20.	Financial Information of Subsidiary Issuer and Subsidiary Guarantors

Hovnanian Enterprises, Inc., the parent company (the “Parent”), is the issuer of publicly traded common stock and preferred stock, which is represented by depository shares. One of its wholly owned subsidiaries, K. Hovnanian Enterprises, Inc. (the “Subsidiary Issuer”), acts as a finance entity that, as of

January

31,

2017,

had issued and outstanding

$1,067.0

million of senior secured notes

($1,042.6

million, net of discount and debt issuance costs),

$368.5

million senior notes

($365.3

million net of debt issuance costs) and

$4.0

million senior amortizing notes

($3.9

million net of debt issuance costs) and

$51.9

million senior exchangeable notes (issued as components of our

6.0%

Exchangeable Note Units)

($51.6

million net of debt issuance costs). The senior secured notes, senior notes, senior amortizing notes and senior exchangeable notes are fully and unconditionally guaranteed by the Parent.

In addition to the Parent, each of the wholly owned subsidiaries of the Parent other than the Subsidiary Issuer (collectively, “Notes Guarantors”), with the exception of our home mortgage subsidiaries, certain of our title insurance subsidiaries, joint ventures and subsidiaries holding interests in our joint ventures (collectively, the “Nonguarantor Subsidiaries”), have guaranteed fully and unconditionally, on a joint and several basis, the obligations of the Subsidiary Issuer to pay principal and interest under the senior secured notes (other than the

2021

Notes and the

9.5%

Notes), senior notes, senior exchangeable notes and senior amortizing notes. The Notes Guarantors are directly or indirectly

100%

owned subsidiaries of the Parent. The

2021

Notes and the

9.5%

Notes are guaranteed by the Notes Guarantors and the members of the JV Holdings Secured Group (see Note

11).

The senior amortizing notes and senior exchangeable notes have been registered under the Securities Act of

1933,

as amended. The

7.0%

Senior Notes due

2019,

the

8.0%

Senior Notes due

2019

and our senior secured notes (see Note

11)

are not, pursuant to the indentures under which such notes were issued, required to be registered under the Act. The Condensed Consolidating Financial Statements presented below are in respect of our registered notes only and not the

7.0%

Senior Notes due

2019,

the

8.0%

Senior Notes due

2019

or the senior secured notes (however, the Notes Guarantors for the

7.0%

Senior Notes due

2019,

the

8.0%

Senior Notes due

2019,

the

2020

Secured Notes and the

10.0%

Second Lien Notes are the same as those represented by the accompanying Condensed Consolidating Financial Statements). In lieu of providing separate financial statements for the Notes Guarantors of our registered notes, we have included the accompanying Condensed Consolidating Financial Statements. Therefore, separate financial statements and other disclosures concerning such Notes Guarantors are not presented.

The following Condensed Consolidating Financial Statements present the results of operations, financial position and cash flows of (i) the Parent, (ii) the Subsidiary Issuer, (iii) the Notes Guarantors, (iv) the Nonguarantor Subsidiaries and (v) the eliminations to arrive at the information for Hovnanian Enterprises, Inc. on a consolidated basis.

HOVNANIAN ENTERPRISES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

CONDENSED CONSOLIDATING BALANCE SHEET

JANUARY

31,

2017

(In Thousands)

	Parent		Subsidiary Issuer		Guarantor Subsidiaries	Nonguarantor Subsidiaries	Eliminations		Consolidated
ASSETS:
Homebuilding	$-		$147,033		$1,216,610	$385,082	$-		$1,748,725
Financial services					19,392	93,857			113,249
Income taxes receivable	130,251		(51,663	)	204,702	32			283,322
Intercompany receivable			1,312,141			7,353	(1,319,494	)	-
Investments in and amounts due from consolidated subsidiaries					357,276		(357,276	)	-
Total assets	$130,251		$1,407,511		$1,797,980	$486,324	$(1,676,770	)	$2,145,296

LIABILITIES AND EQUITY:
Homebuilding, excluding Notes payable and term loan and Revolving credit facility	$2,179		$545		$502,953	$61,856	$-		$567,533
Financial services					19,197	67,173			86,370
Notes payable and term loan and Revolving credit facility			1,616,009		3,648	16			1,619,673
Intercompany payable	157,245				1,162,249		(1,319,494	)	-
Amounts due to consolidated subsidiaries	99,107		9,089				(108,196	)	-
Stockholders’ (deficit) equity	(128,280	)	(218,132	)	109,933	357,279	(249,080	)	(128,280	)
Total liabilities and equity	$130,251		$1,407,511		$1,797,980	$486,324	$(1,676,770	)	$2,145,296

HOVNANIAN ENTERPRISES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

CONDENSED CONSOLIDATING BALANCE SHEET

OCTOBER

31,

2016

(In Thousands)

	Parent		Subsidiary Issuer		Guarantor Subsidiaries	Nonguarantor Subsidiaries	Eliminations		Consolidated
ASSETS:
Homebuilding	$-		$271,216		$1,194,267	$408,610	$ -		$1,874,093
Financial services					13,453	183,777			197,230
Income taxes receivable	115,940		(58,597	)	226,258	32			283,633
Intercompany receivable			1,227,334			88,112	(1,315,446	)	-
Investments in and amounts due from consolidated subsidiaries			4,914		437,628		(442,542	)	-
Total assets	$115,940		$1,444,867		$1,871,606	$680,531	$(1,757,988	)	$2,354,956

LIABILITIES AND EQUITY:
Homebuilding , excluding Notes payable and term loan and Revolving credit facility	$3,506		$1,118		$565,163	$83,476	$-		$653,263
Financial services					13,338	159,107			172,445
Notes payable and term loan and Revolving credit facility			1,652,357		5,084	317			1,657,758
Intercompany payable	157,993				1,157,453		(1,315,446	)	-
Amounts due to consolidated subsidiaries	82,951						(82,951	)	-
Stockholders’ (deficit) equity	(128,510	)	(208,608	)	130,568	437,631	(359,591	)	(128,510	)
Total liabilities and equity	$115,940		$1,444,867		$1,871,606	$680,531	$(1,757,988	)	$2,354,956

HOVNANIAN ENTERPRISES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS

THREE MONTHS ENDED

JANUARY

31,

2017

(In Thousands)

	Parent		Subsidiary Issuer		Guarantor Subsidiaries		Nonguarantor Subsidiaries		Eliminations		Consolidated
Revenues:
Homebuilding	$-		$-		$455,372		$83,788		$-		$539,160
Financial services					2,498		10,351				12,849
Intercompany charges			22,940						(22,940	)	-
Total revenues	-		22,940		457,870		94,139		(22,940	)	552,009

Expenses:
Homebuilding	528		33,042		444,593		72,648				550,811
Financial services					1,713		5,142				6,855
Intercompany charges					22,940				(22,940	)	-
Total expenses	528		33,042		469,246		77,790		(22,940	)	557,666
Gain on extinguishment of debt			7,646								7,646
Income (loss) from unconsolidated joint ventures					16		(1,682	)			(1,666	)
(Loss) income before income taxes	(528	)	(2,456	)	(11,360	)	14,667		-		323
State and federal income tax (benefit) provision	(16,541	)	(6,935	)	23,942						466
Equity in (loss) income of consolidated subsidiaries	(16,156	)	(14,003	)	14,667				15,492		-
Net (loss) income	$(143	)	$(9,524	)	$(20,635	)	$14,667		$15,492		$(143	)

HOVNANIAN ENTERPRISES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS

THREE MONTHS ENDED

JANUARY

31,

2016

(In Thousands)

	Parent		Subsidiary Issuer		Guarantor Subsidiaries		Nonguarantor Subsidiaries		Eliminations		Consolidated
Revenues:
Homebuilding	$-		$-		$474,910		$82,469		$-		$557,379
Financial services					2,245		15,981				18,226
Intercompany charges			34,540						(34,540	)	-
Total revenues	-		34,540		477,155		98,450		(34,540	)	575,605

Expenses:
Homebuilding	1,940		35,811		466,620		74,733				579,104
Financial services					1,624		6,591				8,215
Intercompany charges					34,463		77		(34,540	)	-
Total expenses	1,940		35,811		502,707		81,401		(34,540	)	587,319
Income (loss) from unconsolidated joint ventures					16		(1,496	)			(1,480	)
(Loss) income before income taxes	(1,940	)	(1,271	)	(25,536	)	15,553		-		(13,194	)
State and federal income tax (benefit) provision	(14,550	)	(6,918	)	24,447						2,979
Equity in (loss) income of consolidated subsidiaries	(28,783	)	(13,510	)	15,553				26,740		-
Net (loss) income	$(16,173	)	$(7,863	)	$(34,430	)	$15,553		$26,740		$(16,173	)

HOVNANIAN ENTERPRISES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS

THREE MONTHS ENDED

JANUARY

31,

2017

(In Thousands)

	Parent		Subsidiary Issuer		Guarantor Subsidiaries		Nonguarantor Subsidiaries		Eliminations		Consolidated
Cash flows from operating activities:
Net (loss) income	$(143	)	$(9,524	)	$(20,635	)	$14,667		$15,492		$(143	)
Adjustments to reconcile net (loss) income to net cash (used in) provided by operating activities	(15,265	)	(10,126	)	66,555		387		(15,492	)	26,059
Net cash (used in) provided by operating activities	(15,408	)	(19,650	)	45,920		15,054		-		25,916
Cash flows from investing activities:
Proceeds from sale of property and assets					60						60
Purchase of property, equipment & other fixed assets and acquisitions					(560	)					(560	)
Increase in restricted cash related to mortgage company							(2,324	)			(2,324	)
Decrease in restricted cash related to letters of credit			(1	)							(1	)
Investments in and advances to unconsolidated joint ventures			(93	)	(94	)	(14,452	)			(14,639	)
Distributions of capital from unconsolidated joint ventures					231		1,708				1,939
Intercompany investing activities			(70,802	)					70,802		-
Net cash (used in) provided by investing activities	-		(70,896	)	(363	)	(15,068	)	70,802		(15,525	)
Cash flows from financing activities:
Net payments from mortgages and notes					2,154		(11,065	)			(8,911	)
Net proceeds from model sale leaseback financing programs					(2,205	)	(1,316	)			(3,521	)
Net proceeds from land bank financing programs					(18,371	)	(4,491	)			(22,862	)
Payments related to senior notes and senior amortizing notes			(33,086	)							(33,086	)
Net proceeds related to mortgage warehouse lines of credit							(86,058	)			(86,058	)
Deferred financing cost from land bank financing program and note issuances			(528	)	(397	)	(13	)			(938	)
Intercompany financing activities	15,408				(25,365	)	80,759		(70,802	)	-
Net cash provided by (used in) financing activities	15,408		(33,614	)	(44,184	)	(22,184	)	(70,802	)	(155,376	)
Net decrease in cash and cash equivalents	-		(124,160	)	1,373		(22,198	)	-		(144,985	)
Cash and cash equivalents balance, beginning of period			261,553		(395	)	85,607				346,765
Cash and cash equivalents balance, end of period	$-		$137,393		$978		$63,409		$-		$201,780

HOVNANIAN ENTERPRISES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS

THREE MONTHS ENDED

JANUARY

31,

2016

(In Thousands)

	Parent		Subsidiary Issuer		Guarantor Subsidiaries		Nonguarantor Subsidiaries		Eliminations		Consolidated
Cash flows from operating activities:
Net (loss) income	$(16,173	)	$(7,863	)	$(34,430	)	$15,553		$26,740		$(16,173	)
Adjustments to reconcile net (loss) income to net cash used in operating activities	(11,768	)	(16,045	)	80,623		(74,978	)	(26,740	)	(48,908	)
Net cash used in operating activities	(27,941	)	(23,908	)	46,193		(59,425	)	-		(65,081	)
Cash flows from investing activities:
Proceeds from sale of property and assets					72		21				93
Purchase of property, equipment & other fixed assets and acquisitions					(1,223	)	(30	)			(1,253	)
Increase in restricted cash related to mortgage company							(81	)			(81	)
Decrease in restricted cash related to mortgage company			52								52
Investments in and advances to unconsolidated joint ventures			(130	)	(865	)	(10,502	)			(11,497	)
Distribution of capital from unconsolidated joint ventures					80		2,052				2,132
Intercompany investing activities			117,284						(117,284	)	-
Net cash used in investing activities	-		117,206		(1,936	)	(8,540	)	(117,284	)	(10,554	)
Cash flows from financing activities:
Net proceeds from mortgages and notes					(10,035	)	(5,358	)			(15,393	)
Net proceeds from model sale leaseback financing programs					2,118		111				2,229
Net proceeds from land bank financing programs					106,813		28,261				135,074
Payments related to senior notes and senior amortizing notes			(175,040	)							(175,040	)
Net proceeds related to mortgage warehouse lines of credit							31,481				31,481
Deferred financing cost from land bank financing program and note issuances					(2,496	)	(1,387	)			(3,883	)
Intercompany financing activities	27,941				(143,237	)	(1,988	)	117,284		-
Net cash provided by financing activities	27,941		(175,040	)	(46,837	)	51,120		117,284		(25,532	)
Net decrease in cash	-		(81,742	)	(2,580	)	(16,845	)	-		(101,167	)
Cash and cash equivalents balance, beginning of period			199,318		(4,800	)	59,227				253,745
Cash and cash equivalents balance, end of period	$-		$117,576		$(7,380	)	$42,382		$-		$152,578