will record $300 million in charges in the fourth quarter, resulting in a loss for the period.
Roughly half the charges are associated with inventory impairments, while the other half comprises land option deposit write-off charges.
The company said it renegotiated a number of land option contracts in the third and fourth quarters, and walked away from deposits and pre-development costs on many other option contracts, because it did not make financial sense to continue, Ara Hovnanian, president and CEO, said in a press release Tuesday.
"Our financial results for the fourth quarter continued to be negatively impacted by high cancellation rates and increased use of concessions and incentives, particularly on the resale of those homes which experienced contract cancellations," Hovnanian said.
Excluding unconsolidated joint ventures, contracts for the quarter totaled 3,100, a decline of 36% year over year. "These results reflect a continued high level of contract cancellations, driven in part by the inability of buyers to sell their existing homes," the company said.
Without the $300 million in charges, full-year EPS will range from $4.85 to $5.25 a share, vs. the company's prior guidance of $5 to $5.75 a share for the full year.
For the quarter, cancellations were 35% of gross contracts, up from 25% in the same period last year.
"As we begin fiscal 2007, we are optimistic that some of our more challenging markets will begin to experience decreasing cancellations and an improved sales pace," Hovnanian said in a statement. "However, we have not seen signs of such improvement to date, despite reasonably healthy levels of buyer traffic at many of our communities."
The company's announcement came out after the close of extended trading; shares had fallen 3.6%, $1.03 to $28.01 in the after-hours session.