Thursday, September 03, 2009

Hovanian Strange Tax Obligations

Hovnanian Enterprises, Inc. (HOV) reported results typical for a house builder. They have the market focused on sales, liquidity and debt reduction. Scanning their results you realize they are paying taxes. How so they are losing money? For the three quarters year to date they have a tax tab of $42.7 million, with $20.8 million in Q3 alone. No explanation of how they do that.

There is an obscure point about The FAS 109 current and deferred tax valuation allowance charge to earnings was $76.7 million during the third quarter of 2009 and $198.3 million year to date and as of July 31, 2009, the total valuation allowance is $873.8 million. This FAS 109 charge is a non-cash valuation allowance 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.

But the numbers do not seem to line up.

Taxes are settled in cash. They need to explain the tax liability and why it is occurring