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Hovnanian Enterprises Reports Fiscal 2016 Third Quarter Results

Reports Pretax Profit for Third Quarter
Closed Financing Transactions with New Issuances of $150 Million

RED BANK, N.J., Sept. 09, 2016 (GLOBE NEWSWIRE) -- Hovnanian Enterprises, Inc. (NYSE:HOV), a leading national homebuilder, reported results for its fiscal third quarter and nine months ended July 31, 2016.

RESULTS FOR THE THREE MONTH AND NINE MONTH PERIODS ENDED JULY 31, 2016:

  • Total revenues were $716.9 million in the third quarter of fiscal 2016, an increase of 32.6% compared with $540.6 million in the third quarter of fiscal 2015. For the nine months ended July 31, 2016, total revenues increased 33.8% to $1.95 billion compared with $1.46 billion in the first nine months of the prior year.
  • Total SG&A was $66.6 million, or 9.3% of total revenues, a 330 basis point improvement during the third quarter of fiscal 2016 compared with $67.9 million, or 12.6% of total revenues, in last year’s third quarter. Total SG&A was $199.4 million, or 10.2% of total revenues, a 360 basis point improvement for the first nine months of fiscal 2016 compared with $201.5 million, or 13.8% of total revenues, in the first nine months of the prior year.
  • Total interest expense as a percentage of total revenues was 7.2% during both the third quarter of fiscal 2016 and the third quarter of fiscal 2015. For the nine months ended July 31, 2016, total interest expense as a percentage of total revenues declined 70 basis points to 6.9% compared with 7.6% during the same period a year ago.
  • Homebuilding gross margin percentage, before interest expense and land charges included in cost of sales, was 16.9% for the third quarter ended July 31, 2016 compared with 17.8% for the third quarter of fiscal 2015 and 16.1% for the second quarter of fiscal 2016. During the first nine months of fiscal 2016, homebuilding gross margin percentage, before interest expense and land charges included in cost of sales, was 16.5% compared with 17.4% in the same period of the previous year.
  • Income before income taxes in the third quarter of fiscal 2016 was $1.1 million compared with a loss before income taxes of $10.0 million in the prior year’s third quarter. For the first nine months of fiscal 2016, the loss before income taxes was $29.7 million compared with a loss before income taxes of $59.2 million during the first nine months of fiscal 2015.
  • Income before income taxes, excluding land-related charges, in the third quarter of fiscal 2016 was $2.7 million compared with a loss before income taxes, excluding land-related charges, of $8.9 million in the prior year’s third quarter. For the first nine months of fiscal 2016, the loss before income taxes, excluding land-related charges, was $6.8 million compared with a loss before income taxes, excluding land-related charges, of $51.5 million during the first nine months of fiscal 2015.
  • The net loss was $0.5 million, or $0.00 per common share, for the third quarter of fiscal 2016, compared with a net loss of $7.7 million, or $0.05 per common share, in the third quarter of the previous year. For the nine months ended July 31, 2016, the net loss was $25.1 million, or $0.17 per common share, compared with a net loss of $41.6 million, or $0.28 per common share, in the first nine months of fiscal 2015.
  • For the third quarter of fiscal 2016, Adjusted EBITDA was $56.3 million compared with $32.2 million during the third quarter of 2015, a 74.8% increase. For the first nine months of fiscal 2016, Adjusted EBITDA increased 105.1% to $134.8 million compared with $65.7 million during the first nine months of fiscal 2015.
  • Adjusted EBITDA to interest incurred was 1.40x for third quarter of fiscal 2016 compared with 0.77x for the same quarter last year. For the nine-month period ended July 31, 2016, Adjusted EBITDA to interest incurred was 1.07x compared with 0.53x for the same period one year ago.
  • Consolidated active selling communities decreased 15.5% from 206 communities at the end of the prior year’s third quarter to 174 communities as of July 31, 2016, which was impacted by the sale of ten communities in Minneapolis and Raleigh and the conversion of four consolidated communities into unconsolidated joint venture communities. As of the end of the third quarter of fiscal 2016, active selling communities, including unconsolidated joint ventures, decreased 9.8% to 193 communities compared with 214 communities at July 31, 2015.
  • Consolidated net contracts per active selling community increased 13.5% to 8.4 net contracts per active selling community for the third quarter of fiscal 2016 compared with 7.4 net contracts per active selling community in the third quarter of fiscal 2015. Net contracts per active selling community, including unconsolidated joint ventures, increased 3.9% to 8.0 net contracts per active selling community for the quarter ended July 31, 2016 compared with 7.7 net contracts, including unconsolidated joint ventures, per active selling community in the third quarter of fiscal 2015.
  • The dollar value of consolidated net contracts decreased 4.3% to $593.0 million for the three months ended July 31, 2016 compared with $619.4 million during the same quarter a year ago. The dollar value of net contracts, including unconsolidated joint ventures, during the third quarter of fiscal 2016 decreased 8.8% to $633.3 million compared with $694.6 million in last year’s third quarter.
  • The dollar value of consolidated net contracts increased 8.5% to $1.98 billion for the first nine months of fiscal 2016 compared with $1.82 billion in the first nine months of the previous year. The dollar value of net contracts, including unconsolidated joint ventures, for the nine months ended July 31, 2016 increased 6.3% to $2.09 billion compared with $1.97 billion in the first nine months of fiscal 2015.
  • The number of consolidated net contracts, during the third quarter of fiscal 2016, decreased 4.3% to 1,467 homes compared with 1,533 homes in the prior year’s third quarter. In the third quarter of fiscal 2016, the number of net contracts, including unconsolidated joint ventures, decreased 7.3% to 1,537 homes from 1,658 homes during the third quarter of fiscal 2015.
  • The number of consolidated net contracts, during the nine-month period ended July 31, 2016, increased 3.5% to 4,810 homes compared with 4,648 homes in the same period of the previous year. During the first nine months of fiscal 2016, the number of net contracts, including unconsolidated joint ventures, was 4,991 homes, an increase of 1.5% from 4,918 homes during the first nine months of fiscal 2015.
  • As of July 31, 2016, the dollar value of contract backlog, including unconsolidated joint ventures, was $1.48 billion, an increase of 7.7% compared with $1.37 billion as of July 31, 2015. The dollar value of consolidated contract backlog, as of July 31, 2016, increased 3.8% to $1.31 billion compared with $1.26 billion as of July 31, 2015.
  • As of July 31, 2016, the number of homes in contract backlog, including unconsolidated joint ventures, decreased 1.3% to 3,232 homes compared with 3,275 homes as of July 31, 2015. The number of homes in consolidated contract backlog, as of July 31, 2016, decreased 4.1% to 2,969 homes compared with 3,097 homes as of the end of the third quarter of fiscal 2015.
  • Consolidated deliveries were 1,574 homes in the third quarter of fiscal 2016, an 11.8% increase compared with 1,408 homes in the third quarter of fiscal 2015. For the three months ended July 31, 2016, deliveries, including unconsolidated joint ventures, increased 10.3% to 1,627 homes compared with 1,475 homes in the third quarter of the prior year.
  • Consolidated deliveries were 4,594 homes in the first nine months of fiscal 2016, a 21.5% increase compared with 3,780 homes in the same period in fiscal 2015. For the nine months ended July 31, 2016, deliveries, including unconsolidated joint ventures, increased 19.0% to 4,740 homes compared with 3,984 homes in the first nine months of the prior year.
  • The contract cancellation rate, including unconsolidated joint ventures, for the third quarter of fiscal 2016 was 22%, compared with 20% in the third quarter of fiscal 2015.
  • The valuation allowance was $635.4 million as of July 31, 2016. The valuation allowance is a non-cash reserve against the tax assets for GAAP purposes. For tax purposes, the tax deductions associated with the tax assets may be carried forward for 20 years from the date the deductions were incurred.

LIQUIDITY AND INVENTORY AS OF JULY 31, 2016:

  • After paying off $320.0 million of debt that matured in October 2015, January 2016 and May 2016, total liquidity at the end of the third quarter of fiscal 2016 was $187.7 million.
  • During the third quarter of fiscal 2016, land and land development spending was $132.3 million compared with $130.0 million in last year’s third quarter.
  • As of July 31, 2016, the land position, including unconsolidated joint ventures, was 32,125 lots, consisting of 14,256 lots under option and 17,869 owned lots, compared with a total of 37,442 lots as of July 31, 2015.
  • During the third quarter of fiscal 2016, approximately 900 lots, including unconsolidated joint ventures, were put under option or acquired in 20 communities.
  • Subsequent to third quarter end, closed financing transactions with certain investment funds managed by affiliates of H/2 Capital Partners LLC by borrowing $75.0 million under a senior secured first lien priority term loan facility, issuing $75.0 million of 10.0% Senior Secured Second Lien Notes due 2018 and issuing $75.0 million of 9.5% Senior Secured First Lien Notes due 2020 in exchange for $75.0 million of 9.125% Senior Secured Second Lien Notes due 2020 held by such investor. Used a portion of the proceeds to call for redemption all $121.0 million of our 8.625% Senior Notes due 2017.

FINANCIAL GUIDANCE:

  • Assuming no changes in current market conditions and after the impact from exiting two markets, our guidance for all of fiscal 2016 for total revenues is expected to be between $2.7 billion and $2.9 billion. Adjusted EBITDA is expected to be between $200 million and $225 million and income before income taxes, excluding land related charges, gains or losses on extinguishment of debt and other non-recurring items such as legal settlements, is expected to be between $25 million and $35 million for all of fiscal 2016.

COMMENTS FROM MANAGEMENT:

“During our third quarter we made progress towards our goal of improving our profitability by increasing our revenues 33%, growing Adjusted EBITDA by 75%, improving our Adjusted EBITDA coverage to 1.40x from 0.77x, and achieving a pretax profit,” stated Ara K. Hovnanian, Chairman of the Board, President and Chief Executive Officer. “However, we are fully aware that there is even more work to do in order to return the company to higher levels of sustainable profits. We are anticipating a solid fourth quarter with income before income taxes, excluding land related charges, gains or losses on extinguishment of debt and other non-recurring items such as legal settlements, expected to be between $32 million and $42 million.”

“After paying off $320 million of debt since October 15, 2015, we ended the third quarter with $187.7 million of liquidity. Subsequent to the end of the third quarter, we issued $150 million of new debt to refinance debt maturing in 2017. Completing this debt transaction increases our liquidity and allows us to continue land investments that will help return us to higher levels of profitability in the future,” concluded Mr. Hovnanian.

WEBCAST INFORMATION:

Hovnanian Enterprises will webcast its fiscal 2016 third quarter financial results conference call at 11:00 a.m. E.T. on Friday, September 9, 2016. The webcast can be accessed live through the “Investor Relations” section of Hovnanian Enterprises’ website at http://www.khov.com. For those who are not available to listen to the live webcast, an archive of the broadcast will be available under the “Past Events” section of the Investor Relations page on the Hovnanian website at http://www.khov.com. The archive will be available for 12 months.

ABOUT HOVNANIAN ENTERPRISES®, INC.:

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

Additional information on Hovnanian Enterprises, Inc., including a summary investment profile and the Company’s 2015 annual report, can be accessed through the “Investor Relations” section of the Hovnanian Enterprises’ website at http://www.khov.com. To be added to Hovnanian's investor e-mail list, please send an e-mail to IR@khov.com or sign up at http://www.khov.com.

NON-GAAP FINANCIAL MEASURES:

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

Income (Loss) Before Income Taxes Excluding Land-Related Charges is a non-GAAP financial measure. The most directly comparable GAAP financial measure is Income (Loss) Before Income Taxes. The reconciliation for historical periods of Income (Loss) Before Income Taxes Excluding Land-Related Charges to Income (Loss) Before Income Taxes is presented in a table attached to this earnings release.

With respect to our expectations under “Financial Guidance” and “Comments from Management” above, for Adjusted EBITDA and income before income taxes excluding land-related charges, gains or losses on extinguishment of debt and other non-recurring items such as legal settlements, a reconciliation to the closest corresponding GAAP financial measures is not available without unreasonable efforts on a forward-looking basis due to the high variability, complexity and low visibility with respect to land-related charges excluded from these non-GAAP financial measures. We expect the variability of these charges to have a potentially unpredictable, and potentially significant, impact on our future GAAP financial results.

Total liquidity is comprised of $181.5 million of cash and cash equivalents, $1.7 million of restricted cash required to collateralize letters of credit and $4.5 million of availability under the unsecured revolving credit facility as of July 31, 2016.

FORWARD-LOOKING STATEMENTS

All statements in this press release that are not historical facts should be considered as “Forward-Looking Statements” within the meaning of the “Safe Harbor” provisions of the Private Securities Litigation Reform Act of 1995. Such statements involve known and unknown risks, uncertainties and other factors that may cause actual results, performance or achievements of the Company to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. Such forward-looking statements include but are not limited to statements related to the Company’s goals and expectations with respect to its financial results for the current or future financial periods, including total revenues, Adjusted EBITDA and adjusted income before income taxes. Although we believe that our plans, intentions and expectations reflected in, or suggested by, such forward-looking statements are reasonable, we can give no assurance that such plans, intentions or expectations will be achieved. By their nature, forward-looking statements: (i) speak only as of the date they are made, (ii) are not guarantees of future performance or results and (iii) are subject to risks, uncertainties and assumptions that are difficult to predict or quantify. Therefore, actual results could differ materially and adversely from those forward-looking statements as a result of a variety of factors. Such risks, uncertainties and other factors include, but are not limited to, (1) changes in general and local economic, industry and business conditions and impacts of the sustained homebuilding downturn; (2) adverse weather and other environmental conditions and natural disasters; (3) levels of indebtedness and restrictions on the Company’s operations and activities imposed by the agreements governing the Company’s outstanding indebtedness; (4) the Company's sources of liquidity; (5) changes in credit ratings; (6) changes in market conditions and seasonality of the Company’s business; (7) the availability and cost of suitable land and improved lots; (8) shortages in, and price fluctuations of, raw materials and labor; (9) regional and local economic factors, including dependency on certain sectors of the economy, and employment levels affecting home prices and sales activity in the markets where the Company builds homes; (10) fluctuations in interest rates and the availability of mortgage financing; (11) changes in tax laws affecting the after-tax costs of owning a home; (12) operations through joint ventures with third parties; (13) government regulation, including regulations concerning development of land, the home building, sales and customer financing processes, tax laws and the environment; (14) product liability litigation, warranty claims and claims made by mortgage investors; (15) levels of competition; (16) availability and terms of financing to the Company; (17) successful identification and integration of acquisitions; (18) significant influence of the Company’s controlling stockholders; (19) availability of net operating loss carryforwards; (20) utility shortages and outages or rate fluctuations; (21) geopolitical risks, terrorist acts and other acts of war; (22) increases in cancellations of agreements of sale; (23) loss of key management personnel or failure to attract qualified personnel; (24) information technology failures and data security breaches; (25) legal claims brought against us and not resolved in our favor; and (26) certain risks, uncertainties and other factors described in detail in the Company’s Annual Report on Form 10-K for the fiscal year ended October 31, 2015 and subsequent filings with the Securities and Exchange Commission. Except as otherwise required by applicable securities laws, we undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, changed circumstances or any other reason.

(Financial Tables Follow)

Hovnanian Enterprises, Inc.
July 31, 2016
Statements of Consolidated Operations
(Dollars in Thousands, Except Per Share Data)
Three Months Ended Nine Months Ended
July 31, July 31,
2016 2015 2016 2015
(Unaudited) (Unaudited)
Total Revenues$716,850 $540,613 $1,947,178 $1,455,276
Costs and Expenses (a) 713,356 550,166 1,971,656 1,516,908
(Loss) Income from Unconsolidated Joint Ventures (2,401) (448) (5,227) 2,470
Income (loss) Before Income Taxes 1,093 (10,001) (29,705) (59,162)
Income Tax Provision (Benefit) 1,567 (2,317) (4,597) (17,543)
Net Loss$(474) $(7,684) $(25,108) $(41,619)
Per Share Data:
Basic:
Loss Per Common Share$(0.00) $(0.05) $(0.17) $(0.28)
Weighted Average Number of
Common Shares Outstanding (b) 147,412 147,010 147,383 146,846
Assuming Dilution:
Loss Per Common Share$(0.00) $(0.05) $(0.17) $(0.28)
Weighted Average Number of
Common Shares Outstanding (b) 147,412 147,010 147,383 146,846
(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.
July 31, 2016
Reconciliation of Income (Loss) Before Income Taxes Excluding Land-Related Charges to Income (Loss) Before Income Taxes
(Dollars in Thousands)
Three Months Ended Nine Months Ended
July 31, July 31,
2016 2015 2016 2015
(Unaudited) (Unaudited)
Income (Loss) Before Income Taxes$1,093 $(10,001) $(29,705) $(59,162)
Inventory Impairment Loss and Land Option Write-Offs 1,565 1,077 22,915 7,618
Income (Loss) Before Income Taxes Excluding Land-Related Charges(a)$2,658 $(8,924) $(6,790) $(51,544)
(a) Income (Loss) Before Income Taxes Excluding Land-Related Charges is a non-GAAP Financial measure. The most directly comparable GAAP financial measure is Income (Loss) Before Income Taxes.



Hovnanian Enterprises, Inc.
July 31, 2016
Gross Margin
(Dollars in Thousands)
Homebuilding Gross MarginHomebuilding Gross Margin
Three Months Ended Nine Months Ended
July 31, July 31,
2016 2015 2016 2015
(Unaudited) (Unaudited)
Sale of Homes $640,386 $526,156 $1,823,318 $1,414,799
Cost of Sales, Excluding Interest and Land Charges (a) 532,116 432,625 1,521,704 1,168,874
Homebuilding Gross Margin, Excluding Interest and Land Charges 108,270 93,531 301,614 245,925
Homebuilding Cost of Sales Interest 23,108 16,323 61,291 39,615
Homebuilding Gross Margin, Including Interest and
Excluding Land Charges$85,162 $77,208 $240,323 $206,310
Gross Margin Percentage, Excluding Interest and Land Charges 16.9% 17.8% 16.5% 17.4%
Gross Margin Percentage, Including Interest and
Excluding Land Charges 13.3% 14.7% 13.2% 14.6%
Land Sales Gross MarginLand Sales Gross Margin
Three Months EndedNine Months Ended
July 31, July 31,
2016 2015 2016 2015
(Unaudited) (Unaudited)
Land and Lot Sales $58,897 $- $70,051 $850
Cost of Sales, Excluding Interest and Land Charges (a) 51,667 - 62,275 702
Land and Lot Sales Gross Margin, Excluding Interest and Land Charges 7,230 - 7,776 148
Land and Lot Sales Interest 5,298 - 5,402 39
Land and Lot Sales Gross Margin, Including Interest and
Excluding Land Charges$1,932 $- $2,374 $109
(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.
July 31, 2016
Reconciliation of Adjusted EBITDA to Net Loss
(Dollars in Thousands)
Three Months Ended Nine Months Ended
July 31, July 31,
2016 2015 2016 2015
(Unaudited) (Unaudited)
Net Loss$(474) $(7,684) $(25,108) $(41,619)
Income Tax Provision (Benefit) 1,567 (2,317) (4,597) (17,543)
Interest Expense 51,565 38,816 135,161 110,248
EBIT (a) 52,658 28,815 105,456 51,086
Depreciation 879 835 2,608 2,553
Amortization of Debt Costs 1,205 1,491 3,815 4,451
EBITDA (b) 54,742 31,141 111,879 58,090
Inventory Impairment Loss and Land Option Write-offs 1,565 1,077 22,915 7,618
Adjusted EBITDA (c)$56,307 $32,218 $134,794 $65,708
Interest Incurred$40,300 $41,856 $126,483 $124,031
Adjusted EBITDA to Interest Incurred 1.40 0.77 1.07 0.53
(a) EBIT is a non-GAAP financial measure. The most directly comparable GAAP financial measure is net loss. EBIT represents earnings before interest expense and income taxes.
(b) EBITDA is a non-GAAP financial measure. The most directly comparable GAAP financial measure is net loss. EBITDA represents earnings before interest expense, income taxes, depreciation and amortization.
(c) Adjusted EBITDA is a non-GAAP financial measure. The most directly comparable GAAP financial measure is net loss. Adjusted EBITDA represents earnings before interest expense, income taxes, depreciation, amortization and inventory impairment loss and land option write-offs.
Hovnanian Enterprises, Inc.
July 31, 2016
Interest Incurred, Expensed and Capitalized
(Dollars in Thousands)
Three Months Ended Nine Months Ended
July 31, July 31,
2016 2015 2016 2015
(Unaudited) (Unaudited)
Interest Capitalized at Beginning of Period$115,809 $119,901 $123,898 $109,158
Plus Interest Incurred 40,300 41,856 126,483 124,031
Less Interest Expensed (a) 51,565 38,816 135,161 110,248
Less Interest Contributed to Unconsolidated Joint Venture (a) - - 10,676 -
Interest Capitalized at End of Period (b)$104,544 $122,941 $104,544 $122,941
(a) Represents capitalized interest which was included as part of the assets contributed to the joint venture the Company entered into in November 2015. There was no impact to the Condensed Consolidated Statement of Operations as a result of this transaction.
(b) 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)

July 31,
2016
October 31,
2015
(Unaudited) (1)
ASSETS
Homebuilding:
Cash and cash equivalents $181,526 $245,398
Restricted cash and cash equivalents 4,107 7,299
Inventories:
Sold and unsold homes and lots under development 989,416 1,307,850
Land and land options held for future development or sale 196,610 214,503
Consolidated inventory not owned 280,728 122,225
Total inventories 1,466,754 1,644,578
Investments in and advances to unconsolidated joint ventures 87,991 61,209
Receivables, deposits and notes, net 66,184 70,349
Property, plant and equipment, net 48,351 45,534
Prepaid expenses and other assets 74,685 77,671
Total homebuilding 1,929,598 2,152,038
Financial services:
Cash and cash equivalents 8,516 8,347
Restricted cash and cash equivalents 17,055 19,223
Mortgage loans held for sale at fair value 137,784 130,320
Other assets 2,530 2,091
Total financial services 165,885 159,981
Income taxes receivable – including net deferred tax benefits 293,358 290,279
Total assets $2,388,841 $2,602,298

(1) Derived from the audited balance sheet as of October 31, 2015.


HOVNANIAN ENTERPRISES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands Except Share and Per Share Amounts)

July 31,
2016
October 31,
2015
(Unaudited) (1)
LIABILITIES AND EQUITY
Homebuilding:
Nonrecourse mortgages secured by inventory $91,319 $143,863
Accounts payable and other liabilities 380,786 348,516
Customers’ deposits 45,530 44,218
Nonrecourse mortgages secured by operating properties 14,621 15,511
Liabilities from inventory not owned 195,755 105,856
Total homebuilding 728,011 657,964
Financial services:
Accounts payable and other liabilities 26,383 27,908
Mortgage warehouse lines of credit 115,656 108,875
Total financial services 142,039 136,783
Notes payable:
Revolving credit agreement 52,000 47,000
Senior secured notes, net of discount 982,468 981,346
Senior notes, net of discount 521,043 780,319
Senior amortizing notes 8,094 12,811
Senior exchangeable notes 76,650 73,771
Accrued interest 30,479 40,388
Total notes payable 1,670,734 1,935,635
Total liabilities 2,540,784 2,730,382
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, 2016 and at October 31, 2015 135,299 135,299
Common stock, Class A, $0.01 par value – authorized 400,000,000 shares; issued 143,739,513 shares at July 31, 2016 and 143,292,881 shares at October 31, 2015 (including 11,760,763 shares at July 31, 2016 and October 31, 2015 held in treasury) 1,437 1,433
Common stock, Class B, $0.01 par value (convertible to Class A at time of sale) – authorized 60,000,000 shares; issued 16,010,071 shares at July 31, 2016 and 15,676,829 shares at October 31, 2015 (including 691,748 shares at July 31, 2016 and October 31, 2015 held in treasury) 160 157
Paid in capital – common stock 704,993 703,751
Accumulated deficit (878,472) (853,364)
Treasury stock – at cost (115,360) (115,360)
Total stockholders’ equity deficit (151,943) (128,084)
Total liabilities and equity $2,388,841 $2,602,298

(1) Derived from the audited balance sheet as of October 31, 2015.


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,
2016 2015 2016 2015
Revenues:
Homebuilding:
Sale of homes $640,386 $526,156 $1,823,318 $1,414,799
Land sales and other revenues 59,979 97 72,146 2,538
Total homebuilding 700,365 526,253 1,895,464 1,417,337
Financial services 16,485 14,360 51,714 37,939
Total revenues 716,850 540,613 1,947,178 1,455,276
Expenses:
Homebuilding:
Cost of sales, excluding interest 583,783 432,625 1,583,979 1,169,576
Cost of sales interest 28,406 16,323 66,693 39,654
Inventory impairment loss and land option write-offs 1,565 1,077 22,915 7,618
Total cost of sales 613,754 450,025 1,673,587 1,216,848
Selling, general and administrative 51,685 51,998 155,560 152,258
Total homebuilding expenses 665,439 502,023 1,829,147 1,369,106
Financial services 8,916 8,244 26,749 23,069
Corporate general and administrative 14,885 15,874 43,804 49,275
Other interest 23,159 22,493 68,468 70,594
Other operations 957 1,532 3,488 4,864
Total expenses 713,356 550,166 1,971,656 1,516,908
(Loss) income from unconsolidated joint ventures (2,401) (448) (5,227) 2,470
Income (loss) before income taxes 1,093 (10,001) (29,705) (59,162)
State and federal income tax provision (benefit):
State 1,434 999 4,995 3,717
Federal 133 (3,316) (9,592) (21,260)
Total income taxes 1,567 (2,317) (4,597) (17,543)
Net loss $(474) $(7,684) $(25,108) $(41,619)
Per share data:
Basic:
Loss per common share $(0.00) $(0.05) $(0.17) $(0.28)
Weighted-average number of common shares outstanding 147,412 147,010 147,383 146,846
Assuming dilution:
Loss per common share $(0.00) $(0.05) $(0.17) $(0.28)
Weighted-average number of common shares outstanding 147,412 147,010 147,383 146,846



HOVNANIAN ENTERPRISES, INC.
(DOLLARS IN THOUSANDS EXCEPT AVG. PRICE)
(SEGMENT DATA EXCLUDES UNCONSOLIDATED JOINT VENTURES)
(UNAUDITED)
Communities Under Development
Three Months - July 31, 2016
Net Contracts (1)DeliveriesContract
Three Months EndedThree Months EndedBacklog
Jul 31,Jul 31,Jul 31,
2016 2015 % Change 2016 2015 % Change 2016 2015 % Change
Northeast
(NJ, PA)Home 128 137 (6.6)% 136 78 74.4% 260 286 (9.1)%
Dollars$61,945 $69,410 (10.8)%$66,308 $36,109 83.6%$130,800 $143,333 (8.7)%
Avg. Price$483,942 $506,642 (4.5)%$487,558 $462,932 5.3%$503,079 $501,164 0.4%
Mid-Atlantic
(DE, MD, VA, WV)Home 208 242 (14.0)% 228 243 (6.2)% 566 473 19.7%
Dollars$97,338 $115,164 (15.5)%$111,579 $113,886 (2.0)%$312,698 $252,139 24.0%
Avg. Price$467,969 $475,883 (1.7)%$489,382 $468,670 4.4%$552,469 $533,063 3.6%
Midwest (2)
(IL, MN, OH) Home 176 186 (5.4)% 193 253 (23.7)% 464 696 (33.3)%
Dollars$49,260 $70,578 (30.2)%$56,643 $82,618 (31.4)%$128,381 $211,718 (39.4)%
Avg. Price$279,885 $379,450 (26.2)%$293,487 $326,554 (10.1)%$276,683 $304,193 (9.0)%
Southeast (3)
(FL, GA, NC, SC) Home 142 176 (19.3)% 145 176 (17.6)% 355 331 7.3%
Dollars$59,242 $54,776 8.2%$56,471 $57,294 (1.4)%$159,489 $110,628 44.2%
Avg. Price$417,197 $311,228 34.0%$389,458 $325,534 19.6%$449,265 $334,225 34.4%
Southwest
(AZ, TX)Home 638 656 (2.7)% 671 568 18.1% 1,008 1,148 (12.2)%
Dollars$225,929 $248,907 (9.2)%$248,228 $203,075 22.2%$393,906 $469,054 (16.0)%
Avg. Price$354,121 $379,432 (6.7)%$369,937 $357,526 3.5%$390,780 $408,583 (4.4)%
West
(CA)Home 175 136 28.7% 201 90 123.3% 316 163 93.9%
Dollars$99,284 $60,573 63.9%$101,157 $33,174 204.9%$186,986 $77,480 141.3%
Avg. Price$567,339 $445,387 27.4%$503,269 $368,598 36.5%$591,727 $475,339 24.5%
Consolidated Total
Home 1,467 1,533 (4.3)% 1,574 1,408 11.8% 2,969 3,097 (4.1)%
Dollars$592,998 $619,408 (4.3)%$640,386 $526,156 21.7%$1,312,260 $1,264,352 3.8%
Avg. Price$404,225 $404,049 0.0%$406,853 $373,691 8.9%$441,987 $408,251 8.3%
Unconsolidated Joint Ventures
Home 70 125 (44.0)% 53 67 (20.9)% 263 178 47.8%
Dollars$40,275 $75,225 (46.5)%$30,714 $27,286 12.6%$168,135 $110,372 52.3%
Avg. Price$575,361 $601,800 (4.4)%$579,511 $407,250 42.3%$639,297 $620,066 3.1%
Grand Total
Home 1,537 1,658 (7.3)% 1,627 1,475 10.3% 3,232 3,275 (1.3)%
Dollars$633,273 $694,633 (8.8)%$671,100 $553,442 21.3%$1,480,395 $1,374,724 7.7%
Avg. Price$412,019 $418,958 (1.7)%$412,477 $375,215 9.9%$458,043 $419,763 9.1%
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.
(2) The Midwest net contracts include 4 homes and $1.9 million and 53 homes and $21.8 million in 2016 and 2015, respectively, from Minneapolis, MN. Contract backlog as of July 31, 2016 reflects the reduction of 64 homes and $24.1 million, related to the sale of our land portfolio in Minneapolis, MN.
(3) The Southeast net contracts include 25 homes and $7.8 million in 2015 from Raleigh, NC. Contract backlog as of July 31, 2016 reflects the reduction of 67 homes and $33.7 million, related to the sale of our land portfolio in Raleigh, NC.


HOVNANIAN ENTERPRISES, INC.
(DOLLARS IN THOUSANDS EXCEPT AVG. PRICE)
(SEGMENT DATA INCLUDES UNCONSOLIDATED JOINT VENTURES)
(UNAUDITED)
Communities Under Development
Three Months - July 31, 2016
Net Contracts (1)DeliveriesContract
Three Months EndedThree Months EndedBacklog
Jul 31,Jul 31,Jul 31,
2016 2015 % Change 2016 2015 % Change 2016 2015 % Change
Northeast
(includes unconsolidated joint ventures)Home 130 163 (20.2)% 140 80 75.0% 284 326 (12.9)%
(NJ, PA)Dollars$62,339 $86,118 (27.6)%$67,715 $36,567 85.2%$139,392 $164,404 (15.2)%
Avg. Price$479,533 $528,331 (9.2)%$483,676 $457,092 5.8%$490,817 $504,306 (2.7)%
Mid-Atlantic
(includes unconsolidated joint ventures)Home 226 259 (12.7)% 240 260 (7.7)% 610 511 19.4%
(DE, MD, VA, WV)Dollars$111,496 $123,947 (10.0)%$116,743 $123,749 (5.7)%$342,197 $273,140 25.3%
Avg. Price$493,345 $478,559 3.1%$486,429 $475,961 2.2%$560,979 $534,522 4.9%
Midwest (2)
(includes unconsolidated joint ventures)Home 181 189 (4.2)% 193 256 (24.6)% 478 696 (31.3)%
(IL, MN, OH) Dollars$58,709 $71,492 (17.9)%$56,643 $83,533 (32.2)%$139,608 $211,718 (34.1)%
Avg. Price$324,361 $378,265 (14.3)%$293,487 $326,299 (10.1)%$292,067 $304,193 (4.0)%
Southeast (3)
(includes unconsolidated joint ventures)Home 169 186 (9.1)% 145 201 (27.9)% 413 338 22.2%
(FL, GA, NC, SC) Dollars$70,116 $58,719 19.4%$56,471 $67,796 (16.7)%$189,486 $113,368 67.1%
Avg. Price$414,885 $315,696 31.4%$389,458 $337,291 15.5%$458,803 $335,408 36.8%
Southwest
(includes unconsolidated joint ventures)Home 638 656 (2.7)% 671 568 18.1% 1,008 1,148 (12.2)%
(AZ, TX)Dollars$225,929 $248,908 (9.2)%$248,227 $203,075 22.2%$393,906 $469,054 (16.0)%
Avg. Price$354,121 $379,432 (6.7)%$369,937 $357,526 3.5%$390,780 $408,583 (4.4)%
West
(includes unconsolidated joint ventures)Home 193 205 (5.9)% 238 110 116.4% 439 256 71.5%
(CA)Dollars$104,684 $105,449 (0.7)%$125,301 $38,722 223.6%$275,806 $143,040 92.8%
Avg. Price$542,405 $514,384 5.4%$526,473 $352,016 49.6%$628,260 $558,748 12.4%
Grand Total
Home 1,537 1,658 (7.3)% 1,627 1,475 10.3% 3,232 3,275 (1.3)%
Dollars$633,273 $694,633 (8.8)%$671,100 $553,442 21.3%$1,480,395 $1,374,724 7.7%
Avg. Price$412,019 $418,958 (1.7)%$412,477 $375,215 9.9%$458,043 $419,763 9.1%
Consolidated Total
Home 1,467 1,533 (4.3)% 1,574 1,408 11.8% 2,969 3,097 (4.1)%
Dollars$592,998 $619,408 (4.3)%$640,386 $526,156 21.7%$1,312,260 $1,264,352 3.8%
Avg. Price$404,225 $404,049 0.0%$406,853 $373,691 8.9%$441,987 $408,251 8.3%
Unconsolidated Joint Ventures
Home 70 125 (44.0)% 53 67 (20.9)% 263 178 47.8%
Dollars$40,275 $75,225 (46.5)%$30,714 $27,286 12.6%$168,135 $110,372 52.3%
Avg. Price$575,361 $601,800 (4.4)%$579,511 $407,250 42.3%$639,297 $620,066 3.1%
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.
(2) The Midwest net contracts include 4 homes and $1.9 million and 53 homes and $21.8 million in 2016 and 2015, respectively, from Minneapolis, MN. Contract backlog as of July 31, 2016 reflects the reduction of 64 homes and $24.1 million, related to the sale of our land portfolio in Minneapolis, MN.
(3) The Southeast net contracts include 25 homes and $7.8 million in 2015 from Raleigh, NC. Contract backlog as of July 31, 2016 reflects the reduction of 67 homes and $33.7 million, related to the sale of our land portfolio in Raleigh, NC.


HOVNANIAN ENTERPRISES, INC.
(DOLLARS IN THOUSANDS EXCEPT AVG. PRICE)
(SEGMENT DATA EXCLUDES UNCONSOLIDATED JOINT VENTURES)
(UNAUDITED) Communities Under Development
Nine Months - July 31, 2016
Net Contracts (1)DeliveriesContract
Nine Months EndedNine Months EndedBacklog
Jul 31,Jul 31,Jul 31,
2016 2015 % Change 2016 2015 % Change 2016 2015 % Change
Northeast
(NJ, PA)Home 362 384 (5.7)% 395 244 61.9% 260 286 (9.1)%
Dollars$176,456 $195,879 (9.9)%$192,659 $125,873 53.1%$130,800 $143,333 (8.7)%
Avg. Price$487,446 $510,100 (4.4)%$487,743 $515,872 (5.5)%$503,079 $501,164 0.4%
Mid-Atlantic
(DE, MD, VA, WV)Home 753 700 7.6% 628 598 5.0% 566 473 19.7%
Dollars$368,603 $334,115 10.3%$295,004 $270,899 8.9%$312,698 $252,139 24.0%
Avg. Price$489,512 $477,308 2.6%$469,751 $453,010 3.7%$552,469 $533,063 3.6%
Midwest (2)
(IL, MN, OH) Home 599 705 (15.0)% 706 674 4.7% 464 696 (33.3)%
Dollars$184,496 $243,366 (24.2)%$225,276 $220,243 2.3%$128,381 $211,718 (39.4)%
Avg. Price$308,006 $345,200 (10.8)%$319,088 $326,769 (2.4)%$276,683 $304,193 (9.0)%
Southeast (3)
(FL, GA, NC, SC) Home 560 554 1.1% 417 455 (8.4)% 355 331 7.3%
Dollars$234,166 $173,891 34.7%$146,895 $144,333 1.8%$159,489 $110,628 44.2%
Avg. Price$418,153 $313,882 33.2%$352,268 $317,215 11.1%$449,265 $334,225 34.4%
Southwest
(AZ, TX)Home 1,929 1,955 (1.3)% 1,954 1,577 23.9% 1,008 1,148 (12.2)%
Dollars$696,915 $733,393 (5.0)%$725,721 $559,659 29.7%$393,906 $469,054 (16.0)%
Avg. Price$361,284 $375,137 (3.7)%$371,403 $354,888 4.7%$390,780 $408,583 (4.4)%
West
(CA)Home 607 350 73.4% 494 232 112.9% 316 163 93.9%
Dollars$317,862 $142,661 122.8%$237,763 $93,792 153.5%$186,986 $77,480 141.3%
Avg. Price$523,662 $407,603 28.5%$481,301 $404,278 19.1%$591,727 $475,339 24.5%
Consolidated Total
Home 4,810 4,648 3.5% 4,594 3,780 21.5% 2,969 3,097 (4.1)%
Dollars$1,978,498 $1,823,305 8.5%$1,823,318 $1,414,799 28.9%$1,312,260 $1,264,352 3.8%
Avg. Price$411,330 $392,277 4.9%$396,891 $374,285 6.0%$441,987 $408,251 8.3%
Unconsolidated Joint Ventures
Home 181 270 (33.0)% 146 204 (28.4)% 263 178 47.8%
Dollars$112,530 $143,438 (21.5)%$76,477 $82,190 (7.0)%$168,135 $110,372 52.3%
Avg. Price$621,713 $531,252 17.0%$523,814 $402,891 30.0%$639,297 $620,066 3.1%
Grand Total
Home 4,991 4,918 1.5% 4,740 3,984 19.0% 3,232 3,275 (1.3)%
Dollars$2,091,028 $1,966,743 6.3%$1,899,795 $1,496,989 26.9%$1,480,395 $1,374,724 7.7%
Avg. Price$418,960 $399,907 4.8%$400,801 $375,750 6.7%$458,043 $419,763 9.1%
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.
(2) The Midwest net contracts include 65 homes and $27.4 million and 192 homes and $75.2 million in 2016 and 2015, respectively, from Minneapolis, MN. Contract backlog as of July 31, 2016 reflects the reduction of 64 homes and $24.1 million, related to the sale of our land portfolio in Minneapolis, MN.
(3) The Southeast net contracts include 70 homes and $31.6 million and 99 homes and $30.2 million in 2016 and 2015, respectively, from Raleigh, NC. Contract backlog as of July 31, 2016 reflects the reduction of 67 homes and $33.7 million, related to the sale of our land portfolio in Raleigh, NC.


HOVNANIAN ENTERPRISES, INC.
(DOLLARS IN THOUSANDS EXCEPT AVG. PRICE)
(SEGMENT DATA INCLUDES UNCONSOLIDATED JOINT VENTURES)
(UNAUDITED) Communities Under Development
Nine Months - July 31, 2016
Net Contracts (1)DeliveriesContract
Nine Months EndedNine Months EndedBacklog
Jul 31,Jul 31,Jul 31,
2016 2015 % Change 2016 2015 % Change 2016 2015 % Change
Northeast
(includes unconsolidated joint ventures)Home 356 421 (15.4)% 413 261 58.2% 284 326 (12.9)%
(NJ, PA)Dollars$168,877 $213,375 (20.9)%$197,961 $130,551 51.6%$139,392 $164,404 (15.2)%
Avg. Price$474,374 $506,829 (6.4)%$479,325 $500,197 (4.2)%$490,817 $504,306 (2.7)%
Mid-Atlantic
(includes unconsolidated joint ventures)Home 802 762 5.2% 659 657 0.3% 610 511 19.4%
(DE, MD, VA, WV)Dollars$406,594 $366,591 10.9%$311,303 $303,413 2.6%$342,197 $273,140 25.3%
Avg. Price$506,974 $481,092 5.4%$472,386 $461,814 2.3%$560,979 $534,522 4.9%
Midwest (2)
(includes unconsolidated joint ventures)Home 604 708 (14.7)% 706 694 1.7% 478 696 (31.3)%
(IL, MN, OH) Dollars$195,722 $244,297 (19.9)%$225,276 $225,838 (0.2)%$139,608 $211,718 (34.1)%
Avg. Price$324,043 $345,052 (6.1)%$319,088 $325,416 (1.9)%$292,067 $304,193 (4.0)%
Southeast (3)
(includes unconsolidated joint ventures)Home 610 597 2.2% 418 520 (19.6)% 413 338 22.2%
(FL, GA, NC, SC) Dollars$259,624 $191,544 35.5%$147,281 $171,168 (14.0)%$189,486 $113,368 67.1%
Avg. Price$425,612 $320,844 32.7%$352,346 $329,169 7.0%$458,803 $335,408 36.8%
Southwest
(includes unconsolidated joint ventures)Home 1,929 1,955 (1.3)% 1,954 1,577 23.9% 1,008 1,148 (12.2)%
(AZ, TX)Dollars$696,916 $733,393 (5.0)%$725,721 $559,659 29.7%$393,906 $469,054 (16.0)%
Avg. Price$361,284 $375,137 (3.7)%$371,403 $354,888 4.7%$390,780 $408,583 (4.4)%
West
(includes unconsolidated joint ventures)Home 690 475 45.3% 590 275 114.5% 439 256 71.5%
(CA)Dollars$363,295 $217,543 67.0%$292,253 $106,360 174.8%$275,806 $143,040 92.8%
Avg. Price$526,515 $457,985 15.0%$495,345 $386,764 28.1%$628,260 $558,748 12.4%
Grand Total
Home 4,991 4,918 1.5% 4,740 3,984 19.0% 3,232 3,275 (1.3)%
Dollars$2,091,028 $1,966,743 6.3%$1,899,795 $1,496,989 26.9%$1,480,395 $1,374,724 7.7%
Avg. Price$418,960 $399,907 4.8%$400,801 $375,750 6.7%$458,043 $419,763 9.1%
Consolidated Total
Home 4,810 4,648 3.5% 4,594 3,780 21.5% 2,969 3,097 (4.1)%
Dollars$1,978,498 $1,823,305 8.5%$1,823,318 $1,414,799 28.9%$1,312,260 $1,264,352 3.8%
Avg. Price$411,330 $392,277 4.9%$396,891 $374,285 6.0%$441,987 $408,251 8.3%
Unconsolidated Joint Ventures
Home 181 270 (33.0)% 146 204 (28.4)% 263 178 47.8%
Dollars$112,530 $143,438 (21.5)%$76,477 $82,190 (7.0)%$168,135 $110,372 52.3%
Avg. Price$621,713 $531,252 17.0%$523,814 $402,891 30.0%$639,297 $620,066 3.1%
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.
(2) The Midwest net contracts include 65 homes and $27.4 million and 192 homes and $75.2 million in 2016 and 2015, respectively, from Minneapolis, MN. Contract backlog as of July 31, 2016 reflects the reduction of 64 homes and $24.1 million, related to the sale of our land portfolio in Minneapolis, MN.
(3) The Southeast net contracts include 70 homes and $31.6 million and 99 homes and $30.2 million in 2016 and 2015, respectively, from Raleigh, NC. Contract backlog as of July 31, 2016 reflects the reduction of 67 homes and $33.7 million, related to the sale of our land portfolio in Raleigh, NC.


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

Source:Hovnanian Enterprises