10-Q 1 hov20230430_10q.htm FORM 10-Q hov20230430_10q.htm
0000357294 HOVNANIAN ENTERPRISES INC false --10-31 Q2 2023 0.01 0.01 100,000 100,000 5,600 5,600 5,600 5,600 140,000 140,000 0.01 0.01 16,000,000 16,000,000 6,179,884 6,159,886 0.01 0.01 2,400,000 2,400,000 747,976 733,374 901,379 782,901 27,669 27,669 476.56 476.56 476.56 476.56 2 0 0 25.0 0.5 5.0 0.25 5.0 25.0 0.1 1.3 1.7 10.0 10.0 November 15, 2025 November 15, 2025 158,502 7.75 7.75 February 15, 2026 February 15, 2026 10.5 10.5 February 15, 2026 February 15, 2026 11.25 11.25 February 15, 2026 February 15, 2026 8.0 8.0 November 1, 2027 November 1, 2027 0 0 13.5 13.5 February 1, 2026 February 1, 2026 5.0 5.0 February 1, 2040 February 1, 2040 February 1, 2027 February 1, 2027 January 31, 2028 January 31, 2028 81,498 0 0 2.7 0.001 2.7 5.3 1 10 1 1 0 0 95.7 4 1 1 1.6 0 0 7 7 10 10 50 10.0 November 15, 2025 7.75 February 15, 2026 10.5 February 15, 2026 11.25 February 15, 2026 13.5 February 1, 2026 5.0 February 1, 2040 February 1, 2027 January 31, 2028 10.0 November 15, 2025 7.75 February 15, 2026 10.5 February 15, 2026 11.25 February 15, 2026 13.5 February 1, 2026 5.0 February 1, 2040 February 1, 2027 January 31, 2028 0 Data does not include interest incurred by our mortgage and finance subsidiaries. Represents capitalized interest which was included as part of the assets purchased from joint ventures, as discussed in Note 18. There was no impact to the Condensed Consolidated Statement of Operations as a result of these transactions. Lease payments include options to extend lease terms that are reasonably certain of being executed and exclude $13.7 million of legally binding minimum lease payments for office leases signed but not yet commenced as of April 30, 2023. The related ROU assets and operating lease liabilities are not reflected on the Company's Condensed Consolidated Balance Sheets as of April 30, 2023. The aggregate unpaid principal balance was $74.5 million and $110.2 million at January 31, 2023 and October 31, 2022, respectively. 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. 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: Corporate and unallocated for the three months ended April 30, 2023 included corporate general and administrative expenses of $25.1 million, interest expense of $5.2 million (a component of Other interest in our Condensed Consolidated Statements of Operations), and $(0.6) million of other expense (income). Corporate and unallocated for the six months ended April 30, 2023 included corporate general and administrative expenses of $50.6 million, interest expense of $11.8 million, and $2.4 million of other expense (income). Corporate and unallocated for the three months ended April 30, 2022 included corporate general and administrative expenses of $21.7 million, interest expense of $9.0 million, loss on extinguishment of debt of $6.8 million, and $(1.3) million of other expense (income). Corporate and unallocated for the six months ended April 30, 2022 included corporate general and administrative expenses of $51.1 million, interest expense of $20.5 million, loss on extinguishment of debt of $6.8 million, and $(0.7) million of other expense (income). $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 U.S. GAAP, such notes are not reflected on the Condensed Consolidated Balance Sheets of HEI. At April 30, 2023, provides for up to $125.0 million in aggregate amount of senior secured first lien revolving loans. The revolving loans thereunder have a maturity of June 30, 2024 and borrowings bear interest, at K. Hovnanian’s option, at either (i) a term secured overnight financing rate (subject to a floor of 1.00%) plus an applicable margin of 4.50% or (ii) an alternate base rate plus an applicable margin of 3.50%. In addition, K. Hovnanian will pay an unused commitment fee on the undrawn revolving commitments at a rate of 1.00% per annum. 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 $5.3 million and $9.0 million for the three months ended April 30, 2023 and 2022, respectively, and $11.8 million and $20.5 million for the six months ended April 30, 2023 and 2022, 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 as incurred. This component of other interest was $9.2 million and $3.4 million for the three months ended April 30, 2023 and 2022, respectively, and $17.8 million and $5.3 million for the six months ended April 30, 2023 and 2022, respectively. 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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 April 30, 2023

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. 5,278,942 shares of Class A Common Stock and 720,126 shares of Class B Common Stock were outstanding as of May 31, 2023.

 

true

 

 

HOVNANIAN ENTERPRISES, INC.  

 

FORM 10-Q  

 

INDEX

PAGE

NUMBER

  

  

PART I. Financial Information

  

Item l. Financial Statements:

  

  

  

Condensed Consolidated Balance Sheets (unaudited) as of April 30, 2023 and October 31, 2022

3

  

  

Condensed Consolidated Statements of Operations (unaudited) for the three and six months ended April 30, 2023 and 2022

4

  

  

Condensed Consolidated Statements of Changes in Equity (unaudited) for the three and six months ended April 30, 2023 and 2022

5

  

  

Condensed Consolidated Statements of Cash Flows (unaudited) for the six months ended April 30, 2023 and 2022

7

  

  

Notes to Condensed Consolidated Financial Statements (unaudited)

9

  

  

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

28

  

  

Item 3. Quantitative and Qualitative Disclosures About Market Risk

43

  

  

Item 4. Controls and Procedures

43

  

  

PART II. Other Information

  

Item 1. Legal Proceedings

44

   

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

44

   

Item 6. Exhibits

45

  

  

Signatures

47

 

 

 

HOVNANIAN ENTERPRISES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except per share data)

(Unaudited)

 

  

April 30,

  

October 31,

 
  

2023

  

2022

 
         

ASSETS

        

Homebuilding:

        

Cash and cash equivalents

 $333,254  $326,198 

Restricted cash and cash equivalents

  7,916   13,382 

Inventories:

        

Sold and unsold homes and lots under development

  1,060,410   1,058,183 

Land and land options held for future development or sale

  123,832   152,406 

Consolidated inventory not owned

  300,750   308,595 

Total inventories

  1,484,992   1,519,184 

Investments in and advances to unconsolidated joint ventures

  85,820   74,940 

Receivables, deposits and notes, net

  37,210   37,837 

Property and equipment, net

  27,952   25,819 

Prepaid expenses and other assets

  56,756   63,884 

Total homebuilding

  2,033,900   2,061,244 
         

Financial services

  113,162   155,993 
         

Deferred tax assets, net

  336,692   344,793 

Total assets

 $2,483,754  $2,562,030 
         

LIABILITIES AND EQUITY

        

Homebuilding:

        

Nonrecourse mortgages secured by inventory, net of debt issuance costs

 $134,124  $144,805 

Accounts payable and other liabilities

  376,866   439,952 

Customers’ deposits

  71,359   74,020 

Liabilities from inventory not owned, net of debt issuance costs

  200,299   202,492 

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

  1,144,090   1,146,547 

Accrued interest

  36,220   32,415 

Total homebuilding

  1,962,958   2,040,231 
         

Financial services

  91,299   135,581 
         

Income taxes payable

  -   3,167 

Total liabilities

  2,054,257   2,178,979 
         

Equity:

        

Hovnanian Enterprises, Inc. stockholders' equity:

        

Preferred stock, $0.01 par value - authorized 100,000 shares; issued and outstanding 5,600 shares with a liquidation preference of $140,000 at April 30, 2023 and October 31, 2022

  135,299   135,299 

Common stock, Class A, $0.01 par value - authorized 16,000,000 shares; issued 6,179,884 shares at April 30, 2023 and 6,159,886 shares at October 31, 2022

  62   62 

Common stock, Class B, $0.01 par value (convertible to Class A at time of sale) - authorized 2,400,000 shares; issued 747,976 shares at April 30, 2023 and 733,374 shares at October 31, 2022

  7   7 

Paid in capital - common stock

  731,374   727,663 

Accumulated deficit

  (304,889)  (352,413)

Treasury stock - at cost – 901,379 shares of Class A common stock at April 30, 2023 and 782,901 shares at October 31, 2022; 27,669 shares of Class B common stock at April 30, 2023 and October 31, 2022

  (132,382)  (127,582)

Total Hovnanian Enterprises, Inc. stockholders’ equity

  429,471   383,036 

Noncontrolling interest in consolidated joint ventures

  26   15 

Total equity

  429,497   383,051 

Total liabilities and equity

 $2,483,754  $2,562,030 

 

See notes to condensed consolidated financial statements (unaudited).

 

 

 

HOVNANIAN ENTERPRISES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)

(Unaudited)

 

   

Three Months Ended April 30,

   

Six Months Ended April 30,

 
   

2023

   

2022

   

2023

   

2022

 

Revenues:

                               

Homebuilding:

                               

Sale of homes

  $ 670,708     $ 685,823     $ 1,170,353     $ 1,237,189  

Land sales and other revenues

    18,750       1,008       22,307       1,646  

Total homebuilding

    689,458       686,831       1,192,660       1,238,835  

Financial services

    14,203       15,706       26,367       29,015  

Total revenues

    703,661       702,537       1,219,027       1,267,850  
                                 

Expenses:

                               

Homebuilding:

                               

Cost of sales, excluding interest

    540,622       503,682       931,662       931,599  

Cost of sales interest

    21,425       21,678       36,447       35,423  

Inventory impairments and land option write-offs

    137       565       614       664  

Total cost of sales

    562,184       525,925       968,723       967,686  

Selling, general and administrative

    50,456       46,501       98,374       89,247  

Total homebuilding expenses

    612,640       572,426       1,067,097       1,056,933  
                                 

Financial services

    10,152       10,792       19,205       21,192  

Corporate general and administrative

    25,079       21,684       50,569       51,119  

Other interest

    14,501       12,425       29,594       25,818  

Other expenses, net

    574       641       960       1,009  

Total expenses

    662,946       617,968       1,167,425       1,156,071  

Loss on extinguishment of debt, net

    -       (6,795 )     -       (6,795 )

Income from unconsolidated joint ventures

    5,408       3,171       12,568       11,362  

Income before income taxes

    46,123       80,945       64,170       116,346  

State and federal income tax provision:

                               

State

    1,083       2,587       3,294       5,130  

Federal

    10,894       15,923       8,014       23,973  

Total income taxes

    11,977       18,510       11,308       29,103  

Net income

    34,146       62,435       52,862       87,243  

Less: preferred stock dividends

    2,669       2,669       5,338       5,338  

Net income available to common stockholders

  $ 31,477     $ 59,766     $ 47,524     $ 81,905  
                                 

Per share data:

                               

Basic:

                               

Net income per common share

  $ 4.68     $ 8.50     $ 7.05     $ 11.62  

Weighted-average number of common shares outstanding

    6,166       6,396       6,176       6,392  

Assuming dilution:

                               

Net income per common share

  $ 4.47     $ 8.39     $ 6.74     $ 11.44  

Weighted-average number of common shares outstanding

    6,462       6,477       6,463       6,492  

 

See notes to condensed consolidated financial statements (unaudited).

 

 

 

HOVNANIAN ENTERPRISES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

Six MONTH PERIOD ENDED April 30, 2023

(In thousands, except share data)

(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, 2022

  5,376,985  $62   705,705  $7   5,600  $135,299  $727,663  $(352,413) $(127,582) $15  $383,051 
                                             

Stock options, amortization and issuances

  209                  8            8 
                                             

Preferred dividend declared ($476.56 per share)

                          (2,669)        (2,669)
                                             

Restricted stock amortization, issuances and forfeitures

  18,051      14,620            1,487            1,487 
                                             

Changes in noncontrolling interest in consolidated joint ventures

                                4   4 
                                             

Share repurchases

  (118,478)                       (4,800)     (4,800)
                                             

Net income

                          18,716         18,716 
                                             

Balance, January 31, 2023

  5,276,767  $62   720,325  $7   5,600  $135,299  $729,158  $(336,366) $(132,382) $19  $395,797 
                                             

Stock options, amortization and issuances

  1,720                  59            59 
                                             

Preferred dividend declared ($476.56 per share)

                          (2,669)        (2,669)
                                             

Restricted stock amortization, issuances and forfeitures

                       2,157            2,157 
                                             

Conversion of Class B to Class A common stock

  18      (18)                       - 
                                             

Changes in noncontrolling interest in consolidated joint ventures

                                7   7 
                                             

Net income

                          34,146         34,146 
                                             

Balance, April 30, 2023

  5,278,505  $62   720,307  $7   5,600  $135,299  $731,374  $(304,889) $(132,382) $26  $429,497 

 

See notes to condensed consolidated financial statements (unaudited).

 

 

HOVNANIAN ENTERPRISES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

Six MONTH PERIOD ENDED April 30, 2022

(In thousands, except share data)

(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, 2021

  5,595,734  $61   659,207  $7   5,600  $135,299  $722,118  $(567,228) $(115,360) $487  $175,384 
                                             

Stock options, amortization and issuances

  804                  4            4 
                                             

Preferred dividend declared ($476.56 per share)

                          (2,669)        (2,669)
                                             

Restricted stock amortization, issuances and forfeitures

  17,654      17,445            (552)           (552)
                                             

Conversion of Class B to Class A common stock

  48      (48)                       - 
                                             

Changes in noncontrolling interest in consolidated joint ventures

                                (88)  (88)
                                             

Net income

                          24,808         24,808 
                                             

Balance, January 31, 2022

  5,614,240  $61   676,604  $7   5,600  $135,299  $721,570  $(545,089) $(115,360) $399  $196,887 
                                             

Stock options, amortization and issuances

  600                  77            77 
                                             

Preferred dividend declared ($476.56 per share)

                          (2,669)        (2,669)
                                             

Restricted stock amortization, issuances and forfeitures

  20,483                  1,672            1,672 
                                             

Conversion of Class B to Class A common stock

  58      (58)                       - 
                                             

Changes in noncontrolling interest in consolidated joint ventures

                                (3)  (3)
                                             

Net income

                          62,435         62,435 
                                             

Balance, April 30, 2022

  5,635,381  $61   676,546  $7   5,600  $135,299  $723,319  $(485,323) $(115,360) $396  $258,399 

  

See notes to condensed consolidated financial statements (unaudited). 

 

 

 

HOVNANIAN ENTERPRISES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

 

   

Six Months Ended

 
   

April 30,

 
   

2023

   

2022

 

Cash flows from operating activities:

               

Net income

  $ 52,862     $ 87,243  

Adjustments to reconcile net income to net cash provided by (used in) operating activities:

               

Depreciation

    5,924       2,489  

Stock-based compensation

    4,235       3,394  

Amortization of debt discounts, premiums and deferred financing costs

    722       (194 )

Loss (gain) on sale of property and assets

    15       (37 )

Income from unconsolidated joint ventures

    (12,568 )     (11,362 )

Distributions of earnings from unconsolidated joint ventures

    4,522       2,743  

Loss on extinguishment of debt

    -       6,795  

Noncontrolling interest in consolidated joint ventures

    11       139  

Inventory impairments and land option write-offs

    614       664  

Decrease (increase) in assets:

               

Inventories

    48,453       (238,571 )

Receivables, deposits and notes

    4,516       (4,337 )

Origination of mortgage loans

    (516,798 )     (598,600 )

Sale of mortgage loans

    548,722       656,300  

Deferred tax assets

    8,101       25,121  

(Decrease) increase in liabilities:

               

Accounts payable, accrued interest and other liabilities

    (77,536 )     (25,227 )

Customers’ deposits

    (2,661 )     32,150  

State income tax payable

    (3,167 )     (913 )

Net cash provided by (used in) operating activities

    65,967       (62,203 )

Cash flows from investing activities:

               

Proceeds from sale of property and assets

    93       63  

Purchase of property, equipment, and other fixed assets

    (8,169 )     (5,335 )

Investment in and advances to unconsolidated joint ventures, net of reimbursements

    (20,042 )     (152 )

Distributions of capital from unconsolidated joint ventures

    7,663       2,324  

Net cash used in investing activities

    (20,455 )     (3,100 )

Cash flows from financing activities:

               

Proceeds from mortgages and notes

    152,519       230,984  

Payments related to mortgages and notes

    (163,190 )     (158,608 )

Proceeds from model sale leaseback financing programs

    11,830       26,982  

Payments related to model sale leaseback financing programs

    (5,587 )     (8,551 )

Proceeds from land bank financing programs

    30,335       69,741  

Payments related to land bank financing programs

    (39,063 )     (25,953 )

Proceeds from partner distributions to consolidated joint venture

    -       40  

Payments for partner distributions to consolidated joint venture

    -       (270 )

Net payments related to mortgage warehouse lines of credit

    (31,879 )     (60,434 )

Payments related to senior secured notes

    -       (103,875 )

Preferred dividends paid

    (5,338 )     (5,338 )

Treasury stock purchases

    (4,800 )     -  

Deferred financing costs from land banking financing programs and note issuances

    (1,815 )     (3,962 )

Net cash used in financing activities

    (56,988 )     (39,244 )

Net decrease in cash and cash equivalents, and restricted cash and cash equivalents

    (11,476 )     (104,547 )

Cash and cash equivalents, and restricted cash and cash equivalents balance, beginning of period

    382,190       311,396  

Cash and cash equivalents, and restricted cash and cash equivalents balance, end of period

  $ 370,714     $ 206,849  
                 

Supplemental disclosures of cash flows:

               

Cash paid during the period for:

               

Interest, net of capitalized interest (see Note 3 to the Condensed Consolidated Financial Statements)

  $ 27,098     $ 26,434  

Income taxes

  $ 6,888     $ 4,895  
                 

Reconciliation of Cash, cash equivalents and restricted cash

               

Homebuilding: Cash and cash equivalents

  $ 333,254     $ 149,431  

Homebuilding: Restricted cash and cash equivalents

    7,916       14,283  

Financial Services: Cash and cash equivalents, included in financial services assets

    3,790       3,939  

Financial Services: Restricted cash and cash equivalents, included in financial services assets

    25,754       39,196  

Total cash, cash equivalents and restricted cash shown in the statements of cash flows

  $ 370,714     $ 206,849  

 

 

 

 

 

HOVNANIAN ENTERPRISES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands - Unaudited)

(Continued)

 

 

Supplemental disclosure of non-cash operating and investing activities:

 

In the second quarter of fiscal 2023, we consolidated the remaining assets of one of our unconsolidated joint ventures, resulting in a $10.8 million reduction in our investment in the joint venture, and increases of $14.9 million and $5.3 million to inventory and accounts payable, respectively.

 

 

 

 

HOVNANIAN ENTERPRISES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED

 

 

 

1.

Basis of Presentation

 

Hovnanian Enterprises, Inc. (“HEI”) conducts all of its homebuilding and financial services operations through its subsidiaries (references herein to the “Company,” “we,” “us” or “our” refer to HEI and its consolidated subsidiaries and should be understood to reflect the consolidated business of HEI’s subsidiaries). Historically, the Company had seven reportable segments consisting of six homebuilding segments (Northeast, Mid-Atlantic, Midwest, Southeast, Southwest and West) and its financial services segment. During the fourth quarter of fiscal 2022, we realigned our homebuilding operating segments and determined that, in addition to our financial services segment, we now had three reportable homebuilding segments comprised of (1) Northeast, (2) Southeast and (3) West (see Note 17). All prior period amounts related to the segment change have been retrospectively reclassified to conform to the new presentation.

 

The accompanying unaudited Condensed Consolidated Financial Statements include HEI's accounts and those of all of its consolidated subsidiaries after elimination of all intercompany balances and transactions. Noncontrolling interest represents the proportionate equity interest in a consolidated joint venture that is not 100% owned by the Company directly or indirectly.

 

The accompanying unaudited Condensed Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X, and accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. These Condensed Consolidated Financial Statements should be read in conjunction with the Consolidated Financial Statements and notes thereto included in our Annual Report on Form 10-K for the fiscal year ended October 31, 2022. In the opinion of management, all adjustments for interim periods presented have been made, which include normal recurring accruals and deferrals necessary for a fair presentation of our condensed consolidated financial position, results of operations and cash flows. The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates, and these differences could have a significant impact on the Condensed Consolidated Financial Statements. Results for interim periods are not necessarily indicative of the results which might be expected for a full year.  

 

 

2.

Stock Compensation

 

During the first quarter of fiscal 2023, the Board of Directors approved certain grants under a new Long-Term Incentive Program (the “2023 LTIP”) that contain performance-based vesting conditions. The performance period for the 2023 LTIP commenced on November 1, 2022 and will end on October 31, 2025. At the end of the performance period, 50% of the awards, if any, are payable in cash-settled phantom shares and the remaining 50% of the awards, if any, are payable in shares of Company stock, subject to a mandatory two-year post-vesting hold period.

 

For the three and six months ended April 30, 2023, stock-based compensation expense was $2.2 million ($1.6 million net of tax) and $4.2 million ($3.5 million net of tax), respectively. For the three and six months ended April 30, 2022, stock-based compensation expense was $1.8 million ($1.4 million net of tax) and $3.4 million ($2.5 million net of tax), respectively. Included in stock-based compensation expense was $8 thousand and $16 thousand