Company: HOVVB
Filing Date: 2025-02-07
Form Type: DEF 14A
Source: 0001140361-25-003579
Chunk: 22

Company: HOVNANIAN ENTERPRISES INC
Filing Date: 2025-02-07
Form: DEF 14A
Chunk 22
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 to be in the top quintile compared to our Peer Group (as defined below) to earn the maximum potential award for that metric. Moreover, our 2024 LTIP requires a 2,270 and 3,603 basis point improvement in net debt to capital at target and maximum performance, respectively, compared to the average net debt to capital level on the last day of the three most recently completed fiscal years at the time the award was granted. 47 In recent years, the Committee has determined to weight the Company’s variable compensation programs toward rigorous performance conditions with metrics such as pretax profit, liquidity, shareholder value preservation, debt reduction, alternative capital raises, EBIT Return on Investment, gross margin and new communities opened. As context for basing the Company’s compensation programs on these metrics, the Committee considered that, at the point at which housing starts were at the lowest levels during the great housing recession in 2009, the Company had written off over $2.5 billion of asset value and, as a result, was significantly overleveraged. During this period, many homebuilders declared bankruptcy and certain others significantly diluted shareholders via new equity issuances or by selling their companies at extremely low valuations. Hovnanian’s management chose to preserve shareholder value by managing the Company for growth and taking creative steps to refinance and pay down its heavy debt load. From the beginning of 2009 through fiscal 2024, the Company has reduced its public debt by about $1.6 billion, including a $579 million debt reduction since October 31, 2020. Despite this reduction, the Company remains overleveraged, with interest rates on debt instruments significantly above its lower leveraged peers. Accordingly, the Company continues to have a large interest expense burden which causes profitability to be more challenging to achieve and makes it difficult to compare the Company with its peers on profitability alone. During the COVID-19 pandemic surge in housing demand in fiscal 2021 and the first half of fiscal 2022, even with an extraordinarily high interest burden compared to its peers, the Company achieved income before income taxes of over $189 million and $319 million in fiscal 2021 and fiscal 2022, respectively, as a result of its growth in deliveries and margin improvement. This improvement allowed the Company, for the first time since the great housing recession, to return to a return on average equity (“ROAE”) metric for bonus compensation during fiscal 2022. When measuring pure operating performance by the ratio of adjusted EBIT to investment