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 JANUARY 31, 1995  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 principle 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  preceding  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  [    ]
No [ X ]

      Indicate  the  number  of shares outstanding of each  of  the  issuer's
classes of common stock, as of the latest practicable date.  14,847,335 Class
A  Common Shares and 8,189,718 Class B Common Shares were outstanding  as  of
March 8, 1995.
                     HOVNANIAN ENTERPRISES, INC.

                              FORM 10Q

                                INDEX

                                                              PAGE NUMBER

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

              Consolidated Balance Sheets at January 31,
                1995 (unaudited) and October 31, 1994                3

              Consolidated Statements of Income and
                Retained Earnings for the three months
                ended January 31, 1995 and 1994 (unaudited)          5

              Consolidated Statements of Stockholders' Equity
                for the three months ended January 31, 1995
                (unaudited)                                          6

              Consolidated Statements of Cash Flows
                for the three months ended January 31, 1995
                and 1994 (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 6(a)  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                                                          19


                HOVNANIAN ENTERPRISES, INC. AND SUBSIDIARIES
                         CONSOLIDATED BALANCE SHEETS
                               (In Thousands)
January 31, October 31, ASSETS 1995 1994 ----------- ----------- Homebuilding: Cash and cash equivalents.......................... $ 9,587 $17,299 ----------- ----------- Inventories - At cost, not in excess of net realizable value: Sold and unsold homes and lots under development....................................... 361,167 328,961 Land and land options held for future development or sale.............................. 80,140 57,579 ----------- ----------- Total Inventories................................ 441,307 386,540 ----------- ----------- Receivables, deposits, and notes..................... 29,751 25,778 ----------- ----------- Property, plant, and equipment - net................. 11,427 11,437 ----------- ----------- Prepaid expenses and other assets.................... 31,197 26,757 ----------- ----------- Total Homebuilding............................... 523,269 467,811 ----------- ----------- Financial Services: Cash and cash equivalents............................ 638 138 Mortgage loans held for sale......................... 14,992 29,459 Other assets......................................... 1,190 1,451 ----------- ---------- Total Financial Services......................... 16,820 31,048 ----------- ----------- Investment Properties: Rental property - net................................ 55,642 56,181 Property under development or held for future development........................................ 15,225 15,298 Investment in and advances to unconsolidated joint venture...................................... 3,902 3,994 Other assets......................................... 3,764 3,231 ----------- ----------- Total Investment Properties...................... 78,533 78,704 ----------- ----------- Collateralized Mortgage Financing: Collateral for bonds payable......................... 20,544 21,275 Other assets......................................... 1,249 1,404 ----------- ----------- Total Collateralized Mortgage Financing.......... 21,793 22,679 ----------- ----------- Income Taxes Receivable - Including deferred tax benefits............................................. 12,955 12,683 ----------- ----------- Total Assets........................................... $653,370 $612,925 =========== =========== See notes to consolidated financial statements.
HOVNANIAN ENTERPRISES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (In Thousands)
January 31, October 31, LIABILITIES AND STOCKHOLDERS' EQUITY 1995 1994 ------------ ------------ Homebuilding: Nonrecourse land mortgages................................... $ 31,248 $ 26,938 Accounts payable and other liabilities....................... 39,521 42,586 Customers' deposits.......................................... 15,423 12,138 Nonrecourse mortgage secured by operating property........... 2,930 2,946 ------------ ------------ Total Homebuilding....................................... 89,122 84,608 ------------ ------------ Financial Services: Accounts payable and other liabilities....................... 588 772 Mortgage warehouse line of credit............................ 7,244 20,554 ------------ ------------ Total Financial Services................................. 7,832 21,326 ------------ ------------ Investment Properties: Accounts payable and other liabilities....................... 1,822 1,731 Nonrecourse mortgages secured by rental property............. 17,513 17,541 ------------ ------------ Total Investment Properties.............................. 19,335 19,272 ------------ ------------ Collateralized Mortgage Financing: Accounts payable and other liabilities....................... 16 15 Bonds collateralized by mortgages receivable................. 19,934 20,815 ------------ ------------ Total Collateralized Mortgage Financing.................. 19,950 20,830 ------------ ------------ Notes Payable: Revolving credit agreement................................... 148,200 99,200 Subordinated notes........................................... 200,000 200,000 Accrued interest............................................. 6,067 5,559 ------------ ------------ Total Notes Payable...................................... 354,267 304,759 ------------ ------------ Total Liabilities........................................ 490,506 450,795 ------------ ------------ 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 15,164,704 shares (including 345,874 shares held in Treasury)................ 149 149 Common Stock,Class B,$.01 par value-authorized 13,000,000 shares; issued 8,549,097 shares (including 345,874 shares held in Treasury)................ 88 88 Paid in Capital.............................................. 33,858 33,858 Retained Earnings............................................ 134,068 133,334 Treasury Stock - at cost..................................... (5,299) (5,299) ------------ ------------ Total Stockholders' Equity............................... 162,864 162,130 ------------ ------------ Total Liabilities and Stockholders' Equity...................... $653,370 $612,925 ============ ============ See notes to consolidated financial statements.
HOVNANIAN ENTERPRISES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (In Thousands Except Per Share Data)
Three Months Ended January 31, ----------------------------- 1995 1994 --------- --------- Revenues: Homebuilding: Sale of homes.............................. $117,674 $165,862 Land sales and other revenues.............. 3,677 2,426 --------- --------- Total Homebuilding....................... 121,351 168,288 Financial Services........................... 1,139 1,816 Investment Properties........................ 2,566 2,521 Collateralized Mortgage Financing............ 540 832 --------- --------- Total Revenues........................... 125,596 173,457 --------- --------- Expenses: Homebuilding: Cost of sales.............................. 94,992 130,258 Selling, general and administrative........ 15,634 11,258 --------- --------- Total Homebuilding....................... 110,626 141,516 Financial Services........................... 2,007 1,645 Investment Properties........................ 1,454 1,360 Collateralized Mortgage Financing............ 514 969 Corporate General and Administration......... 3,099 2,585 Interest..................................... 4,915 5,701 Other operations............................. 2,193 1,218 Provision for loan writedown................. 1,883 --------- --------- Total Expenses............................ 124,808 156,877 --------- --------- Income Before Income Taxes...................... 788 16,580 --------- --------- State and Federal Income Taxes: State......................................... 167 (36) Federal....................................... (113) 5,163 --------- --------- Total Taxes................................ 54 5,127 --------- --------- Net Income..................................... $ 734 $ 11,453 ========= ========= Earnings Per Common Share...................... $ 0.03 $ 0.50 ========= ========= 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, October 31, 1994.. 14,730,299 $149 8,291,754 $88 $33,858 $133,334 $(5,299) $162,130 Conversion of Class B to Class A common stock...... 88,531 (88,531) Net Income.................. 734 734 ----------- -------- ----------- -------- ------- --------- --------- -------- Balance, January 31, 1995... 14,818,830 $149 8,203,223 $88 $33,858 $134,068 $(5,299) $162,864 =========== ======== =========== ======== ======= ========= ========= ======== See notes to consolidated financial statements.
HOVNANIAN ENTERPRISES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (In Thousands)
Three Months Ended January 31, ---------------------- 1995 1994 --------- ---------- Cash Flows From Operating Activities: Net Income............................................... $ 734 $ 11,453 Adjustments to reconcile net income to net cash used in operating activities: Depreciation......................................... 994 784 Gain on sale and retirement of property and assets... (70) (82) Writedown of loan from sale of subsidiary............ 1,883 Deferred income taxes................................ 1,794 1,433 Decrease (increase) in assets: Escrow cash........................................ (1,700) 540 Receivables, prepaids and other assets............. (8,593) 1,655 Mortgage notes receivable.......................... 13,966 (7,412) Inventories........................................ (54,767) (18,325) Increase (decrease) in liabilities: State and Federal income taxes..................... (2,066) 3,694 Customers' deposits................................ 3,295 (2,961) Interest and other accrued liabilities............. (1,737) (3,469) Post development completion costs.................. (489) (1,506) Accounts payable................................... (554) (3,210) Amortization of debenture discounts................ 3 --------- ---------- Net cash used in operating activities............ (49,193) (15,520) --------- ---------- Cash Flows From Investing Activities: Proceeds from sale of property and assets................ 249 289 Investment in property and assets........................ (220) (185) Purchase of property..................................... (443) (923) Investment in and advances to unconsolidated affiliates.. 294 136 Investment in income producing properties...... 138 (4,646) Net cash provided by (used in) --------- ---------- investing activities............................. 18 (5,329) --------- ---------- Cash Flows From Financing Activities: Proceeds from mortgages and notes........................ 323,488 191,231 Principal payments on mortgages and notes................ (284,294) (172,808) Principal payments on subordinated debt.................. (2,160) Investment in mortgage notes receivable.................. 1,219 3,100 --------- ---------- Net cash provided by financing activities........ 40,413 19,363 --------- ---------- Net Increase (Decrease) In Cash............................ (8,762) (1,486) Cash Balance, Beginning Of Period.......................... 14,537 3,001 --------- ---------- Cash Balance, End Of Period................................ $ 5,775 $ 1,515 ========= ========== 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 October 31, 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 ------------------- 1/31/95 1/31/94 -------- -------- (Dollars in Thousands) Interest Incurred (1): Residential (3).................. $ 6,989 $ 4,852 Commercial(4).................... 1,200 1,279 -------- -------- Total Incurred................. $ 8,189 $ 6,131 ======== ======== Interest Expensed: Residential (3).................. 3,750 4,620 Commercial (4)................... 1,165 1,081 -------- -------- Total Expensed................ $ 4,915 $ 5,701 ======== ======== Interest Capitalized at Beginning of Period.............. $28,948 $27,925 Plus Interest Incurred............. 8,189 6,131 Less Interest Expensed............. 4,915 5,701 Less Charges to Reserves........... 50 38 -------- -------- Interest Capitalized at End of Period ................... $32,172 $28,317 ======== ======== Interest Capitalized at End of Period (5): Residential(3)................... $26,025 $22,020 Commercial(2).................... 6,147 6,297 -------- ------- Total Capitalized.............. $32,172 $28,317 ======== ======== (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. (5) Capitalized commercial interest at January 31, 1995 includes $139,000 reported at October 31, 1994 as capitalized residential interest. This reclassification was the result of the transfer of a senior citizen rental facility from inventory. 3. Included in the consolidated balance sheets is total operating property amounting to $24,176,000 and $23,740,000 and accumulated depreciation on operating property amounting to $12,326,000 and $11,854,000 at January 31, 1995 and October 31, 1994, respectively. Accumulated depreciation on rental property amounted to $8,255,000 and $7,781,000 at January 31, 1995 and October 31, 1994, respectively. 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. Prior to October 31, 1994 the Company filed the reports covering the three month period ended May 31, 1994 and the three and six month periods ended August 31, 1994 on Form 10-Q. The report covering the eight month transition period of March 1 through October 31, 1994 was 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 three months ended January 31, 1995 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, land purchase notes, 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. Interest is payable monthly and at various rates of either prime plus 1/2% or Libor plus 2%. The Company currently is in compliance and intends to maintain compliance with its covenants under the Agreement. As of January 31, 1995, borrowings under the Agreement were $148,200,000. The aggregate principal amount of subordinated indebtedness issued by the Company and outstanding as of October 31, 1994 was $200,000,000. Annual sinking fund payments of $20,000,000 are required in April 2001 and 2002 with additional payments of $60,000,000 and $100,000,000 due in April 2002 and June 2005. 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 January 31, 1995, the aggregate principal amount of all such borrowings was $27,178,000. The book value of the Company's residential inventories, rental condominiums, and commercial properties completed and under development amounted to the following: January 31, October 31, 1995 1994 ------------ ------------ Residential real estate inventory............ $441,307,000 $386,540,000 Residential rental property.................. 8,131,000 8,158,000 ------------ ------------ Total Residential Real Estate.............. 449,438,000 394,698,000 Commercial properties........................ 62,736,000 63,321,000 ------------ ------------ Combined Total............................. $512,174,000 $458,019,000 ============ ============ Total residential real estate increased $54,740,000 during the three months ended January 31, 1995 primarily as a result of an inventory increase of $54,767,000. 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. Substantially all residential homes under construction or completed and included in real estate inventory at January 31, 1995 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 selling communities under development: (1) (2) Contracted Remaining Commun- Approved Homes Not Home Sites ities Lots Closed Closed Available ------- -------- ------ ---------- --------- January 31, 1995.... 96 16,124 4,934 1,874 9,316 October 31, 1994... 86 17,033 5,302 1,794 9,937 (1) Includes 72 and 88 lots under option at January 31, 1995 and October 31, 1994, respectively. (2) Of the total home lots available, 726 and 641 were under construction or complete (including 121 and 115 models and sales offices) and 1,902 and 2,554 were under option at January 31, 1995 and October 31, 1994, respectively. In addition, in substantially completed or suspended developments the Company owned or had under option 336 and 332 home lots at January 31, 1995 and October 31, 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 January 31, 1995 the Company controlled such land to build 13,719 proposed homes, compared to 12,696 homes at October 31, 1994. The Company's commercial properties represent long-term investments in commercial and retail facilities completed or under development (see "Investment Properties" under "Results of Operations"). When individual facilities are completed and substantially leased, the Company will have the ability to obtain long-term financing on such properties. At January 31, 1995, the Company had long-term non-recourse financing aggregating $17,513,000 on two commercial facilities, a decrease of $28,000 from October 31, 1994, due to principal amortization. The collateralized mortgages receivable are pledged against non-recourse collateralized mortgage obligations. Residential mortgages receivable amounting to $9,481,000 and $23,460,000 at January 31, 1995 and October 31, 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. RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED JANUARY 31, 1995 COMPARED TO THE THREE MONTHS ENDED JANUARY 31, 1994 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, metro Washington, D.C. (northern Virginia), and southwestern California. Operations in California began for the first time during the summer of 1994. In addition, the Company develops and operates commercial properties as long- term investments in New Jersey, and, to a lesser extent, Florida. 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 reports covering the three month periods ended May 31, 1994 and August 31, 1994 were filed on Form 10-Q. The report covering the eight month transition period of March 1, 1994 through October 31, 1994 was filed on Form 10-K. Thereafter, the Company will file reports as of January 31, April 30, July 31, and October 31. Historically, the Company realized a substantial portion of its net income in the fourth quarter of the year and a very small portion or even a loss in the first quarter. As an example, in the old fiscal year ended February 28, 1994, the Company's fourth quarter net income was $11.4 million or 61.0% of the year's total, while the first quarter had a $2.3 million loss. The Company still expects the fourth quarter to show a larger portion of the new fiscal year ended October 31 net income, and the first quarter to show a very small portion of the year's net income. As a result of the year end change noted above, the first quarter of the fiscal year ending October 31, 1995 is being compared to a substantial portion of the old fourth quarter ended February 28, 1994. Since the home sales revenue volume is significantly lower for the three months ended January 31, 1995, certain comparisons (primarily overheads) to the three months ended January 31, 1994 will be unfavorable and misleading. The first quarter of the fiscal year ending October 31, 1995 did report net income of $0.7 million compared to the loss noted in the previous paragraph of $2.3 million. Where applicable in the following "Results of Operations", comparisons will be made to the three months ended May 31, 1994 which would have been the first quarter of the year ended February 28, 1995 had the year end not been changed. At January 31, 1995 the Company's home contract backlog for future delivery was 1,914 homes, with an aggregate sales value of $330.2 million, compared to 2,476 homes, with an aggregate sales value of $358.4 million at the same time last year. For the three months ended January 31, 1995 net contracts signed amounted to $127.2 million or 781 homes, compared to $126.5 million or 922 homes for the same period last year. Total Revenues: Revenues for the three months ended January 31, 1995 decreased $47.9 million or 27.6%, compared to the same period last year. This was a result of decreased revenues from sale of homes of $48.2 million., a $0.7 million decrease in financial services revenues, and a $0.3 million decrease in collateralized mortgage financing revenues. These decreases were partially offset by a $1.3 million increase in land sales and other homebuilding revenues. Homebuilding: Sale of homes revenues decreased $48.2 million, or 29.1% during the three months ended January 31, 1995, compared to the same period last year. Sale of homes 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 Three Months January 31, Ended ------------------- May 31, 1995 1994 1994 -------- -------- ------------ (Dollars in Thousands) Northeast Region: Housing Revenues.......... $ 72,874 $123,367 $ 48,000 Homes Delivered........... 395 741 311 North Carolina: Housing Revenues.......... $ 21,585 $ 21,317 $ 24,363 Homes Delivered........... 135 164 177 Florida: Housing Revenues.......... $ 15,917 $ 14,947 $ 11,573 Homes Delivered........... 104 124 87 Metro Washington, D.C.: Housing Revenues.......... $ 4,886 $ 5,866 $ 8,441 Homes Delivered........... 25 33 52 California: Housing Revenues.......... $ 2,094 -- -- Homes Delivered........... 11 -- -- Other: Housing Revenues.......... $ 318 $ 365 $ 499 Homes Delivered........... 6 6 8 Totals: Housing Revenues.......... $117,674 $165,862 $ 92,876 Homes Delivered........... 676 1,068 635 The three months ended January 31, 1995 sale of homes revenues decrease (compared to the prior year) was due to the Company's change in year end. Average sales prices have increased from $155,302 for the January 31, 1994 period to $173,817 for the January 31, 1995 period. 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, average sales prices are increasing as a result of the addition of new higher priced single family developments. In North Carolina, average sales prices increased primarily due to the addition of higher priced communities to their line of homes previously offered for sale. In Metro Washington, D.C. average sales prices increased because during the three months ended January 31, 1995 there was a higher percentage of single family detached homes delivered than during the three months ended January 31, 1994. Cost of sales include expenses for housing and land and lot sales. A breakout of such expenses for housing sales and housing gross margin is set forth below: Three Months Ended January 31, --------------------- 1995 1994 --------- --------- (Dollars in Thousands) Sale of Homes................... $117,674 $165,862 Cost of Sales................... 94,586 129,512 --------- --------- Housing Gross Margin............ $ 23,088 $ 36,350 ========= ========= Gross Margin Percentage......... 19.6% 21.9% The Company sells a variety of home types in various local communities, each yielding a different gross margin. As a result, depending on the mix of both communities and of home types delivered, consolidated quarterly gross margin will fluctuate up or down and may not be representative of the consolidated gross margin for the year. In addition, the decrease in the gross margin was also due to the following reasons: . Material costs have increased in all markets during the above periods as demand increased for such materials. . A change in product mix with an additional 10.0% of home sales coming from North Carolina and Florida where gross margins are traditionally lower. . Increased competition in all markets which keeps prices and margins down. Selling, general, and administrative expenses increased $4.4 million during the three months ended January 31, 1995 compared to the same period last year. As a percentage of sale of homes revenues such expenses increased to 13.3% for the three months ended January 31, 1995 from 6.8% for the prior year. The increas in selling, general, and administrative expenses is primarily due to an increased number of communities open for sale, and increased advertising and buyer concessions due to a more competitive sales environment. The increase as a percentage of sale of homes revenues is the result of a lower volume due to the change in year end (see year end comments above). Selling, general, and administrative expenses for the three months ended May 31, 1994 as a percentage of sale of homes revenues was 14.0%. Land and Lot Operations: Land sales and other revenues consist primarily of land and lot sales, title insurance activities, interest income, contract deposit forfeitures, and during the three months ended January 31, 1995, California housing management operations. A breakout of land and lot sales is set forth below: Three Months Ended January 31, -------------------- 1995 1994 --------- --------- Land and Lot Sales............................. $ 1,307 $ 1,121 Cost of Sales.................................. 406 746 --------- --------- Land and Lot Sales Gross Margin................ $ 901 $ 375 ========= ========= Land and lot sales are incidental to the Company's residential housing operations and are expected to continue in the future but may significantly fluctuate up or down. In May 1994, the Company purchased a homebuilding and management company in California for $0.8 million. Although no new management contracts are being obtained, the existing contracts resulted in $0.7 million of revenues for the three months ended January 31, 1995. Included in Other Operations (see below) are expenses associated with the California homebuilding management operations, and amortization of a portion of the acquisition price of management contracts. Financial Services Financial services consists primarily of originating mortgages from sales of the Company's homes, and selling such mortgages in the secondary market. Approximately 30% and 20% of the Company's homebuyers obtained mortgages originated by the Company's wholly-owned mortgage banking subsidiaries during the years ended October 31, 1994 and 1993, respectively. For the three months ended January 31, 1995 a loss was incurred primarily due to expansion costs into other Company housing markets, reduced volume, and reduced interest rate spreads, due to increased competition. Most servicing rights on new mortgages originated by the Company will be sold as the loans are closed. Investment Properties Investment Properties consist of rental properties, property management, and gains or losses from sale of such property. At January 31, 1995, the Company owned and was leasing two office buildings, three office/warehouse facilities, three retail centers, and a senior citizen rental community in New Jersey. Investment Properties expenses do not include interest expense which is reported below under "Interest." Collateralized Mortgage Financing In the years prior to February 29, 1988 the Company pledged mortgage loans originated by its mortgage banking subsidiaries against collateralized mortgage obligations ("CMO's"). Subsequently the Company discontinued its CMO program. As a result, CMO operations are diminishing as pledged loans are decreasing through principal amortization and loan payoffs, and related bonds are reduced. In recent years, the Company has sold CMO pledged mortgages. The cost of such sales and the write-off of unamortized issuance expenses resulted in the loss during the three months ended January 31, 1994. Corporate General and Administrative Corporate general and administration expenses includes the operations at the Company's headquarters in Red Bank, New Jersey. Such expenses includes the Company's long term improvement initiatives of total quality, process redesign, and training. Such initiatives resulted in additional expenses for the three months ended January 31, 1995 over 1994 amounting to approximately $0.4 million. Excluding such initiatives, Corporate general and administration expenses increased $0.1 million during the three months ended January 31, 1995 compared to the same period last year, or 4.4%. As a percentage of total revenues such expenses were 2.6% and 1.5% for the three months ended January 31, 1995 and 1994, respectively. As a percentage of total revenues such expenses were 3.2% for the three months ended May 31, 1994. Interest Interest expense includes housing, land and lot, and rental properties interest. Interest expense is broken down as follows: Three Months Ended January 31, -------------------- 1995 1994 --------- --------- Sale of Homes......................... $ 3,727 $ 4,607 Land and Lot Sales.................... 23 13 Rental Properties..................... 1,165 1,081 --------- --------- Total................................. $ 4,915 $ 5,701 ========= ========= Housing interest as a percentage of sale of homes revenues amounted to 3.2% and 2.8% for the three months ended January 31, 1995 and 1994, respectively. The increase of interest as a percentage of sale of homes revenues is primarily attributable to increased interest rates on the Company's line of credit. Other Operations Other operations consisted primarily of title insurance activities, miscellaneous residential housing operations expenses, amortization of prepaid subordinated note issuance expenses, corporate owned life insurance loan interest, and California housing management operations (see "Land Sales and Other Revenues" above). During the three months ended January 31, 1995 other expenses included California homebuilding management expenses and amortization of purchased management contracts totaling $0.8 million. Total Taxes Total taxes as a percentage of income before income taxes amounted to 6.9% and 30.9% for the three months ended January 31, 1995 and 1994, respectively. The low percentage for the three months ended January 31, 1995 was due primarily to permanent differences between book and tax income. The lower income before income taxes is the greater the impact such differences have on taxes as a percentage of income. Deferred federal and state income tax assets primarily represents the deferred tax benefits arising from temporary differences between book and tax income which will be recognized in future years. 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. 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: 3/16/95 /S/KEVORK S. HOVNANIAN Kevork S. Hovnanian, Chairman of the Board and Chief Executive Officer DATE: 3/16/95 /S/PAUL W. BUCHANAN Paul W. Buchanan, Senior Vice President Corporate Controller
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.

 


Article 5
Multiplier 1,000 except EPS
Period                                      3 months
Fiscal Year End                     October 31, 1995
Period End                          January 31, 1995
Cash                                          10,532
Securities                                        --
Receivables                                   29,545
Allowances For Doubtful Accounts                  --
Inventory                                    441,307
Total Current Assets                         513,935
PP&E                                          24,176
Accumulated Depreciation                      12,326
Total Assets                                 640,414
Total Current Liabilities                    237,173
Bonds and Mortgages                          240,377
Preferred Stock                                   --
Common Stock                                     237
Other Stockholder's Equity                   162,627
Total Liability and Equity                   640,414
Net Sales of Tangible Products                    --
Total Revenues                               125,596
Costs of Tangible Goods Sold                      --
Total Cost and Expenses Applicable
  to Sales and Revenues                      119,893
Other Costs and Expenses                          --
Provision for Doubtful Accounts                   --
Interest Expense                               4,915
Income Before Taxes                              788
Income Tax Expense                                54
Income/Loss Continuing Operations                734
Discontinued Operations                           --
Extraordinary Items                               --
Cumulative Effect-Change In
  Accounting Principles                           --
Net Income or Loss                               734
EPS-Primary                                     0.03
EPS-Diluted                                     0.03