UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 8-K
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 23, 2001
HOVNANIAN ENTERPRISES, INC.
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(Exact Name of registrant specified in its charter)
Delaware 1-8551 22-1851059
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(State or other Jurisdiction (Commission File Number) (I.R.S. Employer
of Incorporation) Identification No.)
10 Highway 35, P.O. Box 500
Red Bank, New Jersey 07701
(Address of principal executive offices)
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Registrant's telephone number:
(732) 747-7800
Item 2. Acquisition or Disposition of Assets
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On January 23, 2001, Hovnanian Enterprises, Inc., a Delaware
corporation ("Hovnanian" or the "Registrant"), completed its acquisition of
Washington Homes, Inc., a Maryland corporation ("WHI").
The total equity value of Hovnanian's acquisition of WHI was
approximately $94.8 million, paid 40% in cash and the balance in
Hovnanian Class A common stock, in accordance with the Agreement and Plan
of Merger among Hovnanian, WHI Holding Co., Inc. and WHI (the "Merger
Agreement"). Hovnanian also refinanced the outstanding debt of WHI under
Hovnanian's $375 million revolving credit agreement.
A copy of the Merger Agreement is incorporated by reference herein to
Annex I of the Joint Proxy Statement/Prospectus contained in Hovnanian's
Registration Statement on Form S-4 (File No. 333-52090). A copy of the
press release, dated January 24, 2001, is attached as an exhibit hereto
and incorporated herein by reference.
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits
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(a) Financial Statements of Business Acquired.
Condensed consolidated financial statements of Washington Homes, Inc.
and its consolidated subsidiaries as of October 31, 2000 and for the three
months then ended are incorporated by reference herein to Washington Homes,
Inc.'s quarterly report for the period ended October 31, 2000 on Form 10-Q
(Commission File No. 001-07643).
Consolidated financial statements of Washington Homes, Inc. and its
consolidated subsidiaries as of July 31, 2000 and July 31, 1999 and for
the years then ended are incorporated by reference herein to Washington
Homes, Inc.'s annual report for the fiscal year ended July 31, 2000 on
Form 10-K (Commission File No. 001-07643).
(b) Pro Forma Financial Information.
The following pro forma consolidated financial statements of
Hovnanian Enterprises, Inc. ("Hovnanian") give effect to the merger of
Washington Homes, Inc. ("Washington Homes") and Hovnanian using the
purchase method of accounting. The pro forma consolidated financial
statements are based on the historical audited consolidated financial
statements of Hovnanian, audited Washington Homes consolidated financial
statements at July 31, 2000, and unaudited Washington Homes consolidated
financial statements at October 31, 1999 and 2000. The 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.
These estimates and assumptions are preliminary and have been made solely
for the purpose of developing the pro forma information. Under the terms
of the merger agreement, Washington Homes' shareholders received the
equivalent of 1.39 shares of Hovnanian Class A Common shares or $10.08 in
cash for each of the 8,334,461 shares of Washington Homes, subject to
certain adjustments. The 531,500 stock options held by employees of
Washington Homes were converted to Hovnanian options with a similar
aggregate implied value. Of this amount 391,250 employee stock options
were vested as of the merger date and the fair value of these options are
included as a component of purchase price. Additionally, the 109,000
vested stock options held by non-employees of Washington Homes were
purchased by Hovnanian for the difference of $10.08 and their respective
exercise prices. These pro forma consolidated financial statements are
based on the actual consideration as elected by the Washington Homes'
shareholders and in accordance with the agreement, of approximately 45%
cash and 55% Hovnanian shares. Accordingly, the total purchase price was
approximately $86.6 million, based on Hovnanian's closing share price of
$7 1/16 on August 25, 2000.
The pro forma consolidated balance sheet assumes that the merger took
place on October 31, 2000. The pro forma consolidated statements of
income for the year ended October 31, 2000 assumes that the merger took
place as of November 1, 1999.
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 Washington Homes been
a consolidated company during the specified periods. The pro forma
consolidated financial statements, including the notes thereto, are
qualified in their entirety by reference to, and 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, 2000
and (ii) Washington Homes as filed in its Form 10-K for the year ended
July 31, 2000, and its Form 10Q for the three months ended October 31,
2000.
HOVNANIAN ENTERPRISES INC. AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
OCTOBER 31, 2000
UNAUDITED
(In Thousands)
Pro Forma Adjustments Pro Forma
Hovnanian Washington Increase October 31,
Enterprises, Inc. Homes,Inc. (Decrease) 2000
----------------- ----------- ---------- -------------
Assets
Homebuilding:
Cash and cash equivalents $ 40,131 $ 10,876 $ (1)(2) $ 51,007
Inventories 614,983 132,907 747,890
Property, plant and equipment - net 35,594 674 36,268
Senior rentals 10,276 10,276
Other 101,087 14,731 6,609 (1)(3)(4) 122,427
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Total homebuilding 802,071 159,188 6,609 967,868
Financial services 67,127 2,889 70,016
Collateralized mortgage financing 4,343 4,343
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Total assets $ 873,541 $ 162,077 $ 6,609 $ 1,042,227
=========================================== ===========
Liabilities and stockholders' equity
Homebuilding:
Nonrecourse land mortgages $ 18,166 $ 2,584 $ 20,750
Accounts payable and other liabilities 82,205 30,244 8,050 (4) 120,499
Customers' deposits 31,475 3,158 34,633
Nonrecourse mortgages secured by
operating properties 3,554 3,554
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Total homebuilding 135,400 35,986 8,050 179,436
Financial services 58,564 428 58,992
Collateralized mortgage financing 3,007 3,007
Notes payable 409,139 37,114 39,481 (2) 485,734
Income taxes payable 4,072 587 (73)(1)(3)(4) 4,586
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Total liabilities 610,182 74,115 47,458 731,755
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Stockholders' equity:
Common Stock Class A 173 82 (18)(1)(4) 237
Common Stock Class B 79 79
Paid in capital 46,086 36,530 10,858 (1)(4)(11) 93,474
Retained earnings 246,420 51,392 (51,392)(3)(4) 246,420
Deferred compensation 307 (646)(4)(11) (339)
Treasury stock (29,399) (349) 349 (4) (29,399)
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Total stockholders' equity 263,359 87,962 (40,849) 310,472
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Total liabilities and stockholders' equity $ 873,541 $ 162,077 $ 6,609 $ 1,042,227
=========================================== ==========
HOVNANIAN ENTERPRISES, INC. AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
YEAR ENDED OCTOBER 31, 2000
UNAUDITED
(In Thousands Except Per Share Data)
(5)
Pro Forma Adjustments Year Ended
Hovnanian Washington Increase October 31,
Enterprises, Inc. Homes,Inc (Decrease) 2000
----------------- ---------- ----------- -------------
Revenues:
Homebuilding:
Sale of homes $ 1,105,466 $ 467,524 $ 1,572,990
Land sales and other revenues 13,017 4,793 17,810
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Total homebuilding 1,118,483 472,317 1,590,800
Financial services 18,855 9,285 28,140
Collateralized mortgage financing 469 469
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Total revenues 1,137,807 481,602 1,619,409
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Expenses:
Homebuilding:
Cost of sales 882,711 401,000 (192)(6) 1,283,519
Selling, general & administration 104,771 40,565 (1,058)(7)(11) 144,278
Inventory impairment loss 1,791 1,791
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Total homebuilding 989,273 441,565 (1,250) 1,429,588
Financial services 19,334 5,369 24,703
Collateralized mortgage financing 416 416
Corporate general and administration 33,309 33,309
Interest 34,956 9,421 1,468(9)(12) 45,845
Other operations 8,701 519 3,250(8)(12) 12,470
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Total expenses 1,085,989 456,874 3,468 1,546,331
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Income before income taxes 51,818 24,728 (3,468) 73,078
Income taxes 18,655 9,655 (754)(10) 27,556
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Net income $ 33,163 $ 15,07 $ (2,714) $ 45,522
===========================================---------------- =============
Earnings per share:
Basic $ 1.51 $ 1.61
Weighted shares outstanding 21,933 (13) 28,286
Diluted $ 1.50 $ 1.59
Weighted shares outstanding 22,043 (13) 28,720
Hovnanian Enterprises, Inc.
Notes to Unaudited Pro Forma Consolidated Financial Statements (In
Thousands Except Per Share Data)
(1) Adjustment reflects the components of its purchase price.
Under the terms of the transaction, Hovnanian exchanged 1.39 shares of
Hovnanian Class A Common shares for approximately 4,570,600 Washington
Homes shares and paid $10.08 in cash for approximately 3,763,800 shares
of Washington Homes. These pro forma consolidated financial statements
are based on the actual consideration as elected by Washington Homes'
shareholders and in accordance with the agreement, of approximately 45%
cash and 55% Hovnanian shares as noted above. The aggregate purchase
price is estimated to be approximately $11.7 million higher than the fair
value of assets acquired less liabilities assumed at October 31, 2000.
The 531,500 stock options held by employees of Washington Homes were
converted to 738,785 Hovnanian options with a similar aggregate implied
value. Of the Washington Homes stock options 390,000 employees' stock
options were vested as of the balance sheet date and the fair value of
these options are included as a component of purchase price.
Additionally, the 109,000 vested stock options held by non-employees of
Washington Homes were purchased by Hovnanian for the difference of $10.08
and their respective exercise prices. Accordingly, the total purchase
price was estimated to be approximately $86.6 million, based on
Hovnanian's closing share price of $7 1/16 on August 25, 2000.
The following table summarizes the calculation of the purchase price
at October 31, 2000:
(Dollars in
thousands)
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Merger consideration - Cash (including non-employee stock options) $ 38,481
- Hovnanian Class A shares 44,869
- Fair Value of Vested Hovnanian Options 2,243
Transaction costs 1,000
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Total purchase price $ 86,593
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(2) Adjustment reflects the following anticipated transactions:
. Draw on Hovnanian existing credit facility $ 76,595
==========
. Anticipated funding of the cash portion of the purchase
price (including transaction costs of $1,000) $ (39,481)
. Repayment of existing Washington Homes notes payable (37,114)
----------
$ 76,595
==========
The net effect of the above transaction results in an increase in the
notes payable of the combined company in the amount of $39,481.
(3) Adjustment reflects the write-off of approximately $.1 million of
financing costs in connection with the retirement of certain Washington
Homes indebtedness, as described in Note (2) above.
(4) Adjustment reflects the elimination of the Washington Homes
stockholders' equity, the elimination of Washington Homes goodwill
amounting to approximately $8.2 million, and the accrual of approximately
$8.1 million Washington Homes related merger expenses.
(5) As Washington Homes has a calendar year end of July 31, the pro forma
results of operations for the year ended October 31, 2000 are based
upon the quarterly historical results of operations of Washington Homes
as previously filed, conformed to Hovnanian's fiscal year end and
Hovnanian's financial statement presentation as follows:
Washington Homes, Inc.
Pro Forma Results of Operations for the Year Ended October 31, 2000
Previously Reported Periods
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Less:three Add: three Months
Year Ended months Ended Ended
July 31, 2000 October 31,1999 October 1, 2000
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Revenues:
Homebuilding:
Sale of Homes $459,278 $ 85,889 $102,201
Land Sales & Other Revenues 10,473 1,534 2,304
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Total Homebuilding 469,751 87,423 104,505
Financial Services
Collateralized Mortgage Financing
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Total Revenues 469,751 87,423 104,505
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Expenses:
Homebuilding:
Cost of Sales 375,014 69,190 82,318
Selling, General & Administration 62,752 12,033 15,140
Inventory Impairment Loss
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Total Homebuilding 437,766 81,223 97,458
Financial Services
Collateralized Mortgage Financing
Corporate General & Administration
Interest 7,224 1,752 1,848
Other Operations 751 166 199
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Total Expenses 445,741 83,141 99,505
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Income Before Income Taxes 24,010 4,282 5,000
Income Taxes 9,391 1,655 1,919
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Net Income $ 14,619 $ 2,627 $ 3,081
====================================================
Pro Forma
Year Ended Reclassification Year Ended
October 31, 2000 Adjustments October 31, 2000
---------------- ----------------- ----------------
Revenues:
Homebuilding:
Sale of Homes $475,590 (8,066) $467,524
Land Sales & Other Revenues 11,243 (6,450) 4,793
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Total Homebuilding 486,833 (14,516) 472,317
Financial Services 9,285 9,285
Collateralized Mortgage Financing
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Total Revenues 486,833 (5,231) 481,602
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Expenses:
Homebuilding:
Cost of Sales 338,142 12,858 401,000
Selling, General & Administration 65,859 (25,294) 40,565
Inventory Impairment Loss
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Total Homebuilding 454,001 (12,436) 441,565
Financial Services 5,369 5,369
Collateralized Mortgage Financing
Corporate General & Administration
Interest 7,320 2,101 9,421
Other Operations 784 (265) 519
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Total Expenses 462,105 (5,231) 456,874
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Income Before Income Taxes 24,728 24,728
Income Taxes 9,655 9,655
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Net Income $ 15,073 $ 15,073
======================================================
(6) Adjustment reflects a reduction in cost of sales due to different
procedures for estimating warranty accruals at Hovnanian. The change in
procedures reduces Washington Homes cost of sales $.2 million for the year
ended October 31, 2000.
(7) Adjustment reflects a reduction in general and administrative expenses.
In connection with the merger, Hovnanian management believes that it will
realize cost savings related to the elimination of professional fees
and other costs associated with the operation of Washington Homes as a
public independent company, including legal, audit and tax fees, annual
report preparation and printing costs and stock registration and filing
fees aggregating $.9 million for the year ended October 31, 2000. In
addition, Washington Homes had incurred $.8 million of related merger
costs which are also being eliminated from general and administrative
expenses for the year ended October 31, 2000.
(8) Represents additional goodwill expense for the allocation of the purchase
price as if the merger occurred on November 1, 1999 aggregating
approximately $3.7 million for the year ended October 31, 2000.
(9) Represents additional interest expense, including interest amortized as
homes are delivered, on the draw on the Hovnanian existing credit facility
at an interest rate of 8.32% aggregating approximately $2.3 million
for the year ended October 31, 2000.
(10) Represents the net decrease to income tax expense for adjustments to
amortization of certain deferred tax assets, reductions in costs of sales
and general and administrative expenses, and for the additional interest
expense incurred which is partially offset by the elimination of Washington
Homes financing costs, the total of which aggregated approximately $.8
million for the year ended October 31, 2000.
(11) Stock options to purchase Washington Homes stock held by the employees of
Washington Homes have been converted to Hovnanian options with a similar
implied value. The fair value of vested options converted of approximately
$2.2 million at October 31, 2000 have been included as part of the purchase
price. The unvested portion of converted options for which a post
acquisition service period is required to vest has been valued at their
intrinsic value of approximately $.3 million at October 31, 2000 and
included as a deferred compensation cost, a component of shareholder
equity, and will be amortized over the remaining vesting period.
Amortization expense was approximately $.5 million for the year ended
October 31, 2000.
(12) Adjustment reflects the elimination of amortization of financing costs in
conjunction with the retirement of certain Washington Homes indebtedness
aggregating approximately $.9 million for the year ended October 31, 2000.
(13) Basic earnings per share are computed based upon the weighted average
number of Common Stock Class A and Class B shares outstanding during the
period. Diluted earnings per share are computed based upon the increased
number of Common Stock Class A shares that would be outstanding assuming
the exercise of dilutive Common Stock Class A stock options. The increase
in Common Stock Class A shares issued in connection with the merger was
6,353,000 shares. The diluted shares include an additional 324,000 shares
calculated under the treasury stock method.
(c) Exhibits.
Exhibit 2.1 Agreement and Plan of Merger, dated as of
August 28, 2000, among Hovnanian Enterprises,
Inc. ("Hovnanian"), WHI Holding Co., Inc. and
Washington Homes, Inc. (included as Annex I to
the Joint Proxy Statement/Prospectus contained
in Hovnanian's Registration Statement on
Form S-4 (File No. 333-52090)).
Exhibit 99.1 Press Release dated January 24, 2001.
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.
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(Registrant)
By: /s/ Peter S. Reinhart
---------------------
Name: Peter S. Reinhart
Title: Senior Vice President
General Counsel
Date: February 7, 2001
INDEX TO EXHIBITS
Exhibit Number Exhibit
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Exhibit 2.1 Agreement and Plan of Merger, dated as of
August 28, 2000, among Hovnanian Enterprises,
Inc. ("Hovnanian"), WHI Holding Co., Inc.
and Washington Homes, Inc. (included as Annex
I to the Joint Proxy Statement/Prospectus
contained in Hovnanian's Registration Statement
on Form S-4 (File No. 333-52090)).
Exhibit 99.1 Press Release dated January 24, 2001.