian Website at http://www.khov.com. The archive will be available for 12 months.ABOUT HOVNANIAN ENTERPRISES®, INC.: Hovnanian Enterprises, Inc., founded in 1959 by Kevork S. Hovnanian, is headquartered in Red Bank, New Jersey. The Company is one of the nation's largest homebuilders with operations in Arizona, California, Delaware, Florida, Georgia, Illinois, Kentucky, Maryland, Minnesota, New Jersey, New York, North Carolina, Ohio, Pennsylvania, South Carolina, Texas, Virginia and West Virginia. The Company's homes are marketed and sold under the trade names K. Hovnanian(R) Homes(R), Matzel & Mumford, Brighton Homes, Parkwood Builders, Town & Country Homes and Oster Homes. As the developer of K. Hovnanian's(R) Four Seasons communities, the Company is also one of the nation's largest builders of active adult homes. Additional information on Hovnanian Enterprises, Inc., including a summary investment profile and the Company's 2010 annual report, can be accessed through the "Investor Relations" section of the Hovnanian Enterprises' website at http://www.khov.com. To be added to Hovnanian's investor e-mail or fax lists, please send an e-mail to IR@khov.com or sign up at http://www.khov.com. The Hovnanian Enterprises, Inc. logo is available at http://www.globenewswire.com/newsroom/prs/?pkgid=7499NON-GAAP FINANCIAL MEASURES: Consolidated earnings before interest expense, income taxes, depreciation and amortization ("EBITDA") and before inventory impairment loss and land option write-offs and gain on extinguishment of debt ("Adjusted EBITDA") are not U.S. generally accepted accounting principles (GAAP) financial measures. The most directly comparable GAAP financial measure is net (loss) income. The reconciliation of net (loss) income to EBITDA and Adjusted EBITDA is presented in a table attached to this earnings release.Cash flow is a non-GAAP financial measure. The most directly comparable GAAP financial measure is Net Cash provided by (or used in) Operating Activities. The Company uses cash flow to mean the amount of Net Cash provided by (or used in) Operating Activities for the period, as reported on the Consolidated Statement of Cash Flows, excluding changes in mortgage notes receivable at the mortgage company, plus (or minus) the amount of Net Cash provided by (or used in) Investing Activities. For the first quarter of 2011, cash flow was negative $47.8 million, which was derived from $2.5 million from net cash provided by operating activities minus the change in mortgage notes receivable of $48.7 million minus $1.6 million of net cash used in investing activities.Loss Before Income Taxes Excluding Land-Related Charges and Gain on Extinguishment of Debt is a non-GAAP financial measure. The most directly comparable GAAP financial measure is Loss Before Income Taxes. The reconciliation ofLoss Before Income Taxes to Loss Before Income Taxes Excluding Land-Related Charges and Gain on Extinguishment of Debt is presented in a table attached to this earnings release.Note: All statements in this Press Release that are not historical facts should be considered as "forward-looking statements" within the meaning of the "Safe Harbor" Provisions of the Private Securities Litigation Reform Act of 1995. Such statements involve known and unknown risks, uncertainties and other factors that may cause actual results, performance or achievements of the Company to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. Such risks, uncertainties and other factors include, but are not limited to, (1) changes in general and local economic and industry and business conditions and impacts of the sustained homebuilding downturn, (2) adverse weather and other environmental conditions and natural disasters, (3) changes in market conditions and seasonality of the Company's business, (4) changes in home prices and sales activity in the markets where the Company builds homes, (5) government regulation, including regulations concerning development of land, the home building, sales and customer financing processes, tax laws, and the environment, (6) fluctuations in interest rates and the availability of mortgage financing, (7) shortages in, and price fluctuations of, raw materials and labor, (8) the availability and cost of suitable land and improved lots, (9) levels of competition, (10) availability of financing to the Company, (11) utility shortages and outages or rate fluctuations, (12) levels of indebtedness and restrictions on the Company's operations and activities imposed by the agreements governing the Company's outstanding indebtedness, (13) operations through joint ventures with third parties, (14) product liability litigation and warranty claims, (15) successful identification and integration of acquisitions, (16) significant influence of the Company's controlling stockholders, (17) geopolitical risks, terrorist acts and other acts of war, (18) the Company's sources of liquidity, (19) changes in credit ratings, (20) availability of net operating loss carryforwards and (21) other factors described in detail in the Company's Annual Report on Form 10-K/A for the year ended October 31, 2010.  (Financial Tables Follow)Hovnanian Enterprises, Inc.    January 31, 2011     Statements of Consolidated Operations     (Dollars in Thousands, Except Per Share Data)           Three Months Ended January 31,   2011 2010   (Unaudited)   Total Revenues $252,567 $319,645 Costs and Expenses (a) 316,138 376,814 Gain on Extinguishment of Debt  --  2,574 Loss from Unconsolidated Joint Ventures (992) (373) Loss Before Income Taxes (64,563) (54,968) Income Tax Benefit (421) (291,157) Net (Loss) Income $(64,142) $236,189       Per Share Data:     Basic:     (Loss) Income Per Common Share  $(0.82) $3.01 Weighted Average Number of Common Shares Outstanding (b) 78,598 78,553 Assuming Dilution:     (Loss) Income Per Common Share  $(0.82) $2.97 Weighted Average Number of Common Shares Outstanding (b) 78,598 79,536       (a) Includes inventory impairment loss and land option write-offs. (b) For periods with a net loss, basic shares are used in accordance with GAAP rules.          Hovnanian Enterprises, Inc.        January 31, 2011           Reconciliation of Loss Before Income Taxes to Loss Before Income Taxes Excluding Land-Related Charges and Gain on Extinguishment of Debt (Dollars in Thousands)                           Three Months Ended January 31,         2011 2010         (Unaudited) Loss Before Income Taxes     $(64,563) $(54,968) Inventory Impairment Loss and Land Option Write-Offs 13,525 4,966 Gain on Extinguishment of Debt      --  (2,574) Loss Before Income Taxes Excluding Land-Related Charges and Gain on Extinguishment of Debt (a) $(51,038) $(52,576)             (a) Loss Before Income Taxes Excluding Land-Related Charges and Gain on Extinguishment of Debt is a non-GAAP Financial measure. The most directly comparable GAAP financial measure is Loss Before Income Taxes.      Hovnanian Enterprises, Inc.    January 31, 2011     Gross Margin     (Dollars in Thousands)       Homebuilding Gross Margin Three Months Ended January 31,   2011 2010   (Unaudited) Sale of Homes $235,885 $309,353 Cost of Sales, Excluding Interest (a) 195,914 259,808 Homebuilding Gross Margin, Excluding Interest 39,971 49,545 Homebuilding Cost of Sales Interest 13,493 19,848 Homebuilding Gross Margin, Including Interest $26,478 $29,697       Gross Margin Percentage, Excluding Interest 16.9% 16.0% Gross Margin Percentage, Including Interest 11.2% 9.6%         Land Sales Gross Margin Three Months Ended January 31,   2011 2010   (Unaudited) Land Sales $8,043 $700 Cost of Sales, Excluding Interest (a) 5,516 8 Land Sales Gross Margin, Excluding Interest 2,527 692 Land Sales Interest 2,133 --  Land Sales Gross Margin, Including Interest $394 $692       (a) Does not include cost associated with walking away from land options or inventory impairment losses which are recorded as Inventory impairment loss and land option write-offs in the Condensed Consolidated Statements of Operations.      Hovnanian Enterprises, Inc.     January 31, 2011     Reconciliation of Net (Loss) Income to Adjusted EBITDA     (Dollars in Thousands)        Three Months Ended January 31,   2011 2010   (Unaudited)  Net (Loss) Income  $(64,142) $236,189  Income Tax Benefit  (421) (291,157)  Interest Expense  39,611 45,455  EBIT (a) (24,952) (9,513)  Depreciation  2,319 3,386  Amortization of Debt Costs  846 806  EBITDA (b) (21,787) (5,321)  Inventory Impairment Loss and Land Option Write-offs  13,525 4,966  Gain on Extinguishment of Debt   --  (2,574)  Adjusted EBITDA (c) $(8,262) $(2,929)        Interest Incurred  $37,827 $40,141        Adjusted EBITDA to Interest Incurred  (0.22) (0.07)       (a) EBIT is a non-GAAP financial measure. The most directly comparable GAAP financial measure is net (loss) income. EBIT represents earnings before interest expense and income taxes. (b) EBITDA is a non-GAAP financial measure. The most directly comparable GAAP financial measure is net (loss) income. EBITDA represents earnings before interest expense, income taxes, depreciation and amortization.  (c) Adjusted EBITDA is a non-GAAP financial measure. The most directly comparable GAAP financial measure is net (loss) income. Adjusted EBITDA represents earnings before interest expense, income taxes, depreciation, amortization, inventory impairment loss and land option write-offs, and gain on extinguishment of debt.      Hovnanian Enterprises, Inc.    January 31, 2011     Interest Incurred, Expensed and Capitalized (Dollars in Thousands)       Three Months Ended January 31,   2011 2010   (Unaudited) Interest Capitalized at Beginning of Period $136,288 $164,340 Plus Interest Incurred 37,827 40,141 Less Interest Expensed 39,611 45,455 Interest Capitalized at End of Period (a) $134,504 $159,026       (a) The Company incurred significant inventory impairments in recent years, which are determined based on total inventory including capitalized interest. However, the capitalized interest amounts are shown gross before allocating any portion of impairments to capitalized interest.   HOVNANIAN ENTERPRISES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (In Thousands Except Share Amounts)         January 31, 2011 October 31, 2010 ASSETS (Unaudited) (1)       Homebuilding:     Cash and cash equivalents $311,032 $359,124       Restricted cash 105,579 108,983       Inventories:     Sold and unsold homes and lots under development 652,742 591,729       Land and land options held for future development or sale 275,686 348,474       Consolidated inventory not owned:     Specific performance options 15,626 21,065 Variable interest entities -- 32,710 Other options 4,120 7,962       Total consolidated inventory not owned 19,746 61,737       Total inventories 948,174 1,001,940       Investments in and advances to unconsolidated joint ventures 57,818 38,000       Receivables, deposits, and notes 51,224 61,023       Property, plant, and equipment – net 60,938 62,767       Prepaid expenses and other assets 85,333 83,928       Total homebuilding 1,620,098 1,715,765       Financial services:     Cash and cash equivalents 5,344 8,056 Restricted cash 4,023 4,022 Mortgage loans held for sale 37,643 86,326 Other assets 2,975 3,391       Total financial services 49,985 101,795       Total assets $1,670,083 $1,817,560       (1) Derived from the audited balance sheet as of October 31, 2010.       HOVNANIAN ENTERPRISES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (In Thousands Except Share Amounts)               January 31, 2011 October 31, 2010 LIABILITIES AND EQUITY (Unaudited) (1)       Homebuilding:     Nonrecourse land mortgages $20,946  $4,313  Accounts payable and other liabilities 269,377  319,749  Customers' deposits 14,201  9,520  Nonrecourse mortgages secured by operating properties 20,435  20,657  Liabilities from inventory not owned 18,239  53,249        Total homebuilding 343,198  407,488        Financial services:     Accounts payable and other liabilities 14,314  16,142  Mortgage warehouse line of credit 24,072  73,643        Total financial services 38,386  89,785        Notes payable:     Senior secured notes 784,978  784,592  Senior notes 711,662  711,585  Senior subordinated notes 120,170  120,170  Accrued interest 32,953  23,968        Total notes payable 1,649,763  1,640,315        Income tax payable 40,035  17,910        Total liabilities 2,071,382  2,155,498        Equity:     Hovnanian Enterprises, Inc. stockholders' equity deficit:     Preferred stock, $.01 par value - authorized 100,000 shares; issued 5,600 shares with a liquidation preference of $140,000 at January 31, 2011 and at October 31, 2010  135,299  135,299  Common stock, Class A, $.01 par value – authorized 200,000,000 shares; issued 75,189,506 shares at January 31, 2011 and 74,809,683 shares at October 31, 2010 (including 11,694,720 shares at January 31, 2011 and October 31, 2010 held in Treasury) 752  748  Common stock, Class B, $.01 par value (convertible to Class A at time of sale) – authorized 30,000,000 shares; issued 15,255,969 shares at January 31, 2011 and 15,256,543 shares at October 31, 2010 (including 691,748 shares at January 31, 2011 and October 31, 2010 held in Treasury) 153  153  Paid in capital - common stock 464,579  463,908  Accumulated deficit (887,561) (823,419) Treasury stock - at cost (115,257) (115,257)       Total Hovnanian Enterprises, Inc. stockholders' equity deficit (402,035) (338,568)       Noncontrolling interest in consolidated joint ventures 736 630        Total equity deficit (401,299) (337,938)       Total liabilities and equity $1,670,083  $1,817,560        (1) Derived from the audited balance sheet as of October 31, 2010.       HOVNANIAN ENTERPRISES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (In Thousands Except Per Share Data) (Unaudited)         Three Months Ended January 31,   2011 2010 Revenues:     Homebuilding:     Sale of homes $235,885  $309,353  Land sales and other revenues 9,588  2,686        Total homebuilding 245,473  312,039  Financial services 7,094  7,606        Total revenues 252,567  319,645        Expenses:     Homebuilding:     Cost of sales, excluding interest 201,430  259,816  Cost of sales interest 15,626  19,848  Inventory impairment loss and land option write-offs 13,525  4,966        Total cost of sales 230,581  284,630        Selling, general and administrative 40,207  43,072        Total homebuilding expenses 270,788  327,702        Financial services 5,470  5,395        Corporate general and administrative 15,008  16,213        Other interest 23,985  25,607        Other operations 887  1,897        Total expenses 316,138  376,814        Gain on extinguishment of debt -- 2,574        Loss from unconsolidated joint ventures (992) (373)       Loss before income taxes (64,563) (54,968)       State and federal income tax (benefit) provision:     State 665  171  Federal (1,086) (291,328)       Total income taxes (421) (291,157)       Net (loss) income $(64,142) $236,189        Per share data:     Basic:     (Loss) income per common share $(0.82) $3.01  Weighted-average number of common shares outstanding 78,598  78,553        Assuming dilution:     (Loss) income per common share $(0.82) $2.97  Weighted-average number of common shares outstanding 78,598  79,536                       HOVNANIAN ENTERPRISES, INC.              (DOLLARS IN THOUSANDS EXCEPT AVG. PRICE)                  (UNAUDITED)    Communities Under Development Three Months - 01/31/2011                    Net Contracts(1) Three Months Ended January 31,Deliveries Three Months Ended January 31,Contract Backlog January 31,   20112010% Change20112010% Change20112010% ChangeNortheast              Home 92 130 (29.2)% 101 168 (39.9)% 227 419 (45.8)%   Dollars $37,435 $55,379 (32.4)% $43,285 $68,714 (37.0)% $90,400 $181,398 (50.2)%   Avg. Price $406,902 $425,992 (4.5)% $428,564 $409,012 4.8% $398,238 $432,933 (8.0)%Mid-Atlantic                       Home 127 126 0.8% 121 182 (33.5)% 268 330 (18.8)%   Dollars $52,013 $46,949 10.8% $46,263 $66,076 (30.0)% $112,268 $131,587 (14.7)%   Avg. Price $409,559 $372,611 9.9% $382,339 $363,055 5.3% $418,910 $398,748 5.1%Midwest                       Home 65 85 (23.5)% 81 111 (27.0)% 206 227 (9.3)%   Dollars $12,331 $16,421 (24.9)% $14,034 $23,404 (40.0)% $33,987 $40,574 (16.2)%   Avg. Price $189,708 $193,188 (1.8)% $173,259 $210,847 (17.8)% $164,985 $178,740 (7.7)%Southeast                       Home 68 72 (5.6)% 68 94 (27.7)% 82 113 (27.4)%   Dollars $15,640 $17,236 (9.3)% $15,504 $24,677 (37.2)% $20,525 $28,652 (28.4)%   Avg. Price $230,000 $239,389 (3.9)% $228,000 $262,521 (13.1)% $250,305 $253,558 (1.3)%Southwest                       Home 357 356 0.3% 360 379 (5.0)% 334 328 1.8%   Dollars $85,787 $79,656 7.7% $87,227 $82,124 6.2% $90,045 $76,561 17.6%   Avg. Price $240,300 $223,753 7.4% $242,297 $216,686 11.8% $269,596 $233,421 15.5%West                       Home 83 143 (42.0)% 114 157 (27.4)% 79 176 (55.1)%   Dollars $22,282 $36,041 (38.2)% $29,573 $44,358 (33.3)% $20,353 $46,638 (56.4)%   Avg. Price $268,458 $252,035 6.5% $259,412 $282,535 (8.2)% $257,633 $264,994 (2.8)%Consolidated Total                       Home 792 912 (13.2)% 845 1,091 (22.5)% 1,196 1,593 (24.9)%   Dollars $225,488 $251,682 (10.4)% $235,886 $309,353 (23.7)% $367,578 $505,410 (27.3)%   Avg. Price $284,707 $275,967 3.2% $279,155 $283,550 (1.5)% $307,339 $317,271 (3.1)%Unconsolidated Joint Ventures                       Home 58 49 18.4% 47 38 23.7% 156 170 (8.2)%   Dollars $23,596 $23,628 (0.1)% $22,534 $20,900 7.8% $68,134 $88,377 (22.9)%   Avg. Price $406,828 $482,204 (15.6)% $479,447 $550,000 (12.8)% $436,756 $519,865 (16.0)%Total                       Home 850 961 (11.6)% 892 1,129 (21.0)% 1,352 1,763 (23.3)%   Dollars $249,084 $275,310 (9.5)% $258,420 $330,253 (21.8)% $435,712 $593,787 (26.6)%   Avg. Price $293,040 $286,483 2.3% $289,709 $292,518 (1.0)% $322,272 $336,807 (4.3)%DELIVERIES INCLUDE EXTRAS           Notes:                     (1) Net contracts are defined as new contracts signed during the period for the purchase of homes, less cancellations of prior contracts.        CONTACT: J. Larry Sorsby Executive Vice President & CFO 732-747-7800 Jeffrey T. O'Keefe Vice President, Investor Relations 732-747-7800