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Deferred tax assets for the Financial services segment are included in the Deferred tax assets, net line on the Condensed Consolidated Balance Sheets. Other interest expensed includes interest that does not qualify for interest capitalization because our assets that qualify for interest capitalization (inventory under development) do not exceed our debt, which amounted to $14.4 million and $15.9 million for the three months ended July 31, 2021 and 2020, respectively, and $48.1 million and $44.6 million for the nine months ended July 31, 2021 and 2020, respectively. Other interest also includes interest on completed homes, land in planning and fully developed lots without homes under construction, which does not qualify for capitalization and therefore is expensed. This component of other interest was $4.8 million and $11.2 million for the three months ended July 31, 2021 and 2020, respectively, and $17.1 million and $34.3 million for the nine months ended July 31, 2021 and 2020, respectively. Capitalized interest amounts are shown gross before allocating any portion of impairments, if any, to capitalized interest. Cash paid for interest, net of capitalized interest, is the sum of other interest expensed, as defined above, and interest paid by our mortgage and finance subsidiaries adjusted for the change in accrued interest on notes payable, which is calculated as follows: Three Months Ended Nine Months Ended July 31, July 31, (In thousands) 2021 2020 2021 2020 Other interest expensed $ 19,158 $ 27,072 $ 65,166 $ 78,944 Interest paid by our mortgage and finance subsidiaries 602 419 1,554 1,698 Increase in accrued interest (12,139 ) (13,876 ) (11,897 ) (31,247 ) Cash paid for interest, net of capitalized interest $ 7,621 $ 13,615 $ 54,823 $ 49,395 Represents capitalized interest which was included as part of the assets contributed to joint ventures, as discussed in Note 18. There was no impact to the Condensed Consolidated Statement of Operations as a result of these transactions. At July 31, 2021, provides for up to $125.0 million in aggregate amount of senior secured first lien revolving loans. Availability thereunder will terminate on December 28, 2022. Corporate and unallocated for the three months ended July 31, 2021 included corporate general and administrative costs of $17.3 million, interest expense of $14.4 million (a component of Other interest on our Condensed Consolidated Statements of Operations), $0.3 million of loss on extinguishment of debt and $0.8 million of other income and expenses primarily related to interest income and stock compensation. Corporate and unallocated for the nine months ended July 31, 2021 included corporate general and administrative costs of $81.1 million, interest expense of $48.1 million (a component of Other interest on our Condensed Consolidated Statements of Operations), $0.3 million of loss on extinguishment of debt and $0.6 million of other income and expenses. Corporate and unallocated for the three months ended July 31, 2020 included corporate general and administrative costs of $19.3 million, interest expense of $15.9 million (a component of Other interest on our Condensed Consolidated Statements of Operations), $(4.1) million of gain on extinguishment of debt and $0.6 million of other income and expenses primarily related to interest income and stock compensation. Corporate and unallocated for the nine months ended July 31, 2020 included corporate general and administrative costs of $54.3 million, interest expense of $44.6 million (a component of Other interest on our Condensed Consolidated Statements of Operations), $(13.3) million of gain on extinguishment of debt and $(1.6) million of other income and expenses. The aggregate unpaid principal balance was $126.9 million and $100.4 million at July 31, 2021 and October 31, 2020, respectively. $26.0 million of 8.0% Senior Notes due 2027 (the "8.0% 2027 Notes") are owned by a wholly-owned consolidated subsidiary of HEI. Therefore, in accordance with GAAP, such notes are not reflected on the Condensed Consolidated Balance Sheets of HEI. On November 1, 2019, the maturity of the 8.0% 2027 Notes was extended to November 1, 2027. Represents capitalized interest which was included as part of the assets purchased from joint ventures, as discussed in Note 18. 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Table of Contents

 

UNITED STATES

 

SECURITIES AND EXCHANGE COMMISSION

 

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

 

(Mark One)

Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

 

For the quarterly period ended July 31, 2021

OR

 

Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

 

Commission file number 1-8551

 

Hovnanian Enterprises, Inc. (Exact Name of Registrant as Specified in Its Charter)

 

Delaware (State or Other Jurisdiction of Incorporation or Organization)

 

22-1851059 (I.R.S. Employer Identification No.)

 

90 Matawan Road, 5th Floor, Matawan, NJ 07747 (Address of Principal Executive Offices)

 

732-747-7800 (Registrant’s Telephone Number, Including Area Code)

 

N/A (Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

Trading symbol(s)

Name of each exchange on which registered

Class A Common Stock, $0.01 par value per share

HOV

New York Stock Exchange

Preferred Stock Purchase Rights(1)

N/A

New York Stock Exchange

Depositary Shares each representing

1/1,000th of a share of 7.625% Series A

Preferred Stock

HOVNP

The Nasdaq Stock Market LLC

 

(1) Each share of Common Stock includes an associated Preferred Stock Purchase Right. Each Preferred Stock Purchase Right initially represents the right, if such Preferred Stock Purchase Right becomes exercisable, to purchase from the Company one ten-thousandth of a share of its Series B Junior Preferred Stock for each share of Common Stock. The Preferred Stock Purchase Rights currently cannot trade separately from the underlying Common Stock.

 

Indicate by check mark whether the registrant: (1) 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.  Yes ☒ No ☐

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  Yes ☒  No ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large Accelerated Filer ☐

Accelerated Filer ☒ 

Nonaccelerated Filer ☐  

Smaller Reporting Company 

Emerging Growth Company

          

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

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes   No ☒

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date. 5,595,610 shares of Class A Common Stock and 659,219 shares of Class B Common Stock were outstanding as of September 2, 2021.

 

 

1

 

 

HOVNANIAN ENTERPRISES, INC.  

 

FORM 10-Q  

 

INDEX

PAGE

NUMBER

  

  

PART I.  Financial Information

  

Item l.  Financial Statements:

  

  

  

Condensed Consolidated Balance Sheets (unaudited) as of July 31, 2021 and October 31, 2020

3

  

  

Condensed Consolidated Statements of Operations (unaudited) for the three and nine months ended July 31, 2021 and 2020

4

  

  

Condensed Consolidated Statements of Changes in Equity (Deficit) (unaudited) for the nine months ended July 31, 2021 and 2020

5

  

  

Condensed Consolidated Statements of Cash Flows (unaudited) for the nine months ended July 31, 2021 and 2020

7

  

  

 

 

Notes to Condensed Consolidated Financial Statements (unaudited)

9

  

  

Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations

33

  

  

Item 3.  Quantitative and Qualitative Disclosures About Market Risk

56

  

  

Item 4.  Controls and Procedures

56

  

  

 

 

PART II.  Other Information

  

Item 1.  Legal Proceedings

57

   

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

57

   
Item 5. Other Information 57

 

 

Item 6.  Exhibits

58

  

  

Signatures

60

 

2

 

 

HOVNANIAN ENTERPRISES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(In Thousands)

 

  

July 31,

  

October 31,

 
  

2021

  

2020

 
   (Unaudited)     

ASSETS

        

Homebuilding:

        

Cash and cash equivalents

 $172,748  $262,489 

Restricted cash and cash equivalents

  15,100   14,731 

Inventories:

        

Sold and unsold homes and lots under development

  1,119,876   921,594 

Land and land options held for future development or sale

  95,416   91,957 

Consolidated inventory not owned

  98,053   182,224 

Total inventories

  1,313,345   1,195,775 

Investments in and advances to unconsolidated joint ventures

  68,900   103,164 

Receivables, deposits and notes, net

  37,735   33,686 

Property, plant and equipment, net

  17,974   18,185 

Prepaid expenses and other assets

  58,571   58,705 

Total homebuilding

  1,684,373   1,686,735 
         

Financial services

  180,218   140,607 
         

Deferred tax assets, net

  447,453   - 

Total assets

 $2,312,044  $1,827,342 
         

LIABILITIES AND EQUITY

        

Homebuilding:

        

Nonrecourse mortgages secured by inventory, net of debt issuance costs

 $118,020  $135,122 

Accounts payable and other liabilities

  401,283   359,274 

Customers’ deposits

  76,729   48,286 

Liabilities from inventory not owned, net of debt issuance costs

  69,627   131,204 

Senior notes and credit facilities (net of discounts, premiums and debt issuance costs)

  1,317,524   1,431,110 

Accrued Interest

  47,460   35,563 

Total homebuilding

  2,030,643   2,140,559 
         

Financial services

  158,226   119,045 

Income taxes payable

  2,484   3,832 

Total liabilities

  2,191,353   2,263,436 
         

Equity:

        

Hovnanian Enterprises, Inc. stockholders' equity deficit:

        

Preferred stock, $0.01 par value - authorized 100,000 shares; issued and outstanding 5,600 shares with a liquidation preference of $140,000 at July 31, 2021 and October 31, 2020

  135,299   135,299 

Common stock, Class A, $0.01 par value - authorized 16,000,000 shares; issued 6,064,070 shares at July 31, 2021 and 5,990,310 shares at October 31, 2020

  61   60 

Common stock, Class B, $0.01 par value (convertible to Class A at time of sale) - authorized 2,400,000 shares; issued 686,888 shares at July 31, 2021 and 649,886 shares at October 31, 2020

  7   7 

Paid in capital - common stock

  719,770   718,110 

Accumulated deficit

  (619,708)  (1,175,045)

Treasury stock - at cost – 470,430 shares of Class A common stock and 27,669 shares of Class B common stock at July 31, 2021 and October 31, 2020

  (115,360)  (115,360)

Total Hovnanian Enterprises, Inc. stockholders’ equity (deficit)

  120,069   (436,929)

Noncontrolling interest in consolidated joint ventures

  622   835 

Total equity (deficit)

  120,691   (436,094)

Total liabilities and equity

 $2,312,044  $1,827,342 

 

See notes to condensed consolidated financial statements (unaudited).

 

3

 

 

HOVNANIAN ENTERPRISES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In Thousands Except Per Share Data)

(Unaudited)

 

  

Three Months Ended July 31,

  

Nine Months Ended July 31,

 
  

2021

  

2020

  

2021

  

2020

 

Revenues:

                

Homebuilding:

                

Sale of homes

 $663,279  $605,933  $1,894,159  $1,608,513 

Land sales and other revenues

  7,559   908   13,280   2,360 

Total homebuilding

  670,838   606,841   1,907,439   1,610,873 

Financial services

  19,845   21,295   61,070   49,670 

Total revenues

  690,683   628,136   1,968,509   1,660,543 
                 

Expenses:

                

Homebuilding:

                

Cost of sales, excluding interest

  521,868   499,695   1,498,040   1,324,077 

Cost of sales interest

  19,240   21,814   58,130   58,539 

Inventory impairment loss and land option write-offs

  1,309   2,364   3,267   6,202 

Total cost of sales

  542,417   523,873   1,559,437   1,388,818 

Selling, general and administrative

  42,988   40,608   125,417   121,887 

Total homebuilding expenses

  585,405   564,481   1,684,854   1,510,705 
                 

Financial services

  11,238   10,493   32,953   29,677 

Corporate general and administrative

  17,284   19,321   81,149   54,340 

Other interest

  19,158   27,072   65,166   78,944 

Other operations

  504   266   1,233   674 

Total expenses

  633,589   621,633   1,865,355   1,674,340 

(Loss) gain on extinguishment of debt

  (306)  4,055   (306)  13,337 

Income from unconsolidated joint ventures

  5,011   5,658   9,568   13,419 

Income before income taxes

  61,799   16,216   112,416   12,959 

State and federal income tax provision (benefit):

                

State

  1,476   853   (89,272)  2,665 

Federal

  12,621   -   (353,649)  - 

Total income taxes

  14,097   853   (442,921)  2,665 

Net income

 $47,702  $15,363  $555,337  $10,294 
                 

Per share data:

                

Basic:

                

Net income per common share

 $6.85  $2.27  $80.02  $1.52 

Weighted-average number of common shares outstanding

  6,315   6,201   6,263   6,178 

Assuming dilution:

                

Net income per common share

 $6.72  $2.16  $78.51  $1.44 

Weighted-average number of common shares outstanding

  6,434   6,518   6,370   6,502 

 

See notes to condensed consolidated financial statements (unaudited).

 

4

 

 

HOVNANIAN ENTERPRISES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (DEFICIT)

Nine MONTH PERIOD ENDED July 31, 2021

(In Thousands Except Share Amounts)

(Unaudited)

 

   

A Common Stock

   

B Common Stock

   

Preferred Stock

                                         
   

Shares

           

Shares

           

Shares

                                                 
   

Issued and

           

Issued and

           

Issued and

           

Paid-In

   

Accumulated

   

Treasury

   

Noncontrolling

         
   

Outstanding

   

Amount

   

Outstanding

   

Amount

   

Outstanding

   

Amount

   

Capital

   

Deficit

   

Stock

   

Interest

   

Total

 
                                                                                         

Balance, October 31, 2020

    5,519,880     $ 60       622,217     $ 7       5,600     $ 135,299     $ 718,110     $ (1,175,045 )   $ (115,360 )   $ 835     $ (436,094 )
                                                                                         

Stock options, amortization and issuances

                                        54                         54  
                                                                                         

Restricted stock amortization, issuances and forfeitures

    7,207             2,370                         668                         668  
                                                                                         

Conversion of Class B to Class A common stock

    45             (45 )                                               -  
                                                                                         

Changes in noncontrolling interest in consolidated joint ventures

                                                                78       78  
                                                                                         

Net income

                                                    18,959                   18,959  
                                                                                         

Balance, January 31, 2021

    5,527,132     $ 60       624,542     $ 7       5,600     $ 135,299     $ 718,832     $ (1,156,086 )   $ (115,360 )   $ 913     $ (416,335 )
                                                                                         

Stock options, amortization and issuances

    33,316             5,368                         (255 )                       (255 )
                                                                                         

Restricted stock amortization, issuances and forfeitures

                                              770                         770  
                                                                                         

Conversion of Class B to Class A common stock

    25             (25 )                                               -  
                                                                                         

Changes in noncontrolling interest in consolidated joint ventures

                                                                (142 )     (142 )
                                                                                         

Net income

                                                    488,676                   488,676  
                                                                                         

Balance, April 30, 2021

    5,560,473     $ 60       629,885     $ 7       5,600     $ 135,299     $ 719,347     $ (667,410 )   $ (115,360 )   $ 771     $ 72,714  
                                                                                         

Stock options, amortization and issuances

    6,806                                     128                         128  
                                                                                         

Restricted stock amortization, issuances and forfeitures

    26,357       1       29,338                         295                         296  
                                                                                         

Conversion of Class B to Class A common stock

    4             (4 )                                               -  
                                                                                         

Changes in noncontrolling interest in consolidated joint ventures

                                                                (149 )     (149 )
                                                                                         

Net income

                                                    47,702                   47,702  
                                                                                         

Balance, July 31, 2021

    5,593,640     $ 61       659,219     $ 7       5,600     $ 135,299     $ 719,770     $ (619,708 )   $ (115,360 )   $ 622     $ 120,691  

 

See notes to condensed consolidated financial statements (unaudited).

 

5

 

HOVNANIAN ENTERPRISES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (DEFICIT)

Nine MONTH PERIOD ENDED July 31, 2020

(In Thousands Except Share Amounts)

(Unaudited)

 

  

A Common Stock

  

B Common Stock

  

Preferred Stock

                     
  

Shares

      

Shares

      

Shares

                         
  

Issued and

      

Issued and

      

Issued and

      

Paid-In

  

Accumulated

  

Treasury

  

Noncontrolling

     
  

Outstanding

  

Amount

  

Outstanding

  

Amount

  

Outstanding

  

Amount

  

Capital

  

Deficit

  

Stock

  

Interest

  

Total

 
                                             

Balance, October 31, 2019

  5,503,297  $60   622,694  $7   5,600  $135,299  $715,504  $(1,225,973) $(115,360) $687  $(489,776)
                                             

Stock options, amortization and issuances

                    162            162 
                                             

Restricted stock amortization, issuances and forfeitures

  3,000      1,796            (330)           (330)
                                             

Conversion of Class B to Class A common stock

  4      (4)                       - 
                                             

Changes in noncontrolling interest in consolidated joint ventures

                                13   13 
                                             

Net (loss)

                          (9,148)        (9,148)
                                             

Balance January 31, 2020

  5,506,301  $60   624,486  $7   5,600  $135,299  $715,336  $(1,235,121) $(115,360) $700  $(499,079)
                                             

Stock options, amortization and issuances

                    96            96 
                                             

Restricted stock amortization, issuances and forfeitures

  869                  (189)           (189)
                                             

Conversion of Class B to Class A common stock

  1      (1)                       - 
                                             

Changes in noncontrolling interest in consolidated joint ventures

                                20   20 
                                             

Net income

                          4,079         4,079 
                                             

Balance, April 30, 2020

  5,507,171  $60   624,485  $7   5,600  $135,299  $715,243  $(1,231,042) $(115,360) $720  $(495,073)
                                             

Stock options, amortization and issuances

                    79            79 
                                             

Restricted stock amortization, issuances and forfeitures

  7,077                  82            82 
                                             

Conversion of Class B to Class A common stock

                                          -