SECURITIES AND EXCHANGE COMMISSION

                           WASHINGTON, D. C. 20549

                                  FORM 10Q


  [ X ]  Quarterly report pursuant to Section 13 or 15 (d) of the
         Securities Exchange Act of 1934

       For quarterly period ended AUGUST 31, 1994  or

[   ]  Transition report pursuant to Section 13 or 15 (d) of the
       Securities Exchange Act of 1934

       For the transition period from             to

Commission file number 1-8551

Hovnanian Enterprises, Inc.
(Exact name of registrant as specified in its charter)

Delaware                                        22-1851059
(State or other jurisdiction or                 (I.R.S. Employer
incorporation or organization)                  Identification No.)

l0 Highway 35, P.O. Box 500, Red Bank, N. J.  07701
(Address of principal executive offices)

908-747-7800
(Registrant's telephone number, including area code)
Same
(Former name, former address and former fiscal year, if changed
since last report)

       Indicate by check  mark whether   the   registrant (l)  has filed  all
reports required  to be  filed by  Sections  l3 or  l5(d) of  the  Securities
Exchange Act of  l934   during  the   preceeding   l2   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
[ X ]        No [   ]

       Indicate the  number of  shares outstanding  of each  of the  issuer's
classes of common stock, as of the latest practicable date.  14,722,914 Class
A Common Shares and  8,299,139 Class B Common  Shares were outstanding as  of
September 30, 1994. 

                    HOVNANIAN ENTERPRISES, INC.

                              FORM 10Q

                                INDEX

                                                              PAGE NUMBER

PART I.   Financial Information
     Item l.  Consolidated Financial Statements:

              Consolidated Balance Sheets at August 31,
                1994 (unaudited) and February 28, 1994               3

              Consolidated Statements of Income and
                Retained Earnings for the three and
                six months ended August 31, 1994  and
                1993 (unaudited)                                     5

              Consolidated Statements of Stockholders' Equity
                for the six months ended August 31, 1994
                (unaudited)                                          6

              Consolidated Statements of Cash Flows
                for the six months ended August 31, 1994
                and 1993 (unaudited)                                 7

              Notes to Consolidated Financial
                Statements (unaudited)                               8

     Item 2.  Management's Discussion and Analysis
                of Financial Condition and Results
                of Operations                                       10

PART II.  Other Information
     Item 4.    Submission of Matters to a Vote of Security
                  Holders.

     Item 6(a)  Exhibit 10(a) - Amendment to Credit Agreement
                among  K. Hovnanian Enterprises, Inc.,
                Hovnnaian Enterprises, Inc., Certain
                Subsidiaries Thereof, Midlantic National
                Bank, Chemical Bank, United Jersey Bank, NBD
                Bank, N.A., PNC Bank, National Association,
                Meridian Bank, NationsBank of Virginia, N.A.,
                First National Bank of Boston, and
                Continental Bank.
              Exhibit 27 - Financial Data Schedules

     Item 6(b). No reports on Form 8K have been filed during
                the quarter for which this report is filed.

Signatures                                                          20


                HOVNANIAN ENTERPRISES, INC. AND SUBSIDIARIES
                         CONSOLIDATED BALANCE SHEETS
                               (In Thousands)
August 31, February 28, ASSETS 1994 1994 ------------ ------------ Cash: Demand deposits.............................. $ 3,838 $ 23,274 Escrow accounts.............................. 4,132 5,043 ------------ ------------ Total cash............................... 7,970 $ 28,317 ------------ ------------ Receivables: Customer accounts and other.................. 18,620 17,935 Escrow and deposits.......................... 7,948 8,393 Related parties.............................. 2,207 1,411 ------------ ------------ Total receivables........................ 28,775 27,739 ------------ ------------ Mortgages and Notes Receivable: Collateralized mortgages receivable.......... 21,794 30,755 Residential mortgages receivable............. 23,319 50,673 Other mortgages and notes receivable......... 3,000 3,808 ------------ ------------ Mortgages and notes receivable........... 48,113 85,236 ------------ ------------ Inventories - At cost, not in excess of market: Real estate under development: Accumulated cost of construction: Finished................................. 36,965 22,247 In progress.............................. 56,414 25,395 Land and land development costs............ 199,055 146,665 Land, land options, and costs of projects in planning................................ 89,608 84,431 ------------ ------------ Total inventories........................ 382,042 278,738 ------------ ------------ Property - At cost: Operating property........................... 23,095 20,757 Less accumulated depreciation................ 11,648 10,925 ------------ ------------ Net operating property..................... 11,447 9,832 ------------ ------------ Rental property.............................. 62,756 69,116 Less accumulated depreciation................ 7,440 7,156 ------------ ------------ Net rental property........................ 55,316 61,960 ------------ ------------ Income producing properties under development 16,119 14,691 ------------ ------------ Property - net........................... 82,882 86,483 ------------ ------------ Investment In and Advances to Unconsolidated Affiliate and Joint Ventures................. 5,252 4,353 ------------ ------------ Prepaid Expenses and Other Assets.............. 33,954 28,736 ------------ ------------ Total Assets................................... $588,988 $539,602 ============ ============ See notes to consolidated financial statements.
HOVNANIAN ENTERPRISES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (In Thousands)
August 31, February 28, LIABILITIES AND STOCKHOLDERS' EQUITY 1994 1994 ------------ ------------ Mortgages and Notes Payable: Nonrecourse land mortgages................... $ 8,454 $ 7,494 Revolving credit agreement................... 109,950 Mortgage warehouse line of credit............ 13,588 39,307 Nonrecourse mortgages secured by building, land, and land improvements................ 20,516 21,447 ------------ ------------ Total mortgages and notes payable.......... 152,508 68,248 ------------ ------------ Bonds Collateralized By Mortgages Receivable... 21,323 30,343 ------------ ------------ Subordinated Notes............................. 200,000 200,000 ------------ ------------ Accounts Payable............................... 15,755 19,821 ------------ ------------ Customers' Deposits............................ 14,949 12,103 ------------ ------------ Accrued Liabilities: State income taxes........................... 15 640 Federal income taxes: Current.................................... (5,644) 8,288 Deferred................................... (3,542) (5,990) Interest..................................... 7,522 7,660 Post development completion costs............ 10,703 12,145 Other........................................ 9,372 15,343 ------------ ------------ Total accrued liabilities.................. 18,426 38,086 ------------ ------------ Total liabilities........................ 422,961 368,601 ------------ ------------ Stockholders' Equity: Preferred Stock,$.01 par value-authorized 100,000 shares; none issued Common Stock,Class A,$.01 par value authorized 87,000,000 shares; issued 14,930,818 shares (including 345,874 shares held in Treasury) 148 147 Common Stock,Class B,$.01 par value authorized 13,000,000 shares; issued 8,647,983 shares (including 345,874 shares held in Treasury) 88 88 Paid in Capital.............................. 32,787 32,301 Retained Earnings............................ 138,303 143,764 Treasury Stock - at cost..................... (5,299) (5,299) ------------ ------------ Total stockholders' equity.............. 166,027 171,001 ------------ ------------ Total Liabilities and Stockholders' Equity..... $588,988 $539,602 ============ ============ See notes to consolidated financial statements.
HOVNANIAN ENTERPRISES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (In Thousands Except Per Share Data)
Three Months Ended Six Months Ended ---------------------- ---------------------- August 31, August 31, August 31, August 31, 1994 1993 1994 1993 ---------- ---------- ---------- ---------- Revenues: Housing sales................................ $131,733 $116,376 $224,609 $173,991 Land and lot sales........................... 299 557 462 1,361 Rental operations............................ 2,135 1,884 4,079 3,523 Mortgage banking and finance operations...... 2,134 2,522 4,571 4,469 Other operations............................. 2,080 1,952 3,649 2,897 ---------- ---------- ---------- ---------- Total revenues............................. 138,381 123,291 237,370 186,241 ---------- ---------- ---------- ---------- Cost and Expenses: Construction, land, interest and operations.. 111,418 94,901 190,811 144,298 Selling, general and administrative.......... 22,006 15,231 38,568 25,477 Rental operations............................ 2,556 2,425 5,034 4,459 Mortgage banking and finance operations...... 2,928 2,751 5,963 4,994 Other operations............................. 2,381 785 4,381 1,428 ---------- ---------- ---------- ---------- Total costs and expenses................... 141,289 116,093 244,757 180,656 ---------- ---------- ---------- ---------- Income (Loss) Before Income Taxes and Extraordinary Loss........................... (2,908) 7,198 (7,387) 5,585 ---------- ---------- ---------- ---------- State and Federal Income Taxes: State........................................ 836 509 1,181 633 Federal: Current.................................... (4,311) 390 (5,555) (2,177) Deferred................................... 3,049 1,527 2,448 3,344 ---------- ---------- ---------- ---------- Total taxes................................ (426) 2,426 (1,926) 1,800 ---------- ---------- ---------- ---------- Income (Loss) Before Extraordinary Loss........ (2,482) 4,772 (5,461) 3,785 Extraordinary Loss from Extinguishment of Debt, Net of Income Taxes.......................... (1,277) ---------- ---------- ---------- ---------- Net Income (Loss).............................. (2,482) 4,772 (5,461) 2,508 Retained Earnings, Beginning of Period......... 140,785 122,855 143,764 125,119 ---------- ---------- ---------- ---------- Retained Earnings, End of Period............... $138,303 $127,627 $138,303 $127,627 ========== ========== ========== ==========Earnings Per Common Share: Income (loss) before extraordinary loss...... $ (0.11) $ 0.21 $ (0.24) $ 0.17 Extraordinary loss........................... (0.06) ---------- ---------- ---------- ---------- Net Income (Loss).............................. $ (0.11) $ 0.21 $ (0.24) $ 0.11 ========== ========== ========== ========== Weighted Average Number of Shares Outstanding.................................. 22,887 22,818 22,868 22,801 ========== ========== ========== ========== See notes to consolidated financial statements.
HOVNANIAN ENTERPRISES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (Dollars In Thousands)
A Common Stock B Common Stock --------------------- --------------------- Shares Shares Issued and Issued and Paid-In Retained Treasury Outstanding Amount Outstanding Amount Capital Earnings Stock Total ----------- -------- ----------- -------- ------- --------- --------- -------- Balance, February 28, 1994.. 14,361,591 $147 8,480,462 $88 $32,301 $143,764 $(5,299) $171,001 Issuance of Class A Common Stock.............. 45,000 1 486 487 Conversion of Class B to Class A common stock...... 178,353 (178,353) Net Loss.................... (5,461) (5,461) ----------- -------- ----------- -------- ------- --------- --------- -------- Balance, August 31, 1994.... 14,584,944 $148 8,302,109 $88 $32,787 $138,303 $(5,299) $166,027 =========== ======== =========== ======== ======= ========= ========= ======== See notes to consolidated financial statements.
HOVNANIAN ENTERPRISES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (In Thousands)
Six Months Ended ---------------------- August 31, August 31, 1994 1993 ---------- ---------- Cash Flows From Operating Activities: Net Income (Loss).............................. $(5,461) $ 2,508 Adjustments to reconcile net income (loss) to net cash used in operating activities: Depreciation............................... 1,853 1,330 Loss on sale and retirement of property and assets............................... 337 115 Deferred income taxes...................... 2,448 3,344 Decrease (increase) in assets: Escrow cash.............................. 911 951 Receivables, prepaids and other assets... (5,767) (13,211) Mortgages receivable..................... 27,633 10,527 Inventories.............................. (103,304) (58,856) Increase (decrease) in liabilities: State and Federal income taxes........... (14,557) (6,356) Customers' deposits...................... 2,846 10,502 Interest and other accrued liabilities... (6,109) (2,148) Post development completion costs........ (1,442) 1,609 Accounts payable......................... (4,066) 1,859 ---------- ---------- Net cash used in operating activities.. (104,678) (47,826) ---------- ---------- Cash Flows From Investing Activities: Proceeds from sale of property and assets...... 5,240 1,420 Cost of property and assets sold............... (6,315) (845) Purchase of operating property................. (2,446) (1,209) Investment in and advances to unconsolidated affiliates................................... (899) 104 Net investment in income producing properties.. 4,932 (9,165) Investment in loans from sale of subsidiaries.. 50 ---------- ---------- Net cash provided by (used in) investing activities................. 512 (9,645) ---------- ---------- Cash Flows From Financing Activities: Proceeds from mortgages and notes.............. 350,970 202,664 Proceeds from subordinated debt................ 96,870 Principal payments on mortgages and notes...... (275,730) (253,526) Investment in mortgages receivable............. 9,490 5,202 Proceeds from sale of stock.................... 404 ---------- ---------- Net cash provided by financing activities........................... 84,730 51,614 ---------- ---------- Net Decrease In Cash............................. (19,436) (5,857) Cash Balance, Beginning Of Period................ 23,274 10,211 ---------- ---------- Cash Balance, End Of Period...................... $3,838 $ 4,354 ========== ========== See Notes to consolidated financial statements.
HOVNANIAN ENTERPRISES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED 1. The consolidated financial statements, except for the February 28, 1994 consolidated balance sheets, have been prepared without audit. In the opinion of management, all adjustments for interim periods presented have been made, which include only normal recurring accruals and deferrals necessary for a fair presentation of consolidated financial position, results of operations, and changes in cash flows. Results for the interim periods are not necessarily indicative of the results which might be expected for a full year. 2. Interest costs incurred, expensed and capitalized were: Three Months Ended Six Months Ended ------------------ ------------------ 8/31/94 8/31/93 8/31/94 8/31/93 -------- -------- -------- -------- (Dollars in Thousands) Interest Incurred (1): Residential (3)..............$ 5,807 $ 5,637 $ 10,816 $ 10,120 Commercial(4)................ 1,221 1,413 2,467 2,579 -------- ------- -------- -------- Total Incurred.............$ 7,028 $ 7,050 $ 13,283 $ 12,699 ======== ======== ======== ======== Interest Expensed: Residential (3)..............$ 4,005 $ 4,245 $ 7,056 $ 6,807 Commercial (4)................ 1,215 1,339 2,397 2,419 -------- -------- -------- -------- Total Expensed............$ 5,220 $ 5,584 $ 9,453 $ 9,226 ======== ======== ======== ======== Interest Capitalized at Beginning of Period..........$ 28,007 $ 25,296 $ 26,443 $ 23,365 Plus Interest Incurred.......... 7,028 7,050 13,283 12,699 Less Interest Expensed.......... 5,220 5,584 9,453 9,226 Less Charges to Reserves........ 78 169 181 245 Less Sale of Assets............. 40 355 40 -------- -------- -------- -------- Interest Capitalized at End of Period ...............$ 29,737 $ 26,553 $ 29,737 $ 26,553 ======== ======== ======== ======== Interest Capitalized at End of Period: Residential(3)...............$ 23,788 $ 20,431 $ 23,788 $ 20,431 Commercial(2)................ 5,949 6,122 5,949 6,122 -------- -------- -------- -------- Total Capitalized..........$ 29,737 $ 26,553 $ 29,737 $ 26,553 ======== ======== ======== ======== (1) Does not include interest incurred by the Company's mortgage and finance subsidiaries. (2) Does not include a reduction for depreciation. (3) Represents acquisition interest for construction, land and development costs which is charged to cost of sales. (4) Represents interest charged to rental operations. 3. In July 1993, the Company redeemed all of its outstanding 12 1/4% Subordinated Notes due 1998 at a price of 102% of par. The principal amount redeemed was $50,000,000 and the redemption resulted in an extraordinary loss of $1,277,000, net of income taxes of $658,000. As of May 31, 1993, the Company accrued and expensed the premium paid and expensed all unamortized prepaid issuance expenses as an extraordinary loss. 4. On May 10, 1994, the Board of Directors of the Company adopted a resolution providing that the date for the year end of the fiscal year of the Company be changed from the last day of February to October 31. The report covering the three month period ended May 31, 1994 and the three and six month periods ended August 31, 1994 will be filed on Form 10-Q. The report covering the eight month transition period of March 1 through October 31, 1994 will be filed on Form 10-K. Thereafter, the Company will file reports on January 31, April 30, July 31, and October 31. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS CAPITAL RESOURCES AND LIQUIDITY The Company's uses for cash during the six months ended August 31, 1994 were for operating expenses, seasonal increases in housing inventories, construction, income taxes, and interest. The Company provided for its cash requirements from the Revolving Credit Facility and from housing and other revenues. The Company believes that these sources of cash are sufficient to finance its working capital requirements and other needs. The Company's bank borrowings are made pursuant to a revolving credit agreement (the "Agreement") that provides a revolving credit line of up to $225,000,000 (the "Revolving Credit Facility") through March 1997. The Company currently is in compliance and intends to maintain compliance with its covenants under the Agreement. As of August 31, 1994, borrowings under the Agreement were $109,950,000. The Company's mortgage banking subsidiary borrows under a bank warehousing arrangement. Other finance subsidiaries formerly borrowed from a multi-builder owned financial corporation and a builder owned financial corporation to finance mortgage backed securities, but in fiscal 1988 decided to cease further borrowing from multi-builder and builder owned financial corporations. These non-recourse borrowings have been generally secured by mortgage loans originated by one of the Company's subsidiaries. As of August 31, 1994, the aggregate principal amount of all such borrowings was $34,911,000. The book value of the Company's residential inventories, rental condominiums, and commercial properties completed and under development amounted to the following: August 31, February 28, 1994 1994 ------------ ------------ Residential real estate inventory............ $382,042,000 $278,738,000 Residential rental property.................. 8,017,000 8,411,000 ------------ ------------ Total Residential Real Estate.............. 390,059,000 287,149,000 Commercial properties........................ 63,418,000 68,240,000 ------------ ------------ Combined Total............................. $453,477,000 $355,389,000 ============ ============ Total residential real estate increased $102,910,000 during the six months ended August 31, 1994 as a result of an inventory increase of $103,304,000, and a rental condominium decrease of $394,000. The increase in residential real estate inventory was primarily due to the Company's seasonal increase in construction activities for deliveries later this year, and the Company's overall increase in housing volume. The Company's rental condominiums declined due to the Company's continued liquidation of New Hampshire rentals. Substantially all residential homes under construction or completed and included in real estate inventory at August 31, 1994 are expected to be closed during the next twelve months. Most residential real estate completed or under development is financed through the Company's line of credit and subordinated indebtedness. The following table summarizes housing lots in the Company's active communities under development: Home Remaining Lots Contracted Lots Commun- Owned/ Homes Not Available ities Approved Closed Closed (1) (2) ------- -------- ------ ---------- --------- August 31, 1994..... 92 12,969 4,979 1,829 6,161 February 28, 1994... 82 12,355 4,903 1,891 5,561 (1) Includes 48 and 283 lots under option at August 31, 1994 and February 28, 1994, respectively. (2) Of the total home lots available, 581 and 359 were under construction or complete (including 96 and 83 models and sales offices) and 2,147 and 2,534 were under option at August 31, 1994 and February 28, 1994, respectively. In addition, in substantially completed or suspended developments the Company owned 581 and 666 home lots at August 31, 1994 and February 28, 1994, respectively. The Company also controls a supply of land primarily through options for future development. This land is consistent with anticipated home building requirements in its housing markets. At August 31, 1994 the Company controlled such land to build 13,337 proposed homes, compared to 12,916 homes at February 28, 1994. The Company's commercial properties represent long-term investments in commercial and retail facilities completed or under development (see "Rental Program" and "Other Operations" under "Results of Operations"). During the six months ended August 31, 1994, the decrease in commercial properties was primarily the result of the sale of a mini-storage facility and office building in Hamilton Township, NJ and the sale of an office/warehouse facility in Pompano Beach, FL. When individual facilities are completed and substantially leased, the Company will have the ability to obtain long-term financing on such properties. At August 31, 1994, the Company had long-term non-recourse financing aggregating $17,563,000 on two commercial facilities, a decrease of $911,000 from February 28, 1994, due to principal amortization and the sale of the Pompano Beach, FL office/warehouse facility. The Company's mortgages and notes receivable amounted to the following: August 31, February 28, 1994 1994 ------------ ------------ Collateralized mortgages receivable........ $21,794,000 $30,755,000 Residential mortgages receivable........... 23,319,000 50,673,000 Other mortgages and notes receivable....... 3,000,000 3,808,000 ----------- ----------- Total Mortgages and Notes Receivable..... $48,113,000 $85,236,000 =========== =========== The collateralized mortgages receivable are pledged against non-recourse collateralized mortgage obligations. Residential mortgages receivable amounting to $16,784,000 and $43,502,000 at August 31, 1994 and February 28, 1994, respectively, are being temporarily warehoused and awaiting sale in the secondary mortgage market. The balance of such mortgages is being held as an investment by the Company. The Company may incur risk with respect to mortgages that are delinquent, but only to the extent the losses are not covered by mortgage insurance or resale value of the house. Historically, the Company has incurred minimal credit losses. Other includes land and lot mortgages which are usually short term (5 years or less) and not subject to construction loan subordination and notes from the sale of subsidiaries. RESULTS OF OPERATIONS FOR THE THREE AND SIX MONTHS ENDED AUGUST 31, 1994 COMPARED TO THE THREE AND SIX MONTHS ENDED AUGUST 31, 1993 The Company's operations consist primarily of residential housing development and sales in its Northeast Region (comprising primarily of New Jersey and eastern Pennsylvania), North Carolina, southeastern Florida, and metro Washington, D.C. (northern Virginia). In addition, the Company is in the mortgage banking and title insurance businesses, and develops and operates commercial properties as long-term investments in New Jersey, and, to a lesser extent, Florida. The Company incurred a loss during the six months ended August 31, 1994 primarily due to decreased gross margins and increased overheads which are discussed under "Housing Operations" below. In addition, due to the change in year end (see Notes to Consolidated Financial Statements - Note 4), certain costs amortized to homes closed during the year will be amortized to homes closed during the eight months ending October 31, 1994. On a pro rata basis, since fewer homes are delivered per month in the first eight months of the year, the year end change resulted in a higher per home amoritization during the six months ended August 31, 1994. At August 31, 1994 the Company's home contract backlog for future delivery was 1,969 homes, with an aggregate sales value of $314.8 million, compared to 2,366 homes, with an aggregate sales value of $351.1 million at the same time last year. For the six months ended August 31, 1994 net contracts signed amounted to $244.5 million or 1,544 homes, compared to $318.0 million or 2,225 homes for the same period last year. This decrease is the result of fewer contracts in all the Company's markets. Buyer traffic and contracts started declining in April 1994 when homebuyer mortgage rates began to increase. The Northeast Region contracts are down as a result of delayed openings of new communities. Such delays are usually caused by additional time needed to obtain final approval to build from the local governing authority. The Company has started offering buyer incentives to stimulate sales. In addition, during the next twelve months the Company is planning to have a 30% increase in the number of communities for sale. The following table sets forth, for the periods indicated, certain income statement items as percentages of total revenues: Three Months Ended Six Months Ended August 31, August 31, ------------------ ---------------- 1994 1993 1994 1993 ------- ------- ------- ------- Total Revenues........................... 100.0% 100.0% 100.0% 100.0% ------- ------- ------- ------- Costs and Expenses: Construction, land, interest and operations....................... 80.5 77.0 80.4 77.5 Selling, general and administrative.... 15.9 12.4 16.2 13.7 Mortgage banking and finance operations 2.1 2.2 2.5 2.7 Rental and other operations............ 3.6 2.6 4.0 3.1 ------- ------- ------- ------- Total costs and expenses............. 102.1 94.2 103.1 97.0 ------- ------- ------- ------- Income (Loss) Before Income Taxes and Extraordinary Loss..................... (2.1) 5.8 (3.1) 3.0 Total Income Taxes....................... (0.3) 1.9 (0.8) 1.0 ------- ------- ------- ------- Income (Loss) Before Extraordinary Loss.. (1.8) 3.9 (2.3) 2.0 Extraordinary Loss From Extinguishment of Debt, Net of Income Taxes........... (0.7) ------- ------- ------- ------- Net Income (Loss)........................ (1.8)% 3.9% (2.3)% 1.3% ======= ======= ======= ======= Total Revenues: Revenues for the three months ended August 31, 1994 increased $15.1 million or 12.2%, compared to the same period last year. This was primarily a result of increased housing revenues of $15.4 million partially offset by a $0.3 million decrease in land and lot sales and a $0.4 million decrease in mortgage banking and finance operations. In addition, revenues from rental and other operations increased $0.4 million. Revenues for the six months ended August 31, 1994 increased $51.1 million, or 27.5%, compared to the same period last year. This was primarily a result of increased housing revenues of $50.6 million. Revenues from rental and other operations increased $1.3 million primarily due to the addition of a retail center and related rentals. Mortgage banking and finance operations increased $0.1 million and land and lot sales decreased $0.9 million. Housing Operations: Housing revenues increased $15.4 million, or 13.2 %, and $50.6 million, or 29.1% during the three and six months ended August 31, 1994, respectively, compared to the same periods last year. Housing revenues are recorded at the time each home is delivered and title and possession have been transferred to the buyer. Information on homes delivered by market area is set forth below: Three Months Ended Six Months Ended August 31, August 31, ------------------- ------------------- 1994 1993 1994 1993 -------- -------- -------- -------- (Dollars in Thousands) Northeast Region: Housing Revenues.......... $ 78,532 $ 73,740 $126,531 $103,655 Homes Delivered........... 497 527 808 749 North Carolina: Housing Revenues.......... $ 28,739 $ 18,327 $ 53,102 $ 28,949 Homes Delivered........... 205 146 382 235 Florida: Housing Revenues.......... $ 16,401 $ 9,602 $ 27,976 $ 17,877 Homes Delivered........... 116 81 203 150 Metro Washington, D.C.: Housing Revenues.......... $ 7,286 $ 13,984 $ 15,727 $ 22,527 Homes Delivered........... 37 93 89 158 Other: Housing Revenues.......... $ 775 $ 723 $ 1,273 $ 983 Homes Delivered........... 11 11 19 16 Totals: Housing Revenues.......... $131,733 $116,376 $224,609 $173,991 Homes Delivered........... 866 858 1,501 1,308 The three and six months ended August 31, 1994 housing revenue increases (compared to the prior year) was due to increased homes delivered and increased average sales prices in all the Company's markets. In the Northeast Region one reason average sales prices are increasing is because of the Company's diversified product mix of more detached single family homes and larger townhouses with garages designed for the move-up buyer. In Florida, housing revenues are increasing as a result of the addition of new single family developments. In the Company's North Carolina Division, home deliveries increased due to increased market share. In Metro Washington, D.C. home deliveries decreased due to increased competition. Construction, land, interest, and operations include expenses for housing and land and lot sales. A breakout of construction, land, interest, and operations expenses for housing sales and housing gross margin is set forth below: Three Months Ended Six Months Ended August 31, August 31, ------------------ ------------------ 1994 1993 1994 1993 -------- -------- -------- -------- (Dollars in Thousands) Housing sales................... $131,733 $116,376 $224,609 $173,991 -------- -------- -------- -------- Construction, land and operations expenses........... 107,125 90,164 183,364 136,412 Interest expense................ 3,963 4,155 6,981 6,693 -------- -------- -------- -------- Total expenses................ 111,088 94,319 190,345 143,105 -------- -------- -------- -------- Housing gross margin............ $ 20,645 $ 22,057 $ 34,264 $ 30,886 ======== ======== ======== ======== Gross margin percentage......... 15.7% 19.0% 15.3% 17.8% Construction, land and operating expenses as a percentage of housing sales increased 3.2% to 81.6% for the six months ended August 31, 1994 from 78.4% for the same period last year. Such costs as a percentage of housing sales increased due to (1) a one-time expense of $2.2 million for warranty repair work to remedy a Northeast Region roof design problem, (2) a change in product mix with an additional 9.2% of home sales coming from North Carolina and Florida where such costs are traditionally a higher percentage, and (3) an 1.1% and 3.0% increase in such costs as a percentage of North Carolina and Florida home sales, respectively. The North Carolina market is more competitive which keeps prices and margins down. In Florida, the increase was caused by higher developed lot costs. In addition in all its markets the Company has incurred higher material costs. Construction, land and operating expenses as a percentage of housing sales increased 3.8% to 81.3% for the three months ended August 31, 1994 from 77.5% for the same time last year. The increase was caused by the same factors noted above including warranty expenses amounting to $1.0 million. The 81.3% is an 0.8% decrease from the three months ended May 31, 1994. Housing interest has declined 0.7% as a percentage of housing sales to 3.1% for the six months ended August 31, 1994, from 3.8% for the same period last year. This decrease is primarily the result of the Company's increased inventory turnover and the use of equity to finance operations. Interest is capitalized during construction and expensed as houses are delivered. Selling, general and administrative expenses increased $6.8 million and $13.1 million, or 44.5% and 51.4%, during the three and six months ended August 31, 1994, respectively, compared to the same periods last year. As a percentage of housing revenues such expenses increased 3.6% and 2.5% for the three and six months ended August 31, 1994, respectively, compared to the same periods last year. The increase in the dollar amount of selling, general, and administrative expenses was primarily due to (1) a 29.1% increase in housing revenues, (2) a 35.8% overall increase in housing and Corporate associates due to anticipated growth in the near future, (3) the Company's training, quality, and process redesign initiatives, (4) the opening of additional divisional offices, and (5) the accelerated amortization of such costs over fewer monthly home deliveries during the eight months ending October 31, 1994. The Company's training, quality, and process redesign initiatives have resulted in approximately $1.5 million increase in expenses. The Company has opened three new division offices in the Northeast and one in Florida. In addition, three area offices have been expanded in North Carolina. Such offices have been opened or expanded due to anticipated housing growth. Due to the change in year end (see Notes to Consolidated Financial Statements - Note 4), certain division selling, general, and administrative expenses amortized to homes delivered during a year will be amortized to homes delivered during the eight months ending October 31, 1994. On a pro rata basis, since fewer homes are delivered per month in the first eight months of the year, the year end change resulted in a higher per home amortization during the six months ended August 31, 1994. Land and Lot Operations: A breakout of construction, land, interest and operating expenses for land and lot sales and gross margin is set forth below: Three Months Ended Six Months Ended August 31, August 31, ------------------ ------------------- 1994 1993 1994 1993 ------- -------- -------- -------- (Dollars in Thousands) Land and lot sales........... $ 299 $ 557 $ 462 $ 1,361 ------- -------- -------- -------- Construction, land and operations expenses........ 288 492 391 1,079 Interest expense............. 42 90 75 114 ------- -------- -------- -------- Total expenses............. 330 582 466 1,193 ------- -------- -------- -------- Land and lot sales Gross margin............... $ (31) $ (25) $ (4) $ 168 ======= ======== ======== ======== Land and lot sales are incidental to the Company's residential housing operations and are expected to continue in the future but will significantly fluctuate up or down. During the six months ended August 31, 1994 such operations consisted of lot sales in the Northeast Region. Mortgage Banking and Finance Operations: Mortgage banking and finance operations consist primarily of originating mortgages from sales of the Company's homes and selling such mortgages in the secondary market. Such operations also include interest income and expense from the Company's collateralized mortgages receivable and related collateral mortgage obligations. Servicing rights on new mortgages originated by the Company are sold as the loans are closed. Rental Program: At August 31, 1994 the Company owned and was leasing three office buildings, three office/warehouse facilities, three retail centers, and a senior citizen residential complex. During the six months ended August 31, 1994 compared to the same period last year, rental operations increased primarily due to the completion and leasing of additional commercial properties and the senior citizen complex and the acquisition of a retail center. Rental operations include interest amounted to $2.4 million for both the six months ended August 31, 1994 and 1993. The Company is also renting condominium homes in New Hampshire but is liquidating these rentals through a reduced house price sales program. The Company expects such operations to operate at a loss after deducting interest and depreciation. Other Operations: Other operations consisted primarily of title insurance, investment properties, sale of assets and other income from residential housing operations including interest income, contract deposit forfeitures, and management of certain homes in California as they are constructed and sold. The investment properties division supervises the construction of commercial properties and manages completed properties for the Company. Such properties, when completed, result in additional rental operations for the Company. During the six months ended August 31, 1994 the Company sold a 51,855 sq. ft. mini-storage facility and a 14,408 sq. ft. office building in Hamilton Township, NJ. In addition, the Company sold a 30,000 sq. ft. office/warehouse facility in Pompano Beach, FL. Included in other operations is the pretax loss from these sales amounting to $745,000. The management of the construction and sale of certain homes in California and startup overhead resulted in a $452,000 loss during the six months ended August 31, 1994 after deducting goodwill amortization of $582,000. Extraordinary Item: In July 1993, the Company redeemed all of its outstanding 12 1/4% Subordinated Notes due 1998 at a price of 102% of par. The principal amount redeemed was $50,000,000 and the redemption resulted in an extraordinary loss of $1,277,000, net of income taxes of $658,000. As of August 31, 1993, the Company accrued and expensed the premium paid and expensed all unamortized prepaid issuance expenses as an extraordinary loss.Inflation: Inflation has a long-term effect on the Company because increasing costs of land, materials and labor result in increasing sale prices of its homes. In general, these price increases have been commensurate with the general rate of inflation in the Company's housing market and have not had a significant adverse effect on the sale of the Company's homes. However, some material costs (primarily lumber) have recently increased above the rate of inflation due to demand being higher than available supplies. A significant risk faced by the housing industry generally is that rising house costs, including land and interest costs, will substantially outpace increases in the income of potential purchasers. In recent years, in the price ranges in which it sells homes, the Company has not found this risk to be a significant problem. Inflation has a lesser short-term effect on the Company because the Company generally negotiates fixed price contracts with its subcontractors and material suppliers for the construction of its homes. These prices usually are applicable for a specified number of residential buildings or for a time period of between four to twelve months. Construction costs for residential buildings represent approximately 51% of the Company's total costs and expenses. Item 4. Submission to Matters to a Vote of Security Holders The Company held its annual stockholders meeting on July 13 , 1994 at 10:30 a.m. in the Board Room of the American Stock Exchange, 13th floor, 86 Trinity Place, New York, New York. The following matters were voted on at the meeting: . Election of all Directors to hold office until the next Annual Meeting of Stockholders. The elected Directors were: .. Kevork S. Hovnanian .. Ara K. Hovnanian .. Paul W. Buchanan .. Arthur Greenbaum .. Timothy P. Mason .. Desmond P. McDonald .. Peter S. Reinhart .. John J. Schimpf .. Stephen D. Weinroth . Ratification of the selection of Kenneth Leventhal and Company as certified independent accountants for fiscal year 1995. .. Votes For 15,131,012 .. Votes Against 8,525 .. Abstain 6,953 . Ratification of the Company's Cash Bonus Plan .. Votes For 15,004,855 .. Votes Against 111,848 .. Abstain 28,987 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of l934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. HOVNANIAN ENTERPRISES, INC. (Registrant) DATE: 10/14/94 ------------ -------------------------------- Kevork S. Hovnanian, Chairman of the Board and Chief Executive Officer DATE: 10/14/94 ------------ -------------------------------- Paul W. Buchanan, Senior Vice President Corporate Controller

                        AMENDMENT TO CREDIT AGREEMENT


     This Amendment to Credit Agreement ("Amendment") dated as of the 19th
day of July, 1994 among K. Hovnanian Enterprises, Inc. ("Company") Hovnanian
Enterprises, Inc. ("Hovnanian"), the subsidiaries of Hovnanian listed on the
signature pages of this Amendment (each, together with Hovnanian, a
"Guarantor" and collectively the "Guarantors") and Midlantic National Bank,
Chemical Bank, United Jersey Bank (formerly known as United Jersey
Bank/Central, N.A.), NBD Bank, N.A., PNC Bank, National Association ("PNC"),
Meridian Bank ("Meridian"), NationsBank of Virginia, N.A. ("NationsBank"),
First National Bank of Boston ("Bank of Boston") and Continental Bank
("Continental") (each such banking institution individually referred to as a
"Bank" and collectively as the "Banks"), and Midlantic National Bank, as
Agent for the Banks ("Agent").

                                BACKGROUND


     WHEREAS, pursuant to that certain Credit Agreement, dated as of July 30,
1993, among the Company, certain Guarantors named therein or thereafter
added, the Banks named therein, and the Agent (as the same may be amended or
supplemented from time to time, the "Credit Agreement"), the Banks agreed to
make certain loans and extend credit to the Company.

     WHEREAS, the performance by the Company of its obligations under the
Credit Agreement and the Notes is guaranteed, jointly and severally, by the
Guarantors pursuant to the Guaranties of the Guarantors to each of the Banks
(collectively, the "Guaranties");

     WHEREAS, pursuant and subject to the terms of Section 8.7(c) of the
Credit Agreement, an additional banking institution may join in and assume a
Revolving Credit Commitment under the Credit Agreement and thereby become an
Additional Bank thereunder;

     WHEREAS, pursuant to a certain Joinder Agreement and related agreements
dated December 8, 1993, PNC joined in the Revolving Credit Commitment and has
thereby become an Additional Bank thereunder;

     WHEREAS, pursuant to a certain Joinder Agreement ("Meridian Joinder")
and related agreements dated January 26, 1994, Meridian joined in the
Revolving Credit Commitment and has thereby become an Additional Bank
thereunder;

     WHEREAS, NationsBank, Bank of Boston, and Continental (each individually
referred to as a "Joining Bank" and collectively as the "Joining Banks")
desire and are willing to join in and assume a Revolving Credit Commitment
under and thereby become Additional Banks under the Credit Agreement, and the
Company, the Guarantors, the Banks and the Agent have approved such joinder
by the Joining Banks; and

     WHEREAS, the Company, the Guarantors, the Banks and the Agent desire to
further modify the provisions of the Credit Agreement under the terms and
conditions set forth in this Amendment.

     NOW, THEREFORE, with the foregoing Background incorporated by reference
and made part hereof, and intending to be legally bound, the parties hereto
promise and agree as follows:

     1.  All terms used herein as defined terms and not herein defined shall
have the respective meanings ascribed to them in the Credit Agreement.

     2.  Each Joining Bank hereby joins in, and assumes a Revolving Credit
Commitment under, the Credit Agreement (as amended hereby) and thereby
becomes an Additional Bank thereunder.  Each Joining Bank shall thereby for
all purposes be hereinafter considered a Bank under the Credit Agreement,
agrees to be bound by its respective Revolving Credit Commitment set forth
herein and the terms of the Credit Agreement (as amended hereby), and shall
thereby obtain all benefits and rights of and agree to perform all duties and
obligations of a Bank thereunder. 

     3.  By reason of the joinder of Joining Banks as Banks under the Credit
Agreement, and the increase in the Revolving Credit Commitments (as
contemplated by Paragraph 9 below of this Amendment), Second Replacement
Schedule 9 (attached to the Meridian Joinder) to the Credit Agreement is
hereby replaced and superseded in its entirety by Third Replacement Schedule
9 attached to this Amendment.  All references in the Credit Agreement to
Schedule 9 shall hereinafter be deemed for all purposes to refer to Third
Replacement Schedule 9.

     4.  Contemporaneously herewith, the Company shall execute and deliver to
each Joining Bank a Revolving Credit Note in the amount of its respective
Revolving Credit Commitment and the Guarantors shall each execute and deliver
their Guaranty to each Joining Bank.  The Company shall also then execute and
deliver to each Bank (other than the Joining Banks) whose Facility Commitment
is increasing a replacement Revolving Credit Note in the amount of its
respective increased Revolving Credit Commitment.

     5.  Concurrently with the execution and delivery of this Amendment and
the documents described in paragraph 4 above, Joining Banks shall each make a
Revolving Credit Loan as requested by the Company in an amount sufficient so
that no violation then occurs with respect to subsection 6.2(w) of the Credit
Agreement.

     6.  The definition of "Commitment Termination Date" contained in Section
1.1 of the Credit Agreement is hereby deleted and replaced in its entirety by
the following new definition:

          "Commitment Termination Date" shall mean, with respect to
          each Bank, March 31, 1997, provided, however, that on or
          before March 31 of each year, each Bank will review its
          respective commitment and, in its sole discretion, may
          extend the Commitment Termination Date for a period of
          twelve months, provided, that in no event shall the
          Commitment Termination Date be so extended unless and
          until all Banks agree to such extension in writing.

     7.  The definition of "LOC Bank" contained in Section 1.1 of the Credit
Agreement is hereby deleted and replaced in its entirety by the following new
definition:

          "LOC Bank" shall mean each of the Banks, and any
          successors thereto or assigns thereof, all of which are
          also sometimes referred to herein collectively as the
          "LOC Banks".

     8.  The definition of "Other Senior Homebuilding Indebtedness" contained
in Section 1.1 of the Credit Agreement is hereby modified to delete clause
(i) thereof and substitute in its place the following new clause: "(i)
outstanding principal balance of the Loans".

     9.  The definition of "Revolving Credit Commitments" contained in
Section 1.1 of the Credit Agreement is hereby deleted and replaced in its
entirety by the following new definition:

          "Revolving Credit Commitments" means the collective
          commitments of all the Banks to make the Revolving Credit
          Loans to the Company pursuant to this Agreement in an
          aggregate principal amount not to exceed, at any time
          outstanding, $195,000,000, as such amount may be
          increased pursuant to Subsection 8.7(c) hereof up to a
          maximum collective amount of $215,000,000, provided,
          however, that the Revolving Credit Commitment of each
          Bank shall at all times be reduced by an amount equal to
          each such Bank's Revolving Credit Commitment Percentage
          of any then outstanding Excess Other Senior Homebuilding
          Indebtedness; and the "Revolving Credit Commitment" of  
          any Bank at any particular time means the respective
          commitment of such Bank to make Revolving Credit Loans to
          the Company pursuant to this Agreement in an amount equal
          to its Revolving Credit Commitment Percentage multiplied
          by the aggregate principal amount of the Revolving Credit
          Commitments, all as set forth on Schedule 9 attached
          hereto.

     10.  The definition of "Russian Joint Venture" contained in Section 1.1
of the Credit Agreement is hereby deleted and replaced in its entirety by the
following new definition:

          "Russian Joint Venture" shall mean the investment(s) by
          Hovnanian (or a Consolidated Subsidiary) in a Joint
          Venture whose purpose is to develop property in what was
          known as "Russia" as of July 30, 1993, or what is
          currently known as "Poland" or "Hungary".

     11.  Section 1.1 of the Credit Agreement is hereby further modified by
adding the following new definitions:

       (a)     "Net Worth Amount" shall mean Adjusted Tangible Net Worth less 
 Allocated Subordinated Debt.

       (b)     "Modified Adjusted Tangible Net Worth" shall mean Adjusted  
Tangible Net Worth plus the lesser of: (i) $17,500,000, or (ii) the Company's
aggregate Investments in Income Producing Property Subsidiaries plus
Permitted Guarantees of Indebtedness of Income Producing Property
Subsidiaries less $10,000,000.

          (c)  "Temporary Period" shall begin on the date hereof and end on
the earlier of October 31, 1995 or the last date of the month in which
Homebuilding Indebtedness (calculated using the Facility Commitment, rather
than the outstanding principal balance of the Loans for the purpose of clause
(iii) of the definition of Senior Homebuilding Indebtedness) is less than the
sum of

               (i)  the product of
                    (a)  the Current Total Debt Multiplier times
                    (b)  the Net Worth Amount measured as of February 28,
                         1993, plus
               (ii) the product of
                    (a)  the Future Total Debt Multiplier times
                    (b)  any change after February 28, 1993 in the Net Worth 
                         Amount.

     12.  (a). Section 2.8(a) of the Credit Agreement is hereby modified to
delete the words "both LOC Banks and $20,000,000 with respect to each LOC
Bank at any time" in the fifth and sixth lines thereof and substitute in
their place the words "the LOC Banks and not to exceed a maximum amount for
each LOC Bank at any time as set forth on Schedule 11 attached hereto and
made part hereof."  Schedule 11 attached to and made part of this Amendment
shall be deemed the Schedule 11 attached to the Credit Agreement.

       (b).  Section 2.8(a) of the Credit Agreement is hereby further
modified to add the following sentence to the end of such Section:

               When requesting a Letter of Credit from any LOC
               Bank, the Company shall simultaneously supply a
               copy of such request to the Agent.

     13.  Section 2.8(d) of the Credit Agreement is hereby modified to delete
the second sentence of such section and substitute in its place the
following:

               Such letter of credit fee shall be payable in
               full, upon issuance of each Letter of Credit
               and based upon the maturity date of each
               Letter of Credit, as follows:  one-eighth of
               one percent (.125%) shall be payable solely
               to the issuing LOC Bank and the balance of
               one and three-eighths percent (1.375%) shall
               be payable to each of the Banks (including
               the issuing LOC Bank) in an amount equal to
               such Bank's Revolving Credit Commitment
               Percentage of such portion of the letter of
               credit fee payment".

     14.  Sections 2.8(e) and 6.1(a)(x) of the Credit Agreement are hereby
deleted in their entirety.  Each Compliance Letter and Interim Compliance
Letter submitted by the Company pursuant to the Credit Agreement shall,
however, include a list of all outstanding Letters of Credit, setting forth
the issuance date, the issuing LOC Bank, the face amount, the beneficiary and
expiration date for each Letter of Credit.  Company shall continue to supply
copies of the actual Letters of Credit to each Bank which requests copies.

     15.  Section 3.9 of the Credit Agreement is hereby modified to add the
following sentences to the end of such Section:
     

          Without limiting the foregoing, such loss shall equal the
     present value (using as the discount rate an interest rate equal to
     the rate determined under (2) below) of the excess, if any of (1)
     the amount of interest which otherwise would have accrued on the
     Loan so paid, prepaid, terminated or converted (or not borrowed,
     converted or extended) for the period from the date of such
     payment, prepayment, termination or conversion (or failure to
     borrow, convert or extend) to the last day of the then current
     applicable Interest Period for the Loan (or in the case of a
     failure to borrow, convert or extend, to the last day of the
     applicable Interest Period for the Loan which would have commenced
     on the date specified in the relevant notice) at the applicable
     rate of interest for the Loan provided for herein (excluding any
     margin above Libor), over (2) the amount of interest (as reasonably
     determined by the Bank(s)) which would have accrued to the Bank(s)
     on the principal amount of such Loan by placing such amount on
     deposit for a comparable period with leading banks in the interbank
     eurodollar market.  A determination by the Bank(s) as to the
     amounts payable pursuant to this section shall be conclusive absent
     manifest error.

     16.  Section 6.2 of the Credit Agreement shall be amended to add the
following additional subsections:

          (ff) During and only during the Temporary Period, Subsection 6.2(s)
               shall not be applicable to or binding upon the Company.

          (gg) During and only during the Temporary Period, Homebuilding  
               Indebtedness shall not exceed the
               (i)  the product of
                    (1)  the Current Total Debt Multiplier times
                    (2)  the Net Worth Amount measured as of February 28,  
                         1993 plus
               (ii) the product of
                    (1)  the Future Total Debt Multiplier times
                    (2)  the change between the Net Worth Amount measured as
                         of February 28, 1993 and Modified Adjusted Tangible
                         Net Worth less Allocated Subordinated Debt.

          (hh) During and only during the Temporary Period, the Company shall
               be prohibited from issuing any additional Subordinated Debt or
               Other Senior Homebuilding Indebtedness.

     17.  Section 8.7(c) of the Credit Agreement is hereby deleted in its
entirety and replaced by the following new Section (without in any way
impairing or modifying the joinders of Additional Banks made prior to or
contemporaneously with this Amendment or the rights, benefits and obligations
of such Banks):

          "The Company shall have the option, exercisable so long as no
     Event of Default is outstanding hereunder, to have one additional
     banking institution acceptable to Agent to join in, and assume a
     Revolving Credit Commitment under, this Agreement and thereby
     become an additional "Bank" under this Agreement ("Additional
     Bank"), provided, however, that (i) the Revolving Credit Commitment
     of the Additional Bank shall be $20,000,000, (ii) the Additional
     Bank shall execute a joinder agreement acceptable to the Company
     and the Agent under which such Additional Bank assumes and agrees
     to be bound by its Revolving Credit Commitment, joins in this
     Agreement as a "Bank" and thereby obtains all benefits and rights
     of and agrees to perform all duties and obligations of a Bank
     hereunder, (iii) the Company executes and delivers to such
     Additional Bank a Revolving Credit Note in the amount of the
     Revolving Credit Commitment of such Additional Bank and the
     Guarantors each execute and deliver their Guaranty to the
     Additional Bank, (iv) this Agreement shall be automatically deemed
     to be amended to the extent necessary to give effect to the
     modifications to the Facility Percentages, Loan percentages and
     Revolving Credit Commitment Percentages of each Bank caused by the
     joinder of the Additional Bank into this Agreement, and (v)
     concurrently with the execution of the documents described in
     clauses (ii), (iii) and (iv) above, the Additional Bank makes a
     Revolving Credit Loan in an amount sufficient so that no violation
     then occurs with respect to Subsection 6.2(w) hereof."

     18.  Subsection 9.2(a) of the Credit Agreement is modified to add the
following at the end of the second sentence of such Subsection:

          "and Agent shall carry out and satisfy such duties with the
     same degree of care as Agent would employ with regard to a similar
     facility in which it was the only lender."

     19.  The fourth sentence of Section 9.3 of the Credit Agreement is
hereby modified to replace the term "Banks" at the end of such sentence with
the term "Requisite Banks".  The fifth sentence of such Section is also
modified to delete the words "instructions of the Banks" at the end of such
sentence and substitute in their place the words "terms of this Agreement".

     20.  The Company represents and warrants that it has changed or is about
to change its fiscal year to October 31.  Accordingly, to the extent that any
provision of the Credit Agreement requires determination of compliance by the
Company, Hovnanian and/or the Guarantors as of the end of a fiscal quarter,
such determination (and all calculations with respect thereto) shall be made
after the date hereof as of August 31, 1994, October 31, 1994 (for the two
months ending on such date) and as of each January 31, April 30, July 31 and
October 31 thereafter.  Notwithstanding the foregoing, the Company shall, for
the purpose of all calculations to be made as of October 31, 1994, calculate
the actual results for the months of September and October, and (except with
respect to the calculation of Consolidated Net Income in clause (ii) of the
definitions of Minimum Capital and Minimum Equity) divide such number by two
and then multiply the result by three in order to determine whether it is in
compliance with the respective covenants as of such date.

     21.  Company hereby warrants and represents as follows:
          (a)  There is not currently outstanding any Event of Default or any
event which with the giving of notice or the lapse of time or both would
become an Event of Default;
          (b)  The Company has full power, authority and legal right (i) to
execute and deliver this Amendment and the Notes described herein, (ii) to
borrow under the Credit Agreement, as amended hereby, and (iii) to perform
and observe the terms and provisions of this Amendment and the Notes
described herein.  The execution, delivery and performance by the Company of
this Amendment and the Notes described herein have been duly authorized by
all necessary corporate action and are in furtherance of its corporate
purposes.    
          (c)  The Guarantors each have full power, authority and legal right
(i) to execute and deliver this Amendment and Guaranties described herein and
(ii) to perform and observe the terms and provisions of this Amendment and
the Guaranties described herein.  The execution, delivery and performance by
each Guarantor of this Amendment and its respective Guaranty described herein
have been duly authorized by all necessary corporate action and are in
furtherance of its respective corporate purposes.
          (d)  No consent of any other Person (including shareholders of the
Company or of any of the Guarantors) and no consent, license, approval or
authorization of, or registration or declaration with, any governmental body,
authority, bureau or agency is required in connection with the execution,
delivery and performance by the Company and the Guarantors of this Amendment,
the Notes described herein or the Guaranties described herein.
          (e)  The execution, delivery and performance of and compliance with
 this Amendment and the Notes described herein, in the case of the company,
and with this Amendment and the Guaranties described herein, in the case of
each Guarantor, will not result in any violation of or be in conflict with or
constitute a default under any term of its respective certificate of
incorporation or bylaws, or any agreement, indenture, mortgage, lease,
assignment, note or other instrument to which it is a party or which purports
to be binding upon it or upon any of its properties or assets, or any
judgment, decree, order, law, statute, ordinance, rule or governmental
regulation applicable to it (except to the extent that any such violations,
in the aggregate, could not reasonably be expected to have a Material Adverse
Effect), or result in the creation of an Encumbrance upon any of its
properties or assets pursuant to any such term.
          (f)  The respective representations and warranties of the Company
and each of the Guarantors contained in the Credit Agreement are true and
complete and correct in all material respects (or as to any representation or
warranty which is expressly qualified by reference to the term "Material
Adverse Effect", then in all respects) as if made on and as of the date of
this Amendment, except that the following changes have occurred with respect
to the Schedules attached to and made part of the Credit Agreement:
               (i) Schedule 1 has been modified as a result of the joinder of
23 new Consolidated Subsidiaries, each of whom is now a Guarantor and is
executing this Amendment in such capacity, and Supplement to Schedule 1 is
attached hereto and made part hereof;
               (ii) The first debt issue (issue date 12/13/84) listed on
Schedule 3 has been paid;
               (iii)  Third Replacement Schedule 9 and Schedule 11 attached
to this Amendment are deemed incorporated into the Credit Agreement and
Supplement to Schedule 1 attached to this Amendment is deemed incorporated
into Schedule 1 to the Credit Agreement.

     22.  Hovnanian acknowledges and confirms that the Pledge Agreement is
and shall remain valid, binding, and in full force and effect for the benefit
of all of the Banks including without limitation any and all Additional
Banks.

     23.  Contemporaneously with the execution hereof, the Company shall pay
an amendment fee, in consideration of the agreements and undertakings of the
Banks set forth in this Amendment, as follows:
          (a)  To each Joining Bank, a payment equal to one-tenth of one
percent (.10%) of the amount of the Facility Commitment of each such Bank;
          (b)  To each Bank (other than the Joining Banks) whose Facility  
Commitment is increasing, one-tenth of one percent (.10%) of the amount of
the increase in the Facility Commitment of each such Bank (as reflected by
Third Replacement Schedule 9); and
          (c)  To each Bank other than the Joining Banks, three-hundreds of
one percent (.03%) of the amount of the Facility Commitment of each such Bank
in effect prior to the date of this Amendment.

          This Amendment shall amend and be deemed incorporated into the
Credit Agreement as previously amended.  To the extent any provision of this
Amendment is expressly inconsistent with any term or provision of the Credit
Agreement, as previously amended, the terms and provisions of this Amendment
shall control.

     24.  This Amendment may be executed by one or more of the parties hereto
on any number of separate counterparts, and all of said counterparts taken
together shall be deemed and constitute one and the same instrument.

     IN WITNESS WHEREOF, the Company, Hovnanian, the Guarantors, the Banks
and the Agent have each executed this Amendment as of the date first above
written.

                              K. HOVNANIAN ENTERPRISES, INC.



                              By:
                                 -------------------------------
                                 J. Larry Sorsby
                                 Senior Vice President/Finance
                                 and Treasurer


                              HOVNANIAN ENTERPRISES, INC.


                              By:                               
                                 --------------------------------
                                 J. Larry Sorsby
                                 Senior Vice President/Finance
                                 and Treasurer


                              0515 CO., INC.
                              ARROW PROPERTIES, INC.
                              CEDAR HILL SEWER WORKS CORPORATION
                              CEDAR HILL WATER WORKS CORPORATION
                              DRYER ASSOCIATES, INC.
                              EASTERN NATIONAL TITLE INSURANCE AGENCY, INC.
                              EASTERN NATIONAL TITLE INSURANCE AGENCY I, INC.
                              EASTERN TITLE AGENCY, INC.
                              EXC, INC.
                              K. HOVNANIAN AT HOPEWELL III INC.
                              K. HOVNANIAN AT DOVER TOWNSHIP, INC.
                              K. HOVNANIAN AT MONTVILLE, INC.
                              K. HOVNANIAN AT ATLANTIC CITY, INC.
                              HOVNANIAN AT TARPON LAKES I, INC.
                              HOVNANIAN AT TARPON LAKES II, INC
                              HOVNANIAN DEVELOPMENTS OF FLORIDA, INC.
                              HOVNANIAN GEORGIA, INC.
                              HOVNANIAN OF PALM BEACH, INC.
                              HOVNANIAN OF PALM BEACH, II, INC.
                              HOVNANIAN OF PALM BEACH, III, INC.
                              HOVNANIAN OF PALM BEACH, IV, INC.
                              HOVNANIAN OF PALM BEACH, V, INC.
                              HOVNANIAN OF PALM BEACH, VI, INC.
                              HOVNANIAN OF PALM BEACH, VII, INC.
                              HOVNANIAN OF PALM BEACH, VIII, INC.
                              HOVNANIAN OF PALM BEACH, IX, INC.
                              HOVNANIAN OF PALM BEACH, X, INC.
                              HOVNANIAN OF PALM BEACH, XI, INC.
                              MONTEGO BAY II ACQUISITION CORP., INC.
                              HOVNANIAN PENNSYLVANIA, INC.
                              HOVNANIAN PROPERTIES OF ATLANTIC COUNTY, INC.
                              HOVNANIAN TEXAS, INC.
                              JERSEY CITY DANFORTH CSP, INC.
                              K. HOVNANIAN AT ASHBURN VILLAGE
                              K. HOVNANIAN AT BARDEN OAKS, INC.
                              K. HOVNANIAN AT KINGS GRANT I, INC.
                              K. HOVNANIAN AT BERNARDS II, INC.
                              K. HOVNANIAN AT PERKIOMEN I, INC.
                              K. HOVNANIAN AT BRANCHBURG I, INC.
                              K. HOVNANIAN AT BRANCHBURG II, INC.
                              K. HOVNANIAN AT BRANCHBURG III, INC.
                              K. HOVNANIAN AT BRIDGEWATER V, INC.
                              K. HOVNANIAN AT BRIDGEWATER II, INC.
                              K. HOVNANIAN AT BRIDGEWATER III, INC.
                              K. HOVNANIAN AT BRIDGEWATER IV, INC.
                              K. HOVNANIAN AT BULL RUN, INC.
                              K. HOVNANIAN AT BURLINGTON, INC.
                              K. HOVNANIAN AT CARMEL, INC.
                              K. HOVNANIAN AT CAROLINA COUNTY CLUB I, INC.
                              K. HOVNANIAN AT CEDAR GROVE I, INC.
                              K. HOVNANIAN AT CEDAR GROVE II, INC.
                              K. HOVNANIAN AT CHAPEL TRIAL, INC.
                              K. HOVNANIAN AT DELRAY BEACH, INC.
                              K. HOVNANIAN AT DELRAY BEACH I, INC.
                              K. HOVNANIAN AT DELRAY BEACH II, INC.
                              K. HOVNANIAN AT OCEAN TOWNSHIP II, INC.
                              K. HOVNANIAN AT EAST BRUNSWICK II, INC.
                              K. HOVNANIAN AT KLOCKNER FARMS, INC.
                              K. HOVNANIAN COMPANIES JERSEY SHORE, INC.
                              K. HOVNANIAN AT EAST BRUNSWICK
                              K. HOVNANIAN AT EMBASSY LAKES INC.
                              K. HOVNANIAN AT FAIRWAY VIEWS, INC.
                              K. HOVNANIAN AT FT. MYERS I, INC.
                              K. HOVNANIAN AT FT. MYERS II, INC.
                              K. HOVNANIAN AT GALLOWAY, INC.
                              K. HOVNANIAN AT GALLOWAY III, INC.
                              K. HOVNANIAN AT GALLOWAY IV, INC.
                              K. HOVNANIAN AT GALLOWAY V, INC.
                              K. HOVNANIAN AT MARLBORO TOWNSHIP, INC.
                              K. HOVNANIAN AT GALLOWAY VII, INC.
                              K. HOVNANIAN AT GALLOWAY VIII, INC.
                              K. HOVNANIAN AT READINGTON, INC.
                              K. HOVNANIAN AT HALF MOON BAY, INC.
                              K. HOVNANIAN AT HAMILTON, INC.
                              K. HOVNANIAN AT HAMILTON II, INC.
                              K. HOVNANIAN AT HOPEWELL I, INC.
                              K. HOVNANIAN AT HOPEWELL II, INC.
                              K. HOVNANIAN AT JACKSONVILLE I, INC.
                              K. HOVNANIAN AT JACKSONVILLE II, INC.
                              K. HOVNANIAN AT JENSEN BEACH, INC.
                              K. HOVNANIAN AT JERSEY CITY I, INC.
                              K. HOVNANIAN AT JERSEY CITY II, INC.
                              K. HOVNANIAN AT JERSEY CITY III, INC.
                              K. HOVNANIAN AT LAKE CHARLESTOWN, INC.
                              K. HOVNANIAN COMPANIES OF NORTH JERSEY, INC.
                              K. HOVNANIAN AT LAWRENCE GROVE, INC.
                              K. HOVNANIAN AT LAWRENCE SQUARE, INC.
                              K. HOVNANIAN AT LAWRENCE SQUARE II, INC.
                              K. HOVNANIAN AT WALL TOWNSHIP II, INC.
                              K. HOVNANIAN AT SOUTH BRUNSWICK II, INC.
                              K. HOVNANIAN AT LOWER SAUCON, INC.
                              K. HOVNANIAN AT MAHOPAC, INC.
                              K. HOVNANIAN AT MAHWAH I, INC.
                              K. HOVNANIAN AT MAHWAH II, INC.
                              K. HOVNANIAN AT MAHWAH III, INC.
                              K. HOVNANIAN AT MAHWAH IV, INC.
                              K. HOVNANIAN AT MAHWAH VI, INC.
                              K. HOVNANIAN AT MEDFORD I, INC.
                              K. HOVNANIAN AT MONTCLAIR, INC.
                              K. HOVNANIAN AT MARTIN DOWNS I, INC.
                              K. HOVNANIAN AT MARTIN DOWNS II, INC.
                              K. HOVNANIAN AT MERRIMACK, INC.
                              K. HOVNANIAN AT MERRIMACK II, INC.
                              K. HOVNANIAN AT MONTGOMERY I, INC.
                              K. HOVNANIAN AT MONTVILLE, INC.
                              K. HOVNANIAN AT WALL TOWNSHIP, INC.
                              K. HOVNANIAN AT MORRIS II, INC.
                              K. HOVNANIAN AT NEWARK I, INC.
                              K. HOVNANIAN AT WALL TOWNSHIP III, INC.
                              K. HOVNANIAN AT NEWARK URBAN RENEWAL
                              CORPORATION I, INC.
                              K. HOVNANIAN AT NEWARK URBAN RENEWAL
                              CORPORATION II, INC.
                              K. HOVNANIAN AT NEWARK URBAN RENEWAL
                              CORPORATION III, INC.
                              K. HOVNANIAN AT NEWARK URBAN RENEWAL
                              CORPORATION IV, INC.
                              K. HOVNANIAN AT NEWARK URBAN RENEWAL
                              CORPORATION V, INC.
                              K. HOVNANIAN AT NORTH BRUNSWICK II, INC.
                              K. HOVNANIAN AT NORTH BRUNSWICK III, INC.
                              K. HOVNANIAN AT NORTHERN WESTCHESTER, INC.
                              K. HOVNANIAN AT OCEAN TOWNSHIP, INC.
                              K. HOVNANIAN AT ORLANDO I, INC.
                              K. HOVNANIAN AT ORLANDO II, INC.
                              K. HOVNANIAN AT ORLANDO III, INC.
                              K. HOVNANIAN AT ORLANDO IV, INC.
                              K. HOVNANIAN AT PALM BEACH XIII, INC.
                              K. HOVNANIAN AT PASCO I, INC.
                              K. HOVNANIAN AT PASCO II, INC.
                              K. HOVNANIAN AT PEEKSKILL, INC.
                              K. HOVNANIAN AT PISCATAWAY, INC.
                              K. HOVNANIAN AT MONTCLAIR, N.J., INC.
                              K. HOVNANIAN AT THE RESERVE AT MEDFORD, INC.
                              K. HOVNANIAN AT PLAINSBORO I, INC.
                              K. HOVNANIAN AT PORT ST. LUCIE I, INC.
                              K. HOVNANIAN AT RIVER OAKS, INC.
                              K. HOVNANIAN AT SOMERSET, INC.
                              K. HOVNANIAN AT SOMERSET II, INC.
                              K. HOVNANIAN AT SOMERSET III, INC.
                              K. HOVNANIAN AT SOMERSET V, INC.
                              K. HOVNANIAN AT SOMERSET VI, INC.
                              K. HOVNANIAN AT SOMERSET VII, INC.
                              K. HOVNANIAN AT SOMERSET VIII, INC.
                              K. HOVNANIAN AT SOUTH BRUNSWICK, INC.
                              K. HOVNANIAN AT SPRING RIDGE, INC.
                              K. HOVNANIAN AT SULLY STATION, INC.
                              K. HOVNANIAN AT TARPON LAKES III, INC.
                              K. HOVNANIAN AT TAUTON, INC.
                              K. HOVNANIAN AT TINTON FALLS, INC.
                              K. HOVNANIAN AT TINTON FALLS II, INC.
                              K. HOVNANIAN AT UPPER MERION, INC.
                              K. HOVNANIAN AT VALLEYBROOK, INC.
                              K. HOVNANIAN AT WALL TOWNSHIP, INC.
                              K. HOVNANIAN AT WALL TOWNSHIP V, INC.
                              K. HOVNANIAN AT WASHINGTONVILLE, INC.
                              K. HOVNANIAN AT WAYNE, INC.
                              K. HOVNANIAN AT WESTCHESTER, INC.
                              K. HOVNANIAN AT WOODBRIDGE ESTATES, INC.
                              K. HOVNANIAN AVIATION, INC.
                              K. HOVNANIAN COMPANIES OF FLORIDA, INC.
                              K. HOVNANIAN COMPANIES OF MASSACHUSETTS, INC.
                              K. HOVNANIAN COMPANIES OF METRO WASHINGTON,
                              INC.
                              K. HOVNANIAN COMPANIES NORTHEAST, INC.
                              K. HOVNANIAN COMPANIES OF NEW YORK, INC.
                              K. HOVNANIAN COMPANIES OF NORTH
                              CAROLINA, INC.
                              K. HOVNANIAN COMPANIES OF THE DELAWARE VALLEY,
                              INC.
                              K. HOVNANIAN DEVELOPMENTS OF METRO WASHINGTON,
                              INC.
                              K. HOVNANIAN DEVELOPMENTS OF NEW JERSEY, INC.
                              K. HOVNANIAN DEVELOPMENTS OF NEW YORK, INC.
                              K. HOVNANIAN EQUITIES, INC.
                              K. HOVNANIAN AT MONTVILLE II, INC.
                              K. HOVNANIAN INTERNATIONAL, INC.
                              KINGS GRANT EVESHAM CORP.
                              K. HOVNANIAN INVESTMENT PROPERTIES OF NEW
                              JERSEY, INC.
                              K. HOVNANIAN MARINE, INC.
                              K. HOVNANIAN MORTGAGE USA, INC.
                              K. HOVNANIAN OF FLORIDA, INC.
                              K. HOVNANIAN AT CAROLINA COUNTRY CLUB, INC.
                              K. HOVNANIAN OF PALM BEACH XIII, INC.
                              K. HOVNANIAN AT HANOVER, INC.
                              MOLLY PITCHER RENOVATIONS, INC.
                              K. HOVNANIAN PROPERTIES OF EAST BRUNSWICK II,
                              INC.
                              K. HOVNANIAN PROPERTIES OF FRANKLIN, INC.
                              K. HOVNANIAN PROPERTIES OF FRANKLIN II, INC.
                              K. HOVNANIAN PROPERTIES OF GALLOWAY II, INC.
                              K. HOVNANIAN PROPERTIES OF ORLANDO, INC.
                              K. HOVNANIAN REAL ESTATE INVESTMENT, INC.
                              K. HOVNANIAN REAL ESTATE OF FLORIDA, INC.
                              K. HOVNANIAN PLAINSBORO,II, INC.
                              K. HOVNANIAN MONTCLAIR, INC.
                              LANDARAMA, INC.
                              K. HOVNANIAN AT BEDMINSTER, INC.
                              NEW ENGLAND COMMUNITY MANAGEMENT CO., INC.
                              NEW K. HOVNANIAN COMPANIES OF FLORIDA, INC.
                              NEW K. HOVNANIAN DEVELOPMENTS OF FLORIDA, INC.
                              PIKE UTILITIES, INC.
                              PINE BROOK CO., INC.
                              R.C.K. COMMUNITY MANAGEMENT CO., INC.
                              RECREATIONAL DEVELOPMENT CORP., INC.
                              K. HOVNANIAN AT WALL TOWNSHIP IV, INC.
                              MONTEGO BAY I ACQUISITION CORP., INC.
                              SOUTH FLORIDA RESIDENTIAL TITLE AGENCY, INC.
                              THE HERITAGE CLUB AT HOLMDEL, INC.
                              THE NEW FORTIS CORPORATION
                              TROPICAL SERVICE BUILDERS, INC.
                              WESTERN FINANCIAL SERVICES, INC.
                              K. HOVNANIAN COMPANIES OF CENTRAL JERSEY, INC.
                              K. HOVNANIAN AT HOLMDEL, INC.
                              K. HOVNANIAN PROPERTIES OF ATLANTIC COUNTY,
                              INC.
                              K. HOVNANIAN AT HOLLY CREST, INC.
                              K. HOVNANIAN AT LAKE CHARLESTON II, INC.
                              K. HOVNANIAN AT LAKE CHARLESTON III, INC.
                              K. HOVNANIAN COMPANIES OF NORTH CENTRAL JERSEY,
                              INC.
                              KHIPE, INC.
                              K. HOVNANIAN INVESTMENT PROPERTIES, INC.
                              K. HOVNANIAN AT BELMONT, INC.
                              K. HOVNANIAN AT CAROLINA COUNTRY CLUB II, INC.
                              K. HOVNANIAN AT PARK RIDGE, INC.
                              K. HOVNANIAN AT VALLEYBROOK II, INC.
                              K. HOVNANIAN AT WATER'S EDGE, INC.
                              K. HOVNANIAN AT WINSTON TRAILS II, INC.
                              K. HOVNANIAN AT FAIR LAKES GLEN, INC.
                              K. HOVNANIAN AT PEMBROKE ISLES, INC.
                              K. HOVNANIAN AT COCONUT CREEK, INC.
                              GOVERNOR'S ABSTRACT CO., INC.
                              K. HOVNANIAN AT POLO TRACE, INC.
                              K. HOVNANIAN COMPANIES OF
                              SOUTH JERSEY, INC.
                              K. HOVNANIAN AT PERKIOMEN II, INC.
                              K. HOVNANIAN AT WAYNE II, INC.
                              K. HOVNANIAN AT UPPER MAKEFIELD I, INC.
                              K. HOVNANIAN COMPANIES OF
                              CALIFORNIA, INC.
                              K. HOVNANIAN COMPANIES OF SOUTHERN CALIFORNIA
                              I, INC.
                              K. HOVNANIAN DEVELOPMENTS OF
                              CALIFORNIA, INC.
                              FOUNDERS TITLE AGENCY, INC.
                              K. HOVNANIAN AT CAROLINA
                              COUNTRY CLUB III, INC.
                              KHC ACQUISITION, INC.
                              K. HOVNANIAN AT FAIR LAKES, INC.
                              STONEBROOK HOMES, INC.
                              K. HOVNANIAN AT STUART ROAD, INC.
                              K. HOVNANIAN AT BALLANTRAE, INC.
                              K. HOVNANIAN AT HIGHLAND VINEYARDS, INC.


                                   By:___________________________
                                       J. Larry Sorsby
                                       Senior Vice President/Finance
                                       and Treasurer of each of the
                                       foregoing corporations


                              MIDLANTIC NATIONAL BANK, AS AGENT



                              By:                               
                                  -------------------------------
                                   Name:  Douglas G. Paul       
                                   Title:  Vice President       




                              MIDLANTIC NATIONAL BANK

                              By:
                                 --------------------------------
                                   Name:  Douglas G. Paul       
                                   Title:  Vice President       


                              CHEMICAL BANK



                              By:
                                 --------------------------------
                                   Name:                        
                                   Title:                       


                              UNITED JERSEY BANK



                              By:
                                 --------------------------------
                                   Name:                        
                                   Title:                       


                              NBD BANK, N.A.



                              By:
                                 --------------------------------
                                   Name:                        
                                   Title:                       


                              PNC BANK, NATIONAL ASSOCIATION



                              By:
                                 ------------------------------- 
                                 Name:      
                                 Title:           

                              MERIDIAN BANK



                              By:                               
                                 --------------------------------
                                   Name:                        
                                   Title:                       


                              NATIONSBANK OF VIRGINIA, N.A.



                              By:
                                  -------------------------------
                                                             
                                   Name:                        
                                   Title:                       



                              FIRST NATIONAL BANK OF BOSTON



                              By:
                                 --------------------------------
                                                             
                                   Name:                        
                                   Title:                       


                              CONTINENTAL BANK



                              By:                               
                                 --------------------------------
                                   Name:                        
                                   Title:                       






 

5 1000 6-MOS FEB-28-1995 AUG-31-1994 7,970 0 18,620 0 382,042 452,741 23,095 11,648 588,988 181,122 241,839 236 0 0 165,791 588,988 225,071 237,370 183,755 235,304 0 0 9,453 (7,387) (1,926) (5,461) 0 0 0 (5,461) (0.24) (0.24)