SEC Company Response from HOVNANIAN ENTERPRISES INC (HOV, HOVNP, HOVVB) (CIK 0000357294) (HOV) — Jun 5, 2008
HOVNANIAN ENTERPRISES INC (HOV, HOVNP, HOVVB) (CIK 0000357294)
Date: June 5, 2008 · CIK: 0000357294 · Accession: 0000357294-08-000022
AI Filing Summary & Sentiment
Referenced dates: May 30, 2008
Letter
VIA EDGAR AND Securities and Exchange Commission Division of Corporation Finance 100 F Street N.E. Washington, D.C. 20549-7010 Mail Stop 7010
Dear Mr. Hartz:
We have prepared the following in response to your comment letter dated May 30, 2008 with respect to the following:
Hovnanian Enterprises, Inc.
File Number: 1-8551
Form 10-K for the year ended October 31, 2007
Form 10-Q for the quarter ended January 31, 2008
Form 8-K filed on May 5, 2008
The paragraphs that follow respond to the questions asked under each of the respective headers in your letter. For convenience of reference, the text of the comments in your letter has been reproduced in italics herein. As you have requested, any revisions to our current disclosure proposed in our responses to your comments will be included in future filings.
In connection with our responses, we acknowledge that:
•
the Company is responsible for the adequacy and accuracy of the disclosure in its filings;
•
staff comments or changes to disclosure in response to staff comments do not foreclose the Commission from taking any action with respect to the filings; and
•
the Company may not assert staff comments as a defense in any proceeding initiated by the Commission or any person under the federal securities laws of the United States.
We trust that you will find these responses acceptable, however, if you have further questions or comments, please contact me at 732-747-7800.
Sincerely,
/S/ J. Larry Sorsby
Show Raw Text
CORRESP
1
filename1.htm
VIA EDGAR AND
FACSIMILE
June 5, 2008
Mr. John M. Hartz
Securities and Exchange Commission
Division of Corporation Finance
100 F Street N.E. Washington, D.C. 20549-7010
Mail Stop 7010
Dear Mr. Hartz:
We have prepared the following in response to your comment letter dated May 30, 2008 with respect to the following:
Hovnanian Enterprises, Inc.
File Number: 1-8551
Form 10-K for the year ended October 31, 2007
Form 10-Q for the quarter ended January 31, 2008
Form 8-K filed on May 5, 2008
The paragraphs that follow respond to the questions asked under each of the respective headers in your letter. For convenience of reference, the text of the comments in your letter has been reproduced in italics herein. As you have requested, any revisions to our current disclosure proposed in our responses to your comments will be included in future filings.
In connection with our responses, we acknowledge that:
•
the Company is responsible for the adequacy and accuracy of the disclosure in its filings;
•
staff comments or changes to disclosure in response to staff comments do not foreclose the Commission from taking any action with respect to the filings; and
•
the Company may not assert staff comments as a defense in any proceeding initiated by the Commission or any person under the federal securities laws of the United States.
We trust that you will find these responses acceptable, however, if you have further questions or comments, please contact me at 732-747-7800.
Sincerely,
/S/ J. Larry Sorsby
J. Larry Sorsby
Executive Vice President and Chief Financial Officer
FORM 10-K FOR THE YEAR ENDED OCTOBER 31, 2007
General
1. Where a comment below requests additional disclosures or other revisions to be made, please show us in your supplemental response what the revisions will look like. These revisions should be included in your future filings.
Response
Where the comments below request additional disclosures or other revisions, we have included the revisions in our response. These revisions will be included in our future filings.
Management’s Discussion and Analysis, page 18
2.
We note your response to prior comment 2. We urge you to continue to find ways to provide additional quantitative disclosures that conveys to investors the current and ongoing risks related to the recoverability of your homebuilding assets as well as the risk that additional charges may need to be recorded. We believe that it is important to provide investors with information to help them evaluate the current assumptions underlying your impairment assessment relative to your current market conditions and your peers to enable them to attempt to assess the likelihood of potential future impairments.
We note the additional disclosures you propose to provide. We urge you to consider whether additional detailed and quantitative disclosures can be provided to achieve the above stated purpose. For example, as previously suggested, if you have significant amounts of inventory for which you determine the fair value is close to your book value, please consider how you can constructively convey the potential risk associated with these inventory amounts. Please also consider whether additional disclosures at the segment level would be more meaningful, specifically:
Show contract cancellations in dollar amount, by segment and comparatively for each period (page 29);
Show option walk away information on a comparative basis for each period presented (page 32);
Show impairments information on a comparative basis for each period presented (page 32);
Show impairments of joint venture investments on a comparative basis for each period presented (page
32);
Response
We will continue to try to find ways to provide additional quantitative disclosures that convey to investors the current and ongoing risks related to the recoverability of our homebuilding assets as well as the risk that additional charges may need to be recorded. However, we believe the proposed disclosure in the MD&A and Critical Accounting Policies we provided in our previous responses to prior comments 2 and 4 explains the many assumptions necessary to determine impairments and the number of possible scenarios that would result from various changes in these factors, such that we do not believe it is possible to present a sensitivity analysis of the assumptions around our inventory with a level of precision that would be a meaningful indication of the likelihood of future impairments.
However, with respect to your additional specific requests we will provide the contract cancellation percentages, option walk away, and inventory impairment information by segment on a comparative basis for each period presented (provided in our first quarter 2008 Form 10-Q), and joint venture impairments on a comparative basis for each period presented. The relevant proposed disclosures (shown for the quarter ended April 30, 2008 and anticipated to be included in our quarterly report with respect to such period) are included below.
•
Contract Cancellations by Segment will be added to the Segment Data table in MD&A and show the following:
Homebuilding Results by Segment
Segment Analysis
Three Months Ended April 30,
Six Months Ended April 30,
2008
2007
Change
2008
2007
Change
(Dollars in thousands, except average sales price)
Northeast
Homebuilding revenue
$169,856
$188,231
$(18,375)
$351,773
$402,325
$(50,552)
(Loss) income before taxes
$(24,774)
$(5,070)
$(19,704)
$(36,309)
$11,390
$(47,699)
Homes delivered
347
409
(62)
661
869
(208)
Average sales price
$485,850
$454,406
$31,444
$497,634
$459,307
$38,327
Contract cancellation rate
27%
23%
4%
30%
25%
5%
Mid-Atlantic
Homebuilding revenue
$135,543
$217,903
$(82,360)
$263,351
$441,645
$(178,294)
(Loss) income before taxes
$(20,807)
$31,433
$(52,240)
$(43,845)
$57,730
$(101,575)
Homes delivered
337
402
(65)
634
872
(238)
Average sales price
$399,092
$471,070
$(71,978)
$410,177
$472,544
$(62,367)
Contract cancellation rate
32%
34%
(2%)
35%
33%
2%
Midwest
Homebuilding revenue
$55,367
$41,941
$13,426
$103,051
$80,765
$22,286
Loss before taxes
$(8,335)
$(11,965)
$(3,630)
$(22,712)
$(22,497)
$(215)
Homes delivered
257
199
58
468
395
73
Average sales price
$214,366
$208,663
$5,703
$217,248
$202,792
$14,456
Contract cancellation rate
26%
26%
--
31%
25%
6%
Southeast
Homebuilding revenue
$110,697
$209,803
$(99,106)
$504,102
$429,740
$74,362
Loss before taxes
$(27,052)
$(14,516)
$(12,536)
$(33,047)
$(102,275)
$69,228
Homes delivered
444
766
(322)
2,073
1,580
493
Average sales price
$245,905
$271,337
$(25,432)
$242,337
$269,347
$(27,010)
Contract cancellation rate
45%
48%
(3%)
48%
62%
(14%)
Southwest
Homebuilding revenue
$148,262
$201,390
$(53,128)
$312,822
$378,402
$(65,580)
(Loss) income before taxes
$(18,905)
$9,692
$(28,597)
$(25,630)
$16,361
$(41,991)
Homes delivered
645
866
(221)
1,336
1,653
(317)
Average sales price
$222,712
$231,008
$(8,296)
$230,414
$227,600
$2,814
Contract cancellation rate
26%
28%
(2%)
28%
28%
--
West
Homebuilding revenue
$143,444
$233,391
$(89,947)
$307,580
$503,906
$(196,326)
Loss before taxes
$(212,991)
$(36,917)
$(176,074)
$(300,992)
$(37,594)
$(263,398)
Homes delivered
464
508
(44)
926
1,047
(121)
Average sales price
$311,804
$459,392
$(147,588)
$331,150
$478,356
$(147,206)
Contract cancellation rate
27%
35%
(8%)
34%
31%
3%
•
Option Walk Away costs and Inventory Impairments on a Comparative Basis will be included in Note 5 to the financial statements. A reference to this Note will be included in the Capital Resources and Liquidity and in Critical Accounting Policies in MD&A. The following are the proposed tables:
The following table represents write-offs of deposits and capitalized approval, engineering and interest costs and the related number of lots by segment for the three and six months ended April 30, 2008 and 2007:
Three Months Ended
Six Months Ended
(In millions)
April 30,
April 30,
2008
2007
2008
2007
Number of Walk-Away Lots
Dollar Amount of Write-Offs
Number of Walk-Away Lots
Dollar Amount of Write-Offs
Number of Walk-Away Lots
Dollar Amount of Write-Offs
Number of Walk-Away Lots
Dollar Amount of Write-Offs
Northeast
144
$3.0
702
$2.3
453
$4.7
990
$2.9
Mid-Atlantic
1,755
4.4
468
.5
2,528
15.8
468
1.1
Midwest
-
-
146
.8
-
-
146
.8
Southeast
1,405
6.8
925
.3
1,754
7.2
1,650
.4
Southwest
202
1.6
726
.6
430
4.4
809
.6
West
239
3.7
-
.1
239
3.7
-
(6.2)
Total
3,745
$19.5
2,967
$4.6
5,404
$35.8
4,063
$(.4)
The following table represents inventory impairments by segment for the three and six months ended April 30, 2008 and 2007:
Three Months Ended
Six Months Ended
(Dollars in millions)
April 30, 2008
April 30, 2008
Number of
Communities
Dollar
Amount of
Impairment
Pre-
Impairment
Value(1)
Number of
Communities
Dollar
Amount of
Impairment
Pre-
Impairment
Value(1)
Northeast
6
$12.3
$86.1
6
$14.7
$105.9
Mid-Atlantic
6
8.3
32.9
10
11.6
51.6
Midwest
-
-
-
4
5.6
20.2
Southeast
12
11.4
43.5
15
17.8
71.8
Southwest
14
17.3
40.7
16
22.1
57.8
West
45
167.8
457.4
52
219.1
672.7
Total
83
$217.1
$660.6
103
$290.9
$980.0
Three Months Ended
Six Months Ended
(Dollars in millions)
April 30, 2007
April 30, 2007
Number of
Communities
Dollar
Amount of
Impairment
Pre-
Impairment
Value(1)
Number of
Communities
Dollar
Amount of
Impairment
Pre-
Impairment
Value(1)
Northeast
3
$4.4
26.0
4
$5.8
$35.2
Mid-Atlantic
-
-
-
-
-
-
Midwest
3
2.9
10.6
6
6.1
25.8
Southeast
2
7.5
66.6
2
49.4
135.1
Southwest
1
.3
.7
1
.3
.7
West
5
14.7
45.8
5
14.7
45.8
Total
14
$29.8
149.7
18
$76.3
$242.6
(1) Represents carrying value in dollars, net of prior period impairments, if any, at the time of recording
this period’s impairments.
•
Impairments of joint venture investments will be added to the Loss from Unconsolidated Joint Ventures disclosure in the MD&A as follows:
Loss from unconsolidated joint ventures consists of our share of the losses of the joint venture. The balance decreased $1.2 million and $8.2 million to a loss of $3.4 million and $8.4 million for the three and six months ended April 30, 2008 when compared to the same periods last year. The decrease in 2008 is primarily related to our share of the losses from inventory impairments and land-option and walk-away costs fro