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, 1996  or

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

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 [ X ]    No [  ]

     Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.  15,090,170 Class A Common
Shares and 7,946,883 Class B Common Shares were outstanding as of February 20,
1996.
                          HOVNANIAN ENTERPRISES, INC.

                                   FORM 10Q

                                     INDEX

                                                              PAGE NUMBER

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

              Consolidated Balance Sheets at January 31,
                1996 (unaudited) and October 31, 1995                3

              Consolidated Statements of Income for the
                three months ended January 31, 1996
                and 1995 (unaudited)                                 5

              Consolidated Statements of Stockholders' Equity
                for the three months ended January 31, 1996
                (unaudited)                                          6

              Consolidated Statements of Cash Flows
                for the three months ended January 31, 1996
                and 1995 (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                                                          17


                  HOVNANIAN ENTERPRISES, INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                                 (In Thousands)
January 31, October 31, ASSETS 1996 1995 ----------- ----------- Homebuilding: Cash and cash equivalents....................... $ 7,499 $ 14,147 ----------- ----------- Inventories - At cost, not in excess of fair value: Sold and unsold homes and lots under development.................................. 372,650 345,410 Land and land options held for future development or sale......................... 62,908 59,003 ----------- ----------- Total Inventories........................... 435,558 404,413 ----------- ----------- Receivables, deposits, and notes................ 32,785 27,782 ----------- ----------- Property, plant, and equipment - net............ 15,476 14,644 ----------- ----------- Prepaid expenses and other assets............... 35,714 26,422 ----------- ----------- Total Homebuilding.......................... 527,032 487,408 ----------- ----------- Financial Services: Cash and cash equivalents....................... 362 1,306 Mortgage loans held for sale.................... 16,688 46,621 Other assets.................................... 1,394 1,940 ----------- ----------- Total Financial Services.................... 18,444 49,867 ----------- ----------- Investment Properties: Rental property - net........................... 55,115 63,310 Property under development or held for future development................................... 11,465 11,368 Other assets.................................... 11,644 3,795 Investment in and advances to unconsolidated joint venture................................. 612 3,804 ----------- ----------- Total Investment Properties................. 78,836 82,277 ----------- ----------- Collateralized Mortgage Financing: Collateral for bonds payable.................... 17,546 18,184 Other assets.................................... 733 1,281 ----------- ----------- Total Collateralized Mortgage Financing..... 18,279 19,465 ----------- ----------- Income Taxes Receivable - Including deferred tax benefits........................................ 4,470 6,361 ----------- ----------- Total Assets...................................... $647,061 $645,378 =========== =========== See notes to consolidated financial statements.
HOVNANIAN ENTERPRISES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (In Thousands)
January 31, October 31, LIABILITIES AND STOCKHOLDERS' EQUITY 1996 1995 ----------- ----------- Homebuilding: Nonrecourse land mortgages......................... $ 22,249 $ 25,046 Accounts payable and other liabilities............. 29,477 48,619 Customers' deposits................................ 13,505 11,626 Nonrecourse mortgage secured by operating property. 3,983 4,003 ----------- ----------- Total Homebuilding............................. 69,214 89,294 ----------- ----------- Financial Services: Accounts payable and other liabilities............. 287 1,043 Mortgage warehouse line of credit.................. 14,070 41,855 ----------- ----------- Total Financial Services....................... 14,357 42,898 ----------- ----------- Investment Properties: Accounts payable and other liabilities............. 1,157 1,105 Nonrecourse mortgages secured by rental property... 31,389 31,490 ----------- ----------- Total Investment Properties.................... 32,546 32,595 ----------- ----------- Collateralized Mortgage Financing: Accounts payable and other liabilities............. 13 14 Bonds collateralized by mortgages receivable....... 16,731 17,880 ----------- ----------- Total Collateralized Mortgage Financing........ 16,744 17,894 ----------- ----------- Notes Payable: Revolving credit agreement......................... 131,400 80,650 Subordinated notes................................. 200,000 200,000 Accrued interest................................... 5,965 5,712 ----------- ----------- Total Notes Payable............................ 337,365 286,362 ----------- ----------- Total Liabilities.............................. 470,226 469,043 ----------- ----------- 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 15,384,357 shares (including 345,874 shares held in Treasury)...... 154 154 Common Stock,Class B,$.01 par value-authorized 13,000,000 shares; issued 8,344,444 shares (including 345,874 shares held in Treasury)...... 83 83 Paid in Capital.................................... 33,935 33,935 Retained Earnings.................................. 147,962 147,462 Treasury Stock - at cost........................... (5,299) (5,299) ----------- ----------- Total Stockholders' Equity..................... 176,835 176,335 ----------- ----------- Total Liabilities and Stockholders' Equity........... $647,061 $645,378 =========== =========== 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, -------------------- 1996 1995 --------- --------- Revenues: Homebuilding: Sale of homes....................... $108,570 $117,674 Land sales and other revenues....... 2,460 3,677 --------- --------- Total Homebuilding................ 111,030 121,351 Financial Services.................... 1,121 1,139 Investment Properties................. 4,541 2,566 Collateralized Mortgage Financing..... 447 540 --------- --------- Total Revenues.................... 117,139 125,596 --------- --------- Expenses: Homebuilding: Cost of sales....................... 88,295 94,992 Selling, general and administrative. 14,012 15,634 --------- --------- Total Homebuilding................ 102,307 110,626 Financial Services.................... 1,814 2,007 Investment Properties................. 1,714 1,454 Collateralized Mortgage Financing..... 475 514 Corporate General and Administration.. 3,643 3,099 Interest.............................. 5,600 4,915 Other operations...................... 1,270 2,193 --------- --------- Total Expenses.................... 116,823 124,808 --------- --------- Income Before Income Taxes.............. 316 788 --------- --------- State and Federal Income Taxes: State................................. 540 167 Federal............................... (724) (113) --------- --------- Total Taxes......................... (184) 54 --------- --------- Net Income.............................. $ 500 $ 734 ========= ========= Earnings Per Common Share............... $ .02 $ .03 ========= ========= 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, 1995... 15,038,483 $154 7,998,570 $83 $33,935 $147,462 $(5,299) $176,335 Net Income.................. 500 500 ----------- -------- ----------- -------- ------- --------- --------- -------- Balance, January 31, 1996... 15,038,483 $154 7,998,570 $83 $33,935 $147,962 $(5,299) $176,835 =========== ======== =========== ======== ======= ========= ========= ======== See notes to consolidated financial statements.
HOVNANIAN ENTERPRISES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (In Thousands)
Three Months Ended January 31, ---------------------- 1996 1995 ---------- --------- Cash Flows From Operating Activities: Net Income............................................. $ 500 $ 734 Adjustments to reconcile net income to net cash used in operating activities: Depreciation....................................... 1,229 994 Gain on sale and retirement of property and assets....................................... (2,114) (70) Deferred income taxes.............................. 1,835 1,794 Decrease (increase) in assets: Escrow cash...................................... 668 (1,700) Receivables, prepaids and other assets........... (13,173) (8,593) Mortgage notes receivable........................ 22,047 13,966 Inventories...................................... (31,145) (54,767) Increase (decrease) in liabilities: State and Federal income taxes................... 56 (2,066) Customers' deposits.............................. 1,885 3,295 Interest and other accrued liabilities........... (8,070) (1,737) Post development completion costs................ (601) (489) Accounts payable................................. (11,558) (554) ---------- ---------- Net cash used in operating activities.......... (38,441) (49,193) ---------- ---------- Cash Flows From Investing Activities: Proceeds from sale of property and assets.............. 10,400 249 Investment in property and assets...................... (220) Purchase of property................................... (1,448) (443) Investment in and advances to unconsolidated affiliates 3,188 294 Investment in income producing properties.............. (387) 138 ---------- ---------- Net cash provided by investing activities...... 11,753 18 ---------- ---------- Cash Flows From Financing Activities: Proceeds from mortgages and notes...................... 145,935 323,488 Principal payments on mortgages and notes.............. (126,770) (284,294) Investment in mortgage notes receivable................ 640 1,219 ---------- ---------- Net cash provided by financing activities...... 19,805 40,413 ---------- ---------- Net Decrease In Cash..................................... (6,883) (8,762) Cash Balance, Beginning Of Period........................ 11,914 14,537 ---------- ---------- Cash Balance, End Of Period.............................. $ 5,031 $ 5,775 ========== ========== 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, 1995 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 January 31, ------------------- 1996 1995 -------- -------- (Dollars in Thousands) Interest Incurred (1): Residential (3).................. $ 7,085 $ 6,989 Commercial(4).................... 1,510 1,200 -------- -------- Total Incurred................. $ 8,595 $ 8,189 ======== ======== Interest Expensed: Residential (3).................. $ 4,090 $ 3,750 Commercial (4)................... 1,510 1,165 -------- -------- Total Expensed................ $ 5,600 $ 4,915 ======== ======== Interest Capitalized at Beginning of Period.............. $ 36,182 $ 28,948 Plus Interest Incurred............. 8,595 8,189 Less Interest Expensed............. 5,600 4,915 Less Charges to Reserves........... 147 50 -------- -------- Interest Capitalized at End of Period ................... $ 39,030 $ 32,172 ======== ======== Interest Capitalized at End of Period (5): Residential(3)................... $ 32,532 $ 26,025 Commercial(2).................... 6,498 6,147 -------- -------- Total Capitalized.............. $ 39,030 $ 32,172 ======== ======== (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 interest expense. (4) Represents interest allocated to or incurred on long term debt for investment properties and charged to interest expense. (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. Homebuilding accumulated depreciation at January 31, 1996 and October 31, 1995 amounted to $13,333,000 and $13,731,000, respectively. Rental property accumulated depreciation at January 31, 1996 and October 31, 1995 amounted to $9,515,000 and $9,440,000, respectively. 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, 1996 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 1998. 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, 1996, borrowings under the Agreement were $131,400,000. The aggregate principal amount of subordinated indebtedness issued by the Company and outstanding as of January 31, 1996 was $200,000,000. Annual sinking fund payments of $20,000,000 are required in April 2000 and 2001 with additional payments of $60,000,000 and $100,000,000 due in April 2002 and June 2005, respectively. 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, 1996, the aggregate principal amount of all such borrowings was $30,801,000. 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, 1996 1995 ------------ ------------ Residential real estate inventory.......... $435,558,000 $404,413,000 Residential rental property................ 12,596,000 12,381,000 ------------ ------------ Total Residential Real Estate............ 448,154,000 416,794,000 Commercial properties...................... 53,984,000 62,297,000 ------------ ------------ Combined Total........................... $502,138,000 $479,091,000 ============ ============ Total residential real estate increased $31,360,000 during the three months ended January 31, 1996 primarily as a result of an inventory increase of $31,145,000. The increase in residential real estate inventory was primarily due to the Company's seasonal increase in construction activities for deliveries later this year. Substantially all residential homes under construction or completed and included in real estate inventory at January 31, 1996 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) Homes Contracted Remaining Commun- Approved Deliv- Not Home Sites ities Lots ered Delivered Available ------- -------- ------ ---------- --------- January 31, 1996... 88 14,744 4,939 1,505 8,300 October 31, 1995... 92 14,767 4,743 1,426 8,598 (1) Includes 25 and 97 lots under option at January 31, 1996 and October 31, 1995, respectively. (2) Of the total home lots available, 526 and 420 were under construction or complete (including 117 and 119 models and sales offices) and 1,695 and 2,353 were under option at January 31, 1996 and October 31, 1995, respectively. In addition, in substantially completed or suspended developments the Company owned or had under option 476 and 323 home lots at January 31, 1996 and October 31, 1995, 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, 1996 the Company controlled such land to build 12,964 proposed homes, compared to 12,637 homes at October 31, 1995. 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, 1996, the Company had long-term non-recourse financing aggregating $31,389,000 on six commercial facilities, a decrease from October 31, 1995, due to $101,000 in principal amortization. In January, 1996 the Company sold a retail center with a book value of $8,022,000 at October 31, 1995. The sale of this center and first quarter depreciation were the primary causes for the $8,313,000 decrease in commercial properties. The collateralized mortgages receivable are pledged against non-recourse collateralized mortgage obligations. Residential mortgages receivable amounting to $15,738,000 and $45,669,000 at January 31, 1996 and October 31, 1995, 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, 1996 COMPARED TO THE THREE MONTHS ENDED JANUARY 31, 1995 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. In addition, the Company develops and operates commercial properties as long-term investments in New Jersey, and, to a lesser extent, Florida. Historically, the Company's first quarter produces the least amount of deliveries for the year. This was true for fiscal 1995 and management believes will be true for fiscal 1996. As a result, the first quarter also produces the lowest quarterly net income for the year. An important indicator of the future results is the Company's contract backlog and recently signed contracts. At January 31, 1996 the Company's home contract backlog for future delivery was 1,530 homes, with an aggregate sales value of $279.0 million, compared to 1,914 homes, with an aggregate sales value of $330.2 million at the same time last year. For the three months ended January 31, 1996 net contracts signed amounted to $106.4 million or 648 homes, compared to $127.1 million or 780 homes for the same period last year. Substantially all of the decline is attributable to the reduced number of signed contracts in October and November 1995 compared to October and November 1994. In addition signed contracts in February 1996 exceeded February 1995 by 86%. During the four months ended February 1996 signed contracts increased 11.3% over the same period last year. Total Revenues: Revenues for the three months ended January 31, 1996 decreased $8.4 million or 6.7%, compared to the same period last year. This was a result of decreased revenues from sale of homes of $9.1 million, a $1.2 million decrease in land sales and other homebuilding revenues, and a $0.1 million decrease in collateralized mortgage financing revenues. These decreases were partially offset by a $2.0 million increase in investment properties. Homebuilding: Sale of homes revenues decreased $9.1 million or 7.7% during the three months ended January 31, 1996 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 January 31, ------------------ 1996 1995 -------- -------- (Dollars in Thousands) Northeast Region: Housing Revenues..... $ 55,365 $ 72,874 Homes Delivered...... 280 395 North Carolina: Housing Revenues..... $ 21,062 $ 21,585 Homes Delivered...... 124 135 Florida: Housing Revenues..... $ 17,878 $ 15,917 Homes Delivered...... 117 104 Metro Washington, D.C.: Housing Revenues..... $ 4,397 $ 4,886 Homes Delivered...... 21 25 California: Housing Revenues..... $ 9,868 $ 2,094 Homes Delivered...... 52 11 Other: Housing Revenues..... -- $ 318 Homes Delivered...... -- 6 Totals: Housing Revenues..... $108,570 $117,674 Homes Delivered...... 594 676 The three months ended January 31, 1996 decrease in sale of homes revenues (compared to the prior year) was primarily due to the decrease in the number of homes sold and subsequently delivered. Average sales prices have increased from $174,074 for the three months ended January 31, 1995 to $182,778 for the three months ended January 31, 1996. 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 North Carolina, average sales prices increased primarily due to the addition of higher priced communities. In Metro Washington, D.C. average sales prices increased because there was a higher percentage of single family detached homes delivered. In Florida and California, average sales prices remained the same from 1995 to 1996. 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, --------------------- 1996 1995 --------- --------- (Dollars in Thousands) Sale of Homes...................$108,570 $117,674 Cost of Sales................... 87,291 94,586 --------- --------- Housing Gross Margin............$ 21,291 $ 23,088 ========= ========= Gross Margin Percentage......... 19.6% 19.6% 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. Although gross margins increased in all the Company's markets except Metro Washington, D. C., total gross margin remained the same for the three months ended January 31, 1996 compared to the same period last year. This was primarily due to a change in geographic product mix with 51.0% of the home deliveries coming from the Northeast Region where margins are higher, compared to 61.9% for the same period last year. Selling, general, and administrative expenses decreased $1.6 million during the three months ended January 31, 1996 compared to the same period last year. As a percentage of sale of homes revenues such expenses decreased to 12.9% for the three months ended January 31, 1996 from 13.3% for the prior year. The three month decrease in selling, general, and administrative expenses in dollars is primarily due to decreased deliveries. The three month decrease as a percentage of sale of homes revenues is primarily the result of decreased commissions due to decreased sales orders. Land Sales and Other Revenues: Land sales and other revenues consist primarily of land and lot sales, title insurance activities, interest income, contract deposit forfeitures, and California housing management operations. A breakout of land and lot sales is set forth below: Three Months Ended January 31, ------------------ 1996 1995 -------- -------- Land and Lot Sales................... $ 1,193 $ 1,307 Cost of Sales........................ 1,004 406 -------- -------- Land and Lot Sales Gross Margin...... $ 189 $ 901 ======== ======== 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 compared to zero for the three months ended January 31, 1996. 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 34% and 30% of the Company's homebuyers obtained mortgages originated by the Company's wholly-owned mortgage banking subsidiaries during the years ended October 31, 1995 and 1994, respectively. For the three months ended January 31, 1996 and 1995 substantially all of the financial services losses were the result of reduced volume and low 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, 1996, the Company owned and was leasing two office buildings, three office/warehouse facilities, two retail centers, and two senior citizen rental communities in New Jersey. During the three months ended January 31, 1996 the Company sold a retail center and reported a pretax profit of $2.1 million. 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 has resulted in losses. Corporate General and Administrative Corporate general and administration expenses includes the operations at the Company's headquarters in Red Bank, New Jersey. Corporate general and administration expenses increased $0.5 million during the three months ended January 31, 1996 compared to the same period last year, or 17.6%. As a percentage of total revenues such expenses were 3.1% and 2.5% for the three months ended January 31, 1996 and 1995, respectively. The increase was primarily the result of a one-time insurance adjustment and increased depreciation on recently acquired computer equipment. Interest Interest expense includes housing, land and lot, and rental properties interest. Interest expense is broken down as follows: Three Months Ended January 31, ------------------ 1996 1995 -------- -------- Sale of Homes.................. $ 4,050 $ 3,727 Land and Lot Sales............. 40 23 Rental Properties.............. 1,510 1,165 -------- -------- Total.......................... $ 5,600 $ 4,915 ======== ======== Housing interest as a percentage of sale of homes revenues amounted to 3.7% and 3.2% for the three months ended January 31, 1996 and 1995, respectively. The increase of interest as a percentage of sale of homes revenues is primarily attributable to slower inventory turnover. 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% for the three months ended January 31, 1995 and was a tax credit for the three months ended January 31, 1996. 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: March 13, 1996 /S/KEVORK S. HOVNANIAN Kevork S. Hovnanian, Chairman of the Board and Chief Executive Officer DATE: March 13, 1996 /S/PAUL W. BUCHANAN Paul W. Buchanan, Senior Vice President Corporate Controller
 

5 1000 3-MOS OCT-31-1996 JAN-31-1996 7,681 0 32,785 0 435,558 546,114 28,806 13,333 647,061 218,123 252,103 237 0 0 176,598 647,061 109,763 117,139 88,295 111,223 0 0 5,600 316 (184) 500 0 0 0 500 0.02 0.02