Hovnanian narrows fiscal Q4 after-tax net loss to US$98.3M from US$132.1M last year as revenues dropped slightly to US$341.6M; net contracts rose 3% to 1,175 homes, backlog jumped 19%

Lorena Madrigal

RED BANK, New Jersey , December 16, 2011 (press release) – Hovnanian Enterprises, Inc. (NYSE:HOV), a leading national homebuilder, reported results for its fourth quarter and year ended October 31, 2011.

RESULTS FOR THE THREE AND TWELVE MONTH PERIODS ENDED OCTOBER 31, 2011:

Total revenues were $341.6 million during the fourth quarter of 2011 compared with $353.0 million in the same period of the prior year and $285.6 million for the third quarter of fiscal 2011. For the twelve months ended October 31, 2011, total revenues were $1.1 billion compared with $1.4 billion a year ago.

Homebuilding gross margin percentage, before interest expense included in cost of sales, was 15.5% during the fiscal 2011 fourth quarter, compared to 16.9% in last year's fourth quarter and 15.3% for the third quarter of fiscal 2011. For the year ended October 31, 2011, homebuilding gross margin percentage, before interest expense included in cost of sales, was 15.6% compared with 16.8% in the prior year.

Total SG&A, which includes homebuilding selling, general and administrative and corporate general and administrative expenses, was $57.8 million in the fourth quarter compared to $65.4 million in the same period a year ago and $46.5 million for the third quarter of fiscal 2011. The majority of the sequential increase of $11.3 million was from unusually large charges for abandoned leased space, legal reserves and construction defect reserves based on our annual actuarial study.

Consolidated pre-tax land-related charges for the fiscal 2011 fourth quarter were $63.2 million, compared with $80.6 million during the fourth quarter of 2010. For all of fiscal 2011, consolidated pre-tax land-related charges were $105.0 million compared with $135.7 million in fiscal 2010.

During the fourth quarter, $25.6 million of unsecured senior notes were repurchased for $15.1 million in cash, including $1.1 million for accrued interest, an average price of 55%, resulting in a $10.6 million gain on extinguishment of debt.

Excluding land-related charges and gain on extinguishment of debt, the pre-tax loss in the three months ended October 31, 2011 was $45.2 million compared with $51.9 million in the fourth quarter of the prior year. During the entire 2011 fiscal year, the pre-tax loss, excluding land-related charges and gain on extinguishment of debt, was $194.1 million compared with $184.6 million in fiscal 2010.

For the fourth quarter of fiscal 2011, the after-tax net loss was $98.3 million, or $0.90 per common share, compared with $132.1 million, or $1.68 per common share, in the fourth quarter of the prior year. For the year ended October 31, 2011, the after-tax net loss was $286.1 million, or $2.85 per common share, compared with net income of $2.6 million, or $0.03 per fully diluted common share last year, which as a result of tax legislation changes included a federal income tax benefit of $291.3 million.

For the fourth quarter of 2011, Adjusted EBITDA (adjusted for land-related charges and gains from extinguishment of debt) was $8.7 million compared to $2.4 million for last year's fourth quarter and $0.4 million in the third quarter of fiscal 2011.

Net contracts during the fourth quarter of 2011, including unconsolidated joint ventures, increased 3% to 1,175 homes compared with the same period of the prior year. For the year ended October 31, 2011, net contracts, including unconsolidated joint ventures, were 4,488 homes compared with 4,472 homes a year ago.

Net contracts for the month of November 2011 were 325, an increase of 31% over the same month last year.

Contract backlog, as of October 31, 2011, including unconsolidated joint ventures, was 1,663 homes with a sales value of $552.4 million, which was an increase of 19% and 26%, respectively, compared to October 31, 2010.

The contract cancellation rate, excluding unconsolidated joint ventures, during the fiscal 2011 fourth quarter was 21%, compared with 24% in last year's fourth quarter.

At October 31, 2011, there were 214 active selling communities, including unconsolidated joint ventures, compared with 204 active selling communities at October 31, 2010 and 202 active selling communities at July 31, 2011.

Deliveries, including unconsolidated joint ventures, were 1,245 homes in the fiscal 2011 fourth quarter, compared with 1,287 homes in the prior year's fourth quarter and 1,112 homes for the third quarter of fiscal 2011. For all of fiscal 2011, deliveries, including unconsolidated joint ventures, were 4,216 homes compared to 5,009 homes during fiscal 2010.

The valuation allowance was $899.4 million as of October 31, 2011. 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.

CASH AND INVENTORY AS OF OCTOBER 31, 2011:

As of October 31, 2011, homebuilding cash was $302.1 million, including $57.7 million of restricted cash required to collateralize letters of credit, after spending approximately $95 million in the fourth quarter on land and land development and $15.1 million to repurchase debt, compared to $334.2 million, including $60.8 million of restricted cash required to collateralize letters of credit at July 31, 2011.

After spending approximately $95 million of cash to purchase approximately 550 lots and to develop land across the Company, cash flow in the fourth quarter of fiscal 2011 was negative $7.9 million. Cash flow in the third quarter of fiscal 2011 was negative $76.2 million, after spending approximately $105 million of cash to purchase approximately 1,200 lots and to develop land across the Company. Excluding land and land development spending, cash flow would have been approximately $87.1 million positive in the fourth quarter of 2011.

As of October 31, 2011, the land position, including unconsolidated joint ventures, was 30,921 lots, consisting of 9,913 lots under option and 21,008 owned lots.

COMMENTS FROM MANAGEMENT: "We were pleased that our fourth quarter deliveries and homebuilding revenues were in line with our expectations. Our fourth quarter gross margin increased slightly from the third quarter, but the increase was not as much as we expected, due primarily to the need to offer additional incentives and lower base prices. This is reflective of a persistently challenging housing market," commented Ara K. Hovnanian, Chairman of the Board, President and Chief Executive Officer. "However, our cash flow in the fourth quarter of 2011, both before and after land spend, was materially better than any of the periods since we began reporting this information five quarters ago."

"Following our year end, we announced the successful results of our debt exchange offer. We exchanged $195 million of unsecured debt together with cash payments of approximately $17.5 million, including $3.3 million for accrued interest, for new secured debt that has a lower coupon and extends the maturity to 2021, from the original maturity dates between 2014 and 2017. Our liquidity continues to govern our land investment decisions, as we manage our business to a cash target of $245 million to $170 million, which includes cash used to collateralize letters of credit," concluded Mr. Hovnanian.

WEBCAST INFORMATION: Hovnanian Enterprises will webcast its fiscal 2011 fourth quarter financial results conference call at 11:00 a.m. E.T. on Thursday, December 15, 2011. 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 "Audio Archives" 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, Minnesota, New Jersey, North Carolina, 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®, Matzel & Mumford, Brighton Homes, Parkwood Builders, Town & Country Homes and Oster Homes. As the developer of K. Hovnanian's® Four Seasons communities, the Company is also one of the nation's largest builders of active adult homes.

Additional information on Hovnanian Enterprises, Inc., including a summary investment profile and the Company's 2010 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 or fax lists, please send an e-mail to IR@khov.com or sign up at http://www.khov.com

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