What changed in this filing

/stocks — the workspaceLOADING

Item 9A. Controls and Procedures

2022-01-04 compared with 2020-12-22 · 393 added, 498 removed, 2057 unchanged (30% of the section changed)

15 unchanged sentences

OTHER INFORMATION

DISCLOSURE REGARDING FOREIGN JURISDITIONS THAT PREVENT INSPECTIONS

DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE

46 unchanged sentences

Report of Independent Registered Public Accounting Firm

Consolidated Balance Sheets at October 31, 2020 and 2019

Consolidated Statements of Operations for the years ended October 31, 2020, 2019 and 2018

Consolidated Statements of Changes in Equity Deficit for the years ended October 31, 2020, 2019 and 2018

Consolidated Statements of Cash Flows for the years ended October 31, 2020, 2019 and 2018

Consolidated Balance Sheets at October 31, 2021 and 2020

Consolidated Statements of Operations for the years ended October 31, 2021, 2020 and 2019

Consolidated Statements of Changes in Equity Deficit for the years ended October 31, 2021, 2020 and 2019

Consolidated Statements of Cash Flows for the years ended October 31, 2021, 2020 and 2019

Notes to Consolidated Financial Statements

11 unchanged sentences

and Computershare Trust Company, N.A (as successor to National City Bank), as Rights Agent, which includes the amended and restated Form of Rights Certificate as Exhibit 1 and the amended and restated Summary of Rights as Exhibit 2 (Incorporated by reference to Exhibits to Current Report on Form 8-K of the Registrant filed January 11, 2018).

Amendment No.

2 to Rights Agreement, dated as of January 18, 2021, between Hovnanian Enterprises, Inc.

Indenture, dated as of February 1, 2018, relating to the 13.5% Senior Notes due 2026 and 5.0% Senior Notes due 2040, by and among K.

4 unchanged sentences

Hovnanian Enterprises, Inc., Hovnanian Enterprises, Inc., the other guarantors party thereto and Wilmington Trust, National Association, as trustee (Incorporated by reference to Exhibits to Current Report on Form 8-K of the Registrant filed on October 31, 2019).

Indenture dated as of July 27, 2017, relating to the 10.000% Senior Secured Notes due 2022 and the 10.500% Senior Secured Notes due 2024, among K.

Hovnanian Enterprises, Inc., Hovnanian Enterprises, Inc., the other guarantors party thereto and Wilmington Trust, National Association, as trustee and collateral agent, including the forms of 10.000% Senior Secured Notes due 2022 and the 10.500% Senior Secured Note due 2024 (Incorporated by reference to Exhibits to Current Report on Form 8-K of the Registrant filed on July 28, 2017).

Second Supplemental Indenture, dated January 16, 2018, relating to the 10.500% Senior Secured Notes due 2024, by and among K.

Hovnanian Enterprises, Inc., Hovnanian Enterprises, Inc., the other guarantors party thereto and Wilmington Trust, National Association, as trustee and collateral agent (Incorporated by reference to Exhibits to Current Report on Form 8-K of the Registrant filed January 16, 2018).

Ninth Supplemental Indenture, dated as of October 30, 2019, relating to the 10.000% Senior Secured Notes due 2022 and 10.500% Senior Secured Notes due 2024, among K.

Indenture, dated as of November 5, 2014, relating to the 8.000% Senior Notes due 2027, among K.

35 unchanged sentences

Hovnanian Enterprises Inc., the subsidiary guarantors party thereto, the lenders party thereto and Wilmington Trust, National Association, as administrative agent (Incorporated by reference to Exhibits to Annual Report on Form 10-K for the year ended October 31, 2019 of the Registrant).

Collateral Agency Agreement, dated as of July 27, 2017, among K.

Hovnanian Enterprises, Inc., Hovnanian Enterprises, Inc., the other guarantors party thereto, Wilmington Trust, National Association, as Notes Collateral Agent and Wilmington Trust, National Association, as Collateral Agent (Incorporated by reference to Exhibits to Current Report on Form 8-K of the Registrant filed on July 28, 2017).

Security Agreement, dated as of July 27, 2017, among K.

Hovnanian Enterprises, Inc., Hovnanian Enterprises, Inc., the other guarantors party thereto and Wilmington Trust, National Association, as Collateral Agent (Incorporated by reference to Exhibits to Current Report on Form 8-K of the Registrant filed on July 28, 2017).

Pledge Agreement, dated as of July 27, 2017, among K.

Third Amended and Restated Mortgage Tax Collateral Agency Agreement, dated as of October 31, 2019, among K.

Hovnanian Enterprises, Inc., Hovnanian Enterprises, Inc., the other guarantors party thereto and Wilmington Trust, National Association, as Mortgage Tax Collateral Agent, Notes Collateral Agent and Junior Joint Collateral Agent (Incorporated by reference to Exhibits to Current Report on Form 8-K of the Registrant filed on October 31, 2019).

Trademark Security Agreement, dated as of July 27, 2017, between K.

HOV IP II, Inc.

and Wilmington Trust, National Association, as Collateral Agent (Incorporated by reference to Exhibits to Current Report on Form 8-K of the Registrant filed on July 28, 2017).

Second Amended and Restated Intercreditor Agreement, dated as of October 31, 2019, among K.

Hovnanian Enterprises, Inc., Hovnanian Enterprises, Inc., the other guarantors party thereto and Wilmington Trust, National Association, as Administrative Agent, 1.125 Lien Trustee, 1.125 Lien Collateral Agent, 1.25 Lien Trustee, 1.25 Lien Collateral Agent, 1.5 Lien Trustee, 1.5 Lien Collateral Agent, Joint First Lien Collateral Agent, Mortgage Tax Collateral Agent, 10.000% Junior Trustee, 10.000% Junior Collateral Agent, 10.500% Junior Trustee, 10.500% Junior Collateral Agent and Junior Joint Collateral Agent (Incorporated by reference to Exhibits to Current Report on Form 8-K of the Registrant filed on October 31, 2019).

Credit Agreement, dated as of December 10, 2019, relating to the 1.75 Lien Term Loans, among K.

Hovnanian Enterprises, Inc., Hovnanian Enterprises, Inc., the subsidiary guarantors named therein, Wilmington Trust, National Association, as Administrative Agent, and the lenders party thereto (Incorporated by reference to Exhibits to Current Report on Form 8-K of the Registrant filed December 11, 2019).

Joinder, dated as of December 10, 2019, to the Second Amended and Restated Intercreditor Agreement, dated as of October 31, 2019, among K.

Hovnanian Enterprises, Inc., Hovnanian Enterprises, Inc., the subsidiary guarantors named therein and Wilmington Trust, National Association, as 1.75 Lien Trustee, 1.75 Term Loan Administrative Agent and 1.75 Pari Passu Lien Collateral Agent (Incorporated by reference to Exhibits to Current Report on Form 8-K of the Registrant filed December 11, 2019).

Form of 2019 Long-Term Incentive Program Award Agreement (Incorporated by reference to Exhibits to Quarterly Report on Form 10-Q for the quarter ended April 30, 2019 of the Registrant).

60 unchanged sentences

Smith III (Incorporated by reference to Exhibits to Quarterly Report on Form 10-Q of the Registrant for the quarter ended April 30, 2020 of the Registrant).

2020 Hovnanian Enterprises, Inc.

Stock Incentive Plan (Incorporated by reference to Exhibits to Current Report on Form 8-K of the Registrant filed on March 25, 2020).

Amended and Restated 2020 Hovnanian Enterprises, Inc.

Stock Incentive Plan (Incorporated by reference to Exhibit 10.1 to the Registrant's Registration Statement on Form S-8 filed on March 30, 2021).

Security Agreement, dated as of October 31, 2019, relating to Senior Secured Revolving Credit Facility, made by K.

54 unchanged sentences

Form of Director Restricted Share Unit Agreement (Class A) (Incorporated by reference to Exhibits to Quarterly Report on Form 10-Q of the Registrant for the quarter ended July 31, 2020 of the Registrant).

Form of 2021 Performance Share Unit Agreement - EBIT (Class A) (Incorporated by reference to Exhibits to Quarterly Report on Form 10-Q of the Registrant for the quarter ended July 31, 2021 of the Registrant).

Form of 2021 Performance Share Unit Agreement - EBIT (Class B) (Incorporated by reference to Exhibits to Quarterly Report on Form 10-Q of the Registrant for the quarter ended July 31, 2021 of the Registrant).

Form of 2021 Performance Share Unit Agreement - Relative EBIT ROI (Class A) (Incorporated by reference to Exhibits to Quarterly Report on Form 10-Q of the Registrant for the quarter ended July 31, 2021 of the Registrant).

Form of 2021 Performance Share Unit Agreement - Relative EBIT ROI (Class B) (Incorporated by reference to Exhibits to Quarterly Report on Form 10-Q of the Registrant for the quarter ended July 31, 2021 of the Registrant).

Form of 2021 Long-Term Incentive Program Award Agreement (Class A) (Incorporated by reference to Exhibits to Quarterly Report on Form 10-Q of the Registrant for the quarter ended July 31, 2021 of the Registrant).

Form of 2021 Long-Term Incentive Program Award Agreement (Class B) (Incorporated by reference to Exhibits to Quarterly Report on Form 10-Q of the Registrant for the quarter ended July 31, 2021 of the Registrant).

Subsidiaries of the Registrant.

22 unchanged sentences

Officer and President

December 

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant on December 22, 2020, and in the capacities indicated.

January 

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant on January 4, 2022, and in the capacities indicated.

Chairman of the Board, Chief Executive Officer, President and Director

20 unchanged sentences

Consolidated Balance Sheets at October 31, 2021 and 2020

Consolidated Statements of Operations for the years ended October 31, 2020, 2019 and 2018

Consolidated Statements of Changes in Equity Deficit for the years ended October 31, 2020, 2019 and 2018

Consolidated Statements of Cash Flows for the years ended October 31, 2020, 2019 and 2018

Consolidated Statements of Operations for the years ended October 31, 2021, 2020 and 2019

Consolidated Statements of Changes in Equity Deficit for the years ended October 31, 2021, 2020 and 2019

Consolidated Statements of Cash Flows for the years ended October 31, 2021, 2020 and 2019

Notes to Consolidated Financial Statements

30 unchanged sentences

Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Income Taxes —

Realizability of Deferred Tax Assets —

Refer to Note 11 in the financial statements

Critical Audit Matter Description

The Company recognizes deferred income taxes for deferred tax benefits arising from NOL carryforwards and temporary differences between book and tax income which will be recognized in future years as an offset against future taxable income.

A valuation allowance is provided to offset deferred tax assets if, based upon the available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized.

Future realization of deferred tax assets depends on the existence of sufficient taxable income of the appropriate character.

Sources of taxable income include future reversals of existing taxable temporary differences, expected future taxable income, taxable income in prior carryback years if permitted under the tax law, and tax planning strategies.

Management has determined that it is more likely than not that sufficient taxable income will be generated in the future to realize its deferred tax assets except for a portion related to state deferred tax assets.

The Company’s deferred tax assets as of October 31, 2021, were $425.7 million.

We identified management’s determination that it is more likely than not that sufficient taxable income will be generated in the future to realize deferred tax assets as a critical audit matter because of the significant judgments and estimates management makes related to taxable income.

This required a high degree of auditor judgment and an increased extent of effort, including the need to involve our income tax specialists, when performing audit procedures to evaluate the reasonableness of management’s estimates of taxable income.

How the Critical Audit Matter Was Addressed in the Audit

Our audit procedures related to the determination that it is more likely than not that sufficient taxable income will be generated in the future to realize deferred tax assets included the following, among others:

We tested the effectiveness of controls over deferred tax assets, including management’s controls over the estimates of taxable income and the determination of whether it is more likely than not that the deferred tax assets will be realized.

We evaluated the reasonableness of the methods, assumptions, and judgments used by management to determine whether a valuation allowance was necessary.

With the assistance of our income tax specialists, we evaluated whether the sources of management’s estimated taxable income were of the appropriate character and sufficient to utilize the deferred tax assets under the relevant tax law.

We evaluated management’s ability to accurately estimate taxable income by comparing actual results to management’s historical estimates and evaluating whether there have been any changes that would affect management’s ability to continue accurately estimating taxable income.

We tested the reasonableness of management’s estimates of taxable income by comparing the estimates to:

Internal budgets.

Historical taxable income, as adjusted for nonrecurring items.

Internal communications to management and the Board of Directors.

Forecasted information included in Company press releases as well as in analyst and industry reports for the Company and certain of its peer companies.

Management’s history of carrying out its stated plans and its ability to carry out its plans considering contractual commitments, available financing, or debt covenants.

We evaluated whether the estimates of future taxable income were consistent with evidence obtained in other areas of the audit.

/s/ DELOITTE & TOUCHE LLP

New York, New York

December 22, 2020

January 4, 2022

We have served as the Company's auditor since 2009.

2 unchanged sentences

CONSOLIDATED BALANCE SHEETS

(In thousands)

Homebuilding:

35 unchanged sentences

140,607  

Deferred tax assets, net

425,678  

$ 2,320,508  

$ 1,827,342  

LIABILITIES AND EQUITY

31 unchanged sentences

Preferred stock, $ 0.01 par value - authorized 100,000 shares;

issued and outstanding 5,600 shares with a liquidation preference of $ 140,000 at October 31, 2020 and 2019

issued and outstanding 5,600 shares with a liquidation preference of $ 140,000 at October 31, 2021 and October 31, 2020

135,299  

11 unchanged sentences

Treasury stock - at cost –

470,430 shares of Class A common stock and 27,669 shares of Class B common stock at October 31, 2020 and 2019  

470,430 shares of Class A common stock and 27,669 shares of Class B common stock at October 31, 2021 and October 31, 2020

( 115,360 )  

1 unchanged sentence

stockholders’

equity deficit  

equity (deficit)

174,897  

Noncontrolling interest in consolidated joint ventures  

Total equity deficit  

Noncontrolling interest in consolidated joint ventures

Total equity (deficit)

175,384  

Total liabilities and equity  

$ 2,320,508  

65 unchanged sentences

2,043,080  

Gain (loss) on extinguishment of debt

(Loss) gain on extinguishment of debt

( 3,748 )  

3 unchanged sentences

28,932  

24,033  

Income (loss) before income taxes

1 unchanged sentence

55,403  

State and federal income tax provision:

State and federal income tax (benefit) provision:

( 82,348 )  

( 335,608 )  

Total income taxes

Net income (loss)

( 417,956 )  

Net income (loss)

$ 607,817  

4 unchanged sentences

$ 7.48  

$ 0.73  

Weighted-average number of common shares outstanding

Assuming dilution:

Net income (loss) per common share  

$ 7.03  

Net income (loss) per common share

$ 85.86  

$ 7.03  

Weighted-average number of common shares outstanding  

See notes to consolidated financial statements .

18 unchanged sentences

11,210  

( 126 )  

Issuance of shares for debt

178,427  

Conversion of Class B to Class A common stock

( 232 )  

Changes in noncontrolling interest in consolidated joint ventures

( 42,117 )  

Balance, October 31, 2019

9 unchanged sentences

14,310  

( 126 )  

Issuance of shares for debt

178,427  

Conversion of Class B to Class A common stock

2 unchanged sentences

50,928  

Balance, October 31, 2020

6 unchanged sentences

$ ( 436,094 )

Stock options, amortization and issuances  

Restricted stock amortization, issuances and forfeitures  

Stock options, amortization and issuances

42,204  

Issuance of shares for debt  

Conversion of Class B to Class A common stock  

( 41 )  

Changes in noncontrolling interest in consolidated joint ventures  

Net income  

Restricted stock amortization, issuances and forfeitures

33,564  

31,708  

Balance, October 31, 2020  

Conversion of Class B to Class A common stock

( 86 )  

Changes in noncontrolling interest in consolidated joint ventures

( 348 )  

1 unchanged sentence

607,817  

Balance, October 31, 2021

5,595,734  

659,207  

$ ( 436,094 )

$ 135,299  

$ 722,118  

$ ( 567,228 )  

$ ( 115,360 )  

$ 175,384  

See notes to consolidated financial statements .

2 unchanged sentences

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

Cash flows from operating activities:

2 unchanged sentences

$ 50,928  

$ 4,520  

Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:

Adjustments to reconcile net income to net cash provided by (used in) operating activities:

Compensation from stock options and awards

Amortization of bond discounts, premiums and deferred financing costs

Gain on sale and retirement of property and assets

( 81 )  

Loss (gain) on sale and retirement of property and assets

( 81 )  

5 unchanged sentences

29,919  

(Gain) loss on extinguishment of debt

Loss (gain) on extinguishment of debt

( 13,337 )  

16 unchanged sentences

87,897  

Deferred tax assets

( 425,678 )  

Increase (decrease) in liabilities:

State and federal income tax payable

( 1,033 )  

State income tax payable

Customers’

20,009  

12,414  

Accounts payable, accrued interest and other accrued liabilities

6 unchanged sentences

Proceeds from sale of property and assets

38,303  

Purchase of property, equipment, and other fixed assets and acquisitions

8 unchanged sentences

Net cash provided by (used in) investing activities

( 8,307 )  

35,501  

Cash flows from financing activities:

9 unchanged sentences

33,188  

22,749  

Payments related to model sale leaseback financing programs

8 unchanged sentences

( 73,999 )  

Proceeds from partner contributions to consolidated joint venture

Net (payments) proceeds related to mortgage warehouse lines of credit

Proceeds from partner distributions to consolidated joint venture

Payments for partner distributions to consolidated joint venture

( 818 )  

Net proceeds (payments) related to mortgage warehouse lines of credit

47,744  

Payments related to unsecured revolving credit facility

Payments related to senior secured term loan facility

Proceeds from senior unsecured term loan facility

( 53,077 )  

Borrowings from senior secured credit facility

27,101  

Payments related to senior secured credit facility  

Net borrowings from senior secured credit facility

125,000  

Payments related to senior secured credit facility

( 125,000 )  

Proceeds from senior secured notes, net of discount

578,231  

Payments related to senior secured, senior, senior amortizing and senior exchangeable notes

Payments related to senior secured notes, net of discount

( 182,726 )  

6 unchanged sentences

( 167,774 )  

Net increase (decrease) in cash and cash equivalents, and restricted cash and cash equivalents

206,708  

Net increase (decrease) in cash and cash equivalents, and restricted cash and cash equivalents

127,194  

Cash and cash equivalents, and restricted cash and cash equivalents balance, beginning of year

Cash and cash equivalents, and restricted cash and cash equivalents balance, beginning of period

309,460  

1 unchanged sentence

232,992  

Cash and cash equivalents, and restricted cash and cash equivalents balance, end of year

Cash and cash equivalents, and restricted cash and cash equivalents balance, end of period

$ 311,396  

34 unchanged sentences

Supplemental disclosure of noncash investing and financing activities:

In the first quarter of fiscal 2018,  we acquired the remaining assets of one of our joint ventures, resulting in a $ 13.0  million reduction in our investment in the joint venture and a corresponding increase to inventory.

In the second quarter of fiscal 2018,  we completed a debt for debt exchange of existing 

8.0 % Senior Notes due November 1, 2019 for newly issued 

13.5 % Senior Notes due 2026 and 5.0 % Senior Notes due 2040.

See Note 9  for further information.

In the fourth quarter of fiscal 

2019 , we completed a partial debt for debt exchange of existing 10.0 % Senior Secured Notes due 2022 and 10.5 % Senior Secured Notes due 2024 for a combination of cash and newly issued 7.75 % 1.125  Lien Notes due 2026 and 11.25 % 1.5  Lien Notes due 2026.

See Note 9 for further information.

In the third and fourth quarters of fiscal 2021,  we acquired the remaining assets of certain of our unconsolidated joint ventures, resulting in a $ 26.6 million reduction in our investment in the joint ventures and a corresponding increase to inventory.

In accordance with the adoption of ASU 2016 - 02, in the first quarter of fiscal 2020, we recorded a beginning right-of-use asset of $ 23.3 million and a right-of-use lease liability of $ 24.4 million. 

2 unchanged sentences

Hovnanian also exchanged $ 163.0 million in aggregate principal amount of its unsecured term loans for $ 81.5 million in aggregate principal amount of 1.75 Lien secured term loans made under a new Senior Secured 1.75 Lien Term Loan Credit Facility due January 31, 2028. 

See Note 9  for further information.

See Note 9 for further information.

In the second  quarter of fiscal 2020, K.

Hovnanian, the issuer of the notes, completed a debt for debt exchange whereby it issued $ 59.1 million aggregate principal amount of additional 11.25 % 1.5 Lien Notes due 2026 in exchange for $ 59.1 million aggregate principal amount of 10.0 % Senior Secured Notes due 2022 Notes.

See Note 9  for further information.

See Note 9 for further information.

In the fourth quarter of fiscal 2019, we completed a partial debt for debt exchange of existing 10.0 % Senior Secured Notes due 2022 and 10.5 % Senior Secured Notes due 2024 for a combination of cash and newly issued 7.75 % 1.125  Lien Notes due 2026 and 11.25 % 1.5  Lien Notes due 2026.

See Note 9 for further information.

HOVNANIAN ENTERPRISES, INC.

6 unchanged sentences

The 1 % that we do not own is accounted for as noncontrolling interest.

Reverse Stock Split –

As discussed in Note 14, in March 2019, the Company's stockholders approved and the Board of Directors determined to effectuate a reverse stock split (the “Reverse Stock Split”) of the Company’s common stock at a ratio of 1 -for- 25 , and a corresponding decrease in the number of authorized shares of the common stock.

The Reverse Stock Split became effective on March 29, 2019, and every 25 issued shares (including treasury shares) of Class A Common Stock, par value $ 0.01 per share (the “Class A Common Stock”), were combined into one share of Class A Common Stock, and every 25 issued shares (including treasury shares) of Class B Common Stock, par value $ 0.01 per share (the “Class B Common Stock”), were combined into one share of Class B Common Stock.

All share and per share amounts throughout this report have been retroactively adjusted to reflect the reverse stock split.

Another one of HEI's subsidiaries owns an 80 % controlling interest in a consolidated joint venture, and therefore HEI is required to consolidate the joint venture within its Consolidated Financial Statements.

The 20 % that the Company does not own is accounted for as noncontrolling interest. 

HEI conducts all of its homebuilding and financial services operations through its subsidiaries (references herein to the “Company”, “we”, “us”

3 unchanged sentences

Our homebuilding operations are made up of six reportable segments defined as Northeast, Mid-Atlantic, Midwest, Southeast, Southwest and West.

Homebuilding operations comprise the substantial part of our business, representing approximately 97 % of consolidated revenues for each of the years ended October 31, 2020 , 2019 and 2018.

HEI is a Delaware corporation, which through its subsidiaries, was building and selling homes in Arizona, California, Delaware, Florida, Georgia, Illinois, Maryland, New Jersey, Ohio, Pennsylvania, South Carolina, Texas, Virginia, Washington, D.C. and West Virginia, including in 116  consolidated active selling communities at October 31, 2020 . Our homebuilding subsidiaries offer a wide variety of homes that are designed to appeal to first -time buyers, first and second -time move-up buyers, luxury buyers, active lifestyle buyers and empty nesters.

Homebuilding operations comprise the substantial part of our business, representing approximately 97 % of consolidated revenues for each of the years ended October 31, 2021 , 2020  and 2019.

HEI is a Delaware corporation, which through its subsidiaries, was building and selling homes in Arizona, California, Delaware, Florida, Georgia, Illinois, Maryland, New Jersey, Ohio, Pennsylvania, South Carolina, Texas, Virginia, Washington, D.C. and West Virginia, including in 124 consolidated active selling communities at October 31, 2021 . Our homebuilding subsidiaries offer a wide variety of homes that are designed to appeal to first -time buyers, first and second -time move-up buyers, luxury buyers, active lifestyle buyers and empty nesters.

Our financial services operations, which are a reportable segment, provide mortgage banking and title services to the homebuilding operations’

8 unchanged sentences

For these homes, in accordance with Accounting Standards Codification (“ASC”) 606 - 10, “

om Contracts with Customers,”

revenue is recognized when title is conveyed to the buyer, adequate initial and continuing investments have been received and there is no continued involvement.

Revenue from Contracts with Customers,”

revenue is recognized when control is transferred to the buyer, which occurs when the buyer takes title to and possession of the home and there is no continuing involvement.

From time to time as market conditions warrant, the Company offers sales incentives which enable customers to reduce the base price of a home or to reduce the price of options.

These incentives are recorded as a reduction of revenue in accordance with ASC 606 - 10 - 32 - 25.

17 unchanged sentences

We decide to mothball (or stop development on) certain communities when we determine that the current performance does not justify further investment at the time. When we decide to mothball a community, the inventory is reclassified on our Consolidated Balance Sheets from “Sold and unsold homes and lots under development”

to “Land and land options held for future development or sale.” During fiscal 2020, we did not mothball any additional communities, or sell any previously mothballed communities, but we re-activated one previously mothballed community and also re-activated a portion of one previously mothballed community. As of October 31, 2020 and 2019, the net book value associated with our 12  and 13 total mothballed communities was $ 11.4  million and $ 13.8  million, respectively, which was net of impairment charges recorded in prior periods of $ 122.2  million and $ 138.1 million, respectively.

to “Land and land options held for future development or sale.” During fiscal 2021, we did not mothball any additional communities, but we sold four  previously mothballed communities and we re-activated two previously mothballed communities and portions of two previously mothballed communities. As of October 31, 2021 

and 2020, the net book value associated with our 6  and 12  total mothballed communities was $ 4.3  million and $ 11.4  million, respectively, which was net of impairment charges recorded in prior periods of $ 57.5  million and $ 122.2  million, respectively.

We sell and lease back certain of our model homes with the right to participate in the potential profit when each home is sold to a third party at the end of the respective lease.

42 unchanged sentences

We determine the estimated fair value of each community by determining the present value of its estimated future cash flows at a discount rate commensurate with the risk of the respective community, or in limited circumstances, prices for land in recent comparable sale transactions, market analysis studies, which include the estimated price a willing buyer would pay for the land (other than in a forced liquidation sale), and recent bona fide offers received from outside third parties.

Our discount rates used for all impairments recorded from October 31, 2018 to October 31, 2020 ranged from 16.8 % to 19.8 %.

Our discount rates used for all impairments recorded from October 31, 2019  to October 31, 2021 ranged from 17.3 % to 19.3 %.

The estimated future cash flow assumptions are virtually the same for both our recoverability and fair value assessments.

43 unchanged sentences

Less interest contributed to unconsolidated joint venture(4)

Plus interest acquired from unconsolidated joint venture(5)

Interest capitalized at end of year(6)

3 unchanged sentences

Data does not include interest incurred by our mortgage and finance subsidiaries.

Other interest expensed includes interest that does not qualify for interest capitalization because our assets that qualify for interest capitalization (inventory under development) do not exceed our debt, which amounted to $ 61.9  million, $ 56.9  million and $ 76.2  million for the years ended October 31, 2020, 2019 and 2018 , respectively.

Other interest expensed includes interest that does not qualify for interest capitalization because our assets that qualify for interest capitalization (inventory under development) do not exceed our debt, which amounted to $ 57.1 million, $ 61.9 million and $ 56.9 million for the years ended October 31, 2021, 2020 and 2019 , respectively.

Other interest also includes interest on completed homes, land in planning and fully developed lots without homes under construction, which does not qualify for capitalization, and therefore, is expensed.

This component of other interest was $ 41.9  million, $ 33.2  million and $ 27.1  million for the years ended October 31, 2020, 2019 and 2018 , respectively.

This component of other interest was $ 20.6 million, $ 41.9 million and $ 33.2 million for the years ended October 31, 2021, 2020 and 2019 , respectively.

Cash paid for interest, net of capitalized interest, is the sum of other interest expensed, as defined above, and interest paid by our mortgage and finance subsidiaries adjusted for the change in accrued interest on notes payable, which is calculated as follows:

5 unchanged sentences

Interest paid by our mortgage and finance subsidiaries

(Increase) decrease in accrued interest

Decrease (increase) in accrued interest

( 16,482 )  

4 unchanged sentences

$ 109,107  

Represents capitalized interest which was included as part of the assets contributed to the joint ventures the Company entered into in December 2019 and June 2019 during the years ended October 31, 2020 and 2019, respectively, as discussed in Note 20.

Represents capitalized interest which was included as part of the assets contributed to joint ventures, as discussed in Note 20.

There was no impact to the Consolidated Statement of Operations as a result of these transactions.

Represents capitalized interest which was included as part of the assets purchased from joint ventures, as discussed in Note 20.

There was no impact to the Consolidated Statement of Operations as a result of these transactions.

Capitalized interest amounts are shown gross before allocating any portion of impairments, if any, to capitalized interest.

18 unchanged sentences

This process requires significant management judgment and estimates.

During fiscal 2019 , we wrote down certain unconsolidated joint venture investments by $ 0.9  million.

There were no write-downs in fiscal 2020  or fiscal 2018.

There were no write-downs in fiscal 2021 or 2020.

During fiscal 2019, we wrote down certain unconsolidated joint venture investments by $ 0.9 million.

Deferred Bond Issuance Costs - Costs associated with borrowings under our credit facilities and terms loans and the issuance of senior secured and senior notes are capitalized and amortized over the term of each note’s issuance.

The capitalization of the costs are recorded as a contra liability within our debt balances, except for the revolving credit facility costs, which are recorded as a prepaid asset.

Deferred Bond Issuance Costs - Costs associated with borrowings under our credit facilities and term loans and the issuance of senior secured and senior notes are capitalized and amortized over the term of each note’s issuance.

The capitalized costs are recorded as a contra liability within our debt balances, except for the revolving credit facility costs, which are recorded as a prepaid asset.

Debt Issued At a Discount /Premium - Debt issued at a discount or premium to the face amount is amortized up or down, as applicable, to its face amount utilizing the effective interest method over the term of the note and recorded as a component of interest on the Consolidated Statements of Operations.

3 unchanged sentences

If the combination of future years’

income (or loss) combined with the reversal of the timing differences results in a loss, such losses can be carried back to prior years or carried forward to future years to recover the deferred tax assets.

income (or loss) combined with the reversal of the timing differences results in a loss, such losses can be carried forward to future years to recover the deferred tax assets.

In accordance with ASC 740 - 10, “Income Taxes –

11 unchanged sentences

During fiscal 2021 and 2020 , we recorded $ 1.5  million and $ 0.2  million, respectively, in recoveries.

During fiscal 

2019 , we recorded $ 1.3  million of additional reserves.

There were no write-offs in fiscal 2020 or fiscal 

There were no write-offs in fiscal 2021 and 2020.

Stock Options - We account for our stock options under ASC 718 - 10, “Compensation - Stock Compensation –

3 unchanged sentences

Per Share Calculations - Basic earnings per share is computed by dividing net income (loss) (the “numerator”) by the weighted-average number of common shares outstanding, adjusted for nonvested shares of restricted stock (the “denominator”) for the period.

Computing diluted earnings per share is similar to computing basic earnings per share, except that the denominator is increased to include the dilutive effects of options and nonvested shares of restricted stock, as well as common shares issuable upon exchange of our Senior Exchangeable Notes issued as part of our 6.0 % Exchangeable Note Units (which matured and were paid in full in fiscal 2018 ). Any options that have an exercise price greater than the average market price are considered to be anti-dilutive and are excluded from the diluted earnings per share calculation.  

Computing diluted earnings per share is similar to computing basic earnings per share, except that the denominator is increased to include the dilutive effects of options and nonvested shares of restricted stock. Any options that have an exercise price greater than the average market price are considered to be anti-dilutive and are excluded from the diluted earnings per share calculation.  

All outstanding nonvested shares that contain nonforfeitable rights to dividends or dividend equivalents that participate in undistributed earnings with common stock are considered participating securities and are included in computing earnings per share pursuant to the two -class method.

2 unchanged sentences

Recent Accounting Pronouncements  

In February 2016, the FASB issued ASU No.

2016 - 02, “Leases (Topic 842 )”

(“ASU 2016 - 02”

), which provides guidance for accounting for leases.

ASU 2016 - 02 requires lessees to classify leases as either finance or operating leases and to record a right-of-use asset and a lease liability for all leases with a term greater than 12 months regardless of the lease classification.

The lease classification will determine whether the lease expense is recognized based on an effective interest rate method or on a straight-line basis over the term of the lease.

Accounting for lessors remains largely unchanged from current GAAP.

ASU 2016 - 02 was effective for the Company on November 1, 2019, and we applied the modified retrospective method of adoption, resulting in no restatement of prior period financial statements.

We elected the practical expedient package which allows us to carry forward our original assessment of whether contracts contained leases, lease classification and the initial direct costs.

We also elected the practical expedient that allows lessees the option to account for lease and non-lease components together as a single component for all classes of underlying assets.

The adoption of ASU 2016 - 02 resulted in a gross up on our Condensed Consolidated Balance Sheets for right of use ("ROU") assets and lease liabilities of $ 23.3 million and $ 24.4 million, respectively, as of November 1, 2019.

Existing prepaid rent and accrued rent were recorded as an offset to the gross operating ROU assets.

Our ROU assets are included in “Prepaid expenses and other assets”

and the corresponding lease liabilities are included in “Accounts payable and other liabilities”

line items on our Consolidated Balance Sheets.

The adoption of ASU 2016 - 02 had no impact on our consolidated statements of operations or cash flows, nor did it have a significant impact on our business processes, systems or internal controls.

In August 2018, the FASB issued ASU No.

2018 - 13, “Fair Value Measurement (Topic 820 ) - Disclosure Framework”

(“ASU 2018 - 13”

), which improves the disclosure requirements for fair value measurements.

ASU 2018 - 13 is effective for us beginning November 

We do not expect the adoption of this guidance to have a material impact on our Consolidated Financial Statements.

In August 2018, the FASB issued ASU No.

2018 - 15, “Intangibles-Goodwill and Other-Internal-Use Software (Subtopic 350 - 40 ):

Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That is a Service Contract”

(“ASU 2018 - 15”

ASU 2018 - 15 aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software.

ASU 2018 - 15 is effective for us beginning November 1, 2020.

We do not expect the adoption of this guidance to have a material impact on our Consolidated Financial Statements.

In March 2020, the FASB issued ASU 2020 - 04, “Facilitation of the Effects of Reference Rate Reform on Financial Reporting” (“ASU 2020 - 04”

19 unchanged sentences

Year Ended October 31,

(In thousands)

1 unchanged sentence

$ 10,521  

$ 10,507  

Cash payments on lease liabilities

$ 9,598  

$ 9,257  

ROU assets are classified within Prepaids and other assets on our Consolidated Balance Sheets, while lease liabilities are classified within Accounts payable and other liabilities on our Consolidated Balance Sheets.

The Company recorded a net increase to both its ROU assets and lease liabilities of $ 2.8  million as a result of lease renewals that commenced during the year ended October 31, 2020 .

The Company recorded a net increase to both its ROU assets and lease liabilities of $ 6.8  million as a result of new leases and lease renewals that commenced during the year ended October 31, 2021 .

The following table contains additional information about our leases:

1 unchanged sentence

At October 31, 2021

At October 31, 2020

$ 17,844  

$ 20,016  

Lease liabilities

$ 18,952  

$ 21,049  

Weighted-average remaining lease term (in years)

4 unchanged sentences

$ 9,000  

2026 and Thereafter

Total payments

3 unchanged sentences

$ 18,952  

Under ASC 840,  Leases (ASC 840 ), the Company’s total net rental expense for the years ended October 31, 2019 and 2018 was $ 14.8 million and $ 14.4 million, respectively.

Property, Plant and Equipment

12 unchanged sentences

64,543  

62,107  

Less accumulated depreciation

7 unchanged sentences

Included in these balances were ( 1 ) financial services customers’

deposits of $ 25.4  million at October 31, 2020 and $ 22.8  million as of October 31, 2019 , which are subject to restrictions on our use, and ( 2 ) $ 2.0 million at both October 31, 2020 and 2019 of restricted cash under the terms of our mortgage warehouse lines of credit.

deposits of $ 40.7  million at October 31, 2021 and $ 25.4  million as of October 31, 2020 , which are subject to restrictions on our use, and ( 2 ) $ 2.8  million at  

October 31, 2021 and $ 2.0 million as of October 31, 

2020 of restricted cash under the terms of our mortgage warehouse lines of credit.

Total Homebuilding Customers’

14 unchanged sentences

Financial services.”

At October 31, 2020 and 2019 , $ 87.9  million and $ 143.2 million, respectively, of mortgages held for sale were pledged against our mortgage warehouse lines of credit (see Note 8 ).

At October 31, 2021 and 2020 , $ 136.5  million and $ 87.9  million, respectively, of mortgages held for sale were pledged against our mortgage warehouse lines of credit (see Note 8 ).

We may incur losses with respect to mortgages that were previously sold that are delinquent and which had underwriting defects, but only to the extent the losses are not covered by mortgage insurance or resale value of the home.

9 unchanged sentences

Adjustments to pre-existing provisions for losses from changes in estimates

( 54 )  

Payments/settlements

3 unchanged sentences

Nonrecourse .

We have nonrecourse mortgage loans for certain communities totaling $ 135.1  million and $ 203.6 million (net of debt issuance costs) at October 31, 2020 and 2019 , respectively, which are secured by the related real property, including any improvements, with an aggregate book value of $ 368.1  million and $ 410.2  million, respectively.

We have nonrecourse mortgage loans for certain communities totaling $ 125.1  million and $ 135.1  million (net of debt issuance costs) at October 31, 2021 and 2020 , respectively, which are secured by the related real property, including any improvements, with an aggregate book value of $ 448.5  million and $ 368.1  million, respectively.

The weighted-average interest rate on these obligations was 4.4 % and 6.4 % at October 31, 2021 and 2020 , respectively, and the mortgage loan payments on each community primarily correspond to home deliveries.

5 unchanged sentences

Our secured Master Repurchase Agreement with JPMorgan Chase Bank, N.A.

(“Chase Master Repurchase Agreement”), which was amended on December 11, 2020, 

is a short-term borrowing facility that provides up to $ 50.0 million through its maturity on December 10, 2021.

(“Chase Master Repurchase Agreement”) is a short-term borrowing facility that provides up to $ 50.0 million through its maturity on June 30, 2022.

The loan is secured by the mortgages held for sale and is repaid when we sell the underlying mortgage loans to permanent investors. Interest is payable monthly on outstanding advances at an adjusted LIBOR rate, which was 0.875 % at October 31, 2021 , plus the applicable margin of 2.5 %.

1 unchanged sentence

Hovnanian Mortgage has another secured Master Repurchase Agreement with Customers Bank (“Customers Master Repurchase Agreement”) which is a short-term borrowing facility that provides up to $ 50.0 million through its maturity on February 12, 2021.

The loan is secured by the mortgages held for sale and is repaid when we sell the underlying mortgage loans to permanent investors. Interest is payable daily or as loans are sold to permanent investors on outstanding advances at the current LIBOR rate, plus the applicable margin ranging from 2.125 % to 4.75 % based on the type of loan and the number of days outstanding on the warehouse line.

13 unchanged sentences

$ 111,214  

$ 218,994  

10.5 % Senior Secured Notes due July 15, 2024

69,683  

211,391  

10.0 % Senior Secured 1.75 Lien Notes due November 15, 2025

158,502  

7.75 % Senior Secured 1.125 Lien Notes due February 15, 2026

26 unchanged sentences

$ 81,498  

Senior Secured Revolving Credit Facility (2)

Subtotal notes payable  

$ 1,254,852  

2 unchanged sentences

$ 10,769  

$ 17,521  

Net debt issuance costs

3 unchanged sentences

$ 1,431,110  

( 1 ) $ 26.0 million of 8.0 % Senior Notes due 2027  are owned by a wholly-owned consolidated subsidiary of HEI.

( 1 ) $ 26.0 million of 8.0 % Senior Notes due 2027 (the "8.0% 2027 Notes") are owned by a wholly-owned consolidated subsidiary of HEI.

Therefore, in accordance with GAAP, such notes are not reflected on the Consolidated Balance Sheets of HEI.

On November 1, 2019, the maturity of the 8.0% Senior Notes was extended to November 1, 2027.

On November 1, 2019, the maturity of the 8.0% 2027 Notes was extended to November 1, 2027.

( 2 ) At October 31, 2021 , provides for up to $ 125.0 million in aggregate amount of senior secured first lien revolving loans.

5 unchanged sentences

$ 1,254,852  

$ 1,435,749  

( 1 ) Does not include our $ 125.0 million Senior Secured Revolving Credit Facility under which there were no borrowings outstanding as of October 31, 2021 .

Except for K.

Hovnanian, the issuer of the notes and borrower under the Credit Facilities (as defined below), our home mortgage subsidiaries, certain of our title insurance subsidiaries, joint ventures and subsidiaries holding interests in our joint ventures, we and each of our subsidiaries are guarantors of the Credit Facilities, the senior secured notes (subject in the case of the 10.5% 2024 Notes (as defined below), to the 10.5% 2024 Notes Supplemental Indenture (as defined below)) and senior notes outstanding at October 31, 2020 ( collectively, the “Notes Guarantors”).

and senior notes outstanding (except for the 8.0% 2027 Notes which are not guaranteed by K.

Hovnanian at Sunrise Trail III, LLC, a wholly-owned subsidiary of the Company) at October 31, 2021 ( collectively, the “Notes Guarantors”).

The credit agreements governing the Credit Facilities and the indentures governing the senior secured and senior notes (together, the “Debt Instruments”) outstanding at October 31, 2021 do not contain any financial maintenance covenants, but do contain restrictive covenants that limit, among other things, the ability of HEI and certain of its subsidiaries, including K.

Hovnanian, to incur additional indebtedness (other than non-recourse indebtedness, certain permitted indebtedness and refinancing indebtedness), pay dividends and make distributions on common and preferred stock, repay certain indebtedness prior to its respective stated maturity, repurchase common and preferred stock, make other restricted payments (including investments), sell certain assets (including in certain land banking transactions), incur liens, consolidate, merge, sell or otherwise dispose of all or substantially all of their assets and enter into certain transactions with affiliates.

Hovnanian, to incur additional indebtedness (other than non-recourse indebtedness, certain permitted indebtedness and refinancing indebtedness), pay dividends and make distributions on common and preferred stock, repay/repurchase certain indebtedness prior to its respective stated maturity, repurchase (including through exchanges) common and preferred stock, make other restricted payments (including investments), sell certain assets (including in certain land banking transactions), incur liens, consolidate, merge, sell or otherwise dispose of all or substantially all of their assets and enter into certain transactions with affiliates.

The Debt Instruments also contain customary events of default which would permit the lenders or holders thereof to exercise remedies with respect to the collateral (as applicable), declare the loans made under the Unsecured Term Loan Facility (defined below) (the “Unsecured Term Loans”), loans made under the Secured Term Loan Facility (defined below) (the “Secured Term Loans”) and loans made under the Secured Credit Agreement (as defined below) (the “Secured Revolving Loans”) or notes to be immediately due and payable if not cured within applicable grace periods, including the failure to make timely payments on the Unsecured Term Loans, Secured Term Loans, Secured Revolving Loans or notes or other material indebtedness, cross default to other material indebtedness, the failure to comply with agreements and covenants and specified events of bankruptcy and insolvency, with respect to the Unsecured Term Loans, Secured Term Loans and Secured Revolving Loans, material inaccuracy of representations and warranties and with respect to the Unsecured Term Loans, Secured Term Loans and Secured Revolving Loans, a change of control, and, with respect to the Secured Term Loans, Secured Revolving Loans and senior secured notes, the failure of the documents granting security for the obligations under the secured Debt Instruments to be in full force and effect, and the failure of the liens on any material portion of the collateral securing the obligations under the secured Debt Instruments to be valid and perfected.

As of October 31, 2021, we believe we were in compliance with the covenants of the Debt Instruments.

If our consolidated fixed charge coverage ratio is less than 2.0 to 1.0, as defined in the applicable Debt Instrument, we are restricted from making certain payments, including dividends, and from incurring indebtedness other than certain permitted indebtedness, refinancing indebtedness and nonrecourse indebtedness.

As a result of this ratio restriction, we are currently restricted from paying dividends (in the case of the payment of dividends on preferred stock, our secured debt leverage ratio must also be less than 4.0 to 1.0 ), which are not cumulative, on our 7.625 % Series A Preferred Stock.

We anticipate that we will continue to be restricted from paying dividends for the foreseeable future.

Our inability to pay dividends is in accordance with covenant restrictions and will not result in a default under our Debt Instruments or otherwise affect compliance with any of the covenants contained in our Debt Instruments.

Under the terms of our Debt Instruments, we have the right to make certain redemptions and prepayments and, depending on market conditions and covenant restrictions, may do so from time to time.

We also continue to actively analyze and evaluate our capital structure and explore transactions to simplify our capital structure and to strengthen our balance sheet, including those that reduce leverage and/or extend maturities, and will seek to do so with the right opportunity.

We may also continue to make debt purchases and/or exchanges for debt or equity from time to time through tender offers, exchange offers, open market purchases, private transactions, or otherwise, or seek to raise additional debt or equity capital, depending on market conditions and covenant restrictions.

If our consolidated fixed charge coverage ratio is less than 2.0 to 1.0, as defined in the applicable Debt Instrument, we are restricted from making certain payments, including dividends (in even such case, our secured debt leverage ratio must also be less than 4.0 to 1.0 ), and from incurring indebtedness other than certain permitted indebtedness, refinancing indebtedness and nonrecourse indebtedness.

As of October 31, 2021, as a result of our improved operating results, our fixed coverage ratio is above 2.0 to 1.0 and our secured debt leverage ratio is below 4.0 to 1.0, therefore we are no longer restricted from paying dividends.

As such, on December 3, 2021 our Board of Directors authorized a dividend payment of $ 2.7 million to preferred shareholders of record on January 1, 2022 and which will be paid on January 15, 2022.

Under the terms of our Debt Instruments, we have the right to make certain redemptions and prepayments and, depending on market conditions, our strategic priorities and covenant restrictions, may do so from time to time.

We also continue to actively analyze and evaluate our capital structure and explore transactions to simplify our capital structure and to strengthen our balance sheet, including those that reduce leverage, interest rates and/or extend maturities, and will seek to do so with the right opportunity.

We may also continue to make debt purchases and/or exchanges for debt or equity from time to time through tender offers, exchange offers, redemptions, open market purchases, private transactions, or otherwise, or seek to raise additional debt or equity capital, depending on market conditions and covenant restrictions.

On July 30, 2021, K.

Hovnanian redeemed in full all of the $ 111.2 million aggregate principal amount of 10.0 % Senior Secured Notes due 2022 (the "10.0% 2022 Notes").

The aggregate purchase price for this redemption was $ 111.7 million, which included accrued and unpaid interest and which was funded with cash on hand.

This redemption resulted in a loss on extinguishment of debt of $ 0.3 million for the year ended October 31, 2021, net of the write-off of unamortized financing costs and fees.

The loss from the redemption is included in the Consolidated Statement of Operations as "Loss on extinguishment of debt".

On August 2, 2021, K.

Hovnanian redeemed in full all of the $ 69.7 million aggregate principal amount of 10.5 % Senior Secured Notes due 2024 (the "10.5% 2024 Notes").

The aggregate purchase price for this redemption was $ 71.9 million, which included accrued and unpaid interest and which was funded with cash on hand.

This redemption resulted in a loss on extinguishment of debt of $ 3.4 million for the year ended October 31, 2021, net of the write-off of unamortized discounts, financing costs and fees.

The loss from the redemption is included in the Consolidated Statement of Operations as "Loss on extinguishment of debt".

On December 10, 2019, K.

Hovnanian consummated an exchange offer (the "1.75 Lien Exchange Offer") pursuant to which it issued $ 158.5 million aggregate principal amount of 10.0 % 1.75 Lien Notes due 2025 (the “1.75 Lien Notes”) in exchange for $ 23.2 million in aggregate principal amount of its outstanding 10.0 % Senior Secured Notes due 2022 (the “10.0% 2022 Notes”) and $ 141.7 million in aggregate principal amount of its outstanding 10.5 % Senior Secured Notes due 2024 (the “10.5% 2024 Notes”

and, together with the 10.0% 2022 Notes, the “Second Lien Notes”).

Hovnanian consummated an exchange offer (the "1.75 Lien Exchange Offer") pursuant to which it issued $ 158.5 million aggregate principal amount of 10.0 % 1.75 Lien Notes due 2025 (the “1.75 Lien Notes”) in exchange for $ 23.2 million in aggregate principal amount of its outstanding 10.0 % 2022 Notes and $ 141.7 million in aggregate principal amount of its outstanding 10.5 % 2024 Notes (together with the 10.0 % 2022 Notes, the “Second Lien Notes”).

Hovnanian also exchanged $ 163.0 million in aggregate principal amount of its Unsecured Term Loans for $ 81.5 million in aggregate principal amount of Secured Term Loans made under a new Senior Secured 1.75 Lien Term Loan Credit Facility due January 31, 2028 ( the “Secured Term Loan Facility”).

3 unchanged sentences

The effect of this gain on a per share basis, assuming dilution, for the year ended October 31, 2020 

was $1.40, excluding the impact of taxes, as our deferred tax assets are fully reserved by a valuation allowance.

In connection with the 1.75 Lien Exchange Offer, K.

Hovnanian obtained consents from a majority of the holders of the 10.5% 2024 Notes to amendments to the indenture under which such 10.5% 2024 Notes were issued and entered into the Tenth Supplemental Indenture dated as of December 6, 2019 among HEI, K.

Hovnanian, the guarantors party thereto and Wilmington Trust, National Association, as trustee and collateral agent (the “10.5% 2024 Notes Supplemental Indenture”) to provide for such amendments, which became operative on December 10, 2019.

The amendments eliminate most of the restrictive covenants, certain of the affirmative covenants and certain events of default, including eliminating the obligations of subsidiaries that are formed after December 10, 2019 to become guarantors of the 10.5% 2024 Notes and to provide collateral in respect of their assets.

As a result, the 10.5% 2024 Notes do not have the same guarantors or collateral as K.

Hovnanian’s other secured debt obligations.

was $ 1.40 , excluding the impact of taxes, as our deferred tax assets were fully reserved by a valuation allowance.

The 1.75 Lien Notes were issued under an Indenture, dated as of December 10, 2019, among HEI, K.

1 unchanged sentence

Hovnanian and the Notes Guarantors, subject to permitted liens and certain exceptions.

Interest on the 1.75 Lien Notes is payable semi-annually on May 15 and November 15 of each year, beginning on May 15, 2020, to holders of record at the close of business on May 1 or November 1, as the case may be, immediately preceding each such interest payment date.

Interest on the 1.75 Lien Notes is payable semi-annually on May 15 and November 15 of each year, to holders of record at the close of business on May 1 or November 1, as the case may be, immediately preceding each such interest payment date.

The 1.75 Lien Notes have a maturity of November 15, 2025.

8 unchanged sentences

The Secured Term Loans and the guarantees thereof are secured on a pari passu basis with the 1.75 Lien Notes by the same assets that secure the 1.75 Lien Notes, subject to permitted liens and certain exceptions.

The Secured Term Loans bear interest at a rate equal to 10.0% per annum and will mature on January 31, 2028. 

The Secured Term Loans bear interest at a rate equal to 10.0% per annum and interest is payable in arrears, on the last business day of each fiscal quarter.

The Secured Term Loans bear interest at a rate equal to 10.0% per annum and will mature on January 31, 2028, with interest payable in arrears on the last business day of each fiscal quarter.

The Secured Term Loans may be voluntarily prepaid in whole or in part at K.

5 unchanged sentences

On March 25, 2020, K.

Hovnanian consummated a private exchange (the “Exchange”) pursuant to which it issued $ 59.1 million aggregate principal amount of additional 1.5 Lien Notes (defined below) (the “Additional 1.5 Lien Notes”) in exchange for of $59.1 million aggregate principal amount of 10.0 % 2022 Notes held by certain participating bondholders (the “Exchange Holders”) pursuant to an Exchange Agreement, dated March 25, 2020 ( the “Exchange Agreement”), among the K.

Hovnanian consummated a private exchange (the “Exchange”) pursuant to which it issued $ 59.1 million aggregate principal amount of additional 1.5 Lien Notes (defined below) (the “Additional 1.5 Lien Notes”) in exchange for $59.1 million aggregate principal amount of 10.0 % 2022 Notes held by certain participating bondholders (the “Exchange Holders”) pursuant to an Exchange Agreement, dated March 25, 2020 ( the “Exchange Agreement”), among the K.

Hovnanian, the Notes Guarantors, the Exchanging Holders and certain holders of the Initial 1.5 Lien Notes (defined below) (the “Consenting Holders”).

41 unchanged sentences

Hovnanian and the guarantors also amended such debt instruments to add certain subsidiaries as guarantors thereunder and, in the case of the Second Lien Notes, to add such new guarantors as pledgors and grantors of their assets (subject to permitted liens and certain exceptions) to secure such Second Lien Notes.

The transactions that were consummated on October 31.

2019, as described, are collectively referred to herein as the “2019 Transactions.” 

The transactions that were consummated on October 31, 2019, as described, are collectively referred to herein as the “2019 Transactions.” 

The 2019 Transactions resulted in a loss of extinguishment of debt of $ 42.4 million for the year ended October 31, 2019, which is included as “Loss on Extinguishment of Debt”

on the Consolidated Statement of Operations.

On December 1, 2017, our 6.0 % Senior Exchangeable Note Units were paid in full, which units consisted of $ 53.9 million principal amount of our Senior Exchangeable Notes that matured and the final installment payment of $ 2.1 million on our 11.0 % Senior Amortizing Notes.

On December 28, 2017, the Company and K.

Hovnanian announced that they had entered into a commitment letter (the “Commitment Letter”) in respect of certain financing transactions with the GSO Entities, and had commenced a private exchange offer with respect to the 8.0 % Senior Notes due 2019 (on November 1, 2019, the maturity of such Notes was extended to 2027 ) (the “8.0% Notes”) (the “Exchange Offer”).

Pursuant to the Commitment Letter, the GSO Entities agreed to, among other things, provide the principal amount of the following:

(i) a senior unsecured term loan credit facility (the “Unsecured Term Loan Facility”) to be borrowed by K.

Hovnanian and guaranteed by the Company and certain of its subsidiaries, pursuant to which the GSO Entities committed to lend K.

Hovnanian Term Loans consisting of $ 132.5 million of initial term loans (the “Unsecured Initial Term Loans”) on the settlement date of the Exchange Offer for purposes of refinancing K.

Hovnanian’s 7.0% Senior Notes due 2019 (the “7.0% Notes”), and up to $ 80.0 million of delayed draw term loans (the “Unsecured Delayed Draw Term Loans”) for purposes of refinancing certain of the 8.0% Notes, in each case, upon the terms and subject to the conditions set forth therein, and (ii) a senior secured first lien credit facility (the “2018 Secured Credit Facility”) to be borrowed by K.

Hovnanian and guaranteed by certain of its subsidiaries, pursuant to which the GSO Entities committed to lend to K.

Hovnanian up to $ 125.0 million of senior secured first priority loans to fund the repayment of K.

Hovnanian’s then outstanding secured term loans and for general corporate purposes, upon the terms and subject to the conditions set forth therein.

In addition, pursuant to the Commitment Letter, the GSO Entities committed to purchase, and K.

Hovnanian agreed to issue and sell, on January 15, 2019, $25.0 million in aggregate principal amount of additional 10.5% 2024 Notes, upon the terms and subject to conditions set forth therein.

On January 29, 2018, K.

Hovnanian, the Notes Guarantors, Wilmington Trust, National Association, as administrative agent, and the GSO Entities entered into the Term Loan Facility.

Hovnanian borrowed the Unsecured Initial Term Loans on February 1, 2018 to fund, together with cash on hand, the redemption on February 1, 2018 of all $ 132.5 million aggregate principal amount of 7.0 % Notes, which resulted in a loss on extinguishment of debt of $ 0.5 million for the nine months ended July 31, 2018.

On May 29, 2018, K.

Hovnanian completed the redemption of $ 65.7 million aggregate principal amount of the 8.0 % Notes (representing all of the outstanding 8.0% Notes, excluding the $26 million of 8% Notes held by the Subsidiary Purchaser (as defined below)) with approximately $ 70.0 million in borrowings on the Unsecured Delayed Draw Term Loans under the Unsecured Term Loan Facility (with the completion of this redemption, the remaining committed amounts under the Unsecured Delayed Draw Term Loans may not be borrowed).

This transaction resulted in a loss on extinguishment of debt of $ 4.3 million for the year ended October 31, 2018.

The Unsecured Term Loans bear interest at a rate equal to 5.0 % per annum and interest is payable in arrears, on the last business day of each fiscal quarter.

The Term Loans will mature on February 1, 2027.

On January 29, 2018, K.

Hovnanian, the subsidiary guarantors named therein, Wilmington Trust, National Association, as administrative agent, and the GSO Entities entered into the 2018 Secured Credit Facility, which provided for a $ 125.0 million secured revolving credit facility.

This 2018 Secured Credit Facility was terminated on October 31, 2019 in connection with the 2019 Transactions.

On February 1, 2018, K.

Hovnanian accepted all of the $ 170.2 million aggregate principal amount of 8.0 % Notes validly tendered and not validly withdrawn in the Exchange Offer (representing 72.14 % of the aggregate principal amount of 8.0% Notes outstanding prior to the Exchange Offer), and in connection therewith, K.

Hovnanian issued $ 90.6 million aggregate principal amount of its 13.5 % Senior Notes due 2026 (the “2026 Notes”) and $ 90.1 million aggregate principal amount of its 5.0 % Senior Notes due 2040 (the “2040 Notes”) under a new indenture.

Also, as part of the Exchange Offer, K.

Hovnanian at Sunrise Trail III, LLC, a wholly-owned subsidiary of the Company (the “Subsidiary Purchaser”), purchased for $ 26.5 million in cash an aggregate of $ 26.0 million in principal amount of the 8.0 % Notes (the “Purchased 8.0% Notes”).

The 2026 Notes and the 2040 Notes were issued by K.

Hovnanian and guaranteed by certain of its subsidiaries, except the Subsidiary Purchaser, which does not guarantee the 2026 Notes or the 2040 Notes.

The 2026 Notes bear interest at 13.5 % per annum and mature on February 1, 2026.

The 2040 Notes bear interest at 5.0 % per annum and mature on February 1, 2040.

Interest on the 2026 Notes and the 2040 Notes is payable semi-annually on February 1 and August 1 of each year to holders of record at the close of business on January 15 or July 15, as the case may be, immediately preceding each such interest payment date.

The Exchange Offer was treated as a substantial modification of debt, and resulted in a loss on extinguishment of debt of $ 0.9 million for the fiscal year ended October 31, 2018.

The 2026 Notes and the 2040 Notes were recorded at fair value (based on management's estimate using available trades for similar debt instruments) on the date of the issuance of the 2026 Notes and the 2040 Notes.

Hovnanian’s 2026 Notes are redeemable in whole or in part at K.

Hovnanian’s option at any time prior to February 1, 2025 at a redemption price equal to 100 % of their principal amount plus an applicable “Make Whole Amount”.

At any time and from time to time on or after February 1, 2025, K.

Hovnanian may also redeem some or all of the 2026 Notes at a redemption price equal to 100.0 % of their principal amount.

At any time and from time to time on or after February 1, 2020 and prior to February 1, 2021 K.

Hovnanian may redeem some or all of the 2040 Notes at a redemption price equal to 102.50 % of their principal amount and at any time and from time to time after February 1, 2020, K.

Hovnanian may redeem some or all of the 2040 Notes at a redemption price equal to 100.0 % of their principal amount.

Secured Obligations

The 10.0 % 2022 Notes have a maturity of July 15, 2022 and bear interest at a rate of 10.0 % per annum payable semi-annually on January 15 and July 15 of each year, to holders of record at the close of business on January 1 and July 1, as the case may be, immediately preceding such interest payment dates.

Hovnanian may redeem some or all of the 10.0% 2022 Notes at 102.50 % of principal commencing July 15, 2020 and at 100.0 % of principal commencing July 15, 2021.

The 10.5% 2024 Notes have a maturity of July 15, 2024 and bear interest at a rate of 10.5% per annum payable semi-annually on January 15 and July 15 of each year, to holders of record at the close of business on January 1 and July 1, as the case may be, immediately preceding such interest payment dates.

Hovnanian may redeem some or all of the 10.5% 2024 Notes at 105.25 % of principal commencing July 15, 2020, at 102.625 % of principal commencing July 15, 2021 and at 100.0 % of principal commencing July 15, 2022. 

The 1.125 Lien Notes have a maturity of February 15, 2026 and bear interest at a rate of 7.75 % per annum payable semi-annually on February 15 and August 15 of each year, to holders of record at the close of business on February 1 and August 1, as the case may be, immediately preceding such interest payment dates.

On October 31, 2019, K.

Hovnanian, HEI, the Notes Guarantors, Wilmington Trust, National Association, as administrative agent, and affiliates of certain investment managers (the “Investors”), as lenders, entered into a credit agreement (the “Secured Credit Agreement”

and, together with the Unsecured Term Loan Facility (defined below) and the Secured Term Loan Facility, the “Credit Facilities”) providing for up to $125.0 million in aggregate amount of Secured Revolving Loans to be used for general corporate purposes, upon the terms and subject to the conditions set forth therein.

Secured Revolving Loans are to be borrowed by K.

Hovnanian and guaranteed by the Notes Guarantors.

Availability under the Secured Credit Agreement will terminate on December 28, 2022.

The Secured Revolving Loans bear interest at a rate per annum equal to 7.75%, and interest is payable in arrears, on the last business day of each fiscal quarter.

The 7.75% Senior Secured 1.125 Lien Notes due 2026 (the "1.125 Lien Notes") have a maturity of February 15, 2026 and bear interest at a rate of 7.75 % per annum payable semi-annually on February 15 and August 15 of each year, to holders of record at the close of business on February 1 and August 1, as the case may be, immediately preceding such interest payment dates.

The 1.125 Lien Notes are redeemable in whole or in part at our option at any time prior to February 15, 2022 at 100.0 % of their principal amount plus an applicable “Make-Whole Amount.”

1 unchanged sentence

Hovnanian may also redeem some or all of the 1.125 Lien Notes at 103.875 % of principal commencing February 15, 2022, at 101.937 % of principal commencing February 15, 2023 and at 100.0 % of principal commencing February 15, 2024.

The 1.25 Lien Notes have a maturity of February 15, 2026 and bear interest at a rate of 10.5 % per annum payable semi-annually on February 15 and August 15 of each year, to holders of record at the close of business on February 1 and August 1, as the case may be, immediately preceding such interest payment dates.

The 10.5% Senior Secured 1.25 Lien Notes due 2026 (the "1.25 Lien Notes") have a maturity of February 15, 2026 and bear interest at a rate of 10.5 % per annum payable semi-annually on February 15 and August 15 of each year to holders of record at the close of business on February 1 and August 1, as the case may be, immediately preceding such interest payment dates.

The 1.25 Lien Notes are redeemable in whole or in part at our option at any time prior to February 15, 2022 at 100.0 % of their principal amount plus an applicable “Make-Whole Amount.”

1 unchanged sentence

Hovnanian may also redeem some or all of the 1.25 Lien Notes at 105.25 % of principal commencing February 15, 2022, at 102.625 % of principal commencing February 15, 2023 and at 100.0 % of principal commencing February 15, 2024.

The 1.5 Lien Notes have a maturity of February 15, 2026 and bear interest at a rate of 11.25 % per annum payable semi-annually on February 15 and August 15 of each year, to holders of record at the close of business on February 1 and August 1, as the case may be, immediately preceding such interest payment dates.

The 11.25% Senior Secured 1.5 Lien Notes due 2026 (the "1.5 Lien Notes") have a maturity of February 15, 2026 and bear interest at a rate of 11.25 % per annum payable semi-annually on February 15 and August 15 of each year to holders of record at the close of business on February 1 and August 1, as the case may be, immediately preceding such interest payment dates.

The 1.5 Lien Notes are redeemable in whole or in part at our option at any time prior to February 15, 2026 at 100.0 % of their principal amount.

1 unchanged sentence

Fiscal 2020 ”

for a discussion of the 1.75 Lien Notes and the Secured Term Loans and “—

Fiscal 2019”

for a discussion of the Secured Credit Agreement.

Each series of secured notes (subject in the case of the 10.5% 2024 Notes, to the 10.5% 2024 Notes Supplemental Indenture) and the guarantees thereof, the Secured Term Loans and the guarantees thereof and the Secured Credit Agreement and the guarantees thereof are secured by the same assets.

for a discussion of the 1.75 Lien Notes and the Secured Term Loans.

Each series of secured notes and the guarantees thereof, the Secured Term Loans and the guarantees thereof and the Secured Credit Agreement and the guarantees thereof are secured by the same assets.

Among the secured debt, the liens securing the Secured Credit Agreement are senior to the liens securing all of K.

Hovnanian’s other secured notes and the Secured Term Loan.

The liens securing the 1.125 Lien Notes are senior to the liens securing the 1.25 Lien Notes, 1.5 Lien Notes, the 1.75 Lien Notes, the Secured Term Loans, the Second Lien Notes and any other future secured obligations that are junior in priority with respect to the assets securing the 1.125 Lien Notes, the liens securing the 1.25 Lien Notes are senior to the liens securing the 1.5 Lien Notes, the 1.75 Lien Notes, the Secured Term Loans, the Second Lien Notes and any other future secured obligations that are junior in priority with respect to the assets securing the 1.25 Lien Notes, the liens securing the 1.5 Lien Notes are senior to the liens securing the 1.75 Lien Notes, the Secured Term Loans, the Second Lien Notes and any other future secured obligations that are junior in priority with respect to the assets securing the 1.5 Lien Notes, the liens securing the 1.75 Lien Notes and the Secured Term Loans (which are secured on a pari passu basis with each other) are senior to the liens securing the Second Lien Notes and any other future secured obligations that are junior in priority with respect to the assets securing the 1.75 Lien Notes and the Secured Term Loans, in each case, with respect to the assets securing such debt.

As of October 31, 2020, the collateral securing the Secured Credit Agreement, the Secured Term Loan Facility and the secured notes (subject in the case of the 10.5% 2024 Notes, to the 10.5% 2024 Notes Supplemental Indenture) included ( 1 ) $ 258.9  million of cash and cash equivalents, which included $ 11.6  million of restricted cash collateralizing certain letters of credit (subsequent to such date, fluctuations as a result of cash uses include general business operations and real estate and other investments along with cash inflow primarily from deliveries);

( 2 ) $ 435.5  million aggregate book value of real property, which does not include the impact of inventory investments, home deliveries or impairments thereafter and which may differ from the value if it were appraised;

and ( 3 ) equity interests in joint venture holding companies with an aggregate book value of $ 185.5  million.

The liens securing the 1.125 Lien Notes are senior to the liens securing the 1.25 Lien Notes, 1.5 Lien Notes, the 1.75 Lien Notes, the Secured Term Loans, the Second Lien Notes and any other future secured obligations that are junior in priority with respect to the assets securing the 1.125 Lien Notes, the liens securing the 1.25 Lien Notes are senior to the liens securing the 1.5 Lien Notes, the 1.75 Lien Notes, the Secured Term Loans and any other future secured obligations that are junior in priority with respect to the assets securing the 1.25 Lien Notes, the liens securing the 1.5 Lien Notes are senior to the liens securing the 1.75 Lien Notes, the Secured Term Loans and any other future secured obligations that are junior in priority with respect to the assets securing the 1.5 Lien Notes, the liens securing the 1.75 Lien Notes and the Secured Term Loans (which are secured on a pari passu basis with each other) are senior to any other future secured obligations that are junior in priority with respect to the assets securing the 1.75 Lien Notes and the Secured Term Loans, in each case, with respect to the assets securing such debt.

As of October 31, 2021, the collateral securing the Secured Credit Agreement, the Secured Term Loan Facility and the secured notes included ( 1 ) $ 249.9 million of cash and cash equivalents, which included $ 9.9 million of restricted cash collateralizing certain letters of credit (subsequent to such date, fluctuations as a result of cash uses include general business operations and real estate and other investments along with cash inflow primarily from deliveries);

( 2 ) $ 425.6 million aggregate book value of real property, which does not include the impact of inventory investments, home deliveries or impairments thereafter and which may differ from the value if it were appraised;

and ( 3 ) equity interests in joint venture holding companies with an aggregate book value of $ 104.7 million.

Unsecured Obligations

The 13.5 % Senior Notes due 2026 (the “13.5% 2026 Notes”) bear interest at 13.5% per annum and mature on February 1, 2026.

Interest on the 13.5% 2026 Notes is payable semi-annually on February 1 and August 1 of each year to holders of record at the close of business on January 15 or July 15, as the case may be, immediately preceding each such interest payment date.

The 13.5% 2026 Notes are redeemable in whole or in part at K.

Hovnanian’s option at any time prior to February 1, 2025 at a redemption price equal to 100 % of their principal amount plus an applicable “Make Whole Amount”.

At any time and from time to time on or after February 1, 2025, K.

Hovnanian may also redeem some or all of the 13.5% 2026 Notes at a redemption price equal to 100.0 % of their principal amount.

The 5.0 % Senior Notes due 2040 (the “5.0% 2040 Notes”) bear interest at 5.0% per annum and mature on February 1, 2040.

Interest on the 5.0% 2040 Notes is payable semi-annually on February 1 and August 1 of each year to holders of record at the close of business on January 15 or July 15, as the case may be, immediately preceding each such interest payment date.

At any time and from time to time after February 1, 2021, K.

Hovnanian may redeem some or all of the 2040 Notes at a redemption price equal to 100.0 % of their principal amount. 

The Unsecured Term Loans bear interest at a rate equal to 5.0% per annum and interest is payable in arrears, on the last business day of each fiscal quarter.

The Unsecured Term Loans will mature on February 1, 2027.

We have certain stand-alone cash collateralized letter of credit agreements and facilities under which there was a total of $ 9.3 million and $ 11.3 million letters of credit outstanding at October 31, 2021 and October 31, 2020, respectively.

These agreements and facilities require us to maintain specified amounts of cash as collateral in segregated accounts to support the letters of credit issued thereunder, which will affect the amount of cash we have available for other uses.

At October 31, 2020 and October 31, 2019, the amount of cash collateral in these segregated accounts was $ 11.6  million and $ 19.9 million, respectively, which is reflected in “Restricted cash and cash equivalents”

At October 31, 2021 and October 31, 2020, the amount of cash collateral in these segregated accounts was $ 9.9 million and $ 11.6 million, respectively, which is reflected in “Restricted cash and cash equivalents”

on the Consolidated Balance Sheets.  

82 unchanged sentences

$ 55,403  

$ 8,146  

( 1 ) Corporate and unallocated for the year ended October 31, 2020 included corporate general and administrative costs of $ 80.5  million, interest expense of $ 61.9  million (a component of Other interest on our Consolidated Statements of Operations), gain on extinguishment of debt of $ 13.3  million, and $ 3.3  million of other income and expenses, along with the adjustment to our insurance reserves.

Corporate and unallocated for the year ended October 31, 2019 included corporate general and administrative costs of $ 66.4  million, interest expense of $ 55.5  million (a component of Other interest on our Consolidated Statements of Operations), loss on extinguishment of debt of $ 42.4  million, and $ 9.0  million of other income and expenses, along with the adjustment to our insurance reserves.

Corporate and unallocated for the year ended October 31, 2018 included corporate general and administrative costs of $ 69.6  million, interest expense of $ 76.2  million (a component of Other interest on our Consolidated Statements of Operations), loss on extinguishment of debt of $ 7.5  million, $ 14.1  million of other income and expenses primarily related to interest income and gain on the sale of our former corporate headquarters building, along with the adjustment to our insurance reserves.

( 1 ) Corporate and unallocated for the year ended October 31, 2021 included corporate general and administrative costs of $ 106.7  million, interest expense of $ 57.1  million (a component of Other interest on our Consolidated Statements of Operations), loss on extinguishment of debt of $ 3.7  million, and $ 0.8  million of other income and expenses.

Corporate and unallocated for the year ended October 31, 2020 included corporate general and administrative costs of $ 80.5  million, interest expense of $ 61.9 million (a component of Other interest on our Consolidated Statements of Operations), gain on extinguishment of debt of $ 13.3  million, and $ 3.3  million of other income and expenses, along with the adjustment to our insurance reserves.

Corporate and unallocated for the year ended October 31, 2019 included corporate general and administrative costs of $ 66.4  million, interest expense of $ 55.5  million (a component of Other interest on our Consolidated Statements of Operations), loss on extinguishment of debt of $ 42.4  million and $ 9.0  million of other income and expenses primarily related to interest income and gain on the sale of our former corporate headquarters building, along with the adjustment to our insurance reserves.

(In thousands)

29 unchanged sentences

66,234  

10,019  

Total homebuilding

33 unchanged sentences

( 35 )  

Total interest expense, net

33 unchanged sentences

( 10 )  

( 2,543 )  

Total equity in earnings from unconsolidated joint ventures

2 unchanged sentences

$ 28,932  

Income taxes payable, including deferred benefits, consists of the following:

Income taxes (receivable) payable, including deferred benefits, consists of the following:

Year Ended October 31,

3 unchanged sentences

$ 3,832  

( 90,070 )  

Federal income taxes:

1 unchanged sentence

$ ( 421,827 )  

The provision for income taxes is composed of the following charges:

$ 3,832  

The (benefit) provision for income taxes is composed of the following charges:

Year Ended October 31,

2 unchanged sentences

Total current income tax expense:

( 335,608 )  

( 90,070 )  

Total deferred income tax expense:

2 unchanged sentences

$ 4,475  

The current federal income tax expense is net of the use of federal net operating losses totaling $ 183.0  million (tax effected $ 38.4 million) and $ 4.0 million (tax effected $ 0.8 million) for the years ended October 31, 2020  and 2019 , respectively.

The current federal income tax expense did not include the use of federal net operating losses for the year ended October 31, 2018 .

The current state income tax expense is net of the use of state net operating losses totaling $ 72.5  million, $ 1.3  million and $ 4.4  million for the years ended October 31, 2020, 2019 and 2018 , respectively.

The total income tax expense of $ 4.5 million, $ 2.4 million, and $ 3.6 million for the periods ending October 31, 2020, 2019 and 2018, respectively, was primarily related to state tax expense from income generated in states where we do not have net operating loss carryforwards to offset the current year income. In addition, the expense for the year ended October 31, 2020 was primarily related to state tax expense from the impact of a cancellation of debt income recorded for tax purposes but not for GAAP purposes, creating a permanent difference.

$ 2,449  

The current federal income tax expense is net of the use of federal net operating losses totaling $ 173.8 million (tax effected $ 36.5 million), $ 183.0 million (tax effected $ 38.4 million) and $ 4.0 million (tax effected $ 0.8 million) for the years ended 

October 31, 2021, 2020 and 2019 , respectively.

The current state income tax expense is net of the use of state net operating losses totaling $ 55.7 million, $ 72.5 million and $ 1.3 million for the years ended October 31, 2021, 2020 and 2019 , respectively.

The total benefit for the year ended October 31, 2021 was $ 418.0 million.

The benefit was primarily due to the reversal of a substantial portion of our valuation allowance previously recorded against our deferred tax assets.

The total income tax expense of $ 4.5 million and $ 2.4 million for the years ended October 31, 2020 and 2019, respectively, was primarily related to state tax expense from income generated in states where we do not have net operating loss carryforwards to offset the current year income. In addition, the expense for the year ended October 31, 2020 was primarily related to state tax expense from the impact of a cancellation of debt income recorded for tax purposes but not for GAAP purposes, creating a permanent difference.

Our federal net operating losses of $ 1.2 billion expire between 2029 and 2038, and $ 15.7  million have an indefinite carryforward period.

4 unchanged sentences

and $ 53.9  million have an indefinite carryforward period.

On March 27, 2020, the Coronavirus Aid, Relief and Economic Security (CARES) Act was enacted and signed into U.S.

law to provide economic relief to individuals and businesses facing economic hardship as a result of the COVID- 19 pandemic.

The CARES Act did not have a material impact on the Company's consolidated financial condition or results of operations as of and for the year ended October 31, 2020.

The Company deferred the timing of estimated payments and payroll taxes as permitted by federal and state legislation, including under the CARES Act.

On December 27, 2020, the Consolidated Appropriations Act (CAA) was enacted and signed into U.S.

law to provide additional economic relief in response to the ongoing coronavirus pandemic.

The CAA did not have a material impact on the Company’s consolidated financial conditions or results of operations as of and for the year ended October 31, 2021.

We will continue to monitor additional guidance issued by the U.S.

Treasury Department, the Internal Revenue Service and various state agencies.

Deferred federal and state income tax assets ("DTAs") primarily represent the deferred tax benefits arising from NOL carryforwards and temporary differences between book and tax income which will be recognized in future years as an offset against future taxable income.

If the combination of future years’

income (or loss) and the reversal of the timing differences results in a loss, such losses can be carried forward to future years.

In accordance with ASC 740, we evaluate our DTAs quarterly to determine if valuation allowances are required. ASC 740 requires that companies assess whether valuation allowances should be established based on the consideration of all available evidence using a “more likely than not”

standard.   

As of October 31, 2020 , we considered all available positive and negative evidence to determine whether, based on the weight of that evidence, our valuation allowance for our DTAs was appropriate in accordance with ASC 740.

Listed below, in order of the weighting of each factor, is the available positive and negative evidence that we considered in determining that it is more likely than not that all of our DTAs will not be realized.

In analyzing these factors, overall the negative evidence, both objective and subjective, outweighed the positive evidence.

Based on this analysis, we determined that the current valuation allowance for deferred taxes of $ 577.5 million as of October 31, 2020, which fully reserves for our DTAs, is appropriate.

A valuation allowance is provided to offset deferred tax assets if, based upon the available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized.

Future realization of deferred tax assets depends on the existence of sufficient taxable income of the appropriate character.

The Company’s deferred tax assets as of October 31, 2021, were $ 425.7 million.

As of October 31, 2021, we considered all available positive and negative evidence to determine whether, based on the weight of that evidence, our valuation allowance for our deferred federal and state income tax assets ("DTAs") was appropriate in accordance with ASC 740.

Listed below, in order of the weighting of each factor, is the available positive and negative evidence that we considered in determining that it is more likely than not that we will realize a substantial portion of our DTAs and that a full valuation allowance is not necessary.

In analyzing these factors, overall the positive evidence, both objective and subjective, outweighed the negative evidence.

Based on this analysis, we determined that the current valuation allowance for deferred taxes of $ 101.6 million as of October 31, 2021, which partially reserves for our state DTAs, is appropriate.

As of October 31, 2020, on a tax basis, the Company had pre-tax income when adjusted for permanent differences on a three -year cumulative basis.

However, on a U.S.

GAAP basis, the Company has generated only $ 23.8 million of cumulative pre-tax income in the three years ended October 31, 2020. 

That cumulative profit was generated over those three years as follows: $ 8.1 million in fiscal 2018, $ 39.7 million loss in fiscal 2019 and $ 55.4 million of income in fiscal 2020.

 As noted, we had a significant loss in fiscal 2019 and generated a low level of profit in fiscal 2018.

 While the fiscal 2020 profit is a positive for the Company, it benefited greatly from the extremely strong housing market in the last half of the year. This strong market, as a result of low interest rates and lack of available supply from resale, resulted in contract pace per average active selling community of 17.8  and 16.4  for the third and fourth quarters of fiscal 2020, respectively, both of which are higher than any quarterly sales per community ever recorded by the Company.

This increase in sales pace resulted in a 61.3 % increase in dollar value of our backlog from October 31, 2019 to October 31, 2020. 

The Company believes that it is premature to conclude that this pace is sustainable, and in fact the pace has slowed somewhat in November 2020.

We remain uncertain regarding the full long-term magnitude or duration of the business and economic impacts from the unprecedented COVID- 19 pandemic.

Further, it remains unknown whether recent, current or anticipated demand will continue once the current COVID- 19 pandemic subsides. These uncertainties bring into doubt the Company’s ability to generate substantive positive income prospectively. Per ASC 740, cumulative losses are one of the most objectively verifiable forms of negative evidence.

(Negative Objective Evidence) 

As of October 31, 2021, on a tax basis, the Company had adjusted pre-tax income, which is income before income taxes excluding land-related charges and loss (gain) on extinguishment of debt, on a three -year cumulative basis.

GAAP basis, the Company had generated $ 205.6 million of cumulative pre-tax income in the three years ended October 31, 2021, with $ 189.9 million of that generated in the last twelve months.

We also generated $ 55.4 million of pre-tax income for our fiscal year ended October 31, 2020.

We believe this positive improvement over the last 24 months will continue given the strength of our contract backlog and current homebuilding market conditions.

(Positive Objective Evidence)

Over the last several years, we have completed a number of debt refinancing/restructuring transactions which, by extending our debt maturities, will enable us to allocate cash to invest in new communities and grow our community count to get back to sustained profitability.

(Positive Objective Evidence) 

We incurred pre-tax losses during the housing market decline and the slower than expected housing market recovery.

Given our current highly leveraged balance sheet, a downturn in the housing market, perhaps as a result of a prolonged pandemic, would be significantly more damaging to the Company than to other better capitalized homebuilders and make it very difficult for the Company to avoid future losses, given our high interest burden.

On July 30, 2021 we paid off in full $ 111.2 million of 10.0% 2022 Notes and on August 2, 2021, we paid off in full $ 69.7 million of 10.5% 2024 Notes.

These actions reduced our annual interest incurred by approximately $ 19 million, which will enhance our profitability going forward.

(Positive Objective Evidence)

We incurred pre-tax losses during the housing market decline that began in 2007 and the slower than expected housing market recovery.

Given our current highly leveraged balance sheet, a downturn in the housing market, would be significantly more damaging to the Company than to other better capitalized homebuilders and make it very difficult for the Company to avoid future losses, given our high interest burden.

(Negative Objective Evidence)

3 unchanged sentences

The historical cyclicality of the U.S.

housing market, a more restrictive mortgage lending environment compared to before the housing downturn of 2007 - 2009, the uncertainty of the overall US economy and government policies and consumer confidence, and impacts of the COVID 19 pandemic, all or any of which could continue to hamper a sustained, stronger recovery of the housing market.

housing market, a more restrictive mortgage lending environment compared to before the housing downturn of 2007 - 2009, the uncertainty of the overall U.S.

economy and government policies and consumer confidence, and impacts of the COVID- 19 pandemic, all or any of which could continue to hamper a sustained, stronger recovery of the housing market.

(Negative Subjective Evidence) 

The significant positive improvement in our operations in the last 24 months, which further accelerated in the fourth quarter ended October 31, 2021, coupled with our contract backlog of $ 1.6 billion as of October 31, 2021 provided positive evidence to support the conclusion that a full valuation allowance is not necessary for all of our DTAs. As such, we used our go forward projections to estimate our usage of our existing federal and state DTAs. From that review, we concluded that we no longer needed any valuation allowance for our federal DTAs. However, with respect to our state DTAs, we concluded that a valuation allowance of $ 101.6 million was still necessary related to states that have shorter carryforward periods or from states where we have significantly reduced or eliminated our operations and thus are not able to project that we will fully utilize those DTAs.

As of October 31, 2020, we had a valuation allowance of $ 396.5 million of federal deferred tax assets related to NOLs, as well as other matters, all of which has been reversed as of October 31, 2021.

We also had a valuation allowance of $ 181.0 million of deferred tax assets related to state NOLs as of October 

31, 2020, of which $ 78.1 million was reversed in the second quarter of fiscal 2021 and $ 101.6 million remains at October 31, 2021.

The deferred tax assets and liabilities have been recognized in the Consolidated Balance Sheets as follows:

7 unchanged sentences

Warranty and legal reserves

Acquisition intangibles

Compensation  

Deferred Income  

Interest Expense  

12,464  

Deferred Income

Interest Expense

Restricted stock bonus

17 unchanged sentences

Net deferred income taxes

$ 425,678  

The effective tax rate varied from the statutory federal income tax rate.

3 unchanged sentences

Year Ended October 31,

Computed “expected”

Federal statutory income tax rate

21.0 %  

1 unchanged sentence

State income taxes, net of federal income tax benefit

( 5.0 )  

Permanent differences, net

( 42.4 )  

Deferred tax asset valuation allowance impact

( 248.5 )  

( 83.3 )  

Tax contingencies

( 0.2 )  

Adjustments to prior years’

( 0.5 )  

Adjustments to prior years’

Effective tax rate

8 unchanged sentences

The following is a tabular reconciliation of the total amount of unrecognized tax benefits for the year (in millions) excluding interest and penalties:

Year Ended October 31,  

Unrecognized tax benefit—November 1,

3 unchanged sentences

Unrecognized tax benefit—October 31,

Related to the unrecognized tax benefits noted above, as of October 

31, 2020 and 2019, we recognized a liability for interest and penalties of $ 0.3 and $ 0.4 million, respectively. For the year ended October 31, 2020, we recognized $ 60  thousand of interest and penalties in net income tax benefit.

For the years ended October 

31, 2019 and 2018, we recognized $ 32 thousand and $ 41 thousand, respectively, of interest and penalties in income tax expense.

Related to the unrecognized tax benefits noted above, as of both October 

31, 2021 and 2020, we recognized a liability for interest and penalties of $0.3 million. For the years ended October 31, 2021 and 2020, we recognized $ 84 thousand and $ 60  thousand, respectively, of interest and penalties in net income tax benefit.

For the year ended October 

31, 2019, we recognized $ 32 thousand of interest and penalties in income tax expense.

It is likely that, within the next year, the amount of the Company's unrecognized tax benefits will decrease by $ 0.3 million, excluding penalties and interest. This reduction is expected primarily due to the expiration of the statutes of limitation.

The portion of unrecognized tax benefits that, if recognized, would affect the Company’s effective tax rate (excluding any related impact to the valuation allowance) is $ 0.5 million and $ 0.7 million for the years ended October 31, 2021 and 2020.

The recognition of unrecognized tax benefits could have an impact on the Company’s deferred tax assets and the valuation allowance.

The recognition of unrecognized tax benefits could have an impact on the Company’s deferred tax assets.

The consolidated federal tax returns have been audited through October 31, 2020 and these years are closed.

3 unchanged sentences

  Reduction of Inventory to Fair Value

We record impairment losses on inventories related to communities under development and held for future development when events and circumstances indicate that they may be impaired and the undiscounted cash flows estimated to be generated by those assets are less than their related carrying amounts. If the expected undiscounted cash flows are less than the carrying amount, then the community is written down to its fair value. We estimate the fair value of each impaired community by determining the present value of the estimated future cash flows at a discount rate commensurate with the risk of the respective community. For the year ended October 31, 2020, our discount rate used for the impairments recorded was 17.3 %, and for the years ended October 31, 2019 and 2018, our discount rates used for the impairments recorded ranged from 17.3 % to 18.3 % and 16.8 % to 19.8 %, respectively. Should the estimates or expectations used in determining cash flows or fair value decrease or differ from current estimates in the future, we may need to recognize additional impairments. 

During the years ended October 31, 2020 and 2019 , we evaluated inventories of all 354  and 393  communities under development and held for future development or sale, respectively, for impairment indicators through preparation and review of detailed budgets or other market indicators of impairment.

We performed undiscounted future cash flow analyses during the years ended October 31, 2020 and 2019 for three and nine of those communities (i.e., those with a projected operating loss or other impairment indicators), respectively, with an aggregate carrying value of $ 5.4  million and $ 58.9  million, respectively.

As a result of our undiscounted future cash flow analyses, we performed discounted cash flow analyses for two of those communities for the fiscal year ended 

We record impairment losses on inventories related to communities under development and held for future development when events and circumstances indicate that they may be impaired and the undiscounted cash flows estimated to be generated by those assets are less than their related carrying amounts. If the expected undiscounted cash flows are less than the carrying amount, then the community is written down to its fair value. We estimate the fair value of each impaired community by determining the present value of the estimated future cash flows at a discount rate commensurate with the risk of the respective community. For the year ended October 31, 2021, our discount rate used for the impairments recorded ranged from 18.3 % to 19.3 %, for the year ended October 31, 2020, our discount rate used for the impairments recorded was 17.3 %, and for the year ended October 31, 2019, our discount rates used for the impairments recorded ranged from 17.3 % to 18.3 %.

Should the estimates or expectations used in determining cash flows or fair value decrease or differ from current estimates in the future, we may need to recognize additional impairments. 

During the years ended October 31, 2021 and 2020 , we evaluated inventories of all 374 and 354 communities under development and held for future development or sale, respectively, for impairment indicators through preparation and review of detailed budgets or other market indicators of impairment.

We performed undiscounted future cash flow analyses for three of those communities (i.e., those with a projected operating loss or other impairment indicators) during the years ended October 31, 2021 and 2020 , with an aggregate carrying value of $ 11.5 million and $ 5.4 million, respectively.

As a result of our undiscounted future cash flow analyses, we performed discounted cash flow analyses for three of those communities for the fiscal year ended 

October 31, 2021 , resulting in aggregate impairment losses of $ 2.0 million.

The one community, with an aggregate carrying value of $ 0.6 million, that did not require a discounted cash flow analysis to be performed during the year ended October 31, 2020 did not have undiscounted future cash flows that exceeded the carrying amount by less than 20 %.

During the year ended October 31, 2019, six communities that required discounted cash flow analyses were impaired, which resulted in recording aggregate impairment losses of $ 2.7 million.

The three  communities that did not require a discounted cash flow analysis to be performed during the year ended 

October 31, 2019 , had an aggregate carrying value of $ 41.3 million and undiscounted future cash flows that exceeded the carrying amount by less than 20 %.

During the year ended October 31, 2020, two communities that required discounted cash flow analyses were impaired, which resulted in recording aggregate impairment losses of $ 2.0 million.

The one community that did not require a discounted cash flow analysis to be performed during the year ended 

October 31, 2020 had an aggregate carrying value of $ 0.6 million and did not have undiscounted future cash flows that exceeded the carrying amount by less than 20 %.

The pre-impairment value in the table below represents the carrying value, net of prior period impairments, if any, at the time of recording the impairments.

6 unchanged sentences

Year Ended October 31, 2021

$ 11.5  

(Dollars in millions)

Year Ended October 31, 2020

$ 17.5  

(Dollars in millions)

5 unchanged sentences

also includes write-offs of options and approval, engineering and capitalized interest costs that we record when we redesign communities and/or abandon certain engineering costs and we do not exercise options in various locations because the communities’

pro forma profitability is not projected to produce adequate returns on investment commensurate with the risk. The total aggregate write-offs related to these items were $ 6.8  million, $ 3.6  million and $ 1.4  million for the years ended October 31, 2020, 2019 and 2018 , respectively.

pro forma profitability is not projected to produce adequate returns on investment commensurate with the risk. The total aggregate write-offs related to these items were $ 1.6 million, $ 6.8 million and $ 3.6 million for the years ended October 31, 2021, 2020 and 2019 , respectively.

Occasionally, these write-offs are offset by recovered deposits (sometimes through legal action) that had been written off in a prior period as walk-away costs. Historically, these recoveries have not been significant in comparison to the total costs written off.

4 unchanged sentences

Per Share Calculations

Basic earnings per share is computed by dividing net income (loss) (the “numerator”) by the weighted-average number of common shares outstanding, adjusted for nonvested shares of restricted stock (the “denominator”) for the period. Computing diluted earnings per share is similar to computing basic earnings per share, except that the denominator is increased to include the dilutive effects of options and nonvested shares of restricted stock, as well as common shares issuable upon exchange of our Senior Exchangeable Notes issued as part of our 6.0% Exchangeable Notes Units (which matured and were paid in full in fiscal 2018 ). Any options that have an exercise price greater than the average market price are considered to be anti-dilutive and are excluded from the diluted earnings per share calculation.   

Basic earnings per share is computed by dividing net income (loss) (the “numerator”) by the weighted-average number of common shares outstanding, adjusted for nonvested shares of restricted stock (the “denominator”) for the period. Computing diluted earnings per share is similar to computing basic earnings per share, except that the denominator is increased to include the dilutive effects of options and nonvested shares of restricted stock. Any options that have an exercise price greater than the average market price are considered to be anti-dilutive and are excluded from the diluted earnings per share calculation.   

7 unchanged sentences

$ 50,928  

$ 4,520  

undistributed earnings allocated to nonvested shares

( 57,676 )  

Numerator for basic earnings (loss) per share

( 4,652 )  

Numerator for basic earnings (loss) per share

$ 550,141  

1 unchanged sentence

undistributed earnings allocated to nonvested shares

57,676  

undistributed earnings reallocated to nonvested shares

( 58,687 )  

Numerator for diluted earnings (loss) per share

( 4,652 )  

Numerator for diluted earnings (loss) per share

$ 549,130  

8 unchanged sentences

$ 7.48  

$ 0.73  

Diluted earnings (loss) per share

1 unchanged sentence

$ 7.03  

$ 0.72  

Incremental shares attributed to nonvested stock and outstanding options to purchase common stock of 0.3 million for the year ended 

October 31, 2019 , were excluded from the computation of diluted earnings per share because we had a net loss for the period, and any incremental shares would not be dilutive.

For the year ended October 31, 2018, 33 thousand shares of common stock issuable upon the exchange of our 6 % senior exchangeable note units (which were issued in fiscal 2012 ) were excluded from the computation of diluted earnings per share because they were anti-dilutive. 

In addition, shares related to out-of-the money stock options that could potentially dilute basic earnings per share in the future that were not included in the computation of diluted earnings per share were 0.2 million for each of the years ended October 31, 2020, 2019 and 2018 , because to do so would have been anti-dilutive for the periods presented.

Incremental shares attributed to nonvested stock and outstanding options to purchase common stock of 0.3 million for the year ended October 31, 2019, were excluded from the computation of diluted earnings per share because we had a net loss for the period, and any incremental shares would not be dilutive. 

In addition, shares related to out-of-the money stock options that could potentially dilute basic earnings per share in the future that were not included in the computation of diluted earnings per share were 25 thousand for the year ended October 31, 2021 and 0.2 million for each of the years ended October 31, 2020 and 2019, because to do so would have been anti-dilutive for the periods presented.

Capital Stock

2 unchanged sentences

If a shareholder desires to sell shares of Class B Common Stock, such stock must be converted into shares of Class A Common Stock at a one to one conversion rate.

March 19, 2019, the Company's stockholders approved at an annual meeting an amendment to our Certificate of Incorporation to effect a reverse stock split (the “Reverse Stock Split”) of the Company’s common stock at a ratio of 1 -for- 25 , and a corresponding decrease in the number of authorized shares of the common stock.

Following the stockholders' approval, the Board of Directors, on March 19, 2019, determined to effectuate the Reverse Stock Split, which became effective on March 29, 2019, and every 25 issued shares (including treasury shares) of Class A Common Stock, par value $ 0.01 per share (the “Class A Common Stock”), were combined into one share of Class A Common Stock, and every 25 issued shares (including treasury shares) of Class B Common Stock, par value $ 0.01 per share (the “Class B Common Stock”), were combined into one share of Class B Common Stock.

No fractional shares were issued in connection with the Reverse Stock Split.

All share and per share amounts have been retroactively adjusted to reflect the reverse stock split.

On August 

4, 2008, our Board of Directors adopted a shareholder rights plan (the “Rights Plan”), which was amended on January 11, 2018, designed to preserve shareholder value and the value of certain tax assets primarily associated with net operating loss (NOL) carryforwards and built-in losses under Section 

4, 2008, our Board of Directors adopted a shareholder rights plan (the “Rights Plan”), which was amended on January 11, 2018 and January 18, 2021, designed to preserve shareholder value and the value of certain tax assets primarily associated with net operating loss (NOL) carryforwards and built-in losses under Section 

382 of the Internal Revenue Code.

14 unchanged sentences

The approval of the Board of Directors’

decision to initially adopt the Rights Plan and the amendment thereto were approved by shareholders.

decision to initially adopt the Rights Plan and the amendments thereto were approved by shareholders.

Our stockholders also approved an amendment to our Certificate of Incorporation to restrict certain transfers of Class A Common Stock in order to preserve the tax treatment of our NOLs and built-in losses under Section 

16 unchanged sentences

2020 and 2019 , we did not pay any dividends on the Series A Preferred Stock due to covenant restrictions in our debt instruments.

We anticipate that we will continue to be restricted from paying dividends, which are not cumulative, for the foreseeable future.

Retirement Plan - We have established a tax-qualified, defined contribution savings and investment retirement plan (a 401 (k) plan). All associates are eligible to participate in the retirement plan, and employer contributions are based on a percentage of associate contributions and our operating results. Plan costs charged to operations were $ 7.0  million, $ 7.4  million and $ 7.3  million for the years ended October 31, 2021, 2020 and 2019 , respectively.

Stock Plans 

There were no stock option grants during the year ended October 31, 2020 .

The fair value of option awards is established at the date of grant using a Black-Scholes option pricing model with the following weighted-average assumptions for the years ended October 31, 2019 and 2018:

There were no stock option grants during the years ended October 31, 2021 or 

 The fair value of option awards is established at the date of grant using a Black-Scholes option pricing model with the following weighted-average assumptions for the year ended October 31, 2019:

risk free interest rate of 

1.99 % and 2.80 %, respectively;

dividend yield of zero;

historical volatility factor of the expected market price of our common stock of 

0.56  and 0.50 , respectively;

a weighted-average expected life of the option of 

7.98 years and 8.0  years, respectively;

a weighted-average expected life of the option of 7.98 years;

and an estimated forfeiture rate of 7.84 %. 

7.84 % and 9.90 %, respectively. 

For the years ended October 31, 2020, 2019 and 2018 , total stock-based compensation expense was $ 2.8  million, ($ 2.6 million post tax), $ 0.7 million and $ 3.7  million ($ 2.0 million post tax), respectively.

Included in this total stock-based compensation expense was expense from stock options of $ 0.4  million, $ 0.8  million and $ 0.7  million for the years ended October 31, 2020, 2019 and 2018 , respectively.

The expense for the years ended 

October 31, 2020, 2019 and 2018  includes income of $ 2.4 million, $ 2.6  million and $ 0.8 million, respectively, from previously recognized expense of certain time and performance based restricted stock grants for which the performance metrics were not or are no longer expected to be satisfied. 

For the years ended October 31, 2021, 2020 and 2019 , total stock-based compensation expense was $ 7.7 million ($ 5.2  million post tax) , $ 2.8  million, ($ 2.6 million post tax) and $ 0.7 million, respectively.

Included in this total stock-based compensation expense was expense from stock options of $ 0.2 million, $ 0.4  million, and $ 0.8  million for the years ended October 31, 2021, 2020 and 2019 , respectively.

The total stock-based compensation expense for the years ended October 31, 2020 and 2019 includes income of $ 2.4 million and $ 2.6  million, respectively, from previously recognized expense of certain time and performance based restricted stock grants for which the performance metrics were not or are no longer expected to be satisfied. 

We have a stock incentive plan for certain officers and key employees and directors.

Beginning in fiscal 2020, restricted share units are granted by a committee appointed by the Board of Directors or its delegate in accordance with the stock incentive plan.

At the time of our annual stock grant in the third quarter of fiscal 2020,  each of the five  of our existing non-employee directors of the Company were granted a number of shares of restricted stock units subject to a two -year post-vesting holding period, based on the fair market value on the date of grant.

At the time of our annual stock grant in the third quarter of fiscal years 2021 and 2020,  each of the five  of our existing non-employee directors of the Company were granted a number of shares of restricted stock units subject to a two -year post-vesting holding period, based on the fair market value on the date of grant.

Prior to fiscal 2020, options were granted by a committee appointed by the Board of Directors or its delegate in accordance with the stock incentive plan.

29 unchanged sentences

$ 64.41  

30,469  

$ 156.95  

Options outstanding at end of period

9 unchanged sentences

147,019  

There were no options exercised in fiscal 2020 or fiscal 

 Exercise prices for options outstanding at October 31, 2020 ranged from $ 7.85 to $ 157.00 . The total intrinsic value of options exercised during fiscal 

2018 was $ 26  thousand.

Exercise prices for options outstanding at October 31, 2021 

ranged from $ 7.85 to $ 157.00 . The total intrinsic value of options exercised during fiscal 2021  was $ 4.8 million.

The intrinsic value of a stock option is the amount by which the market value of the underlying stock exceeds the exercise price of the option.

The weighted-average fair value of grants made in fiscal 2019 and 2018 was $ 4.46  and $ 27.09  per share, respectively.

Based on the fair value at the time they were granted, the weighted-average fair value of options vested in fiscal 2019  and 2018 was $ 36.07  and $ 69.56  per share, respectively.

There were no options exercised in fiscal 2020 or fiscal 

The weighted-average fair value of grants made in fiscal 2019  was $ 4.46  per share.

Based on the fair value at the time they were granted, the weighted-average fair value of options vested in fiscal 2021, 2020 and 2019  was $ 8.82 , $ 25.34 and $ 36.07  per share, respectively.

The following table summarizes the exercise price range and related number of options outstanding at October 31, 2021 :

20 unchanged sentences

19,464  

$ 9.52  

$42.50 –

10 unchanged sentences

Officers and key associates who are eligible to receive equity grants are granted shares of restricted stock units.

Prior to fiscal 2020, officers and key associates who were eligible to receive equity grants could elect to receive either a stated number of stock options, or a reduced number of shares of restricted stock units, or a combination thereof.

Shares underlying restricted stock units granted to officers and associates generally vest in four equal installments on the anniversaries of the grant date. Prior to fiscal 2020, officers and key associates who were eligible to receive equity grants could elect to receive either a stated number of stock options, or a reduced number of shares of restricted stock units, or a combination thereof.

Shares underlying restricted stock units granted to officers and associates generally vest in four equal installments on the second, third, fourth and fifth anniversaries of the grant date. Participants aged 60 years or older, or aged 58 with 15  years of service, are eligible to vest in their equity awards on an accelerated basis on their retirement (which in the case of the restricted stock units only applies to a retirement that is at least one year after the date of grant).

During the years ended October 31, 2020, 2019 and 2018 , we granted 142,231  (including 36,731  units to certain of our non-employee directors), 107,650  (including 103,612  units to certain of our non-employee directors) and 20,292  (including 15,904  units to certain of our non-employee directors) restricted stock units, respectively, and also issued 11,503 , 8,380  and 5,936  units, relating to awards granted in prior fiscal years, respectively.

During the years ended October 31, 2021, 2020 and 2019 , we granted 25,499 (including 8,199 units to certain of our non-employee directors), 142,231  (including 36,731  units to certain of our non-employee directors), and 107,650  (including 103,612  units to certain of our non-employee directors) restricted stock units, respectively, and also issued 13,732 , 11,503 and 8,380  units, relating to awards granted in prior fiscal years, respectively.

During the years ended 

October 31, 2021, 2020 and 2019 , 4,875 , 5,567  and 656  restricted stock units were forfeited, respectively.

For the years ended October 31, 2020 and 2018 total compensation cost recognized in the Consolidated Statement of Operations for the annual restricted stock unit grants, market share unit grants and performance share units (both discussed below), and the stock portion of the long-term incentive plan (also discussed below) was $ 2.4  million and $ 2.8 million, respectively.

For the year ended October 31, 2019, total compensation cost recognized in the Consolidated Statement of Operations for the annual restricted stock unit grants, market share unit grants (discussed below), and the stock portion of the long-term incentive plan (also discussed below) was income of $ 0.2  million. In addition to nonvested share awards summarized in the following tables, there were 60,446 , 33,643  and 21,609  vested share awards at October 31, 2020, 2019 and 2018, respectively, which were deferred at the participants' election.

For the years ended October 31, 2021 and 

2020, total compensation cost recognized in the Consolidated Statement of Operations for the annual restricted stock unit grants, market share unit grants and performance share units (both discussed below), and the stock portion of the long-term incentive plan (also discussed below) was $ 7.4  million and $ 2.4  million, respectively.

For the year ended October 31, 2019, total compensation cost recognized in the Consolidated Statement of Operations for the annual restricted stock unit grants, market share unit grants (discussed below), and the stock portion of the long-term incentive plan (also discussed below) was income of $ 0.2  million. In addition to nonvested share awards summarized in the following tables, there were 76,311 , 60,446  and 33,643  vested share awards at October 31, 2021, 2020  and 2019, respectively, which were deferred and not yet issued. 

A summary of the Company’s nonvested Time-Based share awards for the years ended October 

62 unchanged sentences

$ 93.31  

$ 38.27  

Nonvested Performance-Based at end of period

6 unchanged sentences

Included in the above table are awards for the share portion of long-term incentive plans (“LTIPs”) for certain officers and associates, which are performance based plans.

These amounts include adjustments for performance outcomes during the LTIP period. LTIP shares vest in the third, fourth and fifth fiscal years after grant date, subject to certain performance metrics. 

Also included in the tables above are 142,500 target Performance-based Performance Share Units (“PSUs”), which were granted to certain officers in fiscal 2020.

Included in the above table are awards for the share portion of long-term incentive plans (“LTIPs”), and other share awards for certain officers and associates, which are performance based plans.

These amounts include adjustments for performance outcomes where the difference between target at the time of grant and the final share awards based on achievement of the performance metrics are reflected through adjustments in the "Granted" line in the above table at the time the performance is finalized. LTIP shares vest in the third, fourth and fifth fiscal years after grant date, subject to certain performance metrics. 

Included in the tables above are 186,136  target Performance-based Performance Share Units (“PSUs”), which were granted to certain officers in fiscal years 2021 and 2020.

The PSUs vest in four equal installments commencing on the second, third, fourth and fifth anniversary of the grant date, except that no portion of the award will vest unless the Committee determines that the Company achieved specified revenue goals. 

1 unchanged sentence

The strike price is based on the predetermined period average value of the underlying asset.

The following assumptions were used for 2020 PSU grants:

The following assumptions were used for 2021  PSU grants:

historical volatility factor of the expected market price of our common stock of 

112.44 % for the two -year period ending on the valuation date, and the concluded risk free rate assumption of 

0.16 % equals the continuously compounded two -year yield, and dividend yield of zero. The following assumptions were used for 2020 PSU grants:

historical volatility factor of the expected market price of our common stock of 

108.15 % for the two -year period ending on the valuation date, and the concluded risk free rate assumption of 

0.19 % equals the continuously compounded two -year yield, and dividend yield of zero.

Also included in the tables above are 81,850  target Time-based and 81,250  Performance-based Market Share Units (“MSUs”) of which 56,400 of each Time-based and Performance-based were granted to certain officers in fiscal 2019.

There were no MSUs granted in fiscal 2020.

Also included in the tables above are 55,050  target Time-based and 67,025  Performance-based Market Share Units (“MSUs”) of which 42,300  of Time-based and 56,400 Performance-based were granted to certain officers in fiscal 2019.

There were no MSUs granted in fiscal 2021 and 2020.

MSU grants from fiscal years 2015 through 2018 were reduced by 16,700 Time-based and 20,350 Performance-based MSUs in fiscal 2020, as certain performance conditions at measurement periods were not met and only a portion of the shares were vested, resulting in the reversal of $ 2.4  million of expense during the period.

13 unchanged sentences

1.80 % and 1.81 % equals the continuously compounded 2.55 year and 4 year yield, respectively and dividend yield of zero for all time periods.

The following assumptions were used for 2018 MSU Grants:

historical volatility factor of the expected market price of our common stock of 

48.41 %, 51.92 %, 56.11 %, 52.59 % and 49.57 % for the 2 year, 2.6 year, 3 year, 4 year and 5 year vesting tranches, respectively;

the concluded risk free rate assumptions of 

2.56 % and 2.68 % equals the continuously compounded 2.56 year and 4 year yield, respectively and dividend yield of zero for all time periods. 

Based on the terms of our equity compensation plans, awards that are forfeited become available to us for future grants under the plan.

As of October 31, 2020 , we had 0.2 million shares authorized and remaining for future issuance under our equity compensation plans.

In addition, as of October 31, 2020 , there were $ 6.2 million of total unrecognized compensation costs related to nonvested share-based compensation arrangements.

That cost is expected to be recognized over a weighted-average period of 1.8 years. 

As of October 31, 2021 , we had 0.3  

million shares authorized and remaining for future issuance under our equity compensation plans.

In addition, as of October 31, 2021 , there were $ 12.5  mi llion of total unrecognized compensation costs related to nonvested share-based compensation arrangements.

That cost is expected to be recognized over a weighted-average period of 1.8  years. 

Warranty Costs

18 unchanged sentences

Selling, general and administrative

10,419  

Additions –

1 unchanged sentence

13,410  

10,273  

Charges incurred during the period

8 unchanged sentences

These reductions are reflected in the changes to pre-existing reserves in the table above.

Insurance claims paid by our insurance carriers, excluding insurance deductibles paid, were less than $ 0.1 million and $0.1  million for the fiscal years ended October 31, 2020 and 2019 , respectively, for prior year deliveries.

Insurance claims paid by our insurance carriers, excluding insurance deductibles paid, were $ 0.1 million and less than $ 0.1  million for the fiscal years ended October 31, 2021 and 2020 , respectively, for prior year deliveries.

Transactions with Related Parties

3 unchanged sentences

Hovnanian has a financial interest in the relative’s company from whom the services were provided.

Carson Sorsby, the son of J.

Larry Sorsby, one of our directors and Chief Financial Officer, was employed by the Company’s mortgage subsidiary.

Carson Sorsby resigned in August 2020.

His total commissions from the Company’s mortgage affiliate totaled approximately $ 265,000 , $ 223,000 and $ 148,000 in fiscal 2020 , 2019 and 2018 , respectively.

Alexander Hovnanian, the son of Ara K.

Hovnanian, our Chairman of the Board of Directors and our Chief Executive Officer, is employed by the Company.

In fiscal 2020, Mr.

Hovnanian was Division President of the Northeast Division and in March 2020 he became the Executive Vice President - National Homebuilding Operations. His total compensation was approximately $ 1,152,000 , $ 609,000  and $ 514,000 in fiscal 2020 , 

2019 and 2018 , respectively.

Alexander Hovnanian holds the position of Executive Vice President - National Homebuilding Operations.

For fiscal 2021 , he received cash compensation of approximately $ 989,000 and equity awards with an aggregate grant date fair value of approximately $ 523,000 .

For fiscal 2020 and 2019 , his total compensation was approximately $ 1,152,000  and $ 609,000 , respectively.

Commitments and Contingent Liabilities

We are involved in litigation arising in the ordinary course of business, none of which is expected to have a material adverse effect on our financial position, results of operations or cash flows, and we are subject to extensive and complex laws and regulations that affect the development of land and home building, sales and customer financing processes, including zoning, density, building standards and mortgage financing. These laws and regulations often provide broad discretion to the administering governmental authorities. This can delay or increase the cost of development or homebuilding.

The significant majority of our litigation matters are related to construction defect claims.

We are involved in litigation arising in the ordinary course of business, none of which is expected to have a material adverse effect on our financial position, results of operations or cash flows, and we are subject to extensive and complex laws and regulations that affect the development of land and home building, sales and customer financing processes, including zoning, density, building standards and mortgage financing. These laws and regulations often provide broad discretion to the administering governmental authorities. This can delay or increase the cost of development or homebuilding.

The significant majority of our litigation matters are related to construction defect claims.

Our estimated losses from construction defect litigation matters, if any, are included in our construction defect reserves.

We also are subject to a variety of local, state, federal and foreign laws and regulations concerning protection of health and the environment, including those regulating the emission or discharge of materials into the environment, the management of storm water runoff at construction sites, the handling, use, storage and disposal of hazardous substances, impacts to wetlands and other sensitive environments, and the remediation of contamination at properties that we have owned or developed or currently own or are developing (“environmental laws”). The particular environmental laws that apply to a site may vary greatly according to the community site, for example, due to the community, the environmental conditions at or near the site, and the present and former uses of the site. These environmental laws may result in delays, may cause us to incur substantial compliance, remediation and/or other costs, and can prohibit or severely restrict development and homebuilding activity. In addition, noncompliance with these laws and regulations could result in fines and penalties, obligations to remediate, permit revocations or other sanctions;

We also are subject to a variety of local, state, federal and foreign laws and regulations concerning protection of health and the environment, including those regulating the emission or discharge of materials into the environment, the management of storm water runoff at construction sites, the handling, use, storage and disposal of hazardous substances, impacts to wetlands and other sensitive environments, and the remediation of contamination at properties that we have owned or developed or currently own or are developing (“environmental laws”). The particular environmental laws that apply to a site may vary greatly according to the community site, for example, due to the community, the environmental conditions at or near the site, and the present and former uses of the site. These environmental laws may result in delays, may cause us to incur substantial compliance, remediation and/or other costs, and can prohibit or severely restrict development and homebuilding activity. In addition, noncompliance with these laws and regulations could result in fines and penalties, obligations to remediate, permit revocations or other sanctions;

and contamination or other environmental conditions at or in the vicinity of our developments may result in claims against us for personal injury, property damage or other losses.

We anticipate that increasingly stringent requirements will continue to be imposed on developers and homebuilders in the future.

For example, for a number of years, the EPA and U.S.

Army Corps of Engineers have been engaged in rulemakings to clarify the scope of federally regulated wetlands, which included a June 2015 rule many affected businesses contend impermissibly expanded the scope of such wetlands that was challenged in court, stayed, and remains in litigation.

After a series of interim rulemakings, in April 

2020  the EPA and the U.S.

Army Corps of Engineers formally published the Navigable Waters Protection Rule, which they characterize as more appropriate for determining the scope of waters subject to federal permitting.

The new rule took effect in June 2020 in all states except Colorado, where a federal district court issued a preliminary injunction against application of the rule in that state.

It is being challenged by 17 states in one lawsuit and by a number of environmental advocacy groups in at least three other lawsuits, as well as in several lawsuits by cattlemen and other rancher groups contending that the new rule still exercises permitting authority over too many waters.

In addition, some of these laws and regulations that significantly affect how certain properties may be developed are contentious, attract intense political attention, and may be subject to 

significant changes over time.

For example, regulations governing wetlands permitting under the federal Clean Water Act have been the subject of extensive rulemakings for many years, resulting in several major joint rulemakings by the EPA and the U.S.

Army Corps of Engineers that have expanded and contracted the scope of wetlands subject to regulation;

and such rulemakings have been the subject of many legal challenges, some of which remain pending.

It is unclear how these and related developments, including at the state or local level, ultimately may affect the scope of regulated wetlands where we operate.

Although we cannot reliably predict the extent of any effect these developments regarding wetlands, or any other requirements that may take effect may have on us, they could result in time-consuming and expensive compliance programs and in substantial expenditures, which could cause delays and increase our cost of operations.

In addition, our ability to obtain or renew permits or approvals and the continued effectiveness of permits already granted or approvals already obtained is dependent upon many factors, some of which are beyond our control, such as changes in policies, rules and regulations and their interpretations and application.

Although we cannot reliably predict the extent of any effect these developments regarding wetlands, or any other requirements that may take effect may have on us, they could result in time-consuming and expensive compliance programs and in substantial expenditures, which could cause delays and increase our cost of operations.

In addition, our ability to obtain or renew permits or approvals and the continued effectiveness of permits already granted or approvals already obtained is dependent upon many factors, some of which are beyond our control, such as changes in policies, rules and regulations and their interpretations and application.

In March 2013, we received a letter from the Environmental Protection Agency (“EPA”) requesting information about our involvement in a housing redevelopment project in Newark, New Jersey that a Company entity undertook during the 1990s.

We understand that the development is in the vicinity of a former lead smelter and that tests on soil samples from properties within the development conducted by the EPA showed elevated levels of lead.

We understand that the development is in the vicinity of a former lead smelter and that tests on soil samples from properties within the development conducted by the EPA showed elevated levels of lead.

We also understand that the smelter ceased operations many years before the Company entity involved acquired the properties in the area and carried out the re-development project.

We responded to the EPA’s request. In August 

We responded to the EPA’s request. In August 

2013, we were notified that the EPA considers us a potentially responsible party (or “PRP”) with respect to the site, that the EPA will clean up the site, and that the EPA is proposing that we fund and/or contribute towards the cleanup of the contamination at the site.

We began preliminary discussions with the EPA concerning a possible resolution but do not know the scope or extent of the Company’s obligations, if any, that may arise from the site and therefore cannot provide any assurance that this matter will not have a material impact on the Company.

The EPA requested additional information in April 2014 and again in March 2017 and the Company responded to the information requests.

We began preliminary discussions with the EPA concerning a possible resolution but do not know the scope or extent of the Company’s obligations, if any, that may arise from the site and therefore cannot provide any assurance that this matter will not have a material impact on the Company.

The EPA requested additional information in April 2014 and again in March 2017 and the Company responded to the information requests.

On May 2, 2018 the EPA sent a letter to the Company entity demanding reimbursement for 100 % of the EPA’s costs to clean-up the site in the amount of $ 2.7 million.

The Company responded to the EPA’s demand letter on June 15, 2018 setting forth the Company’s defenses and expressing its willingness to enter into settlement negotiations.

The Company responded to the EPA’s demand letter on June 15, 2018 setting forth the Company’s defenses and expressing its willingness to enter into settlement negotiations.

Two other PRPs identified by the EPA are now also in negotiations with the EPA and in preliminary negotiations with the Company regarding the site.

In the course of negotiations, the EPA informed the Company that the New Jersey Department of Environmental Protection has also incurred costs remediating part of the site.

In the course of negotiations, the EPA informed the Company that the New Jersey Department of Environmental Protection ("NJDEP") has also incurred costs remediating part of the site.

The EPA has since requested that the three  PRPs present a joint settlement offer to the EPA.

The Company and the other two PRPs are parties to a series of agreements tolling the statute of limitations on the EPA's claims for reimbursement, most recently extending the date until January 15, 2021.

We believe that we have adequate reserves for this matter.

In 2015, the condominium association of the Four Seasons at Great Notch condominium community (the “Great Notch Plaintiff”) filed a lawsuit in the Superior Court of New Jersey, Law Division, Passaic County (the “Court”) alleging various construction defects, design defects, and geotechnical issues relating to the community. The operative complaint (“Complaint”) asserts claims against Hovnanian Enterprises, Inc.

In 2015, the condominium association of the Four Seasons at Great Notch condominium community (the “Great Notch Plaintiff”) filed a lawsuit in the Superior Court of New Jersey, Law Division, Passaic County (the “Court”) alleging various construction defects, design defects, and geotechnical issues relating to the community. The operative complaint (“Complaint”) asserts claims against Hovnanian Enterprises, Inc.

and several of its affiliates, including K.

2 unchanged sentences

Hovnanian Companies, LLC.

The Complaint also asserts claims against various other design professionals and contractors. The Great Notch Plaintiff has also filed a motion, which remains pending, to permit it to pursue a claim to pierce the corporate veil of K.

Hovnanian at Great Notch, LLC to hold its alleged parent entities liable for any damages awarded against it. To date, the Hovnanian-affiliated defendants have reached a partial settlement with the Great Notch Plaintiff as to a portion of the Great Notch Plaintiff’s claims against them for an amount immaterial to the Company. On its remaining claims against the Hovnanian-affiliated defendants, the Great Notch Plaintiff has asserted damages of approximately $ 119.5 million, which amount is potentially subject to treble damages pursuant to the Great Notch Plaintiff’s claim under the New Jersey Consumer Fraud Act. 

The trial is currently scheduled for June 21, 2021.

Mediation was held in September 2020 with further mediation sessions anticipated in the future. 

The Hovnanian-affiliated defendants intend to defend these claims vigorously. 

The Complaint also asserts claims against various other design professionals and contractors. The Great Notch Plaintiff has also filed a motion, which remains pending, to permit it to pursue a claim to pierce the corporate veil of K.

Hovnanian at Great Notch, LLC to hold its alleged parent entities liable for any damages awarded against it. To date, the Hovnanian-affiliated defendants have reached a partial settlement with the Great Notch Plaintiff as to a portion of the Great Notch Plaintiff’s claims against them for an amount immaterial to the Company. On its remaining claims against the Hovnanian-affiliated defendants, the Great Notch Plaintiff has asserted damages of approximately $ 119.5 million, which amount is potentially subject to treble damages pursuant to the Great Notch Plaintiff’s claim under the New Jersey Consumer Fraud Act. The trial is currently scheduled for March 7, 2022.

Mediation was held in September 2020 with further mediation sessions anticipated in the future. The Hovnanian-affiliated defendants intend to defend these claims vigorously.

In December 2020, the NJDEP and the Administrator of the New Jersey Spill Compensation Fund (the “Spill Fund”) filed a lawsuit in the Superior Court of New Jersey, Law Division, Union County against Hovnanian Enterprises, Inc.

in addition to other unrelated parties, in connection with contamination at Hickory Manor, a residential condominium development.

Alleged predecessors of certain defendants had used the Hickory Manor property for decades for manufacturing purposes. In 1998, NJDEP confirmed that groundwater at this site was impacted from an off-site source.

The site was later remediated, resulting in the NJDEP issuing an unconditional site-wide No Further Action determination letter and Covenant Not to Sue in 1999.

Subsequently, one of our affiliates was involved in redeveloping the property as a residential community.

The complaint asserts claims under the New Jersey Spill Act and other state law claims and alleges that the NJDEP and the Spill Fund have incurred over $ 5.3 million since 2009 to investigate vapor intrusion at the development and to install vapor mitigation systems.

Among other things, the complaint seeks recovery of the costs incurred, an order that defendants perform additional required remediation and disgorgement of profits on our affiliate’s sales of the units in the development.

No formal discovery has commenced. Hovnanian Enterprises, Inc.

intends to defend these claims vigorously.   

Variable Interest Entities

10 unchanged sentences

The Company also considers whether it has the obligation to absorb losses of the VIE or the right to receive benefits from the VIE.

As a result of its analyses, the Company determined that as of October 31, 2020 and 2019 , it was not the primary beneficiary of any VIEs from which it is purchasing land under option purchase contracts.

As a result of its analyses, the Company determined that during the fiscal years ended 

October 31, 2021 and 2020 , it was not the primary beneficiary of any VIEs from which it is purchasing land under option purchase contracts.

We will continue to secure land and lots using options, some of which are with VIEs.

Including deposits on our unconsolidated VIEs, at October 31, 2020 , we had total cash and letters of credit deposits amounting to $ 88.9  million to purchase land and lots with a total purchase price of $ 1.3  billion.

Including deposits on our unconsolidated VIEs, at October 31, 2021 , we had total cash deposits amounting to $ 100.1  million to purchase land and lots with a total purchase price of $ 1.5  billion.

The maximum exposure to loss with respect to our land and lot options is limited to the deposits plus any pre-development costs invested in the property, although some deposits are refundable at our request or refundable if certain conditions are not met.

3 unchanged sentences

Our land development joint ventures include those entered into with developers and other homebuilders as well as financial investors to develop finished lots for sale to the joint venture’s members or other third parties.

During the first quarter of fiscal 2018, we acquired the remaining assets of one of our unconsolidated joint ventures, resulting in a $ 13.0  million reduction in our investment in the unconsolidated joint venture and a corresponding increase to inventory.

During the third quarter of fiscal 2019, we contributed one community we owned to an existing unconsolidated joint venture, resulting in our receiving $ 15.9 million of net cash.

During the third quarter of fiscal 2021, we purchased the remaining equity interest in one of our unconsolidated joint ventures for $ 6.3 million of net cash.

As a result of this transaction, we took control of four communities, including three active communities.

The unconsolidated joint venture was subsequently dissolved.

During the second  quarter of fiscal 2021, we contributed six  communities we owned, including three active communities, to two  new joint ventures for $ 21.2  million of net cash.

During the first  quarter of fiscal 2020, we contributed eight  communities we owned, including four active communities, to a new joint venture for $ 29.8  million of net cash.

During the third quarter of fiscal 2019, we contributed one community we owned to an existing unconsolidated joint venture, resulting in our receiving $ 15.9 million of net cash.

The tables set forth below summarize the combined financial information related to our unconsolidated homebuilding and land development joint ventures that are accounted for under the equity method.

52 unchanged sentences

$ 2,152  

$ 209,429  

Notes payable

16 unchanged sentences

Debt to capitalization ratio

As of October 31, 2020 and 2019, respectively, we had payables outstanding of $ 1.1  million and advances outstanding of $ 1.4 million to these unconsolidated joint ventures.

As of October 31, 2021 and 2020, we had advances outstanding of $ 2.2 million and payables outstanding of $ 1.1 million, respectively, to these unconsolidated joint ventures.

These amounts were included in the “Accounts payable and accrued liabilities”

balances in the tables above. On our Consolidated Balance Sheets, our “Investments in and advances to unconsolidated joint ventures”

amounted to $ 103.2 million and $ 127.0  million at October 31, 2020 and 2019, respectively.

amounted to $ 60.9 million and $ 103.2 million at October 31, 2021 and 2020, respectively.

In some cases, our net investment in these unconsolidated joint ventures is less than our proportionate share of the equity reflected in the table above because of the differences between asset impairments recorded against our unconsolidated joint venture investments and any impairments recorded in the applicable unconsolidated joint venture.

Impairments of unconsolidated joint venture investments are recorded at fair value while impairments recorded in the unconsolidated joint venture are recorded when undiscounted cash flows trigger the impairment.

During the year ended October 31, 2019, we recorded a $ 0.9 million write down in our investment in one of our unconsolidated joint ventures in the West.

During the year ended October 31, 2020 

we did not write-down any of our unconsolidated joint venture investments.

During the years ended October 31, 2021 and 2020, we did not write-down any of our unconsolidated joint venture investments.

For The Year Ended October 31, 2021

2 unchanged sentences

$ 348,589  

$ 448,101  

Cost of sales and expenses

4 unchanged sentences

$ 13,303  

$ 15,899  

Our share of net income

13 unchanged sentences

$ 1,799  

$ 15,899  

Our share of net income

12 unchanged sentences

$ 33,107  

$ 26,820  

Our share of net income

3 unchanged sentences

is reflected as a separate line in the accompanying Consolidated Statements of Operations and reflects our proportionate share of the income or loss of these unconsolidated homebuilding and land development joint ventures. The difference between our share of the income or loss from these unconsolidated joint ventures in the tables above compared to the Consolidated Statements of Operations is due primarily to the reclassification of the intercompany portion of management fee income from certain unconsolidated joint ventures and the deferral of income for lots purchased by us from certain unconsolidated joint ventures.

The reason “Our share of net income”

is higher or lower than the “Joint venture net income”

shown in the tables above for the years ended October 31, 2021 and 2020, respectively, is because we have varying ownership percentages, ranging from 20 % to over 50% , in our 10 and 11 unconsolidated joint ventures for both periods, respectively.

Therefore, depending on mix, if the unconsolidated joint ventures in which we have higher sharing percentages are more profitable than our other unconsolidated joint ventures, that results in us having a higher overall percentage of income in the aggregate than would occur if all joint ventures had the same sharing percentage;

conversely, if the unconsolidated joint ventures in which we have lower sharing percentages are more profitable than our other unconsolidated joint ventures, that results in us having a lower overall percentage of income in the aggregate than would occur if all joint ventures had the same sharing percentage.

For the year ended October 31, 2021, "Our share of net income" was lower than the "Joint venture net income" due to increased income on one of our newer unconsolidated joint ventures during the year for which we currently recognize no share percentage of the profit based on the joint venture agreement, and a second unconsolidated joint venture which we recognize a lower profit sharing percentage having higher profit in the current period.

In addition, for the years ended October 31, 2021 and 2020, we had written off our investment in two of our unconsolidated joint ventures that are generating losses and therefore we currently do not recognize those losses.

Had we not fully written off our investment, our share of the net loss in these unconsolidated joint ventures would have been approximately 50 %, which would have reduced our overall share of net income across all of our unconsolidated joint ventures.

As a result, these unconsolidated joint ventures losses significantly reduce the profit when looking at all of our 10 and 11 unconsolidated joint ventures, respectively, in the aggregate, without having any impact on our share of net income or loss recorded in the applicable period.

To compensate us for the administrative services we provide as the manager of certain unconsolidated joint ventures, we receive a management fee based on a percentage of the applicable unconsolidated joint venture’s revenues.

These management fees, which totaled $ 16.0  million, $ 16.9  million and $ 21.1  million for the years ended October 31, 2020, 2019 and 2018, are recorded in “Homebuilding:

These management fees, which totaled $ 11.6 million, $ 16.0 million and $ 16.9 million for the years ended October 31, 2021, 2020 and 2019, are recorded in “Homebuilding:

Selling, general and administrative”

1 unchanged sentence

In determining whether or not we must consolidate joint ventures that we manage, we assess whether the other partners have specific rights to overcome the presumption of control by us as the manager of the joint venture. In most cases, the presumption is overcome because the joint venture agreements require that both partners agree on establishing the operations and capital decisions of the partnership, including budgets in the ordinary course of business.

Typically, our unconsolidated joint ventures obtain separate project specific mortgage financing.

For some of our unconsolidated joint ventures, obtaining financing was challenging, therefore, some of our unconsolidated joint ventures are capitalized only with equity.

The total debt to capitalization ratio of all our unconsolidated joint ventures was 

35 % as of October 31, 2020. 

The total debt to capitalization ratio of all our unconsolidated joint ventures was 33 % as of October 31, 2021. 

Any unconsolidated joint venture financing is on a nonrecourse basis, with guarantees from us limited only to performance and completion of development, environmental warranties and indemnification, standard indemnification for fraud, misrepresentation and other similar actions, including a voluntary bankruptcy filing.

22 unchanged sentences

$ 104,361  

( 1 )  The aggregate unpaid principal balance was $ 100.4  million and $ 161.1  million at October 31, 2020 and 2019 , respectively.

( 1 )  The aggregate unpaid principal balance was $ 146.5 million and $ 100.4  million at October 31, 2021 and 2020 , respectively.

We elected the fair value option for our loans held for sale in accordance with ASC 825, “Financial Instruments,”

2 unchanged sentences

Fair value of loans held for sale is based on independent quoted market prices, where available, or the prices for other mortgage loans with similar characteristics.

The Financial Services segment had a pipeline of loan applications in process of $ 890.8  million at October 31, 2020 .

Loans in process for which interest rates were committed to the borrowers totaled $ 57.2  million as of October 31, 2020 .

The Financial Services segment had a pipeline of loan applications in process of $ 904.3 million at October 31, 2021 .

Loans in process for which interest rates were committed to the borrowers totaled $ 41.8 million as of October 31, 2021 .

Substantially all of these commitments were for periods of 60 days or less.

4 unchanged sentences

The segment’s risk, in the event of default by the purchaser, is the difference between the contract price and fair value of the MBS forward commitments and option contracts.

At October 31, 2020 , the segment had open commitments amounting to $ 20.0  million to sell MBS with varying settlement dates through November 19, 2020.

At October 31, 2021 , the segment had open commitments amounting to $ 24.0 million to sell MBS with varying settlement dates through November 18, 2021.

The assets accounted for using the fair value option are initially measured at fair value.

9 unchanged sentences

(In thousands)

Fair value included in net loss all reflected in financial services revenues

Fair value included in net income all reflected in financial services revenues

$ 3,928  

2 unchanged sentences

(In thousands)

Fair value included in net income all reflected in financial services revenues

$ 3,115  

Fair value included in net loss all reflected in financial services revenues

$ 4,869  

5 unchanged sentences

$ 11,522  

Land and land options held for future development or sale

$ ( 2,009 )  

$ 9,513  

$ 2,348  

Land and land options held for future development or sale

October 31, 2020

2 unchanged sentences

$ ( 276 )  

$ ( 2,494 )  

$ 7,176  

Land and land options held for future development or sale

4 unchanged sentences

Should the estimates or expectations used in determining cash flows or fair value decrease or differ from current estimates in the future, we may be required to recognize additional impairments. We recorded inventory impairments, which are included in the Consolidated Statements of Operations as “Inventory impairment loss and land option write-offs”

and deducted from inventory, of $ 2.0  million, $ 2.7  million and $ 2.1 million for the years ended October 31, 2020, 2019 and 2018 , respectively.

and deducted from inventory, of $ 2.0  million, $ 2.0 million and $ 2.7 million for the years ended October 31, 2021, 2020 and 2019 , respectively.

See Note 12 for further detail of the communities evaluated for impairment.

6 unchanged sentences

Senior Secured Notes:

10.0% Senior Secured Notes due July 15, 2022

$ 107,878  

10.5% Senior Secured Notes due July 15, 2024

67,941  

10.0% Senior Secured 1.75 Lien Notes due November 15, 2025  

167,348  

10 unchanged sentences

Senior Notes:

13.5% Senior Notes due February 1, 2026  

92,331  

7 unchanged sentences

28,196  

Senior Secured 1.75 Lien Term Loan Credit Facility due January 31, 2028  

86,046  

3 unchanged sentences

$ 1,266,892  

$ 1,241,570  

Fair Value as of October 31, 2020

7 unchanged sentences

67,941  

10.0% Senior Secured 1.75 Lien Notes due November 15, 2025

132,246  

7.75% Senior Secured 1.125 Lien Notes due February 15, 2026

8 unchanged sentences

Senior Notes:

13.5% Senior Notes due February 1, 2026  

54,354  

3 unchanged sentences

10,814  

Senior Credit Facilities:

Senior Unsecured Term Loan Credit Facility due February 1, 2027

1 unchanged sentence

13,091  

Total fair value

$ 356,429  

$ 954,209  

$ 1,310,638  

The Senior Secured Revolving Credit Facility is not included in the above tables because there were no borrowings outstanding thereunder as of October 31, 2020 and 2019 .

Unaudited Summarized Consolidated Quarterly Information

Summarized quarterly financial information for the years ended October 31, 2020 and 2019 is as follows:

Three Months Ended

(In thousands, except per share data)

$ 683,358  

$ 628,136  

$ 538,351  

$ 494,056  

641,449  

619,269  

539,209  

509,660  

Inventory impairment loss and land option write-offs

Gain (loss) on extinguishment of debt

( 174 )  

Income from unconsolidated joint ventures

Income (loss) before income taxes

42,444  

16,216  

State and federal income tax provision

Net income (loss)

$ 40,634  

$ 15,363  

$ 4,079  

Per share data:

Net income (loss) per common share

$ 5.97  

$ 2.27  

$ 0.63  

Weighted-average number of common shares outstanding

Assuming dilution:

Net income (loss) per common share  

$ 5.54  

$ 2.16  

$ 0.60  

Weighted-average number of common shares outstanding  

Three Months Ended

(In thousands, except per share data)

$ 713,590  

$ 482,041  

$ 440,691  

$ 380,594  

677,429  

491,412  

461,393  

406,558  

Inventory impairment loss and land option write-offs

Loss on extinguishment of debt

( 42,436 )  

Income from unconsolidated joint ventures

Loss before income taxes

( 586 )  

( 7,064 )  

( 14,912 )  

State and federal income tax provision

$ ( 1,807 )  

Senior Secured 1.75 Lien Term Loan Credit Facility due January 31, 2028

64,465  

Per share data:

Basic and assuming dilution:

Net (loss) per common share

Total fair value

$ 173,046  

1 unchanged sentence

$ 1,241,570  

Weighted-average number of common shares outstanding

The Senior Secured Revolving Credit Facility is not included in the above tables because there were no borrowings outstanding thereunder as of October 31, 2021 and 2020 .

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 9A. Controls and Procedures