1.	Basis of Presentation

Hovnanian Enterprises, Inc. and Subsidiaries (the “

Company”, “we”, “us” or “our”) has reportable segments consisting of

six

Homebuilding segments (Northeast, Mid-Atlantic, Midwest, Southeast, Southwest and West) and the Financial Services segment (see Note

The accompanying unaudited Condensed Consolidated Financial Statements include our accounts and those of all wholly-owned subsidiaries after elimination of all significant intercompany balances and transactions.

The accompanying unaudited Condensed Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States (“

GAAP”) for interim financial information and with the instructions to Form

-Q and Article

of Regulation S-

and should be read in conjunction with the consolidated financial statements and notes thereto included in our Annual Report on Form

-K for the fiscal year ended

October 31, 2016.

In the opinion of management, all adjustments for interim periods presented have been made, which include normal recurring accruals and deferrals necessary for a fair presentation of our condensed consolidated financial position, results of operations and cash flows. The preparation of Condensed Consolidated Financial Statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates, and these differences could have a significant impact on the Condensed Consolidated Financial Statements. Results for interim periods are

not

necessarily indicative of the results which might be expected for a full year. The balance sheet at

October 31, 2016

has been derived from the audited Consolidated Financial Statements at that date but does

not

include all of the information and footnotes required by GAAP for complete financial statements.

Reclassifications

November 2016,

we adopted Accounting Standards Update (“

ASU”)

2015

03,

“Interest - Imputation of Interest,” which changes the presentation of debt issuance costs in the balance sheet from an asset to a direct reduction of the carrying amount of the related debt. The adoption of this guidance resulted in the reclassification of applicable unamortized debt issuance costs from “Prepaid expenses and other assets” of

$24.5

million to “Nonrecourse mortgages secured by inventory” of

$1.3

million, “Liabilities from inventory

not

owned” of

$3.0

million and “Notes payable and term loan” of

$20.2

million (as discussed in Note

) on our Condensed Consolidated Balance Sheets. We applied the new guidance retrospectively to all prior periods presented in the financial statements to conform to the fiscal

2017

presentation. Additionally, in

November 2016,

we adopted ASU

2015

“Interest – Imputation of Interest (Subtopic

835

)” (“ASU

2015

15”

), which was issued as a follow-up to ASU

2015

03.

ASU

2015

allows an entity to defer and present debt issuance costs for line-of-credit arrangements as an asset and subsequently amortize the deferred debt issuance costs ratably over the term of the line-of-credit arrangement, regardless of whether there are any outstanding borrowings on the line-of-credit arrangement. Therefore, there was

change to the presentation of our “Revolving credit facility” on the Condensed Consolidated Balance Sheets for any of the periods presented.