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

April 30, 2017,

had issued and outstanding

$1,067.0

million of senior secured notes (

$1,044.0

million, net of discount and debt issuance costs),

$368.5

million senior notes (

$365.6

million net of debt issuance costs) and

$4.0

million senior amortizing notes (

$3.9

million net of debt issuance costs) and

$52.6

million senior exchangeable notes (issued as components of our

6.0%

Exchangeable Note Units) (

$52.4

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

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

33,

as amended (the “Securities Act”). The

7.0%

Senior Notes due

2019,

the

8.0%

Senior Notes due

2019

and our senior secured notes (see Note

) are

not,

pursuant to the indentures under which such notes were issued, required to be registered under the Securities 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

APR

30,

2017

(In Thousands)

	Parent			Subsidiary Issuer			Guarantor Subsidiaries		Nonguarantor Subsidiaries		Eliminations			Consolidated
ASSETS:
Homebuilding	$	-		$	201,443		$	1,133,656	$	394,507	$	-		$	1,729,606
Financial services								20,377		99,161					119,538
Income taxes receivable		134,291			(43,308	)		193,437		32					284,452
Intercompany receivable					1,249,183					14,076		(1,263,259	)		-
Investments in and amounts due from consolidated subsidiaries								372,077				(372,077	)		-
Total assets	$	134,291		$	1,407,318		$	1,719,547	$	507,776	$	(1,635,336	)	$	2,133,596

LIABILITIES AND EQUITY:
Homebuilding, excluding Notes payable and term loan and Revolving credit facility	$	2,467		$	129		$	488,589	$	57,862	$	-		$	549,047
Financial services								19,725		77,352					97,077
Notes payable and term loan and Revolving credit facility					1,617,889			3,001		485					1,621,375
Intercompany payable		155,137						1,108,125				(1,263,262	)		-
Amounts due to consolidated subsidiaries		110,590			23,975							(134,565	)		-
Stockholders ’ (deficit) equity		(133,903	)		(234,675	)		100,107		372,077		(237,509	)		(133,903	)
Total liabilities and equity	$	134,291		$	1,407,318		$	1,719,547	$	507,776	$	(1,635,336	)	$	2,133,596

HOVNANIAN ENTERPRISES, INC. AND SUB

SIDIARIES

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 SU

BSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS

THREE MONTHS ENDED

APRIL 30,

201

(In Thousands)

	Parent			Subsidiary Issuer			Guarantor Subsidiaries			Nonguarantor Subsidiaries			Eliminations			Consolidated
Revenues:
Homebuilding	$	-		$	-		$	483,942		$	87,499		$	-		$	571,441
Financial services								2,749			11,745						14,494
Intercompany charges					23,218									(23,218	)		-
Total revenues		-			23,218			486,691			99,244			(23,218	)		585,935

Expenses:
Homebuilding		1,471			32,987			472,748			74,264						581,470
Financial services								1,760			5,600						7,360
Intercompany charges								23,218						(23,218	)		-
Total expenses		1,471			32,987			497,726			79,864			(23,218	)		588,830
Loss on extinguishment of debt					(242	)											(242	)
I ncome (loss) from unconsolidated joint ventures								20			(4,582	)					(4,562	)
(Loss) income before income taxes		(1,471	)		(10,011	)		(11,015	)		14,798			-			(7,699	)
State and federal income tax (benefit) provision		(6,272	)		(8,354	)		13,609									(1,017	)
Equity in (loss) income of consolidated subsidiaries		(11,483	)		(14,886	)		14,798						11,571			-
Net (loss) income	$	(6,682	)	$	(16,543	)	$	(9,826	)	$	14,798		$	11,571		$	(6,682	)

HOVNANIAN ENTERPRISES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS

THREE MONTHS ENDED

APRIL 30,

201

(In Thousands)

	Parent			Subsidiary Issuer			Guarantor Subsidiaries			Nonguarantor Subsidiaries			Eliminations			Consolidated
Revenues:
Homebuilding	$	-		$	-		$	523,418		$	114,302		$	-		$	637,720
Financial services								2,676			14,327						17,003
Intercompany charges					26,567									(26,567	)		-
Total revenues		-			26,567			526,094			128,629			(26,567	)		654,723

Expenses:
Homebuilding		(343	)		33,396			525,553			102,757						661,363
Financial services								1,823			7,795						9,618
Intercompany charges								25,838			729			(26,567	)		-
Total expenses		(343	)		33,396			553,214			111,281			(26,567	)		670,981
Income from unconsolidated joint ventures								7			(1,353	)					(1,346	)
(Loss) income before income taxes		343			(6,829	)		(27,113	)		15,995			-			(17,604	)
State and federal income tax benefit		(4,885	)		(8,410	)		4,152									(9,143	)
Equity in (loss) income of consolidated subsidiaries		(13,689	)		(13,562	)		15,995						11,256			-
Net (loss) income	$	(8,461	)	$	(11,981	)	$	(15,270	)	$	15,995		$	11,256		$	(8,461	)

HOVNANIAN ENTERPRISES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS

SIX MONTHS ENDED

APRIL 30,

201

(In

Thousands)

	Parent			Subsidiary Issuer			Guarantor Subsidiaries			Nonguarantor Subsidiaries			Eliminations			Consolidated
Revenues:
Homebuilding	$	-		$	-		$	939,314		$	171,287		$	-		$	1,110,601
Financial services								5,247			22,096						27,343
Intercompany charges					46,158									(46,158	)		-
Total revenues		-			46,158			944,561			193,383			(46,158	)		1,137,944

Expenses:
Homebuilding		1,999			66,029			917,341			146,912						1,132,281
Financial services								3,473			10,742						14,215
Intercompany charges								46,158						(46,158	)		-
Total expenses		1,999			66,029			966,972			157,654			(46,158	)		1,146,496
Gain on extinguishment of debt					7,404												7,404
I ncome (loss) from unconsolidated joint ventures								36			(6,264	)					(6,228	)
(Loss) income before income taxes		(1,999	)		(12,467	)		(22,375	)		29,465			-			(7,376	)
State and federal income tax (benefit) provision		(22,813	)		(15,289	)		37,551									(551	)
Equity in (loss) income of consolidated subsidiaries		(27,639	)		(28,889	)		29,465						27,063			-
Net (loss) income	$	(6,825	)	$	(26,067	)	$	(30,461	)	$	29,465		$	27,063		$	(6,825	)

HOVNANIAN ENTERPRISES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS

SIX MONTHS ENDED

APRIL 30,

201

(In Thousands)

	Parent			Subsidiary Issuer			Guarantor Subsidiaries			Nonguarantor Subsidiaries			Eliminations			Consolidated
Revenues:
Homebuilding	$	-		$	-		$	998,328		$	196,771		$	-		$	1,195,099
Financial services								4,921			30,308						35,229
Intercompany charges					61,107									(61,107	)		-
Total revenues		-			61,107			1,003,249			227,079			(61,107	)		1,230,328

Expenses:
Homebuilding		1,597			69,207			992,173			177,490						1,240,467
Financial services								3,447			14,386						17,833
Intercompany charges								60,301			806			(61,107	)		-
Total expenses		1,597			69,207			1,055,921			192,682			(61,107	)		1,258,300
Income (loss) from unconsolidated joint ventures								23			(2,849	)					(2,826	)
(Loss) income before income taxes		(1,597	)		(8,100	)		(52,649	)		31,548			-			(30,798	)
State and federal income tax (benefit) provision		(19,435	)		(15,328	)		28,599									(6,164	)
Equity in (loss) income of consolidated subsidiaries		(42,472	)		(27,072	)		31,548						37,996			-
Net (loss) income	$	(24,634	)	$	(19,844	)	$	(49,700	)	$	31,548		$	37,996		$	(24,634	)

HOVNANIAN ENTERPRISES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS

SIX MONTHS ENDED

APRIL 30,

201

(In

Thousands)

	Parent			Subsidiary Issuer			Guarantor Subsidiaries			Nonguarantor Subsidiaries			Eliminations			Consolidated
Cash flows from operating activities:
Net (loss) income	$	(6,825	)	$	(26,067	)	$	(30,461	)	$	29,465		$	27,063		$	(6,825	)
Adjustments to reconcile net (loss) income to net cash used in operating activities		(17,958	)		(14,731	)		168,583			15,212			(27,063	)		124,043
Net cash (used in) provided by operating activities		(24,783	)		(40,798	)		138,122			44,677			-			117,218
Cash flows from investing activities:
Proceeds from sale of property and assets								86									86
Purchase of property, equipment & other fixed assets and acquisitions								(4,500	)								(4,500	)
Increase in restricted cash related to mortgage company											(2,715	)					(2,715	)
Decrease in restricted cash related to letters of credit					1												1
Investments in and advances to unconsolidated joint ventures					(240	)					(23,128	)					(23,368	)
Distributions of capital from unconsolidated joint ventures								27			10,708						10,735
Intercompany investing activities					7,043									(7,043	)		-
Net cash provided by (used in) investing activities		-			6,804			(4,387	)		(15,135	)		(7,043	)		(19,761	)
Cash flows from financing activities:
Net payments related to mortgages and notes								(3,116	)		(13,124	)					(16,240	)
Net proceeds from model sale leaseback financing programs								698			(2,516	)					(1,818	)
Net proceeds from land bank financing programs								(27,176	)		(5,798	)					(32,974	)
Payments related to senior notes and senior amortizing notes					(33,327	)											(33,327	)
Net proceeds related to mortgage warehouse lines of credit											(75,471	)					(75,471	)
Deferred financing costs from land bank financing programs and note issuances					(2,459	)		(973	)		(173	)					(3,605	)
Intercompany financing activities		24,783						(105,862	)		74,036			7,043			-
Net cash provided by (used in) financing activities		24,783			(35,786	)		(136,429	)		(23,046	)		7,043			(163,435	)
Net (decrease) increase in cash		-			(69,780	)		(2,694	)		6,496			-			(65,978	)
Cash and cash equivalents balance, beginning of period					261,553			(395	)		85,607						346,765
Cash and cash equivalents balance, end of period	$	-		$	191,773		$	(3,089	)	$	92,103		$	-		$	280,787

HOVNANIAN ENTERPRISES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS

SIX MONTHS ENDED

APRIL 30,

201

(In

Thousands)

	Parent			Subsidiary Issuer			Guarantor Subsidiaries			Nonguarantor Subsidiaries			Eliminations			Consolidated
Cash flows from operating activities:
Net (loss) income	$	(24,634	)	$	(19,844	)	$	(49,700	)	$	31,548		$	37,996		$	(24,634	)
Adjustments to reconcile net (loss) income to net cash used in operating activities		(12,034	)		22,078			120,711			(99,312	)		(37,996	)		(6,553	)
Net cash (used in) provided by operating activities		(36,668	)		2,234			71,011			(67,764	)		-			(31,187	)
Cash flows from investing activities:
Proceeds from sale of property and assets								94			21						115
Purchase of property, equipment & other fixed assets and acquisitions								(1,620	)		(31	)					(1,651	)
Increase in restricted cash related to mortgage company											(204	)					(204	)
Decrease in restricted cash related to letters of credit					325												325
Investments in and advances to unconsolidated joint ventures					(130	)		(990	)		(15,623	)					(16,743	)
Distributions of capital from unconsolidated joint ventures					(186	)		1,087			4,164						5,065
Intercompany investing activities					80,160									(80,160	)		-
Net cash (used in) provided by investing activities		-			80,169			(1,429	)		(11,673	)		(80,160	)		(13,093	)
Cash flows from financing activities:
Net payments related to mortgages and notes								(13,649	)		(5,490	)					(19,139	)
Net proceeds from model sale leaseback financing programs								3,179			(1,960	)					1,219
Net proceeds from land bank financing programs								90,425			24,048						114,473
Payments related to senior notes and senior amortizing notes					(175,040	)											(175,040	)
Borrowings from revolving credit facility					3,000												3,000
Net proceeds related to mortgage warehouse lines of credit											257						257
Deferred financing costs from land bank financing programs and note issuances								(3,380	)		(1,201	)					(4,581	)
Intercompany financing activities		36,668						(146,900	)		30,072			80,160			-
Net cash (used in) provided by financing activities		36,668			(172,040	)		(70,325	)		45,726			80,160			(79,811	)
Net decrease in cash and cash equivalents		-			(89,637	)		(743	)		(33,711	)		-			(124,091	)
Cash and cash equivalents balance, beginning of period					199,318			(4,800	)		59,227						253,745
Cash and cash equivalents balance, end of period	$	-		$	109,681		$	(5,543	)	$	25,516		$	-		$	129,654