UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 8-K/A
(Amendment No. 1)
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): January 10, 2002
HOVNANIAN ENTERPRISES, INC.
(Exact Name of registrant specified in its charter)
Delaware (State or other Jurisdiction of Incorporation)
1-8551 (Commission File Number)
22-1851059 (I.R.S. Employer Identification No.)
10 Highway 35, P.O. Box 500
Red Bank, New Jersey 07701
(Address of principal executive offices)
Registrant's telephone number:
(732) 747-7800
This form 8-K/A of Hovnanian Enterprises, Inc., a Delaware corporation
("Hovnanian" or the "Registrant"), constitutes Amendment No. 1 to Hovnanian's
Current Report on Form 8-K, which was filed with the Securities and Exchange
Commission on January 24, 2002 (the "Form 8-K"). This amendment sets forth
the information required by Items 7(a) and 7(b) omitted from the Form 8-K.
Item 2. Acquisition or Disposition of Assets.
On January 10, 2002, Hovnanian completed its acquisition of the
California homebuilding operations of The Forecast Group, L.P., a privately
held, single family homebuilder headquartered in Rancho Cucamonga,
California ("Forecast").
The total equity value of Hovnanian's acquisition of Forecast was
approximately $176.5 million, paid by the issuance of 2,208,738 shares of
Hovnanian's Class A Common Stock plus approximately $131.0 million in cash.
Hovnanian also repaid approximately $88 million of Forecast's indebtedness.
The purchase price is subject to adjustment based on Forecast's earnings
through January 31, 2002. Additionally, and subject to option contracts,
for a period of three years following January 10, 2002, Hovnanian will have
the option to purchase certain land parcels retained by the principal owner
of Forecast valued at $49 million.
Copies of the Asset Purchase Agreement and the Securities Purchase
Agreement each dated as of January 4, 2002 and a copy of the related press
release dated January 11, 2002 were previously filed as Exhibits 2.1, 2.2
and 99.1, respectively, and are hereby incorporated by reference.
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits
(a) Financial Statements of Business Acquired.
Consolidated financial statements of Forecast and its consolidated
subsidiaries as of October 31, 2000 and 2001 and the years then ended
are incorporated by reference herein to Forecast's annual report for the
fiscal year ended October 31, 2001 on Form 10K (Commission File
No. 33-72106).
(b) Pro Forma Financial Information.
The following unaudited pro forma consolidated financial statements of
Hovnanian give effect to the acquisition of the California homebuilding
operations of Forecast (less holdback land with a book value amounting to
$40 million as described below) and Hovnanian using the purchase method of
accounting. The unaudited pro forma consolidated financial statements are
based on the historical audited consolidated financial statements of
Hovnanian and audited Forecast consolidated financial statements each at
October 31, 2000 and 2001. The unaudited pro forma consolidated financial
statements are based on the estimates and assumptions set forth in the notes,
including Hovnanian management's estimates of the value of the tangible and
intangible assets acquired. Under the terms of the agreement, Hovnanian's
acquisition of Forecast was approximately $178 million, which includes an
estimated adjustment based on Forecast earnings through January 31, 2002,
plus an additional $18.5 million representing a three year consulting
agreement, a three year right of first refusal agreement, and two option
agreements. Of this total amount, $45.5 million was paid by the issuance of
2,208,738 shares of Hovnanian's Class A Common Stock, based on the average
closing share price of $20.60 for the five business days ending on January 7,
2002. The balance was paid in cash. Hovnanian also repaid approximately $88
million of Forecast's indebtedness as of the acquisition date. Additionally,
$40 million representing certain parcels of land were held back from the
initial acquisition of assets. Hovnanian signed option contracts with terms
up to three years to purchase these held back parcels of land.
The unaudited pro forma consolidated balance sheets assumes that the
acquisition took place on October 31, 2001. The unaudited pro forma
consolidated statements of income assumes that the acquisition took place as
of November 1, 2000.
The unaudited pro forma consolidated financial statements, are
presented for illustrative purposes only and are not indicative of the
consolidated financial position or results of operations of future periods
that actually would have been realized had Hovnanian and Forecast been a
consolidated company during the specific periods. The unaudited pro forma
consolidated financial statements, including the notes thereto, should be
read in conjunction with the historical consolidated financial statements of
(i) Hovnanian as filed in its Form 10-K for the year ended October 31, 2001
and (ii) Forecast as filed in its Form 10-K for the year ended October 31,
2001.
HOVNANIAN ENTERPRISES INC. AND CONSOLIDATED SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEETS
OCTOBER 31, 2001
(In Thousands)
Pro Forma
October 31,
Hovnanian Forecast Adjustments 2001
----------- --------- ----------- ------------
ASSETS
HOMEBUILDING:
Cash & Equivalents $ 10,173 $ 30,869 $ (30,869) 1,2,4,5 $ 10,173
Inventory 740,114 200,770 (17,009) 1,2,3 923,875
Receivables & Deposits 75,802 6,724 (4,049) 1,4 78,477
PPE - net 30,756 419 (24) 1 31,151
Senior Rentals 9,890 9,890
Goodwill 32,618 60,519 2 93,137
Prepaids & Other 46,178 1,012 12,500 2 59,690
----------- --------- ----------- ------------
Total Homebuilding 945,531 239,794 21,068 1,206,393
FINANCIAL SERVICES 118,008 118,008
INCOME TAXES RECEIVABLE 719 719
----------- --------- ----------- ------------
TOTAL ASSETS $ 1,064,258 $ 239,794 $ 21,068 $ 1,325,120
=========== ========= =========== ============
LIABILITIES & EQUITY
HOMEBUILDING:
Land Mortgages $ 10,086 $ 10,086
Accounts Payable
& Other 124,125 $ 48,643 $ (618)1 172,150
Customer's Deposits 39,114 39,114
Operating Property
Mortgages 3,404 3,404
----------- --------- ----------- ------------
Total Homebuilding 176,729 48,643 (618) 224,754
----------- --------- ----------- ------------
FINANCIAL SERVICES 103,569 103,569
----------- --------- ----------- ------------
NOTES PAYABLE:
Revolving Credit
Agreement 50,029 117,308 5 167,337
Senior & Subordinated
Notes 396,544 396,544
Accrued Interest 11,770 11,770
----------- --------- ----------- ------------
Total Notes 408,314 50,029 117,308 575,651
----------- --------- ----------- ------------
Total Liabilities 688,612 98,672 116,690 903,974
----------- --------- ----------- ------------
PARTNERS' CAPITAL 141,122 (141,122)1,2,3
----------- --------- ----------- ------------
STOCKHOLDERS' EQUITY:
Class A Common Stock 246 22 2 268
Class B Common Stock 78 78
Paid in Capital 100,957 45,478 2 146,435
Retained Earnings 310,106 310,106
Deferred Compensation (127) (127)
Treasury Stock (35,614) (35,614)
----------- --------- ----------- ------------
Total Equity 375,646 45,500 421,146
----------- --------- ----------- ------------
TOTAL LIAB & EQUITY $ 1,064,258 $ 239,794 $ 21,068 $ 1,325,120
=========== ========= =========== ============
HOVNANIAN ENTERPRISES INC. AND CONSOLIDATED SUBSIDIARIES
UNAUDITED CONSOLIDATED PRO FORMA STATEMENTS OF INCOME
YEAR ENDED OCTOBER 31, 2001
(In Thousands Except Per Share)
Pro Form
Year Ended
October 31,
Hovnanian Forecast Adjustments 2001
------------ ---------- ------------ ------------
REVENUES:
Homebuilding:
Sale of Homes $ 1,693,717 $ 482,115 $ (2,578) 1 $ 2,173,254
Land Sales & Other Revenues 16,818 25,118 (9,772) 1 32,164
----------- ----------- ------------ ------------
Total Homebuilding 1,710,535 507,233 (12,350) 2,205,418
Financial Services 31,428 31,428
----------- ----------- ------------ ------------
Total Revenues 1,741,963 507,233 (12,350) 2,236,846
----------- ----------- ------------ ------------
EXPENSES:
Homebuilding:
Cost of Sales 1,355,354 382,564 (5,734) 1,6,9 1,732,184
Selling, General &
Administrative 140,126 52,073 (18,055) 1,6,7 174,144
Inventory Impairment Loss 4,368 4,368
----------- ------------ ----------- ------------
Total Homebuilding 1,499,848 434,637 (23,789) 1,910,696
Financial Services 21,443 21,443
Corporate General &
Administrative 44,278 44,278
Interest 51,446 14,721 6,10 66,167
Other Operations 15,347 491 10,719 8 26,557
Restructure Charge 3,247 3,247
----------- ------------ ----------- ------------
Total Expenses 1,635,609 435,128 1,651 2,072,388
----------- ------------ ----------- ------------
INCOME BEFORE INCOME TAXES 106,354 72,105 (14,001) 164,458
TOTAL TAXES 42,668 23,299 11 65,967
----------- ------------ ----------- ------------
NET INCOME $ 63,686 $ 72,105 $ (37,300) $ 98,491
=========== ============ =========== ============
EARNNGS PER SHARE:
Basic $ 2.38 $ 3.39
Weighted Shares Outstanding 26,810 2,209 12 29,019
Diluted $ 2.29 $ 3.28
Weighted Shares Outstanding 27,792 2,209 12 30,001
HOVNANIAN ENTERPRISES, INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS
(In Thousands)
1. Adjustment represents the elimination of the Forecast assets, liabilities,
partner's equity and operations not purchased by Hovnanian as follows:
ASSETS:
Cash and Equivalents $ 57
Inventory 4,753
Receivables & Deposits 169
PPE - Net 24
---------
Total Assets $ 5,003
=========
LIBILITIES & EQUITY:
Account Payable & Other $ 618
Partner's Capital 4,385
---------
Total Liabilities & Equity $ 5,003
=========
REVENUES:
Sale of Homes $ 2,578
Land Sales & Other Revenues 9,772
---------
Total Revenues 12,350
---------
EXPENSES:
Cost of Sales 9,968
Selling, General & administration 4,786
---------
Total Expenses 14,754
---------
Loss Before Income Taxes $ (2,404)
=========
2. Adjustment represents the components of the purchase price and the
elimination of $40.0 million of holdback land (see 3 below) subject to an
option to purchase. Under the terms of the agreements Hovnanian purchased
the California assets (excluding the holdback properties) net of related
liabilities of Forecast for approximately $178 million plus expenses of
which $45.5 million was paid in Hovnanian Class A Common Stock and the
balance in cash. In addition, Hovnanian entered into a two year
consulting agreement with Forecast's former president, entered into two
additional option agreements and secured a three year right of first
offer for residential land developed by Forcast. The additional cost
for these agreements was $18.5 million which was paid in cash.
The following table summarizes the calculation of the purchase price at
October 31, 2001 and the recording of the acquisition using purchase
accounting:
Acquisition Consideration:
Cash $132,500
Class A Common Stock 45,500
Transaction Costs - Cash 1,000
Other Agreements - Cash 18,500
---------
Total Purchase Price $197,500
=========
Purchase Accounting:
Partner's Capital $ 96,737
Inventory Step Up 21,744
Goodwill 60,519
Inventory - Option costs 6,000
Other Assets 12,500
---------
Total Purchase Accounting $197,500
=========
3. Adjustment represents the elimination of $40.0 million of holdback land
subject to an option purchase agreement.
4. Adjustment represents the payoff of Forecast related party receivables
amounting to $3.88 million.
5. Adjustment represents the draw on Hovnanian's line of credit to pay the
cash portion of the purchase price and pay off Forecast existing debt.
The draw amount is net of Forecast available cash.
Line of Credit Draw:
Purchase Price $152,000
Forecast Existing Debt 50,029
Less Forecast Cash (34,692)
---------
Total Draw $167,337
=========
6. Adjustment represents the reclassification of certain year ended
October 31, 2001 Forecast expenses for a consistent classification with
similar Hovnanian expenses as follows:
Cost of Sales:
Commissions $ 6,089
Interest (8,263)
---------
Total Cost of Sales $ (2,174)
=========
Selling, General & Administrative -
Commissions $ (6,089)
=========
Interest - Interest $ 8,263
=========
7. Adjustment represents the elimination from Selling, General &
Administrative Expense of $7.18 million of Forecast administrative
salaries and bonuses for the year ended October 31, 2001 related to
associates that were excluded from the purchase.
8. Adjustment represents the amortization of goodwill over 10 years
amounting to $6.052 million, and the amortization of the right of
first refusal over 3 years and consulting agreement over 2 years
amounting to $4.667 million to Other Expenses for the year ended
October 31, 2001. On November 1, 2001 Hovnanian adopted Statement
of Financial Accounting Standard No. 142 and will no longer
amortize goodwill.
9. Adjustment represents the increased inventory value from the purchase
accounting step up for homes delivered and charged to Cost of Sales
during the year ended October 31, 2001 amounting to $6.408 million.
10.Adjustment represents additional Interest Expense, including interest
amortized as homes are delivered, on the draw on Hovnanian's existing
credit facility at an interest rate of 7.1% amounting to $6.458
million for the year ended October 31, 2001.
11.Adjustment represents the net increase in Income Tax Expense for the
tax accrual on the Forecast pretax income, net of operations not
purchased and excluded associates, offset by increased amortization,
cost of sales and interest expenses. Hovnanian's effective tax rate
of 40.1% was used to calculate the additional Income Tax Expense
amounting to $23.299 million for the year ended October 31, 2001.
12.Basic earnings per share are computed based upon the weighted
average number of Common Stock Class A and Class B shares
outstanding during the year ended October 31, 2001. Diluted earnings
per share are computed based upon the increased number of Common
Stock Class A and Class B shares that would be outstanding assuming
the exercise of dilutive Common Stock Class A and Class B stock
options. The increase in Common Stock Class A shares issued in
connection with the merger was 2,208,738 shares.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf
by the undersigned hereunto duly authorized.
HOVNANIAN ENTERPRISES, INC.
(Registrant)
By: /S/PETER S. REINHART
Name: Peter S. Reinhart
Title: Senior Vice President
General Counsel
Date: February 18, 2002